China should make a tax cut on small cars permanent to encourage the development of fuel-efficient vehicles, according to the China Association of Automobile Manufacturers, a move that would benefit automakers including Volkswagen AG.

 

The state-backed group is lobbying the National Development and Reform Commission and Ministry of Industry and Information Technology to include such a policy in their planning, said Ye Shengji, the association's deputy secretary general.

 

"It's very necessary to have the policy in place on a long-term basis," Ye said in Beijing on Monday. "The policy will not only boost consumption but also help direct the industry trend. We believe we should include the encouragement of small-car development into our industry planning guidelines."

 

The call to extend a tax cut due to expire at the end of this year comes as auto sales rose for seven of the past eight months. China had cut the levy by half in October on small-engine cars after lobbying by the carmakers association, which had argued that robust vehicle sales were needed to buttress slowing economic growth.

 

The purchase tax on vehicles with engines 1.6 liters or smaller was cut by half to 5 percent effective Oct. 1. In the first eight months of 2015, 68 percent of cars sold in the country had engines smaller than 1.6 liters, according to Bank of America-Merrill Lynch.

 

All 10 of the best-selling cars this year are models that offer 1.6-liter or smaller engines. Volkswagen led the list with three models, the Lavida, Sagitar and Jetta, while General Motors Co.'s Buick Excelle, Toyota Motor Corp.'s Corolla, Nissan Motor Co.'s Sylphy, Ford Motor Co.'s Escort and Hyundai Motor Co.'s Elantra also made the list. The sole model by a local carmaker was the Emgrand by Geely Automobile Holdings.

 

The auto group's push for small cars also follows China mandating the lowering of average fuel consumption to 5 liters by 2020, from 6.9 liters per 100 km last year. Auto sales climbed 11 percent to 1.79 million units in China last month, according to data released by the association.