Suggested Citation:
Chen, Yuan (2024)

Supply, Demand, and the Effects of Government Policy in the Chinese Automobile Market

. Institute of Transportation Studies, University of California, Davis, Dissertation UCD-ITS-RR-18-62

Abstract:

China is experiencing rapid economic growth and, along with it, rapid growth in vehicle ownership. The rapid growth in vehicle ownership and vehicle usage is linked to increasing global warming, emissions, air pollution, and other problems.

In Chapter 1 of my dissertation, I discuss the Chinese automobile industry and government policy, and review the literature on vehicle markets and policy in China. Using a comprehensive annual data set I have collected and constructed of all the car models marketed from the year 2004 to year 2013 in the Chinese automobile industry, I then discuss and describe the characteristics of vehicles in the Chinese automobile industry. The detailed information, description, research, and data presented in this paper have important implications for those in industry, government, society, academia, and NGOs interested in the Chinese automobile market, the automobile industry, and transportation policy.

In Chapter 2 of my dissertation, I develop a structural econometric model of a mixed oligopolistic differentiated products market that allows different consumers to vary in how much they like different car characteristics on the demand side, and that allows state-owned automobile companies to have different objectives than private automobile companies on the supply side. I estimate my model using a comprehensive data set on the sales, prices, and characteristics of the majority of vehicle makes and models in China, including alternative vehicles. Results show that forming international joint ventures with car companies in the US and Japan is associated with a lower marginal cost to Chinese car companies of technology-related vehicle characteristics. I use the model to simulate the effects of introducing a new alternative vehicle and of counterfactual government policies on alternative vehicle market share and welfare. I find that China’s Corporate Average Fuel Consumption (CAFC) standard is inefficient, and that the alternative vehicle market share, consumer surplus, private firm profits, and state-owned firm utility would all increase if China removed its CAFC standard and made its fuel economy standard more stringent instead.

In Chapter 3 of my dissertation, I analyze model and analyze the dynamic and strategic decisions of Chinese automobile companies of which cars to produce and which new cars to introduce, and the effects of economic factors, strategic interactions, and government policy on these decisions. In particular, I develop a structural econometric model of the dynamic game among Chinese automobile companies making decision about which cars to produce, which new cars to introduce, what the characteristics of any new cars should be, and whether the new cars should be alternative vehicles. The research in my dissertation is significant for industry, government, society, academia, and NGOs. My model of the demand and cost in the Chinese automobile market will be significant for industry, particularly car manufacturers interested in better targeting cars, including alternative vehicles, for the Chinese market. My estimates of the factors that affect demand and supply in the Chinese automobile market are significant for policy-makers interested in developing incentive policies to increase market penetration of alternative vehicles with potential environmental and climate benefits.