Electric vehicle regulation and law in China

The EV industry has grown rapidly in China over the past few years. China has become a worldwide leader in both the supply of and demand for EVs, driven by increasing public awareness of environmental protection and the national strategy of sustainable development. The Chinese government is implementing supportive policies for the R&D, manufacturing and marketing of EVs. In the next few years, we expect to see continuous development of the EV industry in China.

1. What EVS have been deployed in your jurisdiction to date?

In China, new-energy vehicles are commonly referred to as EVs under three categories: battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell/hydrogen energy vehicles (FCEVs). Compared with BEVs and PHEVs, FCEVs are still at an early stage of development and are not widely used. The table

below shows the number of BEVs and PHEVs on China’s roads.

EV Stock in China

Battery electric vehicles

Plug-in hybrid electric
vehicles

Total 

Before 2009

N/A

N/A

N/A

2009

480

N/A

480

2010

1,570

340

1,910

2011

6,320

660

6,980

2012

15,960

920

16,880

2013

30,570

1,650

32,220

2014

79,480

25,920

105,390

2015

226,190

86,580

312,770

2016

483,190

165,580

648,770

2. Is there any specific legislation for/regulation of EVs in your jurisdiction?

The State Council issued the Development Plan for Energy-saving and New Energy Automotive Industry (2012-2020) (“the Development Plan”) on 28 June 2012. It sets out the high-level principles and general framework for developing the EV industry in China. The Development Plan identifies the development of EVs as a national strategy, and establishes a goal for China to reach a manufacturing capacity of 2 million BEVs and PHEVs per year by 2020.

To implement the Development Plan, the State Council issued the Guiding Opinions on Accelerating the Popularisation and Application of New Energy Vehicles (“the Guiding Opinions”) on 14 July 2014. This includes an overall plan to promote EVs, and covers aspects of: the construction of basic infrastructure; technologies and innovation; financial subsidies; and tax benefits. In particular, the Guiding Opinions provide that EVs should be the preferred choice for government procurement. By 2016, the percentage of EVs purchased by central government departments and their local branches should have accounted for at least 30% of the total vehicles purchased by those entities each year.

On 6 January 2017, the Ministry of Industry and Information Technology (MIIT) issued the Administrative Provisions on the Market Access for New-Energy Vehicle Manufacturers and Products. This provides that both EV manufacturers and the EVs manufactured should fulfil certain conditions, and gain approval, before entering the market. In addition to the qualifications that a manufacturer of regular automotive vehicles must possess, an EV manufacturer must also satisfy a series of additional qualification requirements concerning the design, development, production, after-sale services, and other capabilities of EVs. Before entering the market, an EV must satisfy all technical standards, and must pass safety inspections and other relevant examinations organised by state-recognised testing institutions.

Safety has always been a major focus and objective for the administrative regulators. On 11 November 2016, the MIIT issued the Circular on Further Enhancing the Safety Oversight of the Promotion and Use of New Energy Vehicles. Among other requirements, EV manufacturers must establish platforms and mechanisms – with the consent of users – to supervise the safety status of EVs. The Circular does not specify the mechanisms to be used to obtain users’ consent. Manufacturers might adopt different approaches according to what best suits their operations. In addition, four departments of the central government jointly issued the Circular on Strengthening the Safety Administration of the Demonstration and Promotion of Energy-saving and New Energy Vehicles on 18 August 2011. This specifies the obligations of EV charging stations to establish safety management measures to avoid accidents during charging.

3. What measures promote EVs in your jurisdiction?

The Chinese government is supporting the development of the EV industry. There are encouraging policies and measures for both EV manufacturers and purchasers. There are also incentives for business operators to engage in, and improve, charging and other peripheral services. The beneficial treatments are not exclusive to domestic EVs – they include certain models of imported EVs (e.g. Tesla).

Key measures include:

