Essay on cars in china

743 Words3 Pages
Due to a strong domestic demand for cars in China, car manufacturers are expected to sell 13 million cars this year. China is expected to overtake United States as the world’s No.1 car market next year. As the car export market is still being affected by the global economic downturn, China carmakers have been focusing on the Mainland China market which is more attractive. The expected growth is more than 50% and this trend will continue next year as per some forecast. The stimulus package, provided by the Chinese government in cutting consumption taxes on cars with small engine capacity and giving small car purchase subsidies to villagers, helps the car industry. This makes small cars affordable to more Chinese people and it also attracts…show more content…
In the year 2010, provided that the same growth rate continues, the demand curve will shift from D1 to D3 and the supply curve will shift from S1 to S2. Then E will be the new equilibrium. However, the extensive growth in 2009 may lead to slower growth in 2010. This will cause the demand curve to shift from D1 to D2 instead. As most carmakers are expecting growth to continue next year, car supply will increase but the demand hasn’t increase as much as the supply so there will be an excess supply at S2 because more is being supplied than demanded. The future car market is not easily predictable, so carmakers should not be over-optimistic on next year’s growth rate. Nevertheless, carmakers also should not be too pessimistic because if there is a strong growth in sales next year, they may not be able to meet the demand and loose sales to their competitors. This is an indirect tax because it is imposed upon expenditure and is placed on the selling price of the product. This is also a percentage tax because it changes its amount of tax where the price is higher. This figure shows the lowering of consumption tax for cars with an engine capacity of 1.6 litres or below from 10% to 5% by the government. When car’s engine capacity is higher, usually the price is higher. The tax burden for consumers used to be at ABEF which makes less people buy cars because the price is high and the tax revenue is higher for the
Open Document