Visitors watch a robot perform welding on the body of a car at the China International Industry Fair in Shanghai on September 19. Photo: Xinhua
Opinion
The View
by Winston Mok
The View
by Winston Mok
How China can use its strength in car exports to drive economic growth
China’s edge in EV production is based on many competitive advantages, but work is needed if it is to be turned into an engine of growth
Realistically, its EV makers must look beyond the US and Europe to other emerging markets for expansion. Here’s where the belt and road can play a key role
The export-oriented car industries of Japan and South Korea epitomised their economic rise. In the case of China, its growth in auto exports happened long after it had become a manufacturing powerhouse and top trading nation.
Behind the headlines, however, it is unclear whether China’s car industry, with its massive overcapacities, can become an engine of profitable economic growth.
Measured by units sold, China’s automotive industry has been the world’s largest since 2008. Unlike the situation in Japan and South Korea, until the arrival of electric vehicles, foreign brands had long dominated China’s car market. General Motors and Mercedes-Benz sell more cars in China than in their home markets, and a top car exporter from China is Tesla.
The top export markets for Japanese and South Korean carmakers have been the US and Europe. With the US imposing steep tariffs on Chinese-made cars, the US market is largely closed to China. While China has made inroads into some European countries, including Belgium, the UK and Spain, it is facing headwinds in selling more EVs in Europe.
China’s top car export markets in the first half of this year have been Russia and Mexico, where China sold mostly fossil-fuel-powered cars. Although China’s car exports have been buoyed by EVs, petrol- and diesel-powered vehicles continue to represent the bulk of China’s car exports.
BYD electric cars waiting to be loaded onto a ship are seen at the international container terminal at Suzhou Port, in China’s Jiangsu province, on September 11. Photo: AFP
BYD is projected to achieve parity with Tesla in the number of EVs sold this year. BYD, as the bestselling car brand in China, is reliant on the domestic market. Tesla exported a lot more cars than BYD from China alone in the first half of this year and remains the top EV brand in Europe, where BYD’s market share was below 1 per cent last year.
Unlike the car industries in Japan and South Korea, which are dominated by a few national champions, China’s car industry is much more fragmented, with more than 100 companies, many of which are supported by local governments. Herein lies a fundamental difference from the industrial policies of Japan and South Korea, where there is a much higher degree of national coordination.
With uncoordinated competition among local governments in supporting the EV industry, a bloodbath akin to what happened in China’s photovoltaic industry a decade ago could well unfold. In fact, from a peak of about 500 EV assemblers in 2017 in China, about 200 remain today. Many more will fold.
This has not stopped new entrants, such as Xiaomi, joining an already crowded market. Well-capitalised companies with established brands and distribution may have an advantage over independent start-ups. That was the idea behind Evergrande’s foray into EVs, which compounded its woes.
China has succeeded in leapfrogging other nations in EVs, in part because they are less complicated to make than cars powered by internal combustion engines. Further, besides having cheap steel and electronics in abundance, China’s EV industry has benefited from its world-leading EV battery supply chain.
A CATL production facility in Shanghai, China, seen on April 16. China’s CATL commands 35.9 per cent of the global EV battery market, supplying the likes of Tesla and BMW. Photo: Bloomberg
Outpacing its Korean and Japanese competitors, China’s CATL commands 35.9 per cent of the global EV battery market, supplying the likes of Tesla and BMW. A key competitive advantage of BYD, which started as a battery maker, is its own batteries – such as its long-range blade batteries. While the industry may be fragmented in the assembly stage, China’s real strength in EV perhaps lies upstream.
Going forward, smart navigation (including autonomous driving) will be a key factor shaping China’s leadership in EVs. A joint venture between Baidu and Geely is expected to launch its first model by early next year.
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Baidu wins permits to offer fully driverless robotaxi service in Beijing
Baidu wins permits to offer fully driverless robotaxi service in Beijing
A key factor behind the growth of EVs in China has been its charging infrastructure. With more than one million units installed, China is home to more than half of the world’s public slow-charging points. Furthermore, China had 760,000 fast chargers at the end of 2022, more than 10 times Europe’s level and 27 times the US’. China accounted for almost 90 per cent of new installations of fast chargers in 2022.
The uneven EV charging infrastructure in Europe will get a boost from new regulation that requires blanket coverage on all main highways. The cumulative investment required for the charging infrastructure is €240 billion (US$254 billion) by 2030.
Most of the EV charging infrastructure in the US was built by Tesla, which operates an extensive network of superchargers.
China’s car exports face tariffs of 27.5 per cent in the US and 10 per cent in Europe (which could rise after the launch of an EU probe into subsidies for EVs). Unlike Japan and South Korea, China cannot rely on these two key markets and must look elsewhere, such as Southeast Asia and Latin America, where demand for EVs is poised to grow.
However, limited charging infrastructure is a key impediment to EV roll-out in developing countries. This requires huge investments that cannot realistically be funded by EV makers.
With the requisite experience, capital and incentives, China is the natural investor in EV infrastructure internationally. With such investments, China can grow EV markets in developing countries. This should be among the highest-priority projects under the Belt and Road Initiative, which can elevate China’s industrial competitiveness and boost economic growth.
Winston Mok, a private investor, was previously a private equity investor
