China's love affair with the car grows but can it be next Japan?

Vast majority of cars built in China are unlikely to appeal to Western tastes
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The Independent Online

Every day, 1,000 new cars take to the already-clogged roads of the Chinese capital. It is one reason why Chinese car production and sales are forecast to rise by about 20 per cent this year to nearly 4 million units. It is also one of the reasons why a haze of pollution clings permanently to the Beijing skyline and why the rush-hour in this part of the world seems to last 24 hours a day.

China's love affair with the automobile has turned the country into a latter-day Klondike for the West's car manufacturers. At the last count, China had 48 different car producers and some 120 manufacturing plants. Most of those plants are joint ventures run by local companies in partnership with foreign manufacturers - the Chinese government limits overseas ownership to 50 per cent unless the cars are produced exclusively for export.

Many of the world's biggest car companies, including General Motors, Toyota, Volkswagen, BMW and Ford, already have a toehold in China and many more, including Renault, are negotiating their way in. The Chinese have prevented foreign manufacturers from flooding this market of 1.4 billion people with cars produced overseas by imposing a 25 per cent tax on imported models.

The phenomenal growth of the Chinese motor industry means that by 2010 total vehicle production, including trucks, is forecast to reach 10 million. By 2015, China could have overtaken the US as the world's biggest car producer. And nearly all those cars will be destined for the domestic market, which now contains an estimated 150 million citizens deemed to be middle class.

In some parts of China, the backlash has already begun before the transformation has even taken place. In Beijing itself, cars with engines smaller than 1 litre are not allowed on the roads surrounding Tiananmen Square. In other parts of the country, city authorities are considering congestion charging to limit car use.

Jia Xinguang, the chief analyst at China's National Automotive Industry Consulting and Development Group, says that in some provinces, local authorities are actively refusing to foster the development of the private car.

Back at Mr Chun's showroom near the centre of Beijing, such heresy seems hard to comprehend as he flicks through his list of buyers - civil servants, university lecturers, managers in small and medium-sized enterprises - and proudly shows visitors around the gleaming repair shop and customer reception centre. Some 70 per cent of his clients are first-time buyers trading up straight from a bicycle to a car. They take their driving test on a private circuit and are then free to do battle on Beijing's eight-lane urban motorways - one reason why the death rate on China's roads is 100,000 a year compared with 3,500 in the UK, even though the number of cars in circulation is roughly the same in the two countries.

The typical salary of one of his customers is about 60,000 yuan (£4,300) a year, while the 206 and 307 models he stocks cost two or three times that amount. And yet, fewer than one in 10 of the cars he sells is bought with the help of a financing deal. As Jean-Yves Dossal, general manager of PSA's joint venture company Dongfeng Peugeot, explains: "There is a very strong savings culture in China. Often, someone will buy a car with the help of several members of their family, borrowing money at low interest rates."

What could put a dampener on the explosive growth of the Chinese car industry? M. Dossal says: "I don't think tax on car sales, even though it is going up, will be the number one factor. But a major influence could be the price of fuel. That could lead to a slowdown in the market but we remain confident in continued growth."

Whether the Chinese will ever come to dominate the car market, in the way they threaten to in other industries, is a moot point. Unlike the Japanese, for instance, who will soon have the world's biggest car maker in Toyota, the Chinese do not look like spawning powerful, home-grown brands. The only two independent domestic manufacturers trying their hand at selling cars outside China are Geely and Chery, which received what can politely be described as mixed reviews at last year's Geneva and Frankfurt motor shows. Mr Xinguang says: "We sell on price, not brand image, and we do not have the same safety monitoring systems. The Chinese prefer to be partners, not competitors, so I don't think the foreign car brands need to start worrying for the present."

And the truth is that the vast majority of cars built in China, at least at present, are uniformly ugly and unlikely to appeal to Western tastes. Rather, the future may lie in Western car makers using China as a platform to attack markets elsewhere in Asia - and possibly Europe and the US - using cheaply built cars with a respectable brand behind them. So far, examples of this are few and far between.

Ideally, the Western car makers would like to see the 50 per cent rule relaxed, and preferably abolished. As Jean-Martin Folz, chief executive of PSA Peugeot Citroen, says: "Life is always difficult when you are in a 50:50 joint venture. Hopefully, one day the controls will disappear."