China is the world's biggest car market, having overtaken the US in 2009, with sales touching 18.1 million units last year. Aly Song / Reuters
China is the world's biggest car market, having overtaken the US in 2009, with sales touching 18.1 million units last year. Aly Song / Reuters

Beijing city sacrifices one of its economic drivers



Economic indicators in China are set to keep climbing this year, but an exception is likely to be car sales in the capital, Beijing.

While there is no lack of people in the city who would like to buy and register a new vehicle, tough rules announced at the end of last year mean most will be unable to do so.

To help relieve congestion in the city, the authorities are putting a ceiling of 240,000 on the number of new car registrations in Beijing this year.

A monthly lottery is deciding who can register a new vehicle and 210,000 people entered last month. About 17,600 were selected for one of the coveted number plates. The rest of the 20,000 monthly quota went to companies.

Given that 800,000 new vehicles were registered in the capital last year, the restrictions are likely to have a dramatic effect on the city's car dealerships.

It was unsurprising that the authorities felt compelled to act as Beijing has become one of the world's most congested cities. With 2,000 new cars hitting the roads each day on average last year, traffic jams were a major problem.

China overtook the US to become the biggest car market in the world in 2009 with 13.5 million vehicles rolling out of showrooms, and last year saw further huge increases as sales grew to 18.1 million.

Luo Lei, the vice general secretary of the China Automobile Dealers Association, says 400,000 cars will probably be sold in the capital next year - the 240,000 quota of new registrations and 160,000 used vehicles.

Severe though this reduction is, John Zeng, the director of Asia vehicle forecasting for JD Power and Associates in Shanghai, says the industry will not suffer too severely.

"With just one city the effect is going to be limited," Mr Zeng says.

Achieving sales growth has become "more and more difficult" in the bigger cities, he says. Most car makers are now concentrating in the second and third-tier cities.

Shanghai has had a similar system in place and people can usually find a way around it by registering their cars in neighbouring provinces, Mr Zeng says.

But the authorities in Beijing seem wise to this loophole, saying they will restrict entry of vehicles that are not registered in the city.

Putting aside the fine print of the regulations, the policy raises the wider issue of the extent to which China will sacrifice economic growth for the environment.

As it grapples to reduce energy consumption, at least when measured as a unit of GDP, and to control pollution, the country is prepared to put the brakes on growth, officials insist.

Last year, the Chinese premier Wen Jiabao said the country wanted to shut down small industrial plants with high energy consumption in the second half of 2010.

"We are willing to achieve this goal at the cost of reducing the GDP growth rate," Mr Wen said.

His comments came after figures showed China's energy use per unit of GDP increased in the first six months of last year.

Frank Song, a professor and director of the Centre for China Financial Research at the University of Hong Kong, says Beijing acknowledges concerns about "the balance between growth and the environment".

The country must generate new jobs for those moving from the country to the cities, Prof Song says, and this requires "reasonable growth". But he suggests resources could be priced at more acceptable levels to promote efficiency. This may see, for example, the price of electricity rise.

"I wouldn't say the balance will go too much in the other direction, in which we'll sacrifice too much growth in GDP for the sake of the environment, [but] the government will strike a balance," Prof Song says.

"In the past, growth has been achieved without due concern for the environment."