The East-West Wire is a news service provided by the East-West Center in Honolulu.
Any part or all of this report may be used by media with attribution to the author or East-West Center.
For more information, contact John Lewis at (808) 944-7204 or eastwestwire@eastwestcenter.org.
HONOLULU (Mar. 27) — A new consumption tax format going into effect April 1st will mean a bumpy ride for many of China’s upwardly mobile middle class. Concerned about rising oil consumption and the deterioration of the environment, Chinese leaders have decided to promote the use of reliable, energy-efficient small cars.
“To dissuade people from buying cars with large engines,” says East-West Center Senior Fellow ZhongXiang Zhang, “the central government is restructuring the consumption tax on auto purchases. They have broadened the tax from three categories with an 8 percent ceiling to six categories topping out at 20 percent.”
Zhang points out the new tax structure goes hand-in-hand with a government order enacted earlier this year to lift all restrictions on small cars. “Since the early 1990s, many Chinese cities have put restrictions on small vehicles, usually those with engines of less than 1 to 1.3-liter displacement,” the EWC senior fellow continues, “Local authorities view small cars as slower, less reliable, more polluting and less attractive for their city’s image.”
The local concerns may have been true in the past, but as Zhang notes, “they are no longer legitimate because manufactures of small cars have upgraded their safety, engines and exteriors so that they are much more reliable and energy efficient, and environmentally friendly nowadays.”
But, the road ahead may be a bumpy one. Zhang points out that 84 cities in 22 Chinese provinces have restrictions on small cars running from the limitation of routes open to them, to additional licensing fees, or outright bans on small vehicles such as taxis. And, the EWC senior fellow says many of the local authorities will be slow, at best, to implement the orders from Beijing.
“The central government is having trouble implementing its policy because the lifting of all restrictions on small cars involves dealing with competing interests between the central and local governments,” Zhang says, “because the economic reforms over the past 26 years have shifted control over resources and decision making to local governments and enterprises.”
As to the new consumption tax rates, Zhang does not see them curtailing the purchasing habits of China’s wealthier middle class. “Those with money, and there are many, will not worry about the tax. They will still want their bigger, more powerful cars. The only thing the new rates may actually do is open the door to car ownership to even more people exacerbating the traffic and pollution problems in Chinese cities.”
###
ZhongXiang Zhang, a senior fellow in energy and environment issues can be reached at (808) 944-7265 or via email at zhangz@eastwestcenter.org
For a directory of East-West Wire reports, http://www.eastwestcenter.org/events-en.asp
For daily news on the Pacific Islands, www.pireport.org
For links to all East-West Center media programs, fellowships and services, www.eastwestcenter.org/journalists