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Local protectionism hinders expansion of green vehicles
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What are the biggest obstacles facing the central government’s efforts to promote eco-friendly transport in China?
One of them, undoubtedly, is the prevalence of trade barriers erected by local governments to protect their own green-car industries.
There are 25 cities in China designated as pilot projects for the development of eco-friendly cars. Preferential policies enacted in each of those cities to promote their local green carmakers have established strong hometown markets: the SAIC’s Roewe E50 in Shanghai, the BYDs in Shenzhen and the Zotyes in Hangzhou, capital of Zhejiang Province.
The problem is that none of these cars has the clout to become a nationwide game changer. Expanding sales to cities beyond the manufacturing point runs into rules set by other cities, including localization criteria.
In other words, if your cars aren’t from here, you will have problems selling them here. The central government, facing a serious shortfall in stated goal of putting at least 20,000 all-electric or plug-in hybrid vehicles on the roads of each pilot city by last year, has recently released a new subsidy policy aimed at breaking down the trade barriers.
As before, local governments will be responsible for distributing the central government subsidies to new energy carmakers, which will then reduce the sticker prices at dealerships. But this time, carmakers may apply for all the subsidy money beforehand — at the place where they are registered instead of at the place where cars are sold.
“Under normal circumstances, local governments tend to take care of car companies registered within their own jurisdictions,” independent auto analyst Zhang Zhiyong said in a note. “Therefore, the money from the central government can now benefit carmakers directly without getting stuck on its way down to the local level.”
In addition, the new subsidy policy states that a minimum 30 percent of non-local new energy cars must be included in the promotional policies of pilot cities.
To meet such a quota, the local governments can no longer be so blatant about protectionism, said Zeng Zhilin, research director at LMC Automotive Asia Pacific.
However, both analysts admitted that the new barrier policy has its flaws.
The 30 percent requirement, Zhang said, could turn into a bottleneck of penetration for non-local new energy cars if local governments tip the remaining 70 percent to companies more relevant to their local economies.
“A real new energy car market should allow free competition among different brands and products,” Zhang said. “If one region has a strong new carmaker, whose products are safer and more advanced than models produced by non-local companies, why bother to help the latter break into the market?”
And, Zeng said, “don’t forget that local subsidies, whose maximum for each new energy car can be 60,000 yuan (US$9,804), about on par with central subsidies, are quite limited to locally produced electric cars.”
The local government has a right to decide how to use that pool of money and certainly has no reason to support cars that don’t contribute to its own economy.
“No way has been found to resolve the regional protectionism issue at its roots,” said Zeng. “Maybe the government should think more about other priorities for the promotion of new energy cars, such as investing in public transport. Private purchases cannot be counted on to boost sales, at least not in the next three years.”
Without public demand, the new energy industry won’t thrive, barriers or no barriers.
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