An electric-vehicle assembly line in China. As electric cars have gobbled up market share in the country, automakers have exported gasoline-powered cars. Photo / Gilles Sabrie, The New York Times
An electric-vehicle assembly line in China. As electric cars have gobbled up market share in the country, automakers have exported gasoline-powered cars. Photo / Gilles Sabrie, The New York Times
From cars to solar panels to furniture, China is using lavish bank lending and enormous investments in robotics to cement its global leadership in manufacturing.
China’s car shipments to foreign markets have quintupled in the past four years. Its solar panels dominate global markets. Even exports in labour-intensive industriessuch as furniture making, which China was once expected to lose to lower-wage countries, are surging.
US and European leaders have become increasingly vocal that a flood of Chinese exports is swamping their markets. Developing countries such as India and Brazil are joining them in starting to put limits on purchases from China. Rich and poor countries alike fear that many of their factories may need to close, unable to compete with newer, more automated ones in China.
But China’s manufacturing sector is so strong that its export push will be difficult to counter. China installs more factory robots than the rest of the world combined. China’s low-cost supply chains produce almost every imaginable part. And Xi Jinping, the country’s top leader, is pushing the country’s banks to lend more money for the construction of even more factories.
At the same time, Chinese companies are finding ways to bypass trade barriers in the West. They are breaking shipments into small parcels each worth little enough that they are exempt from tariffs. Chinese companies have increased exports to the West through indirect routes in Southeast Asia and Mexico, sidestepping tariffs on goods that come directly from China.
No category of China’s exports has attracted more attention than cars. In just four years, China has grown from an also-ran to become the world’s largest car exporter, with almost 5 million cars exported last year.
China’s electric car exports have grabbed the most attention, but three-quarters of its exported cars have gasoline engines. As electric cars have gobbled up market share in China, automakers have shipped their excess gasoline-powered cars to markets including Russia, where Chinese cars have captured more than half the market, and Mexico.
China has begun building its own fleet of 170 transoceanic car-carrying ships to transport its glut of cars to distant markets several thousand at a time. Before the Covid-19 pandemic, the world’s shipyards were delivering only four of these vessels each year.
A port in China. Chinese companies have increased exports through Southeast Asia and Mexico, sidestepping tariffs. Photo / Gilles Sabrie, The New York Times
Ships themselves have also emerged as a big Chinese export, more than doubling in the first three months of this year compared with the same period last year. The United States began an investigation Wednesday of whether China was using unfair trade practices to expand its shipbuilding industry.
Solar panels and their key component, solar wafers, are among China’s fastest-growing exports as measured by quantity. Wafer exports nearly doubled last year. But because solar product prices nearly halved, the total value of China’s solar exports actually edged down slightly last year.
The European Union has opened an investigation that could result in limits on Chinese solar exports. The United States has been considering tighter rules on solar imports as well.
Why is China pushing exports so hard?
China is trying to export its way out of a housing crisis. Construction of apartment buildings used to be the motor of China’s economy. But a decades-long housing bubble burst and apartment prices plummeted, leading to a sharp slowdown in construction. Dozens of real estate developers have run out of money.
Beijing’s hope is that strong overseas sales of manufactured goods, together with heavy investment in the factories to make those goods, will help offset the country’s housing debacle. The early signs are that Beijing’s bet is paying off.
The economy grew at an annual pace of 6.6 per cent in the first three months of this year, faster than expected. Manufacturing investments and exports led the way.
How much is Beijing helping its manufacturers?
China’s state-directed banks are shovelling money into manufacturing businesses. Loans at low interest rates mean companies can afford to build factories with lots of robots and invest heavily in research and development.
The net increase each year in lending to industry has been enormous. It was $83 billion in 2019. By last year, the annual increase in industrial loans had skyrocketed to US$670 billion.
Big Chinese cities are also vying to assist local manufacturers. Shenzhen is helping electric car producers, such as BYD, to obtain export insurance, buy ships and set up overseas research and development centres. Tianjin, a vast port near Beijing, is upgrading its docks and streamlining customs procedures.
The export boom comes as China produces almost one-third of the world’s manufactured goods — more than the United States, Japan, Germany, South Korea and Britain combined, according to the United Nations Industrial Development Organization.
Can China overcome trade barriers?
European leaders in Brussels have recently taken preliminary steps toward trade restrictions on Chinese goods. In addition to solar products, they are focusing on electric cars, wind turbines and medical devices.
The Biden administration is following up on the Trump administration’s trade actions. On Wednesday, President Joe Biden called for sharp increases in tariffs on steel and aluminium from China.
But Beijing and Chinese companies have had years to learn from President Donald Trump’s imposition of tariffs on nearly half of China’s exports to the United States. China’s precautions may make its exports very hard to stop.
China’s economy grew at an annual pace of 6.6 per cent in the first three months of this year, faster than expected. Photo / Qilai Shen, The New York Times
China has concluded 21 free-trade pacts with 29 countries and territories in recent years. Many, including Vietnam and Thailand, are countries the West has also been wooing as it tries to encourage a shift in global manufacturing away from China.
Because of its trade deals, China has sold those countries many more components of every sort that are built into goods bound for the West. China’s exports to Southeast Asia have leaped 75 per cent over the past four years, according to China’s General Administration of Customs.
Chinese companies such as Shein have also become adept at sending packages directly to homes in the United States, avoiding tariffs. The United States allows residents to import up to US$800 a day worth of goods without paying tariffs, or nearly US$300,000 a year.
Senatoe Bill Cassidy, R-La., has begun a legislative push for the United States to match China’s limit on tariff-exempt imports, which is US$6.50.
