If you want reliable guidance on what is most likely to happen in China, here is my advice:
1.) Avoid Forbes columnist Gordon Chang like the pestilence he is.
2.) Listen to Jack Perkowski.
Perkowski has rich business experience in the Middle Kingdom. He owned car parts companies there before anyone else, and he is the man in the background of the annual Global Automotive Forum. He just made three China predictions related to cars. One of them is a life and death issue for global automakers.
Perkowski’s annual China predictions, made in his blog “Managing the Dragon,” are highly respected in the business. Unlike other oracles, Perkowski checks every year how he had done. For 2013, Jack gave himself 55 out of 100 points, which is stellar by fortune-telling standards.
In his new 2014 predictions, Perkowski makes three with immediate impact on the car industry.
Prediction #1: China’s Gross Domestic Product (GDP) will grow at between 7.4 and 7.6 percent in 2014.
Expanding auto sales are made with two important ingredients: A car per thousand pop count below 500, and solid GDP growth. China now is at around 100 units per thousand people, which gives it ample room to grow. Steady GDP growth gives people the money to buy the cars. It’s that inevitable. Says Perkowski: “Car sales, a good barometer for consumer sentiment, continued to grow at double-digit rates in 2013, and sectors like heavy-duty trucks and construction equipment that have been hard hit by China’s slowdown have shown surprising strength in recent months.”
Prediction #2: 2014 will be the turning point in China’s battle with air pollution.
Perkowski predicts that the issue is finally being attacked, because it must. Interesting tidbit: “Wang Jinnan, deputy head of the Chinese Academy for Environmental Planning, said at a conference in Beijing that China needed to invest 1.75 trillion yuan ($290 billion) to clean up its air. According to Wang, 36.7 percent of the investment is needed to clean up industry; 28.2 percent is necessary to develop cleaner energy sources; and 12 percent is required for motor vehicles.” Interesting tidbit #2: “A recent article in the Chinese press said that 24 percent of the pollution in Beijing is caused by the sands that blow into the city from the desert; 22 percent from coal-burning for heating; and 16 percent each is contributed by vehicle emissions, urban construction and industrial plants, respectively.”
It has been known for a long time that cars are not the major cause of air pollution in China, especially after standards were upped, and polluting cars had been forcefully removed from inner-city streets. The car buying curbs in Shanghai, Beijing and other cities in China were enacted to fight traffic collapses, not to clean the air. The curbs were greenwashed and sold as environmental policy. Despite the curbs, the air got worse. Nevertheless, expect more stringent car buying restrictions, simply because it is easier to restrict the number of cars than turning off power plants, or outlawing coal. Which, in some parts of Beijing, can simply be dug out of the garden.
Prediction #3: China’s ongoing dispute with Japan over the Diaoyu Islands in the East China Sea will increase in intensity during 2014 and threaten stability in the region. We have seen how a few days of riots in Chinese streets could impact sales of Japanese-branded cars.
A new crisis will not be limited to Japanese cars. Says Perkowksi: “Planes are flying; China’s national pride and “face” is at stake; Japan is not backing down; the U.S. is becoming involved; and no one is talking. Sounds like a nightmare scenario to me.”
Once bullets fly, boycotts are sure to follow. Said the Daily Kanban: “Having one third of your global volume and most of your profits in a war-zone will certainly kill GM, and will turn VW into an endangered species, genus European carmaker. It’s a big gamble for both Volkswagen and GM, but frankly, they don’t have a choice.”
Rising Chinese car sales can bring both GM and Volkswagen beyond the 10 million mark this year, along with attendant profits. Serious attempts to clean the air will need western know-how. A shooting war will ruin it for all. Let’s hope Perkowski is right on the air, but wrong on the air force.