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2 Motorization from a Global Perspective C hina may benefit from the experience of other countries as it for mulates its own policies for motor vehicle ownership and use, for the economic role of the motor vehicle industry, and for the use of new motor vehicle technology. To explore the potential for such learning, this chapter summarizes how the recent growth in motorization and road infrastructure in China compares with that of other countries. It also re- views policy issues related to motorization that may deserve special at- tention. Finally, the chapter explores recent work that predicts how changes in international trade practices and Chinaâs accession to the World Trade Organization (WTO) may affect the Chinese motor vehicle industry. Later chapters address motor vehicle technologies and the soci- etal impacts of motorization. GLOBAL COMPARISONS OF NATIONAL MOTORIZATION Since the 1960s many studies have examined what determines the num- ber of motor vehicles used in countries and cities over time.1 All studies find that income is a major determinant of the size of the motor vehicle fleet across countries and cities in developing and industrial countries. At the 1 See Ingram and Liu (1999) for a survey of this literature. In these studies motor vehicles are defined as those having four or more wheels and include cars, buses, trucks, and com- mercial vehicles, but not motorcycles. The statistics normally include government vehicles but usually not military vehicles. Income per capita is generally used in these studies and is usually measured using gross domestic product (GDP) per capita. 14
MOTORIZATION FROM A GLOBAL PERSPECTIVE 15 1000 Motor vehicles per thousand persons USA Japan 100 Brazil 10 Thailand Korea India 1 China 0.1 100 1,000 10,000 100,000 GDP per capita (1995 U.S. dollars) FIGURE 2-1 Motor vehicle fleets in relation to income, selected countries, 1970 and 1996. NOTE: Per capita gross domestic product (GDP) is transformed to dollars using market exchange rates (see footnote 2). SOURCES: Motorization data: Inter- national Road Federation (2001 and earlier); other data: World Bank (2001 and ear- lier). national level, income alone typically explains more than 90 percent of the variation in motorization levels, and at the urban level more than 80 per- cent. The growth of national motor vehicle fleets parallels that of income: a 1 percent increase in income is associated with a 1 percent increase in motor vehicles, and this relationship has been relatively stable for the past 30 years. The relation between motorization and income between 1970 and 1996 is summarized in Figure 2-1, which shows data for a sample of 50 coun- tries, with seven countries identified.2 Both per capita income and motor- ization levels vary over a nearly thousand-fold range, as shown by the logarithmic scales used. For each country in Figure 2-1 (and in Figures 2- 2 and 2-3 later in this chapter) a line segment connects the countryâs posi- tion in 1970 with its position in 1996âthe most recent year with compa- rable data across countries. By means of darker lines and end points, Figure 2-1 specifically identifies China and six other countries. Motoriza- tion increased in all countries from 1970 to 1996, but incomes did not. Downward sloping lines denote sampled countries (such as Nigeria, Rwanda, and CÃ´te dâIvoire) where incomes declined. A mostly parallel 2 In all figures the GDP per capita, used to measure income or economic activity in this chapter, is transformed into dollars using market exchange rates because vehicles are traded goods, and the market exchange rate GDP measures the ability of an economy to purchase traded goods. The countries and data are in the appendix to this chapter.
16 PERSONAL CARS AND CHINA alignment of the line segments indicates stability in the relation over time. The relation between motorization and income in China has been very consistent with that of other countries, even though China started from a very low income level in 1970. Although strongly related to income, motorization can vary greatlyâ by a factor of two or moreâacross countries. For example, in 1970 Korea and Brazil had similar per capita incomes, but Brazil had 31.2 vehicles per thousand persons and Korea 5.6 vehicles per thousand persons. The United States, at 765 vehicles per thousand persons in 1996, had half again as many as some member countries of the Organisation for Economic Co- operation and Development (OECD) such as Germany at 529, France at 526, Japan at 546. Therefore, other variables, including nonmarket factors, also affect motorization levels. Two additional factors significantly associated with national levels of motorization are population density (negatively) and urbanization (posi- tively). No study has systematically examined the effect of domestic ve- hicle production on national motorization levels, but Koreaâs accelerated motorization may reflect a domestic industry effect. However, a look at two countries with similar income levels reveals that Thailandâs motor- ization level is above Brazilâs, yet Brazil has a much larger motor industry than Thailand (see Figure 2-1). Vehicle and fuel prices are two policy instruments that often affect motor vehicle ownership and use. A comparison of current estimates shows that the elasticity of motorization with respect to income (about 1.0) is absolutely larger than the elasticity of motorization with respect to vehicle price (about â0.5). These magnitudes imply that if price increases were the only policy variable used to influence fleet size, vehicle prices would have to increase twice as fast as incomes to offset the effects of income growth on fleet size. Higher vehicle prices also increase the length of time the vehicle is retained (and thus the average age of the fleet). The effect of higher fuel prices on fleet size is uncertain.3 However, it is known that an increase in fuel prices reduces vehicle usage and encourages the purchase of more fuel-efficient vehicles. When adjusted for inflation and quality, neither fuel nor vehicle prices have increased much over time, whereas income has grown steadily in most countries. Differences in prices and other factors across countries produce different levels of mo- torization at similar income levels (as shown in Figure 2-1), but income growth is the major determinant of motorization growth. Chinaâs experi- ence is very consistent with this pattern. 3 Compare Wheaton (1982), who finds a fuel price effect, with Johansson and Schipper (1997), who find none.
