Beijing Recovers 2.3 Billion Yuan Amid Crackdown on Green-Car Subsidy Fraud

(Beijing) — Beijing has recovered 2.3 billion yuan ($334 million) in fraudulently obtained subsidies from makers of green-energy cars, China’s finance minister said Tuesday.

The subsidy program is credited with helping China surpass the U.S. to become the world’s largest new-energy producer in 2015. Between 2009 and the end of 2015, the government gave new-energy car makers a total of 33.44 billion yuan.

But a government investigation launched last year into the program uncovered instances of fraud estimated to have hit 10 billion yuan.

Government subsidies are not “freebies for malfeasants,” Finance Minister Xiao Jie said at a news conference held during the ongoing National People’s Congress (NPC).

The sector has become a significant job creator in China and has bolstered the government’s efforts to clean up the country’s serious air pollution.

“The purpose of overhauling the policy is to form a fiscal policy orientation to support the good companies,” Xiao said. “I believe these adjustments are good for the sound development of the new-energy car sector and can efficiently prevent the market from being distorted.”

The Finance Ministry launched an eight-month investigation into the subsidy program last year. In September, Chinese regulators determined that five electric-vehicle manufacturers had cheated the subsidy program out of a total of 489.4 million yuan by falsely reporting the number and type of new-energy vehicles they made.

After the scandal erupted in September, the government began restructuring the subsidy program, reducing the amount of benefits and raising the qualification threshold for receiving them.

But the overhaul created confusion and uncertainty among buyers and manufacturers, and led to a huge drop in sales in January of new-energy cars. Sales fell 74% year-on-year to just 5,682, while production plummeted 69% to 6,889 units, according to the China Association of Automobile Manufacturers.

The government has said it will provide clarity on which vehicle models will be eligible for future subsidies, which is expected to help stabilize the industry.

Contact reporter Pan Che (chepan@caixin.com)