Monday, April 15, 2024
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China flooding the world with cars

YIZHENG, China – At a time when many of China’s exports are faltering and its consumers are spending less at home, the country is flooding the world with cars.

Overseas demand for inexpensive vehicles made in China, mostly petrol-powered models that Chinese consumers now shun in favour of electric cars, is so great that the biggest obstacle to selling more abroad is a lack of specialised ships to carry them.

Chinese automakers have leapt to dominance in Russia since the war began in Ukraine, transporting cars by train.

The companies have also captured large shares of markets in South-east Asia, Australia, South America and Mexico.

With lingering Trump-era tariffs holding back sales to the United States, China’s automakers are preparing a big push into Europe – once they have enough ships.

Shipyards along the Yangtze River are building a fleet of car-carrying ships that act as giant floating carparks, capable of carrying 5,000 or more cars at a time.

The Jinling shipyard in Yizheng, a town near Nanjing, “is busy around the clock; there are night shifts every day”, Mr Feng Wanyou, a ship welder, said during a lunch break.

Overall exports of Chinese goods, everything from furniture to consumer electronics, slumped 5.5 per cent in the first eight months of 2023, according to data released on Thursday.

But China’s car industry has quadrupled exports in just three years, surpassing Japan in 2023 as the world leader.

In 2023, exports of cars surged 86 per cent through July.

Chinese households’ appetite for spending – on new cars and almost everything else – has waned as real estate prices have fallen.

Consumer confidence has shown few signs of recovering even after the lifting of nearly three years of stringent zero-Covid policies.

When Chinese households buy cars, they increasingly choose electric vehicles from local manufacturers, which lead global production of such vehicles.

The result is an immense supply of petrol-powered models that Chinese consumers no longer want, but that still sell abroad.

Chinese carmakers are stuck with unused factory capacity to build about 15 million petrol-powered cars a year.

They have responded by sending more than four million cars in 2023 to foreign markets, at bargain prices.

“Why have they driven into exports? Because they have to – what are you going to do, close a factory?” said Mr Bill Russo, a former chief executive of Chrysler China who is now CEO of Automobility, a Shanghai consultancy.

All over the world, Chinese automakers are taking market share.

Steel and electronics used in cars are cheap in China, giving automakers here an advantage.

Local governments in China also give the companies nearly free land, loans at near-zero interest and other subsidies.

After years of quality gains and technology improvements, Chinese cars, even ones with out-of-fashion combustion engines, are turning heads at industry events like the Munich auto show this week.

In Australia, Chinese automakers have passed South Korean rivals in sales, and are catching up with Japanese competitors.

China has also expanded exports quickly to Mexico and Britain, and is beginning to increase shipments to Belgium and Spain, which have important car-unloading ports that serve as a gateway to other European Union countries.

A lack of ships has held China back from exporting even more. That is starting to change.

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Chinese automakers like BYD and Chery, and the European and Singapore shipping lines that transport cars for them, have placed almost all of the orders now pending worldwide for 170 car-carrying vessels.

Before China’s auto export boom, only four a year were being ordered, said Mr Daniel Nash, head of vehicle carriers at VesselsValue, a London shipping data firm.

Shipyards up and down the Yangtze River, with thousands of workers, clang and rattle from dawn until far into the night.

The frenzy was visible last Friday at the Jinling Shipyard, where workers have nearly finished two car-carrying ships for Singapore’s Eastern Pacific Shipping.

The incentive to build more ships is clear.

The cost per day for an automaker to hire a car-carrying ship has soared to US$105,000 (S$143,000), from US$16,000 two years ago, Mr Nash said.

BYD is spending close to US$100 million apiece for the construction of what will be the six largest car carriers ever built.

Most of the vessels are scheduled for completion in the next three years.

Europe is becoming the main target for most Chinese automakers.

They are using brands like Volvo and MG, acquired many years ago, to win greater acceptance in Europe.

The state-owned Shanghai Automotive Industry Corp (SAIC), which acquired Britain’s fabled MG brand in 2007, is exporting inexpensive cars from China not just to Britain but also to Australia.

MG has re-emerged in Australia in 2023 as one of the country’s best-selling car brands.

General Motors’ joint venture with SAIC has begun shipping Chevrolet Aveo subcompact cars to Mexico, for sale in June starting at US$16,300.

One big market is conspicuously missing among leading destinations for Chinese car exports: the United States.

Almost no Chinese cars are going there now, and few are expected to do so soon.

When the Trump administration imposed tariffs on imports from China in 2018 and 2019, the first batch included 25 per cent levies on petrol-powered and electric cars and on petrol engines and electric car batteries.

Not only are the tariffs still in place, but they were issued under legislation that gives broad discretion to the US trade representative to increase them if needed. NYTIMES

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