By on July 18, 2010

If you are hoping that the Chinese bubble will burst in no time, putting China back on bicycles, then this story is not for you. If you are worried about little people in Asia using up all the precious hydrocarbons we use for our bigger cars, then we must warn you that reading further could be hazardous to your circulatory system. You have been warned.

The golden period of China’s auto industry will likely last 20 more years. Yearly demand for passenger vehicles in China will reach over 35.2 million units in 2030. These are the conclusions of a report co-issued by the State Council, the Society of Automotive Engineers and Volkswagen China. None of them are known for their irrational exuberance.

“The number of passenger vehicles in use in China may rise to 200 million in 2020, which means that each Chinese person may own one-seventh of a vehicle on average by then, a figure barely reaching the current world average level,” said Zhang Xiaoyu, executive vice-president of the China Machinery Industry Federation. “There is still a long way to go to achieve the moderate level of developed countries.”

From what I privately hear is that they are all lowballing. Long before 2030, the annual demand in China will be approximately 50 million cars per year. Where does this number come from? From a golden rule in emerging markets that never fails: Use the current demand for motorcycles, tricycles etc. Once people have the money, they will buy cars instead.

Jack Perkowski, China visionary and author of the book Managing the Dragon,  came to the same conclusion many months ago: “China’s auto industry will continue to show rapid rates of growth for many years because China’s total demand for transportation is already much bigger than most people think. I would argue that China’s transportation industry is actually 50 million vehicles per year.”

You think the poor exploited Chinese peasants will never ever be able to afford a car? In 1980, more than 50 percent of China lived below the poverty line. In 2000, it was less than 10 percent. Now, the percentage of Chinese people living in poverty is estimated at 2.8. Source? The CIA Factbook. In the U.S.A.? 12 percent. Same source.

200m cars on the road by 2020 would be 75 cars per thousand people. In the US, we have 800 cars per thousand. The G7 average is around 600. Even Poland now has close to 500 cars per thousand. Even at a rate of 50m cars per year, and assuming no scrapping, China would need 15 years to reach the level of Poland. When I look around here, the country definitely looks way more prosperous than Poland.

And just to put it into perspective: Last year, the worldwide output of passenger vehicles in all countries was 47 million.

Anyway, the lowballing report predicts that China’s passenger car sales will reach nearly 15 million units in 2010 and approximately 22.6 million units in 2015. The yearly demand for passenger cars in China is estimated to reach more than 25.8 million units in 2020, more than 29.2 million units in 2025 and more than 35.2 million units in 2030. Again, the estimates are conservative. Due to the byzantine way China defines “passenger cars,” the total count will be much higher. Let’s just say this: If GM China would have to rely on passenger cars alone, more than 1 million Wuling trucks and vans would be missing in their statistics.

Feng Fei, chief editor of the report and director of the Industrial Economy Research Department under the State Council, predicts that “thanks to the mature hybrid power technology, China will likely produce 100,000 hybrid vehicles, 30,000 pure electric vehicles, and 10,000 fuel cell-powered vehicles in 2010.”

According to the report,  sales of the alternative energy vehicles will reach 500,000, 150,000, and 15,000, respectively, in 2013, and 1 million, 300,000, and 20,000, respectively, in 2015.

What could hold possibly hold up the development? China is a bit behind on electronics. Most of the designs come from abroad. Fu Yuwu, standing director-general of the Society of Automotive Engineers, exhorted the industry to attach more importance to automotive electronics research and development, says People’s Daily.

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20 Comments on “The 50 Million Car Market: China’s Boom Will Last More Than 20 Years, Experts Predict...”


  • avatar
    tparkit

    What could possibly hold up the development? (a) The collapse of China’s overstretched banking system, and (b) political unrest within China.

  • avatar
    ihatetrees

    Excellent post. Although citing stats on poverty rates is somewhat misleading. Poverty rates are a political footballs – and often don’t count transfer payments/subsidies as income (in the US). The poor in China are skinny, unlike the US poor.

    Increased oil demand caused by more Chinese (and Indian) car ownership does raise interesting political questions. Is the gasoline price subsidized in China (like India)? The price needs to float – consumers need price info about the total driving costs.

    All in all, a great reason to go long with oil company stocks (even BP – given a higher risk tolerance).

    • 0 avatar

      Gasoline is not subsidized in China. The price is set by the government, because the refineries are government-owned. Interestingly, when the price of crude came down, the price of gasoline in China did not.

    • 0 avatar
      Mike S.

      “Although citing stats on poverty rates is somewhat misleading. Poverty rates are a political footballs – and often don’t count transfer payments/subsidies as income (in the US). The poor in China are skinny, unlike the US poor.”

      More than that, on the very same page that gives China’s poverty rate, we have

      “Definitions of poverty vary considerably among nations. For example, rich nations generally employ more generous standards of poverty than poor nations.”

      China’s GDP per capita is around $6600/year by purchasing power parity (A little more than half that in terms of how many dollars their yuan can purchase, but PPP gives a better sense of standard of living.) That puts the mean family of three at $19,800/year, barely $1500 above the US poverty line.

