China Direct

Watching China in Europe with Noah Barkin - June 2023

 

 

To view the latest June 2023 insights from Noah Barkin of the EU-CHINA relationship please visit GMFUS here.

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Our thanks to the German Marshall Fund US for kindly sharing this information.

Nanometres over GDP - Can China's technocrat leaders improve industrial policy?

Space is the final frontier, it is also a revolving door in Chinese politics these days. Of the 205 full members of the Chinese Communist Party (CCP) 20th Central Committee (CC), ten are aerospace industry veterans, some of whom ran major projects like the Chang’e Lunar Program.

Pride over China’s successful space program is effusive in official media. With intensifying technology competition between China and the United States, Beijing can easily tout tangible products like trains, rockets, commercial jets, and its space station as “wins” for technological self-sufficiency.

Such emphasis on technology self-sufficiency is not only manifest in the rise of this “aerospace cabal.” It is also reflected in the broader resurgence of technocrats in the top echelon of Chinese politics, as our previous analysis highlighted.

The numbers make clear that technocrats did quite well in getting promoted or retaining their seats in the 20th Party Congress political transition. Of the 205 full members of the 20th CC, more than a third (69) are STEM technocrats, a 35% increase from the 19th CC. Even at the Politburo level, 8 of the 24 members are technocrats, a doubling from the 19th Politburo.

Among this cohort of technocrats is a notable provincial bias: the majority are running provinces instead of central ministries. In fact, 36 technocrats in the 20th CC are leading provinces, compared to just 20 in the 19th CC (see Figure 1). The logic here seems to be that placing leaders with technical expertise, instead of your average politician, in provincial roles will improve the odds of ameliorating technological deficiencies vital to China’s national security.

To read the full analysis please click here.

Our thanks to the team at Macro Polo for sharing these insights.

China Dialogue - Environmental News Digest 26 May 2023

Dear CBI Members and Partners,

For reports, interviews and insights into a country shaping the world please review China Dialogue directly here.

Download China Dialogue News Digest 26 May 2023

With grateful thanks to the team at China Dialogue for so very kindly sharing this content.

China is upping its bets on Southeast Asia's EV market as South Korea drives to narrow the gap

With strong government support and increasing purchasing power, Southeast Asia has emerged as a hotly contested arena for Chinese and South Korean automakers.

With strong government support and increasing purchasing power, Southeast Asia has emerged as a hotly contested arena for Chinese and South Korean automakers, vying to dominate the electric vehicle (EV) industry.

Since the beginning of this year, Chinese companies, which include not only automakers but also battery suppliers, have intensified their efforts in Southeast Asia, particularly in Thailand and Indonesia. These two major regional auto manufacturing hubs have become focal points of interest for Chinese companies seeking to expand their presence in the area.

Timeline of recent investments:

• In March, BYD reportedly set its sights on building an electric bus assembly plant and, eventually, a battery manufacturing factory in Indonesia. In the meantime, the company has commenced construction of a new factory in Thailand, projected to be finalized in 2024, with an impressive annual capacity of 150,000 electric cars.

• In April, a Thai official revealed that Changan Auto has committed to investing $285 million in a facility in Thailand.

• On May 6, Hozon Auto, the parent company of the EV brand Neta, disclosed plans to initiate the construction of a manufacturing facility in Thailand. This upcoming facility is anticipated to possess an annual production capacity of 20,000 vehicles.

• On May 11, GEM Co. Ltd., a Guangzhou-based battery and material recycler, announced a $500 million joint investment to build a nickel project in Indonesia, with the target of producing 20,000 tons of nickel intermediate products for the new energy sector annually.

• On May 13, SAIC Motor started building a factory in Thailand for its sub-brand MG. The planned manufacturing facility, set to sprawl over an area exceeding 437.5 rai (equivalent to around 173 acres), will accommodate battery production, parts fabrication, and MG's EV assembly line.

The accelerated deployment of Chinese firms in Southeast Asia is not only driven by the growing demand in the EV market but also by the determined efforts of their South Korean counterparts to catch-up.

Hyundai has surpassed Chinese automaker Wuling to become the top player in Indonesia's electric car market, capturing a 55% market share in February, according to the Korea Economic Daily. By comparison, the South Korean automaker delivered 1,829 units of its electric SUV IONIQ 5 last year, well behind Wuling Air EV's 8,053 units.

