China will spend at least 12 billion yuan ($1.76 billion) to subsidise smaller, fuel efficient cars by 2012, as part of broader plans to cut fuel emissions in the world's biggest auto market, the country's top economic planning agency said on Thursday.

Beijing unveiled plans this week to offer nationwide subsidies of 3,000 yuan for purchases of cars with 1.6 litre engines or smaller and which consume 20 percent less fuel than current standards.

The programme is estimated to cover more than 4 million such vehicles by 2012, the National Development and Reform Commission said in a statement on its website.

China will also hand out subsidies to buyers of electric cars and plug-in hybrid models in five select cities, including Shanghai.

The move will raise people's interest in green cars, but is unlikely to jump start the fledgling industry in the short term due to high battery costs as well as inadequate charging and maintenance networks in the country, analysts said.