Air pollution is suffocating Beijing. PM2.5 levels of 730 were recorded in January, more than twice the amount classified as hazardous. Public outcry across the nation’s vast social media networks (China now has almost half a billion people using instant messenger services) has drawn worldwide attention to the hazardous smog.
Cars sales are likely to hit upwards of 20 million vehicles this year. Last year sales of passenger cars accelerated by 6.8% despite restriction in most of China’s major cities. The nation’s appetite for new motors is apparently not curbed by policy.
The thickening smog casts a particular shadow over low-tech domestic manufacturers, but provides leverage for cleaner foreign brands. GM, VW and Hyundai models meet the most advanced emissions standards and are therefore likely to prove popular with environmentally conscious buyers.
The government is also hoping that the smog clould has a silver lining in dramatically increasing EV purchases. However, despite generous subsidies of up to 60,000 yuan ($9,600) for alternative energy vehicles, a huge investment in LNG and installing charging stations nationwide, only 13,000 EVs had been sold between 2009 and 2011 – a long way off national targets of 500,000 by 2015 and 5 million by 2020.
The government's reaction to the thickening smog is new policies. It has upped the average scrappage payout to around 6,500 yuan ($1,032). A similar ‘cash-for-clunkers’ policy was debated last summer although nothing concrete ever came through.
Aside from the sheer volume of cars in Beijing, the quality of the fuel is also a major contributor to the pollution. Chinese fuel standards currently allow for more than three times the amount of the polluting sulphur as in the US and five times more than Europe. Although many Chinese OEM’s engines are on par with their foreign counterparts, low fuel quality means more toxic emissions.
This is a challenge for the nation's largest fuel producers, Sinopec and CNPC. An improvement in fuel standards at source is likely to lead to cars running cleaner which, in turn, will certainly help alleviate urban pollution. However, cleaner fuel is much more expensive to manufacture.
The government will have to strike a fine balance here. If it removes anti-inflationary fuel price caps, then state-owned oil companies will increase profitability and will hopefully invest the extra funds into cleaner fuel. Doing so, however, will push inflation up dramatically, potentially destabilising the economy and alienating the nation’s motorists.
Logically it would be reasonable to expect a further tightening in emissions legislation and further encouragement to the fuel producers to improve fuel standards. Both will take time. Meanwhile the lubricants producers have time to upgrade their specifications to meet the demands of OEMs and drivers of higher standard vehicles. The impact on local truck producers could be significant too.
Meanwhile, OATS is continuing to make progress on updating the Chinese car database and provide services in full Chinese language.
As with every OATS Bulletin, if you would like to comment on anything you have read, or offer suggestions as to how we might improve our coverage in the future, simply contact Diana at DShen@oats.co.uk. We look forward to hearing from you.
Sebastian Crawshaw
Chairman, OATS