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Local niches and firm responses in sustainability transitions: The case of low emission vehicles in China

March 2018
Technovation

DOI:10.1016/j.technovation.2018.02.002

Authors:

Universidade Católica Portuguesa

The Chinese government has implemented a comprehensive strategy to push low-emission vehicles (LEVs). Local municipalities have played an important role in this transition. Programmes such as the "Ten Cities Thousand Vehicles" (TCTV) created local niches for the development of LEVs in which public and private actors can experiment without market pressures. However, often the setup of the local niches has favoured local companies which led to incompatibility across provinces and barriers to diffusion. This article aims to explore the dynamics in the local niche and how the niche has been shaped by local protection and firm responses. Heeding the call for a better conceptualization of the spatial dimension in sustainability transitions, we draw on the recent second generation, multi-scalar multi-level perspective (MLP) and conceptualize the local niche. Based on our empirical results we find four ideal type local niches-the open niche, the technology shielding niche, the market shielding niche and the closed niche-and distill respective firm responses. This has important implications for policy-makers and managers in China and for industries in sustainability transition in general.

Timeline of LEV niche developments and protections in China

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Twenty-five demonstration cities in the Ten Cities Thousand Vehicles program (the colours reflect the stage at which the city joined the program; compare with Table 4)

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Ideal type local niches

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: Top Selling LEV models in 2014, the automakers and municipalities with close-ties

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Figures - uploaded by René Bohnsack

Content may be subject to copyright.

Content uploaded by René Bohnsack

Content may be subject to copyright.

Local niches and firm responses in sustainability transitions: The case of low

emission vehicles in China

Abstract

The Chinese government has implemented a comprehensive strategy to push low-emission vehicles (LEVs).

Local municipalities have played an important role in this transition. Programmes such as the “Ten Cities

Thousand Vehicles” (TCTV) created local niches for the development of LEVs in which public and private

actors can experiment without market pressures. However, often the setup of the local niches has favoured

local companies which led to incompatibility across provinces and barriers to diffusion. This article aims to

explore the dynamics in the local niche and how the niche has been shaped by local protection and firm

responses. Heeding the call for a better conceptualization of the spatial dimension in sustainability transitions,

we draw on the recent second generation, multi-scalar multi-level perspective (MLP) and conceptualize the

local niche. Based on our empirical results we find four ideal type local niches – the open niche, the

technology shielding niche, the market shielding niche and the closed niche – and distill respective firm

responses. This has important implications for policy-makers and managers in China and for industries in

sustainability transition in general.

Keywords

Low-emission vehicles, multi-scalar MLP, local niche, sustainability transitions, automotive industry,

China.

Local niches and firm responses in sustainability transitions: The case of low

emission vehicles in China

1. Introduction

The global trend of low-emission vehicles (LEVs) has spurred ambitions among Chinese government officials

that Chinese automakers could leapfrog their foreign counterparts with indigenous innovations in low-

emission vehicles (LEVs, termed as New Energy Vehicles in China), reduce their dependence on foreign

technologies, and at the same time improve air quality in cities through the introduction of new powertrain

technologies (Gong et al., 2013). A comprehensive strategy for research and development was implemented

to stimulate a transition towards sustainable transportation. In 2009, the Chinese government launched the

demonstration programme named “Ten Cities Thousand Vehicles” (TCTV) to stimulate LEV adoption in

Chinese cities in which domestic public and private actors could experiment without market pressures (Schot

and Geels, 2008). This created an interesting natural experiment for sustainability transitions (Geels, 2002;

Schot and Geels, 2008; Raven et al., 2012) because the programme not only spurred technological

experimentation but also created several ‘local niches’ for LEVs and lead to competition between cities and

provinces (Shang et al., 2015). They implemented standards that favoured local companies and protected

specific technologies which led to incompatibility between technologies across provinces, barriers to

diffusion and lock-in effects (Marquis et al., 2013; cf Kolk and Tsang, 2015). As a result the planned numbers

of LEVs for the programme was not achieved (Marquis et al., 2013). Clearly these local niche developments

had a noteworthy effect on the transition towards LEVs in China. Thus this paper sets out to explore how the

local niche affected the LEV transition in China?

In doing so, this paper heeds the call for empirical scrutiny and better geographical conceptualization of

sustainability transitions (Coenen et al., 2012; Hansen and Coenen, 2014; Smith and Raven, 2012). The spatial

dimension has received increasing attention in studies on sustainability transitions and socio-technical

systems (Raven et al., 2012; Coenen et al., 2012, Truffer et al., 2015; Hansen and Coenen, 2015; Bento and

Fontes, 2015; Mattes et al., 2015). Until recently transitions have been conceptualized in the multi-level

perspective (MLP) and did not integrate the geographical dimension (cf. Geels, 2002). In the second-

generation, multi-scalar MLP, geographical dynamics have been integrated (Raven et al., 2012). Yet, while

interactions between technological niches have been studied (Bakker et al., 2012), interactions across or

competition between different geographically separated local niches have been neglected (Smith and Raven,

2012). Drawing on the socio-technical system literature and the multi-level perspective (Geels, 2002; Slayton

and Spinardi, 2016), we fill this void and contribute to the theoretical understanding of the local niche, i.e.

the micro dynamics of sub-national actors and provide a nuanced, contextualized view of protection

mechanisms exerted by sub-national actors which highlight the importance of the spatial dimension in the

multi-level perspective (Raven et al., 2012; Raven et al., 2016; Sengers and Raven, 2015; Smith and Raven,

2012). We find four ideal type local niches: the open niche, the technology shielding niche, market shielding

niche and the closed niche and three respective firm responses, namely market avoidance, investment, and

creativity. Our findings also add to the debate on Chinese technology policy (Hong et al., 2016; Ruan et al.,

2014; Yi et al., 2017; Yu and Gibbs, 2017) and provides a rich case to understand the emergence of LEVs in

China. Our findings can help policy makers to design technology policies and give guidance to managers in

industries that are in a sustainability transition.

The remainder of this paper proceeds as follows. In Section 2, we provide the theoretical background of

sustainability transitions, space and niches, and develop a conceptual framework. In Section 3, we present

our methodology. The subsequent Section 4 presents our findings which are discussed in Section 5. The paper

concludes with Section 6.

2. The spatial dimension in socio-technical systems, protected spaces across regions and the niche in

the multi-scalar MLP

In order to understand the systemic dynamics of the transitions towards LEVs in China overtime we draw on

the body of literature of socio-technical systems which studies sustainability transitions (Geels, 2004; Raven

and Geels, 2010). The socio-technical systems perspective complements the Technological Innovation

Systems literature which tends to explain the internal dynamics of nurturing of innovations (Markard and

Truffer, 2008). The socio-technical systems approach adopts a multi-level perspective (MLP) to explain

transformation processes of systemic innovations such as electric cars (Geels, 2004, 2002; Pinkse et al., 2014)

and assumes that sustainable technologies start their development in a niche, subsequently break into the

existing socio-technical regime when a window-of-opportunity opens up, created through landscape

developments and finally replace the regime (Geels, 2004). However, in contrast to the innovation systems

literature (e.g. Chung, 2002), the multi-level perspective lacks the conceptualization of the spatial dimension

in the technological change process (Coenen et al., 2012). In other words, the differences and consequences

of developments occurring in parallel for the same technology in various geographic differences cannot be

explained. So far the MLP has solely accounted for the dimensions of time and structural scale. In fact, studies

have often implicitly and partly incorrectly equated the niche with the local level, the regime with the national

level and the landscape with the international level (Raven et al., 2012).

Therefore, researchers have suggested the development of a more explicit spatial perspective on sustainability

transitions in order to bring attention to the different institutional actors in different spaces, e.g. regional and

national institutions (Coenen et al., 2012; Hansen and Coenen, 2015; Truffer et al., 2015; Raven et al., 2012).

Without incorporating spatial scale, the perspective falls short of effects, such as transnational relationships,

global forces and sub-national processes that influence sustainability transitions (Truffer et al., 2015). For

instance, Bohnsack et al. (2015) illustrate in their study of the evolution of LEVs that the transition has been

shaped by policies in different countries as well as the capabilities of internationally operating firms. Both

have significantly influenced the trajectory of global low-emission vehicle developments. Without the

conceptualization of spatial dynamics, sustainability transitions cannot be fully explained and fall short of

considering spatial interaction effects as a result of local natural resource endowments (e.g. availability of

hydro power), regional visions and policies, the local market, localised institutions, local industrial

specialization and local consumers (Hansen & Coenen, 2015). Thus, there is a call for a conceptualization of

transitions as “interdependent processes between territorialized, local and trans-local networks within the

context of (changing) multi-scalar, institutional structures” (Coenen et al., 2012: 976).

