UPDATE 1-China to cut subsidies for new energy vehicles by a fifth next year

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BEIJING, Dec 31 (Reuters) - China will cut subsidies by a fifth next year on new energy vehicles (NEV) such as electric cars, the finance ministry said on Thursday, as it seeks to combat pollution and cultivate home-grown champions in the auto sector.

China, the world’s biggest auto market, has set a target for NEVs, including plug-in hybrids and hydrogen fuel cell vehicles, to make up 20% of auto sales by 2025, up from 5% now.

Global automakers such as Volkswagen AG, General Motors Co, Toyota Motor Corp and Tesla Inc are ramping up electric vehicle production in China.

Subsidies will be reduced by just 10% on NEVs for public transport, including buses and taxis, the ministry added in a statement on its website.

China will also beef up regulations on new auto investment and manufacturing factories, the ministry added, in a move to prevent overcapacity in the auto sector.

It will take steps to spur further consolidation in the auto industry and build a more comprehensive supply chain, the ministry added.

China will extend subsidies and tax exemptions on NEV purchases to 2022. It expects to sell 1.8 million NEVs next year, up from about 1.3 million this year.

Reporting by Yilei Sun and Brenda Goh; Editing by Clarence Fernandez