Brenda Goh, Yilei Sun

BEIJING (Reuters). Buying in China, which is the biggest market for electric cars and the most populous in the world, can bring great returns to foreign automakers. The regulatory hurdles are often very difficult.

In a report by the European Union Chamber of Commerce, key concerns regarding Chinese automobile regulation were lack of transparency and insufficient lead-time for new regulations.

Although the September survey-based report did not cite any specific examples, sources in the auto industry say that it highlighted growing frustrations with China’s regulatory system as well as the pains automakers are experiencing as they adapt to China’s increasing regulatory clout – especially in EVs.

In the past cars that met EU/US auto standards didn’t have to worry about satisfying Chinese regulatory agencies which had their own rules based on Western counterparts.

China has been a leader in EV regulation. It is due to its market dominance – China accounted for 40% of all the electric cars sold globally in 2020. This comes as part of a broad conscious effort by Chinese authorities in order to lead international standards across many industries.

VW SCRAMBLE

The tensions in China’s automotive sector are illustrated by the expensive struggle of Volkswagen AG (OTC) engineers to design a new battery pack last year for their ID.4 electric vehicle.

Two sources who were directly aware of the matter stated that the battery had been tested by Volkswagen (DE) and the German government for heat management, but not to the required Chinese standards. These requirements are meant to make EVs unlikely from setting themselves ablaze within five minutes following a crash.

According to sources, there was no information provided by the Chinese government on when new standards would become effective. They also blamed the stubbornness of Volkswagen’s headquarters for failing to realize that Chinese regulators are not as willing to hear Wolfsburg’s view.

The sources said that Volkswagen also sent representatives to China’s industrial ministry and China Automotive Technology and Research Center, to seek clarification on when this rule would become effective.

In the end the original aluminum lightweight battery pack design was scrapped in favor of a lighter aluminum-steel package with a new structural design. It was also modified in terms of its mechanical design.

One source said that sometimes it is more difficult to change key parts in an old model than make a new one. ID.4 is one such example.

They declined to discuss internal issues and were not willing to reveal their identities. Volkswagen claimed in a statement made to Reuters that the ID.4 was approved by the regulatory authorities quickly. It also stated that the regional offices receive all the required support for meeting local legal requirements. The company has zero tolerance to non-compliance.

SEEKING MORE TIME AND CLARITY

Executives at foreign automakers believe that China could make their regulatory processes more transparent and less likely to throw up unexpected surprises.

Mercedes-Benz China head Hans Georg Engel stated that vehicle development and testing in China are complicated by the fact there’s not enough time after an effective regulation is in place.

According to top officials of overseas carmakers, other complaints are that not all Chinese automakers were invited to meet with regulators to discuss new regulations. However, foreign automakers can only attend the second meeting. These individuals were not permitted to discuss the issue and refused to be identified.

Reuters did not reach out to China’s industrial ministry or CATARC.

GLOBE GOING

Beijing last year presented China Standards 2035, an industrial strategy that Beijing had developed over two years. This new strategy seeks to make China a significant voice and, perhaps, the driving force when international standards are established.

Its goals for improving standards include a variety of industries: from technology to steel, packaging and biotech to autos.

CATARC, a Chinese state-owned company, has been expanding its international reach. It is backed in part by China’s ministry of industry.

CATARC opened a Geneva office in June. This is where the United Nations transport regulators are located. It also works with the Indonesian government to develop EV policies. The agency stated that certain Chinese regulations on autos had been accepted by the European Union and Israel in September.

Increasing China’s impact on the world’s automobile emission regulations will have an effect on the exports of China’s engines, components, and testing machines. Wu Xianfeng is an official from the Ministry of Ecology and Environment. He spoke to CATARC’s annual meeting in September.

Foreign automakers have increased their investment in China’s research and development centers to reduce the risk of unexpected regulatory developments. This will allow them to be closer to the ground, and gain more knowledge on the technical requirements most important to Chinese regulators.

Volkswagen is building a new research centre in the eastern Chinese city of Hefei where it is boosting EV production, and just last month Tesla (NASDAQ:) Inc announced it had built a new R&D centre in Shanghai – its first outside the United States, while Daimler AG (DE: ) established a Beijing-based research facility.

Hubertus Trska, Daimler China’s chief spoke at the opening. “The world is rapidly changing as we move into software-driven electric vehicles that all government around the world run very fast to regulate,” he said.

We are committed to ensuring that China’s needs will never be forgotten, given China’s importance.”