China Pushes Alt-Fuel Vehicles

Source:

". . .bankers are lining up to provide financing for more capacity."

The Chinese government is boosting support for alternative-fueled vehicles. Earlier this year, the government launched the "Automobile Industry Restructuring and Revitalization Program," which aims to have China producing 500,000 alt-fueled vehicles by the end of 2011. The vehicles have to be all-electric, hybrid-electric, or powered by fuel cells.

Thanks to the lure of hefty government subsidies, essentially all of China's automakers have joined the program. In August, state-owned Foton Motor Group formed an alt-fuel design center to augment a $70 million laboratory aimed at saving energy and reducing emissions. Foton's CEO, Wang Jingyu, said it will produce 10,000 alt-fuel vehicles in 2010. China's biggest auto manufacturer, Saicgroup, plans to invest about $1.7 billion in alt-fueled vehicles, while Chana Auto plans to spend about $150 million over the next three years on research and development. Chana plans to build about 150,000 alt-fueled automobiles by the end of 2014.

China is already a world leader in alt-fueled vehicles. In 2008, Chinese manufacturers produced some 22 million electric two-wheelers and some 65 million electric scooters. Chinese manufacturers are now aggressively moving into the electric car market.

Although China has the ability to make hybrid, electric, and fuel cell vehicles, the core techniques, such as the raw materials for lithium battery electrolyte, are still monopolized by foreign companies. In response, China is encouraging its auto industry to invest more money on technology development by offering huge subsidies. The Finance Ministry subsidizes up to $7,300 for a hybrid car, $8,800 for an electric car and $36,760 for a fuel cell car. With such handsome giveaways, many auto manufacturers simply import the components needed to assemble the cars, allowing them to collect the government subsidies while doing little to spur new technologies.

Further, the Chinese industry is hampered by over capacity. The production of alt-fueled vehicles is likely to exceed the government's target of 500,000 vehicles.

In all, about 36 automakers have joined the government's program and bankers are lining up to provide financing for more capacity. All of that is leading some government officials to worry that the Chinese auto sector is growing too quickly.

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