Automotive Sector: China's Electric Ambitions 1 Briefing note November 2011 Automotive Sector: China's Electric Ambitions A summary of key policies, insights, challenges and opportunities regarding China's burgeoning automotive industry and intent to successfully introduce electric vehicles into the world's largest consumer market and beyond. Overview 2001 – 2010: A Decade of China's home-grown car Rapid Automotive Key issues manufacturers are racing to be Industry Expansion among the first to bring all-electric Overview China's annual automobile production cars to market. Most major Chinese 2001 – 2010: A Decade of capacity first exceeded one million car manufacturers are in various Rapid Automotive Industry vehicle units in 1992. By 2000, China stages of researching and launching Expansion was producing more than two million hybrid, plug-in hybrid and fully electric China's Inherent Automotive vehicles, including Chery, Warren gasoline-powered vehicles per year. After China's entry into the World Sector Advantages and Buffet-backed BYD, Beijing Cultural Factors Automotive Group Co., Ltd (BAIC), Trade Organization (WTO) in 2001, The Policy Aspects: Electric Brilliance Auto, Shanghai Automotive the development of the domestic Vehicles and the Chinese Industry Corporation (SAIC) and gas-powered automobile market Automotive Industry Plan Geely. Mainland car manufacturers further accelerated. Between 2002 are developing their 'green' product and 2007, China's national The Legal Aspects: The pipelines in order to capitalise on automobile market grew by an Current Climate for Foreign generous government purchase average 21 percent, or one million Investment in China's EV subsidies and get ahead of the vehicles, year-on-year. Industry demand curve in what most analysts In 2009, approximately 13.7 million Challenges to China's electric expect will be one of the world's motor vehicles were manufactured in ambitions remain largest markets for alternative-energy China, ensuring that China surpassed Foreign Investors' Actions So cars. It is expected that China’s Japan as the largest automobile Far annual production of manufacturer in the world. Over 10 alternative-energy automobiles, million of the vehicles produced in including electric vehicles, hybrid China were passenger cars (sedans, energy vehicles, hydrogen fuel cell sport utility vehicles), multi-purpose If you would like to know more about the vehicles and solar vehicles, will vehicles and crossovers, and 3.4 subjects covered in this publication or increase to 15 million units by 2020. million were commercial vehicles our services, please contact: Despite shared challenges, (buses, trucks, and tractors). Kelly Gregory +86 21 2320 7234 opportunities for foreign direct Gasoline consumption by motor To email one of the above, please use investment in China's automotive vehicle accounts for about one-third [email protected] sector are still substantial and of China’s total oil demand. compelling. Clifford Chance, 40th Floor, Bund Since September 2011, China has Centre, 222 Yan An East Road, been the largest automotive market in Shanghai 200002, China the world. Chinese car manufacturers www.cliffordchance.com and brands such as BYD (Build Your 2 Automotive Sector: China's Electric Ambitions Dreams), Chery, Geely, Hafei, Consumer car buyers in China are financial subsidies and offering Jianghuai (JAC), Chang'an, Great less accustomed to a tradition of other favourable policies such as Wall, and Roewe currently produce individual car ownership, consumer government procurement, the approximately 44% of the vehicles in protection and the power of promotion of pilot projects and the China market. The remaining 56% gasoline-fuelled cars. Most the development of a are produced and branded via joint commutes in China's cities are slow 'rapid-charge' infrastructure. The venture (JV) arrangements with because of consistent traffic Plan sets a goal to have an foreign car manufacturers such as congestion and a backlog of annual production capacity of Volkswagen, General Motors, infrastructure projects. Long distance 500,000 hybrid or wholly EVs, Hyundai, Nissan, Honda and Toyota. personal travel is comparatively rare which would be 5% of the total and most people use their cars to sales volume of passenger cars, In an effort to raise the international make short city trips - vehicles with a by 2011. competitiveness of the Chinese 100- or 200-kilometre driving range automobile industry, the Chinese Subsidies in Public Service would not be viewed as limiting. government has encouraged Sector - In January 2009, as part domestic car companies to For these reasons, many consider of the Plan then to be rolled out, consolidate, combining the 14 largest China to be in the