(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Katrina Hamlin
HONG KONG, April 17 (Reuters Breakingviews) - Germany may help sharpen the debate about Chinese automakers. Chancellor Olaf Scholz used a trip to the People's Republic this week to warn against production overcapacity in sectors like electric vehicles, picking up themes from U.S. Treasury Secretary Janet Yellen’s visit just days earlier. But he also cautioned against responding with protectionism when questioned about the European Union’s probe into Chinese electric-car imports.
Scholz chose his words with care. China is crucial for German automakers. It remains Volkswagen's largest market and accounted for around a third of deliveries at both BMW and Mercedes last year.
But while his country's vested interests demand a delicate balancing act, tempering rhetoric around China’s rapidly globalising auto industry makes sense for other reasons, too.
For one, the idea that China has deliberately revved up excess production is easy to overstate. True, its manufacturers benefit from some state support. BYD's government grants contributed 4.6 billion yuan ($636 million) to the 30 billion yuan bottom line in 2023; in the past such grants were even more important, outstripping net income as recently as 2019. Cheap loans are another factor. But excessive overcapacity is notoriously difficult to define.
China is currently producing more cars than the domestic market needs, in part because sales growth is stuttering. There is, though, growing global demand for affordable electric vehicles; President Xi Jinping even suggested to Scholz that the world needs more cheap cleantech from China to counter inflation.
Meanwhile, industrial utilisation clocks in at roughly 76%, not far off the 79% figures for the U.S. and EU. And in the auto industry, the slack tends to be in smaller companies like Nio
and Xpeng , or those focusing on older internal combustion engine technology. Leading EV exporters BYD and SAIC use around 80% or more of their vast capacity, defined as the total units they can produce over a year.
Nor are subsidies and production firepower the only reasons for their success at home and abroad. BYD and CATL , the country's largest manufacturers of new energy vehicles and batteries respectively, trace their roots to battery businesses started in the 1990s, long before Beijing's drive into electric cars. They have developed specific strategies such as vertical integration and rapid research and development cycles that hone their edge, helping them to commercialise technology including lithium-iron and sodium-ion battery chemistries ahead of competitors.
Scholz has his own reasons to strike a more conciliatory tone, but a look under China Inc's hood suggests others the U.S. and EU might also need to acknowledge the nuts and bolts.
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CONTEXT NEWS
German Chancellor Olaf Scholz met with China's President Xi Jinping on April 16 during a visit to the country. The pair discussed co-operation, and Chinese exports of goods including electric cars, batteries and photovoltaic products.
A day earlier during a visit to Shanghai, Scholz told local students that Chinese cars will inevitably be sold in Europe, and stressed the need for fair competition. He also cautioned against overly protectionist measures.
(Editing by Antony Currie and Nivedita Bhattacharjee)
((For previous columns by the author, Reuters customers can click on katrina.hamlin@thomsonreuters.com; Reuters Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))
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