Five-Year Plan China's New Priorities in the Automotive Industry

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After 15 years of state support, Beijing declares electromobility to be "mature." From now on, cross-sector technology will be promoted. An analysis of the new five-year plan.

Electromobility is no longer on the list of strategic, emerging industries in China's new five-year plan. The new plan serves as a sort of industrial "roadmap" for China's economy in the years 2026 to 2030. In it, the government is turning its attention to new topics such as nuclear fusion, the hydrogen economy, drones, aerospace, and the development of new materials for semiconductors.

It is the "first time in over a decade" that New Energy Vehicles (NEVs) are no longer prominently mentioned in the important industrial policy blueprint, reports the economic portal Yicai. This term in China encompasses electric vehicles, hybrids, and those with other alternative drives, such as fuel cells.

Recognition for the Automotive Industry

However, this should be understood more as a recognition from the government rather than a sign of neglect, quoting several industry insiders.

"After years of development, the NEV industry has entered a more mature phase and has gained strong international competitiveness," said Ji Xuehong, director of the "Automotive Industry Innovation Research Center" at the North China University of Technology in Beijing, in an interview with Yicai. "The sector has become one of the leading industries in China."

Observers in China expect that Beijing will ultimately phase out the subsidies for the sector, which have already been gradually reduced in recent years.

The End of the Subsidy Era

"The subsidies for electric vehicles will be phased out," quoted Reuters Dan Wang, the China Director of the consultancy Eurasia Group. "China already dominates in EV technology and batteries, so there is no longer a reason to continue preferring them from a government standpoint."

As early as 2016, Beijing began gradually reducing the state support for electromobility that was first introduced in 2009. Direct grants for the purchase of electric vehicles were further reduced starting in January 2021.

A little later, on January 1, 2023, most of the remaining direct subsidies were eliminated. Only a few financial purchase incentives have survived to this day.

Familiar Pattern: Supporting and Weaning Off

This reflects a familiar pattern in Chinese industrial policy: New sectors are temporarily "incubated" with state support until they are gradually weaned off assistance. "The pacifier is gone," commentators wrote shortly before the subsidies were set to end in January 2023.

The fact that the industry is now overlooked in the five-year plan represents the provisional endpoint of a long-planned effort to strengthen competition within the industry. Among other things, Beijing hopes this will enable the sale of Chinese cars abroad. It is believed in the upper echelons of the Communist Party of China that only through fierce competition, not subsidies, can competitive products be created.

Hybrid Approach of Socialism and Market Economy

This hybrid approach, which combines state support in the initial phase with a gradual increase in market competition, is surprisingly successful for a socialist country at first glance.

Currently, vehicle production in China has stabilized at around 30 million units. There is no expectation of a decline during the next five-year plan period from 2026 to 2030, as the subsidies have played a minimal role in this success story recently.

Electricity Prices Surpass Fuel Costs

For the upcoming five-year period, it is expected that annual production will increase to around 40 million vehicles. The share of electromobility is likely to continue growing, regardless of the five-year plan. Driving electric vehicles has become very popular in China, partly because electricity prices are low. At least in cities where there are now sufficient charging stations, more and more Chinese people are choosing an NEV (New Energy Vehicle) when they need a new car.

The growth curve fluctuates at times, but the share of NEVs in the total number of registrations per month has surpassed 50 percent. Current market research reports in China predict that by 2030, 70 to 80 percent of all newly sold cars in China will be electric vehicles and hybrids.

Focus on Mobile and Cloud Infrastructure

The government in Beijing is now focusing on the next phase in the automotive industry: automated driving functions and connected driving using 6G mobile technology and cloud infrastructure.

For this purpose, the Chinese Ministry of Industry and Information Technology (MIIT) has developed the "15th Five-Year Plan for the Development of Intelligent Connected New Energy Vehicles." The vice-minister of the agency has publicly urged that "relevant decisions of the Central Committee of the Party be fully implemented."

Cross-Sector Support

In other words, China's Party and government intend to focus on areas such as artificial intelligence in assistance systems and cockpits.

Upon reading the comprehensive plan, it becomes clear that in this next development phase of the Chinese automotive industry, extensive and detailed cross-sector planning will be key to the success of intelligent driving—just as it was during the early years of electrification starting in 2009.

AI, Microchips, and Data Networks

The discussion includes the "profound integration of AI and automotive innovations," the need for "breakthroughs in next-generation electrical/electronic architectures," and "high-performance chips" developed within China itself. Detailed measures will follow for each of these keywords in the coming five years to implement them even in the most remote provinces of the country.

Planners are currently establishing concrete frameworks for the rapid expansion of the necessary data infrastructure, from new data centers and their energy supply to security standards for connected vehicles and the incorporation of new types of data protection into China's cybersecurity law. The latter has recently been expanded to include a new Article 20 specifically for artificial intelligence.

China’s planners think holistically and with a long-term perspective. They have recently decided that they no longer need to worry about electric vehicles. Now, the focus is on promoting autonomous and connected driving on a large scale. This is likely the most significant message from the current debate surrounding the new five-year plan for the Chinese automotive industry.