The package from the State Council, or cabinet, includes a cut in the sales tax to five percent from 10 percent for cars with engines smaller than 1.6 litres, from January 20 until the end of the year, the China Daily reported.

"In order to adjust and revive the auto sector, we must implement a proactive consumption policy ... to stabilise and boost auto demand," the State Council was quoted as saying.

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

The package promises a 10-billion-yuan (1.5-billion-dollar) subsidy over the next three years for auto makers that upgrade their technology and develop alternative-energy vehicles.

The government in particular wants to promote the mass production of electric cars in big and medium-sized cities, according to the paper.

The package also calls for five billion yuan to be spent as subsidies for farmers who opt to replace three-wheeled vehicles or outdated trucks with new, small vehicles, the paper said.

Growth in the auto sector slowed to 6.7 percent last year, the lowest level in a decade, according to the paper.

The sales growth rate for 2008 followed an expansion of 21.8 percent in 2007 over the previous year, according to earlier reports.

The slowdown is having an impact on balance sheets, with combined profits of the 19 biggest auto makers falling 0.5 percent in the first 11 months of last year to 65.6 billion yuan, it said.

"The wide-ranging supportive measures will certainly give the industry a shot in the arm," Jia Xinguang, a Beijing-based auto analyst, told the paper.

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

Other observers were less enthusiastic about the effectiveness of the government's measures.

"Even with the government's auto industry-boosting policies, it is hard for sales to pick up the pace seen over the last few years," said Yang Jian, managing editor of Automotive News China.

China's economy grew by just nine percent in the third quarter of last year, the lowest level since mid-2003.

This year, economic growth in China could slow to 7.5 percent, a level not seen since 1990, according to the World Bank.

The Chinese government unveiled a four-trillion-yuan (590-billion-dollar) spending programme in late 2008 to revive the economy. It was unclear if the auto package was part of this or a new item.

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