Beijing to Subsidize Electric Car Sales

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Automotive, Green, Macroeconomics

China could be, with the best of intentions, setting up another bubble, this time in electric car production. A Financial Times article reported that China, the largest automobile market in the world, will launch a pilot program to encourage consumers to switch from fossil-fueled vehicles to electric by offering substantial purchase subsidies for green cars and financing for the construction of electric power charging infrastructure in five cities. According to state news agency Xinhua a post on said subsidies of up to 60,000 yuan ($9,000) will be given to buyers of pure electric vehicles in the five cities chosen for the pilot program – Shanghai, Changchun, Shenzhen, Hangzhou and Hefei while buyers of plug-in hybrid cars will be eligible for incentives worth up to 50,000 yuan ($7,300). The incentives will be reduced when sales top 50,000 vehicles although no details of by how much have been given.

This should be seen as part of a wider drive to reduce pollution and achieve economic progress at the same time. In the case of metals production the authorities are forcing industry to consolidate, close outdated production facilities and move exports upstream to more value add products all of which would improve efficiency and reduce pollution per unit of GDP. In the same way Beijing is seeking to reduce expensive oil imports, reduce pollution and improve China’s technology base in electric vehicles with this new program preference will be given to home grown car models rather than imports.

But therein lies one of the many problems. At the moment China is technologically a long way behind Japan and western car producers in terms of electric vehicles hybrid or all electric ELV’s . Battery maker BYD is the most advanced but even they are teaming up with Daimler to form a JV company in China to develop electric vehicles according to this report. Some 40+ other Chinese car companies state they have electric vehicles in the works but in practice most of them are far from viable. That won’t stop them claiming subsidies and flooding the market with shoddy goods argues a website

Another major issue is recharging in a country where most people live in apartments. The government has at least recognized this problem and part of the subsidy will go to building a network of re-charging stations in the five cities mentioned but no details have been given as to how many, security if vehicles are left out overnight, how they will charge drivers for recharging, etc.

In theory Beijing’s attempts to manipulate the electric car market, in the same way that they manipulate so many other economic activities in China, will probably have the desired effect in terms of stimulating activity. To what extent the subsidy will significantly raise the number of electric vehicles on China’s roads remains to be seen. 50,000 vehicles sounds like a small target if the aim is to build an industry of champions with the critical mass to justify substantial investment and sufficient R&D to become world players. As a long-term strategic objective, encouraging widespread uptake of electric cars has a lot to commend it from an environmental point of view. China’s 1.3bn population are keen to increase car ownership from currently low levels to those of advanced economies. Statistics show that it took six years for Beijing’s car ownership to rise from 1 million to 2 million by 2003, another four years to reach 3 million by 2007, and just two years to hit 4 million by the end of 2009. Although the city administration has resorted to temporary traffic restriction that bans one-fifth of the car population from driving every work day, the traffic often crawls and congestion remains unbearable. Worse, the 4 million cars are emitting 1 million tons of pollutants each year, accounting for half of the city’s total emissions according to the Peoples Daily. Getting new buyers to opt for electric rather than petrol won’t reduce the congestion but it will reduce the emissions and pollution.

–Stuart Burns

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