  • Purchase grants – to encourage the purchase of EVs, both the central and local governments have formulated rules granting subsidies to EV purchasers. In 2016, the government granted subsidies worth up to RMB 100,000 (around USD 15,000) per vehicle.
    It is reported that the average EV purchase subsidies in China are the second most generous in the world after Norway.
  • Tax benefits – EVs that satisfy certain qualification requirements are exempt from “vehicle purchase tax”. Since 2014, the MIIT and the State Administration of Taxation (SAT) have published 16 catalogues that list the specific EV models that enjoy vehicle purchase tax exemption. The latest catalogue, the16th, is valid between January 2018 and 31 December 2020. 
    In addition, while “vehicle and vessel tax” does not apply to BEVs and FCEVs, PHEVs that satisfy certain qualification requirements are exempt from “vehicle and vessel tax”. The qualification requirements concern the duration or distance per battery charge, whether a lead-acid battery is used, and the consumption of fuel status compared to non-EVs. The MIIT periodically publishes catalogues listing the qualified EV models.
  • Preferential vehicle registration policies – to relieve traffic congestion, some big cities in China have established quota systems for vehicle registration. Vehicle registration plates for non-EVs are typically allocated among applicants by auction (e.g. in Shanghai) or by lottery (e.g. in Beijing). To encourage the purchase of EVs, some of these big cities have established separate quota systems for certain models of EVs. Such quota systems are less competitive, and could help an applicant to save a significant amount of money or time. For example, in Shanghai a purchaser of qualified models of BEVs or PHEVs can get a registration plate for free if the quota for BEVs and PHEVs in Shanghai for that year has not been used up.
  • Driving and parking privilege – in some big cities where traffic congestion is serious, certain lanes of public roads are reserved for buses only. EVs in some of these cities (e.g. Nanjing and Shanghai) are not subject to such restrictions, and can drive freely in the reserved lanes. In addition, many cities also encourage public institutions (e.g. government official buildings and schools) to reserve designated parking spaces with charging facilities for EVs.
  • Diversified financing resources – as a general principle, financial institutions are encouraged to develop innovative financial products and to establish credit review systems suited to the characteristics of the EV industry. This ensures that the institutions provide diversified financing resources for the manufacturing, marketing, and purchase of EVs. Meanwhile, EV manufacturers are encouraged to broaden their financing channels through public offerings, issuing bonds or by engaging in asset securitisation. This helps EV manufacturers to increase their capabilities for providing price incentives to EV purchasers.
  • Government financial support for charging infrastructure – to encourage local governments to continuously promote the spread of EVs within their territories, the central government provides subsidies to local governments that reach their annual promotion targets. Local governments are required to use the financial support to construct and operate the charging infrastructure, maintain and update battery-charging and battery-swapping management networks, and improve the overall level of charging services. Local governments are prohibited from directly using the financial support as purchase grants for EV purchasers or subsidies for EV manufacturers.
  • Beneficial treatment for charging stations – in addition to their own significant efforts in establishing charging stations, the two State-owned electric utility monopolies in China – the State Grid of China and the China Southern Power Grid – have also offered beneficial treatment to other commercial charging station operators. For example, before 2020 commercial charging station operators only need to pay electricity fees to the State Grid or Southern Power Grid based on their actual usage of electricity. They do not need to pay any of the “basic charges” that other large-scale industrial electricity users must pay. The basic charge is a fixed fee determined by the capacity of the large-scale industrial electricity users’ transformers.
  • Incentives for using EV buses – local governments are encouraged to use EVs as public city buses. Depending on its air pollution status in a province, a local government must meet annual targets on substituting traditional buses for EV buses. Failure to meet the targets results in a reduction in the oil subsidies provided by the central government to that province for city buses. A reduced subsidy significantly increases the operating cost for traditional buses, and thus functions as an indirect incentive to encourage the use of EV buses.

4. Who are the main entities (e.g. developers, government, System Operator) and what are their roles in the deployment of EVs in your jurisdiction?

  • Regulators – the major regulators for EVs in China include: the State Council and the National Development and Reform Commission – the authorities responsible for formulating the overall industry policies and regulatory frameworks; the Ministry of Transport and the MIIT – the authorities in charge of the market access of manufacturers, quality and safety control of EVs and the implementation of various regulations governing different aspects of the EV industry; the Ministry of Finance and the SAT – the authorities responsible for formulating and implementing government financial support and tax benefits; the local branches of the aforesaid government authorities are responsible for implementing the relevant policies and enforcing the regulatory requirements within their respective jurisdictions.
  • The Standardisation Administration of China (CAC) – in 2010, the CAC initiated work to establish a standardisation system for the EV industry. In recent years, the CAC and other relevant regulators have published a series of national standards concerning: the key components and operating systems of EVs; battery technologies and management systems; basic charging infrastructure; and other relevant matters.
  • EV manufacturers – led by supportive and encouraging national policies, China has seen a boom in domestic EV manufacturers in recent years. BYD Automobile, BAIC BJEV, JAC Motors, and Changan Automobile are considered to be leading domestic manufacturers and they have already shown an interest in exploring the global market. Meanwhile, major global automobile manufacturers have also seen the great potential of the EV industry in China. For example, Volkswagen and Ford have announced plans to produce EVs via joint ventures in China. The Renault-Nissan alliance has also established a joint venture to produce electric vehicles with long-time partner Dongfeng Motor. Daimler and BYD established a 50-50 joint venture – Shenzhen DENZA New Energy Automotive Co Ltd – in 2011.
  • Peripheral service operators – charging services are critical for the widespread use of EVs in China. For fuel cell batteries the development of major technology is still at a very early stage, and is not yet ready for large-scale manufacturing.5 There are also an increasing number of charging stations being established by commercial enterprises. In addition, the development of smart power grids, mobile networks, and various Internet of Things technologies will also facilitate the long-term development of the EV industry in China.

5. What are the main challenges to the further deployment of EVs in your jurisdiction? How have EV developers sought to overcome these challenges to date?

  • Privacy and data protection – as discussed above, EV manufacturers must establish platforms to monitor the operational status of batteries and other critical systems of EVs on a continuous basis. They must then share precautions or remedial measures with users. During such supervision, users’ personal data or other sensitive data might be collected and processed. To protect privacy and user data, EV manufacturers are legally required to enter into agreements with users and obtain their consent on the collection and processing of data. In addition, to prevent EV systems from being hacked or breached, EV manufacturers are also required to take all necessary technical and management measures, in accordance with the applicable cybersecurity laws.
  • Battery technology – mainstream EVs in China rely on lithium ion batteries (LIBs). The patents of the main technologies in LIBs are still held in foreign institutions. Compared with other major LIB manufacturers such as South Korea and Japan, China still needs to improve consistency among its LIB packs. For fuel cell batteries the development of major technology is still at a very early stage, and is not yet ready for large-scale manufacturing.
     To improve the situation, the government has included R&D and the application of certain battery technologies into the “national science and technology programmes”. The government has also paid more attention to offering financial support and preferential treatment to battery manufacturers to allow them to recruit talent. Meanwhile, international cooperation in the forms of technology licensing, transfer and other collaborations are also being encouraged. Under the latest foreign investment policies, foreign investors are specifically encouraged to invest in: the manufacturing of battery separators (thickness of 15-40 μm, porosity of 40%-60%); battery management systems; and low-platinum catalysts of fuel cells.