China’s Auto Industry Accelerates Overseas Supply Chain Expansion to Evade Western Sanctions: Experts

BYD electric cars waiting to be loaded on a ship are stacked at the international container terminal of Taicang Port at Suzhou Port, in China's eastern Jiangsu Province, on Sept. 11, 2023. AFP via Getty Images

News Analysis

Chinese authorities are encouraging domestic firms in the automotive supply chain to expedite the process of setting up factories overseas. Some finance experts believe this is an attempt by the Chinese Communist Party (CCP) to bypass Western sanctions on electric cars.

The China Automotive Technology and Research Center (CATARC) released a report on June 24 listing companies involved in the auto supply chain poised to set up factories overseas in 2024. The report highlights the need to accelerate this strategy so that Chinese auto parts suppliers can reduce transportation and tariff costs and enhance their competitiveness in the global market.

CATARC is a scientific research institute under the State-owned Assets Supervision and Administration Commission of the State Council.

According to the report, the focus is on “products, production capacity, and industrial chain,” and Chinese companies would establish factories in Europe, North America, and Southeast Asia.

As early as June 1, the China Association of Automobile Manufacturers (CAAM) published an article touting that Chinese players in the automotive supply chain are at a historic moment of change for not only “going abroad” but also “entering the global market.”

CAAM noted that Europe and the Middle East have been important export destinations for Chinese cars in recent years, and Southeast Asia and Mexico have also become popular markets.

In recent years, China has spawned a comprehensive electric vehicle (EV) industry supply chain, encompassing a range of sectors, including general auto parts, power batteries, and intelligent cabins, according to CAAM.

Chinese media touted that auto parts companies that manufacture batteries, chassis, and thermal management systems, as well as those involved in smart technology and green energy, have accelerated their entry into global markets.

Motives for CCP’s Auto Supply Chain Expansion Plan

China finance expert Lu Yuanxing, who served as a marketing executive in several Chinese companies, told the Chinese language edition of The Epoch Times that Beijing’s auto supply chain expansion plan is intended to counter sanctions from Europe and the United States.

Affected by punitive tariffs imposed by the United States and the European Union, China’s EV exports have recorded their first decline. Monthly electric and hybrid vehicle exports were down 9 percent year-on-year to only 99,000 vehicles exported in May, according to data published by CAAM on June 14.

The European Commission announced this week that member states would set tariffs on Chinese EVs at up to 37.6 percent starting July 5.

Back in May, the Biden administration announced it would increase tariffs on Chinese EVs from 25 percent to 100 percent and on Chinese lithium-ion electric vehicle batteries from 7.5 percent to 25 percent.

In Mr. Lu’s opinion, Western sanctions on China-made EVs would affect auto parts suppliers. “If the entire car cannot be sold, the upstream companies that provide all the components, such as batteries and electronic control systems, will also be affected,” he said.

But if the CCP expanded auto supply chains to the European and American markets, this would allow Chinese companies to dodge sanctions, Mr. Lu said, adding, “Once Chinese companies set up factories in these countries, they are treated as foreign enterprises and become part of the local community of interest, such as by providing employment and tax revenue.”

Beijing’s desire to expand China’s auto supply chain overseas is also driven by the anticipated decline in consumer demand for cars in the next three to five years, U.S.-based economist David Huang told The Epoch Times, noting that the domestic market lacks the spending power to support significant production growth.

Thus, for Chinese auto companies, expanding overseas is a strategy to ensure survival and avoid losing market competitiveness, said Mr. Huang.

He explained that the CCP targets European and North American markets because Chinese car companies typically make a lot of profit there. In contrast, Chinese cars aren’t as popular in Latin America, Africa, and Central Asia.

However, Mr. Huang pointed out that the CCP’s business plan will hurt China’s economy. For example, he said, the CCP would use state treasury funds to subsidize auto parts companies’ building factories overseas while neglecting economic support for the Chinese people, who are struggling to make ends meet in a weak economy. Further, shifting the supply chain overseas would exacerbate unemployment in China’s domestic auto production industry, as Chinese companies rely on subsidies to improve their competitiveness.

China’s auto exports hit a record high of 4.91 million vehicles in 2023, following exports of 3.11 million vehicles in 2022 and 2.02 million in 2021, according to January data from CAAM. China overtook Japan to become the world’s top auto exporter last year, according to the China Passenger Car Association.

However, the significant increase in China’s EV exports has raised concerns about the dumping of low-quality products and Bejing’s monopolization of the market.

In addition to the high tariffs on Chinese EVs, during an April visit to China, U.S. Treasury Secretary Janet Yellen urged Beijing to address the issue of overproduction in new green energy sectors, such as solar, electric cars, and lithium-ion batteries.

Xin Ning contributed to this article.