MOTORIZATION FROM A GLOBAL PERSPECTIVE 17 Studies of motorization at the urban level produce results generally similar to those at the national level. Income is strongly associated with urban vehicle fleet size, but motorization increases more rapidly with in- come at the national level than at the urban level because urban areas have substitutes for motor vehicles, such as transit, that rural areas lack. In addition, growth in urban motorization worsens urban congestion, which may make owning a car in a city less attractive. After controlling for income, one finds that motorization levels vary across cities even more than across countries (see Ingram and Liu, 1999:335). THE AUTOMOBILE SHARE OF THE FLEET Because this study focuses on personal-use motor vehicles (automo- biles), it is now appropriate to ask: How does the automobile share of the motor vehicle fleet change as incomes rise over time? At low-income lev- els (less than $800 [RMB6,600] per capita), trucks and buses predominate. As incomes increase, the automobile share increases very rapidly at low income levels, then at a decreasing rate trending toward a saturation level that varies across countries. The relation between the automobile share of the fleet and income is shown in Figure 2-2 for the same 50 countries and 100 90 Brazil Auto share of fleet (percent) 80 70 Korea USA Japan 60 50 40 30 Thailand 20 10 China 0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 GDP per capita (1995 U.S. dollars) FIGURE 2-2 Automobile share of motor vehicle fleet in relation to income, se- lected countries, 1970 and 1996. NOTE: Per capita gross domestic product (GDP) is transformed to dollars using market exchange rates (see footnote 2). SOURCES: Motorization data: International Road Federation (2001 and earlier); other data: World Bank (2001 and earlier).
18 PERSONAL CARS AND CHINA years, 1970 and 1996, used in Figure 2-1. The automobile share of the fleet has increased dramatically in China, Brazil, and Korea, whereas in the United States the growing popularity of pickup trucks, vans, and sport- utility vehicles has reduced the automobile share of the fleet since 1970. Surprisingly, the automobile share of the fleet also has fallen dramatically in Thailand, where pickup trucks have become popular for use in rural areas. And in some countries motorcycles are a popular substitute for cars. Thailand had 10.2 million motorcycles in 1996 (when China had 9.8 mil- lion) compared with 1.6 million automobiles and 4.6 million other motor vehicles. The number of automobiles increases more rapidly with income than does the total number of motor vehicles. Thus when income rises by 1 percent, the number of motor vehicles rises by 1 percent, but the number of automobiles increases by about 1.2 percent. Compared with other coun- tries, the share of the motor vehicle fleet composed of automobiles was at a very low level in 1970 in China (10.2 percent) and was still relatively low (38.9 percent) in 1996 in comparison with countries with similar income levels. But policies to limit the sales of motorcycles may increase automo- bile numbers. GLOBAL COMPARISONS OF ROAD AVAILABILITY Any policy adopted to increase the number of motor vehicles also needs to consider the availability of roads. Across countries, the size of the road network (measured as the length of paved and unpaved roads) increases less rapidly than income. However, as incomes rise more roads are paved. A 1 percent increase in income is associated with a 0.5 percent increase in total road length and a 1 percent increase in paved road length (see Figure 2-3). Again, Chinaâs recent experience is very consistent with that of other countries, and expansion of its network of paved roads has kept pace with its income growth. Chinaâs motor vehicle population, its paved road length, and its number of motor vehicles per kilometer of paved road (8.3 in 1996) are close to the average for its income level. In OECD countries the number of vehicles per kilometer (km) of paved road is higher, ranging from 20 to 60, with the higher numbers observed in countries with high population densities. MOTORIZATION IN URBAN AREAS: A CHALLENGE As noted earlier, in cities vehicle ownership increases with income, much as it does at the national level. Moreover, in developing countries urban incomes are often much higher than the national average income. In China, for example, average incomes in Shanghai are three to five times
MOTORIZATION FROM A GLOBAL PERSPECTIVE 19 100 Meters of paved road per person USA 10 Japan 1 India Brazil Thailand 0.1 Korea China 0.01 100 1,000 10,000 100,000 GDP per capita (1995 U.S. dollars) FIGURE 2-3 Paved road length in relation to income, selected countries, 1970 and 1996. NOTE: Per capita gross domestic product (GDP) is transformed to dollars using market exchange rates (see footnote 2). SOURCES: Motorization data: Inter- national Road Federation (2001 and earlier); other data: World Bank (2001 and ear- lier). higher than the national average. Private car ownership would then be concentrated in Chinese cities. Unlike at the national level, the size of the road network at the urban level (measured as the length of roads within the urbanized area) increases very slowly with income. A recent analysis of 35 world cities found that a 1 percent increase in city per capita income was associated with only a 0.1 percent increase in urban road lengthâand most of that was from annexation of neighboring jurisdictions (Ingram and Liu, 1999). In China, road length has grown recently in major cities from both annexation and new road construction. But new urban roads are very costly. For example, in recent years Shanghai has invested 5 per- cent of its regional domestic product in roads. This share is high and is unlikely to be sustainable. Most countries invest about 1 percent of na- tional income in roads per year (World Bank, 1994). Road length per capita in large Chinese cities is similar to that ob- served in large cities in other developing countries. For example, Shanghaiâs road length of 0.43 m per person in 1997 was similar to that of Bangkok, Jakarta, and Manila. Because the number of motor vehicles has been increasing faster than the length of paved roads in large Chinese cities, the number of vehicles per kilometer of paved road has been rising. In 1997 Shanghai had about 122 vehicles per kilometer of paved road, a number that is high for cities in developing countries.
