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City University eJournal of Academic Research (CUeJAR) e-ISSN : 2682-910X CUeJAR Homepage: https://www.city.edu.my/CUeJAR OPEN ACCESS Received: 30th September 2019 | Revised: 10th October 2019 | Accepted: 31st October 2019 The effectiveness of public policies and green mobility initiatives: Evidence from the Chinese automotive industry Lin Lah Tan a , Yuan Cheng a , Ming Zhu Li a a City Graduate School, City University Malaysia Abstract Introduction: The Chinese automotive industry (CAI), the world’s largest, has been hurt by a slowing economy with Chinese automotive sales dropping since 2017. However, the growth prospects remain bright as the demand for the electric vehicles (EVs) segment, the outcome of green mobility initiatives, is on the rise domestically and globally. However, this requires the industry to fully benefit from the Government’s supportive policies for technology upgrading through product innovation and the rapid adoption of Industrial Revolution 4.0 (IR4.0) technologies. Methodology: A comprehensive literature review revealed that while the CAI was challenged by intense competition in a slowing economy, it is well positioned to take advantage of the Made in China 2025 policy which emphasizes on China becoming a global leader in EVs. The collected secondary data were analyzed through content analysis to systematically analyze the content of the reviewed literature. Findings and discussion: The findings revealed that China’s automotive policies including Mid- and Long-Term Development Plan as well as the Automotive Industry Development policy create a conducive policy environment to make China a strong automotive power and to become a global leader for new energy vehicles (NEVs) and intelligent vehicles. China is an active participant in the China-ASEAN Free Trade Area (CAFTA) where the significant latent demand for NEVs creates export growth opportunities. Chinese-made NEVs can also benefit from the export opportunities emerging from the Belt Road Initiative (BRI). Conclusions and/or recommendations: The CAI has to increase its competitiveness for achieving sustainable business performance by emphasizing on green mobility initiatives including EVs, green supply chain management (GSCM) and green innovation. It also has to emphasize on IR4.0 for intelligentization and greenization as well as to decrease production, logistics and quality management costs. Keywords: Policy environment, CAI, competitiveness, NEVs, green mobility initiatives, GCSM, innovation, export growth. 111 CUeJAR Volume 1 | Issue 2 | 2019

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Page 1: The effectiveness of public policies and green mobility ...The decline was buffered by sharply increased sales of EVs (Singh, 2019), which have grown from 331,100 in 2015 to more than

City University eJournal of Academic Research (CUeJAR)e-ISSN : 2682-910XCUeJAR Homepage: https://www.city.edu.my/CUeJAR

OPENACCESS

Received: 30th September 2019 | Revised: 10th October 2019 | Accepted: 31st October 2019

The effectiveness of public policies and green mobility initiatives: Evidence from the Chinese automotive industry

Lin Lah Tan a, Yuan Cheng a, Ming Zhu Li a a City Graduate School, City University Malaysia

Abstract Introduction: The Chinese automotive industry (CAI), the world’s largest, has been hurt by a slowing economy with Chinese automotive sales dropping since 2017. However, the growth prospects remain bright as the demand for the electric vehicles (EVs) segment, the outcome of green mobility initiatives, is on the rise domestically and globally. However, this requires the industry to fully benefit from the Government’s supportive policies for technology upgrading through product innovation and the rapid adoption of Industrial Revolution 4.0 (IR4.0) technologies. Methodology: A comprehensive literature review revealed that while the CAI was challenged by intense competition in a slowing economy, it is well positioned to take advantage of the Made in China 2025 policy which emphasizes on China becoming a global leader in EVs. The collected secondary data were analyzed through content analysis to systematically analyze the content of the reviewed literature. Findings and discussion: The findings revealed that China’s automotive policies including Mid- and Long-Term Development Plan as well as the Automotive Industry Development policy create a conducive policy environment to make China a strong automotive power and to become a global leader for new energy vehicles (NEVs) and intelligent vehicles. China is an active participant in the China-ASEAN Free Trade Area (CAFTA) where the significant latent demand for NEVs creates export growth opportunities. Chinese-made NEVs can also benefit from the export opportunities emerging from the Belt Road Initiative (BRI). Conclusions and/or recommendations: The CAI has to increase its competitiveness for achieving sustainable business performance by emphasizing on green mobility initiatives including EVs, green supply chain management (GSCM) and green innovation. It also has to emphasize on IR4.0 for intelligentization and greenization as well as to decrease production, logistics and quality management costs. Keywords: Policy environment, CAI, competitiveness, NEVs, green mobility initiatives, GCSM, innovation, export growth.

