Introduction

Introduction

In addition to stimulating the market, the car scrappage scheme has profoundly impacted the transformation and upgrading of China's automotive industry.

"Just four months, and the subsidies for the car scrappage scheme have doubled."

"This time, the incentives are stronger, covering a wider range of vehicles. It's time to replace my dad's old car."

Yesterday afternoon, a discussion about the car replacement policy broke the long-standing silence in the university dormitory. Students and friends from all over the country followed the current events, discussing the newly launched car scrappage scheme in detail. Many believed that the incentives were significant enough to replace their family's "old cars" before the end of the year.

The heated discussion centered on the "Notice on Further Implementing the Car Scrappage Scheme" issued by seven departments, including the Ministry of Commerce, on August 16. According to the Notice, for individuals who scrap their old cars and purchase new ones in accordance with the Detailed Rules for the Implementation of the Car Scrappage Subsidy, the subsidy standards have been increased from RMB 10,000 for purchasing new energy passenger vehicles and RMB 7,000 for purchasing fuel passenger vehicles to RMB 20,000 and RMB 15,000, respectively.

This is an upgrade from the April-issued "Detailed Rules for the Implementation of the Car Scrappage Subsidy," which clearly stated that qualified individuals who scrap their old cars and purchase new energy or fuel vehicles will receive subsidies of RMB 10,000 and RMB 7,000, respectively. The doubling of subsidies, the increase in insurance premium subsidies, and the optimization of review processes all demonstrate the strength and sincerity of this new policy.

It can be said that the government has gone to great lengths to encourage people to replace their old cars. Some even joked, "Why not replace your old car? Are you saving it for the new year?"

Round after round of car scrappage schemes

The "voices of the Two Sessions" at the beginning of the year indicated that 2024 is the "Year of Consumption Promotion," with the country vigorously promoting the scrappage and replacement of durable consumer goods such as household appliances and automobiles.

After all, there is enormous potential in the market for replacing consumer goods. According to statistics, by the end of 2023, the number of private cars reached 336 million, and the number of household appliances such as refrigerators, washing machines, and air conditioners exceeded 3 billion. Replacing old cars and appliances can create a trillion-yuan market space.

"Promoting large-scale scrappage and replacement of consumer goods can increase the proportion of advanced production capacity, allowing more high-quality durable consumer goods to enter people's lives. This can stimulate consumption, drive investment, increase advanced production capacity, improve production efficiency, promote energy conservation and carbon reduction, and reduce potential safety hazards. It benefits both enterprises and the people, achieving multiple objectives," said a relevant official from the National Development and Reform Commission.

Therefore, in April, seven departments, including the Ministry of Commerce, issued the "Detailed Rules for the Implementation of the Car Scrappage Subsidy," clarifying that qualified individuals who scrap their old cars and purchase new energy or fuel vehicles will receive subsidies of RMB 10,000 and RMB 7,000, respectively, aiming to inject new momentum into the automobile consumption market.

Obviously, promoting large-scale scrappage and replacement at the policy level has profound implications. It can stimulate consumption, drive investment, enhance economic vitality, increase advanced production capacity, promote energy conservation and carbon reduction, reduce potential safety hazards, and achieve high-quality development.

Moreover, the State Council previously issued the "Action Plan for Promoting Large-Scale Equipment Upgrades and Consumer Goods Scrappage and Replacement," proposing that by 2027, the number of end-of-life vehicles recycled will double compared to 2023, and the volume of used car transactions will increase by 45% compared to 2023. Therefore, the purpose of issuing policies to promote car scrappage and replacement is clear: to tap into the potential market.

At the same time, specific measures to strengthen policy guarantees in five areas, including increasing financial support, improving tax support, optimizing financial support, strengthening factor guarantees, and strengthening innovation support, have also ensured the practical implementation of the scrappage and replacement policy.

As a result, under the joint efforts of multiple parties, the effects of the scrappage and replacement policy have begun to emerge.

According to the Ministry of Commerce, it took 25 days for the car scrappage and replacement information platform to receive the first application for car scrappage and replacement subsidies nationwide and surpass 10,000 applications. It took another seven days to reach 20,000 applications and only four days to reach 30,000 applications. By June 25, the platform had received 113,000 applications for car scrappage and replacement subsidies.

