20 Years Of Policy Initiatives By China Have Created A Manufacturing & Technology Colossus – CleanTechnica

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Handelsblatt is reporting this week that in 2020, 94% of new cars sold in China were powered by gasoline or diesel engines. Many of them were built by joint ventures created by German manufacturers with domestic companies. But according to Marklines, an automotive data specialist, that number has dropped to 59% in the first half of 2024, with those German JVs taking the brunt of the decrease. Keep in mind that sales of plug-in hybrids and so-called extended-range electric vehicles are surging in China and those cars have gasoline engines, which means a big part of that 59% of sales statistic includes those cars. Sales of pure ICE vehicles, on the other hand, are going over a cliff as Chinese consumers turn their backs on cars that rely exclusively on infernal combustion engines.

In the past few years, Chinese automakers  have increased their market share from 33% in 2020 to 52% this year.  German manufacturers, on the other hand, have lost almost 6% in market share, while Japanese brands have seen a 9% decline, according to Handelsblatt. Hyundai and Kia now have less than 1% market share in China.

Until now, the lack of competitive electric cars was seen as the biggest problem for the German car industry in China. In recent years, the high sales figures for vehicles with combustion engines have been able to cover this up, Handelsblatt notes. However, with the gasoline-powered car business in China now collapsing, the situation is becoming increasingly precarious. In 2018, Volkswagen posted an operating profit of more than 4.6 billion euros from its China joint ventures with FAW and SAIC. In the first half of 2024, it was less than one billion euros, one third less than the same period in 2023.

In 2018, General Motors posted profits of just under two billion euros from its Chinese investments. In the first half of 2024, its joint ventures resulted in a loss of 200 million euros. Stellantis discontinued Jeep production in China in 2022 and cancelled expansion plans for Opel. Although Stellantis does not report the China business separately, its operations in China, India, and Pacific regions were all in the red in 2023.

“We are clearly seeing a displacement of conventional drive systems,” Jan Burgard, head of the automotive consultancy Berylls by Alix Partners, told Handelsblatt. “The Chinese want to be almost overwhelmed by new technologies. For them, a car must have a smart cockpit in which the smartphone and its many apps can be easily integrated and mirrored. Otherwise, it will hardly sell.” Driver assistance systems are also becoming more important. “The Chinese are really boasting about the number of lidar and radar sensors in their cars and the performance of the processors installed,” says Burgard. “German and European manufacturers need to close this technological gap very quickly.”

In China, Policies Matter

A recent article in the New York Times shines a light on how China has been able to dominate battery and electric car production as well as pharmaceuticals, drones, and solar panels. Beijing’s challenge to the technological leadership that the United States has held since World War II is evidenced in China’s classrooms and corporate budgets, as well as in directives from the highest levels of the Communist Party, it says.

A much larger share of Chinese students major in science, math, and engineering than students in other big countries do. Overall, higher education enrollment has increased more than tenfold since 2000. Spending on research and development has surged, tripling in the past decade and moving China into second place after the United States. Researchers in China lead the world in publishing widely cited papers in 52 of 64 critical technologies, recent calculations by the Australian Strategic Policy Institute reveal.

Last month, leaders in China vowed to turn its research efforts up another notch. A once-a-decade meeting of China’s Communist Party leadership chose scientific training and education as one of the country’s top economic priorities. That goal received more attention in the meeting’s final resolution than any other policy did, except strengthening the party itself. China will “make extraordinary arrangements for urgently needed disciplines and majors,” said Huai Jinpeng, the minister of education. “We will implement a national strategy for cultivating top talents.” A majority of undergraduates in China major in math, science, engineering, or agriculture, according to the Education Ministry. Three quarters of China’s doctoral students do so as well. Only a fifth of American undergraduates and half of doctoral students are concentrating on those areas of study.

China’s lead is particularly wide in batteries. According to the Australian Strategic Policy Institute, 65.5% of widely cited technical papers on battery technology come from researchers in China, compared with 12% from the United States. China has close to 50 graduate programs that focus on either battery chemistry or the closely related subject of battery metallurgy. By contrast, only a handful of professors in the United States are working on batteries.

Central South University in Changsha, a city in south-central China and a longtime hub of China’s chemicals industry, is a prime example of this concentrated approach to research and development. It has nearly 60,000 undergraduate and graduate students. Its chemistry department is housed in a six story building with many labs and classrooms. In one lab, hundreds of batteries with new chemistries are tested at the same time. Peng Wenjie, a professor at the university, has set up a battery research company nearby that employs more than 100 recent doctoral and master’s program graduates and over 200 assistants. The assistants work in relays for each researcher so that the testing of new chemistries and designs continues 24 hours a day.

Tariffs Or Competition?

China’s broadening expertise in manufacturing has created an active debate in other countries, notably the United States, over whether to invite Chinese companies to build factories or whether to try to duplicate what China has accomplished. “If the U.S. wants to build up a supply chain quickly, the best way is to invite Chinese companies, and they will set it up very quickly and bring technology,” said Feng An, the founder of the Innovation Center for Energy and Transportation, a nonprofit research group in Beijing and Los Angeles.

Manufacturing makes up 28% of China’s economy, compared with 11% in the United States. China’s hope is that investments in scientific education and research will translate into efficiency gains that will help lift the entire economy, said Liu Qiao, the dean of the Guanghua School of Management at Peking University. “If you have a large manufacturing sector,” he said, “it’s easy to improve productivity levels.”

The subsidies and policies that have helped fuel China’s factory boom have left many other countries wary of buying more of China’s exports. The European Union has imposed formidable provisional tariffs on electric vehicles from China. In the United States, political and commercial pressure has impeded ventures with Chinese battery makers. Still, China’s battery companies are looking for ways to manufacture in the United States, even though building a battery factory in America costs six times as much as it does in China, Robin Zeng, the chairman and founder of CATL, told the New York Times. In addition, it takes up to three times longer to complete a factory in the US than it does in China.

The Takeaway

Numerous federal programs are attempting to level the playing field with China, particularly in battery and solar manufacturing, but if America does not have access to top level researchers because everyone is working on autonomous driving software or video games, the success of those efforts is bound to be compromised. “What happens when China passes the US in R&D and they have the manufacturing base?” asked Craig Allen, president of the US-China Business Council, which represents American companies doing business in China.

The answer is obvious. China will continue to dominate in technology and manufacturing as America and Europe continue to recede in China’s rear view mirror. No matter how high the tariff walls they put up, eventually the competition from China will overwhelm them. The US and the EU need to come up with other strategies if they want to preserve their manufacturing sectors.