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Economy

China to slash EV subsidies 30% next year

As industry grows, focus turns to competitiveness

China plans to completely end the subsidies in 2020.    © AP

BEIJING -- The Chinese government is expected to reduce subsidies on electric-vehicle purchases by about a third in 2019, possibly increasing downward pressure on an economy already losing momentum.

China plans to completely end the subsidies in 2020 under a phaseout that began last year, with an eye toward encouraging automakers to cut costs and become more competitive.

"Next year's subsidies will likely be reduced by approximately 30% compared with this year," a representative from the China Association of Automobile Manufacturers told Nikkei on Tuesday. The industry group works with the authorities and automakers on policy.

This prediction is backed up by the Securities Times, published under the official People's Daily. The news has left affected parties worried.

"If subsidies for popular models are steeply reduced, sales could soften," an executive at a major Chinese automaker said.

Consumers pay less for the vehicles, while the financial assistance ultimately goes to the manufacturers. Subsidies are linked to driving range, so certain models may end up with increased subsidies even if subsidies decline overall. This suggests that the Chinese government uses the subsidies to guide vehicle sales by model to some extent.

A compact electric model that travels 150 km on one charge receives a 15,000 yuan ($2,178) subsidy this year -- down 60% from 2017 for this popular option. But midsize and large electrics with a 400 km range got a 10% boost to 50,000 yuan.

If the central government cuts subsidies, local governments will follow suit in their separately administered programs. The burden on consumers could sharply increase. About 28 million new autos are expected to be sold in China this year. So-called new-energy vehicles would account for 1.2 million units, up 50% from last year.

The "Made in China 2025" initiative positions new-energy vehicles as a priority. Plans are to have them account for 20% of all new autos sold that year.

China began subsidizing electric-vehicle purchases in 2010. The measure initially drew criticism from foreign automakers, since the subsidies were limited largely to vehicles with Chinese-made batteries. Such restrictions are no longer apparent, likely due to the limited supply of high-quality batteries.

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