Local Protectionism, Market Structure, and Social Welfare: China's Automobile Market

Abstract

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The Role of Government in the Market for Electric Vehicles: Evidence from China

“…Compared with consumer subsidies, investment in charging infrastructure is about four times as cost-effective in promoting EV sales. Both Li et al (2017) and Springel (2019) show the same qualitative finding but the advantage of charging infrastructure investment in cost-effectiveness is twice as strong in China as found in those studies. Third and perhaps most striking, the policy which merely grants EVs a distinctive looking license plate in green is very effective, increasing EV sales by 18%.…”

“…First, generous consumer subsidies from central and local governments (about 26% of pre-subsidy vehicle prices) played a crucial role in the rapid growth of the market by explaining over half of the EVs sold during our data period. The impact is similar in magnitude to that of the subsidy programs in the United States and Norway in Li et al (2017) and Springel (2019).…”

“…Third, there could be spillovers in both the demand and supply sides of the market that could lead to inefficient adoption of EVs. On the demand side, the EV market can be characterized as a two-sided market (EVs and charging stations) with indirect network effects, which has been empirically documented by previous research (Li et al, 2017;Zhou and Li, 2018;Springel, 2019). The decision of consumer adoption depends on the size of charging infrastructure and the decision of investing in charging station hinges on the size of installed base of EVs.…”

“…The auto industry has long been considered as a strategic/pillar industry by central, provincial, and local governments due to its large impacts on employment, local GDP and upstream industries (such as auto parts, iron and steel). Governments at various levels have implemented many policies to promote the industry (Barwick et al, 2017;Bai et al, 2020). In the face of increasing energy and environmental pressure, governments make strategic development plans to prioritize the development of the EV industry.…”

“…Consumer subsidy is the most common policy to promote EV adoption across countries. As a comparison, Table 1 federal, state, and local governments also provide funding to support charging station deployment (Li et al, 2017;Li, 2020).…”