China announced plans to end tax incentives for small cars on 1 January 2011.

China is planning to end incentives for small cars from 1 January 2011, according to the finance ministry.

The move is expected to affect the sales of small cars, which comprise about 60% of passenger car sales in China, but will not dampen auto demand in the nation.

A sales tax of 10% will be imposed on cars with a 1.6 litre engine or smaller with effect from 1 January.

The ministry however did not disclose if the $ 450 rebate for fuel-efficient cars would be remain in place along with subsidies for farmers. The auto market in the will continue to grow at a stable pace due to demand in inland areas replacing coastal cities as major growth areas in the nation, according to Reuters.

China's auto industry grew 53% in 2009 and 35% in the first 11 months of 2010.