China's Fuel Economy Standards for Passenger Vehicles: Rationale, Policy Process, and Impacts

Summary

China became a pioneer in the developing world in adopting fuel economy standards (FES) for vehicles, driven by its concern regarding increasing oil imports due to a rapid growing transportation sector, its desire to push international auto companies to bring advanced and efficient technologies to China, and its wish to spur its own auto companies to improve its product offerings and compete with international companies. After a rather swift policy-making process, China issued its FES for light-duty passenger vehicles (LDPV) in September 2004. The first phase took effect on July 1, 2005, and the second phase entered force on January 1, 2008.  The stringency of the Chinese FES ranks third globally, following the Japanese and European standards. The Chinese standard was successful in reducing the average fuel consumption (measured as liter/100km) of the new national LDPV fleet (by 11.5%) and stimulating broader deployment of more advanced vehicle technologies. The Chinese experience is highly relevant for countries that are also experiencing or anticipating rapid growth in personal vehicles, those wishing to moderate an increase in oil demand, or those desirous of vehicle technology upgrades.

In this paper, the authors first review the policy-making background of the Chinese FES for LDPVs, including the motivations, key players, and the process; and then explain the contents and the features of the FES, and why there was no compliance flexibility built into it. Next, they assess the various aspects of the standard’s impacts, such as fuel economy improvement, technology changes, shift of market composition, and overall fuel savings. Lastly, they comment on the prospect of tightening the existing FES and summarize the complimentary policies that have been adopted and contemplated by the Chinese government for further promoting efficient vehicles and reducing gasoline consumption.