Interdependencies on Energy and Climate Security for China and Europe:
Sectoral Study on Vehicles (Cars, Trucks and Aeroplanes)
Jiang Kejun, Energy Research Institute, Beijing Huang Liya, Transport Planning and Research Institute, Beijing
A study commissioned by the Interdependencies on Energy and Climate Security project
February 2008
ERI
1
Climate and energy strategy objectives and policy framework
State policy and objectives
In recent years China’s central government has established a strategy for saving energy and addressing climate change. The policies included in it have been drawn up as a framework to help local and regional governments ensure that the objectives are met. In November 2004, China’s National Development and Reform Commission (NDRC) enacted a Long-term Energy-saving Plan (hereafter the Energy-saving Plan) which put forward the state’s targets for energy-saving and drew up energy-saving standards for the different categories of vehicle. In 2006, the State Council approved an Integrated Programme for Energy Saving and Emissions Reduction which was enacted by the NDRC and related departments, and promulgated to all government departments. After this, each department of the transport administration began to formulate its own energy-saving strategy based on the national plan. According to the Energy-saving Plan, China will achieve the target of making a 20% reduction of energy consumption per unit GDP by 2010; that is, consumption will fall from 1.22 tonnes of standard coal in 2005 to less than 1 tonne. Other main targets include a 10% decrease in pollutant emissions; and a decrease in total sulphur dioxide emissions from 25.49 million tonnes in 2005 to 22.95 million tonnes by 2010. In accordance with the provisions of the United Nations Framework Convention on Climate Change and its Kyoto Protocol, which China has, respectively, approved and ratified, a series of laws and regulations were published in 2007, notably China's Scientific and Technological Actions on Climate Change, and China's National Climate Change Programme (hereafter the National Programme), both drawn up under the auspices of the NDRC. Measures for the Operation and Management of Clean Development Mechanism Projects in China have also been formulated.
2
According to the National Programme, China will reduce CO2 emissions. It will strengthen its recommendations on energy conservation and on the development and efficient use of renewable energy. The target is to increase the proportion of renewable energy (including large-scale hydropower) in the primary energy mix to 10% by 2010. The programme includes specific targets for the transport sector (see Box 1), which is regarded as a key sector for climate change policy.
Box 1: Targets for strengthening the development and dissemination of energy-conserving technologies in the transport sectors - Speed up the elimination of old energy-intensive automobiles and develop the use of diesel for automobiles and heavy-duty and special vehicles. - Increase the use of vans and special transport vehicles such as container vehicles; promote the implementation of national standards for vehicle fuel consumption so as to limit the use of low fuel economy vehicles. - Accelerate the development of an electrified railway network; develop AC-DC-AC high- efficiency electric locomotives; promote pulling power factor compensation technology for electrified railways and other power-saving measures so as to improve efficiency in the use of electric power; develop the technology of locomotives supplying power to passenger carriages; promote the application of passenger carriage power supply and gradually eliminate diesel locomotives; adopt energy-saving aircraft, improve load ratios, occupation rates and transport turnaround efficiency, improve fuel efficiency and reduce oil consumption. - Accelerate the elimination of old ships by formulating technical standards for ships, and introduce new types of ships and an advanced power system. Source: China's National Climate Change Programme, June 2007.
Policy and objectives for vehicle sectors
China’s central government currently has three departments of transport administration: the Ministry of Communication (MOC), the Ministry of Railways (MOR) and the General Administration of Civil Aviation (GACA). The MOC is in
3
charge of road transport and water transport, while the MOR and GACA are in charge of railway transport and aviation respectively. Thus these three departments are responsible for establishing energy-saving policies and objectives for road, rail and air transport. All three of these departments have already formulated energy-saving targets and related policies for their area of responsibility but none has established policy objectives specifically concerned with addressing climate change apart from those on emissions reduction.