Under the influence of the policy, the domestic automobile consumption market has also begun to show vitality.

Data shows that in May this year, nationwide automobile retail sales reached 2.271 million units, an increase of 8.7% year-on-year, with new energy passenger vehicle retail sales increasing by 38.5% year-on-year. Used car transactions reached 1.585 million units, up 5.9% year-on-year, and the number of end-of-life vehicles recycled reached 523,000 units, up 55.6% year-on-year.

In this industrial upgrade disguised as "scrappage and replacement," favorable incentives combined with potential market demand have led to the Stage wise victory of the policy. While enhancing the consumer experience, it has also expanded the share of new energy vehicles (including pure electric, plug-in hybrid, and extended-range electric vehicles) in China's new energy vehicle industry, laying a solid foundation for its development.

Of course, with only 113,000 cars eligible for scrappage and replacement subsidies, this is far from a success for an economy where monthly car sales exceed 2 million. So, just four months later, a new round of car scrappage and replacement policies, offering subsidies of up to RMB 20,000, has arrived.

The effects are short-term, but the impacts are profound

Looking at the current scrappage and replacement subsidies, the first noticeable change is the increase in scrappage subsidy standards, including the relaxation of vehicle standards and the doubling of subsidy amounts.

Regarding eligible vehicles, the policy stipulates that individual consumers can scrap their pre-National III emission standard fuel passenger vehicles or new energy passenger vehicles registered before April 30, 2018, and purchase new energy passenger vehicles included in the Ministry of Industry and Information Technology's "Catalog of New Energy Vehicles Eligible for Vehicle Purchase Tax Exemption" or fuel passenger vehicles with a displacement of 2.0 liters or less between April 24, 2024, and December 31, 2024.

In terms of subsidy amounts, the new policy offers a subsidy of RMB 20,000 for scrapping the above two types of old cars and purchasing new energy passenger vehicles and a subsidy of RMB 15,000 for scrapping pre-National III emission standard fuel passenger vehicles and purchasing fuel passenger vehicles with a displacement of 2.0 liters or less. These standards have doubled from the previous subsidies of RMB 10,000 and RMB 7,000, respectively.

Additionally, for eligible subsidy applications submitted between April 24, 2024, and January 10, 2025, subsidies will be provided in accordance with the standards specified in this Notice. For subsidy applications that have already been approved based on previous standards, the difference will be made up according to the standards specified in this Notice. In other words, consumers who have completed their applications within the specified period and received subsidies based on the April subsidy scheme will be eligible for compensation.

However, this standard applies only when the owner of the scrapped car and the owner of the newly purchased car are the same consumer. The scrapped pre-National III emission standard fuel passenger vehicle or the new energy passenger vehicle registered before April 30, 2018, should be registered in the applicant's name by July 25, 2024, as required by the "Several Measures." From the date of this Notice, during the review period of subsidy applications, the newly purchased vehicle should also be registered in the applicant's name.

Regarding the disbursement of car scrappage and replacement subsidy funds, the principle of a 9:1 ratio is adopted for central and local governments to share the responsibility, with specific sharing ratios determined by region. For eastern provinces, the ratio is 8.5:1.5, for central provinces, it is 9:1, and for western provinces, it is 9.5:0.5. The local share will be arranged proportionally by each provincial finance department based on the distribution of central funds.

In addition, the policy has optimized the review and supervision of car scrappage and replacement and strengthened the supervision and management process.

It is foreseeable that after increasing the intensity of scrappage and replacement, the future will further boost new energy vehicle consumption, used car transactions, and end-of-life vehicle recycling. In addition to stimulating the market, these data will also profoundly impact the transformation and upgrading of China's automotive industry.

The automotive industry is an essential pillar industry of China's national economy, accounting for about 10% of total retail sales of consumer goods. Related taxes account for about 10% of total tax revenue, and related employment accounts for about 10% of total urban employment. The upgrading of the automotive industry is of great significance to the national economy, and the car scrappage scheme is a crucial part of promoting industrial development.