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Some light beyond the Chinese smog

China's booming economy and huge manufacturing growth has led to a great leap in prosperity for the Chinese but it has brought with it problems that are all too familiar in the West. One of those problems is pollution and China has a lot of that. The smog over some of China's cities is so bad that it is actually becoming an export in its own right as some cities on Japan's west coast are now having to take measures to deal with blown-in Chinese fumes.

China's booming economy and huge manufacturing growth has led to a great leap in prosperity for the Chinese but it has brought with it problems that are all too familiar in the West. One of those problems is pollution and China has a lot of that. The smog over some of China's cities is so bad that it is actually becoming an export in its own right as some cities on Japan's west coast are now having to take measures to deal with blown-in Chinese fumes. The Chinese are keen on taking action too and as about 50% of these emissions come from the exhausts of cars, this seems like a good place to start.

There is no doubt that the Chinese government are serious about this. Currently 5 cities badly affected by smog have a subsidy scheme in place for electric cars and this looks as if it could rise to 20. The subsidies are substantial, amounting to $30,000. Even then though, the customer still has to cough up $40,000 for one of BYD Auto company's e6 electric vehicles. Clearly that is a lot in comparison to standard petrol vehicles but some very clever investors are betting on the Chinese electric car maker's success. Warren Buffett for example has taken a stake of just under 10%.

There are compelling reasons why China might succeed in making a success of the electric car where the West has failed. So far electric cars make up just a fraction of 1% of car sales worldwide but China has some tricks up its sleeve which could change that. The nature of their economy, with centralised decision making and part state owned enterprises means that the Chinese government does not have to encourage their population to make and buy electric cars, they can simply tell them to do so.

BYD Auto company for example is confident of selling more cars to a Shenzhen taxi company. One reason is because an urban taxi makes a good fit for electric vehicles with handy recharging stations and short journeys. A bigger reason though is because the taxi company is part-owned by the Chinese government and the government has told the company to buy the cars. To our capitalist Western ears, this may seem like a harsh throwback to the bad old days of Chinese communism. But this is the kind of government intervention that may be required to build up production numbers to a point where economies of scale kick in to make the vehicles affordable. Warren Buffet thinks so anyway.

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