China's auto sector underwent a brief ebb due to oil price hikes, but it soon returned to the fast track. During the six years since 2001, China's auto sector has enjoyed five years of fast growth, and the average annual growth rate for the 2001-2006 period is 36 percent, indicating the entry of China's passenger car market into a high-growth era.

China's GDP growth rate in 2007 is forecast to be above 9.5 percent, and this will help the nation's auto sector maintain fast development. Xu predicts that in 2007 China's passenger car market will grow by 20 percent over 2006 and the total demand for passenger cars will top five million units. The total demand for vehicles is expected to reach eight million units, a 14 percent increase from the 2006 figure (seven million units).

China's passenger car market is expected to be on the fast track for the next 15 years, with an average market demand growth rate at 1.5 times the nation's GDP growth rate. This prediction is based on the development phase theory of the auto industry. The auto market development in many countries follows a three-period pattern which includes the induction period, growth period and the maturity period. China's auto industry is currently in the induction period, and other countries such as Japan and the Republic of Korea witnessed a very fast expansion in the auto industry during this phase. Meanwhile, China's GDP is expected to maintain fast growth for 15 years.

However, there are other factors which may affect the domestic auto market. Oil prices are a sensitive issue and the Chinese government will be very cautious in adjusting oil prices. The traffic and environmental protection policies in metropolitan cities such as Beijing, Shanghai and Guangzhou may affect the auto market, but the effects are slight. For example, Beijing has just implemented favorable measures in support of public transportation service. Big discounts are offered to lower bus fares. This policy may cause potential auto buyers to think twice before making a deal, however, Xu believes that this measure will also encourage people who normally ride bicycles to take the bus thereby alleviating the city's heavy traffic pressure. This policy, in the long run, is favorable for the development of the auto industry.

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