20 PERSONAL CARS AND CHINA Urban income growth is associated with rapid growth in the number of vehicles and much slower growth in urban road length, and thus it worsens urban congestionâa negative externality of motorization. Be- cause reducing urban congestion depends more on specific attributes of city land use and transport systems than of vehicles, most countries as- sign responsibility for congestion management to local or metropolitan governments. Such management includes traffic enforcement, parking control, and local charges for registration and vehicle use that may affect vehicle ownership. Chinese policy in this area is evolving. The central government recently restricted local government powers, abolishing many local fees on vehicle registration and use (China Online News, 2000b) and supporting the elimination of bridge tolls in Shanghai. Vehicle-related air pollution, another negative externality of motor- ization, is primarily an urban problem because the density of vehicle use and population density are both high in cities. Although it may seem sensible to vary vehicle emissions standards by city, the mobility of ve- hicles and the cost to producers of multiple standards have led most countries to place responsibility for setting vehicle emissions standards at the national level. China recently assigned this responsibility to the State Environmental Protection Administration. Similar arguments sup- port having vehicle safety standards set nationally, a practice China is also following. Motorization in urban areas also has an impact on land use patterns. The growth in the use of trucks and motorized freight encourages firms to move out from the center of urban areas. The decentralization of em- ployment encourages the suburbanization of residential development as workers follow jobs (Ingram, 1998). These locational changes reduce central city population densities and produce dispersed travel patterns that are less easily served by public transit. In cities, motor vehicle use promotes motor vehicle dependence because the residential changes and the housing and infrastructure investments are difficult to reverse. Na- scent tendencies in this direction are evident in several large Chinese cities that are experiencing falling central population densities, growth in suburban employment, and the emergence of auto-dependent house- holds in metropolitan suburbs. OTHER MOTORIZATION POLICY LESSONS FROM MARKET ECONOMIES Vehicle users pay manyâbut not allâof the costs of vehicle use in most countries. To ensure that personal vehicle use is not excessive, it is important that the prices paid by vehicle users reflect the full economic and social costs of vehicle use. When the personal vehicle user does not
MOTORIZATION FROM A GLOBAL PERSPECTIVE 21 pay these appropriate costs, often some new regulation must be applied to, for example, vehicle attributes, safety, insurance, emissions, and ve- hicle use so that the owner is forced to pay the costs. The vehicle owner normally pays the costs of personal vehicle owner- ship, operation, maintenance, and depreciation. Because vehicles use roads, it is important that vehicle users also pay an appropriate share of the cost of constructing and maintaining roads. Roads and related infra- structure are typically financed through taxes on fuel, taxes on use-re- lated parts such as tires, and tolls. Road costs are usually about 5 percent of automobile operating costs. Fuel costs, a quarter or more of operating costs, also are borne by the personal vehicle owner. Fuel prices affect both vehicle use and the fuel efficiency of the vehicle purchased. Taxes on fuels can be used to encour- age car buyers to purchase more fuel-efficient vehicles. Such incentives may be desirable if vehicles use imported fuel and if the true cost to the economy of fuel imports is thought to be higher than the current market price. China, a net importer of petroleum since 1993, imported 70 million tons of oil in 2000, and oil imports are growing at 10 million tons per year. The Chinese government is considering auto fuel consumption policies that would incorporate a fuel tax and a tax on engine size to promote energy savings (China Online News, 2001b). Taxes on personal-use ve- hicles and vehicle fuel also may be an attractive source of general revenue for the government, because such taxes are normally progressive (rev- enue increases with the taxpayerâs income). Vehicles are involved in accidents, which damage property and in- jure people. Where vehicle insurance is required and vehicle operators are held liable for damage they cause, vehicle owners pay much of the cost of accidents through insurance premiums. In China, accident and motor vehicle-related fatality rates are high, although they are consistent with Chinaâs per capita income (Figure 2-4).4 In 1996 the annual motor vehicle fatality rate per million vehicles was about 6,000 in China, which was about 30 times higher than the U.S. rate of 200. Auto insurance in China is growing rapidly, but it is unclear what insurance is mandatory and how liability for accidents is assessed. Chinaâs five-year plan for the development of the automotive industry describes the need for a road and motor vehicle law, but it does not mention insurance and liability for accidents. It is critical that users of personal vehicles be held responsible for the costs of the accidents they cause. A mandatory minimum level of 4 Motor vehicle fatality rates are not available for many countries in the International Road Federation database. The data for China are derived from Chinese sources.
