TCS Daily


Wheels of Fortune

By Alexander Monro - December 1, 2004 12:00 AM

Of all the growth industries in China few have burgeoned with the speed of the automobile industry. Although the middle-class wants more mobility, the status attached to cars is at least as important for an emerging bourgeoisie. Just a few years ago bicycles filled the roads and most cars were China-built taxis.

In the 21st century, however, the ultimate Chinese status symbol is four-wheeled and foreign-made. It is also a recent model. Just five years ago the Volkswagen Santana was the car to own but in today's Beijing they're as commonplace as taxis. The latest favorite is the US-made Hummer H2. The H2 is over 2 meters high, over 2 meters wide, and weighs over four tons. The stallion of American cars is hardly suited to China's congested highways but this gas-guzzler is about kudos not convenience.

Growth has affected the industry in several ways. January to November 2003 saw more than 4 million vehicles produced in China. Of these more than a quarter were passenger cars whilst the same 11-month period saw almost 4 million units sold, an increase of over 30 percent on the corresponding period of the previous year. In June Beijing held Auto China 2004, the country's premier car show. The show occupied over 75,000 square meters, an area larger than that of the White House and all its grounds. Foreign carmakers like Daimler Chrysler, Ford, General Motors, Volkswagen and Audi have their own showrooms in China's major cities already.

But China is growing in popularity at the other end of the production line too. Toyota has teamed up with Guangzhou Automobile Group in Southern China to manufacture its Camry sedans. The Japanese company plans to begin building its hybrid, semi-electric Prius car by the end of next year. Hyundai already has a China production capacity of 150,000 cars a year.

The growing wealth of China and India has spawned a fast-moving market for flashy cars in the Far East. But for all the excitement among car manufacturers at home and abroad, it will not be car sales that send reverberations throughout the world. The biggest market change will of course be in oil. According to Chinese government figures, its dependency on crude imports will rise from 31 percent in 2002 to 50 percent in 2007. That figure is likely to continue rising, despite Beijing's predictions that it will peak out at a little over 50% percent.

In September 2001 China and Russia pledged $1.7 billion to research building a 2,400-kilometer pipeline to bring 30 million tons of Russian oil to Chinese refineries annually. Over the summer, China and Kazakhstan began work on a 1,240-kilometer pipeline to the Chinese border, part of a 3,000-kilometer tube that will transport oil directly from the Caspian Sea. Hu Jintao, China's pale-faced President, has also held talks with Uzbek President Islam Karimov, and the two have publicly expressed their desire to trade Uzbekistan's oil soon.

But plans and pipe-dreams make regular bedfellows. In March Moscow shelved the China-Russia pipeline initiative in favor of a deal with Japan. The two agreed on a conduit that will take oil from Eastern Siberia directly to the Russian Pacific Coast. Russia argues its about-face was down to environmental issues. In private, however, officials concede that the US and Japanese markets were part of the reason too.

As Chinese reliance on oil grows, so it will seek to diversify its sources as far as possible. It has even laid plans for an oil stockpile that could fuel the country for an entire month. Its own pipeline is also a nascent project that may yet bear much fruit. Unavoidably, however, China's reliance on the Middle East will continue to grow. Already, Beijing has forged strong oil-trading links with Saudi Arabia, Kuwait, Iraq, Iran and, more recently, Sudan. China's leaders might hope for a peaceful and industrialized Central Asia that can feed China's cars and factories, but that dream is probably decades away.

Last Wednesday, Richard Tallboys, former British Ambassador to Vietnam, told an audience in Pall Mall that this Sino-Middle Eastern relationship would be signally significant for East Asian geopolitics over coming decades. The reason is that oil from the Middle East must travel by tanker through South East Asia. From the Indian Ocean it comes through the Malacca Strait before turning left across the South China Sea. And there's the rub. The South China Sea is the world's largest-scale maritime dispute. China claims that, as the regional giant, it should own the lion's share. ASEAN is suspicious of Beijing's intentions if increasingly realistic about her power. For China it will be necessary to secure a solution to some of the problems of the area if a flotilla of oil-ships is to arrive daily -safely- on its Southern Coast.

Part of the answer is the Chinese navy, which is growing. The navy acts as a statement of power and, perhaps, of intent. But China will have to tread carefully. Already its close ally Singapore has lost a large chunk of its sea-traffic due to cheaper regional competition, notably in nearby Malaysia. If China upsets the regional balance still further then ASEAN could turn against it, provoking a Chinese energy crisis - not yet, of course, but sooner than you'd think.

China imports a barrel of crude a day for every member of its population. Within ten years that figure could double. The country is a late arrival to the oil game and, although it doesn't bother its business partners on human rights or petty politics, it will still need to persuade them that its economy is driving in only one direction.

Driving does of course remain fundamental in all this, and the international community must work very hard to encourage China to invest in greener means of transport, and in research. Other countries will have to lead by example, not least the United States. But no amount of research and investment can stall China's growing oil-reliance. As for Beijing, already coping with an overheating economy and the problems of a two-speed society, just finding the oil will present enough challenges of its own. Long-term planning will be paramount. Fortunately for President Hu and Prime Minister Wen, long-term planning is a luxury their unaccountable party does enjoy.

The author works on the foreign desk of the Times of London.


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