China is increasingly shaking off its reputation as the world's "bicycle kingdom" as automobile ownership continues to accelerate.

Government think-tanks believe that this trend will not be bucked as growing prosperity continues to drive auto ownership upward.

But Chen Qingtai, deputy director of the State Council's Development Research Centre, warns that although the auto sector has great growth potential over the next two decades, it will also face challenges resulting from energy supply shortage, the environment and congestion.

Chen delivered this warning at a recent auto forum in Guangzhou, the capital of South China's Guangdong Province.

Good prospects

China's current level of car ownership stands at 20 per 1,000 people. Given that the global figure stands at 120 cars per 1,000 people, this means that China's auto sector enjoys massive growth potential, Chen told the event, sponsored by the China Automotive Engineering Society.

"New vehicle sales in China will increase by at least 10 per cent annually within the next two decades, also given a lift by the nation's steady economic growth, which is expected to be 7 per cent a year," he said.

Annual sales of new vehicles in China will exceed 13 million units within the next 10 years, up from 4.4 million units last year.

The number of vehicles in China will total 57 million units by 2010 and 130 million units by 2020 from 24 million last year, said Chen, the former general manager of Dongfeng Motor Corp, one of China's top three State-owned automakers.

"China's urbanization campaign and the ongoing transfer of the world's auto production to the nation will also give great opportunities to our auto industry," Long Yongtu, secretary-general of the Boao Forum for Asia, told the auto forum in Guangzhou.

The industry should place emphasis on the development of auto components, said Long, also the former Chinese chief negotiator at the World Trade Organization.

In a bid to cash in on the world's fastest-growing car market, nearly all foreign auto giants and component companies have set up manufacturing bases in China.

This means the auto industry will be one of the biggest growth engines for China's long-term economic growth by creating huge revenues and a large amount of jobs, Chen said.

"The industry will also have a positive and profound impact on all aspects of Chinese society," he said.

For example, the use of cars will improve people's way of life, enabling them to get a better understanding of many things, such as machine building, electronics, energy, the environment, geography and laws, he said.

Differences between China's coastal and inland regions and cities and rural areas will be gradually reduced as car ownership increases.

Major challenges

But Chen warned that increasing car ownership will pile the pressure on the nation's oil supplies.

By 2010, Chen predicted that automobiles in China will consume 138 million tons of oil annually, accounting for 43 per cent of the nation's total oil demand.

Automobiles' annual oil consumption will grow to 256 million tons by 2020, 57 per cent of total demand.

Vehicles in China consumed 65.6 million tons of oil in 2000, one-third of the then total demand.

"As a result, China will depend on oil imports more heavily because domestic oil reserves are limited and the nation's energy security will be greatly affected," Chen said.

China's total annual oil demand is forecast to reach 450 million tons by 2020, with more than half of that coming from imports.

The nation's oil imports will increase to 110 million tons this year from 97 million tons last year.

Exhaust emissions from automobiles will also pose a major challenge to environmental protection in China, Chen said.

"Urban pollution will mainly come from automobiles, instead of coal, if we fail to effectively control auto exhaust emissions," he said.

Vehicle exhaust emissions will account for 79 per cent of total air pollution in China by next year, according to a forecast by China's State Environment Protection Administration.

Vehicles have become the biggest producers of carbon monoxide and nitrogen oxide in some big cities, such as Shanghai, Beijing and Guangzhou.

Vehicle carbon monoxide and nitrogen oxide emission reached 30 million tons and 3.8 million tons in China in 2000.

Xu Feng, a white collar worker living in northern Beijing, is unsure about buying a car.

"It will be very convenient to drive out of Beijing to breathe fresh air or do other things during the holidays if I have a car, but the traffic jams from my apartment to my office in downtown Beijing are terrible," Xu complained.

Xu's hesitation is not uncommon among well-off urban residents.

Vehicles travel very slowly through many Chinese cities as a result of serious traffic congestion.

Cars can only reach a speed of 11 kilometres per hour during the rush hour periods on Beijing's main roads.

"This is a dilemma, but it was mainly resulted from inefficient transportation facilities and management," Chen said.

There will be 3.5 million cars in Beijing by 2008 when the city hosts the Olympic Games, up from more than 2 million last year, but the number will still be much less than that in other major cities, such as New York and Tokyo.

"The government is not well prepared for these challenges and changes brought about by ordinary people's ownership of cars," Chen said.

The government should develop a "clear and foresighted" strategy for the auto industry, he suggested.

The auto industry should be seen as a sector of "strategic significance" to enable it to remain an important driving force for domestic consumption, overall economic growth and upgrading of the nation's industries, he said.

The auto industry should be actively engaged in the international market and continue to attract foreign investors to improve competitiveness, he said.

"We should also fully consider the factors of energy, the environment and traffic to ensure the sustainable development of the industry," he said.

The government should take market-oriented measures, especially taxation and charges, to encourage consumers to buy low-emission cars, limit the use of luxury cars and guide automakers to develop and produce vehicles suitable to China's resource conditions, he said.

Chen also urged the government create more strict vehicle-related regulations, such as quality, environmental protection and after-sales services.