Issuer:BNPP

Date: March 2009

Snapshot:

Auto gets a lift from farmers
Subsidy policy for farmers
The Chinese Ministry of Finance has announced details of its farm
vehicle subsidy plan, which aims to lift rural commercial vehicle
consumption. The central government will fund 80% of the subsidies,
with the remaining 20% to be funded by local government. Farmers will
receive a 13% (up to RMB650/unit, two per household) subsidy for
motorcycles between 1 February 2009 and 31 January 2013; a 10%
subsidy (up to RMB5,000/unit, one household) for the purchase of minivans
between 1 March and 31 December 2009; and a 10% subsidy (up
to RMB5,000) to replace three-wheel vehicles or low-speed trucks with
light trucks, from 1 March to 31 December 2009. Qualified vehicles
include light trucks (between 1,800kg and 6,000 kg) and mini-van or
minibuses (with engine size less than 1.3/L).
Beneficiaries within auto sector
We believe the beneficiaries are companies with leading positions in
manufacturing small vehicles like minivans and light trucks: Great Wall
Motor (2333.HK; HOLD), Qingling Motor (1122.HK; not rated), Dongfeng
Motor (489.HK, not rated) as well as other China listed automakers like
Beiqi Foton Motor (600166.CH; not rated) and minivan producers like
Chang’An Auto (000625.CH; not rated). Please see Exhibit 1 for more
details.
How the subsidies will work
Farmers can apply for subsidies through their local residential township
financial bureau by providing the required documentation. The
successful applicant will receive the subsidy within 15 working days.
Each household is prohibited from transferring ownership of the
subsidized vehicle within two years of purchase.
China auto sector: OVERWEIGHT
With these new policies, in addition to previous ones, we reiterate our
OVERWEIGHT on the China Auto Sector. We maintain HOLD on Great
Wall Motor (2333.HK), given its near-term weakness, and maintain BUY
on Denway (203.HK).