22 PERSONAL CARS AND CHINA 100,000 Deaths per million vehicles India 10,000 China Korea 1,000 USA Japan 100 100 1,000 10,000 100,000 GDP per capita (1995 U.S. dollars) FIGURE 2-4 Motor vehicle death rates in relation to per capita income, selected countries, 1996. NOTE: Per capita gross domestic product (GDP) is transformed to dollars using market exchange rates (see footnote 2). SOURCES: Motorization data: Chinese sources (see footnote 4); other data: World Bank (2001 and earlier). insurance is a sound way to ensure that vehicle users pay the costs of accidents and the damage associated with vehicle use. Emissions from motor vehicles often harm urban air quality, but one vehicleâs emissions generally cause no costs to its operator. Nor do ve- hicle operators pay for the health care costs of those who suffer from the resulting poor air quality. This negative externality is generally handled by regulations and controls on engine technology and fuel use rather than by prices or taxes. China has moved to adopt international standards in regulating vehicular emissions. Fuels are regulatedâfor example, leaded gasoline has been bannedâand new emissions standards promulgated by the State Environmental Protection Administration require light-duty vehicles in China to meet European Emission Standard II (Euro II) by the year 2004 (China Online News, 2001a). Some metropolitan areas have in- spection and maintenance programs for vehicular emissions systems. But nationally mandated inspection standards for emissions and safety have been put in place and are being strengthened. The use of motor vehicles in urban areas also imposes other costs that vehicle operators do not pay. Vehicle use on crowded streets increases the travel time of all other vehicles, but vehicle operators incur only the cost of the time they spend on their trip. Economists have long advocated con- gestion tolls for crowded roads, and Singapore has successfully imple- mented one. Implementing congestion tolls can be difficult, but intelli- gent transportation systems (ITS) could be used successfully to levy
MOTORIZATION FROM A GLOBAL PERSPECTIVE 23 congestion tolls.5 Traffic management remains the second-best solution to congestion and is better left in the hands of local officials. PROJECTIONS OF CHINAâS MOTOR VEHICLE FLEET The strong relation between income and motorization across coun- tries provides a simple basis for projecting motor vehicle fleet sizes in China, because Chinaâs motorization experience has been so consistent with international patterns.6 Cross-country analysis has indicated that motor vehicle fleets grow in proportion to income and that automobile fleets grow 1.2 times faster than income. Those relationships are used here, but projecting the growth rate of the Chinese economy is a challenge. Chinaâs gross domestic product (GDP), an indicator of personal income, grew at an average annual rate of 10.1 percent from 1980 to 1990 and 10.7 percent from 1990 through 1998 (World Bank, 2001:194).7 However, in 1999 and 2000 it grew at 7.1 and 8.0 percent, respectively (World Bank, 2001:192). Decadal growth rates of 10 percent or more are rare in histori- cal experience. Three different assumptions about Chinaâs GDP growth rateâa high rate of 10 percent, a medium rate of 8 percent, and a low rate of 6 per- centâproduce three different projections for the automobile and motor vehicle fleet size in China. (Note that very few countries have attained even the 6 percent rate over a decade.) The projections, starting from a base in 1996 of 10,020,000 motor vehicles (including 3,894,000 automo- biles), are shown in Table 2-1. They cover a wide range, differing by a factor of two by 2015. The medium projection is close to the projections made recently by the Chinese Academy of Engineering.8 It is difficult to move from projections of fleet size to projections of annual new vehicle sales. Taxes on fuel mainly affect fuel efficiency rather than the number of vehicles sold. High prices or high taxes on new ve- hicles tend to increase the economic life of vehicles. Longer vehicle life mean a smaller share of the fleet is scrapped each year, and thus new 5 Intelligent transportation systems are produced by using advanced technologiesâsuch as computers, electronics, and communicationsâto integrate surface transportation systems with the goal of improving safety and efficiency. 6 This consistency is not automatic and will occur only if policies allow vehicle growth to continue. 7 Projections of motor vehicle fleet size are made using total income and not income per capita, because empirical estimates indicate that population is a scale variable (has an expo- nent of 1.00) in regressions of total fleet size on per capita income and population. 8 These projections were presented by Prof. Guo Konghui in May 2001, in Beijing, China.
24 PERSONAL CARS AND CHINA TABLE 2-1 National Vehicle Fleet Projections for Three GDP Growth Rates, China (millions of vehicles) Year Cars Motor Vehicles 10 percent GDP growth 2005 07.9 026.4 2010 13.9 042.5 2015 24.4 068.4 2020 43.1 110.2 8 percent GDP growth 2005 07.2 024.5 2010 11.4 036.0 2015 18.0 052.9 2020 28.5 077.8 6 percent GDP growth 2005 06.6 022.7 2010 09.3 030.4 2015 13.2 040.7 2020 18.7 054.5 NOTE: Projections (in millions of vehicles) assume that motor vehicle growth is the same as income growth and that car growth is 1.2 times income growth. GDP = gross domestic product. SOURCE: Calculated by G. Ingram based on data in China State Statistical Bu- reau (2002). vehicle sales are a lower share of the fleet. Chinese policy makers recently have set rules calling for vehicles to be retired at a certain mileage and age, but these rules seem to reflect safety and emissions standard objec- tives rather than economic considerations (China Online News, 2000a).9 CHANGES IN INTERNATIONAL TRADE POLICIES In 1999 China was the seventh largest national economy as measured by GDP valued at market exchange rates and the second largest (behind the United States) when GDP is measured using purchasing power parity 9 These standards call for retiring vehicles that have reached 30,000â50,000 km or eight to ten years of age.
