COMMENTS / EXPERT ASSESSMENT
Innovation shouldn't be pretext for pursuing subsidies, financing
By Published: Jun 08, 2019 03:01 PM
China's hydrogen fuel cell industry has undergone rapid development since the mentioning of hydrogenation facilities in this year's government work report, attracting investment from more and more companies and local governments. While there are companies with real R&D and innovation capabilities among them, there are also companies that aim to gain government support through fiscal subsidies and financing under the guise of innovation. Authorities should be vigilant about this.
With China gradually scaling back subsidies for electric vehicles and their manufacturers, the development of hydrogen-powered cars has become a new hot spot for investment in the new energy industry. According to statistics from the Society of Automotive Engineers of China, investment and planned investment for the domestic hydrogen fuel cell industry exceeded 85 billion yuan ($12.31 billion) in 2018. Since the beginning of this year, East China's Shandong Province, Northeast China's Jilin Province, and cities like Chengdu, capital of Southwest China's Sichuan Province, have rolled out plans to develop "hydrogen valleys" or hydrogen cities, while North China's Shanxi Province, East China's Zhejiang Province and other regions have issued hydrogen energy industry plans to enhance support for relevant industrial chains.
Yet this industrial enthusiasm also led to the recent farce surrounding the so-called water-hydrogen engine, which struck a blow to the development of hydrogen-powered vehicles. The new engine, which can be powered with water and hydrogen fuel, made headlines in late May. It was first reported as an automotive innovation by a company called Youngman Automobile Group at a high-tech park in Nanyang, Central China's Henan Province. The news went viral on social media, which quickly drew widespread skepticism. Then, many called the technology a scam and questioned the justification for the reportedly 4-billion-yuan investment from the local government. Although the huge investment was soon denied by the company and the local government, it is still unknown how much investment and what kind of support the company has received from the local government so far.
In fact, it is not uncommon these days for local authorities, especially those in third- and fourth-tier cities, to grant favorable conditions to attract high-tech companies to establish production bases in their cities. In pursuit of political achievements, local governments' enthusiasm for high-tech development has always been far higher than the central government's expectations. In order to promote the development of local high-tech companies, local governments often offer them various supports in the form of land, plant building, equipment and subsidies. This has created loopholes for those so-called high-tech companies, which pay much more attention to obtaining government support than running the business. Even worse, some companies may even use the free land and factory buildings as collateral to get financing from banks, leading to the rise in nonperforming loans and financial risks.
For many strategic emerging industries, it is true that government support plays an important role in backing such industries, which require continuous investment in innovation and R&D due to the immature technologies. But innovation should by no means become an excuse for defrauding local governments of subsidies or financing.
As innovation represents the future competitiveness of a country, it is crucial for local governments to take a long-term perspective in promoting high-tech development. Specifically, authorities should use subsidies more to build R&D laboratories so as to promote breakthroughs in fundamental technologies. Instead of providing support or financing for companies' production plants, land and equipment, local governments should increase investment and subsidies for high-tech R&D.
Moreover, local authorities need to distinguish those with real core technologies. Without the support of core technologies, even the best scenario for those companies is to rely on low production costs to manufacture low-end products, which wastes limited economic resources, to the detriment of technological optimization and industrial upgrading. A similar situation has already happened in the photovoltaic and wind energy industries.
Government support for innovative companies needs to be justified. It is far from enough for authorities to just listen to the story from the company's side. Evaluation by a reliable third-party scientific research institution is needed, and research progress and the use of relevant funds should also be tracked. Only in this way can we reduce the abuse of resources and the subsequent financial risks at large.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn
With China gradually scaling back subsidies for electric vehicles and their manufacturers, the development of hydrogen-powered cars has become a new hot spot for investment in the new energy industry. According to statistics from the Society of Automotive Engineers of China, investment and planned investment for the domestic hydrogen fuel cell industry exceeded 85 billion yuan ($12.31 billion) in 2018. Since the beginning of this year, East China's Shandong Province, Northeast China's Jilin Province, and cities like Chengdu, capital of Southwest China's Sichuan Province, have rolled out plans to develop "hydrogen valleys" or hydrogen cities, while North China's Shanxi Province, East China's Zhejiang Province and other regions have issued hydrogen energy industry plans to enhance support for relevant industrial chains.
Yet this industrial enthusiasm also led to the recent farce surrounding the so-called water-hydrogen engine, which struck a blow to the development of hydrogen-powered vehicles. The new engine, which can be powered with water and hydrogen fuel, made headlines in late May. It was first reported as an automotive innovation by a company called Youngman Automobile Group at a high-tech park in Nanyang, Central China's Henan Province. The news went viral on social media, which quickly drew widespread skepticism. Then, many called the technology a scam and questioned the justification for the reportedly 4-billion-yuan investment from the local government. Although the huge investment was soon denied by the company and the local government, it is still unknown how much investment and what kind of support the company has received from the local government so far.
In fact, it is not uncommon these days for local authorities, especially those in third- and fourth-tier cities, to grant favorable conditions to attract high-tech companies to establish production bases in their cities. In pursuit of political achievements, local governments' enthusiasm for high-tech development has always been far higher than the central government's expectations. In order to promote the development of local high-tech companies, local governments often offer them various supports in the form of land, plant building, equipment and subsidies. This has created loopholes for those so-called high-tech companies, which pay much more attention to obtaining government support than running the business. Even worse, some companies may even use the free land and factory buildings as collateral to get financing from banks, leading to the rise in nonperforming loans and financial risks.
For many strategic emerging industries, it is true that government support plays an important role in backing such industries, which require continuous investment in innovation and R&D due to the immature technologies. But innovation should by no means become an excuse for defrauding local governments of subsidies or financing.
As innovation represents the future competitiveness of a country, it is crucial for local governments to take a long-term perspective in promoting high-tech development. Specifically, authorities should use subsidies more to build R&D laboratories so as to promote breakthroughs in fundamental technologies. Instead of providing support or financing for companies' production plants, land and equipment, local governments should increase investment and subsidies for high-tech R&D.
Moreover, local authorities need to distinguish those with real core technologies. Without the support of core technologies, even the best scenario for those companies is to rely on low production costs to manufacture low-end products, which wastes limited economic resources, to the detriment of technological optimization and industrial upgrading. A similar situation has already happened in the photovoltaic and wind energy industries.
Government support for innovative companies needs to be justified. It is far from enough for authorities to just listen to the story from the company's side. Evaluation by a reliable third-party scientific research institution is needed, and research progress and the use of relevant funds should also be tracked. Only in this way can we reduce the abuse of resources and the subsequent financial risks at large.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn
