Reports that the Chinese government might launch another round of subsidies to boost the sales of automobiles in rural areas and sustain the sector's growth produced a knee-jerk surge in the share prices of some domestic automakers on Wednesday.
Such investor enthusiasm is understandable given that China's auto sales increased by only 4.1 percent year-on-year in the first eight months of 2012.
This lukewarm growth in the sales of automobiles is only slightly higher than the 2.5 percent achieved last year, a far cry from the 46 percent growth in 2009 and 32 percent in 2010.
However, if the government provides favorable financial policies, the auto industry can aggressively tap into the vast rural market where the appetite for automobiles is high and ownership remains relatively low.
Thanks to growing concerns over traffic congestion and air pollution, more big cities in China are adopting various measures to check the explosive growth of ownership. But it is still widely believed that the country's auto boom will continue in the smaller cities and rural regions.
If the reported plan to extend the current purchase favors granted small trucks and minibuses to cars with engines under 1.3 liters materializes, it will be a much-needed shot in the arm for Chinese automakers. Yet, that does not mean the auto industry should expect an easy ride.
While government policies may help increase their sales for a while, they will not guarantee long-term success in the domestic market. Only those automakers that can come up with cost-efficient and reliable vehicles will be able to overcome the huge urban-rural income gap and thrive in China's rural market.
For Chinese policymakers, while their latest effort to boost domestic consumption is commendable, they should do their best to ensure that public funds are not spent solely to help sell as many vehicles as possible.
It is imperative that government subsidies play a key role in promoting vehicles that are both energy-efficient and environmentally friendly.
It is encouraging that the government has recently started a pilot program with a total of 23 electric cars to promote new-energy vehicles for official use. But vehicle subsidies in rural areas should and can be part of the country's efforts to develop a greener automobile industry.