1. Automotive vehicles
Energy-saving for automotive vehicles has been the strategic focus in recent years. The overall framework comprises the following main policies. On 1 June 2004, the NDRC promulgated a policy for the development of China’s automotive industry, the key targets of which are energy-saving and environmental protection. To achieve these, the use of energy-saving and small-engined cars will be encouraged; the development of hybrid electric vehicles is also specifically emphasized, focusing on hybrid electric/diesel fuel vehicles. In the longer term, research and manufacture of automotive fuels such as alcohol, natural gas and hydrogen, as well as of vehicles capable of using them, will be promoted in the domestic automotive industry. There are three important aspects to energy-saving policies: the conditions under which manufacturers are allowed to operate; policies on energy-saving standards; and energy efficiency labelling. Conditions under which manufacturers are allowed to operate: In March 2007, the NDRC promulgated an administrative regulation on access to the production of new-energy vehicles (hereafter Regulation). The Regulation stipulates the conditions and test standards for manufacturers who want to enter the sector. These
4
include the conditions and viability of the manufacturing process, the company’s capacity for design and development, the consistency of its existing products, etc. Three stages are proposed for the administration procedure for admission, according to the maturity of the key technologies of the complete vehicles, operation system and vehicle construction. These are the start-up period, the expansion period and the maturation period. Different management measures will be adopted for each period. Energy-saving standards for vehicles: There is a strict system of standards based on indicators of vehicle fuel economy (Table 1). The energy-saving standards of various other countries are being examined and some of these may be adopted in the near future. First, several standards for the fuel consumption limit of different types of automotive vehicles have been drawn up. In November 2004, the General Administration of Quality Supervision, Inspection and Quarantine of the PRC (GAQSIQ) and the Standardization Administration of the PRC (SA) jointly issued Fuel Consumption Limits of Passenger Cars (GB 19578-2004), introducing mandatory standards for passenger cars. Similarly, the standard Limits of Fuel Consumption for Light Commercial Vehicles (GB 20997-2007) were issued in July 2007, and will be implemented from February 2008. This standard imposes a two-stage fuel consumption limit on light commercial vehicles. Considered an important standard, in combination with the law on energy-saving, it is expected to reduce the total fuel consumption of light commercial vehicles by 10%. Second, standards for new energy-fuelled vehicles are being researched and implemented. For example, the standard system for fuel cell vehicles, which originated in Shanghai, includes two basic standards, the Nomenclature of Fuel Cell Vehicles and Safety Requirements of Fuel Cell Vehicles. The details of these will be published in 2008. From the general outlines, it can be seen that there are more than 100 types in each category. Furthermore, safety is subdivided into 11 aspects, such as ‘vehicle general safety’, ‘battery motive power’, ‘electric shock prevention 5
standards’ etc., all of which will define future vehicles in detail. The standards for fuel cell vehicles make it possible to develop this industry under legal supervision from the beginning, and also to influence the industrialization and business application of fuel cell vehicles in the future.
Table 1: State standards for environmentally friendly energy-saving vehicles in China
Serial number Standard title Issuance date Date of implementation
General vehicle standards For newly authenticated vehicles, the date of implementation for the first period is 1/7/2005 and for the second period it is 1/1/2008. For vehicles under production, the date for the first period is 1/7/2006, and 1/1/2009 for the second period. 1/7/2005
GB 19578-2004
Limits on fuel consumption for passenger cars
2/9/2004
GB 18352.3-2005
Limits and measurement methods for emissions from light-duty vehicles Measurement methods for air pollutant emissions from civilian vehicles Technological requirement for the environmental labelling of light-duty vehicles Limits and measurement methods for exhaust smoke from CIE (Compression Ignition Engines) and vehicles equipped with CIE Limits and measurement methods for exhaust pollutants from CIE and vehicles’ gas-fuelled positive ignition engines (III, IV, V) Limits and measurement methods for exhaust pollutants from vehicles equipped with spark ignition engines under two-speed idle conditions and simple driving mode conditions Limits and measurement methods for fuel evaporative pollutants from heavy-duty vehicles equipped with spark ignition engines (trap method) Limits and measurement methods for crankcase pollutants from heavy-duty vehicles equipped with
15/4/2005
HJ/T 180-2005
15/4/2005
1/10/2005
HJ/T 182-2005
27/7/2005
1/10/2005
1/7/2005 2/9/2005
GB 3847-2005
GB 17691-2005
30/5/2005
1/1/2007
1/7/2005 30/5/2005
GB 18285-2005
GB 14763-2005
15/4/2005
1/7/2005
30/5/2005
1/7/2005
GB 11340-2005
6
Serial number
Standard title spark ignition engines
Issuance date
Date of implementation
Standards for hybrid electric vehicles GB/T 19750-2005 GB/T 19751-2005 GB/T 19752-2005 GB/T 19753-2005 Hybrid electric vehicles – engineering approval evaluation programme Hybrid electric vehicles – safety specification Hybrid electric vehicles – power performance – test method Test methods for energy consumption of light-duty hybrid electric vehicles 23/5/2005 1/10/2005
23/5/2005 23/5/2005
1/10/2005 1/10/2005
23/5/2005
1/10/2005
Source: Standardization Administration of the PRC.