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1. Introduction The CAI, the largest in the world for nine consecutive year, is developing significantly in four directions, namely, NEVs, lightweighting, intelligentization and Internet of vehicles (China Plastic and Rubber Journal, 2019). It is also being driven by changes in customer sentiment, economic health (Global News Wire, 2019) as well as the need to address environmental issues linked to emissions, air pollution and other environmental problems (Chen, Lin Lawell & Wang, 2017). These factors have contributed to EV sales amounting to 2.1 million units globally in 2018 or an increase of 63% year-on-year. The forecast is for global EV sales to rise up to 48% to 2.9 million units in 2019 (Bloomberg, 2019).

After registering steady growth for almost three decades, the sales of sedans in China, sports utility vehicles (SUVs) and multipurpose vehicles declined by 6.6% over the period September 2018–September 2019 to 1.18 million units (Bloomberg, 2019). This has been attributed to a slowing economy, increased uptake of shared mobility vehicles, the growing popularity of public transportation, a saturated SUV market and reduced demand from younger customers. The decline was buffered by sharply increased sales of EVs (Singh, 2019), which have grown from 331,100 in 2015 to more than 1 million in 2018. China’s EV market is growing twice as fast as the United States’ market and the Chinese Government’s policies call for increasing EV sales to account for 12% of overall sales by 2020 (Lee, 2018). This paper reviewed the pertinent literature on the Chinese Government’s automotive policies, the CAI as well as the adoption of green initiatives including EVs and IR4.0. It has five sections and the next section reviews three strands of literature - i) the Chinese Government’s policy framework; ii) green innovation which includes GSCM as well as green mobility which includes plug-in, hybrid and electric vehicles; and iii) digitalization and intelligentization which are the enabling technologies for product innovation and manufacturing technology innovation (Zhou, 2013) by using artificial intelligence (AI), robotics, the Internet of Things (IoT) and big data analytics (BDA) for accelerating connectivity, autonomous vehicles (AVs), electric power trains and shared mobility. 2. Literature review The Chinese Government’s policy framework The Chinese Government’s policies for the development of the automotive industry were first set out in the 7th Five Year Plan (1986-1990) which designated the automotive industry as a ‘pillar industry’. The Government recognized that foreign direct investments (FDIs) generate knowledge spillovers as multinational investors transfer their technology and methods to their foreign affiliates (Keller & Yeaple, 2009). As a policy response, the Government permitted international automotive firms to establish joint ventures (JVs) with Chinese partners for

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securing technology transfers, subject to foreign ownership being limited to 50% (Michael, 2012). Chinese automotive firms, largely the state-owned enterprises (SOEs), entered into JVs with foreign automakers. The JV policy was successful as it enabled China to become the world’s largest automotive market and accelerated the development of the domestic automotive parts industry (Crystal, 2016). Local investors entered the industry in 2000, leading to the establishment of Chinese privately owned indigenous automotive manufacturers such as Geely, BYD and Great Wall, to complement the SOEs that manufacture the Hafei, Brilliance and Chery. By 2006, the indigenous Chinese automotive companies accounted for 25% of the domestic car market (Chu, 2011). Since the foreign investors benefited from high levels of domestic protection, they were reluctant to introduce new technologies. Tariffs as high as 250% were imposed to protect the infant domestic Chinese automotive industry (Li, Xiao & Liu, 2015). The industry was further liberalized after China joined the World Trade Organization in 2001, and this resulted in vehicle production increasing from 1 million units in 2000 to 15 million units in 2010 (PwC China, 2018). The Government also promoted the concept of a ‘national champion’ with policies designed to foster homegrown innovation and technology companies (The Star Online, 2019). The goal was to create a robust automotive industry with vehicles that can compete effectively in both the domestic and international markets (McCaleb, 2015). The Made in China 2025 policy, the Chinese version of the German inspired IR4.0, is to stimulate vitality and creativity (Miao, 2015). Its end goal is for domestic Chinese companies to become self-sufficient to enable them to compete for a greater foothold in global markets (Cyrill, 2018). The Policy aims to update production networks by fostering Chinese brands, enhancing the services sector and improving manufacturing efficiency by 2025. The NEV industry is a target industry in the Made in China 2025 policy, with emphasis on intelligent vehicles, energy saving vehicles and NEVs. Foremost is the intelligent vehicle, representing prospective automotive technology, development trends and industrial upgrading (Liu, Tan, Kuang, Hao & Zhao, 2019). The thrust is for the industry to become a global leader for plug-in hybrid electric vehicles, battery electric vehicles (BEVs) and fuel-cell electric vehicles. The target is for the sales of all NEVs to account for 7% of the vehicle market in 2020, with increases to 20% in 2025 and 40% in 2030 (MIIT, 2016). In 2018, the Government removed the 50% ownership cap for vehicle manufacturing by foreign automakers (O’Kane, 2018). This ended a two decades long restriction that required global automakers to work with SOEs (Welitzkin, 2018). The Chinese Government lifted the restrictions on EV makers in 2018. It also announced the removal of the restrictions for commercial vehicles in 2020 and for conventional passenger vehicles in 2022 (O’Kane, 2018).

