Despite 2004 being just a few days old, a fierce price war has already broken out in China's compact car market, although the country's import tariff cut has had no obvious impact.

Auto show in Nanjing, east China's Jiangsu Province. [Filephoto/newsphoto]

Shanghai GM, US General Motors' joint venture with the Shanghai Automotive Industry Corp, Monday cut the prices of its Sail compact cars by between 10,000 and 11,000 yuan (US$1,210 - 1,330).

Five versions of the 1.6-litre Sail now sell for between 78,800 yuan (US$9,520) and 118,800 yuan (US$14,353).

Shanghai GM has also added new equipment worth up to 5,000 yuan (US$604) to the Sail, in a bid to make it more attractive to potential buyers.

"The move will set a new price benchmark this year in China's compact car market, where price battles have been intense," said a spokesman for the joint venture.

Other compact car producers, such as Chang'an Isuzu, Dongfeng Yueda Kia and Geely, have also cut prices over the past days.

Chang'an Isuzu, Japanese Isuzu Motor's joint venture in Southwest China's Chongqing Municipality, slashed its Gazelle compact car by 8,000-10,000 yuan (US$966-1,210) on January 1. Dongfeng Yueda Kia, South Korean Kia Motors' joint venture in East China's Jiangsu Province, cut the prices of its Qianlima model by 7,000-13,000 yuan (US$845-1,570). Geely Group, the privately-owned Chinese carmaker in East China's Zhejiang Province, cut prices of its Haoqing, Merrie and Ulion by 5,000 yuan (US$604). The hatchback Haoqing's price declined to a record low of 36,999 yuan (US$4,468) in China.

Jia Xingguang, an analyst with the China National Automotive Industry Consulting and Development Corp, attributed the price war to a number of factors, including manufacturers' large stocks of compact cars, consumers' consistent expectations of price cuts and the off-season for car sales in January, rather than the tariff cut.

Compact cars accounted for the bulk of total passenger car stocks of more than 100,000 units last year.

Many manufacturers cut compact car production last year, but stocks could not be reduced.

"The tariff cut only has an impact on the domestic luxury car segment, not the compact market," Jia said.

The vast majority passenger car imports to China are up-market models. On January 1, China cut tariffs to 34.2-37.6 per cent from 38.2-43 per cent last year, in line with its commitment to the World Trade Organization.

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