- The first batch of five regions as China’s FCEV industry development demonstrators has been decided.
- The slow decision-making process already leads to a drop in FCEV sales and a slow-down of project launching.
- Long-term investment enthusiasm and dealmaking remain heated even in regions unable to secure the funding.
- The cautious approach in decision making underlines complicated dynamics between central and local interests, underlining a policy risk factor in the long run.
Beijing’s selection of cities for the fuel cell vehicle (FCEV) application demonstration has been slower than expected.
Recently, local Chinese media disclosed the final list of five selected regions as the subsidized FCEV industry demonstrators, while the regulators have not yet officially release the final verdict. [Extended Read: our previous detailed explanation on China’s fuel cell vehicle subsidy and city-based demonstration scheme. ]
In fact, an unofficial list of the contenders chosen has been circling in the industry for at least five months. The list is allegedly the result of an initial review of over 80+cities applying for the demonstration status. [Extended Read: our previous analysis of the initial decision]
The official start of the first FCEV city demonstration is expected to take place by the end of Jun.
Nevertheless, China’s FCEV subsidy scheme—from policymaking to city selection— has taken almost a year up till now.
The slow process may have hinted at Beijing’s caution over hydrogen subsidy. And it is also a sign of the complicated dynamics between central and regional interests. [Extended Read: China’s heated hydrogen development led by local governments.]
Beijing’s caution and concern on inefficient FCEV industry investment might lead to policy changes–a major risk factor for investors and companies looking at the opportunities in China.
China’s Fuel Cell Vehicle Application Demonstration: Conclusion
China’s Ministry of Finance has issued a notice to relevant regional governments regarding the decision of the FCEV demonstration cities, according to the Shanghai Securities News (SSN) report on Apr. 9.
The notice has not been made public.
Five regions are listed in the alleged notice, which are:
The FCEV application demonstration is designed to encourage city alliances to develop hydrogen and fuel cell value chain. The SSN report did not mention which cities selected in these five regions/provinces.
Nevertheless, the cities involved in the application are clear. Energy Iceberg’s research shows that 20 cities involved the FCEV application within the five regions. These are most likely the winner and the first demonstrators.
What Would Happen After the FCEV Demonstration Decision?
The Next Step:
The five regions allegedly selected had submitted a final application demonstration plans to the ministries by the end of Apr.
Purchase and Funding:
In fact, many regions have established their five-year hydrogen plans prior to the decision. And various industry demonstration projects have kicked off in these regions.
With the final decision clarified, government purchases and supporting/funding schemes will roll out quickly.
However, the national funding to each region will be only issued after these regions successfully delivered the industry “targets.” A mid-term review of the results will take place in two years. [READ MORE: our previous analysis breaking down the FCEV demon subsidy rules. ]
Size of the Market:
the size of hydrogen project investment announced previously in these five regions have already exceeded ¥100b, with a majority of the focus on fuel cell manufacturing and R&Ds.
The Following Batches of Demonstrators
Several regions were previously seen as the high-flyers to be on the demonstration list. These include cities in:
- Shandong province
- Sichuan-Chongqing region
- Jiangsu province.
They did not appear in the first list.
The second batch of demonstration cities is still highly likely, as China’s previous EV subsidy policy indicates. But the timing of the next batch is unclear in the next two years.
Nevertheless, regions are likely to begin preparing for the next batch soon.
Moreover, most regions (+13 provinces) have already established strong pro-hydrogen and fuel cell development plans for the next five years. Some provinces, such as Shangdong, has sorted to alternative policy supports for their fuel cell ambition, despite failed in securing the application demo subsidy for now.
Fuel Cell Subsidy Decision—Impacts & Implications of the Delay?
The regulators in Beijing has been highly cautious in determining the first FCEV demonstrators, as the slow decision-making process indicates.
Five months ago, a list of the initial decision had been circling in the industry. The regions mentioned in that list are the same as those revealed in the recent SSN report.
The decision has been known to the contenders, as government-company deals in the past four months indicate.
Nevertheless, Beijing shows hesitation in making public the final list.
The decision has been long overdue, leading to the apparent delay of the fuel cell vehicle demonstration.
Consequences of the Delay:
FCEV Sales Drops:
Last year, Beijing shelved the vehicle purchase subsidy from Jul., while the new demonstration decision takes almost a year. The void of supporting scheme has taken a toll on the FCEV market. Compared to the same period last year, FCEV production and sales has dropped for months in a row.
Delay of Industry Projects:
Dealmaking in the past months remains robust. However, the launches of some projects may have experienced some delay due to the slow decision process. However, we expect project launches in the five regions will speed up in the second half of this year.
Implications of the Delay:
Policy as Risk Factor:
Policymaking uncertainty remains a major risk factor in the nascent Chinese hydrogen market. Insights into the local-level policy dynamics is a must for investing in China.
The delay shows Beijing’s caution over subsidizing hydrogen and shows complicated dynamics between central and the regional government over FCEV industry development.
Beijing intends to curb over-heated and inefficient investment in the nascent hydrogen industry by replacing the previous vehicle purchase subsidy with the new application demonstration scheme.
Regional Intention Leading in the Near Term
The intention of regional governments in fostering a new fuel cell industry remain strong–even without the demo support. In the near term, it is great news to new technology companies and their investors. Opportunities are ample.
National Hydrogen Plan Lagging Factor
However, in the long run, if Beijing remains concerned over the ineffective investment and over-heated market, policy changes could be in place to cap development.