The affair of the phantom buses has prompted questions about whether the ruling Communist Party's financial support to an industry it is spending heavily to promote might be disrupted. The Finance Ministry announced that five manufacturers were fined for fraudulently collecting a total of more than 1 billion yuan (USD 120 million) in subsidies. Chinese news reports, citing unidentified industry sources, say as many as 20 others might be in trouble.
The government gave no indication whether managers at the companies might be prosecuted. The Finance Ministry said 90 companies were investigated but didn't identify any of the others.
"'Subsidy fraud' will do a lot of damage to development of the new energy vehicle industry," the deputy general secretary of the China Association of Automobile Manufacturers, Xu Yanhua, told the newspaper Economic Observer.
Communist leaders see electric cars, solar and wind power and other "new energy" as promising fields with no established competitors where China can take a leading global role and reap higher-paid jobs and economic growth.
Boosted by government subsidies, China passed the United States last year to become the biggest electric vehicle market by units sold.
The biggest Chinese manufacturer, BYD Auto Ltd, passed General Motors Co and Nissan Motor Co last year as the top-selling global electric vehicle brand. It was not among the five manufacturers cited as improperly receiving subsidies.
Most Chinese-made electric vehicles are sold in China, but BYD has sold buses in California and taxis in Europe. Beijing paid 33.4 billion yuan (USD 5 billion) in subsidies to electric vehicle makers in 2009-15, according to the Finance Ministry. On top of that, Shanghai and other cities encourage sales by waiving license plate fees of up to 100,000 yuan (USD 15,000).
Manufacturers can receive rebates of up to 500,000 yuan (USD 76,000) per bus or 50,000 yuan (USD 7,500) per car. A Cabinet statement said authorities were ordered to "tighten control" over subsidies.
It told local authorities to prevent finance officials from helping automakers to obtain improper subsidies but did not indicate how payouts might change.
The scandal is likely to lead to stricter standards in a system that lacks controls to ensure companies that receive subsidies are creating technology, said John Zeng of LMC Automotive Consulting.
Zeng said for now, companies can collect government money for assembling parts bought from other suppliers to make a truck or bus while doing no research or development of their own.