In Thailand, China’s EV makers have found a refuge from EU subsidy probe

Thailand is quickly becoming Southeast Asia’s EV manufacturing hub as Chinese carmakers escaping geopolitical tensions set up shop in the friendly state
The EU is unlikely to extend its probe to Thailand and risk alienating ties with a key Asean dialogue partner

Bob SavicandChris Dixon

Published: 3:30pm, 3 Oct 2023

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The European Union’s call to investigate Beijing’s use of state subsidies in the production of Chinese electric vehicles, along with the possibility of tariffs on EV exports to Europe, comes as Chinese carmakers diversify their manufacturing of EVs into Southeast Asia.

Chief among Chinese EV makers’ prospective hubs is Thailand. The country has by far the largest automobile sector within the Association of Southeast Asian Nations, and is luring Chinese EV carmakers under an ambitious government programme titled the “30/30 policy”. According to this three-stage programme, by 2030, about a third of all vehicles produced in Thailand will be EVs.

These ambitious targets should be seen in the context of Thailand’s large and well-established motor vehicle sector, estimated to be 10th in global rankings, the country’s long history of government support in the form of investment incentives, and significantly, local promotion.

The US-China trade war, instigated by the former Trump administration, was likely to have been a major factor in boosting Chinese manufacturing investment in Thailand. In 2019, Chinese manufacturers’ concerns over trade frictions, which was affecting their value chains, catapulted China into becoming Thailand’s largest overseas direct investor, beating Japan for the first time.

Thailand claims that up to US$1.44 billion will be invested by Chinese EV carmakers in the country. Consequently, the next few years point towards a rising inflow of investment from China. While this was initially prompted by trade and political frictions with Washington, there may be further impetus from Chinese EV makers relocating overseas as a result of similar simmering tensions with Brussels. Thailand and the broader Asean region is emerging front and centre in that “de-risking” process.

For Chinese EV producers, Thailand fulfils the role of an alternative platform to manufacturing in China, given its automotive supply chains, skilled workforce and accommodating government incentives. Thailand also has friendly relations with the main geopolitical rival powers. This makes it a prime strategic choice, not only for Chinese companies, but also for US, Japanese and European investors.

Investors have the added benefit of East Asia’s intricate and sprawling web of bilateral and multilateral trade agreements, now brought together under the Regional Comprehensive Economic Partnership (RCEP). Notably, the RCEP has important linkages, through several Asean members, with another free trade agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, of which China and Thailand are not currently members.

Part of Thailand’s success story in attracting Chinese investment into its EV sector can be credited to the Thailand Board of Investment’s promotion of its fiscal and financial incentives. Over the past year, Board of Investment roadshows have taken place around the industrial clusters of Shanghai, Chongqing and elsewhere in China.

Partly as a result of the Thai agency’s efforts, several of China’s largest EV manufacturers, namely Great Wall Motors, Geely, BYD, SAIC Motor, GAC Aion and Changan Automobile, are setting up operations in Thailand or have committed to do so, while the Board of Investment has also met others that may have an interest, including JAC Motors and Jiangling Motors.

BYD, China’s largest EV maker, has applied to launch its first Thailand EV plant, with plans for more in Southeast Asia. Meanwhile, GAC Aion has committed US$169 million, over a three- to five-year period, to build a new EV production base and battery facility in Thailand.

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The most notable recent announcement is a pledge by Changan Automobile, among China’s four largest EV makers and a leader in EV technology and intelligent driving, to invest about US$285 million in a production facility in Thailand. This will mainly be aimed at exporting EVs to neighbouring Asean members in addition to Australia, New Zealand, South Africa, Britain and other world markets.

In launching the investment, Changan Automobile reportedly received the approval of China’s central government. This may be an indication of the extent to which Beijing assigns importance to an international diversification strategy for Chinese manufacturing companies, in which Asean plays a key role.

Although the EU’s investigation into possible government subsidies in Chinese EV manufacturing will be regulated by World Trade Organization rules, there are undeniable political undertones surrounding the entire exercise which could undermine already strained WTO governance.

EU tariffs aimed at China-made EVs will hit Europe too

While Chinese EV makers had committed to setting up production in Thailand well before the surprise announcement of subsidy investigations by the EU, their forward-looking diversification strategy may also enable them to benefit from the geopolitical security afforded by Thailand’s friendly relations with major international partners amid the escalating geopolitical turmoil afflicting China’s ties with the West.

Given this context, the prospect of EU subsidy investigations into Thailand’s package of government incentives for EV production seems unlikely for now.

Such an investigation, at this stage, would risk the EU alienating Thailand as one of its key strategic dialogue partners in Asean. This comes as the West in general is seeking to win over much of the Global South in the wake of the Ukraine conflict with Russia, alongside securing Asian partners in siding against Beijing over its alleged assertive activities in Taiwan and the South China Sea.

Bob Savic is head of international trade at the Global Policy Institute and visiting professor of international relations at the University of Nottingham

Chris Dixon is director of the Global Policy Institute and professor of international development

This article is a summarised version of a larger research report on Chinese and European trade and investment in Asean which can be obtained from the Global Policy Institute, London, UK