The IONIQ 5 was launched in Indonesia last April with a starting price of 748 million rupiahs ($50,186), three times that of runner-up Wuling and twice the average selling price in Indonesia.

Back in 2017, Wuling opened its first overseas production site in Indonesia with an investment of $700 million. This was well before Hyundai, which only started full production at its new plant in Indonesia in March 2022.

It's evident that Hyundai is playing catch-up aggressively. From January to April this year, Hyundai and Wuling sold about 1,700 and 1,000 EVs in Indonesia, respectively, according to Nikkei. Driven by the surge in demand, the company recently decided to increase production of its IONIQ 5 at the local plant to 1,000 units per month.

Hyundai has announced its plans to intensify marketing efforts in Thailand this year to drive sales of its EVs in the country. While the South Korean automaker currently lacks an EV assembly plant in Thailand, it strategically relies on its Indonesian factory to cater to the burgeoning demand and service the wider region.

The battle between EV battery suppliers heats up as well.

As aforementioned, GEM, China's largest battery recycler, has unveiled its intentions to build nickel intermediate products in Indonesia for the new energy sector, while SAIC has started to build a factory in Thailand, including battery production for the MG brand.

Indonesia stands as one of the foremost global producers of nickel, a key raw material for EV batteries. Thailand also boasts significant lithium reserves, another crucial raw material in the realm of EV batteries.

South Korean battery suppliers have also recognized the value of these resources. In June 2022, LG Energy Solutions (LGES) broke ground on a nickel processing plant in Indonesia. This venture is part of the LGES’s substantial $9.8 billion investment in the country aimed at manufacturing EV batteries. Prior to this, in September 2021, LGES and Hyundai began construction of a $1.1 billion factory in Bekasi, West Java, which will also produce EV batteries.

There are multiple reasons why South Korea and China are eyeing establishing battery-related supply chains in the emerging market: As global demand for EVs continues to rise, it is increasingly vital to have more raw materials under control; a more comprehensive local supply chain will help automakers gain more strength in the face of increasing competition; local governments offer incentives including tax breaks, land concessions, and financial assistance to attract battery manufacturers to the region, as well as cheaper labor costs.

Over the years, South Korean companies have established a strong presence in the field of nickel, manganese, and cobalt (NCM) batteries. However, as the market landscape evolves and priorities shift, there is a notable transition towards lithium iron phosphate (LFP) batteries. These LFP batteries offer several advantages, including lower cost, a longer lifespan, improved safety, enhanced ecological sustainability, and reduced risks of fire or explosion compared to NCM batteries. Consequently, Chinese battery manufacturers are beginning to dominate EV battery production globally.

LG Energy Solution, Samsung SDI, and SK On's combined share in the global EV battery market declined from 30.2% in 2021 to 23.7% in 2022, according to a February report by market research firm SNE Research, while at the same time, the market share of EV batteries supplied by Chinese manufacturers rose robustly.

But the ground is likely to keep shifting. South Korea's trade ministry last year identified batteries as one of the country's three strategic industries, along with semiconductors and artificial intelligence. LGES, Samsung SDI, and SK On are ramping up the development and production of LFP batteries.

The South Korean automotive sector shares certain parallels with its Chinese counterpart, particularly in aspects like supply chain and manufacturing capabilities. For instance, China is renowned for its world-class battery providers like CATL and Gotion High-Tech, as well as well-established automakers such as BYD, Wuling, and GMW, alongside emerging startups like Hozon. On the other hand, South Korea, while trailing China in EV battery market share, boasts a strong presence in automobile manufacturing, anchored by its two flagship brands, Hyundai and Kia.

Even though Chinese brands may not have achieved the same level of recognition as their counterparts in the traditional vehicle market, they possess significant potential for growth. "In the EV segment, consumers can easily jump over old brand walls and are willing to try new options," said Pitaya Tanadamrongsak, managing director of EV Primus, the Thai distributor of China's second-largest automaker, DFSK (Dongfeng).

Writer: Rebbeca Ren

For more information please click here. Our sincere thanks to Ms. Ren and the PingWest team for sharing this article.

 

British Business in China Position Paper 2023 - Conditional Optimism in reopening

 

China’s ability to restore its position as a leading global investment destination depends largely on the ability to regain a reputation for certainty, stability, and trust, finds the results of the British Business in China: Position Paper 2023.