Energy efficiency labelling: According to the transport administration plan, an energy efficiency label will be introduced for vehicle products by 2010.
Energy-saving management in the road transport sector The MOC’s energy-saving policies and measures for the road transport sector include the following main points: • Regulating the transport network, improving the equipment of business vehicles, and facilitating the production of more environmentally friendly and more economical vehicles. • Establishing strict standards for imports, restricting and eliminating old and non-energy-economic business vehicles, intensifying research on the application of technologies to cut vehicle emissions. • Encouraging transport operators to purchase and use energy-saving, environmentally friendly standardized vehicles through financial
mechanisms, such as preferential rates for road maintenance tolls or exemptions.
7
•
Creating regulations to improve the organization of road transport, using both incentives and penalties; drawing up an energy-saving evaluation system for road transport corporations; and giving priority to those with a good record of energy-saving in approval of products and distribution of resources. Improving the management of transport organizations, for example by establishing information displays for public transport, increasing the efficiency of transport systems, and reducing, as far as possible, the use of delivery vehicles when they are not fully laden.
•
Improving the assessment system for passenger and freight vehicles. Through analysis and research into the fuel consumption of vehicles with different weights, drawing up evaluation methods for the fuel consumption of business vehicles and of evaluation methods and limits for the fuel consumption of both passenger and freight business vehicles. These are intended to form a technical basis for assessing vehicle energy consumption as a factor in accepting or rejecting the use of business vehicles, and to establish consistency in decision-making. At the same time, improving drivers’ awareness of energy-saving possibilities, and supervising the transport industry so as to strengthen training, expand experience of fuel-saving, correct bad driving habits, and assess drivers in terms of their efficiency in energy-saving and reducing fuel consumption.
Financial and economic policies In China’s 11th Five-Year Plan, the development of energy-saving vehicles has been given high priority, and financial and economic policies have been formulated for their effectiveness in terms of energy consumption. Notably, the government will establish a series of tax policies designed to accelerate the development of energy-saving automotive vehicles; for example, there will be preferential taxes on energy-saving vehicles and punitive taxes on energy-wasting vehicles. Research will also be carried out on the feasibility of levying a fuel tax and an environmental tax. 8
Environmental protection policies The State Environmental Protection Administration (SEPA) also has responsibility for energy-saving in vehicles and reducing emissions, especially with regard to the testing of new vehicles, vehicles in current use and fuel. Stricter emission standards for automotive vehicles: Since December 2005, all new vehicles have been required to comply with the state emission standard of the third period of the Plan (hereafter State III). At present, SEPA plans to improve the vehicle emissions standard system, focusing on the emission standard of the fifth period for light-duty vehicles, standards of durability for heavy-duty vehicles, and emissions standards for motorcycles, non-road vehicles, ships and aircraft. Prevention and monitoring system for vehicles’ pollution: SEPA is gradually intensifying the monitoring of new vehicles with a management system for vehicle approval which takes account of environmental protection, consistency of production, checks on vehicles in use, the durability of the key parts for pollution control and environmental protection and so on. Monitoring of vehicle fuel and additives: SEPA has been promoting the development of low-sulphur vehicle fuel. A register and record system has been established for vehicle fuel and the additives it contains, so as to further implementation of the state plan for the development of clean vehicle fuel. System of laws and regulations on the prevention of vehicle pollution: At present, work in this area is implemented mainly on the basis of two state laws, the Law on the Prevention and Control of Atmospheric Pollution, and the Law on the Prevention and Control of Environmental Noise. However, it is extremely difficult to make specific provisions to deal with the minutiae of vehicle pollution prevention. Therefore SEPA is drafting a Law on the Prevention and Control of Vehicle Pollution. Expected to take effect during the 11th Five-Year Plan, it will clarify the functions and areas of responsibility of government departments dealing with the prevention of vehicle pollution.