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Since the mid-1990s, China has been a prime mover of regional economic cooperation (Kolmas, 2016). China views regional institutions as effective channels through which it is adapting itself to the wider international society (Wu & Landsdowne, 2008) and exhibit its commitments to supporting globalization and promoting regional corporation (Wang, 2016). China is an active participant in CAFTA and it is the largest trading partner with ASEAN (Salidjanova & Koch-Weser, 2015). There is a significant latent demand for EVs in the ASEAN countries, in particular, in the Philippines, Indonesia, Malaysia, Thailand, Vietnam and Singapore. A survey conducted by Frost and Sullivan in 2018 revealed that 46% of the respondents in the Philippines were open to purchasing NEVs as their next car, followed by Thailand with 44%, Indonesia with 41% and Malaysia with 37%. Indonesia’s taxi company, the Blue Bird Group, imported the Chinese-made BYD e6 and the company expects to have 200 electric cars by 2020 (Frost & Sullivan, 2018). Another Chinese Government initiative for creating export opportunities for Chinese-made NEVs is the BRI, which is a driver of economic cooperation in the spirit of a global trade regime (Swaine, 2015). The BRI, the world’s largest economic platform to promote economic growth (Vannarith, 2018), covers 4.4 billion people or 63% of the global population and 30% of GDP. The BRI, an extension of China’s Going Out policy, is aimed at deepening China’s access to foreign markets (Wijaya, 2016) and to create new opportunities and engines for growth. It provides the Chinese automotive firms a broader scope and a larger global vision to export their EVs (Li, 2018). The Anhui Jianghuai Automobile company already exports to more than 30 countries which are members of the BRI and these exports account for about 60% of its total exports. 11 of their 19 overseas factories are located along the BRI (Xinhua, 2018). Another pertinent example is Geely which acquired Proton, Malaysia’s national car, with the aim of not only producing and marketing its cars in Malaysia but to also use Malaysia as an export base for its vehicles to the large and growing markets in other ASEAN countries (Geely Road, 2019). There is prior research on the Government’s policy framework for the automotive industry. The findings of a study by Chu (2011) revealed that although the policies were inadequate in the early stages, the establishment of performance standards contributed to China’s learning process and the long-term effectiveness of the industrial policy model. Another study conducted by Guo, Jiang and Yang (2017) revealed that the Government adopted a helping hand model by providing favorable economic incentives and policies to improve the overall infrastructure, FDIs’ environment and to reduce reliance on foreign technologies. The Government’s policies have shifted to specific areas including NEVs, Internet enabled cars and encouraging new product development capabilities.

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Green mobility and green innovation Green mobility refers to affordable, efficiently operated sustainable transportation which offers a choice of transport mode (Sodero, Garrison, Powley & Crabtree, n.d.). It includes EVs which is powered by electrical engines and therefore are 100% ecofriendly as they do not emit toxic gases or smoke in the environment (Union of Concerned Scientists, 2018). It is supported by green innovation which is the production, assimilation or exploitation of a product, production process, service or management/business methods that significantly reduces environmental risks, pollution and other negative effects on resource use throughout its life cycle (Kemp & Pearson, 2008). Green innovation can reduce the environmental impact of firms and allow them to achieve eco-targets as well as to incorporate environmental benefits (Wong, 2013). It also relates to initiatives to systematically align and implement green innovation strategies throughout the supply chain from new product and service development to consumption (Jones et al., 2008). Automotive products are significant sources of environmental impact (Nunes & Bennett, 2010). There are many pressures from Government and civil societies as reflected by stringent, complex and costly regulations for improved environmental performance (Kushwaha & Sharma, 2016) by reducing emissions and waste throughout vehicle production, use and end-of-life. In the European Union, manufacturers will face big fines in 2021 if their fleets exceed the regulated emissions limits and these targets will get progressively tougher (Thomas, 2018).

