China’s EVs could turbocharge recovery – but trade curbs threaten to stall growth at the starting line
- Comments from US Commerce Secretary suggest country is eyeing restrictions on China’s rapidly growing electric vehicle (EV) industry
- Promising figures from last year show EVs could become new growth driver as usual stalwarts lose their reliability
Possible US restrictions on Chinese imports of electric vehicles (EVs) – a potential base of growth in the years to come as the industry develops – may deal another blow to Beijing’s efforts to regain momentum in its economic recovery, analysts said.
US Commerce Secretary Gina Raimondo said on Tuesday that China’s EVs could pose a risk, as they collect a “huge amount of information about a driver”.
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“If [the industry is] unable to export products to foreign countries regularly, [it] will enhance China’s current deflationary environment [and] weaken household and enterprise sentiment for economic recovery,” said Dong Jinyue, a senior economist at BBVA Research.
Dong said that the EV issue, which has escalated into a question of national security in the US, will lead to another round of geopolitical tension and generate more uncertainty over China’s growth prospects.
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Any large-scale increases in economic activity would be welcome at the moment, both to power growth and offset the drag of an embattled real estate sector weighing down the country’s post-pandemic recovery.
Sarah Tan, an economist at Moody’s Analytics, said that shipments of automobiles jumped 69 per cent year over year across 2023, showing China’s competitive advantage in lithium-ion battery cell production and low labour costs compared to Japan and South Korea.
Further technological restrictions from the US are unlikely to have the same effect … as China is far ahead in the EV field
“Foreign carmakers have also set up factories in China to tap some of these benefits,” she added. “Manufacturers threw an extra 6.5 per cent into investment through 2023, largely for the auto, electrical equipment and hi-tech electronics industries.
“At a time when officials are desperately trying to reorient the economy away from property,” Tan said, “such a development will certainly be a damper.”
However, companies in the EV value chain should be well aware of the regulatory risk which accompanies entry into the US market, said Yang Wang, senior analyst at Counterpoint Research. He cited trade restrictions handed down on other Chinese companies in recent years.
“Further technological restrictions from the US are unlikely to have the same effect [as they had in] areas such as semiconductors and AI, as China is far ahead in the EV field, particularly battery technology,” he said.
Direct competition from the US is also likely. As it has pushed measures to restrict China’s trade in EVs and semiconductors, the Biden administration has invested billions of dollars into domestic production for both.
Heron Lim, assistant director and economist at Moody’s Analytics, said Chinese carmakers have lagged behind their US and South Korean counterparts in the American market with key customers in Asia and Europe.
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“This could ring fence off markets and cap what looks to be the next frontier of growth for China.”
Wang Zichen, research fellow at the Beijing-based Centre for China and Globalisation think tank, said the contribution of Chinese EVs to the economy should not be exaggerated, as it still counts for a relatively small share.
“China’s total exports in 2023 amounted to 23.77 trillion yuan (US$3.3 trillion), and Beijing’s much-touted ‘new three products’ – electric vehicles, lithium batteries and solar cells – totalled one trillion yuan, less than 5 per cent of overall exports,” he added.
“Chinese EVs are admittedly world-leading, but their contribution to the Chinese economy …[should] not [be] exaggerated. The housing industry makes up a far larger percentage.”
