Big Increase in China Auto Sales Underpins Strength in Platinum

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"The country has taken up pole position in the global industry. . ."

The Chinese automotive industry registered strong growth again in May and for the first five months of the year total sales of light and heavy vehicles are up by 14%. With Europe and North America still struggling, the Chinese market remains the world's largest, though local analysts are concerned that the rate of increase is slowing and that when incentives stop, so will the industry's rapid expansion. Europe and North America may hold the key to the second half of this year.

In Europe, stimuli appear to be working very well in Germany and France; and things are looking promising in the UK while the program in Spain was only introduced last month. Car sales in Germany in May were up by 40% year-on-year and in France the gain was 12%.

These programs involve incentives for existing car owners to return their vehicles and replace them with smaller, more efficient vehicles, while the Chinese program is geared more closely to increasing outright sales.

The measures in China form part of the government's overall fiscal stimulus program and is designed to produce an average 10% per annum growth in production and sales over the period 2009 - 2011. The emphasis is towards vehicles with smaller engines, with a target that vehicles of up to 1.5 liters will have a 40% market share by 2011, with a 15% market share accruing to vehicles with engine capacity of less than one liter. To this end the government has halved sales tax on small cars and it is also offering vehicle subsidies in rural areas.

This program, put in place in February, has given the domestic market strong support. Sales figures in March to May were 47% higher than they were in the previous three-month period, though the gain over the equivalent period of 2008 was a "mere" 20%. The country has taken up pole position in the global industry, with car sales in the first quarter of this year outstripping those in the U.S. by more than 20%.

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