Green is Good
— China’s Auto Industry Moves to Clean Up

Choking Challenge

The polar ice caps are melting. Our seasons are becoming muddled to the point where autumn feels like summer and winter has taken on a spring feel. Mother Nature’s way of coping is to bombard us with natural disasters, from typhoons in Shanghai to floods in New Orleans. Fast forward 50 years and it’s anyone’s guess what life will be like on our planet. One thing’s for sure, however - cars and their drivers are taking a large chunk of the blame for the increasingly woeful state of our environment.

As a bicycle kingdom rapidly gearing up to become a four-wheeled society, China, now the world’s third largest car manufacturer, is facing its own serious problem of car-related pollution and soaring levels of gas consumption. Vehicles have become the biggest carbon monoxide and nitrous oxide emitters in cities like Beijing, Shanghai and Guangzhou. According to the Chinese government, air pollution in China’s 14 largest cities currently kills 50,000 newborn babies and causes 400,000 cases of respiratory illness every year.

China’s vehicle output is expected to grow an average of 10 to 15 per cent annually over the next 20 years, says Zhang Xiaoyu, chairman of the China Association of Automobile Manufacturers. Statistics from the State Environmental Protection Administration show that China will have over 131 million cars by 2020. China’s growing automobile society also threatens to overwhelm the country’s limited oil resources. “Every year, China allocates 60 percent of its oil supply to transportation,” says Deng Nan, vice-minister of Science and Technology.

In a worrying report in the China Daily newspaper recently, Shi Hanmin, director of the Beijing Environmental Protection Bureau, comments, “"Beijing’s air quality is still not within the requirements of the green Olympic Games. The city still has 300,000 highly-polluting vehicles, each one with emissions equal to the exhaust produced by 14 cars that meet current European Union emission standards.”

According to the Beijing Municipal Traffic Management Bureau, the city had 2.87 million motor vehicles at the end of 2006. Although Beijing intends to remove more than 60,000 high-emission taxis from its streets and equip 10,000 buses to run on clean fuel ahead of next year’s Summer Games, it’s clear the city has hit a bottleneck in its battle to achieve acceptable aerial purity.

Strategic Short Cut

Drastic times call for drastic measures. In the latest sign of China’s manufacturing ambitions and desire to go greener, a major Chinese company has teamed up with the Chinese government to purchase a high-tech car engine plant in Brazil from auto giants DaimlerChrysler and BMW. To date, China’s failure to develop its own advanced engines has been the biggest technical obstacle facing Chinese automakers as they attempt to modernize and enter the global export market.

Because the plant is so sophisticated, it is far more cost effective for the Chinese carmaker, the Lifan Group, to disassemble the plant, ship it 8,300 miles from Brazil, and reassemble the parts in south-west China’s Chongqing Province, rather than develop its own technology. If operations commence as scheduled in 2008, China will have leapfrogged competitors such as South Korea to catch up with Japan, Germany and the United States in producing and selling some of the most fuel-efficient cars on the market, like the Honda Civic and Toyota Corolla.

Buying overseas technology will put China’s auto industry in a solid position to produce large cars that can get more than 30 miles to the gallon. The $500 million engine plant was built in southern Brazil in the late 1990s by a 50-50 Chrysler/BMW joint venture, and combines the latest American and German technology to produce the 1.6-liter, 16-valve Tritec engine.

Lifan Group’s founder and CEO, Yin Mingshan, eventually expects to export to the EU and US markets. Recently quoted in the New York Times, Yin said, “Chairman Mao taught us that if you can win, fight the war. If you cannot win, run away. I want to train my army in these smaller markets, and when we are ready, we will move on to bigger markets.”

Yin faces some stiff competition on the home front. In 2006, Dongfeng Honda Automobile Co., Ltd., a joint venture between Honda and China’s Dongfeng Motor Group Co., Ltd., celebrated the completion of a 2.8 billion yuan expansion of its factory in Wuhan, Hubei Province. Annual production capacity was quadrupled from 30,000 to 120,000 units.

Indicative of China’s growing concern for the environment, the plant will operate under the “Green Factory” principal, with consideration given to both the internal and external environment. Efforts include the introduction of a new water-based paint system to limit the emission of hazardous substances, promotion of purification and recycling of wastewater; and the reduced resource use through improved manufacturing efficiency.

Efficient Expectations

China has in place some of the world’s strictest fuel-efficiency requirements. Energy efficient transportation is a key part of China’s 11th Five-Year Program (2006 to 2010), and a large part of the overall goal is transitioning government logistical operations, mass transit and Chinese families into energy efficient vehicles.

The market is evolving and evolving fast, according to He Dongquan, an authority on transportation with the Energy Foundation in Beijing. “There’s controversy about ‘Green GDP’ and how China should grow….China is in a transitional period where everyone’s mind is changing,” he explains.

The Chinese government has already invested more than 1 billion yuan (US$120 million) into “green vehicle” research, with 22 technical standards established for the production of electric passenger cars. More than 200,000 alternative fuel vehicles are on China’s roads already, and more are on the way.

