SHANGHAI (Reuters)

At least six cities and municipalities across China have suspended trade-in subsidies for car buyers in June. This decision, reported by Reuters, could slow new car sales in the world’s second-biggest economy.

Notices from the governments in Zhengzhou and Luoyang attribute the subsidy pause to the depletion of the first round of funding allocated by Beijing. Similarly, Shenyang and Chongqing stated the suspension was due to adjustments intended to improve capital efficiency. The northwestern region of Xinjiang also announced a similar suspension.

China’s government has relied on subsidies for significant purchases, including cars, home appliances, and electronics, to encourage consumer spending. This is especially crucial as consumer sentiment remains sluggish amid a continuous property slump and concerns over wage growth and unemployment.

The programs have gained some traction. As of May 31, there had been over 4 million applications submitted for car-specific trade-in subsidies this year, according to the Ministry of Commerce.

Despite the pause, recent retail sales data for May exceeded expectations, showing a 6.4% growth attributed partly to these subsidies.

There’s no official announcement regarding when additional funds from the central government will be released for these programs, but the National Development and Reform Commission and Ministry of Finance have indicated that subsidies will continue through 2025. Analysts anticipate new funds might be available starting in July.

However, the subsidy program has faced criticism, particularly within the auto sector. China’s auto industry has been scrutinized by regulators due to an ongoing price war that has diminished the sector’s profitability. Reports from Henan province noted that the central government is aware of loopholes in the subsidy schemes and intends to make necessary adjustments.

One major concern highlighted by media and regulators involves “zero-mileage used cars,” a practice where brand new cars are sold as discounted second-hand vehicles to deplete inventory. This practice is believed to have contributed significantly to the early exhaustion of subsidies, prompting the need for suspensions.

The People’s Daily has also urged action against the “zero-mileage used cars” weeks after Great Wall Motor’s Chairman Wei Jianjun condemned the practice. In early June, China’s industry ministry convened a meeting with automakers to address the ongoing price wars in the sector.