China’s Cash for Clunkers Program to Be Extended, Effects Disputed

Update on June 13: Two weeks after the original expiration date of the program, the Chinese government finally confirms its extension till the end of this year.

The cash allowance program aimed at boosting sales of new, fuel-efficient vehicles will be extended until the end of 2010, according to various Chinese sources. Designed to copy the seeming success of similar auto scrappage programs in other countries, especially the "Cash for Clunkers" program in the US, it was officially started on June 1, 2009 and scheduled to expire at the end of this month.

The decision for extension does not seem to be a direct response to public request, as the program has achieved very limited success so far. After almost a whole year, no more than 100,000 new vehicles have been sold through the program. Many feel the number is simply too low for all the costs and energy consumed. But the regulators obviously want to give it another try.

On the other hand , few feel like to strongly oppose it. As sales growth has been slowing down this year and many automakers have been reported to miss their sales targets, any help is welcome.

Within the first six month after the program took effect, the government offered an amount ranging from Yuan 3,000 to 6,000 for a vehicle that was too old and/or could not meet a certain emissions level. This proved not much of an incentive at all, as the rebate promised was often smaller than a clunker’s re-sell value.

Different regions in China commonly have different auto emissions standards, and enforce them with varying degrees of flexibility. Used cars from big cities such as Beijing, where higher standards are in force, are often sold to small towns and rural areas where emissions requirements are lax.

So at the end of 2009, finally realizing its mistake, the government raised the amount of cash allowance to Yuan 5,000–18,000 for every clunker.

Besides inadequate cash compensation, two other reasons have been cited for the program’s ineffectiveness so far: the rebate application process is long and complicated; the program is not well-publicized. Efforts have been made to mend these problems to ensure the eventual success of the program, the regulators say.

China is expected to announce or renew soon other measures to raise overall auto fuel efficiency, including subsidizing alternative fuel vehicles and cars with engines of small displacements.