Auto Industry

In a jam

Anti-congestion measures to hit car sales in Beijing

In a jam

Gridlock on Chang'an Avenue

A new year often begins with a determination to rein in on the excesses of the month before, and Beijing’s bureaucrats seem to have identified car purchasers as the prime candidate for a more bracing approach in 2011.

In particular, new buyers are facing a quota system in which only 20,000 licence applications will be approved every month, about a third of the number on offer last year.

The immediate impact once the new rules were announced in late December was a frenzy of car buying, as customers rushed to circumvent the looming restrictions. “Simply spectacular” was the verdict of one Beijing Volkswagen dealer to the 21CN Business Herald, who said he had sold 400 vehicles on the night of December 23 alone.

Sales volumes had already surged towards the end of the year, in anticipation of the increase in sales tax on small vehicles to 10% from 7.5% on January 1. At least 2,000 new cars were being driven onto Beijing roads daily in December, twice the rate at this time last year, according to the Beijing Municipal Transport Commission (BMCT).

The measure is designed to limit congestion in the city. Few disagree that Beijing has a serious problem, something that we have written about before in WiC (issues 10 and 76). Back in 1978, there were only 78,000 cars on Beijing’s streets, according to the BMCT. But almost ten times that joined traffic queues in Beijing last year alone, and there are now 4.8 million cars registered in the capital. State newspapers have been quoting government research suggesting that if nothing is done, the average speed of car traffic could slow to 15 km/h by 2015 — about the speed of a sensible pedal on a bike.

Eligible individuals for the new permit scheme are hukou holders, as well as foreigners who have lived in the city for at least a year. Residents that are without a Beijing hukou (a term for residency, see WiC88) must provide proof they have paid social security fees and income taxes for five consecutive years. Successful applicants then go into a lottery for the licences themselves. More than 53,000 people registered online for the lottery on the first day that the new restrictions came into effect, the Beijing News reported.

Most of the Chinese automakers saw their stock prices drop on the news, but the impact was also felt further afield. In Germany, for instance, BMW, Daimler and Volkswagen all saw their share prices fall sharply. Nor will Volkswagen shareholders have been much impressed by another of the new initiatives announced; a limitation on the purchase of new government cars for the next five years (Beijing has around 700,000 government vehicles, nearly 15% of the city’s car ownership. Volkswagen’s Audi brand is the civil servants’ car of choice – see WiC1).

One of the manufacturers concerns will be that Beijing’s scheme could be introduced in other cities. The measures are far from unprecedented. Shanghai has limited the number of new car licences issued each year since 1986. The average cost of such a permit in November was Rmb45,291 ($6,800) , according to government data. As a result, it has one-third as many registered vehicles as Beijing, even though the populations of the two cities are similar.

One sign of a tougher sales environment ahead? Xiong Chuanlin, vice secretary of the China Association of Automobile Manufacturers, told a news conference last month that domestic sales nationally will slow to about 10% in 2011 after growing nearly 50% in 2009 and more than 30% last year. General Motors is taking a similar view – China’s largest foreign carmaker forecasts its sales in the country will increase just 10-15% this year. But those forecasts may need to be revised if other major cities follow Beijing’s lead with their own schemes to limit car sales.

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