China mulls cutting car import duty by about half

The State Council is weighing proposals to reduce the levy on imported cars to 10% or 15%

by BLOOMBERG

BEIJING • 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% or 15%, said the people, who asked not to be identified as the information isn’t public.

The current rate is 25%. An announcement on the decision could be made as soon as next month, they said. The Finance Ministry didn’t 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% in Hong Kong trading yesterday. Brilliance China Automotive Holdings Ltd fell as much as 5.1%.

Last week, China announced it will permit foreign automakers to own more than 50% 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, willalsobenefit,theymaystill face an additional hindrance.

As part of the trade spat, China has threatened to slap an additional 25% import duty on cars made in the US, which would come on top of any other tariffs. Tesla CEO 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 autos, 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’tannouncedplanstodoso.

China imported 1.22 million vehicles last year, or about 4.2% of the country’s total sales of about 28.9 million automobiles. — Bloomberg