In January 2007 the Chinese government announced that it was working out measures to give tax breaks to energy-saving and environmentally friendly cars. Ownership of vehicles that meet current energy and emissions standards will be encouraged, and a more detailed “green car” index will be introduced. Punitive taxes will be imposed on cars that fail to meet fuel consumption standards.

Hybrids Hit the Market

Perhaps the most promising development with regard to cleaning China’s urban atmosphere is the evolution of hybrid technology. Hybrid vehicles burn less fuel by adding one or more electric motors to a standard petrol or diesel engine, and can cut pollution by up to 30%. Batteries help power the vehicle, regaining energy during braking and by stationary plug-in recharging.

According to Wan Gang, head of a team of Chinese government-sponsored experts that focuses on advancing hybrid automobile technology, China’s makers of cars, trucks and buses are set to increasingly focus on hybrid technology. Those companies already involved are forging ahead. “A range of Chinese firms have formed China’s first hybrid automobile production base,” he comments.

At the start of 2006, one automaker already in the hybrid game, Hangzhou-based Geely Automobile Holding Corp, began constructing a hybrid plant in Xiangtan, Hunan Province. The company expects to roll its first car off the assembly line this year. Initial annual capacity is projected at 50,000, reaching 100,000 hybrid vehicles by the end of 2010.

Meanwhile, Sichuan FAW Toyota Motor Co, a joint-venture between Toyota and FAW, began assembling the popular Prius hybrid in Changchun in December 2005. Toyota announced in 2006 that worldwide cumulative sales of the Prius, the world’s first mass-produced hybrid vehicle, had passed the half-million mark, although disappointing initial sales in China hint at overpricing (a Prius in China currently retails at nearly US$40,000) and an increasingly competitive market.

Other major players are either planning to get into the hybrid game or have production lines already in the works. Chang’an Motor Corp, the Chinese partner of Ford Motor and Suzuki Motor, announced last year that it will begin commercial production of hybrid cars in 2008. The company expects hybrid cars to make up 10 percent of its own-brand sales annually by 2010.

At the ninth Beijing International Automotive Exhibition in November 2006, Chery showcased the first hybrid car to be developed solely by a Chinese carmaker. Chery’s A5 ISG, a compact sedan powered by a 1.3 liter four-cylinder engine and an electric motor, is apparently ready to go into mass production this year. Chery has been selected by the Chinese government to export the first major line of Chinese automobiles to North America.

Volkswagen will also start making hybrid cars in China by 2008 with Shanghai Automotive, and may kick off large-scale production of energy efficient vehicles by 2010. As a first step, the joint venture intends to make 500 Touran cars to be used as people carriers during next year’s Olympics. General Motors (GM) has announced plans to start assembling hybrid cars in China by 2008 at its Shanghai GM plant, a joint venture with Chinese automaker Shanghai Automotive Industry Corp (SAIC). GM’s hybrid system is currently under development with DaimlerChrysler and BMW.

Push for Public Transport

While the car market seems set to gather even more momentum in 2007, Beijing is sending out signals that the passionate Chinese love affair with the car needs to be distinctly less amorous. The government’s long-term plans lean more to moving the nation’s commuters into mass transit - cleaner mass transit.

In advance of the 2008 Olympic Games, Beijing’s city managers plan to dump thousands of older buses in their municipal transit fleet and replace them with greener vehicles, some of which will run on clean-burning compressed natural gas.

Beijing’s Vice Mayor, Ji Lin, recently told China Daily that there will be 5,000 of the natural gas buses on the city’s street by 2008. Already on the streets of Wuhan, the capital city of China’s Hubei Province, is a trial fleet of 20 hybrid-electric buses, designed and manufactured by DFM. China’s FAW Group Corporation is also producing hybrid buses.

In the coastal city of Yantai, Shandong Province, a high-capacity electric bus plant is now under construction. After a phase-1 capital outlay of 250 million yuan ($30.9 million), the factory is expected to be fully operational soon. Annual production capacity is projected at 12,000 units, with gross revenue estimated at 15 billion yuan ($1.9 billion). Chairman of the China-Rising Motors Tech Zone Company, Ltd., Xie Rongan, said recently in the China Daily that the new electric buses will be capable of recharging in less-than-30-second intervals at each passenger stop.

China’s green bus manufacturers are also starting to look beyond the domestic market.

The Yantai Shuchi Group (YSG) has recently signed a memorandum of understanding with Thailand’s Siri Project Construction and PS Natural Gas to produce natural gas vehicles (NGV) in Thailand. The company will invest up to US$1 billion, and an initial US$ 53 million investment will fund the production of the first 300 NGVs.

Judging by the dense chemical haze still choking China’s cities on an almost daily basis, the quicker fuel-efficient cars, cleaner buses, and zero-emission vehicles hit the streets of China, the better. The task of cleaning the air is a daunting prospect, but government and industry seem to be moving in the right direction. As the world’s supply of crude diminishes and oil-addicted nations become increasingly testy about grabbing their share, it may be market forces as much as health concerns and public awareness that start to see the smog in China’s skies begin to thin.

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