Chinese car makers turn to hybrids, hope for Beijing backing By Fang Yan and Norihiko Shirouzu SHANGHAI (Reuters) - China is warming to gasoline-electric hybrid cars as it tackles an addiction to fossil fuels, and local car makers are finally heeding the call and entering a niche 'green' market dominated by Japanese rivals such as Toyota Motor Corp. Some automakers like state-owned SAIC Motor Corp and Brilliance Auto are developing the fuel-saving technology pioneered by Toyota on its Prius model two decades ago, and BYD Co, a Chinese battery and automaker part-owned by a Warren Buffett company, will unveil a "self-developed" gasoline-electric car technology at the Shanghai auto show, the premier industry event in the world's biggest market, later on Saturday. Throwing more subsidies at conventional hybrids could help kick-start China's so-called 'new-energy' car policy, which has failed to gain traction. The policy aims to put half a million new-energy vehicles - defined as all-electric battery vehicles and heavily electrified "near all-electric" plug-in hybrids - on the road by 2015 and 5 million by 2020. Last year, just 12,791 such vehicles were sold, according to the China Association of Automobile Manufacturers data, and industry experts reckon China has little hope of hitting those objectives unless the government redefines new-energy cars and embraces conventional hybrids and other alternative energy technologies. "After all these years, people now realize that all-electric battery cars are unlikely to become mainstream over the next 10 years," said Peter Huang, associate director at IHS Automotive. Looking to wean China off fossil fuels and clean up its polluted air, Beijing has offered generous purchase incentives on new-energy cars in a 3-year program that ended last year. As it comes to renew the program, which industry insiders expect in the coming weeks, the government is thought likely to increase subsidies for hybrids. Handouts for those buying hybrid cars "will likely be significantly higher" than they are now, a senior executive at a major state-owned automaker told Reuters. In the previous program, Beijing offered a 3,000 yuan ($490) rebate to drivers buying a new gas-electric hybrid car, way below the 60,000 yuan handouts on all-electric battery cars. The government has to change the policy. What has happened is they can't spend the money budgeted for all-electric cars because few people are buying them. People are not motivated to buy hybrids either as the subsidies are far from enough," said the state-owned auto company executive, who didn't want to be named because of the sensitive nature of the matter. Jochem Heizmann, CEO of Volkswagen Group China, said "There's a discrepancy between the (Chinese) government's goals and actions. Over the next 10 years, plug-in hybrids have much better prospects to achieve a certain volume than (purely) electric cars. The problem is that special infrastructure has to be organized in some public areas. For private individuals it's really difficult to use the electric car. It will take a long time to get to a certain volume (with battery-powered cars)," he told reporters in Shanghai on Friday. Chinese media have reported that Miao Wei, head of the Ministry of Industry and Information Technology, told delegates at last month's National People's Congress that the new-energy car rebate program would likely include 16 categories based on a vehicle's fuel efficiency - raising industry hopes that the government is ready to boost subsidies for conventional hybrids. China's hybrid vehicles have been gradually maturing and mainstream products have achieved 20 percent savings on fuel. Conventional hybrids are thus ready, and cleared the threshold for country-wide promotion," state media reported Miao as saying at a Congress session. Some media said other ministries had not yet been won over to the merits of adopting conventional hybrids aggressively. "I haven't heard anything definite, it's all very complicated," said an official at the semi-government China Automotive Technology & Research Center (CATARC), a body that helps set vehicle standards and technical regulations, as well as product certification and industry planning. The city of Guangzhou, a key industrial hub in southern China with a population of 12.7 million, decided last year to offer a 10,000 yuan rebate to anyone buying a gas-electric hybrid car. The application of hybrid technology - propelling a vehicle by coupling a gasoline engine with an electric motor - began with Toyota in the 1990s, and has since been taken up by many automakers. Hybrids are particularly popular in the United States and Japan. Toyota alone has sold more than 5 million hybrids since launching the Prius in 1997. Among China's leading carmakers, SAIC has said it will launch the Roewe 550 hybrid in the coming months, adding to its Roewe 750 hybrid which hit showrooms in 2011 and which is priced from 236,800 yuan. Brilliance Auto is set to mass produce its FSV, a so-called 'mild hybrid' car that uses stop-start technology - where the gasoline engine stops when the car is at a standstill and re-starts when the driver steps on the gas pedal. To date it has sold several hundred FSVs to fleet operators in Dalian and other cities. Great Wall Motor Co is also expected to put its first 'green' car, a cross-over hybrid, on the market in China next year. "We have been focusing mostly on hybrids because battery technology is not mature and the cost is too high," said Judy Zhu, a spokeswoman for SAIC. Whatever Beijing decides on incentives for conventional hybrids, non-Chinese manufacturers will benefit, too. Toyota last year more than quadrupled sales of its hybrids in China to around 17,000 cars, some made locally and others brought in from Japan. Beyond the Prius, Toyota has a hybrid Camry that it builds in China. Volume sales are relatively low as the hybrids are pricey, with the Prius, for example, starting at $37,200 due to high taxes on imported cars in China. To bring prices down, Toyota plans to produce key hybrid parts such as the electric motors and batteries in China by 2015. Japanese rival Honda Motor Co sold only 540 hybrid cars in China last year, but plans to start producing certain hybrid models in China as early as next year. Additional reporting by Andreas Cremer; Editing by Ian Geoghegan