-Caveat Lector- washingtonpost.com Car Culture Captivates China Sales Boom Along With Potential Problems
By Peter S. Goodman Washington Post Foreign Service Monday, March 8, 2004; Page A01 SHANGHAI -- A decade ago, Chen Haiyan went about the city the same way as most of her compatriots -- on a one-speed bicycle. Today, her mode of transport still keeps with the times, but now it is a $100,000 silver BMW sedan. She drives her son to school and herself to the high-rise office where she conducts real estate deals. She takes weekend outings to shopping malls on the fringes of town, and meets friends at the Starbucks coffee shop near the villa she is renovating in a gated community in the suburbs. She likes the feel of eyes upon her as she rolls along, past the mélange of images defining China's most cosmopolitan city -- half-built housing developments, boutiques selling European furniture and dumpling stands where construction workers eat for $1. "It's a very confident feeling," she said. "Of course, I wanted the best type of car. People always want the best." >From foreign luxury cars to the Chinese-made Geely, which retails for about $4,000, the automobile has captivated China, gaining traction among people of increasingly wide incomes and backgrounds, with global implications for industry, the environment and energy. More than 2 million passenger cars were sold in China last year, an increase of more than 80 percent from the year before, according to the State Information Center. China is now the single fastest-growing auto market in the world, and the second largest in Asia after Japan. "Every year, we keep saying, 'Well, there's no way we can have a repeat performance of last year,' and every year we're wrong," said Phil Murtagh, who oversees General Motors Corp.'s operations in China. "We're seeing the beginnings of a car culture." For the world's major carmakers, now suffering something close to stagnation from North America to Europe to Japan, China is that rare haven of swift growth and fat profit. Longer term, however, worries are deepening that over-exuberant investment is building too many car factories, pushing prices down so far that the good times will eventually yield to a more familiar China story -- too much supply chasing too little demand, with low-cost, domestic producers capturing much of the market. The rise of the auto also threatens to add another major source of greenhouse gas emissions, those believed to underlie the problem of global warming, to a world already struggling to limit the threat. China is now the second-largest source of such pollution after the United States. Over the next three decades, China's increase in gas emissions is expected to nearly equal the total of all industrial countries, according to the International Energy Agency. The spread of the car in the rest of the world has proven to be a revolutionary force, remaking geography and social reality. So it goes here. Cars are refashioning China's cities, now choked with traffic. Bicycles are being gradually banned from Shanghai's larger streets to make way for the automobile, and old houses torn down to make space for wider roads and parking lots. Cars are changing how people shop, enabling the proliferation of big-box retail stores while expanding the confines of an enduring real estate boom. They are making life more dangerous, generating an alarming spike in fatal traffic accidents. Above all, the car is intensifying China's search for new sources of energy at a time when the needs of the world's most populous country are outstripping supply. Industry remains the single largest drain on China's energy supply. But the ravenous appetite of the automobile is one reason Beijing has dispatched engineers and dealmakers from Siberia to Angola to Indonesia in search of new oil. A decade ago, gasoline for cars made up about 10 percent of China's demand for oil, according to state statistics. Today, the number is closer to one-third. By the end of this decade, when private car ownership in China is expected to swell to nearly 28 million, gasoline are to make up more than two-fifths of China's total oil demand, according to the Development Research Center for China's State Council, the equivalent of the cabinet. Concerned by this growth in consumption, China's government is now drafting new fuel economy standards, according to industry officials who spoke on condition they not be named. While the new rules will initially have only a minor impact on China's auto fleet when they take effect next year, they are expected to force the production of more fuel-efficient cars when the second stage applies in 2008, the officials said. The growth of cars and demand for the gasoline needed to fuel them is the product of a confluence of economic policies. Local governments, keen for new jobs in a country struggling with the demise of state industry, have encouraged the development of the auto-making industry. They have handed out cheap land for factories, while facilitating investment loans from state banks. Over the last three years, state banks have funneled more than $6 billion into auto-making, and there now are factories in 27 of China's 31 provinces, according to Rui Mingjie, chairman of the industrial economics department at the Fudan University School of Management in Shanghai. Financial regulators, intent on weaning state banks from lending to bankrupt state companies, have encouraged a boom in auto loans. The biggest foreign automakers, from General Motors to Toyota Motor Corp., have poured billions of dollars into building factories in China, chasing the vision of carving up a market with 1.3 billion people. Volkswagen now sells more cars in China than in the United States. On Sunday, General Motors, which has already sunk about $1.6 billion into four car-making ventures in China, announced its latest move -- plans to buy an engine factory in the eastern province of Shandong from South Korea's bankrupt Daewoo. GM and its partner, Shanghai Automotive Industry Corp., intend to refashion the factory to produce about 300,000 engines a year