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January 27, 2016

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Green jaded: plug-in auto industry suffers a black eye

China’s heavily subsidized new energy car market hangs by a wire, an electric wire.

Last year, China officially superseded the US as the world’s biggest electric car market, as sales more than tripled to over 330,000 vehicles, driven by an estimated 30 billion yuan (US$4.56 billion) in local and central government incentives.

It all looked pretty impressive until reports of subsidy fraud began emerging at the start of this year. With hefty subsidy programs for green vehicles nationwide about to be scaled back, 2015 was the last chance for the unscrupulous to score big.

A joint investigation was launched last week by the Ministry of Finance, the Ministry of Science and Technology, the Ministry of Industry and Information Technology, and the National Development and Reform Commission to look beneath the hood of the plug-in industry.

The probe comes as central government-level subsidies for private purchases of all-electric cars change to between 25,000 yuan and 55,000 yuan, from between 31,500 yuan and 54,000 yuan last year. The incentives are based on an electric car’s mileage, with a minimum requirement that goes up from 80 kilometers to 100 kilometers on one charge. The subsidies for plug-in hybrids with more than 50 kilometers in electric mode drop from 31,500 yuan to 30,000 yuan each purchase.

Plus local subsidies, which are likely to be equally generous, the maximum amount a car buyer might expect is 110,000 yuan or more.

The Economic Observer, in a recent report, said tens of thousands of new energy cars seem to have “disappeared” fresh off assembly lines. It cited the disparity between sales numbers and car plate registrations. Also doing a vanishing act were subsidies that went with those “ghost” cars.

It’s all a bit dispiriting for government efforts to entice people to buy green vehicles and help reduce the choking smog on urban thoroughfares.

The recent China Electric Vehicle 100 forum, the most senior-level annual meeting of market players, academics and government officials, was a rare occasion to address inflated sales and mileage figures of electric cars and bring the discussion out in the open.

The latest scandals caused red faces. Industry experts shared their concerns about shameless cheating to gain subsidies, including poor-quality assembly of electric cars with exaggerated mileage and even selling the cars to self-managed car rental companies to recycle key components for another round of manufacturing and swindling.

The coordinated probe by central authorities aims to scour the records of subsidies back to 2013, to double-check the consistency of key performance indicators of electric vehicles with data listed in the national catalog, and to verify the working status of vehicles sold to business customers.

Casting a cold eye over what has happened, some observers now see how the system of subsidies came to be so flawed. Instead of supporting a critical emerging industry, it became a temptation for scoundrels.

“China’s new energy industry is not a late starter, but is still lack of breakthroughs in high-end products and core technologies. A big reason is that carmakers rely too heavily on subsidies and fail to keep up their own spirits of perseverance and innovation,” Minister of Finance Lou Jiwei told the forum.

“High subsidies are the primary reason for low-quality, low-efficiency new energy car development,” said Yang Yusheng, a member of the Chinese Academy of Engineering.

The Chinese government’s decision to scale back subsidies is aimed at putting the market back in the driver’s seat and encouraging the new energy industry to develop under its own commercial viability.

According to the country’s current Five-Year Plan, subsidies in 2017 and 2018 will be cut by 20 percent from this year, with another 20 percent decrease in 2019 and 2020.

And even so, to help the industry meet a high-flying target of 5 million new energy cars on the roads by 2020, the government will still needs to set aside about 390 billion yuan, according to Yang. Current deployment of electric cars was 4.5 million units short of that goal at the end of last year.

Yang and 18 other members of the Chinese Academy of Engineering sent a letter to government officials advising that a maximum limit be set for combined subsidies in the next five years.

Xin Guobing, vice minister of the Ministry of Industry and Information Technology, said recently that incentives for green carmaking after 2020 will likely involve an emissions credit trading system to replace direct subsidies.


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