By Senad Karaahmetovic

China’s Ministry of Finance said it plans to cut the purchase tax for small-engine cars in half in a bid to bolster car sales and revitalize the country’s economy hurt by strict lockdowns as a part of China’s zero-COVID policy.

In a statement, the Chinese government stated that they will lower the price of cars with engines less than 2.0 liters and prices below 300,000. Yuan (about $45,000). This change will take effect between June 1, 2022, and the end.

Chinese officials announced Tuesday that they would reduce the tax as part of their support for the economy. The Chinese government had previously reduced demand and production through its zero COVID policy.

Last week, the authorities said they wanted to relieve auto buyers of purchase taxes worth 60 billion yuan after the country’s car market saw a sales decline of nearly 48% last month, compared to the same month last year.

China Passenger Car Association’s General Secretary stated that they think the tax cuts could help increase China’s car sales by two million units annually in 2022.

China and carmakers are also in negotiations about China’s extension of expensive subsidies to electric cars. These subsidies expire next year. China will also roll back its planned 2023 purchase tax increase for qualified electric vehicle (EV) qualifiers.

Aaron Li, a CLSA analyst said that the decision was beyond expectations.

“We consider that this preferential policy covers the vast majority of ICEs, so the scope exceeds market expectations. Combined with recently introduced auto purchase subsidy policy and the policy of ‘Automobiles Go to Countryside,’ we expect auto sales to pick up and the whole industry to post marginal recovery,” Li told clients in a note.

Li lists GAC and GWM as major beneficiaries. Geely (OTC), Changan Auto and SAIC are also listed. The analyst also mentioned NEV startups, e.g. Li Auto (NASDAQ) Xpeng Inc (NYSE:) and Nio (NYSE:), as companies that are likely to benefit from the Ministry’s decision.