Carmakers’ profit under threat as China toughens emissions rules

A roll out of new legislation due to be completed by 2020 is set to threaten auto makers’ profit in China.

The legislation is aimed at tightening China’s rules on cars’ emissions and fuel economy, bringing them into line with western countries and thereby curbing the industry’s contribution to global warming and air pollution.

Chinese market is dominated by cars powered by petrol engines, but China tolerance for polluting vehicles is now drawing to an end, as the country looks forward to the new legislation.

The legislation however, is expected by some analysts to hit the profits of companies operating in what is the world’s largest automobile market.

But, overseas carmakers are better placed than their domestic rivals to cope with China’s shift to stricter standards, says Jane Lewis, analyst at Macquarie.

“The domestic brands are hit disproportionately as international brands face similar emission and fuel economy requirements in other markets,” she adds.

Some overseas carmakers, such as Jaguar Land Rover, may struggle to meet fuel economy targets set by the Chinese government for their fleets but most international brands will reach these goals, says Ms Lewis.

The worst hit will be smaller domestic carmakers, she adds.

The main drivers behind China’s emissions and fuel economy targets are efforts to reduce air pollution in towns and cities and promote technical developments in the domestic auto industry, says a report by the Innovation Centre for Energy and Transportation, a Chinese think-tank.

A Financial Times report states that, in order to push companies towards hitting fuel-economy targets, Beijing has begun to name and shame carmakers whose fleets are inefficient.

Twenty-two carmakers on the Chinese mainland — including joint ventures involving Sweden’s Volvo and Germany’s Mercedes-Benz, as well as big domestic brands such as BAIC Motors — failed to meet their passenger vehicle fuel economy targets for 2015, according to a report released last month by China’s ministry of information technology.


No public action has been taken against non-compliant companies. But overall, the report by the ministry of information and technology found the fuel economy of Chinese carmakers’ fleets dropped 0.9 per cent last year, while those of international brands increased 3.1 per cent.

The fuel consumption target for each carmaker’s fleet in 2015 was for vehicles on average to travel 100km on 6.9 litres of fuel. But the average fuel required for domestic and overseas carmakers’ vehicles was 7.04 litres last year. By 2020, the Chinese government wants that figure to fall to 5 litres.

To try and avoid penalties for non-compliance with China’s fuel economy rules, carmakers are starting to change the composition of their Chinese fleets by bringing in electric vehicles. They are also looking to introduce more so-called hybrid vehicles, which have a combination of a combustion engine and electric power.

*Photo shows a car assembly plant.

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