China’s making it super hard to build car factories that don’t make electric vehicles

That’s all we want.
That’s all we want.
Image: AP Photo/Alexander F. Yuan
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In September last year, a top Chinese industry official told an automobile conference that China was planning to phase out fossil-fuel cars, but didn’t offer many details. Now, China has rolled out rules that basically nix investment in new fossil-fuel car factories starting next year.

The National Development and Reform Commission, China’s top economic planner, said at a press conference (link in Chinese) on Tuesday that from Jan. 10, the country won’t allow new companies that only make such vehicles to be set up.  The new rules (pdf, link in Chinese), which were published last week, come after the body announced major changes to auto industry investment policy in May.

China, the biggest market for electric vehicles, has already taken huge steps to boost its electric-vehicle industry, from restricting new ownership of petrol and diesel cars in cities to enormous subsidies for electric vehicles, as it fights pollution and also seeks to develop innovative industries.

Even existing carmakers will find it difficult to expand manufacturing capacity for non-electric cars. To open such factories they’d have to meet a slew of conditions, including showing their efficiency in using existing manufacturing capacity is higher than the industry average; that they make more new energy vehicles, or NEVs, than the industry average; that they spend at least 3% of revenue on research and development; and are globally competitive, among other requirements. China defines NEVs as including fully-electric, hybrid, and fuel-cell vehicles.

The bar is set so high that only a few enormous firms can expect to meet those conditions, such as Geely, the private Zhejiang-based carmaker that is the single-largest shareholder of Germany’s Daimler, and SAIC Motor, the Shanghai-based state-owned automaker, according to Qiu Kaijun, who runs the Chinese auto blog evobserver on social media platform WeChat. Both Geely and SAIC Motor are among the top 10 (link in Chinese) firms in car sales in China, according to data from the China Association of Automobile Manufacturers, a government-affiliated organization.

The rules look likely to help keep car manufacturing in the hands of the largest, and often state-owned players—given that it’s not so easy for new electric vehicle companies, despite their favored status in the car industry, to set up their own factories either.

The policy will come into effect around the same time as an emissions cap-and-trade system that will replace China’s monetary subsidies for the electric-vehicle industry. Under the system, all car makers need to meet EV production quotas, which will rise each year. Those who meet the quota will get credits they can sell to competitors that don’t manage to hit the mark.

Apart from phasing out fossil-fuel cars, the state planner’s rules are also supposed to address the fact that the country’s auto sales are slowing, and inventory has been piling up. Recent car sales data show China could be set to see the first contraction of annual auto sales since 1990.

The figures show sales of electric vehicles growing strongly even as traditional auto sales sputter, but there’s a long road ahead for them. While China has already sold more than one million NEVs this year as of Novembe, they only make up around 0.6% (link in Chinese) of all vehicles on the road as of June, data from China’s Ministry of Public Security show.

Looking for more in-depth coverage of China’s electric-car industry? Check out Quartz’s field guide.