UPDATE 1-China to subsidise hybrid, electric car purchases

* Pilot subsidy programme to run in five cities

* Electric car buyers to save 60,000 yuan ($8,800) each

* Buyers of plug-in hybrids to save 50,000 yuan each

* Government to invest in electric car infrastructure

* Also offers 3,000-yuan subsidy for fuel-efficient cars
(Adds details, analyst comment)

BEIJING/SHANGHAI, June 1 (BestGrowthStock) – China said on Tuesday
that it would launch a pilot programme in five cities to provide
subsidies to buyers of electric and hybrid cars, as the
government steps up efforts to cut emissions in the world’s
biggest auto market.

Residents of Shanghai and Shenzhen, as well as Hangzhou and
Hefei in the east of the country and Changchun in the northeast,
would receive up to 50,000 yuan ($7,320) in subsidies if they buy
plug-in hybrid cars, the Ministry of Finance said on its website.

The maximum subsidy for those who bought fully electric cars
was 60,000 yuan, the ministry said.

“The handouts could get people interested in green car
models now that the government has come up with a concrete plan
and real money to back it up,” said Harry Zhao, an analyst with
industry consultancy CSM Worldwide. “But it’s unrealistic to
expect it to work like magic; like tax incentives did last year.”

Beijing’s tax incentives for small cars and subsidies for
vehicle buyers in rural areas helped domestic vehicle sales surge
46 percent last year to 13.6 million units, surpassing the United
States as the world’s top auto market.

The impact of the new subsidies on green car sales was
unlikely to be very large in the short term because of high
battery costs and an inadequate charging network, but would make
it easier for those interested in cars fuelled by alternative
energy to decide to buy such vehicles, analysts said.

HYBRID BANDWAGON

Taking cues from the government, the biggest players in the
Chinese auto market, from top state auto group SAIC Motor Corp
(600104.SS: ) to rising star Geely Automotive Holding (0175.HK: ),
have been ramping up efforts to bring low-emission vehicles onto
the roads.

SAIC plans to roll out its first hybrid car this year, while
Shenzhen-based car and battery maker BYD Co (1211.HK: ), backed by
Warren Buffett’s Berkshire Hathaway (BRKa.N: ), started retail
sales of its plug-in hybrid F3DM in March.

The government would also allocate unspecified funding to
bankroll the construction of charging stations and battery
recovery networks in the pilot cities, the finance ministry
added.

Instead of handing out subsidies to consumers directly, the
government would allocate the money to carmakers, who would then
lower the prices of relevant models accordingly, it said, without
indicating when the programme would begin.

The level of handouts would be reduced after carmakers sold a
total 50,000 green cars, it said, without elaborating.

The government started to offer subsidies for purchases of
cleaner buses in early 2009, as part of another pilot programme
in 13 cities.

In addition to the new programme limited to the five
specified cities, Beijing would also offer nationwide subsidies
of 3,000 yuan on purchases of cars with 1.6-litre engines or
smaller and that consume 20 percent less fuel than current
standards, it added.

Investment

(Reporting by Zhou Xin in Beijing and Fang Yan and Jason Subler
in Shanghai; Editing by Chris Lewis)

UPDATE 1-China to subsidise hybrid, electric car purchases