China to become world’s top auto exporter this year

Mark O'Neill September 25, 2023 23:10

This year China will for the first time become the world’s top exporter of automobiles, overtaking Japan. This will be a historic moment, ending decades of dominance by European, American, Japanese and South Korea manufacturers.

Analysts forecast China’s full-year exports at 4.4 million units, up 41 per cent from 3.11 million in 2022, when Japan’s exports were 3.5 million. China’s exports of electric vehicles (EVs) are expected to reach 1.3 million this year, up from 679,000 in 2022.

Set in a historical context, this is a remarkable achievement. At the start of reform period in the 1980s, Chinese automakers were decades behind their foreign counterparts. So Beijing encouraged them to set up joint ventures with European, American and Japanese makers to improve production and quality. The students have learnt well from their teachers.

For example, Shanghai Automotive Industry Corporation (SAIC) has jvs with Volkswagen and General Motors. Last week SAIC said it would export 1.2 million vehicles this year, up from 1.02 million in 2022, to markets including Europe and Australia. SAIC is China’s top auto exporter, followed by Chery, Tesla and Changan.

A SAIC subsidiary has ordered 12 giant ships to carry its vehicles, each with a capacity of 7,000 to 9,000 cars.

The other good news is the diversity of markets for Chinese autos, including Southeast Asia, Australia, South America, Mexico and Europe. They have almost a monopoly of the Russian market, after the withdrawal of Western auto companies. The only gap is the United States, thanks to tariffs imposed during the era of President Donald Trump.

But the news is not all good. China has the largest over-capacity of auto production in the world, with 63 manufacturers selling 109 brands, according to consultancy firm Automobility. Of these, the top five have a market share of 47 per cent and the top 20 over 90 per cent.

“The smaller 43 automakers have a market share of less than 10 per cent or less than three million units a year,” said Bill Russo, founder and CEO of Automobility, a consultancy based in Shanghai. “Consolidation is inevitable. Clearly, support from local governments will not last long, given the recent weakness in the economy which limits their ability to fund sub-scale companies.”

So the export drive is driven in part by this large over-production at home. Another factor is the fall in sales for models that use internal combustion engines, because Chinese are increasingly choosing to buy electric vehicles. Where do factories sell their oil-consuming models?

Another factor is the falling renminbi, which makes exports cheaper, and the need to offset weak consumer demand at home.

Russo said that foreign brands in the automotive industry were facing more than just an existential threat to their competitiveness within the China market. “Foreign brands now find themselves competing with Chinese brands aggressively targeting the global markets. Europe has become a primary target for China's export push. It presents a promising growth opportunity for affordably-priced Chinese EVs,” he said.

Geely is a good example of internationalising. It has built many production facilities, acquired renowned brands like Volvo and Lotus, introduced new brands including Lynk & Co, Polestar and Geometry, and partnered with major players like Daimler, Renault, and Aston Martin.

Such is the threat posed by Chinese EVs to European manufacturers that the European Commission on September 13 announced an investigation into subsidies paid to Chinese EV makers. It is likely to take nine months.

An EU official said that subsidies had enabled Chinese imports to undercut European EV prices by about 20 per cent. If the Commission finds that domestic producers have been harmed, it could levy tariffs, likely to be about 10-15 per cent.

Joerg Wuttke, former chairman of the European Chamber of Commerce in China, said that the investigation could constitute one of the largest trade cases launched by the EU. “It is trying to prevent a replay of what happened in its solar industry in the early 2010s when photovoltaic manufacturers undercut by Chinese imports went into insolvency.

“If found to be in breach of trade rules, manufacturers could be hit with punitive sanctions,” he said.
Sanctions would also hit foreign investors in China who benefit from subsidies, including Tesla of the U.S. and Polestar of Sweden.

In response, China’s Ministry of Commerce said that the probe was “a naked protectionist act”. It said that EU auto companies had invested and operated in China for many years. “The Chinese market has become the largest overseas market for many EU automobile companies. China’s EV industry had achieved its competitiveness through hard work,” it said.

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.