MOTORIZATION FROM A GLOBAL PERSPECTIVE 25 BOX 2-1 Main Obligations of WTO Members Members of the World Trade Organization are obligated to: â¢ Offer the same trade policies (most-favored-nation status) to all WTO members. â¢ Make government legislation and domestic enforcement conform to WTO standards. â¢ Reduce tariffs and rely only on tariffs; remove quotas, most licenses, and other nontariff barriers. â¢ Subscribe to: â¢ General Agreement on Trade and Tariffs (GATT)âschedule of tariffs countries have bound themselves to follow. â¢ General Agreement on Trade in Services (GATS)âagreement mod- eled on the GATT and its principles and that applies to national, state, and local governments. â¢ Trade-Related Aspects of Intellectual Property Rights (TRIPS)âagree- ment that protects copyrights, trademarks, geographical indications, industrial design, patents, integrated circuit design, and trade secrets. â¢ Technical Barrier to Trade (TBT) Agreementâagreement that con- trols the use of technical regulations and standards as trade barriers. â¢ Agreement on Trade-Related Investment Measures (TRIMs)âagree- ment that specifies that investors cannot be required to have local content minima or to balance exports and imports. â¢ Antidumping provisionsâprovisions that prohibit selling goods be- low cost if local industry is injured. â¢ Sanitary and phytosanitary (SPS) measuresâmeasures that ensure that health regulations are not discriminatory. SOURCE: World Trade Organization Secretariat (1999). exchange rates. In international trade flows, China ranked fourth behind the United States, the European Union, and Japan. China was accepted into the World Trade Organization in late 2001; it was not a member of the WTOâs predecessor, the General Agreement on Tariffs and Trade (GATT).10 China steadily liberalized its trade policies during the 1990s, but joining the WTO will involve many additional changes and obliga- tions (see Box 2-1). 10 The GATT is no longer a free-standing body; to join the GATT a country must join the WTO.
26 PERSONAL CARS AND CHINA The Automotive Industry and Trade Liberalization Chinaâs accession to the WTO will have a large impact on its automo- tive industry, an economic sector that is heavily involved in international trade. For example, in 1999 machinery and transport equipment consti- tuted 49 percent of the value of exports (and 30 percent of the value of imports) of the OECDâs trade with low- and middle-income countries (World Bank, 2001:327â328). In 1999, of the new cars placed in service in China, 95 percent were produced domestically. Chinaâs automotive industry is relatively fragmented; as of 1999 it had 118 original equipment manufacturers of motor vehicles. Its overall production capacity for cars was 910,000 at the end of 1999, and annual production was 605,000. The three largest companiesâFirst Auto Works (FAW), Dongfeng Motor Corporation (DMC), and Shanghai Automotive Industry Corporation (SAIC)âproduced 44 percent of motor vehicles and 70 percent of the cars during this period. In 2000 the 13 largest automotive companies produced over 90 percent of the total motor vehicle output and sales. The automotive industry is one of Chinaâs most highly protected. Tar- iffs on motor vehicles and vehicle parts were well over 100 percent as recently as 1995. In 2000 import tariffs on sedans ranged from 80 to 100 percent, and import tariffs on vehicle parts ranged from 35 to 50 percent. After WTO accession, compliance with WTO standards must be phased in over a period of five years, and average motor vehicle tariff rates will fall below 15 percentâwith tariffs on vehicles at 25 percent and on com- ponents around 10 percent.11 The import quotas and import licenses ap- plied to all vehicles except cars will be removed in the second half of the five-year phase-in period and those for cars at its end. Although the tariff rates are high, eliminating quotas and licenses may have more of an im- pact. Indeed, the five-year plan for the automotive industry states that the elimination of import quotas will be much greater than that of reduced tariffs. It also notes that WTO accession will most severely affect cars, followed by heavy-duty trucks; it will have minimal effects on mini-ve- hicles, medium trucks, buses, and motorcycles (China State Economic and Trade Commission, 2001:6). The automotive industry in China has many small producers, and even its largest companies have few plants that operate on a scale large enough to achieve least-cost output levels. High local content has then been achieved, but at a high cost. These challenges are well recognized by Chinaâs economic policy makers and are addressed by current policy 11 Many electronic components of vehicles may come in with a zero tariff under the Infor- mation Technology Agreement.
