Just as cars gave birth to the American Dream during the early rise of US economic powers, how would the story of cars unfold in the most populous and rapidly (if unevenly) developing country in the world? What else does the story tell us about China? Car sales shot up from 2 million in 2000 to 5 million in 2004, including 2.6 million passenger cars, making China the world's third largest car market, trailing just behind Japan's 5.9 million. However, the momentum began to weaken in the latter part of last year. The passenger market is losing steam dramatically from about 70% growth in 2002 and 2003 to 15% in 2004. During the first four months this year, sales of passenger cars slumped by 0.62 % and industry profits fell by 58%. Unsold inventory is expected to build up from 450,000 at the end of last year to 750,000 this year end, twice the norm of 300,000. Is the China car dream fizzling out? The fundamental numbers, however, remain powerful. Per capita ownership is a meagre 7 or 8 per 1,000 compared with a world average of 120 (and more than 600 in the US). The national imperative of urbanisation continues to steam ahead, driven by the explosive growth of motorways from virtually none 17 years ago to some 34,000 km last year, behind only the US. Total road network, already the world's third longest, is expected to double by 2020. Moreover, sustained high economic growth with ever increasing openness over quarter of a century has spawned a rising middle-class of over 450 million with purchasing power of over $7000 a year, past the average threshold driving car ownership. So it is no wonder that even in May,Volkswagen announced that it had started work on a JV in Dalian to produce 150,000 engines a year while a few days later GM opened a new $249 million plant in Shanghai with a capacity for 170,000 vehicles a year. Yet at least in the short tem, this is likely to add to the oversupply, which the State Statistics Bureau estimates at 30%, reaching 2 million cars by the end of next year. While sluggish sales may be due to macro-economic measures to fine tune the economy, including the reining-in of loose car- financing, what is more threatening to foreign investors' bottom line is the emergence of Chinese global players with various degrees of government backing. They are poised to expand their home market share through continual price cutting and more aggressive niche marketing, and gradually to outreach international markets. For example, China's biggest private car maker, the Geely Group, exported only 5,000 cars last year, mainly to the Middle East, Africa and South America but aims to be exporting 65% of its output by 2015. It is partnering with IGC to export 10,000 cars and build its first overseas assembly plant in Malaysia. At the recent Shanghai International Auto Show, Chery boasted ambitions of entering the US market and is said to be lining up US investment and dealership partners to export a few highly competitive models, including SUVs, with Italian designers and Australian engineering specially geared to US tastes. Such confidence has come about as a result of years of working with Western global giants. But the prospects of any significant outreach are still beset with daunting challenges of brand recognition, quality, design, distribution and after-sale service. Moreover, production costs in China, despite low wages and cheap land prices, remain 15 ? 20% higher than in the West, according to Merrill Lynch research report. This is largely because of just-in-time production inefficiencies and training costs. Nevertheless, both factors are set to improve over time as China is rapidly developing its parts and components industry through attracting outsourced manufacturing and fostering a critical mass of quality and supply chains. This development is helped in no small way by the outpouring of qualified skills and talent. There is already a well established pool of some 17 million university and advanced vocational engineers and technicians. Some 325,000 are added each year, five times more than the US. Across a broader front, would such formidable combination of low costs, high efficiency, hard work, quality, ample supply of science and technology manpower, and powerful global supply chain network, spell the beginning of the end of some of the traditional pillars of Western industries? Are we going to see more closures after MG Rover? More Chinese take-overs instead of takeaways? Even aircraft parts are increasingly being outsourced to China. How will the EU be able to compete? There are of course two sides of the coin. Endowed more with population than natural resources, China has to continue to rely on huge imports of staple foodstuffs such as grain and soybeans to feed a fifth of mankind, as well as oil and gas to sustain its industries and the more mobile lifestyle of a growing middle-class. What is more, with rising fossil energy costs, supply limits and environmental concerns, China will continue to expand its nuclear energy and pursues more vigorously alternative forms of supply. It will also need better techniques of agronomy, conservation and sustainable development. China needs to import more and more sophisticated and high-precision production machinery and to hone its design and creativity skills for its manufacture to stay ahead. And better power and transport systems for its breathtaking urbanisation. The imperative of avoiding over-dependence on exports, rising consumer expectations and assimilation of Western lifestyles are expanding China's demand for more inspiring urban architecture, more modern low-budget hotels to replace the huge stock of filthy and dilapidated guest-houses, and more non-traditional recreation from overseas holidays to interactive on-line games. The China dream has become much more colourful and Westernized since the early days of the Open Door Policy. Moreover, China is locked into a momentum of increasing openness and movement towards international norms, as it complies with WTO requirements and marches on to its historic milestones of the 2008 Beijing Olympics and 2010 Shanghai Expo. Overseas education not only in science and technology but in law, business and the humanities will continue to ring profound changes to help shape China for its rightful place in the 21st Century. Coming back to cars, according to latest statistics, the industry's competitive price-cutting appears to have abated, although the luxury car market continues to disappoint. Passenger car and overall vehicle sales for June jumped 18% and 36 % year on year respectively, with the first-half of 2005 registering 4 to 5% growth. Despite lack-lustre sales in its flagship sedans of Buick, Chevrolet and Cadillac, GM's JV in minivans and mini-trucks reported a 48.7% sales growth year on year. The minivans have the look of a sedan and are priced at less than 100,000 yuan. At home, the China car dream looks to remain, but perhaps more down to earth with economic and functional realities. Meanwhile, a bigger dream is now unfolding abroad as Chinese car makers like SAIC and Nanjing Automotive begin to beat their wagon trail to acquisitions in the West in the wake of similar overseas trail-blazers like Lenono, CNOOC, TCL and Haier in other markets. But that is the subject of another story. Andrew K.P.Leung, SBS, FRSA