China's Strategic Emerging Industries: New energy vehicles

New energy vehicles (NEVs) in China is not only encouraged to cut smog in congested cities but also to boost its participation in international competition as a strategic industry. To make producers more competitive, state and local government offer a wide range of subsidies. 

The NPC delegates of car industry during this year’s National People’s Congress (NPC) have urged state support clarity for NEVs and reduce protectionism of local government. Preferential policies support for cleaner electric vehicles are common in many countries (e.g. US and Norway), which provide various subsides and other form of economic incentives. 

But in China, local government or provinces go further to encourage production rather than consumption because of intense regional competition. Protectionist local government use extra subsidies and preferential policies to protect their own firms and exclude rivals by adjusting technological standards. Industry delegates have seen the progress and potential development of NEV in China. Several provinces (e.g. Heilongjiang and Anhui) are lobbying for more support for NEV industry. But delegates also have found that the progress has been impeded by regional efforts to support local NEV champions and competition. Although at the national level the policy direction is clear, at local government level there are issues that hinder the development of NEV industry and the establishment of a competitive and fair market. Local governments were using various subsidies to protect their local firms rather than promote the NEV sector as a whole and they were adjusting technological standards to exclude rivals. The long-term existence of protectionism at local government level not only results in redundant and low-quality production, wasteful and inefficient investment, but also severely reduces consumer choice. It even fragments the market as a whole and deviates from the state’s policy to develop NEVs. NPC delegates said that these subsides focused on production, rather than consumption were counterproductive thus they called for state financial support to effective target subsidy in industries. In NEV industry, a clear requirement is to convert subsidies for car purchases into subsidies for usage. Delegates also called for nationwide technological standards and guidelines for batteries and cars. The battery life and recharging issues will be important thing in the future of the industry. Thus, government should consider creating incentives to improve battery range and raise technological thresholds. NEV sharing and electric vehicles preferential road access are also important measures that should be done to attract consumers.