for domestically made Buicks, the companies said in a statement. At the top end of the market, Audi AG, which began making cars in China in 1999, sold more than 60,000 vehicles here last year. BMW last year began domestic production in a joint venture with a local partner and hopes to sell some 9,000 cars this year. Rolls-Royce opened its first Shanghai showroom late last year. And, in the latest sign that China has abandoned its roots as an ardent foe of capitalism, GM plans later this year to begin importing Cadillacs, long a symbol of American extravagance, then start making them domestically. Overall, luxury car purchases jumped by 80 percent last year, said Xu Changming at the State Information center. At the other end of the spectrum, Chinese companies are now saturating the market with cars that sell for between $4,000 and $7,000. Prices are dropping lower still as new entrants expand the supply -- particularly deep-pocketed electronics companies -- widening the potential ranks of car-ownership. The QQ, which is the lowest-priced model from domestic automaker Chery, goes for about $6,000 at the dealership in Shanghai's Gubei area. They sell about six of the cars each day, to customers who typically earn less than $8,000 per year, according to Liu Jianhua, chief of sales. "I used to ride a moped, which is really very inconvenient," said Fu Huiping, who owns a convenience store in the surrounding countryside, as he signed the papers to buy a QQ one recent afternoon. "In the winter, it is very cold and in the summer it is so hot. Now, the price of a car is so cheap. It was not difficult for me to decide to buy. It is not that much money." Where once he used to travel to Shanghai perhaps once a week to buy goods for his store, he had made nine such trips in the first two weeks after he bought the QQ. "My business is more efficient now," he said. China's embrace of the private automobile parallels the country's shift from its Communist past toward a market-defined future. Once, the state provided the daily goods of life such as housing and transport. Now, people are left to fend for themselves while freed to pursue their own path. Before China began its economic transition in the early 1980s, the sole buyer of vehicles was the state. Other than party officials, whose vehicles were provided through their jobs, virtually no one owned a car. By 1998, less than a third of car purchases were made by private individuals and families, according to the State Information Center. Last year, the number jumped to 65 percent. The latest development has families going back to the dealer for a second vehicle. Chen's experience mirrors the unfolding of China's car culture. Now 30, she grew up in the northwestern province of Xinjiang, where her Shanghainese mother moved during the early 1960s. They lived in the provincial capital, Urumqui, in a simple flat provided by her mother's company, which supported the operations of the military. Her father drove a city bus. In 1989, Chen was sent back to Shanghai for school. After high school, she took a job at a real estate developer, marrying a Shanghainese who had his own real estate plans. They moved into a one-bedroom apartment and commuted to work by taxi. By 1997, Chen's husband had his own company. Business was brisk. He took his winnings and bought a Toyota Camry, an import. In August that year, their son was born. Shortly thereafter, they moved into a new, 19th-story, four-bedroom apartment in the Xujiahui area, an imposing collection of towers and department stores, paying about $175,000. They looked out at a city being transformed by cranes. They could see as far as the Huangpu River to the east, where colonial banks sprung up on the promenade known as the Bund in the decades before the revolution. To the west, villas and apartment blocks were going up in the suburbs. Now, her husband drove himself to work. They began buying their groceries at Metro, a German owned retail chain that has delivered Western-style grocery shopping to China, returning with cases of cola and economy size boxes of laundry detergent. "Before, we shopped only in the neighborhood," Chen said, recalling trips to open air markets with meat hanging from butcher stalls and peasant women squatting vegetables brought in from the countryside "We'd buy only when we actually needed something. Now, we anticipate need and buy a lot in advance." In recent years, her husband's company has prospered and Chen has risen to an executive position at her company. The couple set their sites on the next landmark on the Chinese path of upward mobility -- getting out of the city center. While hundreds of millions of farmers are now abandoning the countryside in search of work in the cities, China's wealthy have adopted an attitude not unlike their counterparts in more developed countries: They yearn for lawns. Last year came the chance. Another firm owed Chen's husband's company money. It offered to settle up by handing over the villa in the exclusive community, worth about $500,000. They hope to move in later this year. "Now, we have a big apartment building with lots of other people and elevators," Chen says. "Soon, it will be our private house, with a private garden." Life beyond the crush of the city requires that both spouses have regular access to a car. So, last summer, Chen's husband completed their suburban existence with a special birthday gift, the BMW. "It gave me the feeling that my husband really loves me," she says, looking ahead to the day she can park it in the driveway in front of her newly renovated home, joining the two Porsches, the Mercedes and the Audi fronting others on the private lane. Special correspondent Wang Ting contributed to this report. © 2004 The Washington Post Company www.ctrl.org DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! These are sordid matters and 'conspiracy theory'—with its many half-truths, mis- directions and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRLgives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. 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