China roars into the automotive era

Guess who’s now the second-biggest market for new cars in the world?

Reuters reported Friday that new car sales in China were up 15% in 2004, up 21.4% from those values in 2005, and now up 36.5% for the first six months of 2006 compared with the first six months of 2005.

How long can that continue? China’s first-half vehicle sales were 3.5 million units or 7 million per year. With a population of 1.3 billion, that amounts to 5.4 vehicles sold per thousand people per year. For comparison, last year fewer than 300 million Americans bought 17 million vehicles, or 57 vehicles per thousand people per year. So, that China statistic isn’t likely to increase any more than another 1,000 percent or so.

Accounts in places such as the Washington Post and the Wall Street Journal reported that Chinese car sales were up an even more astounding 46.9% in the first half of 2006 compared with the first half of 2005, rather than the 36.5% figure I’ve quoted here. However, People’s Daily Online refers to 46.9% as the growth rate for “sedans”, which apparently is a category the Chinese use to refer to about 40% of passenger vehicles, as distinct from other categories such as “subcompact”, “full-size”, “SUV”, “micro car”, and “luxury”. But 36.5% is still a whopping big number.

Notwithstanding, even in China, energy prices can have an effect. Reuters went on to note that, for the month of June alone, 2006 car sales in China were only up 5.8% compared with June 2005, and SUV sales were down 15.2%.

But tell me once again how oil is ever going to return to $30 a barrel?

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14 thoughts on “China roars into the automotive era

  1. MrBill

    “But tell me once again how oil is ever going to return to $30 a barrel?”
    The IEA expects world oil demand to stay strong with annual growth of 1.8 mbpd until 2011, although non-OPEC growth in supply is expected to rise just 1.1 mbpd over the same period. Not only will the nominal price of crude oil not decline to $30, but as the $US is likely to depreciate (and real interest rates rise) over this period to bring the US current account deficit down, the price of crude oil in nominal terms in $US is likely to rise further, along with the nominal price increases of base metals and commodities also imported by China.
    However, before we go forecasting 1000% growth in demand or output we should soberly reflect on the geological fact that is peak oil, and that fossil fuels are non-renewable and finite despite our wishing they were not! ; – )

  2. magnus1

    This article reinforces the continuing premium for light sweet crude oil for transportation fuels. Also I would assume it is positive for platinum which is used in catalytic converters for emissions control. Since platinum is in shorter supply that light sweet crude……

  3. pgl

    Notice the joint ventures with GM and Volkswagen. It would be nice to know how many of these cars are “made in China” and what is the payment back to GM and Volkswagen for their intangible assets. In other words, why can’t American car companies export more to China?

  4. roast

    I was just told that in order to measure calories in food-stuffs, the products are burned to measure their energy content. Is this true?
    At what point will the pumping, refining and delivery of a barrel of Brent crude become cost inefficient in relation to a barrel of Ben & Jerry’s Chunky Monkey?
    Sorry, I just had to share that.

  5. The Glittering Eye

    Catching my eye: morning A through Z

    Here’s what’s caught my eye this morning:
    Dan Berczik of Bloggledygook posts an email from his daughter, currently living in Bombay.
    I haven’t completely made up my mind about this: This War is For REAL! There are some parts of i…

  6. Ken Houghton

    The US model is not the standard, though, since the Eisenhower Boondoggle (a.k.a. the White Flight Highway System) was required to make all those water-free areas “habitable,” eviscerate shipping by train and mass transit, and–not coincidentally–transform the automobile from a luxury to a multiple necessity.
    China, as the “peak oil” comments above hint, may not be so inclined.

  7. TJR

    I recently returned from China, and the growing auto culture and infrastructure reminded me of the early 60s in the US. Cars are selling like hotcakes, and every town and village is pressing to build more roads to more places.
    Most striking was the growing presence of Sinopec filling stations along major highways, often in the middle of rural “nowhere”. The stations were modern, relatively clean, and reminded me of the national chain gas stations built along US highways in the 50s and 60s to promote interstate travel.

  8. Hal

    I suppose the main scenario for $30 oil would involve a substantial economic slowdown. If the US goes into recession it may drag China down with it; I think that country is still relying heavily on its exports for economic growth, and they haven’t figured out how to get rich selling stuff to themselves.

  9. David Baskin

    Hal, when Henry Ford starting paying his assembly line workers $5 a day, then un-heard of for blue collar work, he was told he was crazy. He replied that if he didn’t, they wouldn’t be able to afford to buy the cars they were building.
    I think the Chinese are smart enough to figure this out.
    Dr. Hamilton, I think you underestimate the demand. There is already more than one motor vehicle per person in the U.S. while China has a few per thousand. In other words, the market in China could be 100 million vehicles per year without ever reaching U.S. saturation levels, given a ten year average vehicle life. Obviously this won’t happen soon, since the rural peasants are not in the car market yet, but who knows about ten years from now, given the magnitude of the 2nd derivative of sales.

