China Behind the Wheel

THE year 2009 saw unprecedented developments in China’s auto market. By the end of October, the national volume of sales had reached 10 million, representing a year-on-year increase of 40 percent. Chinese drivers-to-be are lured by the freedom of the open road even as they tailor their schedules to allow for traffic congestion.

“I Wanna a Car!”

In Yayuncun Auto Trade Market, one of the largest in Beijing, customers packed the exhibition hall. “Could I get a car right now if I pay in cash?” Mao Wenjun asked several salesmen but got “no” without exception.

Mao was a worker-bee earning an average wage of about RMB3,000 a month. In the past 20 years, he had never dreamed of owning a car himself. However, the desire grew as one after another of his friends and colleagues bought cars. “I prepared a budget of RMB 100,000, enough for a small one with 1.6L displacement. That would be perfect, either for working or family outing,” he said.

But even salesmen didn’t know where Mao, with his suitcase of cash, could pick up a car instantly. “We are out of stock. For some models, orders are stacked inches high,” a salesman told Mao. “Many people have to wait for as long as three months. Some dealers are planning to jack up prices, not to mention discontinue any discounts.” Since March 2009, one of salesmen’s main tasks is not trying to get more customers but trying to get more cars.

Policy-oriented Growth

As for the reasons, Zhu Yiping, assistant secretary-general of China Association of Automobile Manufacturers (CAAM), explained that many factors contributed to the booming market, including accelerated industrialization and urbanization, signs of economic recovery and general restoration of public confidence in consumption. But the main driving force is likely the stimulus package issued by the State Council at the beginning of 2009. The aim was not just to encourage consumption, but also to promote the types of autos with lower greenhouse gas emissions. The feedback from the market has been good.

“Now’s the time to buy,” concludes Mao, who has been enthusiastic about a model for a long time, “rather than wait any longer.” The stimulus package halves government taxes on the purchase of an automobile, so he will pay 4,273 yuan on his ideal car for example, compared to 8,547 yuan under the previous, normal tax rate. “My savings will buy me a set of excellent seat covers or car stereo.”

Meanwhile, a government-funded project “autos to the countryside” is geared for less developed rural areas. “This has been embraced by farmers who have joined China’s urban dwellers in their growing demand for autos,” Zhu points out. In China’s vast countryside, the consumption rates remain quite low and auto ownership as a ubiquitous expectation is still in its initial stages.

Be Careful What You Wish for

Consumers and manufacturers are going flat out to put all of China behind a wheel, but have they gone too far? Dong Yang, CAAM’s executive vice-president and secretary-general, believes not. As China is still undergoing urbanization, the GDP per capita is just under the US $3,000 benchmark, which means more and more people can afford to buy a car. “The experience of developed countries is that rapid growth in the auto market slows down or declines when saturation reaches 500 cars for every 1,000 people. So far, there are 38 per 1,000 in China, while the world’s average is 120 per 1,000. There is still considerable potential in China.”

Meanwhile, traffic jams have turned the trunk roads in many cities into long,thin parking lots. “Traffic jams are a nightmare for me,” sighs Zhu Li, an office worker in Shanghai. “Where have you been jammed?” has become a popular question on the mobile phone.

Considering the auto industry’s contribution to economic growth, employment and consumption, purchasing incentives are expected to continue for quite a long time. However, problems linking cars to roads, resources and the environment will not keep a low profile. How do we provide a healthy environment for the sustainable development of the industry? “China should consider its options holistically, and encourage new ‘fuels’ and smaller cars,” Dong suggested. “As the structure of consumption guides the production of auto makers,the government should introduce more detailed measures to promote energy-saving and environmentally friendly consumption, like a fiscal subsidy or tax abatement.”