pole position for the Chinese Ministry of Finance, car manufacturers into 10 and advancing and incorporating together with the Ministry of weaning them off their dependence alternative fuel and power Science and Technology, on government subsidies and JVs technologies for mass market, announced a pilot programme to with foreign companies and brands. consumer car application. promote alternative energy Chinese car manufacturers have vehicles (including hybrids, responded with gusto by pursuing full, The Policy Aspects: wholly electric vehicle and fuel high-profile acquisitions of several Electric Vehicles and the cells) to be used in the public service areas (such as those foreign automotive brands and Chinese Automotive divisions. For example, in March used in public transportation, 2010, a consortium led by Geely Industry Plan postal services, the taxi industry, public affairs and environmental acquired Sweden’s Volvo from Ford Chinese automotive industry leaders hygiene) in 13 major cities: Motor Company. and Chinese policy makers have Beijing, Shanghai, Chongqing, recognised the opportunity and are Changchun, Dalian, Hangzhou, China's Inherent actively pursuing a vision of China's Jinan, Wuhan, Shenzhen, Hefei, Automotive Sector success within the Electric Vehicle Changsha, Kunming and (EV) category amid growing Advantages and Cultural Nanchang, and this has been consumer income and demand, and further expanded in 2010 to Factors concerns about environmental impact include Tianjin, Haikou, Many analysts attribute the rapid rise and climate change, low cost labour Zhengzhou, Xiamen, Suzhou, of China's automotive industry to the sustainability and dependence on Tangshan and Guangzhou. country's abundant low-cost foreign oil imports. Under this programme, the manufacturing and labour resources, Target Production Capacity - In central government would consistent governmental incentives March 2009, the State Council, provide one-time subsidies of up (e.g. subsidies) and favourable China’s cabinet, released the to US$9,000/RMB60,000 to domestic business investment Automotive Readjustment and public service sector purchasers policies, and not least, its strategic Revitalization Plan (the Plan) to of wholly EVs and other and commercial emphasis on actively promote the alternative energy vehicle types. engagement and assimilation of development of the Chinese The amount of the subsidy would imported automotive technologies via automotive industry in general, be based on a vehicle's foreign direct investment. inclusive of hybrid, alternative fuel-saving capabilities. Several social factors are also fuel and wholly electric vehicle contributing to China's position. technologies, by providing Automotive Sector: China's Electric Ambitions 3 Subsidies to Private Buyers – end of 2015, China would exception to the 50% foreign In May 2010, taking the subsidy become a leading power in the shareholding restriction and may programme one step further, the energy saving and new energy be a signal that the Chinese Ministry of Finance, the Ministry vehicle industry, with its market regulator might ease the foreign of Science and Technology, the size being one of the largest in shareholding restriction, in Ministry of Industry and the world. particular, for investments in Information Technology (MIIT) The Legal Aspects: The privately-owned car and the National Development manufacturers in China. and Reform Commission (NDRC) Current Climate for Restriction on Number of JVs: announced a pilot programme to Foreign Investment in In China, one foreign investor provide subsidies to private China's EV Industry may only establish two JVs that customers/consumers in five engage in manufacturing the cities (including Shanghai, Foreign investors and multi-national same vehicle type (e.g., Changchun, Shenzhen, businesses with global interests and passenger cars, commercial Hangzhou and Hefei) of plug-in active involvement or operations in vehicles or motorcycles). It is hybrid and wholly EVs from 2010 China's automotive sector share worth noting that this 'two JVs' to 2012. The subsidies provided similar challenges and concerns. The restriction does not apply to for a plug-in hybrid are up to role that foreign technologies and acquisitions carried out by a US$7,500/RMB50,000 and the partnerships play in China has foreign investor together with its subsidies provided to wholly EVs changed as policies have shifted to Chinese partner. Taking are up to US$9,000/RMB60,000. encourage domestic Chinese car advantage of such an exception, Some local governments have manufacturers, and manage General Motors (GM) has also issued or indicated that they competitive foreign partners and invested in several JVs together have issued local subsidy