China Adjusts Policy to Curb Congestion, Smog, Reliance on Oil Imports

Tim Dunne

China may be changing government policies as a way to slow down strong auto sales and to curb congestion on major city streets in Beijing and Shanghai—traffic is “beyond awful” there. For example, the way China’s government has managed to control sales in Shanghai in the past was that new-vehicle owners would have to pay a lump sum fee (something like the equivalent of $5,000 to $7,500) before being able to register a new vehicle. This has kept a lot of people out of the market.

In regard to cutting down on smog and emissions, China is still pushing ahead with electric vehicles (EVs) and is providing a 60,000 RMB (US $8,800) subsidy with the purchase of an EV. But like everywhere else, the changeover to alternative energy vehicles is going to be a long-term transition, requiring lots of time and investment.

Air Quality is a Definite Consideration in China

While China’s urban air quality is among the worst in the world, and definitely needs improvement, there is no easy fix. China’s government can mandate that federal departments and agencies buy hybrid and electric vehicles, as President Obama has suggested he will do in the United States, but it is consumers who will ultimately decide if EVs are a commercial success in China. Given the fact that EVs have a higher initial price than conventional vehicles, are less convenient to operate (operation involves more frequent and time-consuming recharges compared to filling up a gas tank), and provide decreased performance (in terms of range and battery power) when driving in mountainous areas, in cold weather, or while towing, consumers around the world don’t seem eager to buy an EV.

We believe that China’s push toward EVs is being driven more by geopolitical considerations. China is now the second-largest consumer of oil in the world after the United States, and it is going to be consuming a larger share of oil every year going forward. China imports nearly half of its oil, and as a result must depend increasingly on imports. However, China doesn’t want to paint itself into an energy corner by having to rely on oil imports.

What China does have is coal—the largest coal reserves in the world—which is a free source of energy. Yes, the coal is dirty, but if the choice is between energy independence and clean air, the Chinese will likely choose the former, at least until they can put in place cleaner options for producing electricity, like wind, solar, nuclear or other alternative energy sources.Tim Dunne, director of global coordination at J.D. Power and Associates

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