China will continue to subsidize new-energy cars through 2020 but plans to cut the subsidy gradually to foster market competition, according to a draft of the rules posted on the Ministry of Finance website Tuesday.
The new policy is basically an extension of a subsidy program that will expire at the end of 2015. The country is promoting eco-friendly vehicles amid worsening air pollution that exhaust from conventional vehicles is partly to blame.
The subsidy coverage remains the same as the existing one, which includes purely electric cars, plug-in hybrids and fuel-cell cars.
After being trimmed 5 percent this year, the subsidies for electric cars at 60,000 yuan (US$9,676) and 35,000 yuan for plug-in hybrids will be reduced by 10 percent in 2015, 2017 and 2019.
By cutting the subsidy, China is determined to lead the new-energy car industry to build up its own strength and send a message that the industry can't rely on subsidies permanently.
The subsidy for fuel-cell cars, considered the ultimate green mobility solution as they emit only water vapor, will not be cut.
The policy is a boon to firms such as Warren Buffett-backed BYD Co, China's biggest maker of electric vehicles, as the country will still only subsidize purchases of locally made green vehicles, excluding imported cars by foreign companies such as BMW, Tesla and Nissan.
Production of green vehicles in China has jumped fivefold during the first 11 months of this year compared with 2013, but the industry still far lags Beijing's goal of putting 5 million new-energy vehicles on Chinese roads by 2020.