On China becoming the largest auto market in 2009...

I was reading the article today about how China has surpassed US to become the world's largest auto market in 2009. It sure is an amazing milestone.

The sheer size of that market (by headcount) is enough to turn any heads. There's this popular metaphor that was used to describe the potential significance of the market in China: If you're a sock company, and imagine every one of the consumers in China would buy just one pair of socks from you. Even if you charge really, really low price for the socks, the absolute dollar value of the sales could still blow you away.

In a country like China, when its denizens are so lack of alot of material goods that have long been taken for granted in the western world, the collective rising wealth would certainly mean much sales in alot of different categories, from the basic daily necessities, to the luxury items.

But I have always had some lingering doubts at the back of my mind. For, in a country where a large majority of its citizens are still rural and living below poverty line, how much can they afford to buy is still a question that I haven't seen the answers on, from all the rosy analyst's and news reports. There is also this question of how "collective" the rising wealth is. Surely, most Chinese are avid savers, given that social safety net is almost non-existent, it's prudent to save more than necessary, in order to prepare for the rainy days.

Last month, I traveled back to Asia and took a short trip to one coastal city in China, and had some talks with the locals, including two families who are solidly upper-middle class, and some poor locals and migrants waiting for treatments in a hospital. Those poor are still living their bare-bone lives, while the upper-middle class families are driving new car models.

A couple of observations and tidbits I take away from that trip:

(1) One time, when we were driving to a nice local restaurant for dinner, I was marveled by how many new cars there are on the road. I learnt that cars are not cheap to the locals, but I was told that people (average joes) can get interest-free car loans for three years, no doubt funded (directly or indirectly) by the central government's stimulus package. That essentially means giving cars away to anyone who cares to get a license. No wonder car sales shoot through the roof. The question though becomes, how sustainable this kind of car sales is.

(2) The class concept of locals versus migrants is very real. Migrants drive the mopets; while banks would grant car loans to any locals who apply. Hence, almost all locals drive new cars. There is no collective wealth. If the banks are not lending, hardly anyone would be driving. Amidst news that export is picking up, or that local market in China has been stepping into the void created by the plummeting exports, everything's hinged on the policy in central government. When the central government says yes, there'll be easy credits (easier than those subprime loans in US); when the direction reverses, the banks can repro the cars. My other question is, what would happen to the local/consumer market in China when the easy credits from central government are gone. Naturally, we have one (and very similar) scenario playing out in US and Europe. Would that happen to China in 2010 or '11?

Right now, all eyes are on China. Afterall, there's not much good news to speak of in US and Europe. It's only natural that investors and companies want to chase anything that still has a growth curve. I hope the landing in China will be soft, because if that dragon catches flu, there'll be alot of countries catching aching bones and chills.