One of the first attempts of conceptualizing the spatial dimension was made by Raven et al. (2012) who

suggested the development of a ‘second generation, multi-scalar MLP’. Next to the dimension of time and

structural scale, a multi-scalar MLP incorporates the spatial dimension and therefore can help to explain

geographical differences. First, it can help to explain the differences between spaces, i.e. why one technology

develops in one region but not in another. This is because each ‘space’ (e.g. a city or region) develops a

unique set of so called ‘relational assets’ which are “social relations, conventions and endowments in a

particular locality or region that are slow to reproduce and may be impossible to imitate” (Raven et al.,

2012:70). Second, a multi-scalar MLP can help to explain the interactions across, i.e. should include spatial

factors, such as proximity of innovation activities, spatial differences across places, and reach across levels

(cf. Coenen et al., 2010). This could also enable to account for (uneven) power relations that influence

transitions across regions (Bohnsack et al., 2015; Innovation, 2015; Smith and Raven, 2012). Understanding

the differences across space and the interactions between them can be vital for sustainability transitions

“because it would provide insight into how and where niches may be upscaled and come to shape regime-

shifts” (Raven et al., 2012:71).

The differences and interactions across spaces are a result of the regions’ foci on different technology and

their vested interest in these technologies due to relational assets. These technologies are then protected in

“strategic niches” within these regions (Kemp et al., 1998). Niches are nurturing spaces for technologies. The

niche, defined as a “protective space for path-breaking innovations” (Smith and Raven, 2012: 1025), creates

a space in which a technology is shielded from market selection mechanisms (Pinkse et al., 2014). In the

niche, actors can learn, experiment and scale up (Slayton and Spinardi, 2016). While governments or firms

can create niches, for instance, through experiments, pilot projects or subsidies, their trajectory cannot be

controlled (Geels and Schot, 2007; Smith and Raven, 2012; Pinkse et al, 2014). The context of niches ranges

from local applications, to geographic areas such as cities or regions to entire jurisdictions and depends on

where the advantages of the technologies could be valued (Kemp et al, 1998: 187).

However, the addition of the spatial dimension as discussed above requires expanding the conceptualization

of the protected space. That is because regions often specialize on certain technologies – i.e. they differ across

space (Bai et al., 2004). What is more, regions protect the local respective specializations, for instance directly

through trade barriers or indirectly through technological standards. While the niche in the MLP so far has

been regarded as a room to experiment (Geels, 2002; Geels and Raven, 2006), adding the spatial dimension

as discussed above would also add a competitive element which could result in protection interactions across

regions. In the classic MLP, competition occurs within the niche between technologies (cf. Bakker, van Lente,

& Engels, 2012). In the multi-scalar MLP, competition occurs within and across niches, i.e. between national,

sub-national level or local spaces, and can lead to competitive activities between actors. This is to say that

actors in a ‘local’ niche would try to design the niche in a way that local interests are maintained, for instance

via standards – a case in point is the protection of a specific ship design via tax regulation in the UK which

favoured local shipyards (Geels, 2002) – or trade barriers. Table 1 below summarizes the difference between

the niche in the MLP and the local niche in the multi-scalar MLP.

Table 1: The niche in the MLP vs. the local niche in the multi-scalar MLP

Niche

in the MLP

Local Niche

in the Multi-scalar MLP

Definition

Spaces in which innovations are

shielded from mainstream selection

pressures

Spaces in which innovations are

shielded from mainstream selection

pressures considering local relational

assets

Boundary

dimensions

Time and structure

Time, structure and space

Protection from

Market selection pressures to learn,

experiment and scale up

Market selection pressures and

competing regions to learn, experiment

and scale up and to have a local

advantage compared to non-local actors

Protection focus

influenced by

Landscape developments, regime actors,

niche technologies

Heterogeneity of local endowments,

local markets, local visions

Result of protection

Competition in the niche between

technologies

Multi-level competition, i.e. competition

between technologies in the local niche

and competition between actors and

technologies across local niches

Mechanisms of

protection

Public procurement, tax incentives,

subsidies, regulation

Trade barriers and technological

standards in addition to public

procurement, tax incentives, subsidies

and regulation

Next to its clear practical relevance, understanding the dynamics in and between local niches is also

theoretically important since the geography of transition needs to address “social-spatial embedding, multi-

scalarity and issues of power” (Truffer et al., 2015: 64). Attempts to conceptualize these dynamics have

already been made on an international level (Bohnsack et al., 2015), yet the sub-national level has received

less attention but would be important to understand, or as Raven et al.’s put it: “A striking observation would

be the focus on regional differentiation within national boundaries.” (Raven et al., 2012:76). Moreover, the

niche in the MLP has been conceptualized as open to actors that want to nurture a technology. Adding the

spatial dimension may result in less openness and would affect how actors such as firms, specifically non-

local firms, may be able to engage in the nurturing of technologies. Thus, fine-graining the niche could shed

light on firm responses to niche protection.

A case to study these multi-scalar dynamics – i.e. regional differentiation and competition within national

boundaries – is China’s transition towards LEVs, since LEVs are promoted in China on a national and local

level. Local here refers to provinces, cities or municipalities. Local governments initiated technological niches

with their respective local automakers, protected their automotive industries with regulations and incentives,

and promoted their LEVs not only regionally but also at a national level to compete for standards, subsidies,

further research funding and new markets beyond their home location. In doing so, several regional socio-

technical niches emerged and competed with other provinces using various mechanisms. Studying this case

helps to shed insight into spatially dispersed sustainability transitions and “the practices of governance on the

ground” (Hansen & Coenen, 2015:102). More specifically, these LEV projects in China provide a setting to

understand place-specificity for sustainability transitions under the influence of competing regional and

national institutions (Shang et al., 2015). In the following section, we present the methodology that we applied

to study LEV developments in detail, before reporting the findings.

3. Methodology and background

The main objective of this paper is to answer the question: how has the local niche affected the LEV transition

in China? Therefore, we collected qualitative process data of LEV developments in China, which “consist

largely of stories about what happened and who did what when—that is, events, activities, and choices ordered

over time” (Langley, 1999:692). To track developments over time, we adopted an embedded multiple case

study approach (Eisenhardt, 1989; Yin, 2009), focusing largely on passenger car developments. However, we

also take note of the niche development on buses, especially during the TCTV until 2012.

China’s new energy vehicle development provides an interesting case for exploring spatial dynamics in niche

protection. First, China is geographically vast so its regional differentiation is significant, e.g. in terms of

economic development, history of auto making, natural resources available, or business-government relations.

Second, the transition literature has previously focused on socio-technical transitions taking place in western

democracies. Examining a transition taking place in China, a market economy under central planning, can

provide novel insights to the transition literature. Third, as latecomers to the automotive industry, Chinese

automakers should be less burdened with “core capabilities as core rigidities” (Leonard-Barton, 1992) and

therefore potentially less prone to business model dilemma in shifting towards electric vehicles, as faced by

some of their foreign counterparts (Bohnsack et al., 2014; Tongur and Engwall, 2014). Yet, the development

of LEVs and related transitions are still lagging behind their foreign counterparts. The socio-spatial dynamic,

which is often neglected in the discussions, could offer insights to this issue.

To collect data, we used secondary data because new product development in the car industry is often “highly

secretive” in nature (Pilkington & Dyerson, 2006: 79). In addition, issues related to local protection in China

are highly politically sensitive, which makes access to views from companies or government officials difficult.

The dual sensitive nature of our inquiry renders reliance on secondary sources the best available approach.

Thus, we primarily collected data from two online portals: Automotive News China and D1ev.com. Both

portals are run by commercial entities, as we intended to avoid media outlets that have connections with

governmental institutions. Automotive News China is an English online portal that focused on the

development of the automobile industry in China and is part of Crain Communication Inc. based in the U.S.,

which also publishes Automotive News, Automotive News Europe and Automobilwoche. D1ev.com on the

other hand was established in 2010 by an entrepreneur, and is a B2B media outlet in Chinese that follows the

development of electric vehicles (EV) and hybrid-electric vehicles (HEV) market development in China from

the 12th five-year plan. This Chinese online portal was chosen to complement the dataset on general LEV

development with specific information on EV and HEV market and policy development at a local level, in

particular at ten cities, which were selected largely based on their ranking in the result of TCTV towards the

end of 2012 (Table 4). We selected the top 9 TCTV cities in 2012 and Guangzhou, for analysis. Although

Guangzhou was ranked 12th in Table 4, it was chosen since it was home to the production of the top selling

Camry Hybrid by GAC Toyota (ranked 4th in Table 5). What is more, the city is closely situated to the leading

city, Shenzhen.

