China was a low carbon dioxide emission country a decade ago. Now it comes second after the United States in the production of carbon dioxide. The explosive growth of the auto industry is driving the county into an "auto society." As a result, traffic jams, environment pollution and energy crisis seem inevitable.

"Instead of overheated investment and redundant construction, the real challenge is the social crisis presented by the imminent auto society transformation," said Chen Qingtai, vice director of the State Council Development and Research Center, an auto industry patriarch who has worked in the industry for 22 years.

The State Development and Reform Commission (SDRC) is about to promulgate China's first compulsory regulation on controlling auto fuel consumption to steer China's auto society, according to the Financial Times.

Auto society predicament

As the auto industry contributes a lot to China's GDP, it has begun to accept the cost of social development on the environment.

Latest research from the Harvard Institute indicates that within the decade-long Sino-foreign auto joint venture mode, almost all emission control technologies offered by foreign carmakers are out-dated. Thus, China lags about ten years behind most developed countries in regulating auto emission discharge standards. While developed countries begin to adopt Europe IV standards, most commercial cars and sedans running on Chinese urban and rural roads still follow Europe I standard. Only few can live up to Europe II standards.

"Besides backward standards, the enforcement is far from satisfactory," said Fang Maodong, a researcher with the Tianjin-based China Auto Technology Research Center. Even those meeting China's state emission standards still discharge about 200 percent carbon monoxide and 300 percent hydrocarbon and nitrogen oxides of cars running in Europe.

Besides environmental cost, the country also sees mounting social economic costs. According to Shanghai and Beijing municipal environmental protection agencies, air pollution caused by vehicle emissions accounts for more than 90 percent of urban pollution and has doubled the lung disease incidence over the past 30 years. The World Bank estimates that medical expense and costs of laborer productivity caused by air pollution may offset around 5 percent of China's total GDP.

Since the number of motor vehicles grows at explosive speed, traffic jam becomes the biggest headache for city operators. The average speed in rush hour for Beijing's 2 million vehicles is only a meager 11 KM/hour. Shanghai has to adopt plate-licensing fees of around 30,000 yuan to 40,000 yuan (US$3624 to US$4832) per vehicle as a tool to ease the traffic pressure.

Another severe challenge synchronized with the auto society is energy. Authoritative statistics shows that motor vehicles devour 85 percent of China's oil output and 42 percent of its diesel output. Zhang Xiaoyu, president of China Mechanical Industry Association estimates if China could maintain a 7 percent GDP growth over the next two decades, vehicle sales would hopefully grow 10 percent annually.

"That means oil consumption will also grow fast and worsen the severe oil supply-demand gap," said Zhang.

Compulsory measures to boost fuel efficiency

According to the Financial Times, carmakers must submit an authorization application on fuel consumption for each vehicle model and reach the lowest standard before releasing it to the market as required by the SDRC's fuel efficiency compulsory regulation.

Fang Maodong, one drafter of the regulation, said that the regulation is mainly for two purposes: to control carbon dioxide emission and to ensure national energy security. The regulation sets a goal to lift fuel efficiency up to 15-20 percent higher than the United States by 2005/08.

In the US, manufacturers have been required to meet average fuel consumption standards since 1975. Otherwise, manufacturers will be fined US$5 every 0.1 mile/gallon per vehicle. Customers may also be punished if a newly bought vehicle exceeds the standard by a big margin. Thanks to the compulsory fuel efficiency policy, the US has saved 190 million gallons of raw oil and US$92 billion in 2000 alone.

Auto industry insiders say that once the above-mentioned regulation is enacted, domestic high fuel consumption cars like SUV and luxury sedans with big cubic capacity will be the first to feel the impact. "Under such standards, SUV manufacturers like the Great Wall, Zhongxing, Beijing Jeep and big cubic capacity sedan manufacturers like Honda, Volkswagen and General Motor will be affected to some extent," said the regulation drafter.

Experts predict that most sedan manufacturers will increase investments on fuel-saving diesel sedans. Some manufacturers started pilot projects in this area as early as 2000.

It is said that the SDRC will release a new Auto Industry Development Policy to overhaul the entire industry. From the start of the auto project review and approval process, the development policy will hopefully eradicate industrial irregularities like shabby vehicle assembly, illegal transfer and sales of vehicle product quality certificates, and illegally setting up affiliated companies.

Capital without technology will be strictly blocked to enter the auto segment. Local governments will not be allowed to use the state's financial appropriation to establish or expand auto projects. All commercial banks are forbidden to provide loans to auto projects that haven't passed the review and approval process and land resource authorities are not allowed to grant land for such purposes.

Meanwhile, to those whole vehicle manufacturers without correspondent design and development capabilities, the state authorities will set a time for them to reform and improve. Those failing to meet demands within the time limit will be ordered to retreat from the whole vehicle-manufacturing segment.

(China.org.cn by Alex Xu and Daragh Moller, January 14, 2004)