China’s home market for car sales is the world’s largest — almost as big as the American and European markets combined.
As China’s domestic market grew, so did its production capacity, propelled by massive government investment and world-beating advances in automation. Yet in recent years, the pace of sales has fallen behind as consumer spending slows in China’s economic downturn. The result is that China today has the capacity to make nearly twice as many cars as its consumers need.
To deal with the excess, China has increasingly looked overseas to sell cars.
China is a leader in the transition to electric vehicles and it exports more of them than any other country. Chinese brands like BYD are becoming known worldwide for offering advanced electric cars at the most competitive prices. And as Chinese drivers have shifted rapidly to electric vehicles, demand for gasoline-powered cars in China has plunged and many are being exported instead.
But China’s trading partners say that China’s exports of both electric and gasoline-powered cars imperil millions of jobs and threaten major companies. Earlier this year, the United States and the European Union put significant new tariffs on electric cars from China. Governments are concerned because the auto industry plays a big role in national security, producing tanks, armored personnel carriers, freight trucks and other vehicles.
What’s more, China has used steep tariffs and other taxes as a barrier to car imports, so that practically all of the cars sold in China are made in China.
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Because of the shift to electric cars in China, carmakers have been left to slash prices on unwanted gasoline cars and unload them overseas. Last year, most of the cars China sold abroad were traditional gasoline engine cars.
Russia was the leading destination last year. Sales surged after the Ukraine invasion, partly because of the departure of Western brands from the Russian market.
China’s gasoline cars were also favored by middle- and lower-income countries in Latin America and the Middle East for being cost-effective.
China has more than 100 factories with a combined capacity to build close to 40 million internal combustion engine cars a year. That is more than twice as many as people in China want to buy, and sales of these cars are dropping fast as electric vehicles become more popular.
As a result, some assembly plants have been mothballed or shuttered. But automakers, reluctant to close facilities, are selling many gasoline-burning cars overseas at steep discounts.
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[T]ariffs may not fully offset Chinese carmakers’ competitive lead. Chinese companies offer cars with similar quality to their global rivals and at lower cost. Analysts at the bank UBS calculate that cars made by BYD cost 30 percent less to assemble than similar cars made by Western companies. Some of the biggest savings for Chinese companies are on batteries. China controls practically the entire supply chain for making electric car batteries.
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