The Car Cult In China

Posted on Wed 08/06/2008 by

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Over the next three weeks or so, you’re going to see quite a lot of China, mostly from the Olympic Games.
A lot of the media presence there will also be doing pieces about life in China itself, and a lot of it will be really eye opening. You will see just how China is embracing with arms wide open that western way of life that we have had for many generations now.
The showing of these programs has already started to happen here in Australia. There has been wildlife programs, and other things about the way of life in China.
One that was recently shown here was called ‘The Cars That Ate China’, and it dealt with how the car is becoming the thing to have in China. The program was incredibly eye opening, even if it was done mostly in subtitles, because one of the things that they have not embraced is the English language.

The population of China is just over 1.3 billion people and that in itself is over four times that of the US. Less than 2% of that total population own cars in the whole of China, but in their largest city, Beijing, car ownership is booming, so much so that 1000 new cars are coming onto the cities roads each and every day. What this is causing is that the city of Beijing is building roads at an absolutely astronomical rate.
In the last three years alone, one third of Beijing has been destroyed to make way for roads and for new real estate. That’s one third of a city larger in area than New York. To cater for this, those old buildings are being torn down at an absolutely blinding rate.
There’s no such thing as environmental impact statements, time for perusal of plans, taking submissions from those people living in those areas, and then relocating them over time. No, in China, the authorities rock up, evict the people, sometimes forcibly, and almost before those Authorities leave, the bulldozers arrive. In some case whole areas where people live have been bulldozed overnight.
Any existing roads are widened, expanded, and lengthened.

With 1000 cars coming onto the roads each day, it gives insight into those views you see of Beijing shrouded in smog. Authorities will try to tell you it might just be haze, but gridlocked traffic is the major cause. During the Olympic games, hundreds of thousands of cars will not be allowed to be on the roads in Beijing so that Chinese Government officials can say that Beijing is a relatively clean city, but nothing could be further from the truth.
Of the 16 most polluted cities on Planet Earth, 12 of them are in China, and Beijing is one of them.
Because of the pollution, 400,000 people die each year in China from respiratory based complaints, not just fall sick, but actually die, and that’s 1 million people every two and a half years.

To cater for this boom in car usage, 75% of those cars constructed in China are made by foreign based companies in joint venture deals with the Chinese. Car plant construction is booming, and you may think that this is because a whole new market is opening up, but this program went to great pains to point out that was not wholly the case.

One of the nouveau riche Chinese was interviewed, and he had just picked up a brand new mid range Camry and was driving out to show it to his father who was still a peasant living well outside Beijing. His father was living at the end of a dirt road, well, not much more than a track really, and the new Camry owner was driving to suit the conditions, on the twisting bumpy pothole ridden road, and his was the only car on that track. He reached his fathers house, but this was not a house that we in the West might recognise as suitable accommodation. It had an earth floor, two rooms, looked to be made of mud, had no electricity or running water, and the front door was cloth draped over the opening. His father was suitably proud that his son had made something of himself and actually had a new car. The son asked the father what he thought the car might cost, and father dutifully replied that he had no idea, as that much money was beyond his comprehension. The father said that in his youth, he was hard pressed to raise enough money for a straw hat, and that families that were considered very wealthy indeed owned a standard bicycle. The son pressed and the father replied with a figure that translated to $US27,000, an astronomical amount. The son replied that he actually paid more than double that. That’s $US55,000 to $US60,000 for a mid range Toyota Camry.

Now why I said all that is for the next part of the story. They interviewed the German CEO of the newly constructed Mercedes Benz Daimler Chrysler plant that has recently opened there in Beijing in 2006. This plant was absolutely huge. It is built on 1.9 million square metres of land, and that really doesn’t mean much until you convert it to something we can all understand. It’s around 450 acres, or on land bordering 1 mile by three quarters of a mile. On that land they have constructed two huge state of the art car plants one for Mercedes Benz and the second for new Chryslers and Mitsubishi SUV’s. Just the Chrysler plant alone employs 4,000 people. At the Benz plant they are rolling off the production line 25,000 E class, and C Class Mercedes Benzes each year and at the Chrysler plant, they are producing 80,000 Chryslers and Mitsubishis each year. Both plants use robotic machinery extensively in the construction of the cars.

This bland statement of facts was then put into some context. They interviewed a young lady from Beijing who works in the new Benz plant, and she was overjoyed that she had a tremendous job working in this new car plant and was proud to be at the forefront of the auto industry in China. She mentioned that she was earning an absolute fortune compared to other Chinese people. Her pay was calculated on a daily basis, and she was overjoyed that she was earning the equivalent of $US8.00 per day, which would probably equate to around one dollar an hour.

Currently, there are 150 million car related jobs in China. The average pay for people working in the Chinese auto industry is twenty times lower than the average for equivalent workers in Western Society.

What I want you to do now is to put into context the story of the Camry, and the story of the Mercedes Benz. The conclusion I draw from this is that auto manufacturers are moving into China in a pretty big way. I feel sure that the Company line might be that they are doing this because of that huge burgeoning market opening up inside China, but I can’t help but think that these Companies have another reason for moving into China.
If the Chinese are paying $US55K for a mid range Camry, then there’s not too much hope that very many of them will be able to afford a C Class Benz, and as was mentioned in the documentary, most of those Benzes are for export. The E280 constructed there in Beijing retails in China for 620,000 yuan, which translates to $US76,450.

That being the case, then this effectively means that production of those cars is moving away from Countries in the Western World where auto workers are paid at what really amounts to just an average wage. They are instead all moving to those developing Countries where the auto workers are paid the equivalent of only 5% of what they are in the West. My impression from this would be that those Mercedes Benzes are still selling in the West for the same as they might if they were constructed in Europe or the US, because there is no differentiation between a Chinese Benz and a US Benz. They are both just Benzes. The bottom line here is that the bottom line for the Company is an awful lot healthier. They are now constructing the cars at bargain basement prices and then keeping those immense savings.

Now this might seem like a general rant that might look to be specifically aimed at Mercedes Benz, but really, this is just one case that is indicative of the whole industry, because 75% of auto construction in China is by joint venture between China and those foreign (to China) auto manufacturers.
It’s prestigious to own a car in Beijing at the moment, any car, and the same is applying for all China.
If everything associated with auto production in China is so much cheaper, from production costs to the cost of the labour itself, then it only makes sense for those Companies to move there.

The closing line in the documentary just before the credits rolled was that by 2020, there will be 140 million cars in China.

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Posted in: China, News and Views