The luxury car market in China remains in the doldrums. The central government's credit tightening policy has dampened demand from the government and corporate sectors which account for nearly all car sales. Meanwhile, conspicuous spending by government officials has come under the spotlight, persuading more middle-ranking officials to switch to locally-made vehicles.
Despite an easing of the credit policy over the past year, the corporate sector is taking time to recover. "There is a little bit less money around," says Mr Ian Skeggs, Regional Director of Inchcape Motors International, and he sees few signs of an upturn.
Luxury cars made overseas have been especially affected by the downturn. Because of overcapacity in the marketplace ? stockpiles exceeded 100,000 last year ? imports are the last thing the authorities want to encourage, says Mr Asvin .Chotai of DRI/McGraw-Hill. "The Chinese government has been taking various steps which will make it more difficult to smuggle cars into China," he adds.
Legitimate imports have also been targeted. Beijing has imposed high tariffs on foreign-made cars and it has urged enterprises to buy locally-made models. Tariffs vary according to the model but average about 120-150 per cent and can be as high as 220 per cent at the top end of the market.
The measures seem to have been effective. "Over the past couple of years, the number of imported cars has gone down," says Skeggs. According to the Department of Motor Vehicles, in the first nine months of last year 65,500 motor vehicles were imported ? a fall of 45 per cent on the same period in 1995.
The drop in import levels is partly a result of the announcement in 1993 that joint ventures of a certain size could no longer import cars duty free. The move caused the turnover of one Ford dealership in Shanghai to fall from US$2.5m in 1993 to US$700,000 in 1994.
Local assembly firms have been the main beneficiaries. AT&T, for example, uses Audis and Volkswagens, both of which are made by local joint ventures. The quality of locally made cars is improving and because of growing stockpiles, prices are stabilising. "The price of locally produced cars has come down considerably," says Skeggs.
Few individuals or even families in China can afford to put a car on the road. Wealth levels may be rising and the quality of local production improving but the car remains a distant dream for all except the privileged few.
For foreign companies just setting up in China, buying a car is not a first priority. Taxis are in abundance in the major cities and luxury cars can be hired for the important occasion.
When multinationals become more established, they tend to prefer to hire cars rather than buy them, says HT Kung, PR Director of a division of AT&T (China). "This saves on maintenance," he argues. In Beijing, it costs about Yn4,000 (US$482) a month for the cheapest car, while a mid-range model such as a Jetta is priced at around Yn6,000 (US$723). Daily rates are between Yn250 and Yn300. Luxury cars, such as a Mercedes, start at around Yn10,000 (US$1,205) a month. "However, as rental fees are bound to increase," says Kung, "a company envisaging a long stay in China should look at the option of buying its own transportation."
In Beijing alone, there are over 170 companies which provide rental services, according to the Department of Mechanical and Electrical Equipment Distribution, part of the Ministry of Internal Trade. Leasing is another growth industry. As well as owning cars, AT&T hires cars for specific needs from the Dongfang Company, a state-run dealership and hire firm. Several such companies have sprung up in recent years to challenge the monopoly which used to be held by the state-run Capital Car Company.
Status and face are important aspects of Chinese society and companies wanting to make an impression on a client or government official make sure that they have a luxury imported car at their disposal. "We keep our company car in Beijing because that is where we do the deals and meet the big clients," says Mr Reinhardt Ubl, China representative of Obermeyer, a German construction company. "In other places we have to rely on leasing taxis. In future, though, we will probably buy more company cars, especially for Shanghai."
However, there are limits to the number of cars a company can own. Wholly-foreign owned companies are limited to two or three cars, while joint ventures are allowed more depending on the size of the company. The limit does not apply to individuals. Foreign expatriates living long-term in China can import cars for personal use in line with regulations set by customs.
Ubl believes it is safer and more efficient for a company to buy a car rather than use a taxi or car-hire service. "The taxi companies are quite amenable about providing services for any length of time and any hours during the day and night," he says. "We use one steady taxi, but as an engineer myself I can tell that the mechanical conditions of a lot of them are pretty poor. You don't want to break down in the middle of nowhere on the way to clinch an important deal."
However, owning a car is not without its headaches. Accidents are common and the number of break-ins is on the rise. Insurance will cover the losses incurred but not the administrative nuisance. And, even when car owners have paid all the taxes, they face restrictions on where they can travel. Many trips outside the main urban areas still require a special licence ? one for each trip and only on the authorised date. They are issued promptly and cost about Yn10 each. If, at short notice, an executive has to dash off to visit a client in a different town then he faces the prospect of being turned back by the police. Certain routes require no permits, such as the journey between Beijing and Tianjin on the new expressway.
There are two sources of drivers in Beijing. One is the state-controlled Foreign Enterprise Service Corporation (Fesco), which supplies personnel to foreign companies and embassies. To hire a driver through Fesco means paying a commission equal to the driver's salary. Various insurance and medical expenses are covered by the commission and Fesco will also deal with problems and disputes which may arise concerning the driver. It is thought that Fesco is looking to get out of the business of sourcing drivers and instead focus on placing interpreters, secretaries and housemaids. The alternative, less formal procedure, is to approach someone who recommends a driver who in turn has to satisfy Fesco of his/her qualifications before being licensed by Fesco.
To qualify, drivers must have a minimum of five years experience, a clean licence and sound bill of health. They must also attend monthly briefings and a refresher course twice a year.
"If a driver is not up to scratch, you can get him changed with the minimum of fuss," says Kung. The pool of qualified drivers is fast expanding. In the early 1980s, there were only 10 or so driving schools in Beijing; a year ago, there were over 200: New regulations passed in September last year have eased the administrative procedures for passing a test. On average, just 10 per cent of learners fail their driving test.