9
2. Aircraft
Currently there are few regulations and standards governing the energy consumption of civil aviation in China (see Table 2). In 2006 GACA issued the notion on Enhancing Energy Saving in the Civil Aviation Sector, which established the general objective of energy-saving. It envisaged, for example, that by 2010 energy consumption per unit of output should decrease by 10% relative to its 2005 level; and it should decrease by a further 20% by 2020 compared to 2005. The principal measures for achieving that target include the following: Improving the flight planning system so that optimum flight plans and fuel volumes can be determined through the assessment of conditions (weather, voyage, load, etc.) for specific flights. Tightening supervision of the weight of aircraft for each flight; reducing maximum take-off weight on safety grounds. Improving energy efficiency by renovating old aircraft and enhancing maintenance. Expediting the updating of aircraft; in particular eliminating old aircraft with high energy consumption.
Table 2: State standard on energy consumption of aircraft in China Serial number MH/T 6020-2006 Title Quality control and operation procedure on civil aviation fuel Regulation on fuel drainage and gas exhaust emissions of aircraft turbine engines Type Issuance date Date of implementation 06/01/2006
Standard
10/03/2006
CCAR-34
Regulation
20/03/2002
19/04/2002
Source: GACA website, http://www.caac.gov.cn/. 10
Regulatory collaboration between the EU and China
Key regulatory issues
Lack of a legal framework As the amendment to the law on Enhancing Energy Saving in the Civil Aviation Sector was not completed until the end of 2007, one of the key regulatory issues about saving energy in the vehicle sector has been the absence of a general legal framework in China. This has caused problems in the coordination of management between different administrative departments. For instance, in the road transportation sector, the MOC initiated energy-saving administrative measures applicable to road transport companies. However, the MOC does not have the power to establish legal restrictions on vehicles’ energy consumption and pollution emissions.
Differences in environmental standards There are obvious differences between the environmental standards for vehicles in the EU and in China, where the emission standard State III (which was similar to EU standard III) has just been implemented throughout the country. But the EU has announced new legislative proposals to make vehicle exhaust emission standards even more stringent. In February 2007, the European Commission proposed a legislative measure imposing stricter mandatory limits on automobile emissions. According to the proposal, by 2012 the average carbon dioxide emissions of a new car should be reduced to 120 grams per km. This means a fall of 25% compared with the current level; and by 2020, it should decrease further to 95 grams per km. To achieve this target, vehicle manufacturers will have to reduce average exhaust emissions to 130 grams per km by 2012, with the remaining reduction of 10 grams being achieved through ‘other additional means’, including increasing the energy-saving capability of 11
air-conditioning, improving tyres and promoting the use of biofuels, etc. In addition to establishing mandatory reduction targets for the vehicle industry, the new draft legislation also proposed measures to promote energy-efficient vehicles. The EU Commission further intended to invite vehicle manufactures to sign a Code of Behaviour before the middle of 2007, which would pay close attention to fostering sustainable consumer habits through vehicle advertising and marketing. The European Commission intends to formally submit the legislative proposal for consideration by the EU Council and European Parliament during 2008. If it is passed into law, the vehicle industry in the EU member states will face severe challenges in the near future. However, in the long term, it will strengthen the competitiveness of EU-made vehicles relative to cheap vehicles made in Asia, and help to address global climate change.
Potential areas for regulatory collaboration
In order to enhance the competitiveness of Europe-made vehicles in the international market, the European Commission adopted a New Strategy for the EU Automotive Vehicle Industry in 2007. The new strategy, which was based on affordability and the long-term development of the vehicle industry, included a comprehensive survey of the EU’s vehicle industry, and took account of factors such as lessening administrative burdens, sustainable development from an
environmental perspective, the safety of road transport, foreign trade, and so on.
