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Geopolitics drives China’s policy on green cars



By Tom Mitchell
Backing for green vehicles shaped by concerns on territorial disputes
The Denza electric car -- a joint creation by Daimler and Chinese manufacturer BYD -- is unveiled at Auto China 2012 car show in Beijing on April 23, 2012. Beijing is hosting the Auto China 2012 exhiition in which top world carmakers will roll out a host of new models as they scramble for an edge amid sharply slowing sales in the planet's largest automobile market. The show runs until May 2. AFP PHOTO / Ed Jones (Photo credit should read Ed Jones/AFP/Getty Images)©AFP

The BYD-Daimler Denza electric car

Chinese auto executives do not usually allude to the possibility of a shooting war in the South China Sea in the course of otherwise routine industry briefings. Yet Wang Chuanfu, chairman of BYD, did just that last month during the launch of the company’s latest electric car, developed by its joint venture with Daimler of Germany.

Asked why he was optimistic about the future of electric vehicles in the world’s largest automotive market, Mr Wang argued that government policy support for the sector would be a critical factor in its success, driven in large part by Beijing’s concerns about what he called “the two 60 per cents”.



There are other reasons the Chinese government this summer issued a new and improved set of incentives to spur the development of so-called NEVs, or new energy vehicles, most notably pollution. But Mr Wang argued that geopolitical concerns loomed largest in its formulation of policy support for alternative energy vehicles.

“Oil security is the biggest driver for NEV development,” he said, adding that Premier Li Keqiang’s “war on pollution”, declared in March this year, was “the second driver”.

Mr Wang is a good salesman and clearly has an interest in highlighting all sorts of forces that may drive up BYD’s share price, especially given a collapse in sales of its traditional gasoline-fuelled cars this year. But his analysis is worth paying attention to. Chinese auto executives, who are far better connected than their expatriate counterparts at multinational car companies, rarely share their insights on Beijing’s motivations and longer-term objectives in public settings.

BYD’s chairman also has better tuned political antennas than most.
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In addition to succeeding as a private entrepreneur in a traditionally state-dominated industry – BYD began as a manufacturer of mobile phone batteries before diversifying into cars – Mr Wang also has some rather unusual partners.

One of his largest investors is Li Lu, a student leader during the 1989 Tiananmen Square protests. After those ended in bloodshed, Mr Li fled to the US and ended up a billionaire fund manager. The former democracy activist spotted BYD’s potential early and introduced Mr Wang to his idol, Warren Buffett, whose MidAmerican Energy Holdings is now the biggest single shareholder in the company.

Chinese demand for NEVs has so far been tepid, largely because of drivers’ concerns about the availability of an adequate charging infrastructure. There are only about 70,000 NEVs currently in use in China, most of them public buses or taxis. That suggests the Chinese government’s target of 500,000 NEV sales next year and 5m by 2020 will be difficult to reach.

But Mr Wang said the government is determined to succeed – and not just because it wants a vehicle fleet that can keep running even if China’s maritime lifelines to Middle East oilfields were to be cut off. Beijing, he said, is also concerned that while China’s auto industry may be the world’s largest, it is by no means the strongest. Foreign brands dominate the market.
In depth



According to BYD’s chairman, NEVs offer China’s domestic auto companies an alternative route to industry dominance. He is not alone in this view.

On Tuesday, the EU Chamber of Commerce in China expressed concern that government subsidies and incentives for NEVs only apply to those “produced in China under a Chinese brand”. That means that the underlying technologies have to be disclosed to local authorities.

“While at one level [NEVs] are meant to alleviate China’s dependency on imported oil, on another, [government policy] is a blueprint for the development of an indigenous electric vehicle industry that might one day trump the dominant position of multinational [car companies],” the chamber’s automotive working group said in a position paper.

It argued that Beijing’s strategic vision ignores the fact that “the automotive industry has long been highly globalised?.?.?.?in ways that benefit all economic players as well as consumers”.

It would indeed be ironic if China’s 21st century quest for energy security is undermined by old-fashioned protectionist instincts.

Tom Mitchell is the Financial Times’ Beijing correspondent