Beijing traffic

In announcing an ambitious round of subsidies for green vehicles earlier this month, the Chinese government made it clear that the country isn’t just paying lip service to fuel efficiency. China intends to compete both domestically and internationally in the hybrid and electric vehicle market, even if it means playing catch-up.

The domestic incentives provide discounts of $8,800 electric vehicles, $7,350 for PHEVs, and up to $36,750 for fuel cell vehicles. China was successful with a general vehicle subsidy last year that helped the country surpass the United States as the world’s largest auto market for the first time in history.

At a recent U.S. China Automotive Conference, the technology gap between China and the United States on hybrids and electric vehicles generated a lot of discussion. “In terms of engineering capability, the U.S. is leading, but China is very fast in adopting the technology,” said mechanical engineering professor, Jun Ni, to the Detroit Free Press.

As an export-driven economy, China knows that if it wants to compete in the international car market, it will have to make quality cars that are safe, fuel efficient, and cost competitive. Chinese exports have never had a problem competing on price, but when it comes to autos, Americans will be concerned about the safety and reliability of Chinese cars—regardless of how much money they might save.

Using Green to Break Into New Markets

China hopes to quickly improve quality via collaboration with foreign car carmakers that have spent decades competing in Western markets. At the same time, subsidies for fuel efficient vehicles will help Chinese manufacturers refine their products and reach economies of scale by developing and selling their cars domestically before a wider international release. But whether the government’s new green car incentives will be enough to get the Chinese population buying hybrids remains to be seen.

Take for example BYD’s F3DM, a plug-in hybrid electric vehicle similar to the Chevy Volt. The F3DM recently became available to consumers in China’s largest cities at a price of about $22,000. Subtract the $7,350 incentive and the sticker price drops to about $14,650. That may seem like a great price to pay for an electric car in the United States, but in China, you can buy a gasoline powered F3 (which the plug-in is based on) for $8,750. That’s a hefty premium for the average Chinese driver to pay for a fuel efficient vehicle—particularly considering that the government uses price controls to keep gasoline prices artificially low.

It will likely be years before China becomes a serious competitor in the United States. After all, American consumers will have to get used to the idea that the same country that can’t seem to keep lead paint out of its children’s toys is capable of producing safe and reliable automobiles. Yet, if China’s first cars in the United States are ultra-green hybrids or electric cars, it could go a long way toward validating China’s engineering and manufacturing capabilities—and its serious commitment to owning a big chunk of the growing global market for greener cars.