HONG KONG: Shares of Hong Kong-listed mainland carmakers slumped yesterday after Beijing said on Wednesday it would restore vehicle-sales taxes to the pre-crisis level next year, signaling the country's policy-driven car sales drive may come to an end.

The announcement, though widely expected, still came as a big blow to the mainland carmakers who had recorded sharply increasing sales helped by the favorable policies. The government said it would raise the sales tax on cars with engines of 1.6 liters or smaller to 7.5 percent from the current 5 percent.

Geely, China's largest privately-owned automaker, fell 8.2 percent, its biggest drop in more than two months, to end at HK$4.23. Dongfeng, the largest automaker trading on the Hong Kong stock exchange, shed 6 percent to close at HK$10.96.

In an effort to boost consumption and increase domestic demand to offset weakening exports, the Chinese government cut the consumption tax for vehicles with engines of 1.6 liters or smaller to 5 percent from 10 percent, effect from January 20 to December 31 this year.

The tax cut has helped to fuel the country's passenger car sales, which vaulted 84 percent in September. Total auto sales jumped 78 percent in the month, according to statistics from the China Association of Automobile Manufacturers.

Automakers have been expanding production in China to meet rising demand. Ford Motor Co and Chongqing Changan Automobile Co began work on a third car plant in September and Volkswagen AG plans to invest 4 trillion euros in the country by 2011, Bloomberg said in a news report.

Seoul-based Hyundai Motor Co, which had the biggest increase in market share among all foreign automakers in China this year, is planning to build a third Chinese factory as it aims to boost local capacity by 50 percent to 900,000 vehicles a year by 2011.

Shares in Geely saw nearly daily gains last week on reports that at least three banks agreed to extend loans to the Zhejiang-based company, which marked a big step forward in the mainland carmaker's long-awaited acquisition plans.

Bank of China, China Construction Bank Corp and Export-import Bank of China agreed to extend loans to Geely Holding, Geely Automobile's parent company, to finance the purchase from Ford Motor. The loans are expected to have a five-year tenor.

Shares in BYD, China's largest domestic automaker, dropped 0.15 percent to HK$6.4. Great Wall Motor fell $4.23 percent to close at HK$9.05.

(HK Edition 12/11/2009 page3)