Business News

A Chinese City Moves to Limit New Cars

Keith Bradsher

It is as startling as if Detroit or Los Angeles restricted car ownership.

The municipal government of Guangzhou, a sprawling metropolis that is one of China’s biggest auto manufacturing centers, introduced license plate auctions and lotteries last week that will roughly halve the number of new cars on the streets.

Beijing, China
Keren Su | Getty Images

The crackdown is the most restrictive in a series of moves by big Chinese cities that are putting quality-of-life issues ahead of short-term economic growth, something the central government has been slow to do on a national scale.

The measures have the potential to help clean up China’s notoriously and water, reduce long-term health care costs and improve the long-term quality of Chinese growth. But they are also imposing short-term costs, economists say, at a time when policy makers in Beijing and around the world are already concerned about a sharp economic slowdown in China.

“Of course from the government’s point of view, we give up some growth, but to achieve better health for all citizens, it is definitely worth it,” said Chen Haotian, the vice director of Guangzhou’s top planning agency.

Nanjing and Hangzhou in east-central China are moving to require cleaner gasoline and diesel. Cities from Dongguan and Shenzhen in southeastern China to Wuxi and Suzhou in the middle and Beijing in the north are pushing polluting factories to the outskirts, where they are typically being rebuilt with better pollution controls. And Xi’an and Urumqi in northwestern China are banning and scrapping cars built before 2005, when automotive emissions rules were less stringent.

“There’s a recognition finally that growth at all costs is not sustainable,” said Ben Simpfendorfer, the managing director of Silk Road Associates, a Hong Kong consulting firm.

Facing public pressure to address congestion and pollution, municipal governments from across China have been sending delegations to Guangzhou. But the national government in Beijing is pushing back against further car restrictions because of worries about the huge auto industry, said An Feng, a senior adviser in Beijing to transportation policy makers.

“This has really become a battle,” Mr. An said

Beijing’s municipal government started limiting new license plates at the start of last year when the economy was in danger of overheating, but Guangzhou is the first city to act during the current slowdown. Faced with public dissatisfaction over congestion, Guangzhou has also built an extensive subway system in the last few years, along with large parks and a renowned opera house.

The local government initiatives are not the main cause of the Chinese economy’s difficulties. The government clamped down on credit a year ago in a successful bid to rein in inflation, but starved many small and medium-size businesses of credit in the process.

Other broad economic problems have been building for years. These include industrial overcapacity and the monopolistic grip of many state-owned enterprises, as well as the inefficient allocation of loans.

But for now, the growing regulatory burden on business is reinforcing a trend toward slower growth, economists say.

“That’s why I think the slowdown is likely to be a trend, instead of just a short-term cycle,” said Xiao Geng, the research director at the Fung Global Institute in Hong Kong.

Polluting factories being pushed out of increasingly affluent cities in southeastern China are being turned away by poorer cities in western and northern China unless they install costly, extensive equipment to control emissions, said Stanley Lau, the deputy chairman of the Hong Kong Federation of Industries, a trade group representing manufacturers that employ nearly 10 million workers in mainland China.

“There is no hint that these costs will be lowered because of the market slowdown,” he said.

Some executives in China complain about rising regulatory costs, particularly as new rules at the local level coincide with rising wages. Critics in the business community say that an economic slowdown may not be the best time for China to turn away from the largely unrestrained dash for prosperity of the last three decades.

But while the local measures may limit short-term growth, they are part of a broader transition. China is no longer just a developing economy that has pursued a particularly raw form of capitalism, while remaining Communist in name. It is becoming a modern, industrialized economy whose leaders increasingly listen to public opinion and seek to balance the environment, social welfare and many other issues against economic growth.

The question is how much short-term pain will China endure, in the form of slower growthand higher costs, to achieve a more balanced and sustainable economy.

Ma Jun, the director of the Institute of Public and Environmental Affairs, an environmental group in Beijing, said that local officials had become more interested in the environment in the last year after street demonstrations against polluting factories in cities like Dalian, Shifang and Qidong. In each case, local officials agreed to halt construction of the projects or close them after becoming the targets of local and national ridicule.

Bernadette Brennan, a senior lawyer in the Beijing office of the Natural Resources Defense Council, said that after three decades of experience in China, she had seen change in the last year. Instead of resisting pressure to address pollution, she said, municipal officials have begun contacting her office to seek advice on how to improve.

Measuring the environmental benefits of the changed policies is difficult.

A series of typhoons makes it hard to compare air quality data in China this summer with previous years, said Alexis Lau, the director of the atmospheric research center at the Hong Kong University of Science and Technology. In Guangzhou, emissions of a wide range of pollutants peaked in 2007 and 2008 and receded in 2009 and 2010 because of weaker economic growth. Emissions started to rise in 2011 as growth returned, but did not match 2008 levels.

Pollution per dollar of economic output has clearly declined, Mr. Lau said. Emissions of sulfur dioxide, a top priority in China in recent years because of its role in acid rain, have declined across China but particularly in Guangzhou.

The financial dependence of local governments on the sale of land leases to new developments may limit the extent to which some cities confront businesses. But city governments also own many of the businesses within their borders, making these businesses think twice about challenging policies like license plate restrictions.

“The car companies are owned by the government,”said Mr. Chen, who drives a Toyota Camry built in Guangzhou. “The car companies must obey the government.”

He added, “What do we need gross domestic product for if we don’t have health?”