Yining Huang

The year of 2009 was remarkable for China’s auto industry. It produced 13.8 million vehicles, surpassing Japan as the world’s largest automaker. Moreover, these vehicles were not just produced, but sold. Despite the global economic slowdown, the auto sales in China surged 46.2 percent to 13.6 million units, overtaking America as the world’s number one auto market by a margin of more than 3 million cars. Given these strong and growing trends, China’s ascendancy in auto production and sales is likely to be maintained for some time into the future.

All this is very impressive, but what really inspires confidence in the future of the Chinese auto industry is the fact that, along with working hard to out-produce and out-sell others, it is also striving to out-green them.

At the World Expo in Shanghai, a “vehicle-to-grid” (V2G) technology was demonstrated by the State Grid Corporation of China, the nation’s biggest electricity distributor. This technology enables electricity exchange between an electric vehicle (EV) and a charging stand. What is particularly significant about this is that in the event of a major fluctuation in the system, such as a sharp drop in solar power, a switch between charging and discharging can be made to stabilize the electricity grid. In other words, millions of autos hooked up to such a system could switch nearly instantaneously from drawing on the grid to feeding into it. Obviously the full-fledged introduction of the “V2G” technology will depend on the widespread use of EVs.

This is only one of many innovations encouraged by the government to set up infrastructure, promote EVs and finally bring them to the market. Suffering from a dearth of intellectual property, Beijing is determined to take advantage of this EV opportunity to become a real competitor in the world auto market. This means being competitive from sheet metal to core technologies rather than being little more than a brainless manufacturing giant. In this race to succeed, private automakers in China such as Geely and BYD have no less opportunity or support than state-owned companies, a rarity in the Chinese economy, especially in the crucial heavy industrial sector.

Facing today’s bleak energy and environment realities, China’s automotive industry is encountering a dilemma. China imports more than 50 percent of its crude oil and has limited political and military power, all of which means that energy supply is a strategic security issue that will only worsen if oil demand keeps surging. At the same time, however, putting a cap on the auto industry would be a tough option, given that it contributes one-fourth of total GDP growth in China.

Electric vehicles appear to be the only promising way out of this dilemma and they have the support of the government. In 2009, the Chinese government announced a $2.3 billion increase in the fiscal support package for the auto industry. By pouring resources into research and infrastructure and heavily subsidizing cleaner vehicles, the government expects to produce 500,000 electric and hybrid cars annually by 2011. There is hope that bypassing endless debate and the entanglement of group interests, China will be able to replicate the success story in solar panel production, where it saw its share of global market rise from 1 percent to 32 percent over the past decade.

If the Chinese government wants to do something, it gets it done. Moreover, the automakers are thrilled and committed to the government’s vision. China is operating in a context where the existing technology of internal combustion engines and transmissions is too mature for the country to have a short-term impact. In the case of electric vehicles, though, what determines how far one can go is the battery technology, an area in which China is not lagging at all. For instance, automaker BYD, which is also the largest rechargeable battery manufacturer in China, developed ferrous oxide batteries, which are more stable and durable than traditional lithium units. Several EVs based on this technology have been launched, including the world’s first mass-produced plug-in hybrid F3DM introduced in December 2008.

Beginning at the same starting line to race on a new track can be painful for those who have dedicated generations to developing a considerable lead on another track, but it is a wonderful opportunity for those who were not in the race before. In this new context, China’s automakers are turbocharged in their expectation to leapfrog countries that led the field in earlier competitions.

An additional reason for the enthusiasm of Chinese automakers is the market conditions in China. The country has 131 motor vehicles per thousand people (compared to 765 in the United States), and many Chinese consumers are first-time buyers who are equally unfamiliar with traditional as electric cars. Moreover, consumers are not addicted to large SUVs, pick-up trucks and muscle cars; over 50 percent of auto sales in China in 2009 were small vehicles with engine displacement of 1.6 liters or less. All these factors point to a friendly market for EVs. In short, stay posted: China is poised to be the major EV producer and consumer in the future.