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State-IV emissions standards due for implementation next year

China will put an end to the circular of diesel vehicles that meet State-III emissions standards on December 31, 2014, according to the No. 27 announcement issued by the Ministry of Industry and Information Technology (MIIT) on April 23.

No State-III emissions standards-compliant diesel vehicles will be allowed for sale starting from January 1, 2015, said the announcement.

The MIIT requests manufacturing enterprises to get prepared for production of higher emissions standards-compliant vehicles, and make appropriate arrangement for sales of State-III diesel vehicles in inventory.

Although many local governments announced to implement State-IV emissions standards on diesel vehicles starting from 2013, most provinces have not strictly imposed such standards and State-III emissions standards-compliant vehicles are still sold in most regions.

The MIIT announcement seems to indicate that the era of State-IV emissions standards for diesel vehicles will finally arrive next year.

 

An opportunity for multinational suppliers

Multinational suppliers such as Bosch, Delphi, ASIMCO, FAW-Deutz, and Eberspacher began to prepare for the implementation of the State-IV emissions standards three years ago and are seeing their efforts bear fruit.

According to Liu Kai, director of the Party committee office at Deutz (Dalian) Engine Co., Ltd., the company started its State-IV engine project in 2011 with a total investment of ¥1.4 billion ($224 million). Six assembly lines for State-IV emissions standards engines are ready to operate in the new plants. The company sold around 5,000 State-IV-compliant engines in 2013, said Liu.

“It is the best time for Eberspaecher to enter into the China market,” said Li Yongxin, sales and project management director of exhaust technology at Eberspaecher Exhaust Systems (Shanghai) Co., Ltd. “We have started the exhaust post processing project with Yuchai Group with four to five projects to be launched by yearend.”

As one of the earliest multinational suppliers that localized the production of diesel engine technology, Bosch established the Bosch Automotive Diesel System Co., Ltd. together with Wuxi Weifu High Technology Co., Ltd. in 2004. Bosch Diesel announced to invest ¥1.6 billion for a second plant in China in Qingdao in manufacturing high-pressure common-rail system fuel injectors, a key component for State-IV-compliant diesel engines.

Delphi’s diesel engine management system plant located in Yantai, Shandong Province mainly focuses on the production of high-precision diesel injector system parts with an investment of $100 million.

Continental Group and Denso are accelerating in the State-IV diesel engine project as well. 

“Our medium and high-end products adopt the high-pressure common-rail diesel system of Bosch,” said Liu Xuguang, a manager with Foton’s marketing department. “Most Chinese diesel engine suppliers adopt other technical routes and have no advantages in high-pressure common-rail diesel system. It is very necessary to adopt high-pressure common-rail diesel systems to meet higher emissions standards.”

It is reported that Weifu High Tech sold 680,000 common-rail systems with a market penetration rate of 44 percent in heavy-duty common-rail market last year. The company is estimated to sell 1.1 million common-rail systems in 2014, with market penetration rate to reach 95 percent, according to China Merchants Securities.

Data from China Merchants Securities also show that about 30 to 40 percent of truck products from China National Heavy-Duty Truck Co. Ltd. (CNHTC) are State-IV compliant. Around 20 to 30 percent of truck products from Foton comply with the new standards, as does diesel engines made by Weichai Power. These companies are the early movers in terms of upgrading emissions standards.

 

Sales to soar in 2014

According to industry analysts, the implementation of the State-IV emissions standards will stimulate consumption of State-III emissions standards-compliant trucks this year and increase the penetration rate of State-IV products to a large extent as well.

China Merchants Securities predicts that heavy-duty truck sales as a result will reach 850,000 units in 2014, up 10 percent, but fall to around 750,000 units in 2015 as the market normalizes.

The implementation of the new standards should have an impact that sets the demand up for heavy-duty trucks this year by around 80,000 units, which would also help the overcapacity reduction as well, Roman Mathyssek, a manager of Strategy Engineers GmbH & Co. KG. and former head of global truck research and advisory at IHS Automotive, told CBU/CAR.

 

Challenges ahead

The State Council has requested that the State-IV-compliant diesel (sulfur content <50 ppm) be supplied by the end of 2014. This is critical, and shows that once again the industry faces the biggest challenges when moving from State-III to State-IV, according to Mathyssek.

Fuel supply has never synchronized with emissions standards since the implementation of the State-I emissions standards in 2000. The technical requirements and cost of diesel desulfurization are higher than that of gasoline desulfurization, according to industry analysts. The fuel quality upgrade will cost China’s oil giants Sinopec, Petro China and CNOOC over ¥50 billion and lead to fuel price increase of about ¥0.5/L at the pump.

“The fuel provided by some local oil refinery plants cannot even meet State-III emissions standards, and it is a tough challenge for the popularization of State-IV diesel,” said the analysts.

An Jin, chairman of JAC, also worried about the cost pressure brought to consumers. “Our customers have to pay 8-10 percent more for State-IV emission standards-compliant trucks,” said An. For example, the cost of a light truck will increase ¥15,000-¥20,000 for adopting State-IV emissions standards-compliant equipment and technology, according to An.

 

Supervision is key

“Besides promoting the implementation of the new standards, the government should establish a strict reward and penalization mechanism for OEM implementation of State-IV emissions standards,” said Liu Hanru, chairman of Anhui Hualing Automobile Co., Ltd., earlier this year during China’s NPC/CPPCC annual sessions.

Industry experts warn that without strict supervision, the implementation of the State-IV emissions standards may repeat the history of the State-III standards implementation: widespread operation of fake State-III vehicles or even State-I and State-II vehicles on the roads.

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