In China's Tech Hub Shenzhen, an Electric Transport Boom Runs on State Subsidies

Shenzhen says its switch from diesel and gasoline has resulted in a carbon-dioxide emissions cut of more than 1.35 million tons a year.

By Gerry Shih, The Washington Post | Updated: 3 June 2019 16:50 IST

In China's Tech Hub Shenzhen, an Electric Transport Boom Runs on State Subsidies

A year ago, when D.C. Metro officials unveiled 14 electric buses - a purchase that made the capital one of the largest electric-fleet operators in the United States - this southern Chinese metropolis was already in the middle of a full-blown electric revolution.

Today, more than 16,000 buses and 12,000 taxis whir along Shenzhen's palm-fringed boulevards. How many run on diesel or gasoline? Practically none. How many are made in China? Almost all.

Going fully electric "cost a lot of money," said Zheng Jingyu, the Shenzhen transit official in charge of the overhaul. "But it helps our citizens and helps our air."

Turns out, it also helps China's competitiveness.

The story of how this leafy tech hub in southern China became the first city in the world to turn nearly all of its buses and taxis electric is laden with economic and political subplots. It's a study of how the Chinese government deployed an array of policies to gain an advantage in a strategic technology while the United States fell behind.

In the past decade, China has spent huge sums propping up electric-vehicle manufacturers, setting production quotas for plug-ins and doling out incentives for electric-car buyers.

But it also has used the state's clout to generate demand for its domestic electric-vehicle manufacturers in less obvious but important niches that the government could influence easily. Think buses and taxis.

At a time when policymakers around the world broadly see plug-ins as the future of transportation, China's multipronged strategy to promote the technology contrasts sharply with that of the Trump administration, which is rolling back Obama-era tax credits and subsidies.

"The current US administration is not a leader promoting electrification or alternative energy sources, so the federal government is sitting on its hands," said Scott Kennedy of the Center for Strategic and International Studies in Washington, D.C. "The difference between China and the US couldn't be greater. It's night and day."

Shenzhen says its switch from diesel and gasoline, completed in January, has resulted in a carbon-dioxide emissions cut of more than 1.35 million tons a year. That's the equivalent of taking 280,000 passenger cars off the road - an environmental boon in a country grappling with notorious air pollution.

City officials say their electric overhaul was spurred by a 2009 policy from Beijing's top economic planning agency to make China a leader in the then-nascent electric-vehicle industry - from passenger sedans to commercial trucks to the battery technology that powers them.

Flush with cash and encouragement from the central government after several years of trials, Shenzhen in 2015 bet big on electric when the technology was still somewhat clunky, city officials and industry executives said.

The buses were hobbled by limited range, but local officials pushed procurement deals between bus and taxi operators and Shenzhen's BYD, an electric-vehicle manufacturer.

In turn, BYD received more than half the price of every bus - $150,000 out of $300,000 - directly in the form of government handouts.

The government also appropriated land for thousands of charging stations and signed up Potevio, a state-owned telecommunications hardware maker, to build them - a process that might not go as smoothly in the United States.

"The early technology wasn't mature, and there was no precedent for large-scale deployment," said Zheng, the Shenzhen transport official. He referenced a phrase coined by Deng Xiaoping, the Chinese leader who turned Shenzhen into an economic powerhouse through risky reforms in the 1980s: "We were crossing the river by feeling the stones."

Those bets are paying off.

Several major Chinese cities, including Taiyuan, Beijing, Shanghai and Hangzhou have significant electric fleets of taxis and buses. A Bloomberg New Energy Finance report estimates that roughly 20 percent of municipal Chinese buses are already electrified.

In the past five years, Chinese manufacturers led by BYD produced more than 410,000 e-buses, the vast majority of those used in the world, estimates Yale Zhang of Automotive Foresight, a Shanghai consultancy. London's famous double-decker fleet includes BYD electric vehicles, and hundreds of BYD's E6 hatchback taxis are starting to roam the streets of Bangkok and Mexico City.

Umberto Guida, director of research and innovation at the International Association of Public Transport, an industry group in Brussels, said it is "inevitable" that public transportation will go electric in major world cities.

But Beijing's political will and financial backing played a key role when there were still lingering questions over the feasibility and profitability of plug-ins, he said.

"In the early days, China facilitated by creating big demand," Guida said. "It gave the possibility for this market to grow."

On the streets of Shenzhen today, ubiquitous government vehicles bearing green-tinted license plates - denoting they are hybrid or fully electric - show how the city's electrification policies reach far beyond public transportation.

Shenzhen police patrol neighbourhoods in electric sedans. The postal service delivers mail in green-plated minivans. The transport commission says it is working this year to convert the fleet of sedans used for official city business to electric in coming years.

All told, China's government has spent $59 billion in research funding, subsidies and procurements to promote the electric-vehicle industry - or 42 percent of the sector's entire commercial activity, according to a 2018 report by Kennedy at the Center for Strategic and International Studies.

That dwarfs the expenditure by the United States and even European countries, which have some of the most generous plug-in incentives in the world. And that doesn't count the powerful, nonfinancial incentives China has introduced for electric-car buyers. For instance, they can obtain license plates immediately, while consumers who buy gas guzzlers must wait years in some cases.

Although policy experts say the Chinese government has been instrumental in pushing forward the industry, many raise a familiar question: Is Beijing going too far to tip the scales?

New-energy vehicles, and specifically commercial vehicles such as buses, were one of 10 pillars of the "Made in China 2025" blueprint that has been criticised by the Trump administration as an example of what the White House terms unfair Chinese practices.

As trade frictions with Washington have worsened over the past year, China's state media has shelved propaganda boasting of how the "2025" plan would help China dominate high-tech manufacturing. But China's leaders have shown no signs of abandoning the underlying tactic of propping up strategic industries, US officials who study Chinese industrial policy say.

Some US and European executives worry China's state-driven industry will produce a glut of cheap vehicles that will flood the world market and kill off international competitors. That's what China's heavily subsidised solar-panel industry did a decade ago.

Chinese analysts, meanwhile, worry that the top-down, subsidy-fueled approach produces substantial waste and not enough world-class innovation.

"China has the largest volume of sales, but we don't have much confidence in our technology," said Qiu Kaijun, editor of the website Electric Vehicle Observer. "It's far too early to say that China has already won."

On the streets of Shenzhen, there are other signs that going electric by diktat can sometimes be bumpy. Taxi drivers say they were forced to put down deposits of more than $4,500 for new vehicles when the government mandated the electric conversion, a significant cost for many struggling to make ends meet.

The new BYD electric taxis - at least early models - also had unpredictable brakes, and charging is a major headache. Although the government has built thousands of charging stations, there are not nearly enough spaces in central areas to serve taxi drivers.

"Whenever I have to charge, I get angry," said taxi driver Song Guiqing, as he cruised along Shenzhen Bay. "If you want to charge downtown during peak hours, forget about it."

Within public transport circles, however, Shenzhen is considered something of a pacesetter.

Joseph Ma, deputy general manager of the semiprivate Shenzhen Bus Group, the city's largest bus and taxi operator, said he frequently hosts transportation officials from Japan, India, Spain, England, California, New York - all over the world.

"They always ask: 'How did you do it?' " Ma said. "I say, 'Coordination and subsidies.' "

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