  10. juan

    I would suggest that the rural peasants will never be in the car market, which is to say that the process of proletarianization, of transforming rural producers into full time wage workers has limitations imposed by, among other things, the technical composition of capital.
    IOW, competitiveness demands greater capital intesity but this is also a relative – sometimes absolute – diminishment in the demand and need for living labor. The dynamic is clear enough and usually leads into a form of so-called functional dualism as one part of the economy becomes capitalist while another remains, or declines into, a not-capitalist petty commodity production and subsistance. Symbiosis and stagnation develop.
    Ongoing expansion of the real market is not a given but merely an assumption.
    ‘Starting late’ is not always a benefit, and in the case of China, just as LatAm, we have also to take unequal exchange into account as more value is exchanged for less via the mediation of transnational capital (from which a majority of ‘China’ exports derive).
    Oil will return to $30/bbl the same way that dotcoms became dotbombs — but this is not determinant for the auto industry in China.
    All in all, it’s my opinion that there has been too much overstatement re. China + too many linear projections.

  11. David Baskin

    Juan, you could be right, and we won’t really know for quite a while. However, I would note three things:
    1. The rate of urbanization is unprecedented anywhere at any time. Rural peasents are turning into city dwellers at the rate of about 20 million per annum.
    2. The great Chinese birth limitation experiment will have profound demographic effects on the supply and demand for labour, starting in a decade or so. The notion of a limitless sea of unskilled labour will be outmoded.
    3. Finally, the exponential growth of higher education suggests that China will not be hewing wood and drawing water much longer. Think of Japan in the late ’50s, and what happened in the next 30 years.
    I have a number of friends whose children are learning Chinese instead of French or Spanish. Farsighted parents.

  12. zong ren

    Cars arn’t the only mode of xport in China. They use electric bicycles (about $200 new) and they have a very small gas engine for bicycle and tricycle. There are small diesel powered tractors on the roads for agriculture and construction and dont forget regular motor bikes. You cant just count cars and trucks to estimate the increasing demand for fuel because many other types of vehicles are used there. A billion extra liters of gasoline a day is over 6 mpd.

  13. Anonymous

    David -
    As you say, we won’t know for a number of years, but my point had more to do with the technical relationship between means of production and living labor. A progressively higher capital intensity tends to also be an at least relative diminishment in the need for labor, and that is *a structural tendency* evident since the earliest days of industrial capitalism. China’s opening to the world has also led to intensified competition, which is to say that the above relation has become more consequential within that country.
    Urbanization as such, even at a high rate, is not an overcoming of this and can very well be only the transformation from peasant farmer to very poorly paid, many times unpaid, dweller in the urban periphery and/or further expansion of the ‘floating population’.
    Citing Andrew Ross’ recent book “Fast Boat to China: Lessons from Shanghai”, husunzi noted:
    ” in 2004 after workers went home for Chinese New Year, over 2 million stayed home from jobs in Guangdong alone – 10% of the province’s workforce! Ross estimates that this was the largest unorganized withdrawal of labor in modern times. China’s Minister of Labor (?) actually maid a big deal about this, calling it a “collective act of resistance” against managers’ failure to follow labor laws, and he used this as a basis for a campaign to crack down on abuses, which workers subsequently took to heart by initiating the largest number of wildcat strikes and other actions in recent years (I didn’t get any figures for that). Another thing that happened in that and the following years was for many migrant workers to abandon Guangdong in favor of the Lower Yangzi corridor. (See: http://www.chinastudygroup.org/index.php?action=blog2&type=view&id=17 )
    I believe that comparisons with Japan are incorrect if only because that nation had its capitalist revolution at a much earlier date and could develop from an initially less intensive capital structure and relatively less dependence on a global market; a more organic process.
    China may succeed at same but with greater difficulties.
    BTW, you might find the ChinaStudyGroup’s site of interest:
    http://www.chinastudygroup.org/ (clicking on any of the headings opens a greater variety)

  14. Joseph Somsel

    I’ve often predicted that China will soon (10, 15 years?) hit an energy wall.
    The development history of the US in energy terms provides some guidence. The early successes were largely due to applying solar-based agriculture to an underutilized continent. At the time of the American Revolution, we already had the highest standard of living in the world.
    Coastal transport using sails served most of our long haul transport needs and areas where hydropower was accessable to ocean transport prospered (the Fall Line). Internal transport investments like the Eire Canal further improved productivity. Steam power for industry and transport (Fulton) did not lag behind European use.
    The rapid industrialization post-Civil War was coal based for materials (iron), transport (railroads), and industry.
    The advent of petroleum-based transport with automobiles and the electrification of industry multiplied and accelerated productivity growth. For one case study, Winston Churchill’s account of his decision as Admiralty Lord to switch Great Britain’s battleships from coal to oil is a must read (“The World Crisis”) for the reasoning that was going on everywhere in the iindustrial world.
    Back to China. With peak oil looming if not already here, petroleum transportation will be one limiting factor in replicating US economic and military growth. Their transport section will be the one weak link. Electricity is an area where non-petroleum alternatives exist (coal and nuclear) and China is concentrating on both.
    Lacking some major innovation in transport, China can not retrace the American economic growth model. Railroads, long-haul and urban, offer some benefit but the freedom and flexibility of individual cars and trucks will be missing. The synergy of transport, industrial, and individual energy mix will be incomplete.
    Sorry, China will be hitting a wall and it will affect the US too. However, since the US has all parts in place, its net return on petroleum will remain higher on average (but not on the margin) to what China can achieve.

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