Monday, January 12, 2004

China's Cars
Sunday's NYT commentary is only the latest article to point out the sudden leap in car ownership and car aspirations among China's growing middle class. Much of this is purely economic; the former "Asian Tigers" such as Korea and Thailand experienced much the same phenomenon when per capita incomes reached a critical threshhold.

What makes this different, as is true of nearly anything concerning China, is the scale involved. Carmakers may salivate over a potential market in China that could sop up the global industry overcapacity, but as long as China prefers cars built at home, even if by joint ventures with foreign firms, that wish may never be fulfilled.

The energy implications of China's turn to cars are more profound. Clearly it will have an impact on the regional and global demand for oil and refined products; how could it not? But the implications for automotive technology are more interesting. One of the great impediments to a quantum change in technology (think fuel cell cars) or to dramatic fuel economy improvements (think hybrids) having a rapid impact on the US or Europe is the relatively slow turnover of our car fleets. The average age of cars in the US has been rising steadily since the 1970s and the fleet turnover time was in excess of 14 years the last time I looked.

China, on the other hand, will likely double the size of its car fleet several times over the next decade or so, with mostly new cars. What would be the impact if many of those cars were hybrids or some other new technology? How rapidly could manufacturers move down the cost curve and become competitive, not just within China but globally?

In some ways this resembles the situation carmakers faced in the US 100 years ago: a big, untapped market with largely unknown preferences and a wide range of possible choices. I don't think it's an exaggeration to say that the car choices made by Chinese consumers--and the Chinese government--will change the kinds of cars sold in the rest of the world in a surprisingly short time.

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