MOTORIZATION FROM A GLOBAL PERSPECTIVE 27 statements. Chinaâs objectives over the next five years are to restructure its automotive industry, to consolidate its many small-scale producers into three large companies with a joint domestic market share of over 70 per- cent, and to establish the capacity to develop vehicles domestically by increasing expenditures on research and development. The Effects of WTO Accession on Chinaâs Automotive Industry A few scholars have attempted to develop quantitative estimates of the economic effects of Chinaâs accession to the WTO (Development Re- search Centre, 1998; Fan and Zheng, 2000; Zhai and Li, 2000; Wang 2001). One recent paper developed estimates for 22 separate industries, includ- ing the automotive industry, using a computable general equilibrium model that includes China and other countries or regions of the world (Ianchovichina and Martin, 2001). Its results are briefly summarized here. Ianchovichina and Martin conducted simulations for 1995â2005 that compared Chinaâs accession to the WTO with a non-WTO base case. Their model incorporates the liberal duty exemptions already in place for im- ports used as inputs into export goods and for investment goods used in joint ventures with foreign enterprises. Ianchovichina and Martin report that, overall, WTO accession produces substantial benefits for China and the rest of the world. Chinaâs overall share of world exports is projected to double, with labor-intensive industries growing the mostâespecially ex- ports of apparel. In the 1995 base year, of the 22 industries included in the simulation the Chinese automotive industry had the highest tariffs, at 129 percent, compared with the average weighted tariff across all industries in 1995 of 21 percent. With Chinaâs accession to the WTO, import tariffs on automo- tive trade fall to 14 percent (an average of vehicle and component tariffs), compared with an industry-wide average weighted tariff of 7.85 percent. The model predicts for China a substantial increase in automotive exports and an even larger increase in automotive imports. The net result is a prediction that the total output of Chinaâs automotive industry will de- cline slightly (the only industry to do so) by 2005 under WTO accession. The authors are careful to note that their model does not capture econo- mies of scale in automobile production. If reduced protection forces con- solidation and increased economies of scale, Chinaâs automobile sector could become a stronger competitor and a larger exporter. Although con- clusions from these simulations are subject to large uncertainties, they do indicate that WTO accession will place tremendous strains on the auto- motive industry in China, because it has been highly protected and has few producers with enough volume to benefit from scale economies. Outside of China, the six large global auto companies that have
28 PERSONAL CARS AND CHINA emerged from mergers during the 1990s each have the capacity to pro- duce about 4 million units per year and are well poised to compete for a market share in China after WTO accession. In China, vehicle imports are likely to grow rapidly after WTO accession. Imported vehicles and auto parts will put competitive pressure on existing domestic producers and will likely lead to a reduction in the number of vehicle producers and the elimination of inefficient smaller firms. Exports of auto parts are likely to increase as both Chinese and international firms take advantage of Chinaâs relatively low wage levels. CONCLUSION In contrast to the impressions of casual observers, Chinaâs pattern of motorization is thus far very similar to that of other countries, and its overall motor vehicle fleet size is strongly associated with its growing income level. Current policies are likely to sustain this similarity. Like- wise, the pattern of paved road length in China is similar to that of other countries. One issue common to many other countriesâand rapidly emerging in Chinaâis that motorization is likely to produce its earliest and severest problems in cities. Urban residents have higher-than-average incomes and therefore buy automobiles earlier and at a higher rate than the general population. Because urban vehicle fleets grow more rapidly than urban road length, urban congestion increases quicklyâpromoting the decen- tralization of population and employment from central to peripheral loca- tions. Such patterns have already been observed in Chinaâs largest cities. Overall, motorization produces negative externalities that must be regulated. In many areas, China has put in place regulations (on emis- sions, fuel quality, and crash-worthiness) that are quite advanced and draw on the experience of other countries. To date, Chinaâs nationally mandated vehicle inspection programs seem to focus mainly on vehicle safety and to apply near the expected end of a vehicleâs useful life. China may well wish to ensure that motor vehicle users pay the costs of acci- dents through a mandatory insurance program or a financial responsibil- ity requirement. Chinaâs accession to the World Trade Organization will result in lower tariffs by a factor of two to four from the present levels on vehicles and components. In addition, import quotas and import licenses will be elimi- nated. These changes, to be phased in over a five-year period, will bring competitive pressure to bear on Chinaâs automotive industry, which is currently fragmented and enjoys few scale economies. Some detailed quantitative analyses suggest that the output of Chinaâs automobile in- dustry will be essentially unchanged by 2005, and that both imports and
MOTORIZATION FROM A GLOBAL PERSPECTIVE 29 exports of motor vehicle-related goods will grow. The implication is that much of the automobile growth over the five-year period will stem from imports. Although subject to considerable quantitative uncertainty, these analyses signal that Chinaâs automotive industry may face a significant structural adjustment from WTO accession.
