China’s EV strategy

The world’s largest auto market is now China. Chinese bought 24.6 million cars last year, beating Americans, who purchased 17.5 million. Chinese are the biggest customers of car brands from Germany, U.S., Japan, Korea and France. Its local brands only account for 41 percent of purchases.

A market is “motorized” if a family of four can afford a car. The average resident of 10 provincial regions in China boast per capita income over $10,000. In three major cities — Beijing, Shanghai and Tianjin — the average income is over $20,000, similar to Korea. The population of the three big cities is over 60 million, outnumbering the entire South Korean population. Over the last six years, Chinese bought 120 million cars, or 20 million annually. They own a combined 172 million cars.

The comfort and convenience of having a car were astonishing at first and won over an entire population. But there was a price to pay. The air quality in the industrial powerhouse, already pretty foul from factories, was made worse by emissions from a hundred million cars on the road. The central and northern region of China, which includes the capital of Beijing, accounts for half of China’s gross domestic product although its land mass is only a seventh of the total. It is now suffocated by an ever-present toxic haze.

Clear blue skies in Beijing are seen during international events like the Olympics, big summits and national holidays. Beijing sees to that through staggeringly dubious geo-engineering a technology called cloud-seeding to create artificial rainfall. Going upscale and putting your population on wheels is good for both living standards and the national image, but the authorities can no longer leave the pollution problem unattended as it has started threatening lives — starting with babies and senior citizens, including the nation’s elite.

Since the government cannot curb people’s desires to own a car, it decided to go to war on pollutants. But it doesn’t want to enrich foreign carmakers as it did with the gasoline-fueled cars.

In many realms, things are easier for China precisely because it has such a colossal population of 1.3 billion. Once it sets its mind to it, it can become the world’s top anything through economies of scale. In electric cars, it is making new records. In December 2015 alone, it produced 99,000 electric cars, outnumbering an output of 94,000 for all of 2014. China easily became the top electric vehicle-making country by accounting for 38 percent of the global EV market, compared with 21 percent for the U.S.

Unlike the mainstream car market, the EV market cannot grow on its own. It has to have a sizable market to start off with, road and production guidelines, charging stations and government subsidies. What’s essential is the cost of the batteries that power the car.
China’s EV industry is best in all of these areas. Batteries make up 40 to 50 percent of the cost of EVs for the masses, which sell for 30 million won ($26,364) to 40 million won. China is the world’s largest producer of the rare earth elements, which are vital to felectric motors. In western societies, adopting EVs on a big scale is more complex because it is difficult to meet the interests of various parties involved. It is easier for China to establish the infrastructure because not only EV makers but also the company in charge of installing the charging stations are all state-owned. Moreover, the government is rich enough to be generous with subsidies.

Beijing is making sure the EV and battery boom benefits local industry and the economy. It ordered public institutions to make more than half of their new cars EVs. Its subsidies go strictly to locally produced EVs. It is ensuring localization in EVs from their infancy.

Japan’s Panasonic and Tesla Motors have teamed up to build the world’s largest EV battery factory — Gigafactory — in Texas. They are also constructing a $412 million factory in China. Current Tesla vehicles cannot enjoy tax and EV benefits because their parts are entirely made with imports. The company is setting up the biggest service center in Asia and installing superchargers — the fast and free recharger — and offering replacement services to win favor in the explosive market.

The EV industry is in high gear. EV sales in February totaled 22,000, outnumbering the combined tallies of three other large markets — 7,806 in the U.S, 4,475 in Japan, and 3,555 in Norway. China aims to have 600,000 EVs on the road by the end of the year, 1.21 million by 2018, and 2 million by 2020. The winner in EVs could become China, not the traditional car powerhouses like the U.S., Japan or Germany.

Translation by the Korea JoongAng Daily staff.

JoongAng Sunday, Apr. 17, Page 19

*The author is the director of the China Economy and Finance Research Institute.

Jeon Byeong-seo