Cars becoming 'Irresistible' in China

By ED LANFRANCO, UPI Business Correspondent  |  Jan. 22, 2004 at 5:40 PM
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BEIJING, Jan. 22 (UPI) -- Light traffic in Beijing Thursday marked the first day of Chinese New Year with drivers either staying home for the holiday or traveling outside the city -- an unusual calm in a city which is becoming increasingly busy with traffic as more cars compete with the ever ubiquitous bikes for space.

Sales of automobiles in China rose 34.2 percent in 2003 with 4.39 million vehicles purchased. More than 365,000 cars were sold each month last year. The Chinese produced 4.44 million cars, 35.2 percent more than last year, according to numbers released today in the State media.

China's car industry posted net increases over 1.1 million in both autos produced and sold last year. The country passed Germany to become the world's third largest automobile producer after the United States and Japan.

The Development Research Center of the State Council (the country's cabinet) was quoted on Jan. 20 in the China Automobile News a saying by 2020 there will be more than 156 million cars on the road nationwide.

With all this driving along and other growing areas of industry has come a jump in energy usage.

The International Energy Agency (IEA) said Wednesday that China had overtaken Japan to become the world's second largest consumer of crude oil after the U.S. in 2003.

The IEA estimates China consumed 5.46 million barrels per day last year, slightly more than the 5.43 million barrels used daily in Japan. The agency said the country is the main driver of global oil demand growth, spurred by increased power generation and greater car sales.

Sedans were the hottest selling segment according to auto-industry watchers as more individuals are finding the means to acquire private vehicles.

Year on year sales were up over 75 percent with 1.97 million passenger models purchased. A record setting two million sedans were built in 2003. Production was up over 83 percent, a net increase of more than 910,000 units.

Analysts believe the auto industry will be entering a two-year lull period of slower sales growth in 2004 as buyers wait for policies to take effect which will lower car prices. The Chinese are obliged under World Trade Organization rules to remove vehicle import quotas and lower import duties by the end of 2005.

The Web site for the China Association of Automobile Manufacturers estimates domestic car output will climb between 26-30 percent in 2004 hitting 2.5 to 2.62 million units for the year.

Industry watchers fear overcapacity as local and foreign carmakers step up production. Analysts note increased competition among manufacturers is resulting in thinner profit margins as prices are cut to attract customers.

Price declines are expected to slow sales growth in the auto sector. Shanghai Automotive Industry, which has ventures General Motors and Volkswagen, said recently it anticipates 2004 sales to rise by just 1.6 percent to 190 billion yuan ($23 billion), from 187 billion yuan in 2003.

A week ago the country's central bank said average car prices fell 7.7 percent in December compared with the same period in 2002. Last month car sales more than doubled to a monthly record of 227,300 units, while total vehicle sales in the month rose over 58 percent to 456,000 units.

Foreign automakers are hoping easier access to financing will encourage more Chinese customers to buy vehicles now rather than wait for lower prices in two years.

In 2004 three foreign manufacturers will have an opportunity to spur sales by offering financing. In December the Chinese government awarded General Motors, Toyota Motor and Volkswagen licenses permitting them to finance car loans to mainland consumers.

On Tuesday Commissioner of the National Bureau of Statistics Li Deshui told United Press International, "passing the benchmark of $1,100 per capita shows the economy is in a new period of development."

Li listed automobiles as one of the sectors where growth in consumer demand was "irresistible."

The country's laudable economic growth is not matched by advances in its car culture with driving safety still in somewhat embryonic state. China's first law on traffic safety was approved by the National People's Congress in late October 2003 and takes effect on May 1, 2004.

Millions of inexperienced drivers with new vehicles on widened streets and newly built roads mean China is on a collision course unless it can get traffic management, safety and education under control.

Figures from China's Ministry of Public Security say there were over 96 million motor vehicles, including 24 million cars, on the road at the end of 2003.

China has more than 100 million vehicle drivers. Slightly more than half, 54 million, have car licenses. The country has led the world in the number of accidents since the late 1980s when the figure first topped the 50,000 mark.

In 2003, traffic administration departments at all levels dealt with over 667,500 road accidents resulting in more 104,000 deaths and 494,000 injured. It was considered a good year.

A spokesman from the Public Security Bureau (PSB) said the number of accidents dropped 13.7 percent from 2002. There were 4.6 percent fewer fatalities and 12.1 percent less road related injuries reported.

Li Deshui from the National Bureau of Statistics said Tuesday China had added 4,600 kilometers of expressways in 2003. The country now has over 30,000 km, (18,750 miles) second only to the U.S. in the size of its road network. "But all ours are new and of high quality," Li noted.

Despite the quality of the infrastructure, more road accidents took place on highways than on urban streets according to the PSB, with large numbers of the casualties being rural residents, migrant workers and self-employed laborers.

Most accidents were caused by traffic violations by motor vehicle drivers although the number of incidents involving mechanical failure and poor maintenance increased in 2003.

The QBPC Automotive Group within the Quality Brands Protection Committee represents 81 international trademark owners including GM, Volkswagen, DamlierChrysler and parts maker Bosch working together with the Chinese government to fight counterfeiting.

Besides raising consumer awareness of product piracy, the group tracks down organized gangs responsible for manufacturing bogus components. Then it transfers serious cases to the PSB seeking a criminal conviction of manufacturers and distributors in court.

"China's problems protecting intellectual property rights in the automotive industry are extensive," IPR expert Joseph Simone, a partner with Baker & McKenzie in Hong Kong told UPI earlier this month.

Simone says the violations range from auto design to manufacturing fake parts. "Some people think IPR is a victimless crime, when in fact consumers can be put in grave danger," he noted.

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