The automotive supply chain enterprises in China are following the footsteps of automakers to accelerate their overseas expansion, targeting the markets in Europe, America, and Southeast Asia. Industry insiders even say that “those who don’t go global will be left behind.” Economists and analysts believe that Chinese companies are taking this step to avoid sanctions from Europe and America.
On June 24, China Automotive Technology Research Center’s subsidiary, China Auto Information Science, in conjunction with other institutions, released the “2024 China Automotive Supply Chain Going Global Enterprise List.” China Automotive Technology Research Center is a scientific research institution approved by the National Science Commission of the Chinese Communist Party and is currently under the supervision of the State-owned Assets Supervision and Administration Commission of the State Council.
China Auto Information Science stated that following automakers overseas is the most mainstream model for supply chain enterprises. Going global can not only reduce transportation and tariff costs but also consolidate their position in the global market. Research by China Auto Information Science shows that Chinese supply chain enterprises’ overseas layout is mainly in Europe, North America, and Southeast Asia, which are also the main export markets for Chinese automobiles.
As early as June 1, the China Association of Automobile Manufacturers published an article stating that Chinese automotive supply chain enterprises are currently at a “historic moment of a century-long change,” emphasizing that companies must not only “go out,” but also “go in,” and stating that “going global is imperative.”
The article stated that in a recent forum organized by the China Association of Automobile Manufacturers, many industry insiders mentioned that not only whole vehicle manufacturing enterprises but also supply chain companies are planning to go global. Yao Xiaodong, Secretary-General of the Yangtze River Delta New Energy Automobile Industry Chain Alliance and Secretary-General of the Zhejiang New Energy Automobile Industry Alliance, stated at the forum: “If you don’t go global, you will be left behind!” This statement has become the current industry consensus.
On June 26, David Huang, a Chinese-American economist living in the United States, stated in an interview with a reporter from Epoch Times that there are two main reasons for Chinese automotive supply chain enterprises accelerating their global expansion.
Huang mentioned that one reason is to evade sanctions from Europe and America. He explained that the high profits from China’s exported goods usually come from markets such as the European Union, the United States, and Canada. Although China’s automotive market has expanded to Latin America, Africa, and Central Asia, the consumption in these regions is limited, sales prices are not ideal, and profit margins are smaller. Establishing production bases in these regions also helps save transportation costs. He believes that China’s current strategy to accelerate exports is not targeting countries in Asia, Africa, and Latin America but aiming to relocate the production base of Chinese electric vehicles to Southeast Asia or Eastern European countries within the EU to circumvent the punitive tariff measures imposed by the EU and the US on Chinese electric vehicles.
He further mentioned that another reason is that for a long time, Chinese electric vehicles have been supported by Chinese government policies, with subsidies provided for each vehicle sold. However, after more than a decade of development, the purchasing power for Chinese car buyers in the next three to five years has been nearly exhausted. The domestic market has basically little consumption ability left, so Chinese automotive enterprises have no choice but to accelerate their overseas expansion, otherwise they may face being phased out.
Guo Yuanxing, who has held senior marketing positions in multiple companies in China, also agreed, stating to an Epoch Times reporter that the acceleration of Chinese automotive supply chain companies going global seems to be aimed at reducing procurement costs and tariff burdens on the surface but is closely related to the issue of sanctions.
Guo mentioned that if Europe and America impose punitive tariffs on Chinese automobiles, the sales of these cars will definitely be affected. If complete vehicles cannot be sold, then upstream enterprises supplying components such as batteries, electronic control systems, and all other parts will also be affected. But now Chinese enterprises are expanding their supply chains to Europe, America, and Southeast Asia, essentially becoming foreign companies, becoming a part of local employment and tax revenues. In this way, how can Europe and America enforce sanctions? Therefore, these Chinese companies are trying to bind their interests with overseas markets in this way to influence or even evade European and American sanctions.
China’s automobile exports have shown explosive growth in recent years. From 2013 to 2020, the quantity of Chinese automobile exports fluctuated around one million vehicles, with the peak reaching only 1.04 million vehicles. In 2021, Chinese automobile exports surged to 2.02 million vehicles, and in the following two years, it increased to 3.11 million and 4.91 million vehicles respectively. In 2023, China surpassed Japan to become the world’s largest automobile exporter.
In recent years, with the rapid development of new energy vehicles, China has established a complete electric vehicle industry chain. An article by the China Association of Automobile Manufacturers stated that the participation of Chinese automobile parts enterprises in the global market has evolved from product trade to the export of the entire industry chain. In addition to traditional parts exports, areas such as power batteries and intelligent cabins have also become new hotspots for the global expansion of automotive components.
From an export perspective, in recent years, Europe, the Middle East, and other regions have become important export destinations for Chinese automobiles. Southeast Asia, Mexico, and other regions have also become new hotspots for going global.
However, the growing export performance of electric vehicles in China, frequently touted by the Chinese government, has raised concerns from the United States and Europe. Both the US and Europe have pointed out the issue of overcapacity in China’s production. The EU believes that this is the reason why China is flooding the European market with cheap electric vehicles. The intensity of China’s exports is so high that the US and EU are preparing to impose high tariffs on these products.
In October 2023, the European Commission launched an anti-subsidy investigation into Chinese electric vehicles and released a preliminary ruling on June 12, 2024. The EU believes that Chinese electric vehicles, benefiting from government subsidies, have a stronger market competitiveness. The EU plans to impose temporary anti-subsidy duties on electric vehicles manufactured in China starting from July 4 and plans to convert them into permanent tariffs in November. The additional duties vary from 17.4% to 38.1% for different automakers.
On May 14 this year, the White House in the US announced that it would impose tariffs on $18 billion worth of products imported from China, with the tariff on electric vehicles increasing from 25% to 100%. In addition, the tariff rate for lithium-ion electric vehicle batteries has been raised from 7.5% to 25%. The White House stated that this move aims to protect American workers and businesses.
In April this year, US Treasury Secretary Janet Yellen raised the issue of “overcapacity” during her visit to China, specifically mentioning Chinese electric vehicles, solar panels, and other clean energy products. Subsequently, during Chinese Communist Party leader Xi Jinping’s visit to Europe, European Commission President Ursula von der Leyen also pressurized Xi Jinping over the issue of China’s overcapacity.
David Huang believes that the accelerated global expansion of Chinese automotive supply chain companies will have a significantly negative impact on the domestic Chinese economy. Firstly, these enterprises will receive financial support from the Chinese Communist Party, which ultimately comes from ordinary people, who do not benefit from these companies but have to bear the cost.
Huang said that secondly, the accelerated global expansion of supply chain companies will help with employment and real estate in the countries where they expand but will significantly reduce the utilization of human resources within China, leading to an increase in the unemployment rate in China’s domestic automotive industry.
He also stated that Chinese companies rely on government subsidies to enhance their competitiveness in the European and American markets, while European and American companies mainly rely on independent operations. Therefore, when faced with financial support from the Chinese Communist Party, European and American companies seem vulnerable. The Chinese Communist Party’s strategy of dumping at low prices has had a significant impact on the traditional automotive manufacturing industries in Europe and America.