While businesses are much more optimistic about their prospects in the market than they were a year ago, they say more needs to be done to improve consultation between businesses and the Chinese government, and level the unequal playing field between SOEs, domestic businesses, and international companies.

Still, British businesses highlight many reasons to be optimistic about the Chinese market; 86% of businesses are optimistic about China’s market potential in the long-term, and almost three-fifths of businesses are more optimistic now travel has resumed.

To make sure China is able to reach its full market potential, the British Chamber of Commerce is calling for concrete action, to improve transparency, restore competition, and reduce uncertainty.

We call for: 

1. Actions to support proposals and statements related to further opening up;
2. Measures to improve transparency and competition between SOEs, domestic companies, and international businesses;
3. Clarity to reduce compliance uncertainty for businesses navigating the regulatory environment;
4. An open and inclusive consultation process when designing and implementing policies;
5. Clear and increased lines of communication at all levels.

To access the Report please click here.

Our sincere thanks to the British Chamber of Commerce in China for kindly sharing the Position Paper.

 

 

China Dialogue - Environmental News Digest 19 May 2023

Dear CBI Members and Partners,

For reports, interviews and insights into a country shaping the world please review China Dialogue directly here.

Download News digest China Dialogue 19 May 2023

With grateful thanks to the team at China Dialogue for so very kindly sharing this content.

China’s emerging decarbonization toolkit - MERICS

 

 

Triggered by the EU's defensive green trade tools, China is exploring a strategic long-term approach in its policy planning as it slowly moves toward a decarbonized economy. By discussing a full life-cycle carbon footprint tracking system, Beijing is thinking even further than the EU’s Carbon Border Adjustment Mechanism (CBAM). If implemented, this could make CBAM look rudimentary in comparison.

While the international trading system is slowly moving towards a green future, Beijing is exploring and developing its own policies (foreign trade, green tech trade, foreign climate policy, etc). This domestic and global decarbonization toolkit, tailored to China’s own circumstances, comes as the European Union (and the United States) develop their defensive green trade instruments, often aimed at China.

The European Parliament and the Council of the EU reached a provisional agreement on a Carbon Border Adjustment Mechanism (CBAM) framework in December 2022. Since then, debate in China on carbon mitigation measures and on how to comply with CBAM has intensified. Although the official line on CBAM has labeled it an "unnecessary" and "unilateral trade barrier," some comments, including a recent one by a Ministry of Commerce staffer, have downplayed its negative impact on Chinese exports to the EU in the initial stage, implying its positive impact on decarbonization.

One policy instrument China can use to face CBAM obligations is its national emissions trading system (ETS). It can accelerate the expansion of ETS sectors, which would subject more industries to a carbon price, and make them more CBAM-compliant. However, China's still-nascent ETS is currently the only instrument it has to respond to CBAM, and so far, its expansion has been repeatedly delayed with no specific timeline. This situation does not give China much leverage or options to provide reliable data on carbon emissions once CBAM comes into effect.

Triggered by CBAM, Chinese government and expert circles are also discussing the introduction of a full life-cycle carbon footprint tracking system, or life-cycle assessment (LCA). The LCA would radically change that situation and give back China some of the initiative to respond to CBAM.

The LCA is a similar but also quite different policy instrument compared to CBAM. While CBAM in its early stages will urge importers to measure (and later pay for) carbon emitted by companies only during the production process, the LCA focuses on measuring products’ carbon footprint during their whole life cycle. It follows a (still emerging) approach to measure all CO2 emitted during production (direct and indirect), consumption and after-life. While the difference between the two instruments was rather confused in earlier stages of the debate in China, where the LCA was referred to as a “response” to comply with measures such as CBAM, Chinese stakeholders have begun to recognize the difference and have pointed it out more explicitly in recent comments.

To read the full commentary please click here.

Our thanks to MERICS for kindly sharing this information.

Date for Diaries: Webinar - Thailand Investment Opportunities in the Electric Mobility Sector: 24 May 1600 (BJ)

Thailand Board of Investment (BOI), Paris Office cordially invites companies to join its webinar on the Electric Vehicle and Mobility Sector. Learn about the Incentive Packages for EV and mobility companies, current opportunities in this sector and experiences from companies like Robert BOSCH Automotive Technologies that are already in Thailand.

