China said to be mulling over cutting car import duty by about half

The State Council, or China's Cabinet, is weighing proposals to reduce the levy on imported cars to 10 per cent or 15 per cent.
The State Council, or China's Cabinet, is weighing proposals to reduce the levy on imported cars to 10 per cent or 15 per cent.PHOTO: AFP

BEIJING (BLOOMBERG) - China is considering proposals to cut import duty on passenger cars by about half, according to people with direct knowledge of the matter, a move that's set to give a lift particularly to luxury-car makers such as BMW AG and Toyota Motor Corp's Lexus unit.

The State Council, or China's Cabinet, is weighing proposals to reduce the levy on imported cars to 10 per cent or 15 per cent, said the people, who asked not to be identified as the information is not public.

The current rate is 25 per cent.

An announcement on the decision could be made as soon as next month, they said. The finance ministry did not respond to a fax seeking comment.

The move comes as investors and executives fret about a trade war between China and the US. China has responded to US President Donald Trump's tariff threats with similar force - though at the same time it has signalled opening up its finance and auto industries. Trump said on Tuesday that Treasury Secretary Steven Mnuchin will depart for China within days.

A lower tariff would also benefit brands such as Daimler AG's Mercedes-Benz and Volkswagen AG's Porsche as their imported models would become more competitive against locally manufactured vehicles.

Shares of local automaker BAIC Motor Corp, which counts Daimler as a partner, extended their decline to as much as 6.4 per cent in Hong Kong trading. Brilliance China Automotive Holdings fell as much as 5.1 per cent.

China is heeding decades-long pleas from carmakers for better access to its auto market, as its own manufacturers prepare to expand abroad.

Last week, China announced it will permit foreign automakers to own more than 50 per cent of local ventures, giving a boost to global companies seeking to capture a greater share of the world's largest car market.

Earlier this month, President Xi Jinping repeated the nation's commitment to reduce import tariffs on vehicles this year, without disclosing the magnitude of the proposed cut.

 
 
 

While cars imported from the US, such as Tesla Inc. models, will also benefit, they may still face an additional hindrance.

As part of the trade spat, China has threatened to slap an additional 25 per cent import duty on cars made in the US, which would come on top of any other tariffs. Tesla chief executive officer Elon Musk responded to Xi's announcement for the lowered overall tariffs on April 10 by saying the move was a "very important action by China".

High-end cars, in particular, will feel the effects of a tariff cut, as less of their production has moved locally.

For example, Lexus would benefit as the only premium Japanese marque that doesn't manufacture in China or hasn't announced plans to do so.

China imported 1.22 million vehicles last year, or about 4.2 per cent of the country's total sales of about 28.9 million cars.