China Takes a Different Road

The United States was built on cheap energy. Because gasoline was always cheap and plentiful, passenger cars became the vehicles of choice for Americans , SUVs were invented, cities sprawled and trains and mass transit never developed much beyond where they were in the early part of the 20th century.

When I started working in the auto industry in China, I wondered whether China would take the same road. Until recently, it wasn’t at all clear. Once incomes for increasingly larger parts of the country’s population began to rise, sales of passenger car sales also began to grow rapidly. Rather than riding on a hot and crowded bus or train, the thought of getting into your own air-conditioned car and being alone for the commute to work appealed to more and more Chinese, just like it always had for their American counterparts. From all appearances, it seemed that China’s love affair with the automobile was destined to be every bit as torrid as it has been in the United States.

Recently, though, there are signs that China is moving in a somewhat different direction — towards an economy that is more sustainable and not quite as dependent on oil. Rather than focusing on big, gas-guzzling vehicles, China is encouraging the purchase of smaller cars, and long-term, the country is betting on electric vehicles. In transportation generally, China’s leadership clearly wants trains to play as great a role in moving people and goods around the country as cars and planes.

Perhaps China would have moved in these directions anyway, but the global economic crisis and the big run-up in oil prices last year certainly have provided added impetus. As part of its own stimulus package, China put in place measures to encourage sales of smaller and more environmentally-friendly vehicles and to upgrade its rail system. It reduced consumption taxes on cars with 1.6 liter engines and smaller, provided subsidies for the purchase of more conventional vehicles by the country’s rural population, and dramatically stepped up investment in its railway infrastructure.

As a result, small cars and those in the lower part of the mid-sized category now account for over 70 percent of the passenger cars sold in China. Thanks to a preferential vehicle purchase tax cut from 10 percent to 5 percent a vehicle scrappage subsidy plan, and government subsidies for farmers, minibus sales are up 60 percent, and mini-truck sales are up 43 percent, in 2009. Many of the minibuses, mini-trucks and small passenger cars being sold in 2009 are replacing heavily polluting agricultural vehicles in the countryside.

For the long term, China is betting on electric cars. Wan Gang, a former Audi engineer in Germany who is now China’s minister of science and technology, portrayed the country’s electric car initiative as central to China’s international competitiveness, but said that there were environmental goals as well.

“We need to be sustainable in different sectors, particularly in the auto sector,” he said.

Ten billion yuan ($1.46 billion) is being provided to support automotive innovation, but the government is also giving incentives for electric vehicle purchases. Up to 60,000 yuan ($8,800) is now being provided for purchases by taxi fleets and local government agencies. Zhang Shaochun, a vice minister of finance, said that the government wants to let the market determine which electric vehicle models become popular. “The fiscal subsidy gives voting rights to the consumer,” he said.

With respect to railway investment, Wang Zhiguo, vice minister of railways, reported last week that annual average investment for China’s railway construction would exceed 700 billion yuan ($102 billion) for the next three years. Wang estimates that China will have 5,600 km of new railway lines in operation by the end of this year, with 2,500 km for passenger dedicated lines. That will increase China’s total operating length of railways to 86,000 km, surpassing Russia and making its railway system second only to the United States. China plans to expand its operating railway network to 110,000 km by 2012.

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