30 PERSONAL CARS AND CHINA APPENDIX 1 NATIONAL DATA National Data, 50 Countries, 1970 and 1996 1970 GDP 1996 GDP 1970 1996 per capita per capita Land area Land Are Country (1995 US$) (1995 US$) (km2) (km2) Algeria 1,261 1,503 2,381,740 2,381,740 Argentina 6,833 7,743 2,736,690 2,736,690 Australia 13,636 21,347 7,682,300 7,682,300 Austria 16,053 29,813 82,710 82,730 Belgium 15,736 27,415 32,820 32,820 Bolivia 856 920 1,084,380 1,084,380 Brazil 2,393 4,476 8,456,510 8,456,510 Cameroon 508 617 465,400 465,400 Canada 12,460 19,820 9,220,970 9,220,970 Chile 2,360 4,858 748,800 748,800 China 120 630 9,327,450 9,327,420 Colombia 1,377 2,403 1,038,00 1,038,700 Cote d1voire 927 747 318,000 318,000 Denmark 23,446 35,115 429370 42,430 Ecuador 879 1,564 276,840 276,840 Egypt 478 1,066 995,450 995,450 Finland 15,200 26,239 304,590 304,590 France 16,412 27,060 550,100 550,100 Gabon 3,390 4,634 257,670 257,670 Germany 17,988 30,237 349,270 349,270 Greece 6,651 11,488 128,900 128,900 India 212 400 2,973,190 2,973,190 Indonesia 298 1,105 1,811,570 1,811,570 Ireland 7,908 19,685 68,890 68,890 Italy 10,801 19,331 2949090 294,060 Japan 20,015 42,913 376,520 376,520 Kenya 226 342 569,140 569,140 South Korea 2,641 11,467 98,730 98,730 Malawi 121 153 94,080 94,080 Malaysia 1,371 4,625 328,955 328,550 Mauritius 1,190 3,703 2,030 2,030 Mexico 2,295 3,251 1,908,690 1,908,690 Morocco 849 1,379 446,340 446,300 Netherlands 17,321 27,544 33,780 33,920 New Zealand 12,685 16,588 267,990 267,990 Nigeria 264 256 910,770 910,770 Norway 15,669 35,102 306,830 306,830 Pakistan 277 512 770,880 770,880 Philippines 845 1,122 298,260 298,170 Portugal 5,016 11,203 91,500 91,500
MOTORIZATION FROM A GLOBAL PERSPECTIVE 31 1996 1996 Motor area Land Area 1970 Total 1996 Total Vehicle-Related (km2) Population Population Deaths 740 2,381,740 13,700,000 28,600,000 690 2,736,690 24,000,000 35,200,000 300 7,682,300 12,500,000 18,300,000 1,970 710 82,730 7,426,000 8,059,000 1,027 820 32,820 9,638,000 10,200,000 1,356 380 1,084,380 4,212,000 7,588,000 510 8,456,510 96,000,000 162,000,000 400 465,400 6,614,000 13,500,000 970 9,220,970 21,300,000 29,700,000 3,082 800 748,800 9,496,000 14,400,000 1,925 450 9,327,420 818,000,000 1,220,000,000 69,000 ,00 1,038,700 22,600,00 39,300,000 7,445 000 318,000 5,515,000 14,300,000 370 42,430 4,9299000 5,262,000 514 840 276,840 5,970,000 11,700,000 1,421 450 995,450 33,100,000 59,300,000 590 304,590 4,606,000 5,125,000 404 100 550,100 50,800,000 58,000,000 8,080 670 257,670 504,000 1,125,000 270 349,270 77,700,000 81,900,000 8,758 900 128,900 8,793,000 10,500,000 2,068 190 2,973,190 548,000,000 946,000,000 71,943 570 1,811,570 118,000,000 197,000,000 890 68,890 2,950,000 3,632,000 453 090 294,060 53,800,000 579400,000 6,193 520 376,520 104,000,000 126,000,000 9,942 140 569,140 11,500,000 279500,000 730 98,730 31,900,000 45,500,000 12,653 080 94,080 4,518,000 10,000,000 1,090 955 328,550 10,900,000 21,100,000 6,304 030 2,030 826,000 19134,000 690 1,908,690 50,600,000 92,600,000 340 446,300 15,300,000 26,800,000 2,807 780 33,920 13,000,000 15,500,000 1,334 990 267,990 2,820,000 3,714,100 514 770 910,770 53,200,000 114,000,000 6,364 830 306,830 3,877,000 4,381,000 255 880 770,880 60,600,000 125,000,000 5,280 260 298,170 37,500,000 69,900,000 19043 500 91,500 9,044,200 9,930,000 2,100 Continued on next page
32 PERSONAL CARS AND CHINA National Data, 50 Countries, 1970 and 1996 (continued) 1970 GDP 1996 GDP 1970 1996 per capita per capita Land Area Land Area Country (1995 US$) (1995 US$) (km2) (km2) Rwanda 263 221 24,670 24,670 South Africa 4,100 3,943 1,221,040 1,221,040 Spain 8,507 15,224 499,780 499,40 Sweden 19,598 27,454 411,620 411,620 Switzerland 35,491 43,574 39,550 39,550 Thailand 752 3,021 510,890 510,890 Tunisia 1,004 2,119 155,360 155,360 Turkey 1,626 2,943 769,630 769,630 United Kingdom 11,827 19,651 241,770 241,600 United States 17,052 28,341 9,159,120 9,159,120 1970 Total 1996 Total 1970 1996 Motor Motor Passenger Passanger Vehicles Vehicles Cars Cars Country (â000) (â000) (â000) (â000) Algeria 251 1,505 143 725 Argentina 2,318 6,071 1,440 4,784 Australia 4,870 11,097 3,899 9,022 Austria 1,575 3,994 1,197 3,691 Belgium 2,302 4,768 2,060 4,308 Bolivia 77 362 19 224 Brazil 3,000 12,754 1,595 10,500 Cameroon 35 162 20 98 Canada 8,340 16,861 6,602 13,217 Chile 328 1,720 176 1,121 China 488 10,020 50 3,894 Colombia 343 1,922 239 1,624 Cote dâlvoire 89 456 56 293 Denmark 1,471 2,026 1,079 1,737 Ecuador 180 518 27 465 Egypt 270 1,787 131 1,354 Finland 997 2,210 712 1,943 France 14,370 30,558 12,900 25,500 Gabon 13 41 6 25 Germany 15,663 43,351 14,673 40,988 Greece 344 3,246 227 2,339 India 1,092 6,684 627 4,189 Indonesia 359 4,439 239 2,409
