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

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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.
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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.
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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
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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
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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
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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
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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 whenthat 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.
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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.
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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
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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.
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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
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2010
Dec 2012
Jan Aug 2013
Sep Dec 2013
2014
2015
N.A.
Subsidies lapsed
200K RMB for passenger cars (31,300 USD)
500K RMB for MPV (78,200 USD)
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)
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)
N.A.
Up to 500K RMB (86,000 USD)
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
0
1,416
3,038
29,894
Total
5,579
12,791
27,642
78,499
500K
5M
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
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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
13
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.
14
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
1
Shenzhen
2009
1st
Assigned brand from local automaker
Hybrid
2
Hefei
2009
1st
Tender by government, with preferences for local firms
EV
3
Beijing
2009
1st
Government purchases based on tenders, trials and
recommendations
Hybrid
4
Hangzhou
2009
1st
Tender by public transport company
Hybrid
5
Chang-Zhu-Tan
Area
2009
1st
Assigned brand from local automaker
Hybrid
6
Shanghai
2009
1st
Assigned brand from local automaker
Hybrid
7
Chongqing
2009
1st
Assigned brand from local automaker
Gas-electric
hybrid
8
Tianjin
2010
2nd
Tender by public transport company
Hybrid
9
Wuhan
2009
1st
Assigned brand from local automaker
Hybrid
10
Nanchang
2009
1st
Tender by government and then purchase made by public
transport companies
Parallel hybrid
15
11
Haikou
2010
2nd
Requirement set by public transport company, then tender by
government
Hybrid
12
Guangzhou
2010
2nd
Assigned brand from local automaker
Hybrid
13
Zhengzhou
2010
2nd
Assigned brand from local automaker
Hybrid
14
Dalian
2009
1st
Requirement set by public transport company, then tender by
government
Hybrid
15
Jinan
2009
1st
Tender by government and then purchase made by public
transport companies. Local automakers only
Hybrid
16
Changchun
2009
1st
Assigned brand from local automaker
Hybrid
17
Chengdu
2010
3rd
Assigned brand from local automaker
Gas-Electric
Hybrid
18
Kunming
2009
1st
Tender by company commissioned by government
Hybrid
19
Suzhou
2010
2nd
Assigned brand from local automaker
Hybrid
20
Tangshan
2010
2nd
Tender by government
EV
21
Hohhot
2010
3rd
Tender by government and then purchase made by public
transport companies
Hybrid
22
Nantong
2010
3rd
Tender made together by government and public transport
companies
Hybrid
23
Xiamen
2010
2nd
Assigned brand from local automaker
Hybrid
24
Shengyang
2010
3rd
Tender by government, local automakers only
Hybrid
25
Xiangfan
2010
3rd
Assigned brand from local automaker
EV
*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
e6
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.
16
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
EV
-
Yes
-
Yes
Hefei
EV
-
Yes
-
Yes
Beijing
EV
Yes
Yes
Yes
-
Hangzhou
EV
-
-
-
-
Chang-Zhu-
Tan Area
EV
-
-
-
-
Shanghai
Plug-in Hybrid
Yes
-
-
-
Chongqing
Hybrid
-
-
-
Yes
Tianjin
EV
-
-
-
Wuhan
EV
-
-
-
Yes
Guangzhou
Hybrid
-
Yes
-
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.
17
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
18
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.
19
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.
20
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-
21
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
22
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
23
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).
24
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.
25
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,
26
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.
27
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Reaching a better understanding of the policies and politics of transitions presents a main agenda item in the emerging field of sustainability transitions. One important requirement for these transitions, such as the move towards a decarbonized energy system, is the redirection and acceleration of technological change, for which policies play a key role. In this regard, several studies have argued for the need to combine different policy instruments in so-called policy mixes. However, existing policy mix studies often fall short of reflecting the complexity and dynamics of actual policy mixes, the underlying politics and the evaluation of their impacts. In this paper we take a first step towards an extended, interdisciplinary policy mix concept based on a review of the bodies of literature on innovation studies, environmental economics and policy analysis. The concept introduces a clear terminology and consists of the three building blocks elements, policy processes and characteristics, which can be delineated by several dimensions. Based on this, we discuss its application as analytical framework for empirical studies analyzing the impact of the policy mix on technological change. Throughout the paper we illustrate the proposed concept by using the example of the policy mix for fostering the transition of the German energy system to renewable power generation technologies. Finally, we derive policy implications and suggest avenues for future research.
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