China has used steep tariffs and other taxes as a barrier to car imports, so that practically all of the cars sold in China are made in China.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 Trump has promised to impose new tariffs on China. Many countries, including the United States, already levy extra tariffs on China's electric vehicles. But with all of the advantages China wields in automaking, this pushback is unlikely to undercut China's dominance.
China's home market for car sales is the world's largest - almost as big as the U.S. and European markets combined.
As China's domestic market grew, so did its production capacity, propelled by massive government investment and world-beating advances in automation. Yet in recent years, the pace of sales has fallen behind as consumer spending slows in China's economic downturn. The result is that China today has the capacity to make nearly twice as many cars as its consumers need.
To deal with the excess, China has increasingly looked overseas to sell cars.
China is a leader in the transition to electric vehicles and it exports more of them than any other country. Chinese brands such as BYD are becoming known worldwide for offering advanced electric cars at the most competitive prices. And as Chinese drivers have shifted rapidly to electric vehicles, demand for gasoline-powered cars in China has plunged and many are being exported instead.
But China's trading partners say that China's exports of both electric and gasoline-powered cars imperil millions of jobs and threaten major companies. Earlier this year, the United States and the European Union put significant new tariffs on electric cars from China. Governments are concerned because the auto industry plays a big role in national security, producing tanks, armored personnel carriers, freight trucks and other vehicles.
What's more, China has used steep tariffs and other taxes as a barrier to car imports, so that practically all of the cars sold in China are made in China.
China has invested heavily for more than 15 years in developing electric cars, to limit its dependence on imported oil. Wen Jiabao, China's premier from 2003 to 2013, made electric cars one of his highest priorities. In 2007, he reached outside the Communist Party to choose Wan Gang, a Shanghai-born former Audi engineer in Germany, as the country's minister of science and technology. Wen gave him essentially a blank check to make China the world's leader in electric cars.
Now, half of China's car buyers choose battery electric or plug-in hybrid cars. Until recently, buyers of electric cars also received large subsidies from the government. Carmakers have received low-interest-rate loans from state-controlled banks to build dozens of factories, as well as government tax breaks and cheap land and electricity. By one estimate, Beijing's assistance to China's electric car and battery sectors has been worth more than USD 230 billion since 2009 - one reason that the European Union has imposed anti-subsidy tariffs.
China is projected to continue its heavy investment and retain its lead in electric vehicles.
China has more than 100 factories with a combined capacity to build close to 40 million internal combustion engine cars a year. That is more than twice as many as people in China want to buy, and sales of these cars are dropping fast as electric vehicles become more popular.
As a result, some assembly plants have been mothballed or shuttered. But automakers, reluctant to close facilities, are selling many gasoline-burning cars overseas at steep discounts.
Will tariffs slow China down? The flood of Chinese cars into the global market has raised alarms around the world. Governments elsewhere have levied extra tariffs on electric cars from China, on top of baseline taxes already applied to all imported vehicles.
The tariffs come in different forms. The U.S. levied a flat tax. The EU calculated a rate for each automaker based on the subsidies the company has received from Chinese government agencies and state-controlled banks. India and Brazil are also aiming to protect their local industries.
But tariffs may not fully offset Chinese carmakers' competitive lead. Chinese companies offer cars with similar quality to their global rivals and at lower cost. Analysts at the bank UBS calculate that cars made by BYD cost 30% less to assemble than similar cars made by Western companies. Some of the biggest savings for Chinese companies are on batteries. China controls practically the entire supply chain for making electric car batteries.
With the advantages China wields in automaking, the world's intensifying pushback is unlikely to stop the country from dominating the industry for years to come.
