China unveils subsidies for fuel-efficient vehicles

SHANGHAI -- China has rolled out a new incentive program for fuel-efficient cars and buses to encourage the use of environmentally friendly vehicles as the country battles staggering levels of pollution.

With immediate effect, buyers of electric cars will receive up to 60,000 yuan ($9,800) in subsidies while buyers of certain gasoline-electric hybrids may get as much as CNY35,000, the Ministry of Finance said Tuesday. The subsidies will be lowered by 10% in 2014 and another 20% in 2015 from current levels, it added.

The program is to "speed development of the new-energy automobile industry, reduce emissions and help control pollution," the ministry said in a statement published on its website.

Earlier this year, Beijing saw a bout of intense air pollution over a series of weeks in an episode dubbed an "airpocalypse." Residents stocked up on face masks and air purifiers while large swathes of the country had similarly hazardous levels of pollution.

Such events have prompted Chinese leaders to scramble to get ahead of the pollution challenge and show an angry public that they are serious about cleaning up the environment.

Global auto makers are rushing to launch electric vehicles in China over the next few years. Daimler and BYD will start producing Denza, an electric car, later this year, and the car will go on sale in 2014. Toyota Motor unveiled its new hybrid Yundon-Showanchin II in April, which was developed specifically for China. It plans to start local production of key hybrid components by 2015.

Analysts said the impact of the new subsidies may be limited, however. They noted that the subsidies are slightly less generous than the last batch of subsidies, which expired at the end of last year.

Under the previous program, China offered a maximum subsidy of CNY60,000 for every electric car and CNY50,000 for every hybrid vehicle. But even with the help of those subsidies, Chinese consumers bought only 11,375 electric cars in 2012, a paltry tally in the world's biggest car market, where total vehicle sales reached 19.3 million the same year, according to the China Association of Automobile Manufacturers.

"Car makers will have to make their energy-efficient products more competitive to attract buyers," said Yale Zhang, managing director of consulting firm Automotive Foresight.

Sales of energy-efficient cars will also be limited in the near term due to an underdeveloped battery-recharging infrastructure coupled with the higher sticker price for electric cars compared with their gasoline-powered counterparts, analysts said.

China is far short of reaching its goal of having 500,000 hybrid and electric cars on its roads by 2015 and five million by 2020. Analysts say the odds of meeting those targets are small.

In a bid to promote the use of green vehicles, the Finance Ministry on Tuesday also called on local governments such as Beijing and Shanghai to buy more fuel-efficient cars and buses for their official fleets. For instance, it said when government agencies and public institutions purchase new motor vehicles, fuel-efficient vehicles must account for at least 30% of the new purchases.

The Finance Ministry also said it would offer a maximum subsidy of CNY500,000 per unit for buyers of electric buses between 2013 and 2015.

In Beijing, one of China's most congested cities, auto emissions account for about one-third of PM2.5 -- particulate matter measuring less than 2.5 micrometers in diameter -- official data show.

Dow Jones Newswires

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