      Not that I disagree with the general thrust of the article. I’m skeptical of any long-term projections. (As the man said, it’s hard to make predictions, especially about the future.) But I think it’s more likely than not that China will follow the path forged by other industrializing countries in the region, which spells a *lot* of cars (and other consumer goods) getting sold there in the next years and decades. But there’s still a long way to go before a the average citizen of China (even in a boom year) is within shouting distance, economically, of the average American (even in a bad recession).

  • avatar
    Lorenzo

    Fuel consumption doesn’t have to be a bottleneck. I doubt the Chinese will turn into Americans, hopping in the car to drive two blocks for a pack of cigarettes. China seems to be following the euro model of also building a public transit system, and will probably follow the Euro example of taxing fuel to subsidize it, and eventually tax larger displacement ICE’s too.

    When the traffic jams Bertel has shown in pictures extend beyond the big cities, it will serve to induce Chinese to use a mix of transit and personal transportation. Seeing those photos of a transit bus or two (or ten) also stuck in traffic leads me to believe the Chinese will take a good look at Sao Paulo’s dedicated busways. Between fuel taxes, displacement taxes and cheap, on-time transit, the Chinese will probably choose to make more judicious use of their cars than americans do.

  • avatar
    blowfish

    The density on the road will go up at exponential speed, when cars grow much faster than u have open road, only answer is grid lock, giant slow moving parking lot.
    Owning a car can be a status symbol on every corner of the world, in the end u better off to park her & take Peoples’ Express, cheaper, faster.

    Is not fun when stuck in traffic, worse is when someone banged up it can tied up the road ways for hours.

    I suppose next move for folks in Middle Kingdom is to own Helicopteros.

  • avatar
    reclusive_in_nature

    Sucks to be them.

  • avatar
    Adamatari

    Assuming technology keeps up enough and oil costs don’t rise tremendously, then China will eventually have absolute ridiculous numbers of cars in the near future. These trends are obvious. However, both of those two conditions are potential spoilers – if oil costs rise to the point it’s too expensive to use a car unless you have to, or if hybrid and electric cars aren’t rolled out fast enough and in high enough numbers, then there is the risk of hitting the wall due to oil supply issues.

    Of course, I say that, because I think we’re near the peak in oil production. China’s government is hedging it’s bets well and using more efficient coal power plants as well as growing it’s alternative sector, so it may manage to dodge energy issues. But they know oil is key, so they’ve been buying into every oil development they can find lately (Brazil’s deepwater oil, Sudanese oil, etc).

    Ultimately the future is unpredictable. We’ll probably all be made fools of by the actual reality 20 years hence.

  • avatar

    With five times our population, China is not going to dodge energy issues. There was a front page story in the NYT earlier this month, but sorry I can’t remember the date.

  • avatar
    mythicalprogrammer

    I dunno about that. Either they revalue their yuan/remmei or get a bubble pop.

    Even if it last for say 20 years, I doubt they actually plan out thoughtfully how to build these freeways. So they’ll have the issues of bumper to bumper cars like California.

  • avatar
    ravenchris

    China is pulling ahead because she does not suffer from a congress with its head up its ass.
    Protect yourself and the future, do not reelect incumbents.

  • avatar
    folkdancer

    I love predictions. They look so funny when we look back

    50 million cars/year in China in 20 years?!

    I think it is much more likely that global warming will stop the Atlantic current within the next 20 years, the earth will respond with another ice age, and everything above North Carolina, Spain, and Hong Kong will be under a few hundred meters of ice.

    • 0 avatar

      In Summer of 2009, I predicted that China would end the year as the world’s largest auto market. I received similar responses. You still think that was funny?

    • 0 avatar
      don1967

      BS, you bring a lot of wisdom to the automotive forum, and your 2009 prediction was right on the money. But successful short-term calls rarely project into accurate 20-year forecasts, as any dot-com speculator will attest. Explosive trends have a way of, well, exploding when we least expect it.

      In China’s case, the elephant in the room is how 1.3 billion people can enjoy a perpetually rising standard of living when the secret to their success is toiling away for long hours at dirt-cheap wages. Socialist math just doesn’t add up.

  • avatar
    BhagirathKumar

    Hi folkdancer I think China should manufacture cars that will run only by joy sticks not by steering then the driving will be easier. Do you think the same?. V. Bhagirath Kumar, Hyderabad, India.

  • avatar
    Stingray

    I realised some time ago that China is the place to be for an automotive engineer. Your prediction only reinforces that.

    Local manufacturers will be so big they’ll start sweeping the current established ones, or swallow many of them completely.

    The next years are sure to be very interesting.

  • avatar
    blowfish

    Hi folkdancer I think China should manufacture cars that will run only by joy sticks not by steering then the driving will be easier. Do you think the same?. V. Bhagirath Kumar, Hyderabad, India.

    If u grew up on computer games u probably have unfair advantage.
    The rest of us who grew up with real steering wheel would be a bit harder.

    Some of us would remember those Power steering from 70s , they were totally vague and have no road feel either.

  • avatar
    george70steven

    The price needs to float – consumers need price info about the total driving costs. China’s government is hedging it’s bets well and using more efficient coal power plants as well as growing it’s alternative sector, so it may manage to dodge energy issues.
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