Car Culture Captivates China

A decade ago, gasoline for cars made up about 10 percent of China's demand for oil, according to state statistics. Today, the number is closer to one-third. By the end of this decade, when private car ownership in China is expected to swell to nearly 28 million, gasoline are to make up more than two-fifths of China's total oil demand, according to the Development Research Center for China's State Council, the equivalent of the cabinet.

Concerned by this growth in consumption, China's government is now drafting new fuel economy standards, according to industry officials who spoke on condition they not be named. While the new rules will initially have only a minor impact on China's auto fleet when they take effect next year, they are expected to force the production of more fuel-efficient cars when the second stage applies in 2008, the officials said.

The growth of cars and demand for the gasoline needed to fuel them is the product of a confluence of economic policies. Local governments, keen for new jobs in a country struggling with the demise of state industry, have encouraged the development of the auto-making industry. They have handed out cheap land for factories, while facilitating investment loans from state banks. Over the last three years, state banks have funneled more than $6 billion into auto-making, and there now are factories in 27 of China's 31 provinces, according to Rui Mingjie, chairman of the industrial economics department at the Fudan University School of Management in Shanghai.

Financial regulators, intent on weaning state banks from lending to bankrupt state companies, have encouraged a boom in auto loans.

The biggest foreign automakers, from General Motors to Toyota Motor Corp., have poured billions of dollars into building factories in China, chasing the vision of carving up a market with 1.3 billion people. Volkswagen now sells more cars in China than in the United States.

On Sunday, General Motors, which has already sunk about $1.6 billion into four car-making ventures in China, announced its latest move -- plans to buy an engine factory in the eastern province of Shandong from South Korea's bankrupt Daewoo. GM and its partner, Shanghai Automotive Industry Corp., intend to refashion the factory to produce about 300,000 engines a year for domestically made Buicks, the companies said in a statement.

At the top end of the market, Audi AG, which began making cars in China in 1999, sold more than 60,000 vehicles here last year. BMW last year began domestic production in a joint venture with a local partner and hopes to sell some 9,000 cars this year. Rolls-Royce opened its first Shanghai showroom late last year. And, in the latest sign that China has abandoned its roots as an ardent foe of capitalism, GM plans later this year to begin importing Cadillacs, long a symbol of American extravagance, then start making them domestically. Overall, luxury car purchases jumped by 80 percent last year, said Xu Changming at the State Information center.

At the other end of the spectrum, Chinese companies are now saturating the market with cars that sell for between $4,000 and $7,000. Prices are dropping lower still as new entrants expand the supply -- particularly deep-pocketed electronics companies -- widening the potential ranks of car-ownership.

The QQ, which is the lowest-priced model from domestic automaker Chery, goes for about $6,000 at the dealership in Shanghai's Gubei area. They sell about six of the cars each day, to customers who typically earn less than $8,000 per year, according to Liu Jianhua, chief of sales.

"I used to ride a moped, which is really very inconvenient," said Fu Huiping, who owns a convenience store in the surrounding countryside, as he signed the papers to buy a QQ one recent afternoon. "In the winter, it is very cold and in the summer it is so hot. Now, the price of a car is so cheap. It was not difficult for me to decide to buy. It is not that much money."