Despite high-level government support for China’s New Energy Vehicle (NEV) industry, the Chinese government has been sending mixed messages to foreign companies investing in the world’s largest electric vehicle market. Some regulatory guidance is poised to advance the NEV and battery industries, but other regulations stifle investment and innovation.
The government offers significant incentives for NEVs in the form of subsidies and by allowing owners in some municipalities to bypass license plate lotteries. This has caused sales of electric vehicles to rapidly expand as they have become more price competitive.
Although finance minister Lou Jiwei called for subsidies to be eliminated by 2021, regulators at the Ministry of Industry and Information Technology (MIIT) proposed a system of carbon credits loosely based on California’s Zero-Emission Vehicle Program. Under this proposal, carbon credits would be allotted to each vehicle manufacturer according to its ratio of NEVs to conventional fuel vehicles that the company manufactures, and the amount of reduced emissions from the use of NEVs. Companies that fail to meet carbon emission goals can be fined three to five times the cost of the previous year’s market price for carbon credits. If implemented evenly, this system will allow foreign firms to leverage their energy storage and NEV technology to compete with Chinese firms.
There are also signs that China will liberalize investment in the industry. In mid-July, the State Council announced that they will lift ownership caps on foreign companies that manufacture NEV batteries inside the Guangdong, Tianjin, Fujian, and Shanghai FTZs. Additionally, with the US-China Bilateral Investment Treaty negotiations underway, sector-wide liberalizations for electric cars and batteries may be under consideration.
Though there are reasons to be optimistic, the Chinese government has also been limiting the extent to which foreign companies can meaningfully compete in the market. For example, MIIT excluded foreign battery manufacturers from the approved list of companies who can sell to carmakers that are subsidized by the government. Four versions of MIIT’s approved catalogue have been released since 2015, and none have included foreign manufacturers. This has directly affected several Korean and American manufacturers that have subsequently slashed jobs and had contracts terminated. MIIT’s approved catalogue has focused solely on producers of lithium ion batteries, excluding entire categories of technologies, like lead-acid batteries, from competing in the market.
A new set of draft guiding opinions from MIIT released August 16 are also likely to have a negative effect on NEV manufacturers by imposing new standards on the sector. For instance, in order to produce NEVs, manufacturers must apply to MIIT to be included in the “Road Vehicle NEV Manufacturer” list. Given the history of the lithium-ion battery list, such catalogues could similarly be used to favor domestic producers over foreign companies. The regulations also lay out a series of mandatory technical standards for approval, which can slow technological progress as new innovations may or may not fit within the issued technical specifications.
Additionally, the new regulations could create significant compliance costs for manufacturers. The draft opinions state that firms producing electric vehicles must keep a lifelong file on each car they sell and record its use, maintenance, and repair. They also require companies to produce annual reports of quarterly data on all NEVs sold, summarizing the vehicles’ conditions, including information on problems or accidents. Manufacturers must also ensure an after-sale service system includes training for service staff, a quality guarantee, a recycling plan, a system for processing claims, and a plan for dealing with environmental issues.
The guiding opinions on NEV development are available for comment on MIIT’s website until September 12. There is also an upcoming symposium in Shenzhen with MIIT to discuss standardization in the industry on September 8 to discuss battery and charging standards.