In the immediate future, Chinese regulations will help to push new car sales as the government initiates policies to curb pollution, but the situation is likely to change after 2015.
IHS Automotive perspective | |
Significance | A stream of new mandates has been released by the central government to fight pollution and to increase the number of new energy vehicles (NEVs) in use across the country. |
Implications | The immediate future will see a momentum in new car sales. However, after 2015 smaller-tier cities will begin to impose restrictions that will slow the overall growth in sales in the new passenger vehicle market. |
Outlook | China is determined to meet its target of half a million NEVs on its roads by 2015 and over 1 million by 2020 and, despite a slow start, new policies may speed up the deployment of NEVs across the country. |
In the month of September 2013, the central government of China has released a stream of new mandates to facilitate the promotion of NEVs and counter the rapid rise in pollution levels across the country. The new measures are expected to see an increase in NEV sales, as well as an increase in regular gasoline passenger vehicle sales in the immediate future, according to IHS Automotive forecasts. However, the situation is likely to change after 2015 as a greater number of smaller-tier cities across China begin to introduce restrictions on the number of new vehicles sold per annum.
Rise in clean fuel prices
The National Development and Reform Commission (NDRC) has announced that it will increase the price of clean fuels, starting from the end of 2013. Prices for diesel and gasoline that meet the National IV standard are expected to be increased by 290 yuan (USD47.38) and CNY370 respectively, while fuels that meet the National V standard will be increased by CNY170 for diesel and CNY160 for gasoline. The price increases are expected to be per metric ton, and therefore the impact per litre will be minimal. By the end of 2017, the National V level is expected to become mandatory across China.
Beijing vows to raise volume of NEVs
Over the next five years, Beijing will make a major push to promote the use of NEVs. According to the plans, the percentage of clean energy vehicles is expected to reach 50% of local passenger vehicles in the city under the "Beijing Clean Air Action Plan for 2013–17". So far, 10 suburban districts of Beijing have 1600 electric taxis in operation, and the city is working on constructing charging stations both in the downtown area and the on outskirts of the city. The Traffic Committee of Beijing has also indicated that the existing petrol-powered taxis will see their lifecycle reduced due to the introduction of NEV taxis.
This development of a 50% target for NEV passenger vehicles follows previous reports that Beijing had announced it would aim for 200,000 new energy vehicles by 2017, and limit the number of vehicles on its roads to 6 million units in an attempt to curb pollution. Under the same "Beijing Clean Air Action Plan for 2013–17", issued by the Beijing New Energy Bureau, the capital city will impose strict control over the total number of vehicles to 6 million units by the end of 2017. The new plan will take effect from the beginning of 2014.
China's Clean Air Action Plan
The government released its official "Clean Air Action Plan" for the 2013–17 period on 12 September 2013, which claims to be the "toughest-ever measures to combat airborne pollution". According to the state-owned China Daily, the action plan sets specific targets for 338 county-level cities across China. The aim is that by 2017, the percentage of particles (particulate matter/PM) that are 10 microns in diameter must drop by at least 10% from 2012 levels. Meanwhile, the cities of Beijing and Tianjin, and the region of Hebei province must reduce the PM 2.5 levels by at least 25% by 2017, based on the 2012 levels. The smaller PM 2.5 particles are especially hazardous as these can easily be inhaled, causing lung problems. For the automotive industry, the government legislation now calls for a ban on heavy-polluting vehicles by 2017, which will involve 5 million vehicles being removed from the roads in Beijing, Tianjin, and Hebei province; the Yangtze River Delta region, and the Pearl Delta region by 2015. All 338 county-level cities nationwide will set up national-level and city-level monitoring stations by 2015, with the ability to monitor PM2.5 levels.
New fund to promote NEVs
The Ministry of Industry and Information Technology (MIIT) and the Ministry of Finance (MOF) have announced a CNY4-billion fund for the development of the NEV industry. The new fund will support NEV design, battery development, and other technical advancements in the NEV field. According to ministers from the government bodies, the previous target for NEV sales to constitute 10% of the vehicle market in China in 2012 was not achieved; however, the government is keen to push for strong growth in the NEV sector nonetheless.
