Analysis: The outlook for China car production, consumption

The motorization of China is becoming one of the main driving forces in the modernization of the country. China's domestic car industry, however, is still lagging some way behind when it comes to technology. At the request of the BMW Group, an international group of experts has now examined the opportunities and risks for the car industry in China. The core question to be looked at was whether car hydrogen technology offers China a decisive opportunity to catch up with the leading car manufacturing countries in just a few years.

While in the United States there are approximately 1.2 vehicles and in Germany 1.7 vehicles for every inhabitant, car ownership in the People's Republic of China is still very much in its infancy. In 2004, the country's 1.3 billion inhabitants possessed a total of 30 million vehicles, of which 11 million were trucks. China's market potential is, therefore, proving an irresistible draw for the international car industry, with more than 160 million cars needing to be sold simply to reach the average worldwide rate of motorization. At the same time, China itself considers motorization to be one of the decisive steps in the modernization of the country, with the establishment of its own internationally competitive car industry being one of the key factors in its future economic development. In terms of technology, however, China's car industry still has much catching-up work to do. The opportunities are enormous, however, and the time opportune.

This is because the international car industry, too, is facing a time of upheaval. For more than 100 years, cars have been driven by oil-based fuels, and even if there is disagreement concerning when exactly oil reserves will start to decline, it has long been clear that fossil fuels are set to become much scarcer and much more expensive during the next few decades. There is, therefore, a need to find replacement technologies, and up until now hydrogen technology has seemed by far the most promising. This could enable China to simply skip over 20th-century automotive technology and within a few decades establish itself as the leader of the global car industry. This is because the technology is relatively new, and China, therefore, far less behind than in the case of conventional car manufacturing technology.

Expert opinion, however, varies widely when it comes to the likelihood of such an "automotive quantum leap" taking place. Because of this, the BMW Group commissioned an international group of experts to examine the outlook for the motorization of China in view of the upcoming technological revolution in the car industry. Taking part in the study on the German side were the Berlin Scientific Center for Social Research and the Center for Solar Energy and Hydrogen Research in Ulm, and on the Chinese side, the Shanghai Academy of Social Science, Tongji University and the Shanghai Institute of Social Development. Numerous other experts in China, Europe and the United States were also interviewed.

An automotive quantum leap for China?
In order to determine the extent to which China has the right qualifications to be a leader in the development of automobile concepts in the 21st century, a wide interdisciplinary approach was needed. For example, the likelihood of such a breakthrough depends among other things on cultural factors, socio-economic development, the domestic car market, advances in hydrogen technology and existing crude oil resources. The economic reforms and opening-up policy embarked upon at the end of 1978 by Deng Xiaoping began to bear fruit at the beginning of the 1980s and have since then been systematically widened. This has led to rapid and constant economic growth that has continuously remained above 10 percent and in some years far exceeded that figure. If one looks at the development of inflation, the current account balance, the exchange rate and currency reserves during the same period it becomes clear that Chinese economic growth has not only been strong and sustained during the last 25 years but also extraordinarily robust.

This "hyper-growth" has also, however, led to a whole range of dangerous social imbalances that will require changes in the current economic and social policies if they are to be addressed. Of particular note is the enormous disparity between the development of rural and urban areas and between different parts of the country, with the hyper-growth concentrated primarily in four (out of the 12) regions of the country. The gap between economic and social development is also becoming increasingly wider, with unemployment growing and a long-term danger of what is termed "jobless growth". The ecological problems of the country are worsening, and the costs of combating environmental pollution are set to increase significantly during the next few years. China already has the world's worst urban pollution problem. Finally, there is also an ever-growing imbalance between the domestic economy and foreign trade. The successes of the export industry have up until now been concentrated in just a few sectors and are therefore highly susceptible to external shocks. At the same time the country's dependence on raw material imports has increased dramatically.

From 'catch-up' to 'overtaking' modernization
The party leadership is fully aware of the dangers referred to above and is trying to counter them in time and at the same time lower the pace of economic growth. The aim now is new economic and social policies that will result in quantitive growth being slowly replaced by qualitative growth. If everything goes to plan, the current hyper-growth should change within the next 15 years to "balanced growth", with a considerably lower annual growth rate (of around 7 percent). This should provide the country's research and technology sectors with the breathing space that they need to continue to develop and ultimately become a significant driving force for the Chinese economy.

To achieve this aim, the country is deploying a dual strategy: By 2020, it aims to be level-pegging with the U.S., Europe and Japan in economic and technological terms, and from 2020 onward to gradually overtake the previously leading industrial nations and become the global leader itself. The quantum leap potential needed to secure such market leadership, however, requires growth to be moderate, as only then can continuity and a stable social and institutional environment be ensured. "Catch-up" modernization aims by 2020 to have created the conditions needed for the subsequent "overtaking modernization". This means with respect to motorization that China by 2020 should have reached the same level of development as other producers when it comes to the manufacture and sale of fossil-fuel technology. At the same time, the country will be working on post-fossil automotive technologies in the hope that use of these new technologies will allow it to surpass all the leading industrial nations by 2050.

What are the chances of success of such a dual strategy? First of all they depend on the extent to which "balanced growth" can be achieved in the conventional fossil-fuel-based car industry, i.e. the prospects for conventional automotive technology in China need to be first of all examined; and secondly they depend on whether China is capable of bundling existing resources in such a way as to achieve a simultaneous breakthrough in alternative drive technologies. This will require not only concentrating research resources but also developing an appropriate infrastructure and creating suitable social and economic conditions.