Automotive News China Conference November 15-18, 2006, Beijing

1. Automotive News China ConferenceNovember 15-18, 2006, Beijing Urban Transport Challenge and Its Implications to the Automobile Manufacturing Industry Zhi Liu World Bank

2. China’s auto industrial development is a major economic success … • China has succeeded in developing a world class automotive industry within 10 years. • The development of automotive industry drives national economic growth. • The use of automobiles enhances mobility and generates economic benefits to firms and households. • Improved mobility helps reduce regional disparity and enhance regional integration

3. But rapid motorization also causes problems ... • Pressure in energy consumption and oil imports • Transport increasingly a leading driver of overall consumption, contributing more than one-third of China’s total oil consumption • Environmental pollution • Among 340 cities, 58% do not attain the standards • 45-60% of NOx and 85 of CO are from mobile sources in most Chinese cities • Congestion can affect efficiency of urban economies which contributes 80% of the national GDP • In Beijing average peak-hour speeds on arterial roads have declined from 45 km/hr in 1994 to about 10 km/hr in 2005

4. Urban transport problems are getting worse … • Ownershipand use of motor vehicles in China are heavily concentrated in cities • Beijing: Experienced tenfold increase of private cars in the last 10 years, and widespread congestion • Shanghai: Experienced increases of private cars from 10k to 250k in 8 years and rising congestion • Shenzhen: Traffic accidents are a main cause of death, especially among the 20-40 age group • Nationwide: Carbon monoxide and hydrocarbon from auto emissions account for nearly 80% of the total in urban areas.

5. More cars do not make everyone happier … • Majority of urban households are car-less • Their needs for mobility is seriously under-served by public policy • Road congestion is making bus operations more and more difficult • Bicycle right-of-way, pedestrian sidewalks, and roadside trees are often replaced by motor vehicle lanes and parking • Car-owning population often stuck in traffic jam

6. Green House Gas Effect Green House Gas Effect GLOBAL GLOBAL GLOBAL Energy Security / Fuel Prices Energy Security / Fuel Prices Financial Liabilities Financial Liabilities NATIONAL NATIONAL NATIONAL Farmland Conversion Farmland Conversion Traffic Accidents Traffic Accidents LOCAL LOCAL LOCAL Auto Pollution Auto Pollution Traffic Congestion Traffic Congestion The problems have spillover effects …

7. Spillover effects are threatening the overall sustainability … • Slow and congested transport system stifles the efficiency of the urban economy • Excessive conversion of farmland for urban development wastes scarce resources • Excessive investment in urban transport incurs heavy financial liabilities • Rising fuel consumption endangers the nation’s long-run energy security • Growing green house gas (GHG) emissions is increasingly an international concern

8. Rapid urbanization is putting heavy pressure on urban transport… Urbanization is accompanied by: • Rising household incomes that increase demand for private cars • Transformation from farms to firms that results in urban migration, growing demand for urban space, and the formation of large metropolitan areas • Changes in living style that creates a more diversified range of travel demand • Changes in urban land use patterns that is increasingly dependent on motorized transport

9. Metropolitan areas are taking shape and are the engines of economic growth…

10. All problems are expected to exacerbate unless public policy manage to address them… • China will be more urbanized, cities will become bigger and commuting distance longer • Strong economic forces and incentives will continue to drive motorization, significantly increasing fuel consumption and GHG emissions • Cities will face major problems in: • Traffic congestion • air pollution • Worsening social inequality

11. Motorization process should be carefully managed… • Motorization brings benefits and costs to the economy and society • This is true in China and elsewhere, but the difference lies in the number of cars per 1,000 population: 9 in China vs. 700 in USA • Big market potential and big challenges • The process must be carefully managed to minimize the social and environmental costs

12. What are the solutions ???

13. The solutions have to be comprehensive … • There is no one-time technology fix • We cannot build out of congestion • Policy measures and new technologies are both needed

14. Various policy measures are increasingly adopted by cities around the world … • Policy to give priority to bus transport • Policy to promote energy-saving, compact city land use development • Demand-side management • Auto ownership control • Higher taxes • Quotas • Auto usage control • Non-pricing access control • Congestion pricing

15. Environmentally friendly technologies are emerging … • Hybrid electric vehicles (HEVs) • Cleaner fuel such as compressed natural gas (CNG) • Small conventional gasoline vehicles • Small electric vehicles

16. A combination of policy measures and new technologies could achieve desirable outcomes … • A study by Ng and Shipper (2006) of World Resource Institute analyzes energy consumption and GHG emissions under three scenarios • Road ahead • Oil saved • City-saved

17. Scenario 1: Road aheadKey assumptions • Current growth rate of motorization • Current fuel prices • Conventional gasoline vehicles as the dominant vehicular technology

18. Scenario 2: Oil savedKey assumptions • Current growth rate of motorization • Hybrid electric vehicles (HEV) to gain 15% of the market by 2010 and 50% by 2020 • Higher market penetration of CNG and small electric vehicles • A higher share of smaller vehicles in the fleet • Higher oil prices including Japanese/European level of taxation on fuels, that would reduce average vehicle utilization

19. Scenario 3: City savedKey assumptions • One more step beyond the oil-saved scenario • Allowing a lower level of vehicle utilization as a result of compact city development and better public transport services • Hybrids, together with small electric and CNG vehicles will dominate the market • Conventional gasoline vehicles only constitute 30 percent of the total market • There would significant congestion charges on vehicle use in cities

20. Potential pay-off from comprehensive interventions is high…

21. The political context is shifting in favor of sustainable urban transport… • Green-GDP concept proposed and being operationalized • People-centered development concept advanced by the top leadership • Energy saving society and compact city development emphasized • Public transport received attention from highest level leadership • Public opinions increasingly heard and influential

22. Looking forward … • Cities will increasingly adopt policy measures (including emission standards) and promote new technologies to manage motorization • Various technology-forcing policies may emerge (such as the 1970 Clean Air Act in the US)

23. Corporate Social Responsibility • Automobile manufacturers are increasingly committed to the Corporate Social Responsibility • This means delivery of cleaner, safer, more fuel-efficient, and more affordable vehicles to consumers • In addition to cost, quality and product differentiation, corporate social image is a new dimension in industrial competition

24. THANK YOU