A new fuel consumption standard for passenger vehicles in China, the so-called Phase 3 standard, was approved technically in 2009 and will take effect in 2012. This standard aims to introduce advanced energy-saving technologies into passenger vehicles and to reduce the average fuel consumption rate of Chinese new passenger vehicle fleet in 2015 to 7 L/100 km. The Phase 3 standard follows the evaluating system by specifying fuel consumption targets for sixteen individual mass-based classes. Different from compliance with the Phases 1 and 2 fuel consumption standards, compliance of the Phase 3 standard is based on corporate average fuel consumption (CAFC) rates for individual automobile companies. A transition period from 2012 to 2014 is designed for manufacturers to gradually adjust their production plans and introduce fuel-efficient technologies. In this paper, we, the designers of the Phase 3 standard, present the design of the overall fuel consumption reduction target, technical feasibility, and policy implications of the Phase 3 standard. We also explore several enforcement approaches for the Phase 3 standard with financial penalties of non-compliance as a priority. Finally, we estimate the overall effect of the Phase 3 standard on oil savings and CO2 emission reductions. (C) 2010 Elsevier Ltd. All rights reserved.