'May take a hit'

Looking forward, it is likely that tax incentives and subsidies for rural areas will eventually come to an end while the subsidy for fuel-efficient vehicles will most likely remain.

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Yet sales of vehicles with engine sizes of 3 liters and above may take a hit as vehicle and expected shipping taxes will treble duties on them.

The policy focus next year will certainly be on new energy vehicles. Although the subsidy for such vehicles is substantial this year, it may not be as effective as other policies in boosting sales.

Sales of passenger vehicles are expected to rise 11 percent to 13 million units but demand for commercial vehicles, especially minibuses, might be affected later in the year once the subsidy for rural areas expires. We expect commercial vehicle sales to edge up 7 percent to 5.7 million units.

We believe there will be a negative impact on sales in the short term, probably in the first quarter of 2011. Although we don't expect demand contraction, we do see growth slowing.

The author is a senior market analyst at JD Power Consulting (Shanghai) Co Ltd