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Local discriminative restrictions on small-displacement vehicles should be removed

The following is a summary of the letter written by the chairman of China¡¯s largest mini-vehicle manufacturer, Chang¡¯an Auto Group, in an effort to lobby the central government to abolish all discriminative regulations against the use of economy and mini-vehicles. The letter, entitled ¡°Suggestion to Abolish All Discriminative Policies Against Small-Displacement Automobiles at an Early Date for the Sake of State Strategic Security,¡± was submitted to relevant departments of the State Council. Later in August, Chang¡¯an Auto Group released the letter to the public with a different title: ¡°Regional Discriminative Policies Against Small-Displacement Automobiles Need to Be Removed for the Sake of Building a Frugal Society.¡± – Editor


China today is confronted with four realities in the automobile industry:


Reality I: China has become a market for large-displacement automobiles. Manufacturers are competing with one another in large-displacement vehicles in order to seize market shares. Overseas luxury automakers have come to China and setup factories. The average amount of fuel consumed annually per vehicle in China is 10-20 percent higher than that in the U.S., and twice that in Japan.


Reality II: Automobiles are a status symbol in China, not just a means of transportation. It is perceived by many in China that small-displacement means low quality, loud noise and high exhaust. There is an unhealthy tendency in buying large-displacement, large-body vehicles.


Reality III: The proportion of small-displacement vehicles in China is going down. It fell from 34.8 percent in 1996 to 22.7 percent in 2004. In contrast, the proportion of small-displacement vehicles in Europe has risen to 70 percent. India produced 815,000 units of automobiles in 2003, and 75 percent of them were small-displacement.


Reality IV: Despite the clear policy stated by the central government in support of the development of economy automobiles, an increasing number of local governments have put into place restrictive regulations. It was stated in the 1994 Automotive Industry Policy, the 2004 Automotive Industry Development Policy and the recent China¡¯s Mid- to Long-Term Energy Saving Policy that China should develop small-displacement and low-emissions automobiles. But today small-displacement automobiles are strictly forbidden on the main roads of 84 cities in 22 provinces in China.


The direct result of these restrictions is that large numbers of consumers hesitate to buy economy automobiles out of concern that they cannot drive on certain roads. For municipalities that restrict the operation of small-displacement vehicles in order to ease traffic congestions, the effect is largely minimal and traffic jams remain as serious even without mini-vehicles on the roads.


But more importantly, the issue at hand involves environmental protection, energy consumption and national security. China¡¯s automobiles consume 85 percent of the total gasoline and 20 percent of the total diesel used in the country.


The restrictions on small displacement vehicles, therefore, may lead to five crises for the auto industry, the economy and the society at large:


Crisis I: Unbalanced development of the industry. A healthy automotive industry structure should cover all vehicle models, displacements, dimensions and weights based on market demands. A disproportionate number of high-displacement vehicles would also magnify the impact were there ever an oil shortage. Consumers would have to stop purchasing vehicles or be unable to drive the vehicles they have.


Crisis II: Economic setback. Restrictions on small-displacement vehicles inherently leads to the development of large-displacement ones. This both increases the reliance on imported oil and upsets the economic development of the industry. Rising oil prices already negatively impact China¡¯s GDP by an estimated 1 to 2 percent, more than the average effect on the global economy.


Crisis III: Energy shortage. The global automobile parc is already 650 million units, and the world¡¯s oil resources can only sustain it for only an estimated 50 to 100 years. China¡¯s oil resources can only support domestic consumption for less than 30 years. China is the third largest automobile market, but already the second largest consumer of oil worldwide, a demand that is growing by 5.77 percent every year.


Crisis IV: National security. Energy, as a global resource, impacts national defense and security. China¡¯s strategic oil reserves are enough for only one week, compared to one month reserves in countries like the U.S. A sudden change on an oil pipeline project in Siberia last year only aggravated the problem. The oil supply has already been listed as a major threat to China¡¯s national security.


Crisis V: Environmental dangers. Global warming is a mounting challenge. And the role of large countries like China is magnified. The carbon dioxide released by automobiles is a primary source of greenhouse gases and all else being equal, having a higher percentage of small-displacement cars on the roads would create less pollution and lighten the burden on the environment.


We would like, therefore, to make the following suggestions to the government in support of the use of small-displacement vehicles:


1. Pass strict and clear regulations to eliminate all discriminatory measures on small-displacement vehicles;

2. Promulgate differential tax and fee schemes for the purchase and operation of automobiles in favor of small-displacement vehicles;

3. Eliminate all local restrictions on the use of small-displacement vehicles;

4. Institute a fuel tax at an early date.

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