Ruth Brandon: When everyone in China owns a car - be afraid

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Indy Lifestyle Online

One of the odder aspects of the current debate about oil is that the upsurge in China's demand for our black lifeblood is described as "unexpected". It makes you wonder about energy analysts. Everyone else knows what happens as soon as people become rich enough to afford a car (roughly, when their annual earnings equal its price). They buy one, stupid! The Chinese certainly know this. Why else have they spent the past decade constructing motorways?

One of the odder aspects of the current debate about oil is that the upsurge in China's demand for our black lifeblood is described as "unexpected". It makes you wonder about energy analysts. Everyone else knows what happens as soon as people become rich enough to afford a car (roughly, when their annual earnings equal its price). They buy one, stupid! The Chinese certainly know this. Why else have they spent the past decade constructing motorways?

There are excellent reasons for China's rulers to encourage this demand. Mass motoring's effect on economies has been demonstrated repeatedly ever since Henry Ford. Cars need steel, factories, components, rubber, glass, roads, dealers; they allow tourism, and the leisure industries that support it; they give rise to wide-flung suburbs, new ways of shopping; they transform every aspect of life.

Hitler realised this in the 1930s: the result was the Volkswagen, the backbone of Germany's post-war recovery. The growth of Britain's mass car market in the 1950s and 1960s led an economic boom; the same thing happened in Japan during the 1970s and south-east Asia during the 1980s. Growing prosperity in China and India will be marked and led by popular motoring.

So all-encompassing is the auto industry, and so buoyant as it races to meet the first-time-buyer market, that whole regions devote themselves to its needs. And then, suddenly, everyone has bought a car, and demand falls. This doesn't mean it disappears: cars don't last forever, and people replace them, but not always with new ones. The result, inevitably, is overcapacity.

China is still a very, very long way from that -- in some respects, almost 100 years away. When its private car policy was launched in 2001, the scenario was reminiscent of pre-Model T Europe and America, with dozens of eager, indigenous auto companies turning out a few dozen models each. This was hopeless. The government therefore invited Western carmakers to set up joint ventures with Chinese companies. Its auto sales are now growing at 20 per cent a year and represent 5 per cent of its manufacturing base.

Western car firms are rushing to invest there. But this new market, though huge, is not lucrative: middle-class Chinese still earn, on average, less than $3,000 (£1,700) a year. So while the rest of the world moves on to ever cleaner and more energy-efficient automobiles, firms like GM, Ford and VW see China as a home for old models, and a way to extend the life of otherwise obsolete engineering processes.

This is not entirely down to cynicism. China is more concerned with instant and affordable supply than the latest thing. Smog and pollution are a price worth paying for swift modernisation. In any case, its gasoline and diesel are of such low quality they would ruin more advanced engines.

For the rest of the world, however, this represents a terrifying prospect, economically and climatically. Just as world oil production approaches its peak, a source of bottomless new demand hits the markets, taking no account of conserving scarce resources or the effect of emissions on climate.

Will we ever see China reaching stage two of the auto revolution -- the stage where first-time demand is saturated and the industry begins to roll back? Sheer numbers indicate that it will be a long time coming. But some may feel that other imperatives will be dominating the market long before that moment.

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