GUANGZHOU, China -- Alternative-fuel cars are failing to gain ground fast in China despite more government subsidies for consumers buying hybrid or electric vehicles.
Observers say the government's policy of promoting domestic carmakers is hampering the spread of advanced green car technologies.
However, the number of local governments subsidizing environmentally friendly vehicles continues to grow. The government of Shenzhen in Guangdong Province recently earmarked 5 billion yuan ($799 million) in its 2015 budget for eco-car subsidies and set an annual sales target of 15,000 vehicles. Huizhou in the same province has adopted a similar program, subsidizing up to 120,000 yuan per vehicle sold. The program covers the period from Jan. 1, 2013 to Dec. 31, 2015 and is effective retroactively, so people who bought eco-cars before it was introduced will be reimbursed.
Major Chinese cities like Guangzhou, in Guangdong Province, and Chongqing in southwestern China, have also introduced financial support programs.
Cities with a thriving auto industry tend to be more eager to offer support. Shenzhen, for instance, is home to major Chinese carmaker BYD Auto, while Toyota Motor, Nissan Motor and Honda Motor have plants in Guangzhou. Chongqing is also trying to promote the local auto industry as a policy priority, while Wuhan, the capital of Hubei province, where Nissan and Honda have bases, also has a subsidy program.
High hurdles for foreign makers
But other elements of the government's car industry policy remain strongly advantageous to domestic manufacturers that lag foreign rivals in green technology, cramping sales of ecological vehicles. One downside is the fact that the local government subsidies are capped at 120,000 yuan and will end in 2016 or earlier.
Last year, 21 provinces and cities announced about 70 subsidy programs to promote eco-friendly vehicles, but they have not been quite so effective. Just more than 80,000 alternative-fuel vehicles, like electric and plug-in hybrid cars, were produced in China last year, according to the Ministry of Industry and Information Technology. The government has set a target to increase domestic production of eco-cars to 2 million a year by 2020. Another target is 5 million in accumulated sales of these vehicles by that year. Both targets, however, are hard to achieve if the current situation continues.
In a move to stoke growth of eco-car sales, the government has decided to exempt electric cars, plug-in hybrids and fuel cell vehicles from the car purchase tax for the period from September 2014 to late 2017. But that is unlikely to give a big boost to sales as it means just a 10% on the cars. And, the models that are eligible for the tax exemption are dominated by Chinese-made vehicles, raising the criticism that the selection criteria is biased to domestic makers.
Beijing has set high hurdles for foreign makers' trying to enter the country's budding eco-car market. As a condition for selling their eco-vehicles in China, the government demands foreign automakers provide core technologies to their Chinese partners.
Providing subsidies and developing necessary infrastructure will not do much to help expand the market for eco-cars in China unless the government corrects its preferential treatment for domestic makers and lowers the barriers for foreign manufacturers.