China Evs Still Driving For EU's Protected Markets

On July 9, BYD, China's largest EV maker, announced that it would set up a factory in Turkey for US$1 billion. The new facility, scheduled to commence production by the end of 2026, will have a maximum production capacity of 150,000 vehicles per year. The plant will create about 5,000 jobs.

China's SAIC Motor Corp, which owns the United Kingdom's MG Motor, is reportedly negotiating with Spain's Ministry of Industry about building its first EV plant in Europe. The company is also considering setting up a factory in Hungary or the Czech Republic for their lower labor costs, with a decision expected to be made by September 30.

Other Chinese EV firms, such as Chery and NIO, plan to open their first factories outside of China in Spain and Hungary, respectively. At present, China's Contemporary Amperex Technology Co Limited (CATL), the world's largest EV battery maker, has been running a factory in Hungary.

Fan said setting up new plants in Europe will increase production costs for Chinese EV firms in the short run but the moves will also generate long-term benefits.

“Probably it is something that many European governments will want to see because they hope to rebuild their auto manufacturing industry,” Fan said.

He said producing EVs in Europe can help Chinese auto firms shorten their delivery time, get market feedback more easily and customize their production to suit the needs of local markets.

“There will be some knowledge spillover from Chinese auto firms to the new markets, but it does not mean that they will lose their advantage,” he added.“They can use the knowledge they learned from Europe and combine it with their current knowledge to develop new products.”

He said the 2005 acquisition of MG Motor by Nanjing Automobile Group, which merged into SAIC Motor in 2007, was a good example of how Chinese automakers gained experience overseas.

In April 2024, Fan and three academics in China, Australia and Singapore co-wrote a research article with the title“Locking in overseas buyers amid geopolitical conflicts.”

By analyzing the data of US-listed firms and their overseas suppliers, they found that transactions between sampled US buyers and Chinese suppliers had declined by 18.42% after the Trump administration started the US-China trade war by imposing tariffs on Chinese products worth over $250 billion in 2018.

“Imagine if the average transaction value between a sampled US buyer and a Chinese supplier was US$100 prior to the trade war. But after the trade war, the average transaction value reduced to $80,” said Fan.

He said such a“20% decoupling” was caused by not only US buyers' decision to move away from China but also the relocation of some Chinese manufacturing facilities to some ASEAN countries including Vietnam.

He pointed out that some US firms had faced difficulties in moving away from China as they could not find an appropriate alternative supplier from other places that can provide them with the specified technologies, delivery services and corporate social responsibility (CSR) programs they need.

“We saw cases where some Chinese garment manufacturers moved back from Vietnam to China. They originally wanted to cut costs by moving to Vietnam but they could not find some specific fabrics for them to produce performance textiles there,” he said.

Last year, China's total exports fell 4.6% year-on-year to $3.38 trillion due to weak demand in the West amid US rate hikes, according to Chinese Customs data. The country's exports to the EU dropped 10.2% to $501 billion while those to the US declined 13.1% to $500 billion. Exports to ASEAN also contracted 5% to $524 billion.

In the first half of this year, China's total exports rebounded 3.6% to $1.71 trillion from the same period last year. The country's exports to the EU eased 2.6% to $250 billion. Exports to the US rose 1.5% to $241 billion while those to ASEAN gained 10.7% to $285 billion.

Some analysts said US buyers bought more from China in the first half as they were afraid of potential US tariff hikes later this year amid the US presidential election, where both candidates are promising tougher trade action on China.

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Republican presidential candidate Donald Trump, who survived an assassination attempt at a campaign rally on July 13, said in February that he would impose a 60% tariff on the imports of Chinese goods if he wins the elections in November.

The proposed 60% tariff, if implemented, will lower China's economic growth by 2.5 percentage points in the year that follows, UBS said in a research report on July 15. China has announced a 5% GDP growth target this year, compared with a 5.2% rise last year.

Origins of products

In recent months, Washington has increased its efforts to trace the origins of imported products to prevent China from using third countries to evade US tariffs.

On July 10, President Joe Biden said the US will impose extra tariffs on steel and aluminum products originating from China via Mexico. The move is aimed at closing a loophole that has allowed Chinese metal suppliers to evade US tariffs since 2018.

Indonesian officials said the Southeast Asian country would impose a 100-200% tariff on China's labor-intensive goods to protect its local manufacturers. Fan said it will be difficult for US buyers to ascertain the origins of products if their imports involve several tiers of suppliers.

“Supply chain transparency is always a headache for the buyers, who may have information about their first-tier suppliers but not the second-tier ones,” he said.

He said in cases related to the ban on the use of Xinjiang cotton in American textiles, some US buyers simply had to stop their purchases in China to avoid potential risks.

Read: US slaps 'symbolic' tariffs on China steel, aluminum

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