The auto industry in China has great potential to increase in the next two decades alongside the nation's steady economic growth, but huge challenges exist.

China's vehicle output is expected to grow on average by 10 to 15 per cent during the next 20 years, said Zhang Xiaoyu, chairman of the China Association of Automobile Manufacturers.

Annual vehicle output in China is forecast to reach 10 million units by 2010 and 17 million by 2020.

Vehicle numbers in China will increase by six times to 140 million units by 2020 from last year, according to the Ministry of Communications.

The number will ultimately reach 240 to 250 million vehicles with the proportion of ownership about 150 units to every 1,000 people, the ministry predicted.

At present, the vehicle number per 1,000 people in China stands at 20 units, compared with an average world level of 120 units.

From 2000 to 2020 China's gross domestic product (GDP) will quadruple to US$4,000 billion.

Per capita GDP will reach US$3,000 by 2020, up from US$1,000 currently.

With greater numbers of people owning cars, China is progressing from a kingdom of bicycles towards an automobile society.

The trend will not be altered because an increasingly rich population will buy cars as a means of improving its living standards, said Chen Qingtai, deputy director of the Development Research Center of the State Council.

"The industry will have a positive and profound impact on all aspects of the Chinese society," Chen said.

For example, the use of cars will improve peoples' ways of life, and enable them to learn about different subject areas, such as machine building, electronics, energy, the environment, geography and law, he said.

Differences between China's coastal and inner regions, cities and the countryside will be reduced step by step with more people owning cars.

However, the auto industry will also face many big challenges mainly concerned with energy, environment and traffic, he said.

"The growing car population will engulf the bulk of China's total oil supply and will also put pressure on it," Chen said.

He said that automobiles in China would consume 138 million tons of oil annually by 2010, accounting for 43 per cent of the nation's total oil demand.

The annual oil consumption from automobiles will grow to 256 million tons by 2020, 57 per cent of the total demand.

In 2000, vehicles in China consumed 65.6 million tons of oil, one-third of the total demand.

"As a result, China will depend on oil imports more heavily because domestic oil reserves are limited and the nation's energy security will be greatly affected," Chen said.

China's total oil demand is forecast to reach 450 million tons annually by 2020, relying on imports for more than half.

The nation's oil imports will increase to 110 million tons this year from 97 million tons last year.

Exhaust emissions of automobiles will also pose big challenges to environmental protection in China, Chen said.

"Pollution in cities will mainly be generated by automobiles, instead of coal, if we cannot effectively control auto exhaust emission," he said.

Vehicle exhaust emissions will account for 79 per cent of total air pollution in China by 2005, according to forecasts from China's State Environment Protection Administration.

Vehicles have become the biggest carbon monoxide and nitrogen oxide emitters in big cities such as Shanghai, Beijing and Guangzhou.

In 2000, vehicle carbon monoxide and nitrogen oxide emissions in China reached 30 million tons and 3.8 million tons.

Foreign and domestic automakers have started to introduce clean, energy-saving technology in China, encouraged by the Chinese Government.

The State will encourage vehicle manufacturers to develop and produce vehicles powered by diesel, gas, ethanol, electricity, hydrogen and hybrid fuels, according to China's new auto policy released in June.

The average oil consumption of new vehicles will decline by more than 15 per cent before 2010 from 2003 with the introduction of new technology.

Germany's Volkswagen was the first foreign automaker to produce cars equipped with modern diesel engines in China.

The company started to make the Jetta with suction direct injection (SDI) engine in 2002 at its joint venture with First Automotive Works Corp (FAW) in Northeast China's Jilin Province.

The venture also launched the 1.9-litre turbo direct injection (TDI) Bora in March this year and the 2.5-litre TDI Audi A6 in August.

The venture plans to produce more than 10,000 diesel-powered cars this year, including 8,000 SDI Jettas.

Modern diesel engines save much more energy and are far more environmentally friendly than petrol engines.

For example, the 1.9-litre TDI diesel engine's carbon dioxide emission is 30 per cent lower than the same-sized petrol engine. The introduction of modern diesel engines is a "practical way" to save energy and alleviate emission pollution and they have excellent prospects in China, says an executive of the Volkswagen venture.

However, diesel engines still have a bad reputation in China as many low-quality trucks spew black smoke and are very noisy.

Therefore, at present, diesel-powered cars account for a tiny proportion of total car output in China.

Last year, China's car output totalled 2.01 million units but only 4,600 Jettas were equipped with diesel engines.

By contrast, diesel-powered cars account for 40 per cent of the total market in Europe and up to 50 per cent in Germany.

Japan's Toyota Motor Corp will start to produce its hybrid-powered Prius car in China next year in collaboration with FAW.

Toyota and FAW are also in negotiations to introduce their hybrid engine technology into FAW brand cars.

The introduction of hybrid cars in China will be Toyota's "active response" to the nation's new auto policy, said Akio Toyoda, a Toyota board member.

Fuel consumption of the 1.5-litre hybrid Prius is lower by 40.5 per cent than the 1.6-litre petrol-powered Corolla being made at Toyota's venture in China with FAW, says Toyota.

A Beijing-based official of GM said that the world's No 1 automaker expects to put its hydrogen-powered vehicles into initial production in China in 2010.

As part of efforts to alleviate pollution in preparations for the 2008 Olympic Games, Beijing will put into place the European III emission standard and the IV standard in 2008.

The European II standard will be implemented nationally next year.

Xu Feng, a white-collar worker living in northern Beijing's Asian Games Village area, is cautious about buying a car.

"It will be very convenient to drive out of Beijing to breathe fresh air and do other things during holidays if I have a car, but the traffic jams between my apartment and downtown office are terrible," Xu told China Daily.

Xu's hesitation is not rare for many city residents with money in their pockets.

(China Daily October 6, 2004)