Environmental standard for vehicles It is important for the Chinese government to seek cooperation with the EU in establishing future environmental standards for automotive vehicles. China has for long been keeping up with the EU in the design of environmental protection policies. Notably, China’s current automobile exhaust emission standards have been enacted with reference to corresponding standards in the EU and the United States. 12
Moreover, the Chinese government has proposed that domestic vehicle emissions standards should accord with international standards by 2010. Thus the raising of EU standards will have a certain impact on the development of vehicle emissions standards in China. As far as the current status of the vehicle industry is concerned, China is finding it enormously difficult to close the gap and achieve its target.
Emissions reduction target As there has been no definite objective for the reduction of greenhouse gas emissions by the vehicle sector, there are potential opportunities for China and the EU to develop cooperation in that area. It is essential for the transport administration to establish its long-term strategy and policy on tackling global climate change.
Barriers and incentives to trade in low-carbon/energy-efficient/ environmentally friendly vehicles between EU and China
Bilateral trade flows The EU is currently one of the largest production bases for automotive vehicles, producing as much as 34% of total world output. The automotive industry accounts for nearly 3% of the EU’s GDP. China’s automobile industry has been earmarked as a key industry by the central government. It is currently undergoing rapid development. Recently the Chinese Ministry of Commerce announced that the value of exports of vehicles and vehicle parts would be increased from $11 billion to $120 billion. According to statistics from China Customs, the combined value of exports and imports of vehicles reached $49,022 million in 2006. Of this amount, exports represented $28,144 million, up 42.76% from the previous year; and imports $20,878 million, an increase of 36.34%. Exports of finished automobiles maintained a rapid increase. By volume total exports (including automobile chassis) rose to 342,400 units in 2006, with exports of cars, trucks and buses amounting to 275,200 units, or 80% of the total. 13
In 2006, the value of bilateral trade between China and Europe was worth a total of $272,302 million. China’s imports from Europe were worth $90,319 million and its exports were worth $181,983 million. During 2006, vehicle exports from China to Europe were 76,600 units, up 171.9% over the previous year, worth $724 million and accounting for 0.4% of China’s total exports by value and 23.9% of its vehicle exports. Europe has become an important market for China’s vehicle exports, second only to the Asian market. Generally speaking, in bilateral trade between the EU and China, exports of Chinese vehicles are rising constantly, while vehicle imports, on the contrary, are beginning to drop. Eight types of vehicle were exported to Europe from China in 2006. These were (in descending order by export value): trucks, cars, special vehicles, large and medium-sized buses, non-road-use freight handling vehicles, SUVs, MPVs, small buses (to carry nine persons or fewer), other buses and automobile chassis with engines. With the ratio of in-country production improving, the import of vehicles and parts declined significantly.
Drivers for bilateral investment flows The main drivers for EU–China bilateral investment flows in the automotive vehicle production sector are as follows.
Development policy for the automotive industry in China The newly enacted development policy for the automotive industry is designed to encourage vehicle companies not only to expand in scale but also to strengthen their capacity for independent innovation. The policy emphasizes that China’s automotive industry has been targeted to become the key industry in the domestic economy by 2010, making China one of the world’s most important automobile-producing countries. Meanwhile, domestic vehicle companies will establish several well-known brands, and the few leading ones will join the world’s top 500 enterprises. Regulations covering the import of vehicles and parts are defined more clearly. The 14
objectives are to establish equal competition in the automotive industry and speed up progress towards the nationalization and internationalization of production.
Reduction of the tariff rate The decline in China’s import tariff rate is one of the main factors attracting European vehicle companies to the country. In accordance with China’s promise to the WTO to reduce the tariff rates on vehicles and parts from their level on 1 July 2006, the tariff on cars, off-road vehicles and complete-buses has been reduced from 28% to 25%, and those on vehicle body, chassis and low-to-medium-emission vehicles has fallen to 10% from 13.8–16.4%. This was the sixth time that China had reduced its vehicle import tariffs. All its promises to the WTO so far to reduce tariffs on vehicles and parts have been implemented.
