The ViewXi faces struggle to rein in ballooning car ownership in China

China is an authoritarian country, but one where rules are constantly broken. Successful investing in the country often involves figuring out whether, in any given situation, the preferences of policymakers or citizens will prevail.

For example, official policy has always been rather tough on villas. China’s administrators, many of whom have had engineering backgrounds, prefer residential highrises as the most efficient and energy-saving path to urban development.

But many of China’s emerging rich love villas, and developers always managed to deftly maneuver around the many disencentives to – if not outright prohibitions against - low-rise residential building development. Ignoring the rules, and betting on companies that specialized in villas, paid off for stock investors.

Now, however, Xi Jinping is in charge, and he seems rather like a fellow who means business. So for instance, there may still be lots of cadres who like to entertain with nice wine or liquors, and hit the tables at Macau for relaxation, but we can tell, from falling bottom-line sales, who has the upper hand in this arena.

Which brings us to the deepening battle lines overs cars.

Shenzhen just became one of the last major cities forced to announce a cap on the number of car licences issued annually. The city had tried to implement other measures to satisfy Beijing’s desire for reduced traffic and emissions, such as raising parking fees. In other words: let car producers earn money selling vehicles, then just make it too expensive for owners to actually drive the cars - a brilliant Keynesian-style solution.