Why China's new EV policy could cause a rift with Germany

Yang Jian is managing editor of Automotive News China.Yang Jian is managing editor of Automotive News China.
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Who has the clout to make China's government reconsider its environmental policies?

As much as he might huff and puff over fair trade, it isn't Donald Trump, the China basher who became the 45th U.S. president last week. Instead it is Michael Clauss, Germany's ambassador to China and a vocal critic of China's EV policies.

In recent months, Clauss has repeatedly criticized Beijing's plan to introduce a California-style carbon credit trading program. China hopes to use the program to goad foreign automakers to develop and build electric vehicles for their Chinese joint ventures.

On Oct. 23, Clauss fired his first salvo in an article in the South China Morning Post, published one month after the Chinese government released its draft rules for the program.

The article denounced those rules as an example of "less openness and a lack of rule of law" in China. Foreign automakers would have to localize not only production but also the entire EV development process in China, Clauss noted.

"This means that all foreign automobile manufacturers would be forced to hand over 100 percent of their technology to their joint venture partners ¡n mostly state-owned enterprises," he added.

The carbon credit program that Beijing floated in September will take effect on a trial basis this year, with strict enforcement beginning in 2018. It requires foreign and domestic carmakers to raise EV production or face severe penalties.

In a second article posted on the German embassy's website on Dec. 14, Clauss criticized the program's unrealistic deadlines. And in a third article posted on Jan. 16, he warned that Beijing's one-year deadline is "an impossible task at such short notice."

China's proposed EV production mandate is "so onerous that they could even bring a decades long trend of rising German investment in China's manufacturing sector to a halt," he said.

How seriously will Beijing take this threat? Well, Germany is the biggest source of foreign investment in China's auto industry.

According to Clauss, the German auto industry will invest more than $20 billion (138 billion yuan) in China over the next few years.

The controversy comes at a time when China's economic growth is slowing. In 2016, massive amounts of capital fled the country as investors lost confidence.

Beijing must move fast to revise its problematic EV policies. The government can't afford to discourage foreign investment in the auto industry, one of the few bright spots in China's shaky manufacturing sector.

You can reach Yang Jian at yangjian@autonewschina.com.

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