China ends electric vehicle subsidies

As of 1 January, the Chinese government no longer provides subsidies to buyers of electric vehicles (EVs), but other policies are expected to keep stimulating the industry.

The government started granting subsidies to EV buyers in 2010, to level the price difference with combustion vehicles, and to support commercialisation. Originally set to stop at the end of 2020, the subsidy was extended to 2022 due to the pandemic and its economic impact. 

Developing EVs used to be seen only in terms of reducing air pollution in China but in recent years carbon emissions are also discussed. A 2011 study by Tsinghua University found that an EV’s whole lifecycle emissions are 20% lower than a combustion vehicle. Later studies noted that the mitigation benefits will increase as renewables form more of the energy mix. 

Despite the end of subsidies, most experts believe the EV market will keep growing. Car companies have devoted major R&D resources to EVs, and consumer interest has grown a lot, Gongmin Guan, head of automotive industry research at UBS ChinaCar, told Caixin. EVs are gradually transitioning from policy-driven to market-driven, Nishita Aggarwal, industry analyst at the Economist Intelligence Unit (EIU), told the BBC.

Meanwhile, some other incentives remain. EV buyers are entitled to a 10% purchase tax exemption until the end of 2023, which had initially been planned to end with the subsidy. Also, the government has been putting more teeth into the green car credit system that sets annual compliance requirements for car makers. Companies that exceed the EV proportion target can sell any surplus credits, while those who fail must buy credits or pay a fine.

An even stronger policy would be to ban the sale of combustion vehicles. This is a controversial matter in China but local governments could lead the way. In August 2022, the government of Hainan province proposed a complete ban on the sale of combustion cars by 2030 in its implementation plan for peaking carbon emissions. Some experts suggest Beijing city should do the same.

Read China Dialogue’s earlier report on whether China can electrify all new passengers vehicles by 2030.