Between 2000 and 2018, the Chinese Government implemented a range of policy measures to promote the development of NEVs. These include development and popularization projects, preferential tax and subsidy policies, regulatory incentives, and privileges in registration and usage (Zhou, Wang, Hao, Johnson & Wang, 2015). The Chinese Government has announced that there will be no approvals for fossil-fueled vehicles investment projects (MIIT, 2017). In order to encourage the demand for NEVs, the Government introduced subsidy policies for NEV purchases (Hao, Ou, Du, Wang & Ouyang, 2014) which resulted in NEV sales increasing by 61.7% year-on-year in 2018 to 1,256,000 units (or an increase of 53.3%) as compared to the sales in 2017 (China Association of Automobile Manufacturers, 2018). Initially, EV subsidies were limited to public procurements in 13 pilot cities. It was subsequently expanded to benefit private purchasers in 25 cities. Between 2013 and 2015, the subsidy policy was extended to the entire country and the subsidy included all EVs (Ministry of Finance and Ministry of Science & Technology, 2013). In 2016, the subsidy was reduced by 50% for pure BEVs with driving ranges of more than 400 kilometers to 25,000 yuan per vehicle from 50,000 yuan in 2019 (Bloomberg News, 2019). The subsidy policy will be phased out by 2020 and replaced with a corporate average fuel consumption (CAFC) credit policy and a NEVs credit policy (MIIT, 2018). The CAFC

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to a level of about 5 liter/100 km by 2020. The automotive manufacturers that exceed the specified CAFC will be penalized (Delphi, 2017). The NEVs’ credit program aims to improve the fuel efficiency of traditional fuel vehicles and to promote the deployment of NEVs in China. In order to obtain a positive overall credit rating, they have to increase their annual NEV sales by 2 percentage points to reach 12% in 2021 (Chen, Zhao, Hao & Liu, 2018). The NEV credits, which can be used to compensate for CAFC credits, can also be sold to other manufacturers to offset an NEV credit deficit (Cui & He, 2016). Following China’s subsidy cuts, sales of NEVs tumbled by 33% between June and August 2019. However, sales of traditional hybrids car increased by 61% in September 2019 (China Association of Automobile Manufacturers, 2019).

The literature indicates that the automotive industry is adopting green initiatives, including zero emission, EVs and hybrid vehicles, supported by green innovation and supply chain management (Vaz, Rauen & Lezana, 2017). Globally, the larger automotive companies like BMW, Ford, Toyota and Volkswagen were the earlier starters (Sanghavi, Rana, Shenoy & Yadav, 2015). Chinese automotive firms like Geely, SAIC, Chery Automobile, BAIC Group, Brilliance Automotive and Anhui JAC have made much headway in the production of EVs and hybrid vehicles (Financial Time, 2017). They are also emphasizing on green designing (Chen & Wang, 2010), lifecycle analysis (Zhu, Sarkis & Lai, 2008), sustainable logistics, reverse logistics and waste management (Sanghavi et al., 2015). However, the findings of the study by Guoyou, Saixing, Chiming, Haitao and Hailiang (2013) on corporate green innovation strategy in China revealed that foreign customers play a significant role in driving companies to adopt green processes and green product innovation. Digitalization and intelligentization Digitalization and intelligentization are enabling technologies for product innovation and manufacturing technology innovation (Zhou, 2013). Digitalization is the use of “digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business” (Gartner, 2019, paragraph 1). Chinese automotive firms are embracing IR4.0 for the continuous automation and modernization of the production process. IR4.0 can be defined as “the evolution of cyber-physical systems, representing the fourth industrial revolution on the road to an end-to-end value system with industrial IoT and decentralized intelligence in manufacturing, production, logistics and the industry” (i-Scoop, n.d., paragraph 3). IR4.0 plays a major role in the production processes of the automotive industry (Karabegovic, 2016; Lin, Lee, Lau & Yang, 2018). It promotes the development and promotion of industrial robotics, intelligent automation and smart factories (Lin et al., 2018).

