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The latest effort by the central government to curb auto pollution and boost new vehicle sales looks to have the auto subsidy and green driving push still spinning its wheels following its announcement Monday by the Ministry of Commerce (MOFCOM) and Ministry of Finance.

Under the new guidelines, used car owners who want to buy new vehicles can receive both a subsidy as well as a reduced sales tax break if they buy a new 1.6-liter or less vehicle.

The new policy is the second one issued for the auto industry in less than a month and the third since July 2009 when car owners who wanted to trade in used specified vehicles, including those that failed to meet the government’s new emission standards, could receive subsidies ranging from 3,000 yuan ($439.45) to 6,000 yuan ($878.90).

Eligible under the plan were light trucks and medium-sized taxis less than eight-years-old, and medium and small-sized trucks and mid-sized autos less than 12 years old.

People wanting to unload junkers are also eligible. People who bring old, useless vehicles to authorized auto parts and junk yards from June 1, 2009 and May 31, 2010, can apply for subsidies, ranging from 3,000 yuan to 6,000 yuan.

On December 31 the auto replacement subsidy range was boosted to 5,000- 18,000 yuan ($732.41 to $2,637).

However, those who wanted to take part could not use the subsidy as well to pay a 7.5 percent sales tax for a new 1.6 liter-or-less powered vehicle, rather than the 10 percent tax usually charged. The sales tax break was a separate policy.

The new policy lets vehicle owners enjoy both breaks but even before Monday’s announcement, the response was underwhelming. Figures from MOFCOM show as of December 20, 2009 only 100.59 million yuan ($14.73 million) was used for auto replacement subsidies and only 12,101 vehicles were involved. That is compared with the 2.7 million vehicles predicted by MOFCOM Minister Chen Deming last July.

The government has allotted 5 billion yuan ($732.41 million) for the policy.

Low impact

Compared with the sales tax reduction policy, the impact of the used auto subsidy is trivial, Dong Yang, executive deputy director of China Association of Automobile Manufacturers (CAAM), told Netease.

Most 1.6 liter-or-less vehicles are priced lower than 100,000 yuan ($14,648).

If a consumer trades in an old vehicle for the highest subsidy 18,000 yuan ($2,637), for a 100,000 yuan new vehicle with an emission of 1.6 liter or less, he or she can save around 20,000 yuan ($2,929.64).

A second-hand Xiali A+ owner Liu Changyun, a public relations officer, shrugged and said that he wouldn’t trade in his current car for a small one.

His car didn’t fall into the subsidy group because his car is a small-sized (not medium-sized) passenger vehicle and also meets the new emission standards.

“Even if my car fell into the subsidy group, I wouldn’t trade it in for a new 1.6 liter one or less. When I have enough money to buy a new one, I’d like to choose an SUV,” Liu told the Global Times.

Liu is not alone. A survey by Sinotrust, a marketing and credit solutions seller in China, shows when consumers buy second vehicles, they tend to worry more about performance and reliability, concerns that boost sales of medium and high-end vehicles and SUVs.

No boom in junk yards

Auto scrap yard owners said they hadn’t seen a business boom, nor did they expect one under the new policy.

Shi Wen with Beijing Lianhe Auto Scrap Yard, which scrapped 3,000 to 4,000 vehicles last year, told the Global Times that many that didn’t meet the new emissions standards have been scrapped, and there wouldn’t be a lot more coming into the scrap yards this year.

Guo Weiqi, a manager with Beijing Tianjiao Auto Scrap Yard, said he is not expecting the policy to bring more business.

“Though the government raised the subsidy, it is not nearly enough for car owners to buy new vehicles,” said Guo.

The plant scrapped 3,800 vehicles last year.

A manager surnamed Dai of Beijing Metal Scrap Yard said many used and polluting vehicles are traded through other markets where the auto owners can get more than through government subsidies.

Guo also said many used and polluting vehicles were being sold to other provinces, like Hebei Province, instead of being sent to scrap yards.

“They may not meet environmental standards in Beijing, but they fit those of other provinces,” said Guo.

Du Fangci, assistant secretary general of CAAM, told the Global Times that the above issues also exist in other provinces and that the new policy will have a positive role in the long run to both boost auto sales and protect the environment.

Guangfa Securities wrote in a report January 19 that sale of domestic sedans will be boosted by the policy, but they didn’t raise their previous prediction, a 13 percent year on year increase.

Lang Xuehong, deputy general manager of Sinotrust, also stuck with a 10 to 20 percent sales boost overall.

China’s vehicle sales rose 46 percent in 2009, making the nation the world’s No.1 auto market, a title previously held by the US for more than a century.

By Chen Xiaomin