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While China's transportation sector is relatively small compared to other nations--both in absolute terms and relative to the size of the population--the nation is currently experiencing one of the highest annual motorization growth rates in the world. This rapid growth has raised both excitement among business leaders over the potentially enormous market for automobiles and concern among environmentalists over their further impact on the global environment. This paper examines the influence of population growth, increased urbanization, and economic development on the rapid growth of motor vehicles in China, and considers their implications for future motor vehicle growth in the country. KEY WORDS: China; automobiles; transportation; population growth; economic development.

Japan has substantially invested in China, particularly in the electronics industry, citing cheap labor as its primary reason. Hitachi, the first Japanese electronic firm to venture in China has been successful despite problems in worker performance, infrastructure and source of electricity. Japan is reluctant to pour investment in the automobile industry in China due to difficulties in the economic and political aspects there. The electronics industry is expected to expand in the future but the automobile industry remains uncertain.

The Chinese automobile industry is trying to compete with fresh challenges posed by an increasing influx of foreign auto manufacturers in the domestic market. The 1995 International Auto Exhibition, sponsored by the Shanghai Municipality, attracted participants from all countries, including leading car manufacturers such as General Motors, Ford, BMW and Toyota. A survey by China Automobile Industry Corp. predicts a rise in demand for motor vehicles by 2010. The Chinese government is encouraging multinational companies to engage in joint ventures.

Chinese automobile production has increased during the first four months of 1999, but there has also been a rise in stocks, and China faces possible competition as a result of attempts to join the World Trade Organization. There is a need for large-scale reorganization of the industry, and this is already being carried out by some enterprises and local governments. Hubei provincial government is among the bodies carrying out reorganization, which can bring economies of scale among its benefits. Demand for autombiles looks set to rise in 1999, bringing an improvement in market conditions.

The number of households with automobiles in China has increased dramatically since 1984. Statistics show that there were 2.89 million privately-owned cars in China by the end of 1996, a significant leap from only 173,500 12 years ago. Similarly, the purchase of private cars has increased at an annual rate of 28.1% between 1991 and 1996. More people are expected to buy their own cars in the immediate future, a trend that automobile manufacturers and driving schools are exploiting to the fullest through marketing.

The debate over whether China should adopt mass production of home-made sedans or limit production to avoid traffic jams and pollution has clearly tilted toward the first position. Official statistics show that, despite purchasing limitations and inconveniences, the annual growth rate of family car sales exceeds 50%. The government plans to promote the development of more economical sedans and components, the purchase of private cars, and the transformation of the automotive sector into a pillar industry to solve transportation problems.

This paper employs an embeddedness approach to study the restructuring and spatial change of China's auto industry since the 1980s. The two major dynamics behind these processes are discussed in detail: (1) institutional reform, which has resulted in a mixed regulation mechanism composed of both market competition and legacies of the past command economy, and which has also allowed more freedom in the decisionmaking of indigenous auto firms, and (2) globalization of production in terms of a huge inflow of foreign direct investment (FDI), mainly in the form of joint ventures. As a result, a new geography of the industry has emerged, with clear features of decentralization of production and a shift of production toward the coastal region. The paper concludes that the gradual institutional reform in China has led to a 'path-dependent' development of its auto industry and that auto-producing FDI has been deeply embedded in the Chinese institutional environment. This involvement in China's auto production can be aptly described as 'embedded globalization.' Key Words: China, auto industry, industrial restructuring, FDI, embedded globalization.

The rapid economic development and prosperous markets of China are attracting foreign investors. Raymond Chu, the chief representative of Eagle Star Assurance Co. Ltd of Britain, is confident of a large insurance market in China because of the increasing economic stability. According to Dr. Wenpo Lee, chief representative of the Beijing Office of Volkswagen Ag, China will be the center of automobile industries in the Asia-Pacific countries, having the largest factories. Spiral economic growth in China makes it an important trade center both for domestic and for foreign companies.

The Chinese government's plan to develop the automobile industry and the expanding auto-parts market are attracting heavy foreign investment. Joint ventures between Chinese automobile companies and overseas automobile producers such as Mercedes-Benz of Germany, General Motors of the US and the US Ford Co are increasing. China intends to develop its auto industry by importing advanced technology and products from abroad to meet the rising demand for automobiles.

China's first International Auto Parts and Manufacturing Technology and Equipment Show was held at the China World Trade Center in Beijing in between Sep 14 1993 to Sep 19, 1993. Over 100 corporations from 12 different countries attended. Automobile and auto parts are one of the main areas covered in China's Eighth Five Year Plan, 1991-95. Ninety-four of China's 122 foreign-funded enterprises are involved in the automobile industry. China exported $390 million worth of automobile and auto parts during 1992.

China's automobile industry is forging stronger relations with other countries in line with goals for the Eighth Five-Year Plan. Import of key technology and acquisition of capital by joint ventures with foreign firms will be emphasized. Locally-made parts of sedans and cars modelled after foreign vehicles and purchase of key technology by spot exchanges will also be stressed. A total of US$527 million have been invested by foreign firms in China's auto industry.