Agenda:

• 9 am BST / 1600 (BJ) Introductory remarks. Speaker: Thailand Board of Investment BOI

• BOI incentives packages for electric mobility and update on investment trends. Speaker: Thailand Board of Investment BOI

• Overview of opportunities for electric mobility in Thailand. Speaker: Electric Vehicle Association of Thailand (EVAT)

• Automotive and electric mobility sourcing from Thailand. Speaker: SNECI (an independent company providing services and operational consulting in the automotive and other industrial sectors)

• Success story in doing business in Thailand. Speaker: Mr. Martin Knoss, Regional President ASEAN - Robert BOSCH Automotive Technologies (Thailand).

To register for this free webinar please click here.

Our thanks to the Thailand Board of Investment and UKABC for kindly sharing this information

 

China's innovation ecosystem and the localisation dilemma - EUCCC / MERICS Report

Executive Summary

Members of the European Union Chamber of Commerce in China (European Chamber) have provided unique insights into China’s innovation ecosystem for this report. A late 2022 survey of 107 European companies— backed up by extensive follow-up interviews—portrays a complex environment that necessitates a wide range of localisation strategies to be deployed depending on the industry each company is in and the contribution they can make to China’s strategic goals, as well as their size.

Periodic adjustments to these strategies are also required in order to both better align with China’s increasing innovation capacity and manage emerging political factors that are undermining long-term business confidence. There are several positive market factors steering a large share of European companies towards deeper localisation, including the size of the Chinese market (61%), strong demand (47%) and the fast pace of commercialisation of
research and development (R&D) results (39%).

These factors have created an extremely dynamic environment that incentivises onshoring of R&D operations in order for companies to be closer to their customers so they can tailor innovation to their needs more effectively and, in some cases, even export R&D results to the rest of the world. At the same time, a number of regulatory factors are having both a positive and negative influence on R&D strategies, with some incentivising companies to localise and others forcing companies to put strict limitations on their R&D operations.

Policy-related factors reported as having had a negative influence on R&D strategies include China’s weak intellectual property rights (IPR) protection system (34%), an unlevel playing field for foreign companies (32%) and limited or non-existent government support (24%). However, of those that could access R&D-related government support, policies reported as having had a positive impact include tax incentives (46%), access to related subsidies (35%), and those related to attainment of high- and new-technology enterprise (HNTE) status (32%).

Further complicating the picture is the Chinese Government’s ongoing advancement of its technological self-reliance campaign, aimed at creating completely localised supply chains insulated from external shocks, while expanding the country’s access to foreign technology. This is resulting in increased pressure for certain companies to localise technology and onshore R&D into China.

While demands to do so are coming primarily from state-owned enterprise (SOE) and government customers, private business partners are increasingly exerting their own influence. One of the core requirements for investing in R&D is a predictable and reliable business environment. While business confidence was deeply eroded by China’s stringent zero-COVID policy and the subsequent lockdowns and travel restrictions, many European companies are optimistic and expect this to be restored over time.

However, the impact that geopolitics is having on the stability of China’s business environment is only expected to worsen. Nearly half of respondents reported negative impacts on R&D strategies resulting from Russia’s invasion of Ukraine, and many interviewees said the role that corporate risk assessments are now playing in strategy-making is unprecedented.

A potential escalation of Russia’s war in Ukraine or further frictions in the Taiwan Strait are scenarios that businesses are taking into account, and the potential risks they pose do not support a case for increasing R&D investments in China. These factors, among others, pose a dilemma for European companies. The rewards of localising technology and R&D into China are considerable, but so are the potential hazards.

The broad spectrum of strategies being employed by European companies are bookended by two opposing views: as one company noted, it is essential to do R&D in the China market to make the most of the innovation ecosystem and compete for market share with domestic rivals; another posed that since China’s system favours local competitors and because technology leakage risks are high, it makes more sense to secure and increase their share in other markets outside China; their logic being that there they only have to compete with their Chinese counterparts, and not the Chinese Government as well.

To access the full report please click here.

Our sincere thanks to both MERICS and the EUCCC for kindly sharing this report.

China Dialogue - Environmental News Digest 14 April 2023

 

 

Dear CBI Members and Partners,

For reports, interviews and insights into a country shaping the world please review China Dialogue directly here.

Download News digest China Dialogue 14 April 2023

With grateful thanks to the team at China Dialogue for so very kindly sharing this content.