(In Part I of this two-part series we told you how a “kingdom of bicycles” became the planet’s second largest car market and manufacturer by the 1990s.)

Scaling Up and Slimming Down China’s Automobile Industry

In the years following, the number of auto manufacturers swelled , if with varying quality and branding originality. Today, there are over 100 domestic carmakers, with about a dozen clustering the market. In the wake of government-led consolidation and recent economic slowdown, three clear-cut leaders have emerged:

• Shanghai Automotive Industry Corporation (SAIC)
• China First Automobile Works Group Corporation (FAW Group)
• Dongfeng Motor Corporation (DFM)

Altogether, these companies comprised roughly half of auto sales in 2008, according to trade association China Association of Automobile Manufacturers. Although on average these automakers enjoyed double-digit growth in sales for the years 2008/2009, car sales are already flagging, and, like their American analogues, China’s powerhouse automakers are finding it difficult to weather the tough times.

And that is where the Chinese government comes in – literally – stage left. In mid-January, Beijing pledged assistance to the automobile industry as part of its stimulus plan. Quite unlike its American counterpart, the automotive piece of China’s stimulus package focuses not on giving struggling carmakers direct handouts, but rather in boosting consumer demand.

China Auto Target: Produce 10 million Cars Domestically in 2009

The plan includes 5 billion yuan worth of allowances (US$730 million) – or 5,000 yuan (US$726) a head – for farmers wishing to upgrade their current vehicle and slashing purchasing tax for small cars in half (from 10 percent to five percent).

The Chinese government-set target is to have 10 million domestically manufactured cars sold in 2009, which would exceed the total number of American made automobiles sold worldwide in 2008. If efforts to get more cars on the road sounds like precisely the thing China’s smoggy skies and cramped cities don’t need, don’t despair just yet.

First, the initiative aims at increasing car sales among rural populations. Chinese cities are holding a firm line on urban auto use, a real necessity considering current traffic-choked urban roads. Additionally, cities like Shanghai have restricted the issuance of new licenses considerably, and are testing measures aimed at keeping existing autos off the street. In Beijing, for example, cars are prohibited from driving one day of the workweek, depending on their license plate number. This follows the similar, but more stringent, measure taken in the capital during and in the lead up to the 2008 Olympics.

Second, the central government has promised 10 billion yuan (US$1.5 billion) funding for development and deployment of alternative energy vehicle technologies, including hybrid, all electric, and fuel cell vehicles, as well as standards that require more energy efficient manufacturing facilities.

Electrifying News: Central Government Pledges $1.5 Billion to EVs

Though part of the earmarked spending will go to auto companies, Industry and Information Technology vice minister Miao Wei says consumers will enjoy rebates for of energy-saving automobile purchases. The government may cough up up to 50,000 yuan (US$7,300) in rebates depending on the energy efficiency of the car.

A great first step in promoting more eco-friendly autos in China, the success of this initiative will depend, in large part, on the capacity of China’s carmakers to increase demand for low-priced, innovative, and technologically advanced autos by creating a superior homegrown variety to the current default option: Toyota Prius (at the recently discounted price of $36,500, even the domestically manufactured models are still far out of the budget of even wealthy Chinese).

At the moment, three companies are racing to outdo each other in electric vehicle sector:

• BYD
• Chery
• Nanjing Iveco

Here’s how they stack up against each other:

China’s electric prototypes are indeed impressive. The question on everyone’s mind is whether any of the three electric automakers will be able to scale up volumes and decrease price to make the vehicle competitive – even with the generous rebates – on the market?

Despite this promising news, one wonders why the government is encouraging private-car purchases and energy-intensive manufacturing (instead of a service-based economy) to grow given already scarce resources. In its defense – and unlike the US in the ‘60s–‘90s – China is also pumping a ton of money into alternative transportation systems, in order to promote rail and urban transit infrastructure.

Nevertheless, automobiles are likely to become less a luxury good and more an everyday part of life in China, in response to the necessities of modern life and almost universal development benchmarks. This suggests that keeping up with the Joneses is a behavioral inclination that crosses cultural divides.

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