China EV exports, slammed by West’s trade barriers, find greener pastures with free-trade partners
- Customs data for January and February shows how anti-subsidy probes and trade restrictions are taking a toll on China’s new-energy sector
- Some domestic firms are seen at risk of being squeezed out of the saturated electric-vehicle market, and so might some producers in the European Union
China is looking to its Asian neighbours to compensate for a declining market share of its electric vehicles (EVs) and lithium batteries in Europe and the United States amid ongoing anti-subsidy probes and heightened trade restrictions.
In the first two months of the year, China’s EV export volume to the European Union fell by nearly 20 per cent – to 75,626 units, from 94,102 units a year prior, Chinese customs data revealed on Wednesday. The export value also declined by one-third.
The EU and RCEP are China’s major EV buyers, with each accounting for around 30 per cent of China’s total EV exports by volume, the official trade data showed. However, for the EU, that marked a steep drop-off from when the bloc took about 53 and 54 per cent of China’s EV exports in 2020 and 2021, respectively.
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In total, China’s EV export volume increased by 8 per cent to 248,211 units in the last two months, but its EV export value decreased by 13 per cent, year on year.
Beijing views EVs, lithium-ion batteries and solar panels as its “new three” sectors driving exports and economic growth – a shift from the “old three” pillars of exports that comprised clothing, home appliances and furniture. But there are rising concerns that China’s growth goals could be impeded by overcapacity problems and trade restrictions imposed by Washington and Brussels.
As a result, some analysts foresee China reaching more into its neighbouring markets to buoy exports, while some domestic manufacturers could be forced to bow out of contention in a saturated EV market.
China’s EV exports to the US were down by 42 per cent in the first two months of 2024, year on year, with lithium-battery exports to the country decreasing by 46 per cent.
Even as China’s overall lithium-battery-export volume increased by 10 per cent, the export value dropped by 15 per cent in January and February, year on year.
Previously, the US had been the top buyer of Chinese lithium batteries, with the value of China’s batteries to the US rising steadily from about one-seventh of total exports in 2019 to one-third last year.
In December, Washington’s Foreign Entity of Concern list added China, under the Inflation Reduction Act, which eliminated subsidies for EV makers containing Chinese-made battery components.
“China will find the EU and US markets tough because of the derisking trend,” said Chen Zhiwu, chair professor of finance at the University of Hong Kong. “I expect some of the Chinese EVs are going to be forced out of competition as the EU and US put the squeeze on Chinese EV imports.
“Then Chinese EVs will have to cut their prices even further,” Chen said, adding that some EV makers will also be chased out of the market.
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Amid the Western resistance, China is shifting its focus to RCEP partners, namely South Korea and Indonesia, as exports of EVs to those countries respectively increased by 10 and seven times in the last two months, relative to a year prior.
China also doubled its EV exports to another RCEP partner, Japan, in the past two months. The free-trade agreement involves 15 members and aims to eliminate up to 90 per cent of tariffs on imports between its signatories over the next several years.
“RCEP makes it easier to send EVs to [members] because of the agreement’s clauses on cumulative sourcing and preferential access within the RCEP region,” said Jayant Menon, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore.
In addition to compensating for the export decline from the EU market amid Brussels’ probe, rising EV exports to RCEP members are also a result of the region’s strong economic rebound, according to Menon.
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“German producers trying to compete with China in Asean won’t have that advantage, but China will find it easier to do that without having to switch sources,” Menon said, adding that the trade agreement gives China more export flexibility and efficiency.
Another up-and-coming destination for China’s EVs is Central Asia, as exports to the region increased by 2.3 times in the first two months, year on year.
Yang Wang, a senior analyst at Counterpoint Research, said that the bolstering of China’s EV exports also offers a means to help reduce excess capacity in the domestic market.
“It is a recognition that the domestic market is extremely competitive, and that the imminent price war could damage the prospects of important EV makers,” Yang said. “Along with continued financial support, I think the industry could push for more consolidation, so that – on the whole – the industry could be on a more stable footing.”