To build the dataset, a keyword search was performed for the period from 2006 to 2014. Thus, we

started our search from the beginning of 11th five-year plan period, i.e. 2006. 11th year plan (2006-2010) is

significant since LEV demonstrations at the Beijing Olympics were held and the Ten Cities Thousand

Vehicles program (TCTV) was started during this period. We used the term “electric” to filter the news

relevant to new energy vehicles. The keywords “hybrid” and “fuel cell” were tested but did not extract any

additional articles. An analysis showed that these articles also always included the word “electric”. Therefore,

the keyword search with “electric” was deemed sufficient for this study. Articles containing “electric” but

considered irrelevant were removed manually by the authors. After the filtering process, a total of more than

900 news article remained in the dataset. For triangulation, the dataset was supplemented with content of the

China Automotive Industry Yearbooks. The Yearbooks were chosen as they are issued by the state research

institute China Automotive Technology and Research Center (CATARC), representing the most authoritative

industry information and data source. Finally, academic literature and reports on automobile development in

China were used to obtain a general picture of the institutional backgrounds, and considerations of various

actors involved.

The dataset was analysed in NVivo using a semi-structured coding scheme. We used a three step approach

for the data analysis. In the first stage, we analysed the overall development of LEVs in China on a national

and regional level before and after the introduction of the TCTV. We displayed these on a timeline. In the

second stage, we tracked national and regional policies to promote LEVs and compared these across regions.

Specifically, we identified protection mechanisms by local governments. We coded the measures according

to cities, categorized these measures and summarized them in a table. In the third stage, we tracked all

significant LEV activities of car manufacturers within the TCTV demonstration projects and analysed how

they interacted with local and national policies, in particular, how automakers have responded to protection

in non-local market.

While this research design helped us to unravel protection mechanisms and firm responses, we would like to

point out that our method bears limitations. First, because we focus mainly on the policy-firm interplay, we

underexpose other factors such as demand conditions. Also, linking car manufacturers’ reactions to policy

measures and vice versa requires caution and might be misleading. Last, we had to rely on secondary sources

for our analysis, because LEVs are of high strategic importance and cause car manufacturers to be secretive.

Using secondary sources was therefore the most insightful approach.

4. LEV protection and firm responses

In the following we will present the results of our study as they emerged from our data. We begin with an

account of the national developments, continue with depicting the observed protection mechanisms on the

local level and present the responses firms adopted to overcome protection.

4.1. National protection of LEVs

China’s efforts in the development of sustainable automobile technologies date back to 1981. China started

R&D on electric vehicles since the 8th five-year plan (1981-1985) period. The first electric sedan in China

was produced by stated-owned automakers Dongfeng during the 9th five-year period (1996-2000). Later in

the 10th five-year plan (2001-2005), China started research on hybrid, electric and full cell vehicles under the

national 863 programme, involving scientists and experts from 200 universities and companies. However, it

was not until the 11th five-year plan when LEV developments increased steam.

Numerous policies aiming at nurturing the LEV niche in China were launched during 11th 5-year plan and

continued onto the 12th 5-year plan. These national protections are not always consistent but kept changing.

In particular, there has been change in the types of LEV supported by policies, the amount of subsidy and the

extent of demonstration projects, which we will cover in the following.

2006 marked the beginning of the 11th five-year plan, with the central government continuing R&D

investment with a total of 1.1 billion RMB (around 138 million USD) in the 863 NEV program (see Figure 1

for an overview). In 2006, the NDRC listed hybrid vehicles as one of the top ten key energy-saving projects

during the 11th five-year plan period (2006-2010), while the previously supported diesel technology was no

longer included. Hybrid vehicles were emphasized as a priority for development, as they could be operated

with conventional fuels and were considered having higher commercial values in comparison with pure

electric and hydrogen vehicles.

Figure 1: Timeline of LEV niche developments and protections in China

11-th Five-Year Plan Period (2006 – 2010)

2006

 1.1 billion RMB (171 million USD) was invested in 863 NEV program for 11th five year

plan (2006-2010)

 Diesel technology development was no longer supported

2007

 State Council for the first time linked the automobile industry with climate change issue.

2008

 Large scale demonstration of hybrids, fuel-cell and electric buses at Beijing Olympics.

 In October, Ministry of Science and Technology decided to launch TCTV in 6 cities.

2009

 In February, 13 cities were confirmed as the first batch demonstration cities in the TCTV

program. The central government called for priority demonstration at public

transportation and taxi services.

 In June, MIIT issued the “Entry Management of New Energy Automotive Manufacturing

and Products”

 In the 4th quarter, MOST, NDRC, MIIT started strategic planning for the 12th five year

plan.

2010

 Big state-owned automakers announced production and sales plans for NEVs: FAW:

Sales of 11000 NEVs by 2012; Dongfeng: Sales of 50,000 NEVs by 2015; Changan: Sales

of 150,000 NEVs by 2014; SAIC: Sales of 300,000 NEVs by 2015.

 End of 2010: more than 10,000 NEVs (public and private) launched in 25 cities. State-

grid built 75 charging stations and 6029 charging poles in 27 cities

12-th Five Year Plan Period (2011 - 2015)

2011

 End of 2011: 87 standard charging stations, 5179 DC chargers and 7031 AC charging

poles were built across China

2012

 Since January, vehicle usage taxes were exempted for electric and plug-in hybrids, and

halved for conventional hybrids

 In March, MOST issued Electric Vehicle Technology Development 12th five-year project

planning, stressing that electric vehicles are the most important development direction

and electric vehicles should achieve 1% of total vehicle sales at the end of this 5-year

period.

 In March, the new national charging standard came into effect.

 In June, The State Council issued the “Energy-saving and New Energy Automotive

Industry Development Planning 2012-2020”, aiming at 500,000 sales of electric and

plug-in hybrids by 2015 and 2 million by 2020.

 Final results of TCTV program – 9379 electric vehicles: 2526 electric buses (including

plug-ins) and 6853 electric sedans.

 Subsidies for NEVs ended

2013

 More cities applied to become demonstration cities for the period from 2013 to 2015.

The number increased to 39 demonstration city clusters, including 88 demonstration

cities.

 In September, national subsidies for NEVs resumed. The central government mandated

that no less than 30% of local subsidies should be given to non-local NEVs.

2014

 Subsides reduced by 5% over 2013 level.

In an automotive conference at the end of 2008, the central government showed its plan for the large scale

demonstration of electric vehicles and commercialization of hybrids. In 2009, there were 9,800 NEVs (NEVs

include hybrid electric vehicles, battery electric vehicles (including solar cars), fuel cell electric vehicles,

hydrogen engine vehicles and vehicles using other energy sources, such as efficient storage devices and

dimethyl ether) on the road, most of which were deployed in public transportation fleets. At the time, when

arguments within the industry regarding the technology roadmap were still unsettled, NDRC took a top down

approach and decided to issue an Energy-Saving and New Energy Vehicle Industry Development Plan and

started consultation with key automotive enterprises, mostly state-owned. The consultation paper set the

vision of having 5 million NEVs on the road by 2020 and the capacity of NEV production reaching 3 million

per year. The mid-term milestone by 2015 were set to be 1 million hybrids and 0.5 million EVs and plug-in

hybrid electric vehicles (PHEVs).

4.2 From national to local protection: The Ten Cities Thousand Vehicles Programmes

The Beijing Olympics in 2008 were a key event for automakers to demonstrate their EV capabilities. But as

stated by the editor of the Automotive News, domestic automakers were not ready to commercialize new

energy vehicles: “A number of domestic Chinese automakers including Chery Automobile Co. sent their

hybrid cars for test drives during the Olympics in Beijing in August. But these cars were mainly for public

relations” (Automotive News China, 2008). Nevertheless, Beijing Olympics triggered optimism among

policy makers. In the same year, the MOST and the MOF put forward the demonstration programme TCTV.

To support the transition, China approved subsidies for hybrids (depending on fuel savings), electric vehicles

and fuel-cell vehicles (see Table 2). Initially the subsidies were only applicable to vehicles bought by taxi

companies and local governments for civil service. The central government expected that the subsidies could

benefit 60,000 vehicles and amount to over 10 billion RMB (1.6 billion USD).

In 2010, subsidies were also made available to private buyers of EVs and plug-in hybrids in several cities, as

part of the TCTV. Conventional hybrids were ruled out from the new energy subsidies for private buyers. As

no domestic automaker could produce commercially viable and capable hybrids at the time, the central

government deemed that subsidies to hybrids could only benefit foreign automakers, in particular Japanese

manufacturers which are global leaders in conventional hybrids. As for electric vehicles and plug-in hybrids,

foreign automakers were regarded to not have a huge technological advantage over domestic automakers. By

supporting these two types of vehicles, the central government expected domestic automakers could leapfrog

foreign automakers and become leaders in automotive technology on a global scale. The first phase of

subsidies expired at the end of 2012 which also marked the end of TCTV program. The central government

evaluated the TCTV program and resumed subsidies in September 2013.

