Analysis: Gains and consequences to be seen from the Guangzhou automobile restriction policy

Gasgoo.com (Shanghai) - Over the last decades, automobiles have taken China by storm, quickly becoming the preferred method of transport in major cities and pushing the country to the forefront of the global automotive market. However, with this drastic change, Chinese citizens have had to deal with unprecedented rates of air pollution and traffic congestion, among other problems.

Beginning last February, the capital Beijing instated a new policy limiting new vehicle registrations. Using a monthly lottery system, Beijing only registered 240,000 new lottery plates in all of 2011, a fraction of the near 900,000 registered the year before. Guiyang, capital of southwestern Guizhou province, implemented a similar policy in July of the same year. Now, southeastern economic hub and metropolis Guangzhou has joined the ranks of Chinese cities with automobile purchase restrictions.

News of the Guangzhou policy caused uproar throughout the industry, with many accusing the policy of being entirely irrational and voicing concerns that it would do little to reduce either traffic congestion or emissions. What does the policy mean for Guangzhou and the country as a whole? In order to further understand the issue, Gasgoo.com (Chinese) conducted a survey earlier this month, collecting opinions from experts and insiders from all across the industry.

First, survey participants were asked to gauge their initial reaction to news of the Guangzhou policy. The majority, 52 percent, responded that they were very disappointed upon hearing the news, saying that it will cause unnecessary damage to an already suffering market. Only 17 percent are in favor of the policy, saying that it was a essential method to curb the ever increasing number of automobiles in the city. 31 percent took a neutral position, adding that they were looking forward to the introduction of other policies aimed specifically at reducing emissions and strengthening public transit.

It is undeniable that the policy will be a blow to sales in Guangzhou's automobile market. According to municipal government information, there will only be 120,000 registration plates issues for new passenger automobile for the remainder of the year, less than half of the total number of passenger automobiles sold in 2011. By directly affecting the balance between supply and demand, the policy threatens to disrupt the natural speeds of automobile production and sales, causing the whole market to suffer. At the same time, the policy may cause manufacturers to lose confidence, convincing them to avoid further developing in Guangzhou and surrounding areas.

There are also doubts that the policy will do much to reduce the already severe rates of traffic congestion in the city. According to statistics, there were 1.7 million vehicles on Guangzhou's roads by June of last year. Going by average annual growth rates, there should be around 2.4 million vehicles in the city now. Although that number is far lower than Beijing's 4.7 million vehicles, it is still a disturbingly high figure. The balance between growth of automobile growth rates and increases in streets and parking spaces has been completely lost. The number of vehicles in Guangzhou has grown almost 20 percent annually over the last five years, while the number of roads has only increased around two percent. The current ratio of parking spaces to total number of automobile is reportedly now at one to 3.3, further evidence of the unsustainable level of congestion in the city.

Another important issue for the nation's automotive industry at large is whether or not the Guangzhou policy will be mimicked by other cities across the country. The policy itself was, at least in part, instigated by Beijing's decision to limit automobile purchases last year. 42 percent of respondents worry that there is a very large chance that second- and third-tier will follow Guangzhou's example and begin implementing similar policies. 28 percent are relatively optimistic, maintaining that the high levels of congestion in Guangzhou (and by extension, Beijing and Shanghai) are not really comparable with other cities in the country, and as such there is little chance that such policies would be introduced. The remaining 30 percent were undecided.

Guiyang's decision to follow Beijing in implementing a restriction policy last year caused many to become take notice of worsening traffic and air conditions in China's second- and third-tier cities. According to statistics from the Guiyang's Ministry of Transport, there were 616 million motor-driven vehicles on the city's streets at the end of 2010, 7.7 times greater than a decade ago. 330,000 vehicles, or 53.6 percent of the overall figure, were personal use automobiles. The city's outdated core traffic infrastructure, which was designed for approximately 100,000 vehicles, has no way to cope with the current number of automobiles. Over 90 percent of the city's roads are regularly filled to capacity.

Guiyang is far from alone in its plight. There is hot debate in the press of several cities, including Shenzhen, Hangzhou, Ningbo, Xi'an, Chengdu, Nanjing and Hefei, about how best to deal with increasing levels of congestion. The introduction of restriction policies in Guiyang and Guangzhou may only be the tip of the iceberg, as Chinese cities face the consequences of a market which increased nearly tenfold in scale over the last decade. The record number of vehicles has put considerable strain on the infrastructures of not only large metropolises like Beijing and Guangzhou, but also on those of second- and third-tier cities throughout the country.

Furthermore, due to the still considerable number of first-time buyers preparing to purchase automobiles, the number of total vehicles will doubtlessly continue to grow. Without making significant advances to infrastructure, these cities will be tempted to employ policies similar to those seen in Beijing and Guangzhou. At the same time, smaller cities should be encouraged to begin building new infrastructure and updating existing road networks in order to deal with higher numbers of automobiles in the future.

In recent years, policies aimed at restricting vehicle purchases have become the most common method by municipal governments to tackle the issues of traffic congestion and automobile emissions. In the third question of the survey, participants were asked why governments have inclined towards this kind of policy. 40 percent of participants believe that the government sees such policies as the most effective way to tackle certain issues, which is why they are frequently selected. Meanwhile, another 40 percent maintain that the problem lies with lack of consumer representation, saying that even if the policies infringe upon the rights of automobile buyers, they are essentially unaccountable. 11 percent answered that implementing other policies was both more costly and more time-consuming.

Several figures participating in the survey advised city officials to take a closer look at such the effects of such policies before implementing them. In Beijing, for example, automobile sales declined sharply after the introduction of the registration plate lottery. However, a poll on the Beijing Municipal Commission of Transport revealed that most citizens believe that the policy had done little to reduce congestion in the city. Even in Shanghai, which has employed various policies limiting automobile sales for several years now, is still wrangling with the issue of severe traffic congestion. It is evident that the problem has many facets to it, including subpar public transit and the abundance of government use cars, which cannot all be resolved with the introduction of one blanket policy targeting new vehicle sales.

The final question on the survey asked participants to evaluate what effects the Guangzhou policy would have for the regional market. 36 percent of participants answered that it would force domestic own brand manufacturers to leave the Guangzhou area. 27 percent believe that manufacturers will delay or altogether abandon plans to increase production and sales work in the country, while another 26 percent maintain that the policy will cause small or struggling dealerships to exit the market. Only 11 percent answered that the policy will primarily target foreign manufacturers, luring them away from the Guangzhou region.

Several participants cited the Beijing policy, which saw consumers lucky enough to obtain a plate lean towards buying expensive, foreign vehicles. Due to the policy, own brands saw their market share decrease from 19.8 percent in 2010 to just ten percent in 2011. Several Chery, BYD, Great Wall, FAW Xiali and SAIC MG dealerships had no choice but to quietly shut down shop. Own brands will have to reduce their operations in Guangzhou in order to ensure that their losses are minimized.