I have been covering the auto industry for about 17 years, and during that time, China has always been a distant dream for carmakers. Since the early 1990s, industry insiders have predicted the market would explode in the next five years. That is the problem with China: Its glorious future is always five years away. In China, tomorrow never comes.
There is no denying the potential is staggering. Ten years ago, the sight of a car in Beijing was something rare indeed, and the vehicle more than likely would have belonged to some government official. When I visited in June, commuter traffic was like that of the world's major cities. That is a big leap in 10 years, but the automakers have discovered making money remains a struggle.
While China's 1.2 billion population looks like a mouth-watering target, best estimates among car producers in China say the population of potential buyers is no greater than 5 million people. 'We believe there are currently that number of people who could be in the market for a new vehicle,' said Christian Claussen, Volkswagen Group China's sales and marketing manager. The problem is that a car is not a top priority. 'Real estate and education are at the top of the list along with other consumer items to make everyday life a lot easier,' Claussen said. 'A new car is still some way down, and we have to find ways of moving it up.'
Automakers hope to introduce consumer loans in the next six months or so, but China still is a country struggling to develop a market economy. After years of a strict Communist regime, it will take a few years before today's youngsters fully grasp the opportunities that are opening up in this vast country.
The Automotive News International conference, organized with the China Business Unit in Beijing in June, debated the effect that entry in the World Trade Organization would have on the Chinese auto industry. Not surprisingly, everybody hopes the demise of bureaucratic meddling will open up the country to huge vehicle sales - and profits. As tariffs shrink, imports will flood in as readily as exports and profits flood out. Now call me a cynical old hack, but South Korea and India joined the World Trade Organization 10 years ago, and they remain de facto closed markets. Tariffs still abound in many Asian markets, so why should China be any different? It does not take a huge tariff to push an import out of the consumer's reach. Moreover, China still suffers from internal protectionism. The provinces put different tariffs on vehicles to protect those made within their own boundaries. Because each of those provinces is the size of a European country, this trend is a huge problem for automakers.
When I raised this issue at the Beijing conference, my questions were met with some discomfort. Kevin McCann of Audi said: 'Will the market be completely open, or will it be closed like some other Asian countries? I suspect the truth lies somewhere in between. But we will see the development of the import market and the economic benefits will drive market growth.'
Citroen's Jean-Claude Germain, chief representative of PSA/Peugeot-Citroen SA in the region added: 'I don't believe Korea and India can remain closed for very much longer. Those countries have their challenges, and only if they open their doors can they face them. Even German people are now starting to buy French cars!'
Crucially, China's central government is embracing the World Trade Organization's reforms. Chang Xiaocun, a trade specialist at the ministry of foreign trade, told our conference he is convinced that entry to the World Trade Organization would open China to the outside world. China, he said, wanted to buy fully into this vision. I think there may be a few obstacles in the way of China's entry to the world market. But it would be a braver man than I who would bet against the Chinese entrepreneur.