Table 2: Subsidies from the central government for buyers of energy efficient vehicles since 2010

Period

2010 –

Dec 2012

Jan – Aug 2013

Sep – Dec 2013

2014

2015

Fuel-cell Vehicles

N.A.

Subsidies lapsed

200K RMB for passenger cars (31,300 USD)

500K RMB for MPV (78,200 USD)

Electric passenger cars

Up to

60K RMB

(9400 USD)

Up to

60K RMB

(9,400 USD)

Up to

57K RMB

(8,900 USD)

Up to

54K RMB

(8,500 USD)

PHEV passenger cars

Up to 50K RMB

(7,800 USD)

Up to 35K RMB

(5,500 USD)

Up to 33.25K RMB

(5,200 USD)

Up to 31.5K RMB

(4,900 USD)

Electric buses

N.A.

Up to 500K RMB (86,000 USD)

PHEV buses

N.A.

250k RMB (39,000 USD)

In order to further promote the adoption of LEVs, cities joining the pilot program were required to offer a

local subsidy that matched subsidies from the central government. Since January 2012, vehicle usage taxes

were exempted for electric and plug-in hybrids, and halved for conventional hybrids. In addition, some cities

allocated license plates for certain types of LEVs for which there was a waiting list for conventional vehicles,

thus essentially exempting buyers from restrictions on new car sale. The focus of the LEV niche shifted from

public vehicles to private passenger vehicles.

Many domestic automakers, in particular state-owned ones, made ambitious plans on their LEV sales visions.

State-owned Dongfeng said the company could sell 100,000 hybrids and 50,000 EVs by 2015, and expected

hybrids and EVs to account for 20 percent of its production. Beijing government-owned BAIC boasted that

it would produce 150,000 hybrids and EVs by 2015. Another centrally state-owned automaker Changan stated

it would assemble up to 650,000 alternative fuel vehicles, including 150,000 EVs by 2020. Interestingly the

private automaker Geely was more cautious and aimed to sell 3,000 EVs in 2013 and 30,000 EVs by 2016.

Yet, despite the claims and the several stimulating policies on various levels, diffusion of LEVs was staying

below expectations, as can be seen in Table 3. The total number of electric cars and plug-in hybrids sold

stayed below the target of 500,000.

Table 3: Number of low emission vehicles sold (2011-2014) and comparison with China’s central

government targets declared in 2012. (Source: China Association of Automobile Manufacturers)

Types of LEVs

Sales figures

Central government’s

target in 2012

2011

2012

2013

2014

2015

2020

Electric

5,579

11,375

14,604

48,605

Plug-in Hybrids

1,416

3,038

29,894

Total

5,579

12,791

27,642

78,499

500K

The central government was eager to push the adoption of LEVs in the market. However, many automakers

were still in the infancy of developing LEVs and were at most at the stage of pilot projects in 2011 and 2012:

“Despite generous subsidies, few Chinese automakers have developed EVs or plug-ins with commercially

viable technology. Moreover, China's cities have yet to install an extensive network of EV charging stations.

As a result, only a few thousand EVs and plug-ins were sold in China last year, according to China

Association of Automobile Manufacturers” (Automotive News China, 2012a). The goal of the TCTV program

was to launch at least 1,000 LEVs in each of the 25 demonstration cities respectively (see Figure 2 for an

overview of all cities). However, only 7 out of 25 cities met the initial target. In reviewing the TCTV

programme, the central government recognized that the technologies were still immature and they adjusted

the targets to be achieved in 2015 accordingly. In September 2013, the national subsidies for LEVs were

resumed and more cities were encouraged to join as demonstration cities. LEVs sold and registered in these

cities were subjected to both subsidies from the central government and local governments. Yet, the policy

of only fuel-cell, electric and plug-in hybrid vehicles receiving subsidies was continued. Also, to protect the

domestic LEV makers from foreign competition, only domestically produced LEV models would be

considered to be included in the NEV catalogue by Ministry of Industry and Information Technology (MIIT).

Thus, imported LEVs, such as Tesla, were excluded and therefore would not enjoy financial incentives.

Figure 2: Twenty-five demonstration cities in the Ten Cities Thousand Vehicles program (the colours

reflect the stage at which the city joined the program; compare with Table 4)

Local protection has often been quoted as a main obstacle for promoting the uptake of LEVs (d1ev.com,

2013a, 2013b, 2014a, 2014c, 2014d, 2014e). When the subsidy for LEVs was resumed in September 2013

(see Table 2), the central government mandated that no less than 30% of LEVs should be non-local models,

hoping that a unified market could be gradually created for LEVs. Towards the end of 2013, more cities

became demonstration cities and it was at the local government’s duty to administer how the national and

local subsidies were given out. Many local governments delayed publicizing the subsidy administration

scheme and therefore deterred many private buyers from considering LEVs. It is not until the end of 2014

when more local governments issued the notice for subsidy administration that the sales of NEVs started to

pick up. As a result, at the end of 2014 there was a small boom in the sales of LEVs. In 2014, the national

subsidy was reduced 5% from the 2013 level and was further reduced by 5% in 2015 from the 2014 level. It

sent out a signal to the market that subsidies would not last forever. However, the reduction in subsidizing

vehicles came with the increasing investment in supporting infrastructure development, namely charging

poles, charging stations and related electricity grid development.

Most of the charging stations built during TCTV had been mainly targeted at fleet applications. They were

either geographically remote for private users or technologically incompatible for private cars. The lack of

charging infrastructure within congested urban areas had been seen as critical in the adoption by private users.

During the period of the TCTV program, firms at each locality created their own charging standards. The

competition of charging standards became fierce, as actors in these niches were not only limited to automakers,

but also included powerful state-owned grid-operators, stated-owned oil companies, charging station builders,

and powertrain technology suppliers. While differences in charging standards between cities were not

uncommon, more than one charging standard could exist even within one city: “different cities are building

stations according to different standards. Even worse, in the north China city of Shijiazhuang, a state-owned

grid operator and a private company have each built a charging station according to their own standards”

(Automotive News China, 2010). In 2012, the central government released their first draft for national

charging standards. Chargers and charging stations built after 2012 gradually followed the national standards.

However, many chargers built before 2012 were simply incompatible. These chargers either continued to

serve the local new energy vehicle fleets for taxi or public transport, or became obsolete.

The central government noted that the resources invested in research and development were scattered among

different automakers. With an aim to unite all state-owned automakers and to create a platform for fostering

the development of LEVs, a central state-owned NEV alliance was set up. However, following actions at the

central level, local governments, together with local automakers, supplier and research institutes, initiated

regional level LEV alliances in turn. This reflects that local governments wanted their local automakers to be

competitive in the race of LEVs and to compete against other provinces for market shares. Therefore, while

the central government wanted to leapfrog western counterparts in terms of automotive technology by uniting

resources, local governments aimed at advancing their own economy through winning in the LEV competition

at a national level.

The next section examines in depth how competition between cities has impacted the diffusion of LEVs.

Since there are more low emission passenger vehicle producers than bus producers, we could expect more

intense competition and hence more information on local protections for passenger vehicles. Thus, the

discussion below will put more attention to the development of LEVs.

4.3. Local protection of LEVs

The issue of local protections started as early as 2009 when the TCTV pilot demonstration program was just

launched. The importance of the automotive industry in fostering regional economic development and

generating tax income made the local government and automakers share the same interests and united them

on the same fronts. For instance, in 2014, the Beijing government stepped further into the new energy vehicle

business, obtaining a share in BAIC “Beijing Automotive Industry Holding Corp. launched a business unit

Friday to expand sales of electric vehicles and plug-in hybrids. The new unit, with registered capital of 2

billion yuan ($323 million), is 60 percent owned by BAIC. The state-owned automaker said other

shareholders include the Beijing municipal government and Beijing Electronics Holding Co., a state-owned

company in Beijing” (Automotive News China, 2014a). Municipalities valued the economic potential of the

LEV industry. Thus, they were very eager to adopt policies that ensured that local players become national

leaders. Municipalities often offered favourable treatment for automakers which were headquartered in their

cities or at least operated production bases.

Cities favored local producers for the supply of the vehicles in the pilot project. The set technological focus

therefore depended on the capabilities of the local automakers. 15 out of the 25 city governments have directly

or indirectly favoured local producers. Table 4 presents how the 25 municipalities determined the brand and

technology focus adopted for their public demonstration projects. Most of them directly assigned their local

automakers to take up the demonstration duties and a few indirectly favoured local automakers by limiting

the tender process to local automakers. For the remaining cities which did not show preferences for local

automakers, many of them simply did not have their own new energy vehicle producers.

