Car sales in China may drop due to a government proposal to amend purchase subsidies on small engine cars, Economic Information Daily reported Wednesday.

The report says a draft policy co-issued by the Ministry of Finance, the National Development and Reform Commission and the Ministry of Industry and Information Technology will greatly raise the threshold for purchase subsidies on small displacement cars.

Currently, vehicles with engines of 1.6 liters and below get a 3,000 yuan subsidy under a scheme introduced in 2010 to boost car sales.

The vehicle fuel consumption per hundred kilometers may be gradually adjusted to below 6.3 liters from the current below 6.9 liters and finally below 5.9 liters.

Several industry insiders say more than half of the 427 models that enjoyed subsidies based on the old policy will be affected by the new rule, which will lead to a sharp decline in the sales of small-displacement cars of domestic brands. If the new policy is carried out within this year, the annual car sales may see a negative growth, the report said.

The source said the new policy is awaiting approval and there is no clear timetable available yet.