China replaced EV subsidies with tradeable dual credits; NEVs now lead its market

Through the 2010s China built the world's largest EV market largely with per-purchase subsidies — direct cheques to buyers, financed from the budget, with fraud by ghost companies and a bill that grew with every sale. In September 2017 MIIT finalized the New Energy Vehicle mandate, effective April 1, 2018: a modified version of California's ZEV mandate layered onto China's fuel-consumption regulation, so that two linked credit systems — CAFC and NEV credits — would carry the transition instead of the treasury.

The design prices EV production in the currency of the industry itself. Each NEV sold mints credits whose number varies with electric range and energy efficiency; makers of conventional cars must hold enough NEV credits each year — 10% of conventional sales in 2019, 12% in 2020 — or buy them from competitors. MIIT hardened the interim proposal before finalizing: mandatory requirements were delayed one year to 2019, technical thresholds on speed and range were raised, and per-vehicle credit values were made more selective, so that real electric cars, not compliance toys, earned the credits.

The rule, combined with still-available subsidies and charging build-out, coincided with an explosion in adoption. Penetration of NEVs among Chinese buyers was 6.2% in 2020, 15.5% in 2021, and was expected to cross 20% in 2022 — three years ahead of the official 2025 target — with NEV sales up 157.3% in 2021. UC-Davis and ICCT analysts credited multiple stimuli, but singled out the dual-credit policy as the mechanism that lets manufacturers offset fuel-economy deficits with EV credits — a permanent structural incentive, not an annual budget line.

By July 2026 the endpoint was in sight of total conversion: 1.56 million NEVs sold in a single month, up 23.7% year on year, a 60.4% share of all new passenger and commercial vehicles — the first month above 60% — per the China Association of Automobile Manufacturers. The subsidy cheque has been retired from the centre of the story; what remains is a market in credits that keeps forcing the laggards to pay the leaders.

Make carmakers trade credits, not collect cheques

Credits tie the obligation to production, not purchases, so the money flows between companies rather than from the budget, and fraud by fake buyers disappears.

Scaling credits by range and efficiency steers engineering toward genuinely useful EVs, the way a subsidy never could; a compliance stub earns little.

Trading makes the policy self-targeting: the firms that can electrify cheapest do it first and sell credits to the rest, achieving the aggregate goal at least cost.

Because targets were set as percentages of the conventional market (10% then 12%), the mandate tightens automatically as the fleet grows — no annual political renegotiation.

Layering NEV credits on the existing CAFC fuel-consumption rule reused an enforcement apparatus automakers already reported against, lowering the administrative cost of adoption.

Turn grants into tradeable obligations: the state defines the outcome and issues credits for hitting it, and firms trade them. Laggards pay pioneers, and the policy funds itself.

The dual-credit system survived the subsidy phase-out and kept pushing the market: NEV penetration rose from 6.2% in 2020 to 15.5% in 2021, crossed the 2025 target of 20% three years early, and by July 2026 NEVs took 60.4% of all Chinese vehicle sales (1.56 million units in the month, +23.7% year on year, on CAAM data). Credit prices have swung with supply, prompting periodic MIIT recalibration, and the rule is now studied as the template for mandate-based industrial transition.