How China’s electric car boom created a yawning fiscal black hole

China’s rapid transition to electric vehicles (EVs) has been widely hailed as an economic success story. But it is also creating a serious headache for the country’s local governments, which are tasked with maintaining one of the world’s largest road networks.
Chinese drivers have gone electric in massive numbers in recent years, with new-energy vehicles accounting for more than 60 per cent of new car sales last month, according to data from the China Passenger Car Association.
But the pivot is creating a growing fiscal black hole, as heavier electric cars send roadwork costs spiralling while simultaneously undercutting the tax revenues used to fund repairs.
While China does operate some toll expressways, most roads in the country generate no direct revenue, and so for decades the government has relied on a tax on petrol consumption to pay for road maintenance.
In 2021, the petrol tax covered more than 80 per cent of China’s annual maintenance costs for ordinary roads, according to a study by researchers at China’s Transport Planning and Research Institute. The funds are collected by the central government, which then disperses the money to local authorities to undertake the works.
However, the number of repairs required is rising fast, as China’s road network ages and millions of electric cars place surfaces under greater strain.
By the end of 2020, China had a road network spanning nearly 5.2 million kilometres, and just under 5 million km of those roads required regular maintenance – a 60.9 per cent increase compared with 2008, according to the same study.
The switch to electric cars is exacerbating the problem. Significantly heavier than traditional vehicles due to their large battery packs, electric cars wear down roads much more quickly, according to experts.
For every 20 per cent increase in a vehicle’s weight, the amount of damage it causes to road surfaces over time more than doubles, said William Li Bin, CEO of Chinese car brand Nio, at an event in April.
And China’s car fleet is far heavier than a decade ago. The average weight of a passenger car in the country climbed from around 1.3 tonnes in 2012 to 1.7 tonnes in 2024, according to data from the Ministry of Industry and Information Technology.

The funding issue has sparked public debate in China, with petrol car drivers complaining that electric vehicle owners are currently paying almost nothing to fund road repairs despite being a major cause of the fiscal shortfall.
In early June, China’s state-run People’s Daily newspaper ran a commentary on the topic, which noted the rising demands for “equal rights for petrol and electric” car drivers.
The Chinese government is already preparing to roll out a solution: a tech-driven tax that charges drivers based on how far they drive and how heavy their cars are. But the move risks sparking a backlash among drivers and carmakers amid China’s economic slowdown.
Fixing the funding problem will be a delicate balancing act, analysts said. While there is growing consensus that electric car owners need to pay their fair share, officials are likely wary of harming drivers – especially those from ordinary households, who are already feeling the impact of a shaky job market and prolonged property downturn.
There is also concern that a tax increase could potentially affect sales of electric cars – an important source of growth for China’s economy – or lead to carmakers lowering their safety standards in an attempt to make their models lighter.
“Compared to private cars, commercial vehicles use roads far more frequently and cause significantly higher surface damage. It is only right that they bear the core financial responsibility, which fundamentally realigns usage with obligation,” said Cui Dongshu, secretary general of the China Passenger Car Association.
“At the same time, the funding balance can be achieved through a combination of optimising the fuel tax, providing a fiscal backstop, and gradually phasing in the mileage tax,” he added.
Shi Xijue, a resident of eastern China’s Shandong province, traded in his petrol car for a BYD plug-in hybrid model a year ago. He said he understood why the government was looking at a tax reform.
“From the perspective of a former petrol car owner, the current system is definitely unfair,” he said. “I can feel my daily commuting costs are much lower now – using the roads is essentially free.”
But Shi is wary of the proposed solutions, particularly a tax based on vehicle weight.
“If they tax us by weight, in this hyper-competitive market, I am afraid that carmakers will inevitably cut corners or shrink battery sizes to save buyers money,” Shi said. “That could sacrifice vehicle safety and range stability. It could trigger a disastrous chain reaction.”
For Cui, the key is to ensure fairness. He said any tax should follow a “same road, same fee” rule, where drivers of petrol cars see their tax burden unchanged and EV drivers make up the fiscal shortfall.
“The core of this reform is not to squeeze the average household,” Cui said. He proposed a multidimensional tax based on mileage, weight and vehicle usage, paired with an “annual tax-free mileage quota” for private car owners to ensure daily commuting was not affected by the changes.
The core responsibility should fall on commercial and ride-hailing vehicles, which use the roads constantly and cause the most damage
Cui Dongshu, China Passenger Car Association
To address concerns about carmakers compromising safety to reduce vehicle weight, Cui suggested establishing a “safe weight exemption zone”. Models failing to meet five-star safety standards would be barred from tax benefits, ensuring that weight reduction comes from advanced engineering – such as cell-to-chassis technology – rather than cutting corners.
“The core responsibility for the infrastructure costs should fall on commercial and ride-hailing vehicles, which use the roads constantly and cause the most damage,” Cui said. Taxing commercial vehicles could actually have benefits for the logistics sector, he added, reducing excessive competition and cooling vicious price-cutting.
The testing ground for the new rules is Hainan province – a tropical island off China’s southern coastline where the fiscal shortfall is particularly acute, as the province abolished all toll booths in 1994 in favour of a fuel surcharge.
In 2021, Hainan deployed a “free-flow tolling” system that tracks vehicles using China’s BeiDou satellite navigation system and charges them automatically. The technology allows accurate tracking of vehicle mileage, potentially laying the groundwork for a nationwide mileage tax.
However, rolling out the tax across the Chinese mainland would be a monumental political and bureaucratic challenge. Unlike Hainan’s unified structure, inland road networks are highly fragmented, with expressways, urban streets and rural roads all managed by different government departments.
“The technology is already mature,” Cui said. “The core barrier is not the equipment, but institutions, interests and management.”
The challenge for Beijing, Cui noted, would be balancing the demands of different central government branches, local authorities and market players to resolve existing debts and overhaul the complex toll-distribution system.
How long it will take to resolve all those issues remains to be seen. Cui expects pilot schemes in Hainan and some inland provinces to launch in late 2026 or early 2027. National guidelines are likely to follow in mid-2027, with a full roll-out to come towards the end of 2027 or early 2028.
If that happens, millions of Chinese drivers may soon find the era of the “free ride” coming to a close.