ANALYSIS - China Makes U-Turn to Embrace Small, Efficient Cars
Date: 13-Jun-06
Country: CHINA
Author: Emma Graham-Harrison
Today, pollution, traffic jams and a growing dependence on imported oil have forced a radical rethink that has made China an unlikely pioneer of some of the world's tightest fuel efficiency standards and stricter emissions limits.
Forward-thinking policy-makers are steering the world's second-biggest oil user onto a very different road than top guzzler America, where low taxes and static standards coddle a motoring populace addicted to long trips and inefficient SUVs.
Beijing's measures may not help it cope with oil demand expected to expand at 5 percent or more over the next five years, twice the US rate, but could prevent a big-car culture from fuelling even faster growth in the decades to follow.
China burns about as much gasoline as Japan but has 10 times more people, and transportation is expected to account for over 60 percent of oil use by 2020 versus around 30 percent now.
"The government recognises that energy resources going forward are a problem... This is part of a far broader and more pervasive policy of addressing fuel and energy efficiency," said Clive Saunderson, automotive partner at Ernst & Young in Beijing.
"Beijing is keen to improve fuel efficiency, but it's also trying to work out how it actually does this without causing harm to what is a very important nascent industry in China," he added, referring to its rapid rise as a car manufacturer.
Communist planners were once happy to plunder China's natural resources in the service of economic growth, brushing environmental concerns aside as bourgeois frivolity. They promoted the auto industry as a cornerstone of the economy.
But China's growing middle class now demands cleaner air and roads that work in addition to job prospects, while Beijing's bureaucrats are working furiously to balance growth with pollution and a growing appetite for imported crude, much of it from politically unstable areas and at near record costs.
With that in mind, Beijing is encouraging the manufacture of small-engine cars, has imposed taxes on gas-guzzling autos and is experimenting with biofuels, hydrogen-powered and hybrid cars.
But with car sales up over 50 percent this year -- aiding manufacturers such as Hong Kong-listed Dongfeng Motor Group Co. Ltd. and Shanghai Auto, a major partner of both Volkswagen AG and General Motors Corp. -- smaller engines are more likely to trim growth in fuel consumption than halt it.
Already the world's third-largest vehicle market, China had some 24 million cars on the road by the end of 2005, but if car use approaches US levels, by 2031 this could rise to over 1 billion vehicles nationwide, said environmentalist Lester Brown.
India, where only eight in 1,000 people own a car, have undertaken similar measures, cutting excise taxes on on small cars by 8 percentage points in its budget for this year.
WHAT PRICE EFFICIENCY?
Officials worried at public discontent seem to have balked at taking the final step in curtailing a culture of ostentatious consumption -- raising state-set price caps that keep fuel costs below most Western levels and drivers behind their wheels.
"As people get better off they are worrying more about quality of life. They do get used to cheap energy though, as you see in Russia and the United States," said Rob Watson of the US-based Natural Resource Defence Council.
Diesel and gasoline prices are currently set by Beijing, which has held them below global rates, even as its refiners bleed cash, because of worries about inflation and social unrest.
Those concerns remain despite more aggressive but successful moves by others in Asia such as Indonesia, which cut consumption by 20 percent after nearly doubling fuel prices last October, but only faced muted popular protest.
Gasoline in the Chinese capital costs about $2.40 a gallon, around 50 cents less than the average retail price in the United States last week but half the price in much of Eur