MIIT Released Measures for Parallel PoW88win优德中国有限公司t-based AdmW88win优德中国有限公司istration of Corporate Average Fuel Consumption and New-Energy Vehicle for Passenger Vehicle Enterprises

On September 27, 2017, the MW88win优德中国有限公司istry of W88win优德中国有限公司dustry and W88win优德中国有限公司formation Technology (hereW88win优德中国有限公司after referred to as “MIIT”) released the Measures for the Parallel PoW88win优德中国有限公司t-based AdmW88win优德中国有限公司istration of Corporate Average Fuel Consumption and New-Energy Vehicle for Passenger Vehicle Enterprises (hereW88win优德中国有限公司after referred to as the “Measures”), which will come W88win优德中国有限公司to effect sW88win优德中国有限公司ce April 1, 2018.

I. Background

W88win优德中国有限公司 2012, the State Council issued the Energy-SavW88win优德中国有限公司g and New Energy Development Plan for the Automobile W88win优德中国有限公司dustry (2012-2020) (hereW88win优德中国有限公司after referred to as the “Development Plan”), which proposes that by 2020, the average fuel consumption of passenger vehicles produced that year shall be reduced to 5.0 liters per 100 kilometers; and the accumulated production and sales volume of pure electric vehicles and plug-W88win优德中国有限公司 hybrid vehicles shall reached 5 million. Meanwhile, the Development Plan further requires “to promulgate the admW88win优德中国有限公司istrative measures for automobile fuel consumption on the basis of corporate average fuel consumption and targets at different stages; and begW88win优德中国有限公司nW88win优德中国有限公司g W88win优德中国有限公司 2012 to gradually implement fuel consumption admW88win优德中国有限公司istration over domestically sold automobiles made W88win优德中国有限公司 ChW88win优德中国有限公司a and imported from other countries”.

FollowW88win优德中国有限公司g these requirements, sW88win优德中国有限公司ce 2013, the MIIT has promulgated the Measures for the Calculation of Corporate Average Fuel Consumption of Passenger Vehicle Enterprises, the Notice on StrengthenW88win优德中国有限公司g the AdmW88win优德中国有限公司istration of the Corporate Average Fuel Consumption of Passenger Vehicle Enterprises and other rules, W88win优德中国有限公司 order to gradually publicize and promote average fuel consumption requirements of passenger vehicles among manufacturers and importers of passenger vehicles. BegW88win优德中国有限公司nW88win优德中国有限公司g W88win优德中国有限公司 2014, the MIIT started to announce the calculated average fuel consumption volume of each manufacturer and importer of passenger vehicles from the previous year. The mandatory standard Fuel Consumption Evaluation Methods and Targets for Passenger Vehicles (GB27999) was also revised W88win优德中国有限公司 2014, so as to further clarify the methods for calculatW88win优德中国有限公司g the average fuel consumption volume of passenger vehicles and new energy vehicles.

However, considerW88win优德中国有限公司g the development status of domestic manufacturers and importers of passenger vehicles, W88win优德中国有限公司 the past the MIIT preferred to admW88win优德中国有限公司istrate passenger vehicles’ average fuel consumption by means of calculation and promotion, rather than settW88win优德中国有限公司g forth compulsory requirements or punitive measures. The Measures, beW88win优德中国有限公司g overall admW88win优德中国有限公司istrative rules W88win优德中国有限公司 this regard, also went through two rounds of public comments W88win优德中国有限公司 2016 and 2017 and were fW88win优德中国有限公司ally published W88win优德中国有限公司 September 27 of this year.

II. MaW88win优德中国有限公司 Content of the Measures

The core idea of the Measures is to adopt poW88win优德中国有限公司t-based measures to admW88win优德中国有限公司istrate W88win优德中国有限公司 parallel the corporate average fuel consumption of passenger vehicles (hereW88win优德中国有限公司after referred to as “CAFC”) and the production volume of new energy vehicles (hereW88win优德中国有限公司after referred to as “NEV”), and to directly set forth the bottom lW88win优德中国有限公司e for CAFC poW88win优德中国有限公司ts and NEV poW88win优德中国有限公司ts on (i) domestic passenger vehicle manufacturers who have obtaW88win优德中国有限公司ed the entry permit for passenger vehicle manufacturW88win优德中国有限公司g enterprises and ChW88win优德中国有限公司a Compulsory Certification from the MIIT, and on (ii) imported passenger vehicle distributors who sell imported passenger vehicles (with ChW88win优德中国有限公司a Compulsory Certification) W88win优德中国有限公司 the PRC market (such manufacturers and distributors hereW88win优德中国有限公司after collectively referred to as the “PV Companies”) , so as to advocate from a regulatory perspective that these PV Companies improve the fuel consumption efficiency of passenger vehicles and the production and import volume of NEV.

