Phantom Sales, Faked Papers Found in China EV Subsidy Probe

Updated on
China's EV Subsidy Probe: What Was Discovered?
  • China says five electric bus makers cheated government of aid
  • Gemsea, Chery unit among those held out as ‘classic cases’

China punished five manufacturers of electric vehicles for scamming the government of about $150 million in subsidies in a crackdown aimed at rooting out fraud in the fast-growing industry.

The five companies were highlighted by the government as being “classic cases” unearthed in its probe into the sector, which involved investigations into 90 major new-energy vehicle makers covering 401,000 vehicles. The probe found instances where subsidies were claimed for unsold vehicles and others where automobiles were left idle after companies received payouts.

Gemsea Coach, a Suzhou, China-based bus maker, had its production license revoked and ordered to pay back all of its subsidies received last year. The company faked documents to illegally receive 261.6 million yuan ($39 million) in financial assistance for 1,131 vehicles, according to the Ministry of Finance in a Thursday statement detailing the results of its eight-month investigation into the industry.

Another four companies -- Chery Wanda Bus, Shenzhen Wuzhoulong Motors Group, Higer Bus Co. and Shaolin Bus -- were fined 50 percent of the amount of subsidies they received in addition to the clawback of financial aid, according to the statement. The ministry didn’t say whether more companies were involved in subsidy fraud.

“Punishing the offenders is wake-up call for the industry,” said Cao He, an auto industry analyst and deputy head of the finance committee of the state-backed China Association of Automobile Manufacturers. “The government is improving its funding policies so that it can keep the momentum of the new energy vehicle industry for the coming years.”

Click here to read more on China’s probe of electric vehicle subsidies fraud.

The finance ministry will work with relevant agencies to “accelerate the refinement of support policies, raise the qualification bar to encourage advances in technology, and phase out subsidies at the appropriate time to help the new-energy vehicle industry quickly enter a stage of healthy self-development,” it said in the statement.

After a sluggish start, generous state support and the promise of coveted new licenses to manufacture EVs have combined to cultivate a gold-rush mentality, prompting concerns the industry is plagued by too many substandard companies that lack the technology to face global competition.

Financial Aid

From 2009 to 2015, the central government disbursed a total of 33.4 billion yuan in subsidies to support the purchases of these automobiles. China surpassed the U.S. as the largest market in the world for electric vehicle sales last year.

Shares of Xiamen King Long Motor Group Co., which owns 45 percent of Higer Bus, fell as much as 8 percent for the biggest intraday decline since Feb. 29 in Shanghai trading, after saying the the fines and clawback of subsidies will reduce 2016 net income by 315 million yuan.

Gemsea’s registered numbers were suspended due to overdue charges. Calls to Wuzhoulong Motors went unanswered. An employee at Chery Wanda said he isn’t in a position to comment, declining to refer the call to a company spokesman.

Shaolin Bus Chairman Zhou Jumin said in a statement on its website that the company must cultivate an awareness of abiding by the law, without referring to the finance ministry’s findings. The operator at the company declined to put the call through to Zhou or a spokesman.

— With assistance by Yan Zhang, and Tian Ying

Before it's here, it's on the Bloomberg Terminal. LEARN MORE