MOTORIZATION FROM A GLOBAL PERSPECTIVE 33 1996 1970 1996 1996 Area Land Area Total Total Motor Vehicle- (km2) Population Population Related Deaths 70 24,670 3,728,000 6,727,000 40 1,221,040 22,100,000 39,900,000 9,848 80 499,40 33,800,000 39,300,000 5,483 20 411,620 8,043,000 8,843,000 537 50 39,550 6,267,000 7,074,000 616 90 510,890 35,700,000 59,000,000 60 155,360 5,127,000 9,089,300 30 769,630 35,300,000 61,400,000 5,428 70 241,600 55,600,000 58,800,000 3,598 20 9,159,120 205,000,000 268,000,000 42,065 1996 1970 1996 1970 1996 nger Passanger Road Road Paved Paved Cars Length Length Roads Roads (â000) (â000 km) (â000 km) (â000 km) (â000 km) 725 76.0 104.0 33.0 71.6 4,784 201.1 218.2 33.4 63.5 9,022 884.7 913.0 185.8 353.0 3,691 94.8 129.1 94.8 129.1 4,308 92.1 144.1 75.1 116.1 224 25.6 41.6 0.9 1.8 10,500 1,130.0 1,670.1 38.9 139.7 98 46.6 70.1 0.9 4.3 13,217 830.3 901.9 186.9 318.4 1,121 64.5 79.1 7.4 13.2 3,894 636.7 1,210.0 47.0 271.0 1,624 49.5 129.1 6.0 15.4 293 35.0 50.4 1.3 4.9 1,737 61.5 71.3 57.6 71.3 465 20.6 43.2 2.9 5.7 1,354 23.6 64.0 10.1 50.0 1,943 72.4 77.8 23.2 49.8 25,500 785.2 892.5 691.0 892.5 25 6.0 8.3 0.2 0.6 40,988 440.9 656.1 317.4 650.0 2,339 35.1 38.1 17.4 34.3 4,189 972.3 2,367.0 324.8 1,295.0 2,409 84.3 336.4 21.1 155.8 Continued on next page
34 PERSONAL CARS AND CHINA National Data, 50 Countries, 1970 and 1996 (continued) 1970 Total 1996 Total 1970 1996 Motor Motor Passenger Passanger Vehicles Vehicles Cars Cars Country (â000) (â000) (â000) (â000) Ireland 440 1,109 394 987 Italy 11,115 33,316 10,181 30,600 Japan 17,826 68,805 8,832 46,869 Kenya 114 359 96 278 South Korea 180 9,553 61 6,894 Malawi 18 56 9 27 Malaysia 312 3,497 238 2,946 Mauritius 11 94 6 70 Mexico 1,825 12,818 1,234 8,707 Morocco 306 897 223 670 Netherlands 2,913 6,260 2,258 5,664 New Zealand 1,080 1,987 891 1,636 Nigeria 98 2,701 57 885 Norway 835 2,053 694 19661 Pakistan 146 977 93 578 Philippines 510 2,053 279 703 Portugal 553 3,263 510 2,671 Rwanda 6 30 3 13 South Africa 1,973 5,657 1,545 4,004 Spain 3,125 17,860 2,378 14,754 Sweden 2,690 3,981 2,289 3,655 Switzerland 1,524 3,546 1,383 3,268 Thailand 376 6,234 185 1,661 Tunisia 104 494 66 320 Turkey 298 4,328 138 3,457 United Kingdom 13,330 23,392 11,666 21,172 United States 109,305 205,146 88,840 129,728 SOURCES: Per capita gross domestic product (GDP), land area (square kilometers), and population: World Bankâs World Development Indicators Database. Motor vehicle data,
MOTORIZATION FROM A GLOBAL PERSPECTIVE 35 1996 1970 1996 1970 1996 nger Passanger Road Road Paved Paved Cars Length Length Roads Roads (â000) (â000 km) (â000 km) (â000 km) (â000 km) 987 86.7 92.5 71.6 86.9 30,600 285.0 303.9 262.2 303.9 46,869 1,013.6 1,147.5 152.0 825.6 278 41.5 67.2 4.8 12.5 6,894 40.2 82.3 3.6 59.8 27 10.7 14.6 1.1 2.9 2,946 22.6 63.4 14.8 47.2 70 1.8 1.9 1.6 1.8 8,707 72.3 312.3 42.7 99.3 670 45.9 60.7 21.1 30.5 5,664 79.9 124.1 78.6 112.0 1,636 93.8 91.9 41.9 55.9 885 89.0 112.9 15.2 36.3 19661 72.3 91.3 21.7 65.7 578 31.7 224.9 17.5 98.9 703 75.7 161.3 13.5 28.1 2,671 41.8 68.7 32.4 59.1 13 6.5 14.9 0.1 1.4 4,004 185.5 331.3 33.1 137.5 14,754 139.4 344.8 94.7 341.0 3,655 98.0 210.0 38.6 162.0 3,268 59.2 71.1 59.2 71.1 1,661 16.3 200.3 10.0 62.9 320 17.9 29.2 9.1 18.2 3,457 59.5 381.6 19.0 95.4 21,172 334.1 368.8 324.2 368.8 129,728 6,003.0 6,308.1 2,668.9 3,816.4 including deaths: International Road Federation (IRF, various years). (Motor vehicle fatality rates are not available for many countries in the IRF database.) Length of total roads and paved roads: IRF (various years); World Bank (1994); Canning (1998).
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