China is a communist country with a highly regulated free market economy. We all know that one of the downfalls of capitalism is that people try to distort the system in order to enrich themselves at the expense of others. Such things can’t happen in China, though, because government officials are watching every move entrepreneurs make. That’s the theory, anyway. The reality, however, is somewhat different.
China is diving head first into the green car revolution. Its major cities are wrapped in seemingly endless smog that obscures the sun and causes massive health issues for its citizens. If the government could wave a magic wand and make every car on the road electric tomorrow, it would. And don’t carp about using dirty coal plants to make all that wonderful electricity. China is leading all other nations when it comes to installing solar and wind power so it can also close those coal-fired facilities.
The closest thing China has found to a magic wand is a program of generous government subsidies meant to encourage companies to build electric cars and consumers to buy them. But now, China has discovered that several companies have defrauded the government by collecting subsidy payments for vehicles that never got built. We expect such behavior from evil capitalists, but loyal communists? It’s beyond shocking.
Last week, Chinese officials sanctioned five electric vehicle makers, several of whom are electric bus manufacturers, when it discovered they had taken incentive money but failed to actually build any vehicles. “This is a major blow to the industry and also has a large impact on the country’s policy enforcement,” Xu Yanhua, a vice secretary for the China Association of Automobile Manufacturers, told a news briefing.
The government revoked the production licence of Suzhou Gemsea Coach Manufacturing, while the other four were fined. The companies named included a subsidiary of Chery Holding, owner of the 7th-most-popular Chinese passenger car brand.
Now, China has implicated 20 more companies in the scandal, including some prominent names in the industry like Nissan and Hyundai. Others implicated include Anhui Jianghuai Automobile, otherwise known as JAC, and a subsidiary of BYD. Just last week, Volkswagen said it was exploring a joint venture with JAC to build its cars in China. Under Chinese law, a foreign manufacturer is not permitted to build cars within China unless it forms a joint venture with a local company.
The cheating scandal is a setback to China’s goal of selling 700,000 electric and plug-in hybrid cars in 2016, said Yale Zhang, managing director of consultancy Automotive Foresight. Only 245,000 were sold in the first 8 months of the year, according to China’s automaker association. China spent $4.5 billion last year in subsidies for such vehicles, though it is set to gradually phase out the payments by 2021
What this latest scandal shows is that government policies often fail to achieve their objectives, despite the best of intentions. Sometime after the next US president is inaugurated, the US government will be re-examining its own financial incentives designed to encourage the sale of electric and plug-in hybrid cars. So far, those incentives have also failed to generate the sales volume anticipated when they first went into effect.
People vote with their wallets, regardless of what economic theory pervades their country. Since the invention of money, people make every attempt to buy what they need for the least amount of money. That behavior is unlikely to change any time soon. That is what makes the idea of ending all fossil fuel subsidies so appealing. Instead of creating convoluted incentive programs and complicated tax schemes, simply make fossil fuels bear the full cost of the damage they do to society and stop using taxpayer money to reward those who make fossil fuels the foundation of their business model.
Last week at the G20 conference in Beijing, the world’s leading economies failed once again to put the brakes on fossil fuel subsidies. The truth is, governments are largely slaves to the wishes of the gigantic multi-national fossil fuel corporations. The best interests of the people are constantly subverted by the money that flows to politicians to keep the torrent of subsidies flowing.
Putting a fair price on fossil fuels would drive the transition to a fossil fuel free transportation system perhaps faster and more effectively than any incentive programs ever implemented.