1. China has been the largest car market in the world since 2009. Over recent years, consumers preferences have shifted from smaller compact vehicles to bigger vehicles. As a result of this consumer preference shift, it has increased the country's oil import bill drastically. Due to increase in the quantity of oil demanded, it has had a direct correlation in adding to China's pollution. The increase in demand for oil has raised political concerns, especially in Beijing, as policy makers attempt to limit oil consumption.
2. As consumer preference leans toward bigger vehicles, this has increased the demand for vehicles to the right. As a result of the increase, price has risen as well as quantity supplied. Thanks to the increase in price, car manufacturers have greatly benefited, while consumers experienced a loss. S.U.V sales have increased by 49% in March, and have projected sales of 21 million vehicles over the course of the year. General Fords is anticipating the market to increase by 30 million cars and trucks. Government spending in turn increases since it has to import more oil in order to meet the demand of the consumers.
3. Consumer preference towards having larger vehicles led to this problem. An option or a resolution may be to provide consumers with an incentive such as a discount, to purchase more compact and fuel efficient vehicles. Policies that may improve the situation is to restrict the amount of oil imports into the country. This is ultimately increase the price of oil and potentially increase taxes on oil consumption.
Link to Article: http://www.nytimes.com/2013/04/22/automobiles/autoshow/chinese-auto-market-shifts-toward-larger-cars.html?ref=china
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