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Chinese overseas investment in electric vehicles expected to set new record in 2023

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BEIJING: Chinese outbound foreign direct investment across the electric vehicle value chain is likely to set a new record in 2023, a Rhodium Group report showed, as Western economies step up scrutiny of the model of Chinese development focused on production and based on debt.

Growing concern over Chinese industrial overcapacity that is flooding the European Union with cheap products, particularly electric vehicles, opens a new front in the trade war between the West and Beijing, which began with tariffs imports imposed by Washington in 2018.

Chinese companies invested $28.2 billion in electric vehicle-related industries last year, the report said, which is lower than the $29.7 billion spent in 2022, but does not include several expensive projects without a known price, such as BYD’s factory in Hungary and Gotion’s 25th factory. percent in a Slovak battery producer.

China could produce 10 million excess vehicles per year, consultancy Automobility estimates, the equivalent of two-thirds of total North American production in 2022.

Brussels’ trade policy is now also becoming more protective towards China. The 27-member trade bloc launched an investigation in September to determine whether Chinese automakers benefit unfairly from state subsidies. And in December, the White House revealed plans to remove China from its battery supply chain.

“These regulatory dynamics have spurred more investment from Chinese producers, who realize that an export-only strategy could create serious political repercussions in host economies and exclude them from lucrative markets” , said the research organization.

South Korea and Morocco are particularly likely to benefit, the report said, as both countries maintain a free trade agreement (FTA) with the United States, the terms of which Chinese producers could use to circumvent some of the restrictions imposed. by the Biden administration on critical minerals of Chinese origin. and battery components due to preferential procurement rules for FTA partners.

“Chinese battery makers are bringing more of the supply chain with them as they expand overseas, likely in response to growing market demand and reshoring pressures,” Rhodium Group said.

A slowdown in the electric vehicle market in the world’s second-largest economy has also prompted Chinese producers to increase investment abroad. At the same time, EU and US automakers want battery makers to set up shop near their factories to reduce transportation costs and avoid supply chain disruptions , the report says.

But Chinese policymakers must walk a delicate tightrope, the authors warn, to avoid “reverse technology transfer,” given China’s relative advantage in the sector and the overseas operations of Chinese producers that threaten the profitability of electric vehicle and battery factories in the country. Policymakers see the industry as key to avoiding a structural economic downturn.

“Just as in other advanced economies, we may begin to see a divergence between business and government interests in China, as companies seek to increase revenues and profits through overseas investment while the government attempts to preserve investments in the country,” the report said.

Rhodium is a New York-based research group known for its coverage of China.

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