China's Car Market: Bust Or Boom?

by Bertel Schmitt

Published: March 12th, 2011

Many pronounced the end of China’s torrid growth of car sales after they slowed to just 4.57 percent in February. Xing Huang, chairman of state-owned auto parts maker China Auto Parts & Accessories Corp (CAPAC), thinks otherwise. He expects the Chinese auto market to grow at the same speed in 2011 as in the year before, says Reuters. That would be 32 percent.

CAPAC President Kangren Chen points at 150 million motorcycle owners in China who want to own cars. That actually is a good indicator. Once people have money, they change from 2 wheels to 4.

In the meantime, the car market in Beijing is in total disarray. As reported before, only 2,000 of the 20,000 license plates awarded in the lottery have been converted into car sales. The used car market has collapsed, because license plates are no transferable. A lot of people in Beijing expect the rules to change the soon the city can backpedal without a huge loss of face.

#BertelSchmitt #CarSales #China #Prediction

Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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HerrKaLeun on Mar 12, 2011
150 million motorcycle owners in China who want to own cars. That actually is a good indicator. Predicting a demand based on what people "want" is reading teal leaves at best. Go to any high school and you can determine a demand for 2,000 Porsche convertibles, however, the dealer maybe sells one at best. I know talking about peak oil is not popular here, but lets' talk about oil production capacity and ignore the fact how many years we could produce oil at that rate. how many more barrels per day would that mean if china kept growing? For years oil production hovered at 80+ million barrels a day (don't quote me on exact number) and demand is about the same. any tiny disurption in supply lead to sky high oil prices. now add the barrels that china/India etc. will require at that growth? And for the "spill baby spill" people (they call it drill, but spill is a collateral effect), even if all that expensive off-shore drilling would happen, that would only add a tiny fraction to world supply and production would only be worthwhile at high oil price. I didn't want to go to oil production, but went anyway, because when we talk about growth in china, most of the articles here only look at how many people could want or afford a car. But if oil gets more expensive (I'm not saying running out, because with expensive technology we can squeeze more out), China can't subsidize fuel anymore, hence fewer Chinese could afford to fill a car over a scooter. and with higher oil prices the world economy (as it is now dependent on cheap fuel) would suffer, which would reduce china's wealth. I know this is a car site, but when making economic predictions for cars, one can't ignore the real world outside cars. I personally believe demand of cars in china will level out sooner than most here want to predict.

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- Ronnie Schreiber on Mar 12, 2011
  
  Yes, you're absolutely right. By no means should the United States attempt to develop our own energy resources. The possibility of a spill is far more important than the probability of not having enough energy to run our society.
  
  In fact, your position is so well thought out that you've convinced me. Not only shouldn't we be drilling for more oil, we should be passing legislation that prohibits burning any fossil fuels for heat. Why drill when you can just wear another sweater? Who needs central heat? While we're at it, indoor plumbing is a waste too. Imagine all that energy used to pump fresh water to people's homes. Think of the energy savings if we used latrines and outhouses instead. If everyone used an outhouse, think of all the chemical fertilizers we wouldn't have to use.
  
  We should leave all that natural gas and coal in the ground and certainly never try to drill offshore. We shouldn't spend any resources on nuclear energy. We might end up sitting in the cold and dark but we'll be secure in our moral rectitude.
  
  The sad part of this is that when you consider how much coal, natural gas and oil shale that the US has, we could be a leading producer of energy besides being a leading consumer of it.
  
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- Rpn453 on Mar 13, 2011
  
  Most of the energy our society uses is a waste anyway. Leave domestic reserves alone and let others deplete theirs for a little bit of paper money. You'll be glad we did when it becomes as valuable as we should have long ago realized it is.
  
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- HerrKaLeun on Mar 13, 2011
  
  Ronnie: I didn't say whether we should or should not do off-shore drilling. I stated that it causes spills and has marginal impact on global oil supply. Both is a fact and not an opinion. I also stated that it is expensive (especially if one would drill safely without spilling), even if taxpayers pay for the environmental damage (and impact on tourism and fishing industry also bothers Republicans).
  
