How China became the world’s largest car exporter

Just two decades ago, China had little capacity to make cars, and owning one was considered novel. Today, China produces and exports more cars than any other country in the world.

President-elect Donald J. Trump has promised to impose new tariffs against China. Many countries, including the US, are already imposing additional tariffs on China’s electric vehicles. But given all the advantages China has in car manufacturing, this setback is unlikely to undermine China’s dominance.

China’s home market for car sales is the largest in the world – almost as big as the American and European markets combined.

As China’s domestic market grew, so did its production capacity, driven by massive government investment and world-leading advances in automation. But in recent years the pace of sales has slowed as consumer spending slows due to China’s economic downturn. The result is that China now has the capacity to produce almost twice as many cars as its consumers need.

To deal with the surplus, China has increasingly looked overseas to sell cars.

China is leading the transition to electric vehicles, exporting more of them than any other country. Chinese brands like BYD are becoming known worldwide for offering advanced electric cars at highly competitive prices. And as Chinese drivers quickly switch to electric vehicles, demand for gasoline-powered cars in China has plummeted and many are being exported instead.

But China’s trading partners say China’s exports of both electric and gasoline cars are putting millions of jobs at risk and threatening major companies. Earlier this year, the United States and the European Union imposed significant new tariffs on electric cars from China. Governments are concerned because the automobile industry plays a large role in national security by producing tanks, armored personnel carriers, trucks and other vehicles.

In addition, China has used high tariffs and other taxes as a barrier to car imports, so virtually all cars sold in China are made in China.

This is how China took the lead in the global car market.

Decades of investment in electric cars are paying off

China has been investing heavily in electric car development for more than 15 years to limit its dependence on imported oil. Wen Jiabao, China’s premier from 2003 to 2013, made electric cars one of his top priorities. In 2007, he chose Wan Gang, a Shanghai-born former Audi engineer in Germany, outside the Communist Party, to be the country’s science and technology minister. Mr. Wen essentially gave him a blank check to make China the world leader in electric cars.

Half of Chinese car buyers now choose battery-electric or plug-in hybrid cars. Until recently, buyers of electric cars also received large government subsidies. Automakers have received low-interest loans from state-controlled banks to build dozens of factories, as well as government tax breaks and cheap land and electricity. One estimate puts Beijing’s support for China’s electric car and battery sectors at more than $230 billion since 2009 – one reason the European Union has imposed anti-subsidy tariffs.

China is expected to continue its heavy investment and maintain its lead in electric vehicles.

discharge surplus gasoline cars with big discounts

China has more than 100 factories with a total capacity to build nearly 40 million internal combustion engine cars per year. That’s more than twice as many as people in China want to buy, and sales of these cars are falling rapidly as electric vehicles become more popular.

As a result, some assembly plants were shut down or closed. But because automakers are unwilling to close plants, they are selling many gasoline-powered cars abroad at deep discounts.

Can tariffs slow China down?

The flood of Chinese cars on the global market has caused alarm around the world. In addition to the European Union, other governments have also imposed additional tariffs on electric cars from China, on top of property taxes already imposed on all imported vehicles.

Countries’ tariffs come in different forms. The US government imposed a flat tax. The European Union has calculated a rate for each automaker based on the estimated subsidies the company received from Chinese government agencies and state-controlled banks. India and Brazil also want to protect their local industries.

However, the tariffs may not fully offset the competitive advantage of Chinese automakers. Chinese companies offer cars of similar quality to their global competitors and at a lower cost. Analysts at UBS bank have calculated that BYD cars cost 30 percent less to assemble than comparable cars from Western companies. Some of the biggest savings for Chinese companies come from batteries. China controls virtually the entire electric car battery manufacturing supply chain.

Given China’s advantages in automotive manufacturing, it is unlikely that even increasing global opposition will prevent the country from dominating the industry for many years to come.