The results of the TCTV program towards the end of 2012 showed that the top performing cities, achieving

over one thousand vehicles, included Shenzhen, Hefei, Beijing, Hangzhou and Chang-Zhu-Tan Area

(encompassing three cities in Hubei province: Changsha, Zhuzhou and Xiangtan).

Table 4: Overview of the top TCTV pilot cities ranked by sales in 2012 and their respective purchasing

strategy and technology foci

Rank

City

Year

Joined

Batch

Decision for the brand / type of vehicles

Technology

focus

Shenzhen

2009

1st

Assigned brand from local automaker

Hybrid

Hefei

2009

1st

Tender by government, with preferences for local firms

Beijing

2009

1st

Government purchases based on tenders, trials and

recommendations

Hybrid

Hangzhou

2009

1st

Tender by public transport company

Hybrid

Chang-Zhu-Tan

Area

2009

1st

Assigned brand from local automaker

Hybrid

Shanghai

2009

1st

Assigned brand from local automaker

Hybrid

Chongqing

2009

1st

Assigned brand from local automaker

Gas-electric

hybrid

Tianjin

2010

2nd

Tender by public transport company

Hybrid

Wuhan

2009

1st

Assigned brand from local automaker

Hybrid

Nanchang

2009

1st

Tender by government and then purchase made by public

transport companies

Parallel hybrid

Haikou

2010

2nd

Requirement set by public transport company, then tender by

government

Hybrid

Guangzhou

2010

2nd

Assigned brand from local automaker

Hybrid

Zhengzhou

2010

2nd

Assigned brand from local automaker

Hybrid

Dalian

2009

1st

Requirement set by public transport company, then tender by

government

Hybrid

Jinan

2009

1st

Tender by government and then purchase made by public

transport companies. Local automakers only

Hybrid

Changchun

2009

1st

Assigned brand from local automaker

Hybrid

Chengdu

2010

3rd

Assigned brand from local automaker

Gas-Electric

Hybrid

Kunming

2009

1st

Tender by company commissioned by government

Hybrid

Suzhou

2010

2nd

Assigned brand from local automaker

Hybrid

Tangshan

2010

2nd

Tender by government

Hohhot

2010

3rd

Tender by government and then purchase made by public

transport companies

Hybrid

Nantong

2010

3rd

Tender made together by government and public transport

companies

Hybrid

Xiamen

2010

2nd

Assigned brand from local automaker

Hybrid

Shengyang

2010

3rd

Tender by government, local automakers only

Hybrid

Xiangfan

2010

3rd

Assigned brand from local automaker

*Cities are ranked based on numbers of NEVs at the end of 2012 (ranking adopted from Marquis et al., 2013)

** Gas-electric hybrid refers to a hybrid drivetrain using CNG/LNG

Table 5 depicts the top selling LEV models in 2014 and their respective producers. We also identify the

municipalities that these producers have close ties with and with the top performing cities in the TCTV

program (see Table 4).

Table 5: Top Selling LEV models in 2014, the automakers and municipalities with close-ties

Top selling

LEV models

Automakers

Municipalities with close ties

to the automakers

Qin

BYD

Shenzhen, Changsha

Zhidou E20

(Under the license of Zotye)

Hangzhou

E150EV

BAIC

Beijing

Camry Hybrid

GAC Toyota

Guangzhou

BYD

Shenzhen, Changsha

iEV4

JAC

Hefei

Roewe 550 Plug-in

SAIC

Shanghai

Cloud100

Zotye

Hangzhou, Changsha

Prius

FAW Toyota

Tianjin, Changchun

Chery eQ

Chery

Wuhu

Venucia

Morning Wind

Dongfeng Nissan

Guangzhou, Wuhan

Riich M1 EV

Chery

Wuhu

Roewe E50

SAIC

Shanghai

Denza

BYD-Daimler

Shenzhen

To better understand local protection mechanisms, we selected 10 cities to study the local dynamics in

more depth. Our analysis revealed four broad types of local protection measures implemented by local

governments, namely local NEV catalogues, local subsidy administration, investment and/or service

requirement, and license plates administration (see Table 6). Although some of these mechanisms are

interrelated, for purposes of analysis, we distinguish these four categories.

Table 6: Local protection measures by selected cities

Local protection measures

City

Technology

focus for

passenger

cars

Local NEV catalogue

Investment and/or service

requirement

License plates

administration

Local subsidy

administration

Shenzhen

Yes

Hefei

Yes

Beijing

Yes

Hangzhou

Chang-Zhu-

Tan Area

Shanghai

Plug-in Hybrid

Yes

Chongqing

Hybrid

Yes

Tianjin

Wuhan

Yes

Guangzhou

Hybrid

Yes

Local NEV catalogues

One stimuli to push the diffusion of LEVs has been purchasing subsidies provided both, by the central

government and by local governments for locally registered vehicles. In order to be eligible for national

subsidies, models had to be included in the NEV recommendation catalogue issued by MIIT. However, to

qualify for the matching local government subsidies, some local governments have created their own NEV

lists. These were issued in order to ensure that local subsidies were given to the desired automakers. Shanghai

and Beijing were often quoted in the media as examples for implementing local NEV catalogues on top of

the one issued by MIIT. For the first local catalogue of Shanghai, only NEVs from SAIC and Lifan were

included. While SAIC is Shanghai-based and therefore on the list, Lifan is Chongqing-based, but Lifan’s

NEVs are jointly developed with an institute in Shanghai. The investment by Lifan in Shanghai thus resulted

in a first mover advantage in the Shanghai market.

Also Beijing issued a local catalogue. Officials defended the need for a local catalogue with the concern that

NEVs sold in Beijing needed to survive the city’s extreme weather condition, i.e. extreme coldness in winters

and heavy rainfalls in summers. Moreover, it was argued that the fuel-saving potentials of plug-in hybrids

(including range-extended) would be the same as traditional hybrids because the local charging infrastructure

was insufficient and therefore should not be encouraged. Therefore, the Beijing catalogue excluded all plug-

in hybrids and focused on EVs. This policy favoured Beijing Automotive Industry Holding Co. (BAIC),

which only produced EVs. This indicates that local endowments (e.g. weather or charging infrastructure)

seem less influential than the competences of the local companies. First, batteries of EVs perform badly in

extreme coldness and, second, an EV’s usability depends even more than a plug-in hybrid on a sufficient

charging infrastructure. In addition, even if a non-local producer wanted to include its electric car models to

be included in the Beijing catalogue, producer had to pay Beijing’s authorities a substantial sum for vehicle

testing to prove that the model can satisfy Beijing’s additional requirements, raising the hurdle even further

for non-local producers.

Local subsidy administrations

The exclusion from a local catalogue effectively banned a model from receiving subsidies. However, even if

cities did not have an explicit catalogue in place, that did not mean that local subsidies were openly available

for non-local car manufacturers. That is because local governments have been the administrative channel

through which the subsidies have been given out “Under the existing policy, consumers must apply for

subsidies through their local city governments. This has made it possible for municipalities to determine who

will qualify for the central government's incentives as well as local incentives” (Automotive News China,

2014b).

In order to stimulate demand from private consumers the central government provided subsidies to individual

buyers of LEVs. However, it required local governments to offer matching subsidies. With the intention to

encourage cities to subsidize sales of EVs, the central government allowed local governments to reserve up

to 70 percent of the local subsidies for local automakers, with the remaining 30 percent for automakers from

other cities. This measure stimulated local protection “When it comes to subsidies, the central government

now allows provincial governments to support e-vehicle manufacturers. That also creates a problem: local

governments tend to favor local companies” (Automotive News China, 2009).

As an effect, until the end of 2013, none of the cities had given subsidies to non-local automakers. An

automaker spokesperson commented “[…] municipal governments have steered the subsidies to hometown

automakers, effectively freezing out competitors from other regions” (Automotive News China, 2014c). For

example, Shenzhen required EVs to have a vehicle range of over 300 km in one charge to be qualified for

subsidies, a criterion that only BYD e6 electric cars could achieve. Shenzhen governments used vehicle range

as standards that effectively exclude EV producers from other regions.

A spokesperson of BYD sheds light on the relationship between local governments and automakers: “Our

product has been on the market for years. In Beijing, we have been marketing for years but haven’t made any

progress, because the NEV catalogue and details of subsidy haven’t been published. Without them, we are

not able to sell to the local market. But as far as I know, products from local enterprises have been sold in

batch and issued with license plates” (D1ev.com, 2014.)

