Market Insights

China’s Manufacturing Goes Global

By 23 April, 2024No Comments

Chinese electric vehicle factory

Last week, Johan Annell, Partner, and Manager at the Beijing branch of ARC Consulting, had the privilege of speaking at the “China Going Global” event in collaboration with the Benelux Chamber of Commerce North China.

The event served as a platform to explore the dynamic landscape of global business, offering invaluable insights into key strategies, and fostering discussions on the challenges and opportunities facing companies venturing into new markets.

In this article, we will explore China’s manufacturing going global, with its export share at an all-time high based on key highlights from the event. Despite a slight 2023 decline, China’s exports during the epidemic reached unprecedented levels, maintaining a significant portion of the world’s total exports. We will also examine how ASEAN has become China’s largest trading partner for four years, with a balanced import-export dynamic. Additionally, we will discuss the significance of China’s “New Three” and “Old Three” in its export landscape, marking the transition to high-value technology-intensive goods.

China’s export share in the world at all time high

One of the first key highlights Johan presented was China’s remarkable export performance during the challenges of the pandemic. Despite experiencing a slight decline in 2023, China’s export volume remained significant during the pandemic, highlighting its resilience and continued role in global trade. While overall trade in goods contracted by $2 trillion in 2023, with an 8% decrease, services trade witnessed a contrasting increase of about $500 billion, marking a 7% rise, according to the U.N. body. Despite fluctuations, China’s share in the total world exports remained notably high, reflecting its enduring role as a key player in the global economy.
Graph showing China's export share, 2005-2023

ASEAN has been China’s biggest trading partner for 4 years

ASEAN has emerged as China’s leading trading partner since 2020, marking a significant shift in global trade dynamics. Notably, China’s import and export relationship with ASEAN is characterized by a more balanced trade pattern compared to its overwhelming exports to the US and EU. Key commodities exported from China to ASEAN include electronic products, machinery and equipment, clothing and footwear, foodstuffs, textile raw materials, and cosmetics. Conversely, China also engages in substantial purchases of raw materials from ASEAN.

Graph showing China's trade value and partners

Furthermore, export trends have been witnessing a notable shift towards high value-added products in China. High value-added products refer to goods that incorporate advanced technology, design, or innovation, offering greater sophistication and functionality compared to traditional labor-intensive products. While the export value of labor-intensive goods such as textiles, shoes, and porcelain are declining, there is a concurrent rise in the export value of automobiles and ships. This transition underscores China’s strategic pivot towards more technologically advanced and higher value-added exports, reflecting evolving global demand dynamics and China’s increasing capabilities in manufacturing innovation.

New driving forces for China’s exports – the “New Three”

China’s export landscape is undergoing transformation driven by what is commonly known as the “New Three”. This term, officially acknowledged by China, has gained prominence since last year and has started to increasingly appear in statistical summaries and discussions. In 2023, these exports experienced a remarkable surge of 29.9% year-on-year, amounting to a total value of 149.4 billion USD. The “New Three” consists of New Energy Vehicles, Photovoltaics, and Lithium-ion Batteries.

New Energy Vehicles: China exported 5.22 million vehicles in 2023, marking a notable growth rate of 57.4%. Among these, new energy vehicle exports reached 1.77 million vehicles, reflecting a remarkable year-on-year increase of 67.1%. This category now constitutes 33.9% of total automobile exports.

Chinese car manufacturers are expanding their global footprint by establishing production bases in various countries worldwide. With plans set for over 80 vehicle production bases across approximately 30 countries, these companies are employing diverse strategies such as joint ventures and local assembly collaborations. Notable examples include BYD’s investments in Thailand and Brazil, alongside their joint venture with UzAuto in Uzbekistan and Great Wall’s cooperation with Astana Motors in Kazakhstan. These initiatives highlight the adaptability and strategic vision of Chinese car manufacturers as they navigate the complexities of international markets.

In Thailand, BYD is making significant strides in its global expansion efforts. Their upcoming electric vehicle (EV) factory, the first of its kind overseas, is poised to be a game-changer. Spanning an impressive area of approximately 960,000 square meters, the factory is slated to have a production capacity of 150,000 vehicles per year. Set to commence operations in 2024, this venture underscores BYD’s commitment to establishing a strong presence in the global EV market while leveraging Thailand’s strategic location and favorable business environment.

Photovoltaics: China continues to dominate the global photovoltaic components market, manufacturing over 90% of global polycrystalline silicon, around 98% of solar wafers, more than 85% of solar cells, and over 80% of photovoltaic modules. This sustained leadership underscores China’s pivotal role in renewable energy technology.

In the photovoltaics sector, Southeast Asia (SEA) has become increasingly vital due to China’s local overcapacity and heightened competition, compounded by regulatory actions from the US and EU. The EU previously imposed anti-dumping and countervailing measures on Chinese solar panels, which expired in 2018. However, ongoing EU initiatives, such as mandatory labor bills and corporate sustainability due diligence directives, pose new challenges. Similarly, the US has implemented anti-dumping and countervailing duties since 2011, with recent measures targeting companies engaged in anti-circumvention practices.

Lithium-ion Batteries: Fueled by robust demand in the international electric vehicle and energy storage sectors, China’s lithium-ion battery exports surged to 65 billion USD in 2023, marking a 27.8% increase in value and a remarkable over 60% surge in capacity (Gwh). This growth highlights China’s growing dominance in the global battery market.

Furthermore, China’s lithium-ion battery exports have seen substantial growth, totaling $65 billion USD in 2023, with major markets including the US, Germany, and South Korea. Chinese companies such as CATL, SVOLT, and Gotion are expanding globally, with 32 plants overseas planned or established, accounting for more than half of China’s domestic production. This expansion aligns with the global trend towards electrification, with Chinese companies holding a significant market share and driving innovation in battery technology.

Charts showing distribution and number of Chinese Lithium-ion manufacturing bases

The emergence of the “New Three” underscores China’s strategic shift towards exporting high-tech, green products, signaling a significant transition from traditional low-value-added exports, which typically refer to goods with minimal technological sophistication or added features, often competing primarily on price.

In summary, China’s manufacturing goes global amid evolving strategies and challenges. From rising high-value exports to the “New Three” in tech-intensive green products, Chinese companies navigate the global market. Despite hurdles like geopolitical risks and competition, opportunities for cooperation and growth. Embracing open-mindedness and leveraging strengths, Chinese companies can thrive globally, fostering mutual advancement and innovation.

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