China is considering proposals to slash import duty on passenger cars by about half, a move that’s set to give a lift to luxury-auto makers such as BMW AG and Toyota Motor Corp.’s Lexus unit, according to people with direct knowledge of the matter.
The State Council, or China’s cabinet, is weighing plans to reduce the 25 percent levy that’s been in place for more than a decade—and a contentious issue for automakers seeking greater access to the biggest automobile market—to 10 percent or 15 percent, said the people, who asked not to be identified as the deliberations are private. An announcement of a decision could be made as early as next month, the people said, as President Xi Jinping delivers on a promise to open the country’s automobile industry to greater competition.
Daimler AG’s Mercedes-Benz and Volkswagen AG’s Porsche would also stand to benefit from the cut, while major America carmakers would be less affected because they all manufacture in China through partnerships with local companies.
Still, such a move comes as investors and executives fret about a trade war between China and the U.S. China has responded to President Donald Trump’s tariff threats with similar force—though at the same time it has signaled opening up its finance and auto industries. Trump said on Tuesday that Treasury Secretary Steven Mnuchin will depart for China within days to negotiate over trade disputes.
Shares of state-backed automaker BAIC Motor Corp., which counts Daimler as a partner, closed 3.6 percent lower in Hong Kong, after sliding as much as 6.4 percent on the news. Brilliance China Automotive Holdings Ltd. fell 3.2 percent. On the Frankfurt exchange, Volkswagen climbed as much as 4.4 percent, while BMW added as much as 1.2 percent.
China’s finance ministry didn’t respond to a fax seeking comment.
China is heeding decades-long pleas from carmakers for better access to its auto market, as its own manufacturers prepare to expand abroad. Last week, China announced a timetable to permit foreign automakers to own more than 50 percent of local ventures.
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At the Boao Forum this month, Xi repeated China’s commitment to reduce import tariffs on vehicles this year. China imported 1.22 million vehicles last year, or about 4.2 percent of the country’s total sales of about 28.9 million automobiles.
While cars imported from the U.S., such as Tesla Inc. models, would also benefit, they may face a different hindrance. As part of the ongoing trade spat, China this month threatened to slap an additional 25 percent import duty on cars made in the U.S., which would come on top of any other tariffs. Tesla Chief Executive Officer 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’t announced plans to do so.
Yet Lexus says it is increasing its focus on China, unveiling a redesign of its popular ES sedan at the Beijing auto show this week. The car has more room in the back seat to cater to affluent young Chinese with families and customers who prefer to be chauffeured.
At the event, Mercedes debuted a long-wheelbase variant of the A-Class compact sedan to cater to Chinese tastes. Rupert Stadler, head of VW’s Audi unit, said a lowered tariff would have “big potential” for the brand, which currently relies on imports for 10 percent of its China sales.