Yesterday, we reported that China wants to be a market of 20m cars in 2012. We didn’t predict that, just reporting the news, ma’am.
A hue and cry ensued: “Can’t be!”
Commentator ohsnapback, who’s forte is lawyering, a much more complex field than economics, prognosticated an immediate burst of the Chinese bubble, with a mega tonnage of more than 100 times of our housing bubble. The argument was promptly defused. After all, China doesn’t borrow money. They lend it. Mostly to the U.S.
Then, commentator ra_pro rolled out the really big ordnance: “As I said many times previously: Demography is Chinese destiny as it is Japan’s.” If people would only stop prattling on about demographics, and would check their data first.
For added spice, factor in that the last Chinese census (it was taken in 2000 and never really finished) is considered as deeply flawed.
A huge chunk of children have not been reported at all, wrote Daniel M. Goodkind of the U.S. Census Bureau. A correct count of births is the lifeblood of demographic projections. If you miss more than a quarter of the children born in any given year, your projections will be off by 25 percent for generations to come.
Not to worry: If China has something in abundance, then it’s people.
The population bomb turning out as a dud, the sustainability squadron was launched: “There isn’t enough space, water, air or oil to sustain Chinese expansion of 20 million cars per year for a very long time,” quoth ra_pro.
Funny, when Americans bought 17m cars a year, where were the people who said “there isn’t enough space, water, air or oil to sustain expansion of 17 million cars per year for a very long time?” Actually, that number still is a wet dream in Detroit and DC. Our own Ed Niedermeyer pointed out in the New York Times: only if the “salad days of 2000” are bested, the tax payer will ever have a chance to get his or her money back from GM. Dream on.
Now, for the really scary part. There are more than 800 cars per thousand people in the U.S., more cars than people with drivers’ licenses. In China, there are only some 76 cars per thousand in China. In most developed countries, the number is between 500 and 600 per thousand.
“They’ll never get there,” I hear someone say. “The poor farmers will ride bicycles and oxcarts forever.”
Not so fast.
In Poland 20 years ago, a car was something for the powerful party elite. Today (actually, by end of 2008) there are 420 cars per thousand in Poland.
So for when will we grant China the same standard of living (or at least driving) as the people in Poland? Many Chinese would object at this point. I have to go to Poland on occasion – not that I’m looking forward to it – and last time I was there, the mayor of a good sized town complained that they didn’t have the money to light the Christmas tree on central square. The local KTV in any Chinese village is an orgy of neon all year round.
420 cars per thousand, in China that comes out to a total of 550m cars on the road, if the 1.3b population is correct. Or 630m cars, if the more likely 1.5b population is right. Let’s stick with 1.3b pop and 550m cars, in order to avoid even more anxiety.
How many cars do Chinese have to buy to get to the level of Poland in a reasonable amount of time? Let’s ignore popular wisdom that Chinese cars fall apart the minute you drive them off the lot, and let’s assume a really low scrapping rate. To make calculation easy, let’s call it 500m more cars needed.
(Don’t hyperventilate. That’s only twice the number of cars on the road than in the U.S. and the U.S. has only 1/5th or so of the population of China.)
So how much time do we give China to reach the same standard of living (or driving) as Poland in 2008? 10 years? (Many Chinese would loudly object.) That’s 50m cars per year. Yes, 50,000,000.
You think that’s impossible? Ok, then let’s give the Chinese 20 years to catch up with Poland. (Many Chinese would take to the streets at this point, something the Chinese government really would not appreciate.) That’s 25m cars per year.
Hint 1: Beijing, a city of 17m people, already has 4m cars. 240 cars per thousand. Poland had 265 cars per thousand in 2000. Shanghai has so many cars that the city has to limit growth by auctioning off license plates. People want to drive so badly, that they pay more for a plate in Shanghai than for some new cars. By the way: The population of Beijing and Shanghai, added together, roughly equals the population of Poland.
Hint 2: A gallon of gas of dubious quality costs $4.45 in Beijing. Using the ever so popular purchasing power conversion, it would feel more like $8. (The junior secretary, who gave me the 8 RMB/liter rate, makes $300 a month – I’m no slave driver, it’s the going rate.) And nevertheless, they are buying cars like there is no tomorrow. An unsaturated market does that.
But what about the gasoline? Ecogeek.com, a publication definitely beyond suspicion of promoting worldwide wastage, recently pointed out: “The president of China’s Innovation Center for Energy and Transportation has said that Chinese officials are drafting new mileage standards that would require an 18 percent improvement in fuel economy by 2015. New cars in China already average about 35.8 mpg and under the new rules, would be required to get 42.2 mpg by 2015. The new U.S. standards require an average mgp of 35.5 by 2016.”