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Chinas auto industry punches it. ECONOMY AutoNation J An Industry Hits Hyper Speed in Hybrid Mode A A A A A uto uto uto uto uto N N N N N ation ation ation ation ation J An Industry Hits Hyper Speed in Hybrid Mode This is where it all began. The first car, first rolling in 1886, is exhibited in
Beijing during the Benz Classic Car Expo in January, 2006. The China boom has brought to an expanding segment of the populace increased prosperity, greater personal mobility, rocketing levels of new car ownership and some massive headaches. Development and economic growth in urban areas has come on fast and frantic. And while few wish for a return to the old days, some over the age of 30 may contemplate the packed smoggy streets of Beijing and feel a twinge of nostalgia for a time when their nation was known as The Bicycle Kingdom. But there is no going back. The expanding white collar and professional classes are ever more dependent upon personal transport, and the demand for automobiles is fast on the rise. This while Chinas leaders focus their concerned attention on slowing the accelerating consumption of petroleum and decreasing pollution. Ironically, while some of the worlds more advanced nations make worse their addiction to oil by relying on outmoded and entrenched corporate mindsetsJof the sort that produced Detroits now largely disdained gas-guzzling dinosaurs and mass layoffsJin playing catch-up China may have a unique opportunity to remake the world of automobiles. Market Perspective by Lowell Bennett A Vehicular Leap
Forward Just two short decades ago, if a sedan was seen negotiating through the throngs of
bicycles swarming Beijings streets, that car
was likely the property of the state, and an
official mode of transport. After the founding of the PRC in 1949, it was nearly a half century before Beijing re-
gistered 1 million cars and trucks. Now, just
seven years later, there are more than 2.6
million vehicles traversing the hazy roads of
the nations capital. In 2005 about 1,000 more
were being added each day, reports Liu Xiao-
ming, of the Beijing Transportation Com-
mittee. And according to Beijing Universitys
China Center for Economic Research, in this
city of 14 million people about 40 percent of
households plan to buy a car within the next
five years. Nationwide, at the close of 2005 there were 23.65 million private cars on the road,
up 22 percent from 2004, according to the A P R I L 2006 59 ECONOMY AutoNation J An Industry Hits Hyper Speed in Hybrid Mode A Toyota I-unit concept car at the Auto Shanghai
2005 Exhibition. Soon to hit the roads in an insatiable market. by imaginechina A Beijing parking lot filled with late-model cars. by imaginechina National Bureau of Statistics. And in 2005
Chinas volume of new car production hit 5.7
million units, and sales came in at 5.75 mil-
lion units, an annual supply and demand in-
crease of 12.56 and 13.54 percent, respec-
tively, according to the China Automotive
Industry Association (CAIA). Adding in the 160,000 vehicles that were imported pushes the nations total 2005 sales
to 5.92 million units, comprising a total mar-
ket dynamic surpassing Japan to become sec-
ond only to the United States. In 2006, CAIA
projects that market growth will average out
at 10 to 15 percent and hit about 6.4 to 6.6
million units. And so the story is pretty much the same in all of Chinas major metropolises: Traffic
is bad and smog is worse. Certainly the gov-
ernment is pouring everything its got into
increasing fuel efficiency, developing new technology and reducing pollution. But the
simple fact is: This advancing nation of 1.3
billion is the worlds fastest growing auto-
motive market. And there is enormous de-
mand to satisfy. Strategic
Short Cut To answer increasing demand for more efficient and more sophisticated engines, and
to become a full-fledged player on the world
stage of automakers, an alliance of govern-
ment and private industry is set to acquire a
state-of-the-art engine production plant.
(Thats acquire, not construct.) If the deal is finalized as expected, Chinas Lifan Group will disassemble the
plant, ship the pieces 8,300 miles from its
current location, Brazil, and reassemble the parts in Chongqing, in Chinas southwest. If
operations commence as expected in 2008,
China will have leapfrogged perhaps decades
ahead in the production of advanced auto-
motive technology. At a development cost of $500 million, in the late 1990s the cutting-edge plant was
built in the south of Brazil as part of a now
soon-to-expire joint venture by and between
Chrysler and BMW. Its product is the 16-
valve, 1.6-liter Tritec, one of the most ad-
vanced and fuel efficient engines in the
world. Once up and running, after focusing on the Asia market, in 2008 Lifans founder and
CEO, Yin Mingshan, expects to export to the
EU, branching to the US market in 2009.
Quoted in the New York Times, Yin said,
Chairman Mao taught us: if you can win
then fight the war, if you cannot win, then CHINA 60 PICTORIAL A P R I L 2006 61 ECONOMY AutoNation J An Industry Hits Hyper Speed in Hybrid Mode This electrically-powered car represents one small step towards the much broader goals of the
863 Program, part of Chinas drive to higher and cleaner technology. by imaginechina Wuhan, Hubei ProvinceJChinas first generation of hybrid buses formally enters service. run away, he said. I want to train my army
in these smaller markets, and when we are
ready, we will move on to bigger markets. Yin faces some competition on the home front. At the close of February 2006 Dong-
feng Honda Automobile Co., Ltd., a joint
venture of Honda and Chinas Dongfeng
Motor Group Co., Ltd., completed a 2.8 bil-
lion-yuan expansion of its factory in Wuhan,
Hubei Province. Annual production capac-
ity was quadrupled from 30,000 to 120,000
units. Indicative of another national trend, greater concern for the environment, the plant
will operate under the Green Factory
principal, with care for both the natural en-
vironment surrounding the plant and the work
environment inside the plant, according to
company officials. Efforts include the intro-
duction of a new water-based paint system
to limit emission of hazardous substances;
promotion of purification and recycling of
wastewater; and reduction of electricity, gas
and water use through improved efficiency
in the manufacturing processes. In coming months Dongfeng Honda will begin production of the Civic, the famously
fuel-efficient vehicle that has realized cumu-
lative worldwide sales of 16 million units.
