China's government will spend as much as 2 billion yuan ($315 million) a year to develop alternative- energy vehicles to reduce fuel consumption, the finance ministry said today.

The government will also promote using buses with hybrid engines in major cities, Vice Finance Minister Zhang Shaochun said in a statement on the ministry's website. Agencies and companies that provide public services, such car-rental firms, will be encouraged to use alternative energy vehicles in 25 trial cities, Zhang said.

A projected tripling in vehicle population by 2020 will increase the country's demand for fossil fuel and add to its air pollution. China buys more than half of its crude oil needs from overseas and is the world's second-largest importer of oil after the U.S.

Air quality in all of the 32 Chinese cities that track pollution falls short of World Health Organization guidelines, with Beijing among the world's most polluted cities.

The finance ministry urged cities to exempt alternative- energy vehicles from restrictions on the issue of license plates and limiting the use of cars on certain days. Municipal authorities should also introduce preferential policies for parking, electricity rates and highway tolls, while speeding up construction of charging stations, according to the statement.

Automakers including General Motors Co. (GM), Volkswagen AG (VOW) and BYD Co. have announced plans to introduce hybrids or electric vehicles in China.