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Real cost of auto boom

2011-01-12 15:42

China's jaw-dropping auto sales in 2010 are a clear manifestation of the rapidly growing clout of Chinese consumers.

However, while enthusiastically unleashing the purchasing power of domestic consumers, Chinese policymakers should also pay close attention to the looming cost of such an auto-consumption binge.

The explosive growth in car ownership has forced a number of major Chinese cities to tackle worsening traffic jams with various restrictive measures.

Unfortunately, few have taken the trouble to raise the issue of the affordability of such a huge army of gas-guzzlers in a country that has to import more than half of the crude oil that it consumes every year.

Latest statistics show that Chinese auto sales jumped by nearly one third to 18.06 million vehicles in 2010 marking the highest annual sales in the history of the global automobile industry, far surpassing those of the United States for a second consecutive year.

Yet, while carmakers, at home and abroad, are busy calculating the fat profits they are making from the world's largest auto market; Chinese policymakers bask in the growing strength of the domestic auto industry, as well as its greater contribution to government coffers; and consumers who have helped Chinese auto sales hit an all-time record last year are happy to have bought before the restrictive quota policies come into effect, is the ongoing auto boom in China really all that promising?

It might be reasonable to anticipate that the Chinese automobile market will grow 10 to 15 percent annually on average during the next five to 10 years given the country's intention to double Chinese consumers' income in five years.

Nevertheless, the total cost of such a lasting car consumption boom is far greater than the price that consumers will pay for their new cars. What will the extra oil demand of an annual increase in China's car ownership by 18 million units mean for the global energy supply? Will it send the international price of oil through the roof someday?

Local officials are right to focus on easing daily traffic congestion. Automakers are understandably driven by their quarterly performance reports. And no one can really expect car drivers to figure out their individual contribution to the country's growing dependence on foreign oil. But, the challenge that an auto boom makes to our energy security demands an immediate and powerful national response.

Administrative controls on car purchases will probably not choke the growth of the Chinese auto market. But skyrocketing oil prices may.

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