Guangzhou adopted another protection mechanism by creating its own definition of new energy vehicle, i.e.

hybrid vehicles with fuel-savings of 20% or more. Theoretically, Guangzhou citizen could choose from

several conventional hybrid models that satisfy the 20% fuel-saving requirements. Yet, the Camry Hybrid by

GAC Toyota is the only model that one could actually buy from the market, and Guangzhou government was

rest assured that its money went to the local enterprise. Toyota was leader in conventional hybrid and their

local joint venture partner, GAC, was relatively weak in developing its own vehicles and it enjoyed lucrative

profits from its joint ventures. As a result, it was in the interest of the Guangzhou government to subsidize

conventional hybrids over EVs or plug-in hybrids. “The municipal government of Guangzhou has introduced

a subsidy of 10,000 yuan ($1,730) for vehicles powered by gasoline-electric powertrains. It should come as

no surprise that Honda and Toyota both have their Chinese headquarters in Guangzhou […] the municipal

government would be happy to help them gain market share” (Automotive News China, 2012b).

Investment and/or service requirements

Not all cities put a local NEV catalogue in place. In fact, cities such as Shenzhen, Guangzhou and Hefei

claimed that they remained ‘open’ to foreign producers. However, they did impose other requirements for car

producers for selling LEVs. For instance, Shenzhen required either the producer or a sales agency to be able

to respond to vehicle breakdown within 1 hour, and to provide the customer an alternative vehicle if the repair

would take more than 3 days. In addition, Shenzhen required non-local LEV producers to set up a sales

subsidiary with a minimum asset size of 50 million RMB (7.8 million USD) in the city. In terms of service,

Hefei also imposed similar after-sale service requirements: new energy vehicle producers had to provide at

least 6 service centers in the city; vehicle breakdown must be responded within a certain time. Equally, Beijing

required at least 5 service centers equipped mostly with fast-charging facilities, 24-hour on-call service, 30-

minute response time for vehicle breakdown service. Beijing also required producers to have a minimum

production capacity of 10,000 vehicles, independent research and testing, and meet production consistency.

Furthermore, remote monitoring equipment had to be installed in LEVs and real-time data should be

transmitted to the Beijing NEV service and management platform.

Apart from the more explicit protection measures, there could be other implicit or hidden requirements. For

example in Shenzhen, non-local LEV models were supported if they fulfilled certain ‘local’ content

requirements, i.e. the Shenzhen government would only provide subsidies if the NEV would include key

technologies produced by local enterprises.

Administration of license plates

During the development of LEVs, license plates are often seen as tool for promoting instead of inhabiting the

uptake of LEVs. To alleviate traffic congestions and deal with air pollution problem, Beijing implemented

restrictions on the number of license plates for conventional vehicles, issued at the end of each year to slow

down the growth of vehicles. This practice was followed by other large cities including Shanghai, Guangzhou,

Shenzhen, Guiyang, Hangzhou, etc. Since then, it has become very difficult for potential vehicle buyers in

these cities to obtain license plates, as they must go through ballots or auctions.

However, in all demonstration cities, LEVs are given special privileges in the issue of license plates. Some

cities allocated a certain amount of license plates specifically for LEVs. At the beginning, the number of

applicants were usually small and the chance of obtaining a license plate was much higher than those for

conventional ICE vehicles. Some cities simply did not limit the number of license plates for LEVs, and would

issue whenever there is an applicant. All cities also waived the fee for license plates issued to an LEV. For

instance, while a license plate for a conventional vehicle in Shanghai could cost up to 80,000 RMB (12,500

USD), buyers of LEVs could get one for free.

Nevertheless, as the power of controlling license plates has rested on local authorities, this has also been used

as a local protection, for instance by Beijing’s city government. As aforementioned, plug-in hybrids in Beijing

were only entitled to national subsidies but not to local subsidies. While EV buyers could face less

competition in obtaining license plates through the quota allocated for LEVs, buyers of plug-in hybrids had

to go through the normal ballot process. As a result, while BYD’s plug-in hybrid Qin was the top selling LEV

in China, they have rarely been found on Beijing’s roads.

In summary, seven out of the ten cities have adopted one or more local protection measures. In fact, they

influenced also local governments of other demonstration cities to adopt similar measures or drafting their

own protection measures. For instance, in the city of Xian, the production base for BYD, non-local (i.e. non-

BYD) models to be sold and to receive local subsidy from the Xian government, needed to be matched to

BYD LEV sales in the municipality at which the producer was registered. In other words, the Xian

government had required reciprocal treatment for their vehicles by other municipalities and consider it a fair

exchange of subsidies.

In line with our conceptual framework (see Table 1), the empirical results show that niches differ across

spaces. They are influenced by local protection mechanisms based on local characteristics shaped by available

resources, local visions and the local market (cf. Hansen & Coenen, 2015). For instance, NEV catalogues

were justified based on local weather conditions or available charging infrastructure; subsidy administrations

were justified based on efficiency or range requirements which were influenced by local visions; investment

and service requirements were justified with local market conditions.

4.3. Company responses to local protection

Due to local protection, in order to access a non-local market, automakers needed to overcome the various

abovementioned protection mechanisms implemented by local governments, such as investments, service

requirements, administrative bureaucracies for applying for subsidies or license plate registrations. In the

following we synthesize the strategies that emerged to circumvent protection.

Investments in local markets

In order to sell cars to non-local cities and provinces, some automakers chose to overcome local protection

measures by establishing assembly plants in non-local cities, thus becoming ‘local’. BYD adopted this

strategy intensively. From 2012 to 2014, BYD announced plans to build additional bus plants in the east

China cities of Nanjing and Hangzhou, the north China city of Tianjin and Chengde, the northeast China city

of Dalian and the central China city of Wuhan, in order to win government orders for their electric buses.

Changan also established a plant in Beijing that could produce electric vehicles, so it later became another

supplier for the Beijing electric taxi fleet in addition to BAIC. As for BAIC, it also found it easier to sell

LEVs at locations with their factories, e.g. in Chongqing.

In the case of BYD, all of their manufacturing infrastructure investments focused on electric bus production.

Nevertheless, the investment in bus production helped to remove the barriers for them to sell their passenger

cars. Therefore, whether the cars were ‘locally’ produced did not necessarily impact their eligibility to enjoy

local subsidies. Instead, it is whether an automaker could establish an (economic) relation with the local

government that determines if it is considered as 'local'.

Cooperation with local partners

Sometimes, it would be more beneficial for automakers to seek a close cooperation with a local partner at

locations where they did not have an investment. Strong local partners could satisfy the asset and service

requirements. They could also leverage their relationship with local governments for easier subsidy

application. For instance, to access the Qingdao market, BAIC (from Beijing), and Qingdao TGOOD Electric

Co., Ltd (TGood), a Sino-German joint venture based in Qingdao, jointly established a new energy vehicles

dealership business in September 2014. TGood is a global leader in electric substations and has a business

arm that focused on building electric vehicles charging facilities and providing charging services. In the

cooperation, BAIC authorized TGood to build sales outlets, experience and exhibition centres in Qingdao and

surrounding areas on behalf of BAIC. TGood also cooperated with BAIC on electric vehicle charging related

infrastructure, supply chain and standard setting.

Zhidou, the second bestselling model in 2014, adopted a similar sales strategy via local car dealers who helped

them to access the local market. For example, Zhidou’s first non-local market was Guangzhou, where they

cooperated with a large local car dealer which has been in Guangzhou since 2005. The car dealer set up

several Zhidou experience centres. Even before the details for subsidies were announced by the Guangzhou

government, the car dealer already confirmed potential buyers that Zhidou is eligible for local subsidy.

Enabling non-local registration

When governments at host markets were not giving out subsidies for an automakers’ LEV, the car dealers at

host markets could help buyers to get around this by registering the new energy car at the home market of the

manufacturer. Most reported in the news is the case of BYD buyers from Guangzhou: The divergence of

Shenzhen and Guangzhou in the type of vehicles to be subsidized and their close spatial proximity created an

interesting phenomenon. Guangzhou citizens who wanted to buy BYD plug-in hybrid vehicles could go to

Shenzhen where LEVs from BYD enjoyed both national and local subsidies. The BYD sales agency in

Guangzhou helped customers to order vehicles in Shenzhen. In order to enjoy the subsidies, the vehicle had

to register the license plate in Shenzhen. Once the vehicle was ready, customer could go to Shenzhen, have

all the documentations done and drive back to Guangzhou.

Similarly, when the Zotye Cloud 100 was offered on sale on the internet, it was clearly stated that the electric

car model is valid for both national and local subsidy totalling 95,000 RMB (14,900 USD). Yet, the car had

to be registered in Changsha, one of the Zotye production sites. This strategy was considered rather short-

term and limited in numbers, as there were geographical barriers that consumers must overcome. What is

more, in some cities, non-local license plates faced restrictions compared to locally registered vehicles,

making this option less attractive and viable from the buyer perspective.

