Estimates of Chinese vehicle fuel efficiency vary. The Ministry of Industry and Information Technology (MIIT) estimates that the average fuel economy of new passenger cars sold in China in 2020 was about 5.6 liters per 100 kilometers (L/100 km)—equivalent to approximately 42 miles per gallon.12 The IEA estimates that the average fuel economy of light-duty vehicles in China in 2019 was 7.2 L/100 km—equivalent to roughly 33 miles per gallon.13
The Chinese government uses a fuel economy test procedure that has been phased out elsewhere due to its frequent failure to reflect real-world vehicle fuel consumption. Tests by the International Council on Clean Transportation found that the real-world fuel consumption of Chinese vehicles is on average 37% higher than suggested by this test procedure.14 The Chinese government is in the process of transitioning to a new fuel economy test procedure.
The Chinese government requires all new passenger vehicles to meet fuel efficiency standards. The Ministry of Industry and Information Technology (MIIT) issues these standards. According to the State Council, the purpose of China’s fuel efficiency standards is “to ease fuel supply and demand contradictions, reduce emissions, improve the atmospheric environment, and promote the automotive industry and technological progress.”15
The Chinese government’s fuel efficiency standards have two main parts.
- First, each vehicle must meet a fuel efficiency standard based on its weight. These standards were first issued in 2004 and have been tightened every few years since.16
- Second, each vehicle manufacturer must meet Corporate Average Fuel Consumption (CAFC) limits. The most recent CAFC policy was adopted in February 2021. These limits apply to each manufacturer’s new vehicle fleet as a whole on an annual basis. The standard for 2020 is 5 L/100 km. This will tighten to 4 L/100 km in 2025 and 3.2 L/100 km in 2030.17
Manufacturers are offered several flexibility schemes to help meet the CAFC standards.
- First, manufacturers may use “NEV credits” to help meet the standards. These credits include a multiplier for various characteristics, such as electric drive trains. Pure EVs were initially allowed a multiplier of five, but this declined to two in 2020 and will decline to one (that is, the multiplier will disappear) by 2025. NEV credits can be (i) earned by manufacturing electric vehicles or (ii) purchased from electric vehicle manufacturers.18
- Second, manufacturers may average performance over several years, using overperformance in one year to compensate for underperformance in other years.19
In 2020, the majority of China’s largest auto manufacturers exceeded their CAFC limits. Under MIIT’s regulations, manufacturers must come into CAFC compliance by applying NEV credits or using other flexibility tools.20
Chinese taxes on the manufacture and import of passenger cars vary by size, with larger cars paying more. This promotes fuel efficiency. There is also a 10% tax on “super-luxury vehicles” (priced above RMB 1.3 million, equal to roughly $190,000). The Finance Ministry says this tax is aimed at encouraging “rational consumption” and promoting energy conservation.21