Auto executives in China are worried these days. They are not concerned about consumer demand, which has remained strong -- in the first seven months of the year, light-vehicle sales advanced 11 percent to top 12.6 million cars and light trucks.
What has executives nervous is the uncertainty surrounding key industry policies set by the Chinese government.
One such policy is the tax incentive for consumers to buy small vehicles.
To shore up new-vehicle sales in the wake of 2015's stock market collapse, Beijing halved the purchase tax in October to 5 percent for vehicles with engine displacements of 1.6 liters and smaller.
The tax break is set to expire at year end. The China Association of Automobile Manufacturers, a government-backed industry body, is urging officials in Beijing to extend it.
But the government can't make up its mind.
The incentive has been highly effective in boosting deliveries. Take July. Deliveries of vehicles eligible for the tax break soared 39 percent from a year earlier to approach 1,144,000 during the month. As a result, overall light-vehicle sales surged 26 percent to top 1.6 million vehicles last month.
If the policy expires at year end, consumers will likely scramble to take advantage of the break before Dec. 31. The rush will stimulate sales for the rest of the year but will likely dampen demand in 2017, VW China CEO Jochem Heizmann noted at a press briefing this month in Beijing.
With the end of 2016 on the horizon, the government must decide soon what to do with the incentive.
While it won't take long for automakers to learn what the government decides, it could be much longer before the auto industry has a clear feel for the future direction of China's key green vehicle policies.
Under a policy intended to support domestic automakers, only locally produced EVs, plug-in hybrids and fuel cell vehicles qualify for government subsidies.
In January, the government stopped doling out the incentives after many domestic companies wrongly claimed subsidies by exaggerating sales and distributing substandard products.
China's ministry of finance disclosed in June that it had completed investigations into the fraud cases. But it hasn't released results of the probe.
And last week, the National Development and Reform Commission, China's central economic planning agency, released a draft proposal for a Californian-style carbon credit plan to encourage automakers to produce green vehicles, including EVs, plug-in hybrids and fuel cell vehicles.
According to the document, the government plans to usher in the rules in 2018. Under the plan, companies that fail to produce a minimum number of green vehicles must buy credits from peers with surplus carbon credits, or face hefty fines.
The commission will allow foreign automakers to import green vehicles to earn carbon credits.
The latest proposal implies that the national government considers China's green-vehicle subsidies too problematic to be fixed. Rather than phasing out the policy by 2020 as originally planned, the government now wants to replace it ahead of schedule.
The government's latest draft plan is rudimentary, lacking details on the pricing of carbon credits and the allocation of credits for various vehicles. It will likely take the government more time than expected to institute a carbon trade system for the domestic auto industry.
Chinese consumers have become increasingly sophisticated about vehicles as more of them start buying second cars. But their government has yet to abandon its old habit of intervening in the market to achieve goals such as reduced traffic congestion, cleaner air and job growth.
Automakers, foreign and domestic, have long complained that government policies are the paramount risks they face in China. Judging by the slow progress the government has made to clear the confusion surrounding incentives for small cars and green vehicles, automakers will have to live with such risks for quite some time.