China’s trade-in subsidy program for new vehicles has been suspended in several cities across the country.
The subsidy, which offers up to 20,000 yuan (about $2,800) for electric and fuel-efficient vehicle purchases, was scheduled to run until the end of the year.
The program was halted on Wednesday in cities such as Guangdong, Henan, and Zhejiang, according to local media outlet Dahe Daily, allegedly due to low funds and ‘zero-mileage’ vehicles appearing in used-car markets.
The report noted that vehicles are being purchased in bulk by dealers and traders, which register in order to qualify for the subsidy, and then sell them in used-car markets without ever being driven.
According to sources cited by Dahe Daily, Chinese authorities are exploring measures to curb the practice and ensure that subsidies are properly allocated to consumers.
Data from the China Passenger Car Association (CPCA) showed that about 70% of passenger vehicle purchases in May were granted the trade-in subsidy.
By the end of last month, the Ministry of Commerce had registered over 4 million applications for the vehicle trade-in subsidy in China.
In addition to challenges with the program, China’s auto market is also experiencing a price war, which began a few weeks ago when BYD significantly slashed prices across much of its vehicle lineup.
Last week, BYD’s executive VP Stella Li told Bloomberg that the situation in China is “not sustainable.”
“You have to survive, but this is not healthy,” Li mentioned. “I would rather everybody focus on their own technology, their own sales strategy, their own marketing strategy, not always copy and duplicate and play a price war.”
As several automakers followed BYD‘s move, the China Association of Automobile Manufacturers (CAAM) called on companies to maintain fair competition in the market.
CAAM warned that these price cuts were disrupting operations and straining the supply chain, with suppliers reporting delayed payments well beyond the 60-day limit set by the Regulation on Ensuring Payment to Small and Medium-Sized Enterprises.
In response, last week several automakers — which include companies like BYD, XPeng, Xiaomi, Li Auto, Leapmotor, Nio and Geely, the owner of Zeekr — pledged to pay suppliers within 60 days.
