China's Factories Aim to Fill the World's Garages By KEITH BRADSHER:

China's auto industry, mainly local companies in joint ventures with multinationals, is not internationally competitive because of quality problems and startlingly inefficient parts factories. Workers at Dickensian foundries filled with acrid green fumes still ladle chemical additives into buckets of molten steel, then tip the buckets by hand to pour the steel into molds for auto parts.

China's auto exports to the United States mostly consist now of replacement parts shipped to repair garages, because automakers have been reluctant to make their assembly plants reliant on Chinese suppliers. But with broad support from Beijing and foreign investors, manufacturers in China are quickly improving operations -- and staffing them with workers earning as little as 50 cents an hour. In a few years, they are likely to be building high-quality cars and parts for as little as, or less than, anyone else in the world. Analysts say that China could surpass Germany as the world's No. 3 carmaking country in four years.

... putting China on wheels has also created terrible traffic jams, a rising death rate in a country with an atrocious traffic safety record, and severe air pollution in a country that already has 7 of the world's 10 most polluted cities.

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For all its strengths, the Chinese auto industry, like the Chinese economy as a whole and perhaps like China's political system and even society, is a mountain created on a very narrow and possibly wobbly base. Aggressive lending by government-owned banks has been stimulating the economy for years -- even though many debts are never repaid, to the point that Chinese banks now have portfolios of bad loans rivaling those of Japanese banks, but in an economy that is one-seventh the size.

If economic growth ever falters significantly and banks stop collecting their current flood of deposits from China's ever more prosperous people, a financial crisis could ensue that would cripple China's auto industry and many other industries. If such a crisis were to happen soon, before China's auto industry brings its costs down to international levels, then automakers could be discouraged from making further investments. But if China can keep growing for a few more years and become competitive, a downturn in domestic sales could unleash a flood of Chinese cars onto world markets.

Another potential difficulty lies in China's rigid political system. It is hard for any outsider to judge how stable China really is, as ill-organized protests and riots appear to occur frequently in smaller cities, even as the Communist Party prevents these disturbances from becoming coordinated to an extent that might threaten its legal monopoly on political power. Large-scale social unrest could seriously disrupt China's auto industry and economy as a whole.