How China Became the World's Largest Car Exporter

Just two decades ago, China had little capacity to make cars, and owning one was considered novel. Today, China produces and exports more cars than any other country in the world.

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President-elect Donald J. Trump has promised to impose new tariffs on China. Many countries, including the United States, already levy extra tariffs on China’s electric vehicles. But with all of the advantages China wields in automaking, this pushback is unlikely to undercut China’s dominance.

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.

Here’s how China took the lead in the global car market.

Decades of investment in electric cars pays off

Last year, China sold 1.7 million electric cars abroad, nearly 50 percent more than the next largest exporter, Germany. Since , shipments have skyrocketed.

The top destination is Europe, where consumers prefer small, compact models like those sold in China.

Southeast Asia is another big market, where buyers increasingly prefer Chinese cars for their cheaper prices.

China also exports a small but fast-growing number of plug-in hybrid cars. Hybrids are particularly popular among buyers who may not have access to extensive charging networks but still want electric cars for short trips.

China has invested heavily for more than 15 years in developing electric cars, to limit its dependence on imported oil. Wen Jiabao, China’s premier from to , made electric cars one of his highest priorities. In , he reached outside the Communist Party to choose Wan Gang, a Shanghai-born former Audi engineer in Germany, as the country’s minister of science and technology. Mr. Wen gave him essentially a blank check to make China the world’s leader in electric cars.

Now, half of China’s car buyers choose battery electric or plug-in hybrid cars. Until recently, buyers of electric cars also received large subsidies from the government. Carmakers have received low-interest-rate loans from state-controlled banks to build dozens of factories, as well as government tax breaks and cheap land and electricity. By one estimate, Beijing’s assistance to China’s electric car and battery sectors has been worth more than $230 billion since — one reason that the European Union has imposed anti-subsidy tariffs.

China is projected to continue its heavy investment and retain its lead in electric vehicles.

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.

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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.

Will tariffs be able to slow China down?

The flood of Chinese cars into the global market has raised alarms around the world. In addition to the European Union, governments elsewhere have levied extra tariffs on electric cars from China, on top of baseline taxes already applied to all imported vehicles.

The countries’ tariffs come in different forms. The U.S. government levied a flat tax. The European Union calculated a rate for each automaker based on the estimated subsidies the company has received from Chinese government agencies and state-controlled banks. India and Brazil are also aiming to protect their local industries.

But tariffs 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.

With the advantages China wields in automaking, even the world’s intensifying pushback is unlikely to stop the country from dominating the industry for many years to come.

• China's commerce ministry will meet with industry bodies and automakers to discuss the sales of used cars that have never been driven, Reuters reported.
• As a result of years of price wars in the auto industry, a phenomenon known as "zero-mileage used cars" has emerged in the Chinese market.

China's commerce ministry will meet with industry bodies as well as automakers including BYD (HKG: , OTCMKTS: BYDDY) and Dongfeng Motor (HKG: ) to discuss the growing issue of sales of used cars that have never been driven, Reuters said in a report today, citing a person with direct knowledge of the matter.

The meeting is scheduled for Tuesday afternoon, the person said, according to the report.

Other organizations invited to the meeting include the China Association of Automobile Manufacturers (CAAM), the China Automobile Dealers Association (CADA) and a number of used car trading platforms, according to the person.

Great Wall Motor chairman Wei Jianjun said in an interview with Sina Finance last week that a phenomenon known as "zero-mileage used cars" has emerged in the Chinese market as a result of years of price wars in the auto industry, the Reuters report noted.

The phenomenon refers to vehicles that have been registered and had license plates but never driven being sold on the second-hand market, he said.

Wei said there are at least 3,000 to 4,000 sellers on China's used car platforms selling such vehicles.

Local Chinese media outlet Cailian later mentioned something similar in a brief report, saying that some car companies, downstream companies and industry bodies were notified by regulators to participate in a seminar.

The main topic of the seminar was to promote the high-quality development of used car distribution, and to discuss content related to "zero-kilometer" used cars and the further promotion of used car distribution and consumption, according to Cailian.

Over the past year, discussions about zero-mileage used cars have often been seen on Chinese social media platforms.

Such moves are seen as a means for automakers to covertly cut prices in order to reach aggressive car sales targets.

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