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World

China's car market on edge over tax break fate

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World

China's car market on edge over tax break fate

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COMING UP:China's car market on edge over tax break fate

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00:00:02
>> Car makers in China sweating over a critical decision from the government, whether or not to renew a tax break that's lifted a market on the verge of decline into double-digit growth. Spooked by the slowing economy, Beijing halved the sales tax on small cars last year, propelling profits up nearly 14%.
00:00:20
But that break is set to expire in December, fueling fears of the first annual decline in sales in the world's largest car market. Reuters' Jake Spring, reports from the Guangzhou auto show where tax talk is dominating discussions.>> The tax cut is set to expire at the end of the year.
00:00:36
And if it does, analysts are expecting that growth could slip 2 or 3%, or be flat at best. If the government does extend, they said, they are considering it. We could see another year of 5 to 7% growth, but it just kicks the problem down the line. Sooner or later, it's gonna expire and then growth is gonna drop off.
00:00:55
>> The tax break disappearing won't just hurt China's aggressive domestic car makers. It would also be a big setback for global firms like Volkswagen which plans to make 5 million vehicles a year in China by 2019. Companies could be forced to squeeze profit margins or offer heavy discounts.
00:01:12
But for Beijing, short term pain could spell long term gain.>> If they were to allow to expire, would hit the bottom line of the market. But it would lead to a more sustainable growth rather than what the government has done in the past. They moved in to stimulate the market and this creates unsustainable swings.
00:01:28
That makes it very difficult for automakers to plan ahead and know what's coming next.>> One possible winner, if the tax break goes away, the luxury sector. Most high-end cars are too big to have benefited from the scheme. And some experts say, an expiry could be a big opportunity for a segment that could grow up to 10% in 2017.