Thus, local protections limited some automakers’ ability in scaling up in China. This indirectly became a

catalyst for automakers to seek overseas expansion. A case in point is BYD which exported buses for overseas

demonstration and electric taxis to cities such as London and Brussels. It also set up a North American

headquarter in California with electric bus production facilities. In doing so, local automakers were able to

increase their competitiveness by accessing foreign niches. The strong domestic market for conventional

vehicles even provided financial strength for automakers to acquire foreign assets to improve their

technological capabilities. These included for instance the acquisition of Volvo by Geely, A123 systems and

Fisker by Wanxiang, or the assets of bankrupt Saab Automobile by a Chinese fund and renamed as National

Electric Vehicle Sweden (NEVS). Foreign markets also provided Chinese LEV manufacturers with the

opportunity to test various operational environments and to expand production. At the same, in their home

market, automakers were protected by China’s national protections, set to realize the vision of domestic car

manufacturers leapfrogging foreign counterparts in terms of LEV technology. Protection on a national level

included high tariffs for imported LEVs, such as for Chevy Volt by GM and or the Tesla. Models built in

China but without key components from China were also ruled out from national subsidies, such as the early

models of the Prius that were assembled in China. In order to quality for national subsidies, foreign

automakers had to form a joint venture with domestic automakers for the production of LEVs. One example

was the joint venture Denza, formed by BYD and Daimler. Existing Sino-foreign auto-JV were allowed to

produce LEVs but had to form a new domestic brand, e.g. the Nissan Leaf was sold in China under the brand

Venucia manufactured by Dongfeng-Nissan.

5. Discussion

5.1. Local niches and firm responses: a framework

To reveal the dynamics in and between local niches, we drew on the multi-scalar MLP (Raven et al., 2012)

and explored local niche protection for LEVs in China. We distilled protection mechanisms in the local niche,

observed their foci and the respective firm responses. In doing so we observed that local authorities adopted

different approaches to local niche protection in their region which had different underlying rationales. Table

7 below gives an overview of the measures, description and rationales. Synthesizing the protection rationales,

two factors characterize local niche protection: the degree of location-relatedness and the degree of

technology-specificity. First, protection for technologies can be provided unrelated to the manufacturers

origin or investments in the region (i.e. be open) or protection can be related to investment or the

manufacturer’s origin (i.e. be closed). Second, technology-specific protection can be open to any technology

(i.e. be unspecific) or depending on a particular technology (i.e. specific).

Table 7: Protection measures, protection rationales and firm responses

This results in four distinct ideal type local niches (see Figure 3). Box 1 reflects a niche that is not technology

specific and also open in terms of location-relatedness of the manufacturer, e.g. requiring services for

customers, install tracking devices, requesting general minimum production. These measures often protect

the customer and are generally easy to handle for non-local companies, hence the niche is coined ‘Open niche’.

As a tactic to comply with these requirements, non-local companies for instance cooperated with local

partners to fulfil the requirements, particularly with regard to services. Box 2 is location-independent but

more technology specific, as in the case of license plate restrictions for EVs. These measures shield certain

technologies; hence the niche is coined ‘Technology shielding niche’. This mechanism was hard to

circumvent for companies with a different technology focus and led firms to locate more suitable markets as

in the case of BYD. Next, in box 3, protection is location-related but technology neutral, such as in the case

of being requested to invest locally to obtain subsidies or to exchange subsidies. These measures clearly

Protection

measure

Description

Protection rationale

(underlined word

identifies core rationale)

Example

Firm responses

(underlined word identifies

core response)

Local NEV

catalogue

- Determined eligible technologies

- Required costly and substantial tests to be

included

- Had to be published

- Specific to chosen

technology

- Beijing excluded plug-

in hybrids but included

hybrids and EVs in

their local NEV

catalogue

- Avoidance of market

Local subsidy

administration

- National and local subsidies were jointly

administrated by the local government

- Local administrations attached conditions

to subsidies

- Up to 70% of the subsidies could be

given to locally manufactured cars; 30%

had to be allocated to non-local cars

- Specific to

technology and

local production

(i.e. locally

produced or not)

- Shenzhen required 300

km of range to be

eligible for subsidies

- Guangzhou defined

new vehicle class of

hybrid vehicles with

more than 20% fuel

savings

- Avoidance of market

Investment

and/or service

requirements

- To be eligible to subsidies, provinces

required local assets (e.g. local sales

subsidiaries, production facilities, local

service centres etc.) or service guarantees

(e.g. maximum time to react to

breakdowns with maintenance and

replacement car) or remote monitoring

equipment and data sharing or to include

locally produced components in cars

- Specific to local

investments

- Specific to

provision of data

- Shenzhen required a

reaction time of 1 hour

and provide

replacement car if

necessary and required

assets of 50m RMB

- Hefei required 6

service centers in the

city

- Beijing required 5

service centers,

production facilities of

more than 10,000

vehicles and sharing of

data

- Investment, e.g. BYD

opened assembly

facilities in several

provinces

- Investment in

cooperation with local

manufacturers, e.g.

BAIC and Qingdao

opened joint

dealerships

License plates

administration

- Licence plate allocation were locally

administrated and a certain amount of

LEVs were exempted from license plate

restrictions or waived fees for license

plates

- Specific to origin

of producer

- Specific to

technology

- Shanghai waived

80.000 RMB license

fee for LEVs

- Beijing included only

local producers,

buyers of non-local

plug-in hybrids had to

go through general

application process

- Creative

circumvention, i.e.

non-local registration,

e.g. BYD facilitated

registration in home

province but cars were

driven in other

province

protect the local market, hence is coined ‘Market shielding niche’. This protection was often circumvented

by firms by investments in these markets or partnerships. Last, box 4 combines technology-specific protection

and location-related protection, such as in the case of Beijing where the NEV catalogue specified technologies

as well as clearly excluded all non-local models, hence this is called the ‘Closed niche’. In some cases,

companies found somewhat creative ways around this and offered customers subsidized LEVs by promoting

non-local registration, i.e. receiving subsidies in another province but driving the car in the closed market.

This response has of course geographical limits and was therefore conditional to being located in a

neighbouring province. For all four boxes, it has to be noted that these are ideal types and in reality the

distinction may not be as clear cut.

The ideal types are important to understand since they form the foundation of the global transition trajectory.

Local niches interact on a regional level but also on a national and supra-national level as our empirical results

show. These interactions shape the overall transition towards LEVs. In other words, multiple local niche

developments aggregate on a national and global level. In light of increasing globalization, the protection

configurations of each local niche can have a significant influence on transition developments taking place in

seemingly far way places. For instance, regulation in the local niche of California had significant influence

on the global transition towards LEVs (cf. Bohnsack et al.,2015; Gerard & Lave, 2005). Since China is by

many considered a potential game changer for the global LEV transition, the developments in the local niche

matter. While local niches created protected spaces for domestic automakers to test different technologies in

the market, our results show that sub-national protections contradicted the intentions of national protections

and initially slowed down national LEV developments. Eventually, seeing the rise of various forms of local

protections, the Chinese government enforced a reduction of local protections which led to an uptake of LEV

sales, blurring the local niche space boundaries and opening up formerly protected spaces.

Our results suggest that due to technology-specific protection in local niches, firms avoided markets or at best

reacted with creative measures (see table 7). This has a negative influence on the transition to LEVs for

several reasons, for instance, it signals uncertainty in the market, it demotivates firms to invest in LEVs, it

could potentially empower sub-optimal technologies, and it could create several co-existing technological

standards. The precise competitive effects should be studied further, particularly how multiple unaligned local

niches aggregate. The effect of location-related protection was however not per se negative. Although

incentive driven investments may be inefficient, at least firms were not necessarily required to change their

technology strategy or be excluded from a market based on their technological capabilities. The open niche

which allowed any car manufacturer to benefit from protection seems most conducive to diffusion. This is

reflected in the fact that after the Chinese government mandated that 30% of subsidies should go to non-local

car manufacturers, sales of LEVs increased dramatically in 2014 (see Table 3).

Figure 3: Ideal type local niches

5.2. Implications for theory

Sengers and Raven (2015) claim that the first conceptualization of sustainability transitions based on the MLP

was spatially naïve. The case of the LEV developments in China underlines this point. Our findings revealed

that location specific protection matters. Our suggested conceptualization of local niches contributes to the

call for a better conceptualization of the spatial dimension of transitions (Coenen et al., 2012; Hansen and

Coenen, 2015; Truffer et al., 2015). Smith and Raven (2012:1034) claimed that “Only in-depth empirical

work will reveal just how helpful our conceptual discussion is about the constitution and consequences of

protectives spaces in sustainability transitions”. Our study contributes one piece of the puzzle and shows, that

in transition analysis, the national boundary should not define the territorial limits of analysis or put differently,

one should account for locality. As in the case of Chinese LEVs reported in this paper, transitions did not

occur evenly throughout China, but in selected cities at different pace, extent and results. Instead of

considering China as one space, our findings suggest that China consists of many spaces represented either

by cites or regions. These dynamics in the local niche and between niches are relevant to understand

transitions overall. Local niches play an important role in the policy mix (Rogge and Reichardt, 2016) but

also on a global level (Binz and Truffer, 2017) and regarding the locality of transitions (Yu and Gibbs, 2017).

