It's no secret that China's auto market has been growing rapidly, surpassing the US market in unit sales for the last two years.  While that's an indicator of the country's strong economy, it has also created serious pollution and congestion problems in China's largest cities.

During the week of Dec. 13, 2010, alone, Beijing issued licenses for 30,000 new vehicles, bringing that city's total to an amazing 4.76 million--in a city with a reported population of 22 million people.  At that rate of registrations, Beijing would double its vehicle count in a mere three years.

To avert this, China has taken the drastic step of limiting the number of licenses it issues in Beijing. Now it will license only 20,000 new vehicles a month, which it expects will reduce auto sales there by 70 percent. 

To be fair (and fun?), China will issue these licenses through a lottery system, with drawings on the 26th day of every month.  Applications must be submitted online.

Beijing is not the first Chinese city to impose such a restriction, as the nation's wealthiest city, Shanghai, has limited the number of vehicles sold there since 1986.

Nationwide, China is also removing subsidies for vehicles sold in rural areas, and raising the sales tax from 7.5 percent to 10 percent. 

All these measures have caused some of China's major automaker's stocks to slide on world markets.  Even European automakers' stocks were affected.

Certainly, these steps should address much of the congestion facing two of China's major cities, but rising fuel demand and air pollution still remain.  China's existing auto industry mostly doesn't offer--and buyers show little interest in--zero-emission vehicles. And BYD has repeatedly delayed the U.S. launch of its e6 electric crossover.

Many Chinese car companies are attempting to partner with their overseas automakers to produce hybrid-electric, plug-in hybrid electric, electric and fuel cell vehicles. But given the piracy of intellectual property rampant in the freewheeling Chinese economy, established manufacturers are naturally resistant.

But some partnerships are already underway. The Shanghai-GM unit that's half-owned by General Motors plans to produce an electric Chevy Sail, some of which it hopes to export to Chile. 

[Bloomberg]