ENVIRONMENTAL RESPONSIBILITY How the recent “China 6” emissions regulations will create new opportunities for automotive parts suppliers
Standards for emissions that recently took effect in China will create new market opportunities for relevant parts suppliers. What do these new possibilities look like?
In the last three decades, air pollution has become a critical issue for China (as well as for the rest of the world), making emissions a top priority for the Chinese government to address. Modern vehicle emission control codification in China began in the late 1990s. Chinese light-duty vehicle emission regulations have generally followed the pattern set by European standards, incorporating a lag time of about five to ten years behind EU policies.
In late 2016, the Chinese government’s Ministry of Environmental Protection (MEP) finalized its two-phased Stage 6 Limits and Measurement Methods for Emissions from Light-Duty Vehicles, otherwise known as the China 6 Standard, or simply, China 6. Affecting M1-, M2-, and N1-class vehicles weighing up to 3,500 kg per EU classification, the first phase of China 6 went into effect in 18 provinces of China on July 1, 2020. The second phase is scheduled to begin in most regions in July 2023 (certain provinces may elect to implement the second phase earlier if they feel air pollution levels warrant it).
The China 6 standard takes best practices from both American and Europen regulations (including real-world driving emission [RDE] testing) and adds in those tailored specifically to the unique driving conditions of China. There are new fuel-neutral emission limits for both air and climate pollutants, including those for particulate matter (PM), carbon monoxide (CO), nitrous oxide (N2O), nitrogen oxides (NOx), total hydrocarbons (THC), and particle number (PN) concentrations. There are also provisions for enhanced on-board diagnostics (OBD) systems and a new Chinese emission warranty and defect-reporting program.
New market opportunities
Market opportunities in China created by China 6 could ultimately be worth between 7.6 and 8.8 billion Euros (60 to 70 billion yuan), according to Chinese media sources.
Investment house BOC Securities estimates that opportunities in the areas of engine filtration and exhaust gas aftertreatment will grow “explosively” by 200 % (approximately 16 billion euros, or 128 billion yuan) after 2019. The Internet car portal 36kr.com has reported that China’s market for exhaust gas aftertreatment—particularly for catalyst carriers, coatings, and packaging—is expected to significantly impact existing value chains and expand by 12.6 billion Euros (100 billion yuan) per year.
According to daily business newspaper Diyi Caijing Ribao, Chinese exhaust system manufacturers such as Kailong High Technology, Weifu High-Technology Group, and ActBlue—as well as component suppliers, including Baolong Automotive, Tenglong, and AOFU Environmental Tech—will see increased business. Even estimates from more conservative sources see annual growth rates in exhaust-related parts markets of at least 25 % per year beginning in 2020.
European producers of high-quality engine components, such as Germany’s Bosch, will likely benefit by manufacturing to China 6 specifications. Chinese electronic water pump vendor Ningbo Tianlong is currently working on supplying both Bosch and Canada’s Magna, according to media reports. Both Ningbo Tianlong and Shanghai Aerospace Automobile Electromechanical (HT-SAAE)—a manufacturer of water tank parts and intercoolers—are building to meet the new standard for Chinese automaker OEMs such as FAW-Volkswagen and SAIC-Volkswagen; they’re strongly optimistic about new sales opportunities.
At the same time, China 6 will put pressure on smaller automakers and parts suppliers in China. Cui Dongshu, the general secretary of Chinese car association CPCA, has said that there may be a “survival of the fittest”-type shakeout in the industry, leaving only those firms with sufficient technical knowledge and resources left standing.
China 6 will generate demand for certain materials, such as those used in honeycomb ceramic catalyst carriers, according to Chinese industry analysts. In 2020 alone, this market is expected to be worth 600 million Euros (5 billion yuan). For those suppliers with zeolite molecular sieves, the market is estimated by Guoxin Securities to be valued at 270 million Euros (2.25 billion yuan). The automotive-related chemicals sector can also anticipate increased sales of AdBlue additive liquid (also known as diesel exhaust fluid [DEF]).
As journal Diyi Caijing Ribao concludes in its analysis, the advent of China 6 will create new business opportunities for relevant suppliers that will be “short-term bursts, but of a long-term nature.”