Private car ownership in China is low, but it has the potential to skyrocket. If China continues to follow the model of economic growth that is based on the automobile industry's growth, which was promoted by former US President Ronald Reagan in the 1980s, it will develop many of the same problems that the US is facing today. For example, the US, the "country on wheels", is heavily dependent on foreign sources of oil, and as oil prices continue to rise, the US economy suffers. I wonder, given these issues, which direction China's auto industry and transportation sector should go.

I spent one month in Beijing this past summer. The city was to me more of a giant parking lot. Luxury cars like Audi, Volkswagen, Hummer, and Mercedes-Benz as well as small cheap cars like Chery's QQ (a local brand) were all stuck in gridlock. Millions of commuters who used to enjoy a commute by foot or on a bicycle are struggling with cars, crowds and smog on their "trek" to work. In Beijing, the term "rush hour" has lost its meaning. Every minute of the day is now rush hour, except between midnight and dawn. Around 1,000 new cars, on top of three million existing cars, hit the road every day, so traffic in Beijing is not going to get any better.

Auto producers around the world see China as a burgeoning market; they strive to get a share of this growing pie and export their culture and lifestyle to the largest emerging economy. During the 2008 Beijing International Automotive Exhibition, the world's auto giants and rising auto brands invited singers, movie stars, athlete celebrities, and numerous car models to stimulate people's craving for cars. I have to say, their marketing strategies are very effective. While the sales of Sports Utility Vehicles (SUVs) are plummeting around world due to high gas prices, the sales of SUVs in China are predicted to increase 40 percent to 50 percent this year. Moreover, the richest Chinese are trying to purchase Lamborghinis to show personal success, and the middle classes are eager to enjoy the privacy and convenience of owning a car. In the context of globalization, the Earth becomes flat. People compare themselves not only with their neighbors but also with those on the other side of the world. The Chinese middle class wants to have a lifestyle similar to Westerners - cars, big houses, and tailgate parties.

Is it wrong for people to want more for their lives? Of course not. It's fair for diligent Chinese to pursue the "Chinese Dream". The only concern is whether nature can support these demands. People using public transportation are suffering from air pollution caused by private cars; and the newly paved roads are encroaching on arable land, leading indirectly to food price increases. The vulnerable groups are the victims of pollution and higher living expenses. More fundamentally, given the pattern of economic reform and wealth distribution, most of the demand for cars is from China's urban centers along the wealthier East coast. The high-profile marketing of this auto culture and luxury lifestyle can inspire anger among the laid-off workers in the cities and people in the less-developed Western areas, where resources and raw materials are taken to support the economic development in the East. This discontent could easily lead to undesirable social results.

I am a strong believer that government officials at all levels in China have a great chance to make clear market signals and a comprehensive plan to decouple the GDP growth from energy consumption and environmental degradation. I respect people's rights to own cars and also to enjoy a clean environment. However, when one right is compromising another, people who own and drive cars must pay the externalities involved. The price of a car should include the damage caused by CO2 and other pollutants emitted during the car's production and use.

Therefore, the government needs to require that every auto producer have auto life-cycle analysis. A tax could be imposed on car owners based on engine size, fuel economy and emissions standards. A congestion charge should be imposed on people who choose to drive into business centers during working hours, say from 7 am to 6 pm. And the revenues accrued can be used for R&D in the auto industry, to improve public transportation, and to augment the healthcare system.

You may think the ideas mentioned above spell death for China's economy. However, look at the European countries; they impose relatively high taxes on energy, pollution and cars. "The gasoline price in Denmark is about $9 per gallon. On top of that, Demark has a CO2 tax", says Mary Jespersen, an economist at the Royal Danish Embassy to the US. However, the Danish economy has grown 70 percent since 1980 and the unemployment rate is less than 2 percent. At the same time, the gasoline price and high sales taxes on gasoline-fueled cars is stimulating a growing migration to plug-in vehicles and mass transportation. Yes, government can use regulations smartly to create a more harmonious society.

Imagine for a minute living in a modern, compact, high-density city where all the necessary facilities are within walking distance. People can easily access amenities, meet friends and go to work.

Rooftop solar panels and small wind turbines provide cheap, clean, and reliable electricity to residents of the apartment buildings. Connected with both a conventional grid and distributed renewable electricity, a smart meter displays the different electricity prices throughout the day.

That way, residents can decide when they want to turn on the clothes dryer. The city skips cars altogether, and jumps directly to the world's best mass transit system, which can bring citizens anywhere in the city.

Most importantly, people will not wait more than 2 minutes to get on the bus or metro, which are comfortable, enjoyable, and on time! For occasions when people have to drive somewhere outside the city, they can rent a PHEV, a large battery to store electricity from the power grid which is known as a plug-in hybrid vehicle.

Because of advances in battery technology and nickel metal, PHEVs are now commercially viable. Meanwhile, since PHEV can be charged at night, when the demand on existing power plants is low; therefore, people do not need to worry about the need for installation of additional power plants.

The high-quality batteries in the PHEVs are designed by Chinese engineers, who incorporate a battery recycling mechanism into the design process. The national electric power grid is evolving from being powered mainly by coal to by solar, wind and geothermal. China exports PHEVs worldwide due to their high reliability and "China Price".

Jing Su and Laura Brenner Kimes are Program Associates at ACORE (www.acore.org ). Julia Fischer-Mackey, a research analyst at ACORE, contributed to this article. All the views in this article are their own.

(China Daily December 1, 2008)