- Apr 17, 2006
- Lake Forest, CA
“... The bottom takes counter measures.” I like this "countermeasures"
“The top makes the policy. The bottom takes counter measures.” That’s the adage every smart Chinese businessperson knows by heart. Translation: Central government planners in Beijing love to declare ambitious national economic goals. Then powerful city governments, local state enterprises and entrepreneurs jostle chaotically, often creatively, for ways to turn the new rule to their advantage. The bottom’s counter measures are often at odds with the central planners’ vision of how things should develop. Things can get untidy. China’s electric vehicle industry is now officially messy. Earlier this year, Chinese authorities launched an investigation after discovering that the number of electric vehicles sold in 2015 was some 30,000 units higher than the number legally registered. Electric vehicle producers, in some cases, simply shipped cars to fictitious customers in order to secure the government cash subsidies that ran as much as $12,000 per car.
Start-ups with limited automotive experience have also been able to raise enormous amounts of money by talking up a lucrative future in electric vehicles. One such company is WM Motor. Launched earlier this month, WM says it’s secured a billion dollars in funding despite having built little more than visual renderings of a future product. Leaders in Beijing want China to be No. 1 in electrics. But now they are appalled to see companies finding shortcuts to money. Ever since China put in place subsidies to kick-start demand for EVs, the response from new investors has been beyond ecstatic. China is now the world’s leading producer of electric and plug-in hybrids. Sales this year will near 600,000 vehicles, triple the U.S. level. That’s good news. And leaders in Beijing would like to sustain that hard-won momentum. The bad news: China is now also home to more than 190 automotive companies producing or developing hundreds of new energy models, according to reports by Bloomberg. Do the math and you see that production averages around 3,000 vehicles per company. Without sufficient manufacturing scale, no company can produce efficiently.
Through the 1990s and early 2000s, central government planners insisted that China’s car industry must be built around the “Big Three, Little Three” policy, with production consolidated around six Chinese state-owned manufacturers. That never happened. Instead, thanks to sensational demand growth and ubiquitous policy loopholes, there are still more than 200 vehicle makers in China, both state-owned and private. Electric vehicle production in China will continue to grow. There are some companies with genuine potential, including BYD, Le Eco, NextEV and Karma. But the road ahead will also be littered with inefficiencies, side deals and fly-by-nights companies. Never underestimate the ingenuity of China’s “bottom” and its boundless countermeasures. Especially when there is easy money on the table.