China's drive to put more clean cars on the road hits a wall

Read Part 1, Part 2, Part 4, Part 5 and Part 6 of this series.

SHANGHAI -- China has a long and successful track record of scaling up its industrial growth by hitching it to a continent-size home market. This strategy turned China's wind turbine sector from barely existent to a global leading force in five years. But when it comes to clean cars, the story appears to be different.

A program designed to boost China's transition to electric cars and plug-in hybrids has been stymied. Even with generous government support, cities here have added fewer cars than promised. The goal of revving the nation's clean car mass production has also gone unmet.

This comes as automakers from around the world are struggling to make low-emissions vehicles scale up in China, the United States and other markets where programs and regulations are calling for massive gains in fuel economy over the next 10 to 15 years.

China's program, known as "10 Cities, 1,000 Vehicles," planned to select 10 pilot cities every year from 2010 to 2012 and promote 1,000 units of clean cars in each city. Chinese cities responded to it so enthusiastically, they almost doubled the total promotion target.

But surprisingly, two years since the program rolled out, those cities have achieved less than one-quarter of that target, according to Timer, an auto consulting firm based in Shanghai. And among all the pilot cities, the company statistics show, no more than half the target was met in the best case, and in places like central China's Xiangyang, for instance, only seven clean cars were added on the roads since late 2010.

China wants clean cars badly. Already, emissions from petroleum-powered cars have choked Chinese cities with air pollution. Half of China's oil is now imported. With the largest and fastest-growing auto market in the world, the nation's dependence on foreign fuels can only get worse.

With automakers here lagging behind their Western peers in making traditional cars, the chance to catch up lies in producing technologically advanced models such as electric vehicles. Chinese clean car makers aimed to use their home market as a springboard to test new technology and create the scale of economics necessary for exports.

An array of difficulties

But as big as its need for cleaner cars may be, China's struggles in making the transition to clean vehicles have been bigger. Although Chinese leaders prepared for the promotion program with fiscal incentives and supportive policies, experts say, these blessings also developed into a curse.

As Timer analyst Robbin Cheng explained, many municipal governments were lured by benefits given to the pilot cities and were vying to get into the promotion program. To impress decisionmakers, cities came up with ambitious yet impractical plans that later failed to drive up clean car use.

The immature nature of clean cars added more difficulties. For one, even after government subsidies, clean cars still often cost much more than their cousins with internal combustion engines. Drivers complained that it was hard to find charging stations, and their vehicles, while clean, had a frequent tendency to break down. Beijing actually took dozens of electric buses off the road due to the inconvenience of using them.

Then there is a safety issue. Electric cars caught on fire in several pilot cities such like Shanghai and Hangzhou. Earlier this year, an electric taxi produced by leading Chinese automaker BYD became inflamed during a car crash in Shenzhen.

Chinese authorities never blamed carmakers for those accidents, but cities may think twice before adopting the untested clean car technology on a large scale. And for those who dare to go ahead, the question is, where would their clean cars come from?

Sales frozen by protectionism

"Chinese cities show a strong protectionism when it comes to buying clean cars," said An Feng, executive director at the Innovation Center for Energy and Transportation, a China-focused think tank based in Los Angeles.

As the purchase of clean cars and the charging devices stations they need is partly financed by cities, An said that municipal governments have little intention to support automakers that do not contribute to the local economy.

Municipal governments do not bend the rule even if local auto companies cannot produce enough to feed the city's demand, he added. "Their attitude is that 'If you want to get our market, you have to exchange it with investments.'"

Such attitudes, An and other experts say, have prevented Chinese clean car producers from mass production. And the forced buildup of factories also resulted in massive resources being wasted, widening the know-how gap between Chinese carmakers and their Western rivals.

To be sure, there have been some positive results. About 11,000 hybrid buses, pure electric cabs and other types of clean cars are running on China's roads as a result of the program. It also helped develop more ways to gain customer acceptance, including a business that allows drivers to try their hand at clean cars without buying them.

In 2010, Zotye New Energy Auto began leasing its electric cars in eastern China's Hangzhou with a hope to market this new product. Lured by a similar rental fee and four-fifths cheaper expenses for each kilometer driven compared with petroleum-powered cars, daily commuters welcomed those electric cars cheerfully.

Long list of lessons learned

But the rental business was sitting on a big loss due to hefty upfront investment, and the company was hesitant to provide more, said Feng Yanjie, Zotye manager.

Then the city's clean car promoters stepped in and backed up the rental business with government subsidies large enough to cover half its electric car purchasing costs as well as part of the charging expenses. That led to an increase in the number of electric cars Zotye leases, from a dozen to 100.

Some of those who rented an electric car later became buyers, Feng said. At the same time, the company is using the project to gather market feedback and make adjustments to the vehicles.

Chinese automakers are not the only ones that benefited. Liu Zhi, transportation specialist at the World Bank's Beijing office, said policymakers here learned more about the complexity of promoting clean cars as the program has shed light on problems in the implementation.

The long list of the learned lessons includes missing standards, accurate surveys on what drives public acceptance, and the need for ways to motivate manufacturers while weeding unqualified players out of the market.

While admitting its downsides, Liu said he does not consider China's clean car promotion program a failure. He added that "the important thing isn't to put as many clean cars on the road as planned, but to recognize problems along the way and leverage the learned lessons to develop future solutions."