Sales of small-engined vehicles are firing on all cylinders.

Statistics show that in the first half of this year a third of vehicles, mainly cars, sold in China came equipped with a 1.0 litre or smaller engine. Manufacturers of small-engined cars are enjoying larger market shares, quickly appearing in the rearview mirrors of traditional auto giants that have failed to shift strategy.

One of the main reasons smaller cars are currently so popular is the soaring cost of petrol. The international oil price has risen to an unprecedented level. Domestically, prices of refined oil products have also been raised several times.

In the domestic market, due to government regulation, oil prices remain lower than those in neighbouring nations and the average international level.

As oil dealers export their products to turn a handsome profit, the domestic market, especially in the south, has suffered from shortages. Petrol stations have put a cap on supply, forcing drivers to queue for hours to fill up their tanks.

Past experience shows that once oil prices rise, small-engined cars become highly sought-after.

The oil crisis of the 1970s had a hand in pushing up sales of little Japanese motors in the United States.

The other driving force behind the increasing sales of cars with small engines in China is a change in social mentality.

China is trying to build a resource- and energy-efficient society, which makes small-engined cars more "politically correct."

Dozens of Chinese cities have put various limits on the consumption and use of small-engined cars, however. The government can decide their fate simply by issuing an administrative order.

As oil prices rise, State leaders have pinpointed the abolition of all irrational and discriminatory limits on small cars, because they consume less oil. The media have also devoted many column inches to coverage of calls for the abolition of constraints.

The simplistic policy-making of the past has created many problems.

Officials at a local level often say small cars are not safe, pollute the atmosphere and affect traffic flow to justify imposing limits on the use of small-engined cars.

We certainly need to care for the environment and consider the safety of drivers and pedestrians. But must we discriminate against small cars?

From a technical perspective, the answer is undoubtedly no. Experts have pointed out that small-output cars do not have to be unattractive, dangerous, pollute the environment or perform poorly. The high-quality mini cars zooming around the streets of Europe are a case in point. Even in the fledgling Chinese market, it is reckless to rush to the conclusion that being small means being poor in quality.

Government regulators must not just dismiss small-engined cars. Putting a limit on consumption of small cars will cause the economy and society at large to suffer setbacks.

With oil costing more than US$60 a barrel amid shortages, the economic and social price of irrational regulations will become unaffordable.

Is it the soaring cost of fuel that has exposed the irrationality of the restrictive policies aimed at little motors in many cities? If oil prices were stable, could we just ignore the policies and let them go unchecked?

Simply taking the capacity of engines as a guide to measure pollution, safety or artistic taste is groundless. By doing so, consumers may be deprived of the right to buy environmentally friendly smaller cars.

Automakers are being victimized: deprived of their right to meet consumer demand.

The restrictive policies have led to losses, both personal and social, by interfering in private decision-making that does not harm others or society as a whole.

For this reason, it is not advisable for experts to suggest the government issue new policies restricting the manufacture, sale and use of larger-engined vehicles while encouraging the use of small cars.

If so, they are in fact not helping the government redress the errors of the past, but urging it to repeat mistakes.

I am not encouraging the consumption of large, gas guzzling cars. The point is the government should not jump from one extreme to the other.

When oil prices truly reflect market supply and demand conditions, the government will be freed from the chore of painstakingly regulating vehicles, whatever their engine capacity.

The principle is simple: hand the reins to the market and it will cope well on its own. Government regulation should step in only when the market needs help or if it becomes more costly for the market to achieve a set goal.

The government should focus on the control of vehicle emissions, noise and safety standards. Punishment should be harsh if those standards are not met.

Note: This article is written by Zhou Qiren, an economist at the China Center for Economic Research, Peking University.

(China Daily October 14, 2005)