Govt needs hand in steering automotive industry

Problems associated with booming car market deserve official attention

Industry experts, business executives and government officials gathered Saturday at the 12th Annual China Automotive Industry Forum 2014 to discuss major trends and challenges facing the country's urban transportation and auto sector. One hot topic was the government's future role in steering the sustainable development of China's automotive industry amid the ongoing urbanization push.

China has been the world's largest producer and consumer of automobiles for five consecutive years. In 2013, nearly 22 million vehicles were sold in the country, making it the first and (so far) the only nation in the world to sell more than 20 million cars in a single year. Moreover, industry experts believe that China's automobile output and sales are set to continue gaining traction over the coming decade, since car ownership in China remains relatively low: around 100 vehicles per 1,000 people. That compares to 500 vehicles, 700 vehicles and 300 vehicles per 1,000 people in Europe, the US and Russia respectively.

Unfortunately, a fast-growing auto industry has done more than just fuel economic development. Increasing rates of automobile ownership have made severe traffic congestion and poor air quality a fact of life in urban China. Moreover, a growing contingent of motorists is putting pressure on domestic energy resources and increasing reliance on oil imports.

If not handled properly, these problems will only become more prominent over the coming decade, as the country's urbanization strategy picks up speed. China is already home to the largest concentration of cities in the world, with 88 cities with more than 5 million residents and 6 super-cities with over 15 million residents. By 2020, China's urban population is expected to reach 800 million, up from a present total of 600 million. By that same year, the country will also be home to an estimated 300 million vehicles.

Against such a backdrop, experts at the forum pointed out that efforts are required from all parties - including industry players, government officials and drivers - to deal with the problems mentioned above. Among them, the government should play a fundamental role in guiding the direction and development for the industry.

For starters, the government should set clear and specific targets for the automotive industry. So far there is no agreement as to the scale of China's auto market from a long-term perspective. Officials from various departments often discuss the possibility of imposing industry targets, although these vague pronouncements have done little more than confuse and misguide the public and the industry.

The first and foremost issue should be setting vehicle production targets. Such a goal should take into account economic growth expectations while also minimizing energy consumption, traffic congestion and emissions.

Building strong domestic auto brands is another important consideration. Achievements in this regard seem quite limited on the whole, yet the government will likely attach much importance to this area over the years ahead. As Dong Yang, executive vice chairman and secretary-general of the China Association of Automobile Manufacturers, explained at the forum, compared with foreign auto brands, Chinese brands play a totally different role when it comes to distributing wealth, stimulating the economy and spurring scientific and technological advances. Many believe that countries across Latin America, for example, have fallen into the so-called "middle-income trap" because pillar industries like automobile manufacturing are controlled by foreign companies. To avoid such an outcome, China needs to have its own locally-held brands.

The government needs to specify how China's auto industry should develop as well. The question of whether domestic automobile producers should introduce foreign technologies or do their own research should be answered more definitively. Also, what sorts of technology deserve the industry's focus? Chinese authorities have showed strong support for the development of electric vehicles, yet little attention has been paid to in-car connectivity systems, for example. Finally, a complete production chain is necessary for the country with such a high output, with manufacturers focused on basic materials, core components and high-end equipment.

Lastly, the government should also work out a set of regulations and laws specifically for the automotive industry. A comprehensive legal system can provide a stabile environment suited to achieving the industry's long-term goals.