A study by IBM and the University of Michigan Transportation Research Institute's Office for the Study of Automotive Transportation says the Chinese automotive industry faces significant challenges as it continues to expand. The need to adapt to a market economy, a lack of technology and knowledge transfer from joint ventures, and infrastructure, air quality, and oil supply challenges all create an uncertain future, the study reports.

"Inside China: The Chinese View Their Automotive Future" examines the opinions of Chinese automotive and government industry leaders, as well as those of academic experts. Most interviewees expect it will take two decades to close the product and process gaps with their world-class counterparts.

Chinese companies wanting to produce vehicles in China may not form partnerships with foreign companies if the foreign company will own more than 50% of the venture. For their part, venture partners are concerned their Chinese partners will use any knowledge they transfer to compete with them in the future. Thus, the skills and experience in manufacturing, design, testing, and distribution haven't developed as fast as Chinese officials expected.

In 2004, China's vehicle population hit 26.9 million, increasing fourfold from 1990's 5.5 million. Traffic congestion has become a way of life in the major cities. While efforts to build elevated roadways and public transportation systems in Beijing and Shanghai have begun to reduce congestion, a parking shortage remains.

The rise in the number of vehicles is a major contributor to poor air quality in the cities. The study claims barriers such as high sulfur content in oil, low-quality fuel, and increased vehicle costs due to higher emission standards may keep China from reaching desired air-quality goals.

According to China's National Bureau of Statistics, only 220,000 cars were produced there in 1993. Fueled by growing demand throughout Asia, the number jumped to 2.34 million units by 2004.