Ever since Warren Buffett invested last Autumn in a 10 per cent stake in BYD, China's leading electric vehicle and battery manufacturer, the potential of China's electric vehicles sector has caught the attention of both domestic Chinese and foreign investors.

In recent years, China has stepped up its investment in electric vehicles. The Chinese government actively promotes the development of the electric vehicle industry, by providing financial subsidies and offering other favourable policies such as government procurement, the promotion of pilot projects and the development of a "rapid-charge" infrastructure. China also has ambitions to speed up the expansion of the hybrid electric vehicle and pure electric vehicle market and to increase annual production capacity to half a million vehicles, accounting for 5 per cent of passenger vehicles by 2011.

This objective was underlined by a series of recent joint announcements made by US President Barack Obama and Chinese President Hu Jintao during Mr Obama's visit to China. They proposed that the two countries cooperate in the development of efficient energy, clean coal and electric vehicles, with efforts in the electric vehicles sector to focus on development of joint standards, joint demonstrations, joint technical roadmaps and the raising of public awareness.

China is looking to address the problems posed by the rise in the number of cars on its roads. The Ministry of Finance, together with the Ministry of Science and Technology, announced a pilot programme in January this year to promote energy-saving and new energy vehicles in the country's 13 major cities - Beijing, Shanghai, Chongqing, Changchun, Dalian, Hangzhou, Jinan, Wuhan, Shenzhen, Hefei, Changsha, Kunming and Nanchang. Under this programme, the central government provides one-off subsidies to public services sector purchasers of energy-saving and new energy cars. The amount of subsidy is based mainly on a vehicle's fuel saving capabilities. With such government incentives in place and positive trends in electric vehicle usage internationally, major state-owned and joint venture automotive companies have decided to enter the sector.

There is, however, a long way to go as the electric vehicle industry faces several obstacles. Concerns, for instance, over safety issues and costs arising from the production of lithium-ion batteries still remain. In view of the impressive technological strides being made, however, such problems may be soon overcome.

One of the other major challenges is the lack of infrastructure support. In a move to address this issue, it has been reported that the China Southern Power Grid Corporation, one of China's largest electric power transmission and distribution companies, is speeding up its plans to build electric car-charging stations. It will cooperate with other industry players to create a network of electric vehicles recharging stations and to carry out large-scale research on power grid control technologies. The first electric vehicle recharging station in Shenzhen has already been put into use, and the Caoxi recharging station located in Shanghai is ready to go live.

Another issue is that the purchase price of such vehicles is prohibitively high for private consumers. As already discussed, financial subsidies in China's key 13 cities are only available for vehicles serving the public sector, such as those used in public transportation, postal services, the taxi industry, public affairs and environmental hygiene. The Chinese government has been called upon by many automotive companies in China to play a key role in helping manufacturers reduce the cost to private consumers of their final products, with the hope that such moves will accelerate the deployment of electric vehicles.

Local governments have been very proactive in supporting the electric vehicle industry in this manner. For example, the Chongqing government has announced that it would offer one-off subsidies to auto buyers, including private customers, who purchase fuel efficient cars. Shanghai also plans to exempt new energy car purchasers from paying registration plate fees. It is also expected that Guangzhou, Shenzhen and Wuhan will introduce similar specific subsidy policies by 2010.

"Despite the challenges ahead in the development of the electric vehicle industry in China, we are still optimistic about its long-term future", Peter Corne, Managing Director of Eversheds Shanghai commented, "especially when taking into account the low level of automobile penetration in the country and the benefit of carbon emission reduction through using electric vehicles".

Other news on renewable energy

On 26 November this year, China announced its target to cut carbon emissions per Unit GDP by 40-45 per cent from 2005 levels by 2020 but explained that this is a voluntary domestic policy, not a binding international commitment.

At a US-China joint commission on commerce and trade in October this year, the Chinese government agreed to remove its requirement that products used in the country's wind power sector must be at least 70 per cent domestically sourced.

China has re-addressed the issue of production overcapacity in six sectors, stating that, in principle, it will not approve the expansion of the steel, cement, plate glass, coal-chemical industry, poly-crystalline silicon and wind power equipment industries.

China raised electricity prices for non-residential use nationwide by 2.8 fen (0.4 US cents) per kilowatt hour on average from 20 November 2009. Subsidies for electricity generated from renewable energy were raised accordingly.

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