China plans to strengthen lithium battery industry regulations

China on Wednesday sought to solicit public opinion on draft regulations aimed at regulating its rapidly growing lithium battery industry. The rules, proposed by the Ministry of Industry and Information Technology, are designed to curb unchecked expansion and promote sustainable and high-quality development within the sector. 

The proposed regulations address several key issues facing China's lithium battery supply chain, including unbalanced regional development, mismatched supply and demand, inconsistent product quality, and insufficient innovation. The regulations also cover various aspects of the industry such as plant layout, production processes, product performance, safety and quality control, environmental protection, and social responsibility. 

The draft regulations address the environmental impact of the lithium battery industry. These rules impose stricter controls over manufacturing processes to adhere to contemporary environmental standards, which include reducing pollution and optimizing resource use. The focus on sustainable practices intends to minimize the industry's ecological footprint by curbing emissions and improving the energy efficiency of battery production. By establishing stringent standards for energy density and cycle life, the regulations promote the development of batteries that require less frequent replacement, potentially reducing waste.

Notably, the draft regulations also encourage companies to focus on technological innovation to improve product quality and reduce costs, instead of production capacity expansion. Lithium battery manufacturers are required to invest at least 3% of their main business revenue in research and development. The rules also set specific standards for energy density, cycle life, and other technical parameters for different types of lithium batteries. 

The regulations come as China's lithium battery installations have seen explosive growth in recent years, driven by strong domestic demand for electric vehicles (EVs) and energy storage. In 2023, China's lithium-ion battery sector sustained its growth momentum, with the total output rising 25 percent year on year. This growth was largely driven by the surge in China's new energy vehicle sales, which reached 9.495 million units in 2023, a year-on-year increase of 37.9%. In comparison, the European Union (EU) registered 2.4 million new EVs in 2023, which is almost 20% more than in 2022. The International Energy Agency reported that in 2023 China accounted for around 60% of global electric car sales.

While the new regulations aim to promote sustainable growth, the US has expressed concerns about China's dominant position on the global battery supply chain. In March 2024, US Treasury Secretary Janet Yellen noted the competitive challenges posed by China's practices in strategic sectors such as the mining and processing of crucial minerals like lithium. She claimed that China was "distorting global prices and production patterns and hurting American and global firms and workers." The US government has been pushing to reduce its reliance on Chinese imports and boost domestic production of critical materials. 

The draft regulations also come as the US and Europe are rushing to build up their domestic battery supply chains to reduce reliance on China. Last year, the US government announced $3.5 billion to strengthen domestic battery manufacturing. The EU also passed the Critical Raw Materials Act and is working on its own European Battery Alliance to boost the region's battery ecosystem.