While the auto market in China outcomes the tough situations and grows at a rapid pace, there is increasing pressure from the transportation and environment problems brought about by the fast-growing car population. Today, we have already on the way to enter the auto society, but have we made sufficient preparations for the arrival of the auto society and have we had the engine power to supply the sound circulation of the auto society?
The auto consumption environment can be divided into “hard environment” and “soft environment.” The former includes road transportation, parking facilities, energy supply, etc., and the latter mainly concerns auto consumption policies as well as auto finance service, auto service system and auto consumer rights protection, etc.
In view of the hard environment, as of 2008, the total road mileage had reached 3,730,000km, in which, the highway mileage was 60,300km, taking the second place in the world. However, the road transportation construction is far from sufficient and the quality of the facilities is not up to standards. The specific problems are displayed by the poor quality of pavement of most roads, poor trafficability, narrow city roads, indicating that a high-efficiency urban traffic system has not shaped up. In the meantime, the construction of trans-regional roads is not improved and the toll fees maintain at a high level.
In recent years, some cities are making efforts on and have made several attempts at improving the hard environment of auto consumption. However, most of the measures are related to “restrictions,” for example, high license plate fees, traffic and road restrictions, etc. All this fails to solve the traffic issue from the root.
In addition, many tier one and two cities do not take strategic vision on city planning. Some cities adopt the “spreading-out” development mode which results in the growing difficulty in traffic dispersion in cities. The insufficient parking areas in urban communities and the seriously unbalanced ratio of parking stands to residences directly contributes to the difficulty in parking and high parking fees. The growing parking fees increase the car maintenance costs of car owners but this provides no help for the ease of the parking problem. There is a dramatic conflict between the parking environment and city planning.
In view of the “soft environment,” the government issued some preferential policies in 2009 to encourage car consumption, but the current auto tax system, the heritage of the planned economic system and the economic transition, still has the tendency of “retraining purchase and encouraging consumption.”
Under the general trend of energy conservation and emission reduction, 7.5%-10% of purchase tax is charged, still higher than in European and American countries. Both car purchase and use taxes are imposed to consumers. Unlike many developed countries, Chinese car consumers are bearing high car-consuming spending with relatively low incomes.
In terms of auto finance services, the imperfect auto consumption credit system adds to the risk of auto consumption credit of banks. To lower the risks, banks find no way but set up a high threshold for loans. This year, the speculation that “the Central Bank will tighten the control over consumption- and credit-related loans” has been reported repeatedly, and the minor adjustments in the currency policy will probably lead to consumer credit contraction. Also, applying the housing accumulation fund in car consumption that has been appealed for years can hardly become reality in the near future, and purchasing a car in full payment is still a dominant trend.
With the growth of the auto markets in tier two and three cities, automakers are expanding their distribution networks in these areas with the hope that these markets can drive the rapid growth of the car market as a whole. However, the population and car population in tier two and three cities still have a large gap with tier one cities, and the problems with lagged city planning, limited city scale, traffic congestions and environmental pollutions bring huge challenges to the sound development of these cities.
In face of the financial crisis, auto consumption brings hope to economic growth, but behind the growth is the hidden problems with the gradually deterioration of the car consumption environment.
Author: Tony Liu, Senior Vice President, Sinotrust
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