Despite the U.S. proposal to prohibit Chinese automobile components, China's auto stocks remain unperturbed.

• Chinese automakers' shares rose on Tuesday despite a U.S. government proposal to prohibit certain vehicles with parts from China and Russia.
• The U.S. government has taken steps to limit the Chinese auto industry's power and presence in the country due to national security concerns.

Despite a U.S. government proposal to ban certain types of vehicles equipped with car parts from China and Russia, shares of Chinese automakers climbed Tuesday, following a broad rally after Beijing announced policy easing.

The stock prices of Nio, BYD, Geely, and Leapmotor all experienced significant growth, with Nio surging 9%, BYD climbing 2.7%, Geely adding 3.3%, and Leapmotor jumping 4.35%.

The proposed rule seeks to prohibit the import and sale of vehicles equipped with specific communication systems or automated driving systems linked to China or Russia. These systems allow for external communication through Bluetooth, cellular, and Wi-Fi modules.

The U.S. government has taken steps to limit the Chinese auto industry's power and presence in the country due to national security concerns.

Gina Raimondo, Commerce Secretary, stated that cars today are equipped with internet-connected technologies such as cameras, microphones, and GPS tracking, which could pose a serious risk to national security and the privacy of U.S. citizens if accessed by a foreign adversary.

The restrictions on software will be implemented for model year 2027, while those on hardware will start for model year 2030, or January 2029, for units without a model year.

The rally in the auto sector today was primarily due to the market condition in Hong Kong, which was influenced by the support provided by the PBOC, according to Ivan Wu, equity research analyst at Guotai Junan International.

The People's Bank of China's Governor, Pan Gongsheng, announced in a press conference on Tuesday that the reserve requirement ratio (RRR) for banks will be reduced by 50 basis points. Additionally, the PBOC will decrease the 7-day repo rate by 0.2 percentage points as part of other measures.

The U.S. proposal to ban Chinese auto parts may not have a significant impact on the Chinese auto industry because the sales volume of Chinese auto exports to the U.S. markets are small and limited, according to Wu. Moreover, Chinese parts companies have already established factories in South America, which can be exported directly to U.S. markets under the U.S.-Mexico Tariff Agreement.

In the first eight months of the year, car dealers in China suffered a loss of 138 billion yuan ($19.55 billion) due to being forced to sell new cars at discounted prices, according to the China Automobile Dealers Association (CADA).