China launches major update on battery production regulation

China's industrial regulator plans to launch a major document to guide the production capacity of lithium-ion batteries, which industry experts said will knock out a batch of low-end battery cells and accelerate the structural adjustment of the country's booming lithium-ion battery sector.

The Ministry of Industry and Information Technology unveiled a draft guideline on Wednesday that will guide lithium-ion battery companies to reduce projects that aim solely to expand production capacity.

Instead, lithium-ion battery companies will be encouraged to strengthen technological innovation, improve quality and reduce production costs. They are required to spend at least 3 percent of the revenue on R%26D and technological upgrades, the draft guideline said.

The China Automotive Power Battery Industry Innovation Alliance predicted that by 2025, the country's lithium-ion battery production capacity will likely exceed 3,000GWh. However, the capacity utilization rate of the country's lithium-ion battery industry dropped to about 40 percent last year and is likely to reach 35 percent by 2025.

Mo Ke, founder and president of market consultancy RealLi, said there is some "structural excess" in the lithium-ion battery sector, with insufficient high-quality production capacity but excess low-end production capacity.

"China's latest guideline will drive the lithium-ion battery industry to be healthier and more high-end, which will further help the nation's new-energy vehicles gain a more favorable competitive advantage in the global market," he said.