Already, sales of CR-Vs rolling off the pro-
duction line reached 26,244 units in 2005. Mandating More
Miles China has in place some of the worlds strictest fuel-efficiency requirements. As of July 2005, all new-model passen- ger cars and SUVs weighing less than 3.5
tons that are manufactured or imported to
China were required to meet more stringent
minimum fuel efficiency requirements. An
SUV weighing up to 2,400 kilograms (5,300
pounds) must meet or exceed 100 kilome-
ters per 15.5 liters of gas (15.5 miles per
gallon). In 2008, the requirement rises to 100
kilometers per 14 liters (17 mpg). A one-ton
car is today required to meet or exceed 100
kilometers per 8.2 liters (29 mpg), and in
2008 that requirement rises to 100 kilome-
ters per seven liters (33 mpg). Energy efficient transportation is a key part of Chinas 11th Five-Year Program
(2006 to 2010) and a large part of the overall
goal is transitioning government logistical
operations, mass transit and Chinese fami-
lies into energy efficient vehicles. The government has invested more than 1 billion yuan ($120 million) into green
vehicle research, with 22 technical standards
established for the production of electric pas-
senger cars. Already on the nations roads are
more than 200,000 alternative fuel vehicles,
and more are coming. The market is evolving and evolving fast, according to He Dongquan, an authority on
transportation with the Energy Foundation in
Beijing. Theres a controversy about Green
GDP and how to grow ... China is in a tran-
sition where everyones mind is changing. High Gear
Hybrids Perhaps most promising for the near future, offering a way to cut pollution and
fuel consumption both by about 30 percent,
hybrid technology is coming on strong and
seems poised to appreciably impact the
market. At the start of 2006, one player already in the game, Hangzhou-based GEELY Au-
tomobile Holding Corp., began constructing
its hybrid plant in Xiangtan, Hunan Province. The company expects to roll its first car off
the assembly line by early next year. Initial
annual capacity is projected at 50,000, reach-
ing 100,000 hybrid vehicles by the end of
2010. Meanwhile, Sichuan FAW Toyota Mo- tor Co., a joint-venture between Toyota and
FAW, began assembling the Prius hybrid in
China in December 2005. The company
seems confident that a strong market demand
awaits their relatively pricier product. The
market price per Prius will be about 288,000
to 302,000 yuan (about $36,000-$38,000),
and they expect to sell about 3,000 units in
2006. Other major players are either planning to get into the hybrid game or have produc-
tion lines already in the works. In addition to
the aforementioned, these include Chery
Automobile Corp., Changan Automobile
Group, Shanghai Maple Automobile Corp.,
Shanghai General Motors, and Shanghai
Volkswagen. According to Wan Gang, head of a team of government-sponsored experts that focus
on advancing hybrid automobile technology,
Chinas makers of cars, trucks and buses will
turn increasingly to hybrid technology. And
those already in the game are paving the way. These firms have formed Chinas first hy-
brid automobile production base, Wan said. The Beautified
Bus And yet, while the car market seems to roll on at high speed, Beijing is sending sig-
nals that things may be getting a bit out of
hand. The leaderships long term plan leans
more to moving the nations commuters into
mass transitJcleaner mass transit. In advance of the 2008 Olympic Games, Beijings city managers plan to ditch thou-
sands of older buses in their municipal transit
fleet and replace them with greener vehicles,
some of which will run on clean-burning com-
pressed natural gas. Beijings Vice Mayor, Ji
Lin, told China Daily that there will be 5,000
of the natural gas buses on the citys street by
2008. And already on the streets of Wuhan, the capital city of Hubei Province, is a trial fleet
of 20 hybrid-electric buses, designed and
manufactured by DFM. Chinas FAW Group
Corporation (FAW) is also producing hybrid
buses. And in the coastal city of Yantai, Shan- dong Province, a high-capacity electric bus plant is now under construction. After a
phase-1 capital outlay of 250 million yuan
($30.9 million), the factory is expected to be
fully operational in 2006, according to the
higher-ups at China-Rising Motors Tech
Zone Co., Ltd. Annual production capacity
is projected at 12,000 units, with a gross rev-
enue estimate of 15 billion yuan ($1.9
billion). The sooner fuel-frugal cleaner cars, cleaner buses, and pollution-free vehicles can
hit the roads of China, the better. One does
need not be an expert to realize the obvious:
The worlds supply of crude is dwindling and
oil-addicted nations will become increasingly
testy about cornering their share. Meanwhile (according to the experts), on the hazy big-city streets of The Bicycle
Kingdom, it is estimated that standard in-
ternal combustion vehicles belch out at least
60 percent of the vaporized brew that is this
nations smog. CHINA 62 PICTORIAL A P R I L 2006 63

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