Thus the local niche is an important contribution to our understanding of socio-technical change.

Future research should study the interrelationships from the local to the national to the international level and

study how niches on the local level impact on the one hand the success of local companies in the international

arena and on the other hand the transition on the international level in general. Furthermore, we observed that

policies within the local niche changed, e.g. incentives for LEVs were reduced while support for charging

infrastructure was increased. This is in line with Cohen and Amorós (2014) who suggest that public policy

instruments should evolve with the technology life cycle. In the future, these dynamics in the local niche

could be a fruitful area of research, also paying attention to the balance between supply and demand side

policies on a local and national level. Moreover, our framework puts forward ideal type niches. In reality

these categorical boundaries might blur, as was the case when the national government in China mandated a

percentage of protection to go to non-local firms. This raises the question about the right balance of local and

national protection to be addressed by future studies. Last, we observed that the local relational assets were

decisive in the shaping of the local niche. A better understanding of relational assets across niches but also

local factor endowments, local visions and local market conditions would help us to understand local

protection dynamics, give predictive power to policies and in turn align local niche protection more efficiently.

5.3. Implications for practice and policy

The findings of this study hold important implications for policy makers and managers. In line with the goal

of this special issue to understand the introduction of new technologies and the role of local institutions, we

provide insights in the early stages of the LEV developments in China and the challenges at the local and

national level due to policy design.

This study shows that policies on the local levels drive or impede the diffusion of sustainable technologies.

Non-aligned policies between the local and national level as initially the case between the state government

and provinces hampered developments, whereas the later more synchronized policies accelerated diffusion

of LEVs. Overall, diffusion is certainly dependent on the stage of the technology life cycle (Cohen & Amorós,

2014) and the type of technology. Also, the study discloses the co-evolution of protection and responses of

car manufacturers and shows that companies try to find creative ways to circumvent restricted protection.

Particularly location dependent protection spurred entrepreneurial energy as evidenced by the several

collaborations or investments. On the other hand, technology dependent protection meant mostly that firms

without the necessary technology avoided these markets.

Based on the findings, this paper provides a framework to analyse local niche efficacy which could help to

improve policy-making and to foresee outcomes of local protection (cf. Hoogma et al., 2002). In doing so,

this paper allows a speculation for policy makers on a national and local level as to which niche protection is

most beneficial for sustainability transitions in general. Again, this needs to be viewed in light of the

technology life cycle, but roughly, protection for technologies in the growth stage avoid technology

relatedness (Cohen and Amorós, 2014). While our study provides too little evidence at this early stage,

whether more or less protection is more beneficial, based on the four ideal type local niches one might argue

that the ‘open niche’ is most beneficial since it is not ‘picking a winner’ and is also not dependent on rigid

location demands which might lead to inefficient resource allocation.

For managers, this paper provides a framework to understand the policy-firm interface in China, particularly

for technologies with strategic relevance. The results revealed several strategies, dependent on the type of

protection that were encountered. This can guide managers that have to navigate firms with sustainable

technology developments in regulated industries. Of course, we agree that the automotive industry as well as

China itself are rather idiosyncratic, but the findings of this study might still be partially applicable to other

settings and industries also. A case in point is the European energy industry which is currently undergoing a

transition towards smart grids (Helms et al., 2016). While the grid is connected, each European member state

has different policies in place for instance with regard to demand response technologies or self-consumption

policies, often due to vested interests of national players. This has created several Technology shielding niches

which impede the wide-spread diffusion of smart grid technologies. Our analysis of the LEV transition in

China point to the necessity to avoid ‘Technology shielding niches’ and to create ‘Open Niches’. In other

words, the lesson for industries in sustainability transition in China and beyond should be to carefully design

open protection policies.

6. Conclusion

This study set out to explore how the local niche affected the LEV transition in China with a focus on the

interplay between local protection and Chinese car manufacturers’ responses. Our study shows that cities and

provinces protected their local firms in many ways which were encountered with different firm responses,

from avoidance of the market, to investments, to creativity. We found that this had undesirable effects and

slowed down the LEV transition in China. In doing so we defined and enhanced the understanding of the

local niche in the multi-scalar MLP (Raven et al., 2012; Smith and Raven, 2012), i.e. the interplay between

local actors, specifically vehicle manufacturers and policy makers. We revealed four niches – the open niche,

the technology shielding niche, the market shielding niche and the closed niche – and distilled respective firm

responses. The results can help policy makers to design spatially aware technology policies and managers to

develop more informed technology strategies, particularly in industries in transition.

Acknowledgment

The author would like to thank Stephen Tsang for his invaluable work on the data collection for this article.

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Apr 2017
TECHNOVATION

Although it has been suggested that institutional context influences a firm's innovation performance, the role of regulatory institutions has been underexplored. Extending previous research, this study investigates whether and how regulatory institutions (i.e. state ownership, region-specific marketization and industry-specific institutional policy) affect innovation performance of emerging market enterprises (EMEs). Evidence derived from a large sample of Chinese manufacturing firms demonstrates that state ownership positively moderates the effect of R&D intensity on innovation performance. However, state ownership is not equally beneficial for all firms. Our analysis shows that region-specific marketization and industry-specific institutional policy enhance the innovation-enhancing effect of state ownership. By revealing the role of regulatory institutions, our study points to the importance of looking beyond firm boundaries to understand why EMEs are able to innovate despite their weak internal capabilities.

Building theories from case study research

Article

Jan 2002

- This paper describes the process of inducting theory using case studies from specifying the research questions to reaching closure. Some features of the process, such as problem definition and construct validation, are similar to hypothesis-testing research. Others, such as within-case analysis and replication logic, are unique to the inductive, case-oriented process. Overall, the process described here is highly iterative and tightly linked to data. This research approach is especially appropriate in new topic areas. The resultant theory is often novel, testable, and empirically valid. Finally, framebreaking insights, the tests of good theory (e.g., parsimony, logical coherence), and convincing grounding in the evidence are the key criteria for evaluating this type of research.

Orchestrating Ecosystem Co-opetition: Case Studies on the Business Models of the EV Demonstration Programme in China

Chapter

Dec 2015

This paper explores the development of the Chinese EV demonstration programmes through the conceptual lens of the business ecosystem framework. At present, government is acting as an ecosystem orchestrator promoting different types of business models such that the Battery Swapping Model in Hangzhou and Battery Charging Model in Shenzhen are co-existing while competing fiercely; such actions of orchestrating ecosystem co-opetition triggers practical implications for policymakers and industrial players who are tackling the challenges of stimulating a supportive business environment to promote the advancement of the EV industry in their respective countries. Theoretically, this paper clarifies the definition of business ecosystems, both statically and dynamically, while examining the relationship between business ecosystems and business models.

Do government grants promote innovation efficiency in China's high-tech industries?

Article

Jul 2016
TECHNOVATION

Despite extensive discussion about the important role of government in enterprise development, the function of government grants in the innovation activities of high-technology (high-tech) industries is still unclear. In this paper, the stochastic frontier model and a unique panel data set of 17 high-tech industries in China spanning the 2001–2011 period are applied to explore how government grants affect the innovation performance of these industries. Results indicate that the innovation efficiency of high-tech industries rapidly improved in the past decade. However, it is found that government grants exert a negative influence on innovation efficiency of high-tech industries. However, the impact of private R&D funding is significant and positive. Furthermore, when the high-tech industries are grouped into five sub-industries, the results show that government grants had different effects on the innovation in each sub-industry.

China's quest to adopt electric vehicles

Article

Jan 2013

The geography of sustainability transitions: Review, synthesis and reflections on an emergent research field

Article

Jan 2014

Timing-based business models for flexibility creation in the electric power sector

Article

Feb 2016
ENERG POLICY

Energy policies in many countries push for an increase in the generation of wind and solar power. Along these developments, the balance between supply and demand becomes more challenging as the generation of wind and solar power is volatile, and flexibility of supply and demand becomes valuable. As a consequence, companies in the electric power sector develop new business models that create flexibility through activities of timing supply and demand. Based on an extensive qualitative analysis of interviews and industry research in the energy industry, the paper at hand explores the role of timing-based business models in the power sector and sheds light on the mechanisms of flexibility creation through timing. In particular we distil four ideal-type business models of flexibility creation with timing and reveal how they can be classified along two dimensions, namely costs of multiplicity and intervention costs. We put forward that these business models offer ‘coupled services’, combining resource-centered and service-centered perspectives. This complementary character has important implications for energy policy.

Local niches and firm responses in sustainability transitions: The case of low emission vehicles in China

Abstract and Figures

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