With the constant reduction of vehicle import tariffs, the vehicle market has become ever more mature. Many foreign brands (such as Mercedes-Benz, Volvo, BMW, Audi, Citroën, Fiat and Peugeot) are produced in China. Meanwhile, most foreign limousine companies have located in China, motivated not only by the cost factor but also by the immense potential of the market and the trend towards high-speed economic development.
The rise of raw materials costs Recently, the prices of the main materials of vehicle production, e.g. steel, have risen sharply, putting the automotive industry under great cost pressure, which is passed along the supply chain to vehicle parts companies. Experts predict that the multinational corporations (MNCs) will constantly increase purchases and production in China so as to reduce the cost of vehicle components and parts, this being considered the core element of competition. As a result, investment in Chinese
15
vehicle companies will increase, concomitantly increasing their development opportunities.
The industrial structure of the vehicle sector The total number of vehicles in China has reached 34 million, and is predicted to rise dramatically to 60 million by 2012. Foreign capital is flowing into China, attracted by its large market potential. With the avalanche of foreign capital and private capital, the Chinese automotive industry has a complex structure, characterized by the coexistence of state, foreign and private capital. Following China’s accession to the WTO, its output of vehicles became the world’s third largest in 2006, up from fifth in 2002. China has entered the list of the world’s largest vehicle-producing countries, and has established a relatively integrated automotive manufacturing system and industry group. The major multinational vehicle manufacturers, such as GE, Ford, Volkswagen, BMW, Toyota and Honda, have all invested in China and set up joint-stock companies, further increasing foreign investment. EU car companies produce 27% of Chinese total output. Furthermore, Chinese car producers which are developing independently (e.g. Geely, Great Wall, etc.) have grown in scale, intensifying competition throughout the domestic automotive industry. Foreign vehicle parts and components manufacturers are also influencing the structure of the Chinese market. Of the top 100 vehicle parts supply corporations, 70 do business in China, as well as more than 1,200 foreign companies engaged in the production of vehicle parts and components. The Bosch Group, for example, operating via a holding company in Shanghai, has 14 subsidiaries, seven joint ventures, 20 factories, 10 delegations, six trading companies and 345 repair chain shops in China. In 2006 its consolidated sales in China reached €1.3 billion. Its investment in China in 2005 amounted to around €620 million, and between 2006 and 2008 it will invest a further €620 million. Other European MNCs engaged in
16
vehicle parts manufacturing, such as Delphi and Valeo, have also undertaken significant investment and expansion in China. As a whole, the Chinese domestic market shows clear signs of internationalization, and international competition among MNCs has begun to move to China. The diverse capital structure of the domestic automotive industry, including a significant presence of MNCs, is promoting the industry’s development but simultaneously increasing the contradictions and conflicts inherent in the development process.
Barriers to trade The key barriers to the automobile trade between the EU and China are the following.
Tariff structures in the EU and China The Measures for the Administration of Imports of Automobile Components and Parts Featuring Complete Vehicles, jointly signed by the NDRC, the Ministry of Commerce and China’s customs authority, which came into force in 2005, is designed to prevent tax evasion by the dismantling of whole vehicles into separate parts. Under its provisions, imports of vehicle parts and components that match the characteristics of complete-knocked-down (CKD) assembled vehicles or
semi-knocked-down (SKD) 1 assembled vehicles should be taxed at the same rate as whole vehicles. Since 1 July 2006, China’s import tariff on complete vehicles (cars), off-road vehicles and small buses is 25%, and that on vehicle parts and components (e.g. bodywork, chassis, engine, etc.) is 10%. As the EU imposes a single tariff of 10% on the import of both automotive vehicles and vehicle parts and components, there is a big difference between the tariff rate for complete vehicles in the EU and in China. This is regarded as a significant trade barrier by EU members as well as the United States.
