Sales tax on vehicles with engines of less than 1.6 liters will be halved¹ and exchange of old vehicles for new ones with smaller engines subsidized to boost the auto² industry.

A total of 5 billion yuan ($731.45 million) will be set aside for the subsidy³ to be given to farmers. And sales tax will be cut from 10 percent to 5 percent from January 20.

The stimulus⁴ package for the country's auto industry, the third largest in the world, was announced by the State Council yesterday after its sales growth fell to a 10-year-low of 6.7 percent last year.

The package is expected to boost the steel industry and designed to promote fuel-efficient and low-emission vehicles, too.

"In order to adjust and revive the auto sector⁵, we must implement⁶ a proactive consumption policy to stabilize⁷ and boost auto demand," the State Council said.

"Any unreasonable⁸ rules" hampering⁹ auto sales would be removed in order to spur demand.

The government said it would support the alternative-energy vehicle sector by promoting the mass production of electric-powered cars in big and medium cities.

In the next three years, the government will provide 10 billion yuan ($1.5 billion) to automakers to help upgrade their technology and develop alternative energy vehicles.

The move, likely to benefit more than 80 auto- and steel-related firms in Shanghai and Shenzhen, is part of a series of industry specific policies to stimulate¹⁰ the economy.

The government is expected to release supportive policies for eight other industries, including shipbuilding, petrochemicals and textiles in the next few days.

Analysts¹² said the package announced yesterday would help the two pillars of the national economy immensely. "The wide-ranging supportive measures will certainly give the auto industry a shot in the arm," said Jia Xinguang, a Beijing-based auto analyst¹¹.

"But it's hard to say how big an impact it would have in the short term", he said.

About 9.38 million vehicles were sold in the country last year against a target of 10 million.

The slump¹³ in demand saw the combined January-November profit of the country's 19 biggest automakers fall 0.5 percent year-on-year to 65.6 billion yuan, the China Association of Automobile¹⁴ Manufacturers (CAAM) said on Monday.

A quarter of the 45 carmakers tracked by the association failed to reach even half of their annual sales targets, CAAM said.