China joins fast lane to money and mayhem: Despite congested roads, the motor sector is sure the country wants more cars. Teresa Poole reports

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The Independent Online
IT TAKES half an hour to drive the three miles from the city centre to the Chengdu Western Automotive City, through streets so clogged with traffic and ravaged with roadworks that a traditional Flying Pigeon often has the edge for speed.

The last thing the city would seem to need is more cars. But at Auto City headquarters, Mao Shibian, chairman of the board, preaches a four-wheeled vision of China's future.

Due to open at the end of last year, Auto City is billed as the largest car trading centre in south-west China. The giant showroom, resembling a seven-storey car park, will have room for 700 vehicles. The whole complex will also qualify as a bonded area for imported cars.

Lest any killjoy point to the recent depressed car production and vehicle sales figures for China - one immediate effect of Peking's efforts last summer to cool the country's overheating economy - Mr Mao says confidently: 'We are getting ready for growth next year.'

China's saloon car industry has provided one of the most obvious barometers of the austerity programme over recent months: in October 14,200 cars were sold, compared with 19,100 in July.

Car sales were hit badly by the clampdown on bank lending and also what was in effect a ban on officials using state enterprise money to buy cars - one aspect of a national crackdown on corruption. Vehicle stockpiles grew, while prices tumbled.

But official policy is now confirming what has recently become self-evident - that the money supply crunch is being eased and the emphasis in Peking is once again on fast economic growth.

Mr Mao's optimistic view last month that the clampdown was over was shared by many businessmen in Chengdu, the capital of China's most populous province, Sichuan. Moreover, his faith that China wants and needs more cars is shared by many of the world's largest vehicle manufacturers.

Chen Yingjian, general manager at Auto City, says: 'I have had comments from many foreign automotive manufacturers that China is the last, and also the biggest, auto market in the world.'

In the past three months alone, BMW has opened its first car showroom in Peking, a delegation representing Japan's big car manufacturers has tried to persuade China to expand the opportunities for foreign investment, Jaguar has announced plans to open dealerships in three cities, and Ford has said it is interested in making China a manufacturing base for automotive components. Last month in Peking, the four-day China International Modern Motor Exhibition featured companies from the US, Germany, France, Italy, Brazil, the UK, China, Hong Kong and Taiwan.

Chinese families used to aspire to owning a bicycle; in another 10 years, it is possible that the private car will become common in the world's fastest-growing economy.

Production of motor vehicles in China passed 1 million for the first time last year and is growing rapidly. Truck sales have held up during the austerity measures and this year's overall production target is 1.2 million.

It is, however, a market ridden with 'Chinese characteristics'. The 120 indigenous car factories are mostly too small and inefficient and need streamlining. Imports are kept down by punitive duties of around 200 per cent, and foreign component use is strictly controlled. A substantial chunk of the demand for luxury foreign models is met by smuggling stolen Hong Kong cars.

Meanwhile, the number and size of foreign joint venture assembly plants is being pegged at the existing eight projects. Of these, Volkswagen (with two) and Citroen have the three large assembly operations. Then there are three smaller joint ventures (Peugeot, Chrysler and Daihatsu Motor) and two minicar ventures (Suzuki and Fuji Heavy Industries). Even Japanese lobbying could not persuade China to license any new ventures for the time being.

Eager to exploit the predicted surge in vehicle buyers, Auto City has risen from muddy fields in an astonishing 15 months. Apart from the giant showroom offering cars, heavy vehicles and construction equipment, the complex will include centres for spare parts, accessories, maintenance and after-sales service.

There will also be a hotel, office and recreation centre. The total investment has been about pounds 10m. Either Mr Mao and his fellow directors have seen the future, or it will be the biggest white elephant in town.

Auto City estimates there are already about 60,000 cars in the Chengdu area, but that road transport will become more widely used as the economic reforms continue to open up China's 'wild west'. Mr Mao forecasts that car sales will start to pick up again in the second half of next year.

Auto City - whose shareholders include local industrial state enterprises, local government and wealthy individuals - plans to lease space to manufacturers and to sell cars itself. Mr Mao says there is already a letter of intent from agents of Chrysler, and that Ford and Toyota have expressed interest.

The future of the imported car market is going to depend on a reduction in duties and the success of China's attempts to join the General Agreement on Tariffs and Trade.

'If we participate in the Gatt, we just open the door for the foreign companies,' says Mr Mao. 'Even if there are import quotas, the far- sighted foreign car manufacturers will see the Chinese market will become more and more open to them. So this place will provide a convenient way into the market.'

No one is holding his or her breath for China to enter Gatt and there is no sign yet of import duties coming down.

In the meantime, the imported vehicle market relies on the wide variety of people and organisations allowed to bring in a duty-free car. These include foreign-funded joint venture operations and returning students who sometimes have to be induced to come back. Then there are the government departments that claim they need a fancy imported model - for whatever reason. In the first eight months of this year, imported cars were up 175 per cent at 182,336. And, in the People's Republic, the luxury models hold their prices better.

Rising incomes and standards of living have had a direct and indirect effect on the demand for locally produced vehicles. The number of taxis (cars and vans), for instance, has doubled in the past 18 months to reach 320,000.

Meanwhile, the number of joint ventures continues to balloon. And there are more and more newly rich people for whom a car is not out of the question; it is estimated that about 50,000 cars in China are privately owned.

While foreign manufacturers salivate at what this could mean in terms of a future market, the sharp growth in vehicles on the roads is also starting to choke up the city centres. Air pollution and traffic jams are beginning to be reminiscent of Bangkok and Taipei 15 years ago.

But for those who want somewhere comfortable to sit while stuck in those traffic jams, the Number 1 Car Plant in Jilin Province unveiled two new models last year under the famous Red Flag brand, the make of limousine formerly used to ferry China's senior officials around.

Top of the new range, for about pounds 60,000, is the one offering genuine leather seats, carpeted floors, 'tea- cup holders and other decorative touches'.

(Photograph omitted)

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