1 This refers to case where the value of export parts accounts for more than 60% of the value of the whole vehicle.
17
Rules on foreign investment The Chinese government is strongly promoting independent production and has introduced various policies and measures to accelerate it. These began with the imposition of restrictions on the localization of joint-stock companies. The 5th item in Chapter 3 of the circular of the NDRC’s notion on the adjustment of the automotive industry structure (hereafter the Circular) states that Sino-foreign joint-stock vehicle companies should conduct business activities in accordance with documents signed by investors. Those that have not yet fulfilled the requirements of a contract should do so as soon as possible. Until such requirements are fulfilled, any further factory building and the launch of new production lines should be suspended. Most contracts include clauses committing foreign companies to promote the localization of new projects.
Management of vehicle exports A licensing system for vehicle exports was formally brought into effect on 1 March 2007. The system is intended to help improve the organization of vehicle exports and to prevent competition from dumping. In addition, it is pointed out in the Integrated Project to Save Energy Consumption and Reduce Polluting Emissions issued by the NDRC that a series of measures will be taken to limit exports of products with high energy consumption and polluting emissions. The principal measures are adjusting export tariff rebates, raising export tariffs, reducing export quotas, banning trade in certain products, and so on.
Differences between EU and Chinese standards Differences between standards, especially standards on environmental protection, are also liable to act as trade barriers. National standards for emissions from light-duty vehicles of stage Ⅲ and Ⅳ (hereafter national standard Ⅲ and national standard Ⅳ), which respectively approximate to EU standard III and EU standard Ⅳ , were put into effect on 1 July 2007. However, National standard Ⅳ will not be 18
implemented until July 2010, while EU standard IV is currently being implemented throughout the EU. EU-V and EU-VI standards have been drawn up. In February 2007, the European Commission issued a new vehicle emission standard whereby the CO2 emissions of new vehicles produced and sold in the EU must fall to 120g/km by 2012 and 95k/km by 2020. This standard will be implemented from 2008. As a result, some low-technology vehicle companies in China will be banned from exporting to the EU. Moreover, the standard will have some influence on the constitution of emissions standards in China, where EU and US emissions standards have long been reference points. The Chinese administration expects to be compliant with international emissions standards by 2010 but will find it quite difficult to meet the target. As a result, once the new vehicle emissions standard in the EU comes into force, it will heavily influence the Chinese vehicle import market, given the close trade relationship with EU member states. According to China Customs’ statistics, more than half of China’s imported vehicles come from Germany, and there is also quite a large volume from other EU countries. The cost increase will drive up vehicle prices, and this will inevitably affect EU vehicles’ competitiveness and hence market share in China.
Incentives to encourage trade
Access to finance As a typically capital-intensive industry, the automotive industry is significantly affected by the availability of finance. Currently there are three main routes to finance in China’s automotive industry. Foreign direct investment: multinational vehicle magnates, optimistic about the prospects of the Chinese market, have invested in it directly, hoping to profit from their distinct advantages in technology, brand and capital.
19
Government investment: financial capital from local governments used to be invested in vehicle projects, especially in the large state-owned vehicle companies, but access to this source has gradually been prohibited. Stock financing: since the first half of 2007, many vehicle companies have raised finance through issues of stocks, the total value of which is over 10 billion RMB. One reason for this is a series of increases in the lending rate of the Chinese Central Bank, which has made the cost of bank loans much more expensive. In comparison, it is much cheaper for companies to raise money from stock financing.
Economic standard for vehicle fuel consumption The vehicle energy efficiency standard covers the procedures and regulations about vehicles’ energy performance. The EU has proposed a requirement on product capability entitled the European Economic Community Vehicle Instruction (80/1268/EEC), which deals with motor vehicles’ CO2 emissions and fuel consumption. China has also subscribed to the economic standard for vehicle fuel consumption, and is implementing it in two stages (2005–07; and from 2008). The EU-IV standard will be implemented in China’s main cities, including Beijing, from the end of 2007.
Future incentives China must take active steps to develop energy-saving technology for vehicles, i.e. the technology to reduce energy consumption. The necessary measures involve various fields and, given the Chinese situation, will include the following. • Non-technological measures include ensuring a reasonable match between road type and means of transportation, making arrangements for fuel supply and vehicle type based on demand, proper overall management, and so on.
20
•
Technological aspects include ensuring product quality, proper use and maintenance of machines, redesigning engines to improve energy efficiency.
