China to raise taxes on large cars

China makes a lot of effort to present itself in the best light ahead of the 2008 Olympic Games in Beijing. Last week, Beijing introduced a new enforcement that should take half of Beijing’s cars off the road for the time of the Games in order to reduce air pollution and traffic congestion on the capital’s streets where thousands of athletes and more than half a million of visitors are expected in August. About 1.5 million cars are banned from the streets. On odd days, only cars with odd-numbered license plates are allowed on the streets, on even days, only cars with even-numbered license plates have the permission to enter circulation. Factories in the area surrounding Beijing were closed and shipments of dangerous goods require special authorization from authorities. And the impact is considerable. Beijing’s streets are less congested, the air is clearing and the smog clouds are lifting so that the sky is blue again. Many commuters turned to public transportation. However, these measures only apply for the short term. After the Paralympics in September, all the smog and congestion will return. I wonder how Beijing’s citizens must feel when breathing gets harder again after the Games, the clean air of August still in their minds. It cannot be ruled out that the local authorities feel that these regulations could become popular with Beijing residents as soon as they get used to cleaner air.

Nevertheless, China might also become more environmentally conscious in the medium term. Even if this decision was probably not a result of environmental awareness, but rather an economic necessity. The Chinese government decided to raise the consumption tax on cars with large engines in order to conserve energy, reduce pollution and CO2 emissions. Energy efficiency has become an important issue in China which is already struggling to provide enough electricity and feed the country’s insatiable thirst for energy. Power cuts are not unusual and oil imports have become fairly expensive. The government says on its website: “With the acceleration of industrialisation and urbanisation, the tight energy supply is becoming one of the major obstacles hampering our economic and social development.” Next to cars, the new taxation will make luxury products more expensive as it is also aimed at narrowing the wide gap between poor and rich. Furthermore, the impact of the higher tax burden on energy-inefficient large cars would be felt most by car makers from abroad which sell gas-guzzling sedans and SUVs to the new Chinese elite. The shift towards efficiency requires better energy efficiency in buildings and encourages the use of new technologies and materials. The extra money would be spend in part by giving preferential tax treatment to smaller energy-efficient cars. None the less, China is actually subsidizing vehicles with bad fuel economy. The government spends billions of dollars annually to keep gasoline prices stable despite heavy fluctuations on global energy markets. The new legislation should at least slow down the skyrocketing gasoline consumption in China which requires ever more money from the government to guarantee the fixed price.

But the Chinese manufacturer of luxury sedans and SUVs, Hongqi, could also feel the impact of increased taxes on its cars. The auto maker whose cars usually serve as vehicles for government officials uses existing motors from big car makers such as Toyota or Audi and designs the rest of the car.

Read more:

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