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REGIONS ASIA-PACIFIC


China’scarmarket is electrifying O


THE MAINSTAY OF CHINESE FDI IS MAKING A COMEBACK. SETH O’FARRELL REPORTS


nce upon a time, automotive investments were the life- blood of foreign direct invest-


ment (FDI) and the example of China —one of themost notable FDI success stories of the past 40 years — was no exception. China has been the greatest recip- ient of FDI in the automotive sector.


Between 2003 and 2020, fDi Markets tracked 442 automotive greenfield projects by original equipment manufacturers and 1165 automo- tive component projects in China, worth an estimated total capital expenditure of $225bn. But recently, in line with automotive invest-


ments worldwide, the country has witnessed a downward trend in automotive FDI. In a bid to attract foreign investment, the Chinese govern- ment removed the industry’s 50% foreign own- ership cap in 2018. Now, like everything else, the automotive


industry is going digital thanks to the rise of electric vehicles (EVs) and the prospect of autonomous driving. Galvanised by the govern- ment’s subsidies for EVs and support for research and development (R&D), foreign car manufacturers are eyeing China with renewed vigour for both the domestic market and to establish regional hubs. According to the China Association of


Automobile Manufacturers, the country will grow to become the world’s biggest market for electric vehicles this year with a 40% sales increase.


Strongglobal position Henrik Henriksson, chief executive of truck manufacturer Scania, told fDi: “China has a very strong global position in areas like autono- mous and [electric] vehicles.” In 2020, Scania, a subsidiary of Volkswagen,


announced plans to open a new commercial- vehicle production site in Rugao, in China’s Jiangsu province, and expects the country to replace Brazil as its single largest market by the end of the decade. “Our operations in China will come to have


the same set-up as our European and South American industrial hubs — [in other words] a regional centre for sourcing and component production, aswell as final assembly of vehicles for export to other markets in the Asian region,” Mr Henriksson says. “Regardless of the conditions for investing


inR&D, we aimto establishR&Din China to get better access to some of the world’s most inno-


62


vative ecosystems,” he adds. In its five-year plan for 2021–2025, the


Chinese government targeted 7% annual growth for R&D and has projected sales of new energy vehicles (NEVs) — comprising electric, hybrid and hydrogen-powered vehicles—to con- stitute 20% of the whole car market by 2025. Recent data fromIHS Markit shows that, in


spite of FDI slowdowns, Greater China (includ- ing Hong Kong, Macau and Taiwan) has grown considerably as an auto-manufacturing hub over the past decade. “Some facilities of Western suppliers are


more advanced in China than in the West. Greenfield investments lead to more advanced facilities in China than the repurposing of existing factories in Europe,” says Matteo Fini, who leads the automotive supply chain teamat IHS Markit. “China is also really strong in automation,”


he notes, adding that this in spite of auto labour costs being85%lower in China thanin theWest.


Competitionandfragmentation Doris Fischer, chair of China business and eco- nomics at the University of Würzburg in Germany, says that China’s EV strategy is driven by a mixture of reducing dependence on oil imports, reducing pollution levels and a grow- ing desire to be on an equal footing with other automotive powerhouses, such as other coun- tries in east Asia, the EU and the US. “EV technology has been identified as a


field in which China might create realcompeti- tive advantage as an early mover, combined with respective government policies and sup- port,” she says. Chinesecompanies likeCATL already have a


global lead in EV battery production, and com- petitionamongEVmakers is rampinguptoo. In January, the tech company Baidu announced that it has teamed up with carmaker Geely to produce its standalone EVs. Baidu will retain a majority stake. Mark Schaub, senior partner at law firm


King & Wood Mallesons, says that the EV mar- ket is “very fragmented”, as it is occupied by for- eign carmanufacturers, traditional Chinese car makers and new entrants to themarket such as tech companies jumping on the bandwagon. All of this willmake for a “complicated situ-


ation” in the coming years, Mr Schaub says, with winners and losers emerging in equal measure. Should there be too much fragmenta- tion in the market, the National Development and Reform Commission — China’s macroeco-


www.fDiIntelligence.com April/May 2021


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