China’s thriving electric vehicle (EV) industry might encounter roadblocks in replicating the offshoring strategy that propelled Japanese automakers like Toyota and Honda to global dominance, according to a leading expert.
Alicia Garcia-Herrero, a senior research fellow at the Brussels-based economic think tank Bruegel and chief economist for Asia-Pacific at Natixis, highlights the key differences that could hinder China’s EV industry’s global expansion. She points out that the success of China’s EV industry is rooted in its industrial policies, hard work, competitive environment, and technology transfer from foreign companies.
However, Garcia-Herrero cautions that the industry faces mounting risks, including protectionist measures and potential delays in countries’ decarbonization goals. The reduction of subsidies post-COVID and a sluggish economic recovery have shifted the focus towards exports, leading to a 22% surge in Chinese EV exports in 2023, compared to a 2.7% increase in 2019.
She argues that the offshoring approach that propelled Japanese automakers in the 1980s might not be as effective for China’s EV industry due to several factors:
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Labor Cost Differences:
Labor costs in Japan during the 1980s were significantly higher than they are now in China, making offshoring production more attractive to Japanese automakers. However, China now faces high youth unemployment, a contrast to Japan’s full employment situation in the 1980s.*
Favorable Trade Ecosystem:
China’s robust supplier ecosystem, trade infrastructure, and numerous trade agreements make it easier for the nation to export, potentially exceeding Japan’s advantages in the 1980s.*
Protectionism:
China is facing protectionist measures when establishing plants in other countries, limiting its choices for location and hindering its ability to fully embrace offshoring.The European Union, China’s largest export market for EVs, recently imposed countervailing duties on Chinese EVs, citing unfair state subsidies. China has strongly opposed this move, vowing to protect its EV industry. Meanwhile, the EU slashed tariffs on electric cars manufactured by Tesla in China, significantly reducing them compared to those imposed on other electric car manufacturers. This move could potentially reshape the electric car market in the region.
These challenges, along with a certification test scandal that affected Japanese automakers earlier in the year, underscore the complex landscape that China’s EV industry faces in its quest for global dominance. The future success of China’s EV industry will depend on its ability to navigate these challenges and find new pathways for global expansion.
