Governance of new energy vehicle technology in China: the case of hybrid- electric vehicles ARI KOKKO AND yINGqI LIU
Introduction New energy vehicles – including combustion engines using alternative fuels, electric cars, fuel cell vehicles and hybrids combining several of these technologies – are of high strategic importance for China, for several reasons. The rapid economic growth during the past decades has resulted in a steep increase in energy consumption. Although China is a notable oil producer, energy imports have surged and China has become the world’s second largest oil importer. A large number of projects focusing on renewable energy and new energy technology have therefore been developed in recent years to reduce the dependence on imported energy. For example, China has become the world’s leading wind power investor (Liu and Kokko, 2010) and substantial resources are being invested to develop photovoltaic technology (Wang, 2010). The development of new energy vehicles is linked to this broad effort to increase self-sufficiency in the energy field. As in other parts of the world, investments in new energy vehicle technologies are also connected to environmental arguments, with reductions in CO2 emissions and other air pollutants as important objectives. Moreover, while Chinese automotive companies are far behind their regional and Western competitors when it comes to traditional automotive technologies, they are hoping to establish a stronger position in new energy vehicles (Sun, 2010). Unlike most Western economies, where the development of new energy technologies involves several actors aside from the national government – private enterprises, industry organizations, consumers, NGOs and private research institutes and universities are only some of the stakeholders that add to the research efforts made in the public sector – technology development in China is strongly concentrated to the public sector. China has an increasing number of strong private enterprises, but they invest much less in technology development than the public sector does (in contrast to Sweden, for example, where the R&D investments of the private sector are more than twice as large as those of the public sector). Consumer organizations are weakly developed and independent NGOs are rare. Although many foreign multinational enterprises participate in Chinese R&D, the main actors are government research institutes, public universities, and state-owned enterprises (SOEs). The dominance of public sector
organizations and SOEs is particularly pronounced in the new energy sector, where innovations are unlikely to be commercially viable in comparison with established coal-or oil-based technologies as long as prices for fossil fuels do not reflect their negative effects on the environment and climate. To promote its strategic objectives, the Chinese government has identified hybrid and pure electric vehicles as one of the industries that qualify for special incentives and public support. For example, the industry is included in the National High Technology Research and Development Programme (also known as the 863 Programme, after its date of introduction in March 1986), which is China’s flagship programme in the strategic high-tech area. Through this programme, the government provides funding for research on core technologies, key components and system integration in three ‘vertical’ and three ‘horizontal’ schemes. The ‘vertical’ scheme identifies hybrid electric vehicles (HEVs), pure electric vehicles (EVs) and fuel cell vehicles (FCVs) as strategic target products, while the ‘horizontal’ distinction refers to vehicle control systems, motor drive systems and power battery/fuel cell technologies. During the last couple of years, China’s HEV industry has started to move from research towards commercialization and mass production. China’s first own-brand hybrid cars – Chana’s Jiexun and BYD’s F3DM – appeared on the market in 2007 and 2008. Eight Chinese own-brand hybrid cars were exhibited at the Beijing 2010 International Auto Show in early 2010, and six of China’s leading auto companies – FAW, SAIC, Dongfeng, Chery, Chana and BYD – had established commercial production of own-brand HEVs by the end of 2010. Several other local firms were investing in R&D to develop new models of HEVs.1 In addition, several HEV models were produced in joint ventures with foreign car producers like Toyota, Honda and GM. The production target for HEVs and EVs, formulated in an action plan for the automotive industry in 2009 by the Ministry of Science, states that production capacity should reach 500,000 vehicles by the end of 2011. To put this objective in perspective, it can be noted that aggregate global sales of HEVs were estimated at around 740,000 in 2009, with the United States and Japan accounting for nearly 85 per cent of the global market (Zewatsky, 2010). With the relatively slow development of the Chinese HEV market in the last few years, the 500,000-vehicle target seems out of reach: yet, there is no mistaking that China has high ambitions regarding its role in the future HEV industry. The purpose of this chapter is to highlight the role of the state in the development of the Chinese HEV industry.2 More specifically, the focus is on the governance of innovation and how the state directs the industry’s technological development. The innovation system (IS) for any industry or technology is usually defined by the actors involved in the system, the institutional framework including formal and informal rules, and various features of the relevant technologies. The next section of this chapter identifies the main actors in the Chinese HEV industry. The third section turns to the institutional framework and examines the role of the state in relation to a number of key processes in technological innovation systems (TISs). The fourth section concludes with a summary and some concerns about the long-term efficiency of the Chinese HEV industry.