HANDELSBLATT EXCLUSIVE

China To Relax Quotas for German E-Cars

  • Why it matters

    Why it matters

    The deal to lessen the impact of Chinese e-car quotas on German manufacturing will boost German companies at a time they are worried about the possibility of losing business in the United States.

  • Facts

    Facts

    • According to a Chinese government plan, 40 percent of all Chinese cars should be electric by 2030.
    • This will require 15 million new electric cars to be sold annually.
    • China published planned new rules in September, stipulating that a percentage of carmakers’ sales would have to be of electric cars but these targets have now been postponed, and softened.
  • Audio

    Audio

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Electric Vehicles and Charging Infrastructure As China’s Poisonous Coal Capital Spends Millions to Go Green
China wants to boost e-car production but car makers are alarmed at ambitious targets. Source: Bloomberg

Beijing has decided to relax its ambitious quotas for electric and hybrid car production after holding high-level discussions with Germany, Handelsblatt has learned from three sources.

Chancellor Angela Merkel and Chinese Premier Li Keqiang discussed the issue in a telephone conversation, and Berlin had also sent a high-level delegation to Beijing for talks on a compromise. China’s ministry of industry is now drawing up plans to ease the quotas with a result expected in the coming week.

Beijing had originally planned to require automakers in China to shift 8 percent of their production to electric and hybrid vehicles in 2018. The quota would then increase to 10 percent the following year and to 12 percent the year after that.

German automakers complained the quotas would put them at a competitive disadvantage in China because they couldn’t meet the targets so quickly. The Chinese automobile industry association CAAM had also warned Beijing that some Chinese automakers couldn’t meet the quotas that fast.

German carmakers are well placed in the Chinese market, especially its premium segment, dominated by Mercedes, BMW, and Audi. So the new rules, announced in September, hit German automakers particularly hard,

German manufacturers, who have so far sold only small numbers of Chinese e-cars, would have struggled to hit the targets, and incurred penalties for missing them. Many feared that factories would have to shutter production as a result.

Passenger Car Market in China – Numbers and Market share

Last year, Volkswagen, the market leader, sold almost 4 million cars in China, more than any other manufacturer. But the company is lagging in the electric car business, and still has no locally-produced Chinese e-cars to sell, the only ones to enjoy a full state subsidy. The Audi A6 L e-tron, built by a VW subsidiary, will soon go on sale in China. Competitors like Daimler and BMW do have locally produced models, but as yet very low production.

Sigmar Gabriel, then federal economics minister, raised the issue on a visit to China in November, where he met with Chinese officials but made little progress. “We take this issue very seriously and remain in close contact,” he said at the time. Later, the economics ministry held regular talks with the Chinese but progress was slow until chancellor, Angela Merkel intervened directly, speaking with China’s prime minister Li Keqiang in late January.

Ms. Merkel and Mr. Li spoke out jointly in favor of open markets and global free trade. Reporting on the talks, the official Chinese newspaper, Xinhua, even mentioned their emphasis on electric cars, an unusual move in a country where the content of leaders’ telephone calls is usually strictly confidential.

Germany then sent a high-ranking delegation to Beijing, which worked with embassy staff to influence key decision-makers in the Chinese Communist Party, still a more powerful institution than the state bureaucracy.

German appeals to the Chinese government were helped by frustration with the new rules among Chinese car manufacturers. Many large Chinese automakers are far from being in a position to fill a substantial portion of their sales with e-cars and hybrids. The Chinese car industry association China Association of Automobile Manufacturers, or CAAM, demanded that the quota be delayed by a year and then introduced at lower levels.

In response to this pressure from Germany and from domestic manufacturers, the Beijing government is set to change course, say Handelsblatt’s sources, with details currently being clarified by the industry ministry. Quotas seem likely to be delayed until 2019, and then initially reduced to as little as two percent of sales. Other options are also being considered: sales shortfalls might be compensated in subsequent years, or quotas could be distributed among different companies in a single group. This might help Volkswagen, which has joint ventures with Chinese carmakers SAIC and FAW.

The German economics ministry said it was “continuing to talk to Chinese representatives” about e-car quotas. “We are opposed to protectionist measures and pushing for a fair solution,” it added. The Chinese industry ministry and the German embassy declined to comment.

Since the new Trump administration announced its protectionist policies, China and Germany have sought to strengthen their ties.

Quota rules may have been eased, but this offers only temporary relief. Beijing is making it clear to all car manufacturers that they will have to play a part in the expansion of e-mobility. Car industry bodies in Germany had abandoned total opposition to the quota, in favor of trying to moderate the new rules. Although Beijing is indicating a compromise on most points raised, details of the new rules remain unclear. It may be weeks before they become law.

All major German car makers plan to expand of Chinese e-car production. Jochem Heizmann, president and CEO of Volkswagen Group China, announced that VW hopes to sell 400,000 Chinese e-cars and hybrids by 2020, and 1.5 million by 2025. In the next 2–3 years, fifteen new locally-produced models will come onto the market. Daimler and BMW are also preparing to start Chinese production of electric SUVs.

The Chinese shift is a key political signal. Beijing has not given up the idea of quotas, but it has gone a long way to assuage German concerns. Since the new Trump administration announced its protectionist policies, China and Germany have sought to strengthen their ties. Both countries have considerable interests in seeking to maintain globalization and free trade.

The two countries are more interdependent than ever. In 2016, China for the first time became Germany’s biggest trade partner, with imports and exports between the countries now amounting to almost €170 billion, around $180 billion. This year Germany will chair the G20 group of established and emerging industrial countries: both Germany and China hope July’s G20 summit in Hamburg will issue a final statement against protectionism.

Brussels is also involved in improved German-Chinese relations. For three years, China and the European Union have been negotiating an investment agreement: the Europeans want better access to the Chinese market, while Beijing has its eye on a broader trade agreement with Brussels. But in the last year, there has been little progress in the talks.

This may soon change. The next E.U.-China summit is planned for Brussels in May. After the speech by president Xi Jinping at the World Economic Forum at Davos, in which he promised more free trade and a more open Chinese market, there is hope in Brussels that the talks may see rapid progress. “Words are words, but deeds are deeds,” Hans Dietmar Schweisgut, E.U. ambassador to China said recently.

 

Stephan Scheuer is Handelsblatt’s China correspondent, based in Beijing. Thomas Sigmund is the bureau chief in Berlin, where he directs political coverage. To contact the authors: scheuer@handelsblatt.com, sigmund@handelsblatt.com. Additional reporting was contributed by Handelsblatt reporters Markus Fasse, Stefan Menzel, and Klaus Stratmann.

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