Why Toyota?

China Goes Car Crazy
Suburbs, drive-ins, car washes—this revolution has wheels.
FORTUNE
Monday, August 11, 2003
By Clay Chandler


In late April, as authorities in Beijing mobilized to contain the SARS virus, 33-year-old Li Yang climbed into her red Suzuki Alto and headed west. Slipping out of the city hours ahead of a government quarantine, she "just kept going, to see how far I could get." Six days and 1,600 miles later, she arrived in Lhasa, the Tibetan capital. Thrilled and exhausted, she posted a notice on the Internet, documenting her adventure with digital photos and appealing for a companion to share the drive home.

For centuries such freedom of movement has been unimaginable in China. In feudal times, poverty, bad roads, and imperial edict confined subjects of the Middle Kingdom to the villages where they were born. Mao kept the masses close to home by banning private car ownership and imposing a rigid household registration system. Now all that is changing. After nearly a quarter century of economic liberalization, car ownership is suddenly within reach of millions of ordinary Chinese. As incomes rise, new car prices plummet, and the government adds new roadways, China's 1.3 billion inhabitants are eager to trade their bicycles for a faster set of wheels. In 2002 passenger car sales topped one million for the first time. In the first six months of this year, China's new car sales surged 85% over the same period last year.

Foreign manufacturers are flocking to China to claim a stake in the fast-growing market. Volkswagen, China's biggest foreign automaker, has promised to invest $6.8 billion over the next five years to increase capacity. General Motors, which has spent $1.5 billion to build a state-of-the-art factory in Shanghai, also has bold plans. Japanese giants Toyota, Nissan, and Honda have all established joint ventures with Chinese partners. And the boom has just begun. Only one in 100 Chinese owns a car, compared with one in two Americans. But in the richest Chinese cities—Shanghai, Beijing, Guangzhou—annual incomes are approaching $4,000, the level at which private-car consumption shifts into high gear.

The profusion of cars has launched a new cultural revolution, transforming Chinese life and society in ways that bear surprising resemblance to what happened in America 50 years ago. The most obvious change is the traffic. Beijing's broad boulevards are now choked with cars at rush hour. In Shanghai the bridges and tunnels crossing the Huangpu River are so congested that a cab ride from one side to the other can be an hourlong ordeal. To prevent gridlock, the Shanghai city government auctions a limited number of new car license plates each month. Over the past two years the city has increased the number of plates on the block to 3,000 a month from 500, but demand has soared, driving the minimum successful bid to more than $4,000. Even with these restrictions, the number of gas-guzzling vehicles on Chinese roads is multiplying so fast it poses a grave threat to the environment and could reshape the global economics of oil.

Beijing now boasts drive-in movie theaters. Prospering yuppie SUV owners band together for off-road excursions to the Great Wall. Some have organized weekend drag races. The newsstands display a riot of motor magazines, where readers can ogle domestic and import models. Private-car ownership has spawned a new class of commuters, too, who motor to downtown office towers from spacious, modern homes in the suburbs. "I enjoy the drive," says Zhu Wen, manager for a Dutch food additives company, of the 30-minute trip to his office in central Shanghai. Zhu lives with his wife and infant son in a gated community with a familiar name: Long Island. The grounds are immaculately landscaped, and the homes come in French, Italian, and English Tudor models. "It would probably be cheaper to ride a taxi every day," Zhu confides. "But this way I have more freedom."

Li Yang can attest to the appeal of the open road. Her Internet posting failed to find anyone to share the drive back. But it captured the imagination of hundreds of Beijingers trapped in the city: On the journey home, her mobile phone was deluged with text messages from nearly 1,000 vicarious fellow travelers wishing her godspeed.