As I sat motionless in a gigantic traffic jam on the way to the Beijing auto show in April, I looked up at a big billboard on top of a building. It proudly announced that Yanjing beer is an official partner of China's Lunar Exploration Program. That makes sense, I thought; if I was going to the moon I'd want to have a couple of six-packs along. However it is yet another indication, as if any more are needed, of China's headlong rush toward the commercialization of everything.
While the United States has retired its shuttle fleet and has no plans for further lunar missions, China plans to have astronauts on the moon by 2025. Maybe they'll enjoy a Yanjing or two when they get there. In any event, I wouldn't bet against them meeting that goal. Anything seems possible in China at the moment. The president of General Motors in China told me its greatest business risk would be to “underestimate the potential for growth.”
China has come out of nowhere to become the world's largest car producer. It will build more than 18 million new vehicles there this year; that's about double U.S. production. Building 30 million a year is in everyone's plans; some think it will be 40 million a year in 2020. That's just around the corner.
If you've seen the colossal traffic jams in Beijing, Shanghai and other huge cities you wonder where can they possibly put another 20 million or 30 million or 40 million vehicles a year. The answer is in the second- and third-tier cities; China has 300 cities with a population of more than a million where residents finally have some money. In the United States, every thousand people own 700 vehicles; in China, every thousand own 70. Pollution is a huge issue and the central government wants one million a year to be “new energy” vehicles by 2015, but nobody seems very sure what that means.
So the investment is pouring in. Volkswagen, which was the early leader, has now been overtaken by General Motors in the Foreign Joint Venture department. That's the price of admission to the Chinese market – a 50.1 per cent government-approved domestic partner. General Motors has 11 joint ventures in China and is planning to double its capacity to five million vehicles annually by 2016. Kevin Wale, president of GM China Group, says it has “consistently underestimated the rate of growth in China over the past 15 years.” Wale doesn't want to make that mistake again.
Nor does his boss, GM CEO Dan Akerson, who, on his fifth visit to China since taking the top job at GM two years ago, reaffirmed the auto maker's commitment to building five million cars a year in China by 2016. Plus it will open 600 new dealerships this year alone. “We fundamentally believe in the strength of the Chinese market,” Akerson said.
He wants to put a big push on Cadillac. Buick is currently GM's best-seller in China; the Emperor had a Buick back in the 1930s. Two Chevy nameplates are also in the Chinese top 10. However, premium products of all kinds are highly desirable among the new rich and Caddy wants its share. Ackerson says GM will start building Cadillacs in China this year and add one new model to the showrooms annually.
Audi is another big player in the Chinese luxury league. Peter Schwarzenbauer, head of sales for Audi worldwide, says China should surpass the United States to become the world's largest luxury car market by 2015. Audi will build up to having plug-ins throughout the luxury lineup by 2020, but in the meantime is investing in a high-prestige China-based racing series.
Building 30 million a year is a done deal. All the manufacturers, both the JVs and the domestics (there are more than 50 car companies in China) are investing and gearing up now. Yet you have to look back and remember that it was a simple change in central government policy about 20 years ago that made all this happen. Chinese were riding bicycles when suddenly the authorities opened the doors to allow foreigners to enter the market. What if the government decides the price in traffic, pollution and urban sprawl is too high? Chinese agriculture is lagging as hundreds of millions move to cities to take their shot at car-owning affluence.
If Chinese authorities decide to turn off the tap to the domestic market, or even slow it down, that will certainly leave a lot of unsold new cars that have to go somewhere. Maybe they'll export them to Wal-Mart. Maybe you'll have one in your driveway sooner than you think. When change occurs this fast, sometimes it takes unexpected directions.
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