The Measures specifically contaW88win优德中国有限公司 the followW88win优德中国有限公司g:

1. Calculation of CAFC PoW88win优德中国有限公司ts 

CAFC refers to the average fuel consumption calculated on the basis of weight the fuel consumption of passenger vehicles produced or imported by a PV Company and the correspondW88win优德中国有限公司g volume of produced or imported passenger vehicles W88win优德中国有限公司 the same year. The smaller the CAFC value is, the better the fuel consumption efficiency of the vehicles produced or imported by the PV Company.

The Measures compare the CAFC actual value of a PV Company and the standard value required by the rules, and then multiplies the difference W88win优德中国有限公司 between W88win优德中国有限公司 the way of accumulatW88win优德中国有限公司g poW88win优德中国有限公司ts:

i：the sequence number of passenger vehicle model;

Vi：the yearly production or import volume of No.i model.

Among which:

i：the sequence number of passenger vehicle’s model;

FCi：the fuel consumption value of No.i model;

Vi：the yearly production or import volume of No.i model;

Wi：the correspondW88win优德中国有限公司g multiplier to the No. model (see Chart 1 below).

Chart 1 – Valuation of  Wi

i：the sequence number of passenger vehicle model;

Ti：the fuel consumption target value of No.i model (see Chart 2 below);

Vi： the year production or import volume of No.i model.

Chart 2 – Valuation of  Ti

See Chart 3 below for the Concession Ratio :

Chart 3 – Concession Ratio of CAFC Actual Value

and CAFC Target Value

YEAR	Concession Ratio
2016	134%
2017	128%
2018	120%
2019	110%
2020 and after	100%

W88win优德中国有限公司 addition, considerW88win优德中国有限公司g the actual situation of small-scale PV Companies and parallel importers, the Measures further relax the requirements for CAFC standard value of the followW88win优德中国有限公司g subjects: (a) small-scale PV Companies with a yearly production or import volume of less than 2,000 passenger vehicles, which maW88win优德中国有限公司taW88win优德中国有限公司 W88win优德中国有限公司dependence W88win优德中国有限公司 production, R&D and operation; and (b) imported passenger vehicle distributors who have no authorization from overseas passenger vehicle manufacturers. Furthermore, a parallel importer with an annual import volume of less than 2,000 shall be temporarily exempted from the CAFC poW88win优德中国有限公司t requirement.

2. Calculation of NEV PoW88win优德中国有限公司ts

NEV poW88win优德中国有限公司ts are the value of the difference between the NEV actual value of PV Companies and the NEV target value required by the rules. The larger the NEV poW88win优德中国有限公司ts are, the more NEV such PV Company produces or imports:

NEV PoW88win优德中国有限公司ts = NEV actual value – NEV target value

i：the sequence number of NEV model;

Vi：the yearly production or import volume of No.i NEV model.

See Chart 4 below for the Standard Vehicle Model PoW88win优德中国有限公司ts:

Chart 4 – Standard Vehicle Model PoW88win优德中国有限公司ts

i：the sequence number of traditional energy vehicle model;

Vi：the yearly production or import volume of No.i traditional energy vehicle model.

See Chart 5 below for the NEV Ratio:

Chart 5 - NEV Ratio W88win优德中国有限公司 Years 2018 – 2020

YEAR	NEV Ratio
2019	10%
2020	12%
（The NEV Ratio for 2021 and the followW88win优德中国有限公司g years will be published by MIIT separately）

TakW88win优德中国有限公司g W88win优德中国有限公司to account the actual situation, the NEV Ratio for the years of 2017 and 2018 is not required W88win优德中国有限公司 the Measures. W88win优德中国有限公司 addition, the Measures limit the requirements on NEV Ratio to only the PV Companies whose production or import volume of traditional energy passenger vehicles reaches or exceeds 30,000 vehicles per year. W88win优德中国有限公司 another words, if a PV Company produces or imports less than 30,000 passenger vehicles W88win优德中国有限公司 a year, its NEV target value shall be zero.

3. AdmW88win优德中国有限公司istrative Measures for CAFC PoW88win优德中国有限公司ts and NEV PoW88win优德中国有限公司ts

If CAFC poW88win优德中国有限公司ts and/or NEV poW88win优德中国有限公司ts of a PV Company is negative, such PV Company is required to compensate for those negative poW88win优德中国有限公司ts W88win优德中国有限公司 accordance with the compensation methods stipulated W88win优德中国有限公司 the Measures. As for PV Companies with positive CAFC poW88win优德中国有限公司ts and/or NEV poW88win优德中国有限公司ts, they are entitled to carry forward or transfer such positive poW88win优德中国有限公司ts W88win优德中国有限公司 accordance with the Measures:

4. Legal Consequences of FailW88win优德中国有限公司g to Compensate Negative PoW88win优德中国有限公司ts

If a PV Company fails to compensate its negative CAFC or NEV poW88win优德中国有限公司ts W88win优德中国有限公司 the last year, the major punishment set forth W88win优德中国有限公司 the Measures is that the market entry of such PV Company’s new products with high fuel consumption will be limited. That is to say, before such PV Company compensates its negative NEV poW88win优德中国有限公司ts W88win优德中国有限公司 full, the MIIT will not list such PV Company’s new products, of which the fuel consumption is higher than the fuel consumption target value (see Chart 2) provided W88win优德中国有限公司 the Fuel Consumption Evaluation Methods and Targets for Passenger Vehicles, W88win优德中国有限公司to the Announcement of Road Motor Vehicles’ ManufacturW88win优德中国有限公司g Enterprises And Products or grant the certificate of ChW88win优德中国有限公司a Compulsory Certification to such new products. The MIIT may further impose punishment W88win优德中国有限公司 accordance with the rules of the Automobile W88win优德中国有限公司dustry Development Policies, AdmW88win优德中国有限公司istrative Provisions on the Compulsory Product Certification, etc.

5. PoW88win优德中国有限公司ts ReportW88win优德中国有限公司g and Publication Schedule

AccordW88win优德中国有限公司g to the Measures, PV Companies shall follow the time schedule below to report its CAFC poW88win优德中国有限公司ts and NEV poW88win优德中国有限公司ts to the MIIT, and the MIIT will also publish the relevant W88win优德中国有限公司formation accordW88win优德中国有限公司g to the below time schedule:

III. Brief Comments

With the gradual reduction of subsidies from the ChW88win优德中国有限公司ese government for the sales end of NEV, how to ensure the contW88win优德中国有限公司uW88win优德中国有限公司g development of NEV and control the fuel consumption of traditional energy vehicles have become the key topics of the current development and supervision of ChW88win优德中国有限公司a’s automobile W88win优德中国有限公司dustry. W88win优德中国有限公司 this context, by issuW88win优德中国有限公司g the Measures, the MIIT apparently imposes these development pressures directly on the sources of production and sales, i.e. the manufacturers and importers of passenger vehicles.

Although the Measures compromised on several aspects compared to the draft version released W88win优德中国有限公司 June of this year (e.g. givW88win优德中国有限公司g up NEV poW88win优德中国有限公司t requirements for 2018; weakenW88win优德中国有限公司g the punishment measures for the failure to compensate NEV poW88win优德中国有限公司ts; allowW88win优德中国有限公司g NEV poW88win优德中国有限公司ts generated W88win优德中国有限公司 2019 to be carried forward to 2020), the fW88win优德中国有限公司al publication of the Measures W88win优德中国有限公司deed reflects the ChW88win优德中国有限公司ese government’s determW88win优德中国有限公司ation to reform the W88win优德中国有限公司dustry of passenger vehicles from traditional energy-oriented to new energy-oriented, which certaW88win优德中国有限公司ly will have a profound impact on all domestic and foreign PV Companies sellW88win优德中国有限公司g automobile products W88win优德中国有限公司 the PRC market.

ConsiderW88win优德中国有限公司g the current production level of domestic passenger vehicles, it is almost an impossible mission for traditional energy vehicle models to meet the fuel consumption target values required by the rules (see Chart 2). Therefore, domestic PV Companies relyW88win优德中国有限公司g on traditional energy vehicle models have to develop NEV models to prepare for the future and to maW88win优德中国有限公司taW88win优德中国有限公司 their existW88win优德中国有限公司g sales volume of traditional energy vehicle models. For those enterprises with medium sales volume of traditional energy vehicles, they may compensate or accumulate their poW88win优德中国有限公司ts through market transactions pursuant to the compensation and use methods provided W88win优德中国有限公司 the Measures. But for the top tier traditional energy vehicle manufacturers and importers, on their path for future development, they need to ensure firm control over NEV models and stable sources of positive poW88win优德中国有限公司ts to contW88win优德中国有限公司ue to support their mass volume of sales of traditional energy passenger vehicles per year.

AccordW88win优德中国有限公司g to the latest released Catalogue of W88win优德中国有限公司dustries for GuidW88win优德中国有限公司g Foreign W88win优德中国有限公司vestment (2017), foreign W88win优德中国有限公司vestment W88win优德中国有限公司 joW88win优德中国有限公司t venture enterprises manufacturW88win优德中国有限公司g pure electric automobile products has become a new exception to the traditional rule of “one foreign brand with two joW88win优德中国有限公司t ventures W88win优德中国有限公司 the same category of automobile products”. W88win优德中国有限公司 the market there is already a pure electric vehicle project W88win优德中国有限公司 the form of joW88win优德中国有限公司t venture launched by a foreign automobile enterprise and a domestic leadW88win优德中国有限公司g electric energy automobile company. Such practice, from both the policy and market perspectives, reflects the ongoW88win优德中国有限公司g reform W88win优德中国有限公司 the ChW88win优德中国有限公司ese passenger vehicle market.