rush hours in China

As China's auto market expands, so do social woes

BY KEIKO YOSHIOKA CORRESPONDENT

2011/01/12

Beijing is limiting the issuance of license plates because of such morning rush hour scenes. (Keiko Yoshioka)

BEIJING--China boasted the most new vehicle sales for the second straight year, but the expected social problems arising from increasingly congested roads have dampened the celebration.

With millions of more cars on the road, traffic jams have increased in size. And environmental problems caused by gas-powered vehicles will likely intensify as electric vehicle sales remain anemic.

Chinese authorities plan to limit new car ownerships, but new vehicle sales this year are still expected to top 20 million units.

The China Association of Automobile Manufacturers announced Monday that new vehicle sales in 2010 increased by 32.3 percent over the preceding year to 18.06 million, eclipsing the U.S. record of 17.4 million.

Sales in China alone last year topped the combined total for the United States and Japan.

Foreign carmakers benefited from the trend. Nissan Motor Co.'s sales jumped by 35.5 percent to 1.02 million, marking the first time its sales in China exceeded sales in the United States.

The number of vehicles owned in China has doubled over the past five years, reaching 85 million as of last September. The figure includes 15 million farming vehicles.

Because per capita vehicle ownership is only about 10 percent of the level in Japan, major Chinese automakers are forecasting that annual sales will reach 25 million in 2015 and 40 million by 2020.

To counter the problems of traffic jams and pollution, the Chinese government ended a subsidy program for small cars last year.

The Beijing city government will limit the number of license plates issued this year to about one-third the level of last year. Only one in 10 applicants for license plates in January will get one.

To restrain new car ownerships, other cities are requiring individuals to show proof of a parking space before purchase.

According to officials of Mitsubishi Motor Sales (China) Co., the ratio of vehicle ownership in China will reach global standards if new vehicle sales continue at the 20 million-vehicle level for the next decade.

While the Chinese government has been pushing research and development in electric vehicles, including a plan to provide government funds of 100 billion yuan (about 1.2 trillion yen or $14.4 billion), actual sales of electric and hybrid vehicles have been abysmal.

A Chinese financial newspaper reported that BYD Auto, a Chinese pioneer in electric vehicles, sold only 417 electric vehicles last year.

Beijing was prepared to give a maximum subsidy of 60,000 yuan (about 720,000 yen) for each electric vehicle purchased in an attempt to stimulate sales of 1,000 units, but not even half of that goal was reached.

A major reason is that infrastructure, such as recharging facilities, remains in an early phase.

The low demand for hybrid vehicles is believed to be the reason Toyota Motor Corp. has suspended production in China of its popular Prius model for about a year.

Toyota has sold about 15,000 units a month of its gasoline-running Camry, but it has sold only several hundred of its hybrid version.

According to an executive at a Japanese automaker, one reason for the low interest in eco-friendly cars is that most Chinese are purchasing a car for the first time, so they tend to choose a model based on whether it is affordable, runs smoothly or looks fashionable.

With vehicles manufactured by Chinese automakers accounting for about 40 percent of new vehicle sales in China in 2010, Japanese companies are trying to copy some practices to heighten their competitiveness.

For example, they are buying parts from local companies to lower costs.

While officials of Japanese automakers publicly say that between 80 and 90 percent of parts in a vehicle manufactured in China are procured locally, an executive of a Japanese automaker said the actual figure was probably closer to 50 percent because many parts used to make larger components come from Japan.

Such trends are pushing more Japanese parts manufacturers to eye moving production facilities to China.

The Japan External Trade Organization organized an inspection tour of China last December for small and medium-sized parts manufacturers. Of the 50 or so that participated, half indicated they were considering moving facilities to China. Fifteen companies said they plan to make the move within the next two years.

Since more Japanese parts manufacturers are also selling to Chinese automakers, Beijing has been eager to attract parts manufacturers to the nation as one way to raise the overall technological level.

Although the Chinese government has stressed "indigenous innovation" for development of new vehicles, it is also aware of the technological gap in core auto parts between Chinese and foreign manufacturers.

One way Chinese automakers are dealing with acquiring core parts locally is to acquire foreign manufacturers.

For example, BYD Auto has bought a Japanese metal molding plant, while Geely Automobile has acquired an Australian transmission manufacturer. A parts manufacturer in Beijing also recently acquired a parts company that belonged to the General Motors group.

Other Chinese companies are entering business partnerships with German and South Korean firms.

Efforts to take advantage of the rapidly expanding Chinese auto market have also led to questionable practices.

In 2007, a Chinese employee at major parts manufacturer Denso Corp. was found to have illegally removed corporate information from company premises.

French media reports have recently accused China of industrial espionage involving the development of electric vehicles by Renault SA.