Notes from the so-called Real World

Speaking of indus­trial policy…today’s NYTimes brings an impor­tant story about a shift in Chinese strat­egy on car manufacturing:

NYTimes: China Changes Direction on Car Sales

source: Philip Jagenstedt
via Flicker (cc license)
ktg mod­i­fi­ca­tions

China wants to reduce the growth in car man­u­fac­tur­ing while focus­ing on increas­ing qual­ity and fuel efficiency.

A suc­ces­sion of gov­ern­ment offi­cials at a week­end con­fer­ence called for China’s automak­ers to shift their focus from mak­ing ever more cars and toward pro­duc­ing more fuel-​​efficient and more advanced mod­els, includ­ing gasoline-​​electric hybrids and all-​​electric cars.
source: NYTimes

In terms of indus­trial pol­icy, think about how these kinds of choices are made and then imple­mented in the U.S. com­pared to China. It isn’t that the U.S. is a pure free mar­ket sys­tem, while China’s is a com­mand econ­omy. The U.S. imposes fleet fuel stan­dards, safety stan­dards, and tax incen­tives to push the car indus­try in a desired direc­tion. It is just that the Chinese gov­ern­ment has much more direct levers of con­trol, and is much more will­ing to use them. At the same time, how­ever, China can­not escape from global mar­ket dynam­ics. And China has to deal with the bur­geon­ing demand for cars that has accom­pa­nied the dra­matic income growth that China has expe­ri­enced since throw­ing off the shack­les of Mao’s pure com­mand econ­omy and his restric­tions on inter­na­tional trade.

A forced shift of this sort in China has enor­mous impli­ca­tions for the global car mar­ket, the global oil mar­ket, and for the global cli­mate. Oil-​​based trans­porta­tion is the fun­da­men­tal dri­ver of cli­mate change. It also has huge secu­rity impli­ca­tions as the global demand for oil props up some of the most prob­lem­atic regimes in the world. And, as we saw in the eco­nomic dif­fi­cul­ties of 2008, the global car mar­ket is a crit­i­cal ele­ment in the mod­ern eco­nomic order.

To get per­spec­tive on the poten­tial impact of this shift, remem­ber that the U.S. has about 828 motor vehi­cles per 1000 peo­ple – that’s more than one per dri­ver, so the mar­ket is sat­u­rated. The only way to sell more cars in the U.S. is to replace other cars. In 2008, China had just 37 cars per 1000 people.

Here is a graph show­ing the increase in Chinese cars over the past 25 years. If China increased to the same own­er­ship rate as the U.S., that would require about 1 bil­lion new cars. The total num­ber of motor vehi­cles in the whole world right now is about 800 million.

source: SmokingPermitted via Flickr (cc license)

Then, there is India, with a pop­u­la­tion of 1.1 bil­lion and a car own­er­ship rate of about 6 cars per 1000 people…