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IR4.0 comprises AI, robotics, IoT and BDA for accelerating connectivity, AVs, electric power trains and shared mobility (Almada-Lobo, 2016). Automotive manufacturing robots can improve quality, reduce warranty costs, increase capacity and ease bottlenecks (Acieta, 2019). IoT and AI technologies are accelerating connectivity, autonomous driving, electric powertrains and shared mobility (Singh, 2019). BDA can secure and analyze vast quantities of data on customer purchasing habits in terms of frequency, location as well as their preferences for preferred automotive brands, types of vehicles, the prices they are willing to pay and their sources of information. Big data is therefore useful for automotive manufactures to produce automotives that meet the changing consumer demands. BDA could also provide information on high income consumers who are able to purchase premium brands as well demographic changes (Heck & Rogers, 2014). The findings of a study by Gong, Zou and Kan (2019) found that the application of IR4.0 on the optimization of a mixed automotive assembly line reduced assembly time by 32 hours, increased the equipment utilization rate by 20.19% and decreased the average block rate by 21.19%. Prior pertinent research has been conducted on the adoption of IR4.0 and the development of NEVs by the CAI. The findings of a study by Lin et al. (2018) on the critical factors for the successful implementation of IR4.0 found that while company size does not increase the use of advanced production technologies, other factors positively impact on improving technology adoption. Another study by Xu (2018) on technological innovation found that while the NEV industry has benefited from new technologies for improving product quality and production levels, the industry continues to lag in international competitiveness. Karabegovi (2016) examined the role of industrial robots in the CAI, and the findings revealed that new technologies and innovations are leading to the development of robotic technology and ‘smart automation’ or ‘smart factories’. 3. Methodology “A literature review is a systematic, explicit, and reproducible design for identifying, evaluating, and interpreting the existing body of recorded documents” (Fink, 2014, p. 3). In view of its growing popularity, this methodological approach was considered appropriate for systematically investigating the Chinese Government’s support policy for the development of the CAI and the emerging trends in respects of green initiatives, green mobility, digitalization and intelligentization. The reviewed literature comprised journal articles, industry reports and prior research on the CAI. Content analysis was used to generate the findings and as a “researcher can assess large amount of text with multiple coders” (Neuman, 2006, p. 234). It permits the analysis of larger amounts of textual information to systematically identify properties which include words, concepts, characters, themes or sentences (Myers, 2013).

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4. Themes and findings Five key findings emerged from the reviewed literature. First, the Chinese Government has a comprehensive policy framework for the orderly development of the CAI. This is reflected by the Automobile Mid- and Long-term Development Plan 2017, the Energy Conservation and New Industry Development Plan (2012-2020) and, the Automotive Industry Development policy. Second, the Chinese Government is encouraging the CAI to venture into more foreign markets through the Go Global policy. The policies as well as the Five-Year Development Plan and the Made in China 2025 policy emphasized on the need for the industry to produce vehicles that meet global environment standards and to increase its competitive positioning in a transforming global automotive industry by adopting IR4.0. The CAFTA and the BRI create emerging export opportunities for the CAI as there is a significant latent demand for EVs in the ASEAN countries. Third, EV sales, which grew to 2.1 million vehicles globally in 2018 or an increase of 63% year on year, is forecasted to increase by 48% to 2.9 million vehicles in 2019 (Bloomberg, 2019). China, the largest contributor to the EV sales market, is growing rapidly as reflected by sales increasing three-fold between 2015 and 2018 to exceed 1 million vehicles (Lee, 2018). However, the Government has reduced the subsidies for individual purchases of NEVs with the aim of encouraging automakers to focus on product innovation. Fourth, the CAI is adopting green initiatives including green designing (Chen & Wang, 2010), lifecycle analysis (Zhu et al., 2008), sustainable logistics, reverse logistics and waste management (Sanghavi et al., 2015). These are necessary to produce vehicles that meet global standards, which are being centered on reducing emissions and waste throughout the vehicle production cycle, use and end of life. Finally, the CAI has to emphasize on embracing IR4.0 for the continuous automation and modernization of the production process. This requires them to invest more on manufacturing robots which can improve quality, increase capacity and ease bottom necks (Acieta, 2019) as well as in IoT and AI technologies for accelerating connectivity, autonomous driving, electric power trains and shared mobility (Singh, 2019). They can benefit from BDA for understanding customers’ preferences, personalized marketing, advanced customer profiling, precision marketing and content personalization (PwC, 2017; Heck & Rogers, 2014).

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5. Conclusion This paper reviewed the literature on the CAI, the Chinese Government’s automotive policies, the adoption of green initiatives including EVs and GSCM as well as the adoption of IR4.0 by the CAI. It examined the emerging trends in the CAI including the development of NEVs and AVs. The findings revealed that the Chinese Government’s comprehensive policy framework emphasized on NEVs to address environmental issues, digitalization and the Internet of vehicles. The Go Global policy, the CAFTA and the BRI create new export opportunities for the CAI particularly in the ASEAN countries where there is significant latent demand for EVs. The CAI is adopting green initiatives including green designing, lifecycle analysis, sustainable logistics, reverse logistics and waste management to produce vehicles that meet global environmental standards. The industry is also emphasizing on IR4.0 for the continuous automation and modernization of the production process by using IoT and AI technologies for accelerating connectivity, autonomous driving, electric power trains and shared mobility. These positive developments indicate that the Government’s public policies and the adoption of green mobility initiatives enhanced the growth prospects of the CAI.

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