In the midst of the Olympics, I missed an interesting story about a car tax that will go into effect September 1. Ostensibly it is designed to reduce pollution and vehicles that use a lot of gasoline. However, as the Economist points out, the real goal is to reduce imports from foreign car manufacturers, who conveniently make most gas-guzzlers.
Yet, while that sounds sinister, there is no real way to be cynical about this move. Even though China did not come up with this idea with the environment in mind, it nonetheless shows how the WTO can help promote a more efficient marketplace. After the WTO Court ruled that China’s import tariffs were in violation of their committments to free trade last month, the government came up with a creative way to continue to protect its local auto industry.
One might argue that this is protectionism, and it is. But the Chinese have managed to create a genius and positive form of it. They were only able to implement this policy because the local car industry has a natural advantage over foreign competition: its fleet is more fuel efficient. If, for example, things were reversed and domestic industry was producing gas guzzlers, the Chinese never could have gotten away with taxing smaller engines. Instead, China can promote this policy because it is in the interest of the enviornment, an area that the free market typically ignores (free market economics never work well with externalities).
So I say kudos to an increasingly sophisticated group of Chinese lawmakers. Regardless of the motives behind the move, the results will be positive. Not only will more of the cars on the road be of the Chinese small-engine variety, which use less gas, but you should also expect to see foreign competitors building more models that fit the mold. And don’t be surprised if many of them end up in markets outside of China, cleaning the air for those in the rest of the world as well.
The only reasoning against this is that many of the Chinese car makers are intent on knocking the Camry and Accord out of the mid size sedan segment, and by using their own, sometimes crude engine designs or off the shelf Mitsubishi motors.
“They were only able to implement this policy because the local car industry has a natural advantage over foreign competition: its fleet is more fuel efficient.”
Really? I would say that most Chinese brand cars have poor fuel economy. Largely they are powered by old Mitsubishi stock or else if the engines are self designed they not up to world standards. As such they use more fuel than the equivalent sized modern engines by world class manufacturers.
OK I admit there is the odd exception like the Brilliance 1.8T and maybe you could throw in the MG Roewe 1.8T as well.
Gotta disagree with you on this. Look at the words carefully - “it’s FLEET is more fuel efficient”. While I can agree with you if you compare individual engines to each other, let’s look at FLEET averages. Let’s compare 2 companies - Ford and Chery. At this time, what is the SMALLEST engine that Ford offers in it’s fleet? A 1.8 liter engine, which is used in the Focus. Now….what is the LARGEST engine that Chery offers? A 2.4 liter engine - offered in the Eastar (maybe also in the Tiggo). The MAJORITY of engines that Chery sells is 1.6 or smaller….and with the QQ still being a good seller that means a lot of 0.8 and 1.1 engines sold as well. SO, when you do a FLEET average, Chery will easily have a better overall efficient fleet than Ford will. Look at Geely - the largest engine they offer is a 1.8. BYD? A 2.4 (in the new F6 - the majority of their engines is 1.6 or less). And so on……hopefully, this new tax WILL encourage the foreign companies to start selling more fuel efficient models - and be a part of HELPING the environment instead of HURTING it. It’s already starting - Ford’s new Fiesta will have 1.3 and 1.6 engines, Nissan will start selling the March in China soon (I think a 1.3 engine for the March), Toyota now has the Yaris here…..I hope ALL foreign car companies will follow along the same path and give consumers here some real choices when it comes to compact/subcompact cars.
Ash,
Most of the time I agree with you, but what would happen if the Chinese started to import cars into the US and the goverenment decided to only allow gas guzzling cars? Let the market run its course…The price of oil will dictate what cars will be on th road…Just my opinion but…
You see I want To see chinese cars here.
Another excellent move on the part of Chinese businessmen or entrepreneurs. Building small displacement cars and maybe giving “suggestions” to the government on how to protect the domestic car makers.
As for your statement on Chinese manufacturers trying to knock the Camry and Accord out of the midsize market, all I can say is good luck. GM and Ford have been trying to do that in North America for the past 20 years.
what is the specific tax reduction or increase ? Is it significant enough to even matter? Most buyers here are going for the foreign brands because the local brands are just not there yet in terms of service network (let alone quality, which I actually think is reasonably good now for several totally local brands like Chery, BYD,etc.