Inside China’s dominant auto industry

China Association of Automobile Manufacturers (CAAM) reported that in 2023, the country produced 30.161 million units and sold 30.094 million. In other words, they made more vehicles than half the Kenyan population. This production carries significant implications across economic, environmental, and geopolitical spheres.

With 9.49 million EVs sold globally in 2023, China is the market leader in both production and sales. Nevertheless, the country is aggressively making significant expenditures in infrastructure, research, and regulatory frameworks to lead the way in automated vehicle (AV) and connected vehicle (CV) technology.

The automotive industry is becoming more widely acknowledged as a critical contributor to economic growth, job generation, and technical innovation. According to CAAM, the sector made up 11 percent of China’s GDP in 2021, with a gross output contribution of about $1.4 trillion.

The industry ranks among China’s most significant energy and resource consumers, accounting for 15 percent of total energy consumption and 20 perent of total steel usage in 2019. Moreover, the industry significantly contributes to China’s carbon dioxide and nitrogen oxide emissions, comprising 12.6 percent and 18 percent of the nation’s totals in 2022.

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China’s dominance in global vehicle production signifies economic prowess and environmental, and geopolitical challenges. While the nation leads in innovation and technology adoption, it grapples with issues such as surplus production capacity, environmental impact, and geopolitical tensions with major trading partners.

But despite its manufacturing prowess, China grapples with challenges stemming from surplus production capacity, triggering inventory surpluses, price competitions, and diminished profitability. Concerns have also been raised about pressure from China limiting access to premium markets. Critics point to the sizable environmental footprint of China’s auto industry, characterised by extensive energy and resource consumption, as well as high emissions of greenhouse gases and pollutants.

The sector also confronts ongoing environmental uncertainties, such as the sustainability of EV development, the impact of exports on global emissions, and the trade-offs between environmental and economic priorities.

Heavy reliance on subsidies for EVs raises concerns about market stability if such support is phased out or altered. Moreover, concerns persist regarding the environmental ramifications of battery production, recycling, and disposal, which could offset emissions reductions achieved by EVs.

China has implemented various measures to address environmental concerns by promoting EVs, enhancing fuel efficiency, and enforcing emission standards. However, these measures present their own set of challenges, including industry adaptation and innovation hurdles.

International Energy Agency notes that the Chinese EV market leads globally in size and growth rate, boasting a 60 percent market share in 2023, surpassing the US (eight percent) and the EU (15 percent). But despite these challenges, China remains a pivotal player in shaping the future of the automotive industry.

Geopolitically, China’s vehicle manufacturing industry shapes its relations with other nations and international organisations, influencing its global standing and governance roles within the automotive sector. China’s robust vehicle exports foster economic and diplomatic ties worldwide, particularly in Asia, Africa, and Latin America.

Additionally, China actively participates in and influences international vehicle standards through organisations such as the World Forum for Harmonisation of Vehicle Regulations, the International Energy Agency, and the Electric Vehicles Initiative.

The country’s automotive industry also engenders geopolitical challenges, including trade disputes with major partners like the US, the EU, and India. It also faces trade barriers and tariffs on vehicle exports imposed by key trading partners, which might potentially jeopardise its market share and competitive standing.

These conflicts often involve tariffs, quotas, and accusations of unfair trade practices. Additionally, China’s Belt and Road Initiative (BRI) intersects with its automotive ambitions, presenting risks related to debt sustainability, regional stability, and local opposition.

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Balancing domestic policies with global expectations, such as those outlined in the Paris Agreement and the Sustainable Development Goals, further complicates China’s geopolitical landscape within the vehicle-making sector.

The writer is Kenya’s Ambassador to Belgium, Mission to the European Union, Organization of African Caribbean and Pacific States and World Customs Organisation. The article is written at a personal level.