In post-COVID-19 pandemic efforts to revive the economy, China’s government has so far – unlike other countries – resisted issuing a large stimulus package. Instead, the current stimulus measures amount to 2 trillion RMB – split into government bonds and financial relief measures – are targeted at spurring innovative technologies and consumption to stabilize employment and ensure people’s livelihood. Acknowledging that China’s economic growth is increasingly driven by consumption, the government has been trying to rekindle consumption by, for example, issuing consumption vouchers and cutting the purchase taxes for cars.
This is where stimulus for two of the hardest hit industries in China converge: consumers are encouraged to buy more cars to save the ailing automotive industry, especially in the New Energy Vehicle (NEV) segment. China is the world’s largest auto market, including electric vehicles. China’s automotive industry with its large down- and upstream industries has been a crucial driver of economic growth with well over 50 local and foreign car makers active in the market.
However, automotive sales had already started to decline prior to the COVID-19 pandemic. In 2018, China’s overall automotive market fell by nearly 3% year-on-year, a first after 28 years. This trend continued in 2019 when car sales fell by 12.4% in the first half compared to 2018. While sales and production of NEVs grew by 59.92 % and 61.74 % respectively, it was not enough to offset the overall slump.
The importance of the NEV segment for China is not of economic significance alone. It has been a flagship project for the Chinese government to reinvigorate an industry that was mainly dominated by large foreign brands. In 2010, the government designated NEVs as one of its seven “strategic emerging industries” and in 2015, Chinese Premier Li Keqiang further elevated the industry plus concomitant battery technology production and charging network to become a key pillar in the strategic “Made in China 2025” plan. Policy tools including research funding, emissions guidelines, import tariffs, purchase subsidies, tax exemptions, license restrictions etc., were applied to build a strong domestic industry and help reduce pollution. At the same time, it created a glut of electric vehicle makers barely able to survive without subsidies. Throughout 2019 the government slashed more than 70% of subsidies.
China is now planning to stimulate the new energy vehicle sector in terms of demand, supply and use. Measures like relaxed limits on production outsourcing and allowing carmakers to test products themselves to cut unnecessary and repetitive procedures aimed at making production more efficient and cost-effective. Outsourcing production makes it easier and cheaper for start-ups to produce cars and allow established carmakers to make better use of their factories. Further measures include encouraging battery-swap technologies to alleviate mileage anxieties, introduction of more new energy vehicles into public-service sectors including buses, street sweepers and logistics, add more charging piles and exempt electric cars from ban-day rules and cutting parking charges. In addition, the government plans to add 5,000 hydrogen energy vehicles on the road by 2020, 50,000 by 2025 and 1 million by 2030. However, while the network of electric charging station has been steadily expanding, there is a need to develop a dense system of hydrogen refueling stations to support the expansion of this type of new energy transport.
Activity Rating: *** Moving Forward
While some improvement of air quality can be seen in cities with large fleets of NEVs, the overall assessments of the sector’s environmental impact is critical, saying that there is little evidence of reduced greenhouse gas emissions. In fact, much of China’s electricity grid is powered primarily by coal-fired power plants making electric cars not much cleaner in terms of carbon emissions than combustible engines. In addition, the indirect emissions caused by the high energy consumption needed to produce lithium-ion batteries can be up to twice of those used to manufacture a standard combustible vehicle. With the resumption of China’s industry, transport and traffic, levels of health-harming air pollutants in China are reported to have exceeded concentrations compared to the same time last year, for the first time since the start of the COVID-19 crisis. The rebound appears to be driven by industrial emissions and pollution levels tended to increase more in areas where coal-burning is a larger source of pollution.
Pushing for more NEVs on China’s roads will only be meaningful if it is combined with an accelerated energy reform away from coal to cleaner sources of energy. The southern island province of Hainan may serve as an example, where the provincial government recently announced a ban on combustible engine vehicle sales by 2030 as well as a commitment to shifting the whole island to a clean electricity system by 2030 based on 80% clean energy.
Car manufacturing itself has a way to go to make production cleaner. To this point, Chinese car maker Geely, which owns the Volvo brand, has recently announced that its Volvo production in Sichuan will be carbon-neutral by 2030.
In Chinese media calls for a green recovery have become more vociferous in recent weeks, citing the efforts of a.o. the EU to ties financial support to creating business models and technologies to combat climate change. A government guideline released in late April on accelerating the establishment of a regulatory and policy system for green production and consumption is providing hope that green initiatives will become part of green economic stimulus initiative.
We commend China on its unwavering support to continue on the path of greener development despite the vast challenges to the economy in the wake of the COVID-19 pandemic. Pushing for increased NEV use instead of combustible energy cars on China’s streets to support the struggling local automotive industry and its employees is a good step into the right direction. At the same time, we urge you to couple these efforts with additional focus on reforming the energy sources for all modes of transport in order to achieve real impact on carbon emissions reduction. Complementary measures should include:
- Speed up efforts to transform its energy sector to rely less on coal and more on clean energy sources, including concomitant policies to support further and faster development of wind and solar energy or a shift to cleaner burning liquid natural gas.
- Expand research into alternative energy sources for NEVs like hydrogen and encourage more energy efficient production in the up- and downstream automotive industries.
- Expand NEV charging infrastructure
- Encourage new business models like the shared car or bike economy to complement public transport in cities and to reduce the individual household ownership of one or more cars.
- Speed up development of clean energy infrastructure for long-distance transport like trains to take combustible engine trucks off the roads.
National Development & Reform Commission / 中华人民共和国国家发展和改革委员会
Chairman Lifeng He / 何立峰主任
(for Chinese) http://xf.ndrc.gov.cn/xf/2019/ly.jsp
(For English) firstname.lastname@example.org
Ministry of Industry and Information Technology of the People’s Republic of China/ 中华人民共和国工业和信息化部
Minister Wei Miao / 苗圩部长
(for Chinese) http://bzxx.miit.gov.cn/bzxx/appellate/notice
(For English) email@example.com
The State Council, 中华人民共和国国务院总理
Share your ideas with China’s Premier (in English)
Premier Keqiang Li / 李克强总理
This Post was submitted by Climate Scorecard Country Manager: Annette Wiedenbach
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