14 October 2003 10:53
Overproduction should be examined
Author: There are over a hundred automakers in China today. Production lines of passenger cars have been built up in
23 provinces and municipalities with an annual output of over 2.5 million units. Yet, this production capacity is soon
going to be larger than the home market can handle. A recent Merrill Lynch study shows while China's car output
capacity is expected to reach 4.71 million units in 2005, sales will be only 3.46 million, or 74 percent of production.
JP Morgan predicts that by 2005, supply will exceed demand by 22 percent. Overcapacity usually means saturation of the
market. But is this the real situation in regard to China's passenger car consumption? Here is data showing the
number of passenger cars owned by every hundred household in different countries: 183 for Australia, 180 for the United
States, 173 for Germany, 145 for Italy, 113 for France, 106 for Britain, 100 for Japan, 51 for South Korea and 39 for
Russia. In Beijing, where there are more passenger cars than in any other city in China, the number only hit 19 this
year. It seems that the market potential for the consumption of passenger cars in China is huge. But what has created
the present situation? There are a number of problems in the consumption environment that have limited the development
of demand for passenger cars. Inferior urban planning has created poor traffic conditions in many Chinese cities. The
proportion of roads in urban areas is normally 20 percent by international standards and China has set it at 15 percent.
But aside from Beijing, where the proportion exceeds 10 percent, most Chinese cities have less than that figure. Many
cities have no geographical divisions based on functions and their road designs are not rational. Systems such as the
introduction of more satellite cities, to create better conditions to expand consumption, should be developed. A country
that creates passenger car consumption must also invest in public transport. Yet, public transport is only used in 30
percent of all trips taken in China. Public transport, especially subways and light rail, should be developed in
downtown areas while passenger cars should play a more important role outside city centers. And parking should become a
major part of the infrastructure being built. The attention being paid to parking falls far behind the development of
conditions to allow further auto consumption. The ratio of parking places to the number of vehicles is far below the
international level in big cities like Beijing, Shanghai and Guangzhou. Bad management and choices for parking locations
have made the dilemma worse. In addition, China is short of oil and gas resources. Fuel supplies are also factors that
will limit the consumption of passenger cars in this country. At present, automobiles consume about 85 percent of
China's total yield of petrol and 20 percent of its diesel oil. China became a major producer of oil in 1985 when
its annual output reached 120 million tons. But it became a big oil consumer too, with its rapid economic growth. Over
the past decade, China's oil consumption has accelerated by 5.77 percent per annum. But the exploration of oil
resources has not improved significantly. The annual oil output only increased by 1.67 percent over the same period. And
experts predict the situation will not change much in the next eight to 10 years and the gap between supply and demand
will exceed 100 million tons in 2010. Also, car purchase loans and related insurance premiums are facing predicaments.
Since domestic insurance companies started car purchase loan insurance in 1998, there has been a rapid growth in the car
purchase credit business and insurance business. Yet, the increasing number of car loan defaults in recent years has
exposed the high risks behind the prosperous market. Nearly all major domestic insurance firms have announced over the
past few months suspensions in the sales of car loan insurance policies. Worryingly, the rapid growth of automobile
consumption has led to increased pollution. Many cities now limit the number of private cars. In many developed
countries, passenger cars are used on the weekend and outside city areas while public transport is the major means for
commuting to and from work. However, the daily use ratio of cars is 80 percent in Beijing, which is four times more than
in Tokyo. This has contributed to the poor traffic in the city, which is also a main reason hindering the growth of car
consumption. The development of passenger car consumption should be co-ordinated with the improvements in roads, public
transport, environment protection and many other factors.
[AIW [Asia Africa Intelligence Wire]] |
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