•
There are several ways of improving the energy efficiency of conventional reciprocating engines. The thermal efficiency of petrol and diesel engines can be improved by refining fuel injection systems; the functional ‘driveability’ and economy of petrol engines can be improved by refining ignition systems; unnecessarily wasteful accessory assemblies can be redesigned or improved.
•
To encourage investment in low-carbon technologies for the vehicle sector, the following policies are feasible and should create favourable conditions:. o Financial incentives: related financial and economic policies will be enacted to encourage investment in energy-saving technology for vehicle production. According to the Comprehensive Project to Save Energy Consumption and Reduce Polluting Emissions, a series of tax policies will be enacted to promote the development of environmentally friendly energy-saving vehicles, mainly including: (1) preferential taxation on environmentally friendly energy-saving vehicles; (2) taxation on clean energy for vehicle use; (3) punitive taxes on automobiles with uneconomical energy consumption; (4) finalization and implementation of the fuel tax; (5) advance research into an environmental tax by learning from the EU’s experience. o Industrial management: the key point is the management of minimum standards for new-energy vehicles. In March 2007, the NDRC drew up the Regulations on the admissibility of new-energy vehicles (hereafter Regulations). The Regulations stipulate the conditions under which companies manufacturing new-energy vehicles will be admitted to China. The conditions take account of
21
three factors: established manufacturing capacity, R&D capability, and track record in a related area. Based on the whole vehicle system and technologies, three periods each requiring different management procedures are distinguished: the start-up period, the expansion period, and the maturation period. At present, the new-energy vehicle is still in the start-up period. The Regulations are intended to manage and encourage its development, promoting technological progress and meeting the national need for automotive industrialization. o State standard for [hydrogen] fuel-cell vehicles: a state standard on fuel-cell vehicles has been drafted in Shanghai, and those for Components of the Fuel-Cell Vehicle, as well as Safety Requirements for Fuel-Cell Vehicles, will be completed by 2008. They will make the manufacture of fuel-cell vehicles subject to regulations from the outset, supervising the industrialization and commercial development and use of the technology. o Vehicle energy-effectiveness label: a vehicle energy-effectiveness label will be introduced from 2010 and will be based on an assessment of whole-life energy consumption.
22
Appendix: Policy and laws related to environmental protection and energy-saving vehicles in China
Title of policies or laws The automobile industry development policy Air Pollution Prevention Law of PRC (related to motor vehicles) Energy-saving technology policy outline of China The special energy-saving and long-term plan The special energy-saving and long-term plan for 10 key energy-saving projects Vehicle pollution emission controlling technology policy Diesel vehicle pollution emission controlling technology policy Measures on the examination and approval of local motor vehicle air pollutant emission standards approval Views on the implementation of Air Purification Project – Vehicle Cleaning Action Circular on reducing consumption tax to low-emission cars Notion on encouraging the development of energy-saving, environmentally protective and low-emission cars Programme for expanding the pilots of motor gasoline ethanol; implementation details of the programme for expanding the pilots of motor gasoline ethanol Motor gasoline ethanol pilot work to achieve targets
Issuance department NDRC Standing Committee of the 9th National People's Congress NDRC and Ministry of Science and Technology of the PRC (hereafter MOST) NDRC
Issuance date 21/5/2004 29/4/2004 23/6/2005 25/11/2004
NDRC SEPA, MOST, State Machine & Industry Administration SEPA, State Economic & Trade Commission (hereafter SETC), MOST
1/6/2005
10/12/1999 13/1/ 2003
SEPA
22/2/2001
13 ministries including SEPA, MOST, NDRC, SETC, etc. Ministry of Finance (hereafter MOF) and
7/12/1999
7/6/2000 State Administration of Taxation (hereafter SAT) NDRC, MOF, SEPA, Ministry of Construction, 25/12/2005 Ministry of Public Security of PRC (hereafter MPS), Ministry of Supervision of PRC NDRC, MPS, MOF, SAT, SEPA, GAQSIQ, Ministry of Commerce of PRC and State Administration for Industry & Commerce NDRC 17/3/2005 10/4/2004
23