Should governments give consumers money to buy cars? Its a controversial topic in the west where troubled carmakers are lobbying governments to use public funds to restart stalled car markets.
In China, the government has just unveiled its own “economic stimulus package” for the car industry but, wisely, it is targeted at rural areas. Under the scheme, outlined by Finance Ministry on Monday, farmers who buy light trucks and minivans can get 10 rebate on the price of the vehicle up to a maximum payment of 5,000 yuan.
China intends to spend 5bn yuan on rural vehicle sales subsidies and another 20bn yuan on rebates to farmers for purchases of electrical appliances as part of an effort to stimulate demand in the vast but impoverished countryside, where the majority of its 1.3 billion people live.
The rural vehicles scheme is expected to boost vehicle sales by more than 1m units this year.
General Motors could be one of the biggest beneficiaries as its SAIC-GM-Wuling joint venture concentrates on the vehicle types covered by the plan.
In the west, market conditions are unfortunately quite different to those of rural China. Even if a case could be made for helping farmers in rural Wisconsin or Wales buy new pick-ups, the impact would be minimal. The carmakers thus want western governments to offer incentives to all car buyers.
But environmentalists and free-market economists — unlikely bedfellows in other issues — have joined in opposing the increasingly vocal demands of carmakers.
Several European countries already offer cash incentives of up to €2,500 for consumers who trade in their older vehicles for cleaner, fuel-efficient models.
Nevertheless, these programmes walk the tightrope between subsidy and incentive, and in the current market conditions, carmakers are calling on the sometimes stringent conditions to be relaxed so that they can clear their vast stocks of unsold vehicles.
Critics counter that it is not the job of the government to subsidise inefficient carmakers, particularly if it involves encouraging consumers to buy vehicles that offer no real advance in either fuel efficiency or environmental emissions over existing vehicles.