At least six cities and municipalities across China have suspended trade-in subsidies for car buyers in June, according to Reuters' review of government announcements, which could slow new car sales in the world's second-biggest economy.

Notices from governments in Zhengzhou and Luoyang blamed the subsidy pause on the first round of funding allocated by Beijing for the programme running out, while Shenyang and Chongqing said the suspension was due to adjustments to improve capital efficiency.

The northwestern region of Xinjiang issued a similar suspension.

China's government has leaned on subsidies for big-ticket items, including cars, home appliances and some electronics to get people spending as consumer sentiment in the country remains sluggish amid a prolonged property slump and concerns over wage growth and unemployment.

The programmes have been embraced with some enthusiasm. As of May 31, there were more than 4 million applications submitted this year for car-specific trade-in subsidies, according to the country's Ministry of Commerce.

Chinese retail sales data for May released earlier this week surprised on the upside with subsidies cited as one reason for the higher-than-expected 6.4 percent growth.

While there has been no official announcement about when more funds from the central government will be released for programmes, China's National Development and Reform Commission and Ministry of Finance have said the subsidies would continue throughout 2025, leading analysts to expect new funds for the third quarter to be made available from July.

The subsidy programme has also met with controversy, however, particularly in the auto sector. China's auto industry, the world's largest, has attracted criticism from regulators over a deepening price war that has sapped the sector's profitability.

Official media in China's Henan province, where Zhengzhou is the capital, last week reported, citing unnamed sources, that China's central government had taken note of some loopholes in the subsidy schemes and would look to make adjustments. One of the major issues identified by Chinese media and regulators is so-called "zero-mileage used cars", which refers to the practice of selling brand new cars as heavily discounted second-hand vehicles to get rid of inventory.

The report in Henan government-owned newspaper Dahe Daily added that sales of "zero-mileage used cars" were one of the key factors leading to subsidies being used up ahead of expectations, necessitating the suspensions.

Some businesses were disguising new or nearly new cars as used cars that they could trade in to obtain the subsidies, the newspaper said.

The People's Daily, a national newspaper that often signals the positions of China's top leaders on a variety of issues, also called for a crackdown on the zero-mileage used cars, weeks after Great Wall Motor((2333)'s Chairman Wei Jianjun publicly condemned the practice.

China's industry ministry in early June summoned automakers to a meeting where it called for the sector to halt its price wars, Reuters reported last week.

REUTERS

Some Chinese cities pause car-buying subsidies as funds run out