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Euro III in the Pipeline

On July 1, the State Environmental Protection Administration (SEPA) implemented nationwide auto emission standards equivalent to Euro II. There are plans to adopt standards equivalent to Euro III in Beijing next year and to extend these across the country by 2008. The topic has attracted much attention in China. How will Euro III affect the Chinese auto industry and people's daily lives?

No auto price increases

According to the SEPA plan, from the day that Euro III is introduced all new automobiles will have to conform to the demanding new standards. However existing owners needn't worry for vehicles already on the roads at that time.

The experts say the standards required by Euro III are much higher than those of Euro II. To be able to comply with them, automobile manufacturers will need to carry out research and development to update their engines. It marks yet another stage in the development of China's automobile industry. They predict that for current domestic models, Euro III might mean additional expenditure perhaps exceeding 1 million yuan (about US$120,750) or even 10 million yuan (US$1.21 million) per model. This may not be much of a problem for large volume, well capitalized joint ventures like Volkswagen and Ford but could put quite a strain on smaller domestic manufacturers.

Gao Lixin, president of the Chery Automobile Engineering Research Institute, said, "Implementation will eliminate some of the weaker small and medium-sized domestic automobile manufacturers. Mature enterprises like Chery will have no difficulties either in terms of the new capital investment or in the technology required."

Gao said that the necessary innovations were in the core technologies of engine electronic spray atomization control systems and purifying systems. Even large joint ventures have to out-source these from specialist manufacturers. Suppliers such as United Electrics are already operating in the domestic market so auto manufacturers here won't have a problem in meeting the technical requirements of Euro III.

"Automobile production costs will rise with the implementation of Euro III," Gao said. "Considering the present state of the auto market, manufacturers will likely absorb the additional costs themselves rather than passing them on to the consumers in order to maintain market share."

No Euro III gasoline at the pumps

More than just engine modifications will be required if Euro III standards are to be met. The quality of the gasoline is also a key factor. Take the sulphur content of diesel oil for example. Euro III requirements will mean a reduction in sulphur content to only one seventh of what is acceptable under Euro II.

SEPA official Wang Jian said, "None of the gasoline currently available on the domestic market conforms to Euro III, not even the 98 octane so called noble gasoline. If consumers put the currently available gasoline into new vehicles conforming to Euro III standards, not only will they damage their automobiles but the Euro III emission standards will still not be met.

In order to be able to ensure the smooth introduction of Euro III in Beijing and elsewhere, the China National Petroleum Corp. (CNPC) and Sinopec Corp. started work on updating their technologies and equipment several years ago. An employee at the CNPC research office said that some of the products produced by the company's refineries can already meet Euro III standards. Beijing has now issued local quality standards for oil products. These two big companies will make special arrangements to supply Euro III standard oil to Beijing.

Little impact on gas prices

Some people are concerned that Euro III implementation will mean higher prices at the pumps. If gasoline and diesel to be supplied are to meet Euro III standards, then the oil refineries will need to invest in updated technology and new equipment and this must be reflected in increased costs. Experts at Sinopec Corp. put the additional expenditure as high as several billion yuan.

However, Zhang Xingye, honorary chairman of SAE-China said, "Although the move from Euro II to Euro III will no doubt increase costs, this will have only a small effect on the price of a liter at the pumps. Even if a new item of equipment were to cost say several hundred million yuan it may well have a working life of twenty years and the capital cost could be depreciated over many years."

"So the implementation of Euro III won't make much difference to oil prices," Zhang said. "The real decisive factor for price increases will remain fluctuations in international crude oil prices."

(Global Times, translated by Li Jingrong for China.org.cn August 9, 2004)

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