Small cars have been making great strides in China recently. Records indicate that for the first half of the year, cars with displacement below
There are two reasons behind this change. The first is the price of gasoline. Prices are the highest in history and are making news worldwide. Domestic prices have gone up several times, but are still lower than prices internationally and in neighboring countries. In the south, some places have had their mini "oil crises" with stations limiting their supply resulting in long lines of cars waiting to fill up. But this is an old story: prices go up, lines form at the pumps and small cars find a market. The same result can be seen with the rise of Japanese fuel-efficient cars in America during the gas crisis in the 1970's.
Another reason is the change in people's mind-set. Furthering the concept of a "saving society" has no doubt given the reputation of small-engined cars a boost. Adding to the boost has been government emphasis on saving resources, especially focusing on fuel efficiency. According to reports, Premier Wen Jiabao has called for the repeal of all unreasonable regulations calling for limitations on cars with low fuel consumption, small-engines and low-emissions. Previously, many of these "small" cars had been very serious polluters and were restricted from driving on certain roads. Originally, regulations had been made in many cities restricting small-engine cars. Living in Beijing, the "mian di", or mini-van taxis, was the focus of these restrictions. As a taxi, the benifits and shorcomings are obvioius, but in the blink of an eye, a single administrative order sent over 20,000 "mian di" back to the furnace.
If changing the look of taxis was for the city's image, ivestment or tourism, so what was the reason for restricting private small cars? Among these reasons are safety, environmental concerns, performance and issues related to control of traffic flow. The interesting thing is that no matter what the reason, the thing controlled is always the size of the engine. Still, cars with engine displacement below
While all of the reasons given are important, is it necessary to focus on cars with small engines? If we look at technology, the answer is no. Many experts have pointed out that small cars are not necessarily unattractive, unsafe or harmful to the environment. China's auto industry has already reached the level of Europe, which has developed small cars quite well.
With the government's generalist view that "small is bad," what result can we expect? By restricting small cars, the economy and society will have to pay in other ways. These costs may not be obvious when oil is at 20USD per barrel, but when the price is risen to 70USD per barrel, crisis is inevitable. So, the question is whether the rise in the price of oil caused these cities to restrict small cars unfairly?
I believe that regardless of the price of oil, using engine size to make decisions on pollution, safety and asthetics has resulted in economic loss. The right of consumers to by an environmentally friendly, safe small-engine car has been taken away. Also, the response of manufacturers to the demand for small cars has been stymied because of restrictions.
The high price of oil has simply brought to light the harm of inappropriate government controls. The important thing here is that harm has come from inappropriate interference on what was an unharmful personal decision. Even if oil prices hadn't gone up, the harmful effects of this policy would still be seen.
With this perspective, I tend to have reservations about those who would, because of the rise in oil prices, call for the government to encourage small car production and limit large cars. In my opinion, this is not a call for the government to correct past mistakes, but a call to make the same mistakes in the name of reform.
Of course, I am not encouraging the production of large cars. However, encouraging small cars and restricting big cars via policy changes will not have as big an effect as allowing fuel prices to decide supply in the market. We needn't think about prices going up to Hong Kong levels at 13HKD per liter. Simply going up to the prices found in India (equivilent to RMB9 this past month) is enough. Does the government need to really take great pains to control car size as well?
The logic is very simple: let the market handle what the market can handle. The only reason for government control is lack of ability of the market to regulate. For automobiles, experience has shown that government regulation of emissions, noise and saftey concerns is relatively cheap. All problems with environmental controls and saftey, whether from small or large automobiles, all should be treated the same. As for taxis, there is a question of public asthetics and is complicated, but Beijing has done well in its use of online opinions and voting. As for the size and type of the car, the choice should be up to the buyer and seller. If existing controls on small cars are added to with restrictions on large cars, any further fluctuation in the market price of gasoline will exacerbate the problem.
(Zhou Qiren - Peking University China Center for Economic Research)
