Brenda Goh, Yilei Sun

BEIJING, (Reuters) – Foreign automakers can reap great benefits from selling in China, the largest car market in the world and the leader in electric vehicle adoption. The regulatory hurdles are often very difficult.

Key complaints regarding Chinese auto regulations were inexplicable, inadequate lead time and lack of transparency. This was also outlined in an EU Chamber of Commerce report.

The September survey-based report, published on September 13, did not cite concrete examples. However, industry sources claim it highlights the growing frustrations of automakers with China’s regulatory process and the growing pains that automakers face as they adjust to China’s expanding regulatory clout – particularly for EVs.

In the past cars that met EU or U.S. standards were not too difficult to satisfy Chinese regulators who had adopted Western regulations.

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.

According to two people with direct knowledge, the battery pack passed Volkswagen’s (DE:), and German government heat tests. However it didn’t meet the planned Chinese requirements that EVs should not catch on fire within the first five minutes of a crash.

According to sources, there was no information provided by the Chinese government on when new standards would become effective. They were also to blame for Wolfsburg’s inability to see that Chinese regulators weren’t as open to the German carmaker’s viewpoint as they have been in the past.

According to sources, Volkswagen sent managers to China’s auto testing agency China Automotive Technology and Research Center to ask for clarification about when the rule would become effective.

The original lightweight aluminum aluminum battery pack was eventually replaced with an aluminum-steel lighter pack that had a different structural design. Also, the mechanical design of the car’s chassis was changed.

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 its ID.4 was approved by regulators smoothly. It also stated that its regional teams have the required support to meet legal requirements locally and has zero tolerance for noncompliance.

READ MORE, 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’s head of research-and-development Hans Georg Engel said last month that one problem for vehicle testing and development in China was the lack of time needed to adhere to new regulations.

Senior officials from overseas carmakers claim that foreign automakers get invited only to the initial meeting on new regulations, while Chinese automakers sometimes are. These individuals were not permitted to discuss the issue and refused to identify themselves.

Reuters reached out to China’s Industry Ministry and CATARC for no comment.

Going Global

Beijing presented “China Standards 2035”, a strategy for industrial development that it has been developing over the past two years. It aims to position China as a leading voice in international standard setting.

The plans to improve standards include a large range industries, from autos to tech and packaging to biotech.

In accordance with these goals, CATARC (state-owned) is growing its international reach.

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. It stated in September that markets such as Chile, Israel, and the European Union have adopted some Chinese auto regulations.

Increasing China’s global influence on auto emissions rules will help increase exports of China engine components and testing machinery, Wu Xianfeng from the Ministry of Ecology and Environment told CATARC’s annual conference 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) has opened a new Beijing research center.

Hubertus Troska (OTC:), Daimler’s China chief, said that “The world is changing so quickly as we go into software driven and electric vehicles that all countries around the globe are running very quick to regulate.”

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