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- MikeAR on Mar 13, 2011
  
  You do realize that your marginal impact theory is shallow and thoughtless, don't you? In your hurry to make a political point, you didn't do much thinking. Think about it for a while and you will see just how silly your arguement is. Any one well or field will make only a marginal impact on oil supplies for the whole world but developing our fields will make eventually a huge impact on our oil production and prices. If you hate oil so much you lead the way and quit using it, then you will have the right to complain and attempt to make cheap political points.
  
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- HerrKaLeun on Mar 13, 2011
  
  MikeAR: did you read what I wrote? I did not say we should or should not do a certain thing. developing our fields will make eventually a huge impact on our oil production and prices So you really think if we just abandon all environmental concerns (and ignore cost of oil spills), we'll be back at $ 10 per barrel in no time? I really recommend an economy and a geology class. It is the oil industry's goal to keep oil prices high (just not too high to cripple demand), to make good money on it. and I'm not blaming them in particular, since every industry tries to make a profit. If oil price drops, they will reduce production or invest less in drilling. It is not their mission is to supply you with cheap fuel. This was an article about China, they don't give a rat's ass on if a tiny fraction of oil used in the US comes from the US or not. They are concerned with global supply. I do realize we are not talking about single wells, but multiple ones will add up. However, the time line to explore and drill doesn't allow a huge impact on today's market prices. In addition, once any new sources come online, others will have dried up. In addition, the operation always will be hugely expensive (and even conservative oil barons will attest to that), not even accounting environmental damages. I'm not making a political point when pointing out shortcomings of certain technologies. Even Fox News covered the recent oil spill. Are you ignoring them too or do you call them "greenies" because of that? You also can site the oil industry on how much % of global production that is. Not much. I think even Glenn Beck could draw a connection between oil spill and drilling on his chalk board (and would, if he could blame Obama and an imam for it)
  
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Bertel Schmitt on Mar 12, 2011

It's always very amusing to see that people assume the Chinese will stop buying cars because we might run out of oil. At the same time, this argument never comes up when we cheer U,S. auto sales on. It also doesn't bother us that the U.S. consumes more than twice the amount of oil than China,, and that with a quarter of the population. On a per capita basis, China doesn't even enter the Top 20.

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- HerrKaLeun on Mar 12, 2011
  
  i specifically didn't say running out of oil, but it being more expensive. and china and many other developing countries currently subsidizes fuel. I'd like to see car sales in an unsubsidized market. the income per capita is higher in the US (and we still complain about $ 3.5 / gallon), so a higher gas prices has more an impact on people making $ 20 a day (or whatever the average China salary is) I also didn't say they stop buying cars entirely, I said demand will level out, which sooner or later will get us much much smaller growth rates. Yes, US currently uses twice the oil, but at stagnant miles traveled and number of cars, this will mean china soon will use similar or even higher amounts of oil. Unless all the cars they buy at such high growth rate just are parked all day. No matter what political spectrum you are in, there is a real world out there with a real oil market.
  
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Tosh on Mar 12, 2011

What happens in China and India with their 3 billion people dictates the future everywhere in the world. It's just going to take one bee in the bonnet of a higher-up Chinese politician to immediately begin transferring all ground transportation to all-electric. The cause could be high petroleum prices; higher demand for air travel (which needs hydrocarbon fuel); embarrassment that a quarter of all deaths are air pollution-related; understanding what is the practical meaning of "thermal bottleneck" and realizing that it is ultimately futile to run vehicles based on controlled explosions of fuel; showing up the USA (as in showing the West how the future should be done); or a combination....

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Lorenzo on Mar 13, 2011

While China has a degree of free enterprise, it still has massive government participation in the economy, and a choke hold on the financials that make any economy run. Right now, the government is trying to tamp down inflation concerns, and it also has a goal of shaking out the auto industry into fewer, larger automakers. Suppressing car demand helps achieve both. Government efforts that produce one month, or two, of suppressd auto sales aren't going to be that effective. The government may be right that once the anti-inflation measures are relaxed, car sales will rebound, but six months or more of tighter financial controls to fight inflation are going to have an effect on the year's totals. The Chinese have more tools than the west to manipulate their economy, but they also have less experience. Western governments with much more experience "fine tuning" their economies still manage to make a hash of things more often than not. The Chinese government would do well to realize that the law of unintended consequences applies to them too.

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