China fights against fuel prices with tax means

China plans to raise taxes on large engine automobiles to promote smaller cars and help the nation cope with surging fuel prices, according to a top government economic adviser.

The government's central planning agency is studying the issue and changes "will be launched soon," said Zheng Xinli, deputy head of China's Central Policy Research Office, a body whose views tend to reflect the thinking of China's leadership.

Industry observers say they expect the new tax to raise rates on vehicles with the largest engines from the present 8 percent to as high as 20 percent.

"The current auto consumption tax policy blocks, to a certain extent, the development of small-displacement cars but is favorable to large-displacement vehicles," Zheng said last week on the sidelines of a China energy-strategy forum.

"We're trying to use pricing policies to turn it around," he said.

Sales of large engine sport-utility vehicles may be most affected, with Chinese brands - whose buyers tend to be the most price-sensitive - expected to take the biggest hit.

The move comes as a recent boom in vehicle purchases begins to slow, partly because of higher fuel prices. The central government caps retail gasoline prices, largely insulating buyers from major cost increases. But Shanghai pump prices have risen four times this year.

Government forecasts suggest that unless transport-fuel use is restrained, it may account for two-thirds of China's oil consumption by 2020, up from about one-third now, the AP reports.