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China Gets Its Wires Crossed With Electric Car Boom

A rash of state subsidies in China has helped multiply electric car sales, but it has also warped industrial policy and undercut the market.

An electric fueling station in Beijing
An electric fueling station in Beijing
Geng Huili, Wang Guoxin and Li Fang

BEIJING — China established itself as the world leader of plug-in electric and hybrid cars in 2015, with production and sales of more than 330,000 units, a three-fold increase over the previous year.

The numbers are a direct result of the "New Energy Vehicle" support plan that the Chinese government introduced three years ago. The initiative involves heavy subsidies for those producing electric automobiles, and has had the effect, on the whole, of upgrading China's sustainable automotive technology level to current international standards. Still, at the same time, the initiative has also generated much speculation among carmakers, and exposed widespread examples of dangerous battery production.

The problem, for starters, is that the subsidy policy tries to tackle the issue with too broad a stroke and thus contains loopholes that manufacturers tend to exploit. It has also been slow adapting to automotive industry developments.

For commercial vehicles, including medium-size vans or public buses, for example, the subsidies are classified depending on the length of the car body, explains Ouyang Minggao, a professor at Tsinghua University. "So automotive companies swarm to build whatever model squeezes out the most subsidy," he said. "For two years it was the 10- to 12-meter commercial vehicles, whereas last year nearly 80% rushed to build 6 to 8-meter vehicles."

The 2013-2015 subsidy policy established sums of 300,000 RMB ($45,600) per 6 to 8-meter electric vehicle and 400,000 RMB ($60,800) per 8 to 10-meter vehicle. Local governments add their own matching subsidies, meaning automakers were getting as much as 600,000 RMB (more than $90,000) per 6 to 8-meter vehicle, which is more than the cost of manufacturing. Producers, as a result, have been able to sell electric vehicles for lower prices than conventional ones.

Throughout the world, no other country has been so financially generous in encouraging electric cars. In the West, most electric vehicle promotion policies are implemented through "green tax" measures. Subsidies in those countries are mainly used to encourage research and development, and to build public charging points.

Safety concerns

In an effort to close these loopholes, the Chinese government revamped its subsidy policy effective Jan. 1. The first change in its new five-year plan was to raise the subsidy threshold by requiring electric passenger cars to have a top speed of 60 miles per hour and longer mileage effeciency.

But as Zhu Jun, deputy director of SAIC Motor, points out, producers can meet the efficiency requirement simply by increasing the number of battery packs, an added security risk that the regulations fail to account for.

"China's electric vehicle industry may have seen explosive growth in 2015, but there was also an increase in false claims of mileage efficiency, and in questionable practices such as blindly increasing the number of battery packs," he says.

In recent years there have been various reports of batteries causing fires in cars and public buses. "Not only does this do great harm to companies that strive to raise quality through research and design, but it also puts China's electric car development into a vicious circle," says Zhu Jun.

The government's new plan also calls for reducing direct subsidies to electric vehicles and encouraging nation-wide construction of charging facilities, particularly in areas with high levels of air pollution. State subsidies have to be "withdrawn gradually," Xin Guobin, the deputy minister of industry and information technology, said during a recent electric vehicle forum. "The companies themselves need to become the main driving force of industrial development."

Zhu Jun reckons that China, which has been unable to compete with U.S. and European automakers with regards to conventional vehicles, will be able to match up on the electric car front. "But the imperative will be to grasp core technology and not rely on subsidies," he says. "Only if our products are competitive can our development be sustainable."

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