New NEV policies released
Detailed regulations for the new NEV subsidy policies have been determined and will be released to the public soon. According to the regulations, the subsidies for electric passenger vehicles will be reduced from CNY3,000/kWh to CNY2,000/kWh, while the maximum subsidies for each electric vehicle will reduce from CNY60,000 to CNY55,000. The new round of subsidy policies will be backdated to the beginning of 2013 and will last until the end of 2015.
Outlook and implications
Further to the "Clean Air Action Plan", the target is to reduce pollution levels across China with the initial focus on certain areas, such as the Beijing, Tianjin and Hebei area, the Pearl River Delta area, and the Yangzte River Delta area. The first round of measures will aim to significantly reduce particulate matter in the air in these cities by 2015. To do this, the central government has vowed to initially scrap "yellow label vehicles" in the focus areas by 2015, which are those that have emission standards below Euro Level 1 or lower than Chinese National Level I.
By 2017, the plan seeks to completely scrap all yellow-label vehicles, of which there are around 15 million, according to data from China's Ministry of Environmental Protection. Based on the initial assessment, if seriously implemented, the action plan could help to generate demand for at least 1 million new light vehicles each year, beginning in 2014.
The government is under serious pressure to reduce the levels of pollution in China's major cities (see China: 30 January 2013: Severe pollution prompts radical emission regulations in China). Much of the onus falls on the fuel-refining processes carried out by the state-owned petroleum companies, which have been increasingly blamed for heavy pollution in China; the types of fuel they supply are now also being scrutinised. The state council has ordered China's three state-owned oil companies – China National Petroleum Corp., China National Offshore Oil Corp., and China Petrochemical Corp. – to upgrade their refining facilities. However, Tang Dagang, director of the Vehicle Emission Control Center, said earlier this year that Chinese refineries won't produce cleaner fuel until the higher production costs are addressed by Chinese officials. The government has now addressed this issue with its policy to increase the price of cleaner fuels in order to encourage the refineries to produce them. The onus of the new higher price of cleaner fuel will fall on the consumer, but the hike is unlikely to be felt significantly by individual consumers.
Meanwhile, cities across China are imposing restrictions on the volume of new car sales per annum. Following the city of Beijing's Clean Air Action Plan, similar plans are expected to be released across the 338 target cities in China that are under scrutiny to reduce the levels of pollution. Earlier this year, cities such as Beijing and Shanghai witnessed extremely high PM 2.5 readings, forcing the government to acknowledge the problem and take action. Through the year, city- and provincial-level governments have announced plans to increase NEVs while curtailing the number of regular vehicles on their roads with new restriction policies. In July 2013, for example, a further eight cities were set to introduce policies to restrict new car sales, joining Beijing, Shanghai, Guiyang, and Guangzhou in implementing the measures. Then in August the municipal governments of Tianjin and the central city of Wuhan announced plans to restrict the sale of new cars in order to reduce air pollution levels.
The sudden decrease in growth rates in light vehicle sales in China after 2015 is estimated on the basis that a number of cities and provinces across China will begin to restrict the number of new vehicle sales in their regions as the fight to reduce PM levels will begin to hit the smaller-tier cities. This is in addition to a declining GDP rate expected after 2015, which will also impact the slowdown in overall sales.
In 2013, IHS Automotive's current forecasts show that new light vehicle sales in China will rise by 10.74% year on year (y/y) to 20.58 million. In 2014, the annual y/y growth in light vehicle sales will rise by 9.94%, while in 2015 it is anticipated to rise by 9.24%. However, in the years thereafter, our current estimates show that light vehicle sales, which include passenger and light commercial vehicles, will see growth of just 6.95% in 2016; in 2017, this is forecast to drop to 5.83%; and in 2018 it will drop further to 3.84%. By 2020, our current estimates show that although total new light vehicle sales in China will hit 30 million units, the y/y growth will have slowed to 2.4%, reflecting an overall slower growth in new vehicle sales.