China fills the world with factories and strikes back in trade war with the West

BEIJING.- China has entered into a new phase of global conquest. Its technology companies linked to the green transition They have begun to sow seeds in countless territories. Every so often an agreement is announced to lay the first stone of a production plant electric vehiclesbatteries, electrolyzers for the production of green hydrogen, solar panels. In Spain, in Brazil, in Germany, in Vietnam, in Mexico, in Turkey, in Hungary. The new trend speaks of Beijing’s international vocation, which seeks capitanear a sector in which it sees itself as one step ahead of its competitors. Due to its technological capacity and productive power. It wants to reach every corner of the planet. To be close to key markets. The expansion has been underway for some time. It has accelerated after the pandemic. And it is part of the People’s Republic’s industrial commitment to an economy hit by the bursting of a gigantic real estate bubble: if domestic demand does not revive, it will have to go abroad to find it.

It has also become the Asian giant’s response to overcome the growing wall of trade restrictions in the face of massive exports that are already raising the European Union, The United States and a handful of other countries have been alerted by China’s overcapacity in these sectors. The attractiveness of the landing of Chinese companies has become both a negotiating tool for Beijing to try to reduce tariffs, as well as a weapon of geopolitical penetration with the potential to redesign the map of friendships, especially in the global South.

The new expansion promises to open another chapter in the vaudeville of trade disputes with the West. And it could rise to the level of trade war 2.0 if it comes to fruition. Donald Trumpinstigator of the first, to the White House.

SHANGHAI , CHINA – JULY 11 2021: An aerial view of Tesla Gigafactory Three in Shanghai, China Sunday, July 11, 2021. (Photo credit should read Feature China/Barcroft Media via Getty Images) – Créditos: @Getty Image

There are numerous signs of this push from the Asian giant. Foreign direct investment in new facilities in the electronics, renewable energy, automotive original equipment and chemicals sectors peaked in 2023, with a combined value of $78.3 billion, according to FDI Intelligence, a specialist data service. Financial Times. Such investments in the metals and minerals sectors also broke all records last year, at some $37.8 billion. China is seeking to secure vital resources, given the importance of these sectors for the development of technologies behind electric vehicles, photovoltaics, wind energy products and energy storage, according to these analysts: “It is consistent with China’s broader strategy of leveraging natural resources and energy transition technologies for economic growth and international influence.”

The shift comes at a time when the world’s second largest economy has established itself as a net exporter of capital to establish new facilities (the so-called greenfield investment).

The electric car is the true flagship of this new development. BYD, which is competing with Tesla for the title of the world’s largest plug-in car producer, is finishing off a plant in Hungary; it has confirmed its intention to build another in Mexico; it intends to start production in Brazil before the end of the year; it has announced another factory in Indonesia; it opened one in Uzbekistan in June and another in Thailand in July. Chery, the same state-owned company that has landed in the former Nissan factory in Barcelona, ​​is also planning to land in Mexico; it will have a plant in Vietnam operating in 2026 and last year it announced an investment of 400 million dollars in Argentina to build a car factory.

The EU has become one of the main playing fieldsChina wants to be present in one of the largest markets on the planet.

From Europe to Africa, from Latin America to Southeast Asia. The numerous visits of leaders to Beijing are perhaps the best example of this courtship. Dina Boluarte, president of Peru, said after her visit to China in June: “We saw the technology they have in scientific innovation and that they manage. We want to continue strengthening this bilateral relationship to receive all that scientific hub they have and we can have a different Peru.” Giorgia Meloni, Italian prime minister, signed during her visit in July a memorandum of industrial collaboration that includes electric vehicles and renewable energy, “sectors in which China has already been operating for some time at the technological frontier… and is sharing the new frontiers of knowledge with its partners.”

The whirlwind of visits was closed last week by the President of the Spanish Government, Pedro Sánchez, whose agenda included negotiating investments with Spain. He took some agreements under his arm, such as a 900 million euro green hydrogen project from the giant Envision; and there are others still pending, such as a possible battery factory from CATL. In China, Sánchez left a friendly message, built bridges and called on the European Union to reconsider its position after imposing provisional tariffs of up to 47.6% on electric vehicles manufactured in the Asian giant in July. “We don’t need another trade war”said Sanchez. “We have to seek an agreement between the European Commission and China within the framework of the WTO [Organización Mundial del Comercio]. We are all reconsidering our position.” The Twenty-Seven will have to vote in November on whether to make the tariffs permanent.

China is aware that its investments can be a bargaining chip for member states to reverse their trade barrier. At the same time, setting up there would be a way of avoiding tariffs, if they end up being confirmed: cars would have the “produced in the EU” stamp, they would leave added value, employment and transfer of knowledge. China has intensified its bilateral flirtation with countries. It has put pressure on European sectors such as pork, dairy and brandy with investigations, which could make a new hole in the already battered trade balance of several of them.

Merics analyst Alexander Brown believes that China’s outward movement is closely linked to its “huge overcapacity problems” in the green sectors that the government has bet heavily on. Excess production is lowering margins in China. There are currently 137 different brands of electric cars in the country; by the end of the decade only 19 will be profitable, according to estimates by the consultancy Alixpartners, cited by Bloomberg. Many will fall by the wayside. This ultra-competitive market is also affected by a weak domestic demand. Companies “are looking to increase their sales abroad, where they can generate higher margins,” says Brown. And they can do so in two ways: by exporting or by building manufacturing capacity abroad.

Brown believes that it may also be a Positive development for the European industrial ecosystem electric vehicles and batteries. “It will create more jobs and bring knowledge and technology to Europe,” he says, precisely at a time when Brussels is reflecting on its loss of competitiveness, following the publication last week of Mario Draghi’s forceful report.As long as excessive dependency does not arise or an excessive concentration of Chinese-owned companies.”

The establishment of factories will not make the crisis go away, other analysts believe, however. They could allay employment concerns and give products the Made in EU label. “But this would only solve part of the problem: products would continue to flood domestic markets while profits would be repatriated to China,” Mrugank Bhusari, deputy director of the Atlantic Council’s Geoeconomics Center, wrote in a recent article. In it, he said the EU is not alone in its concern about Chinese exports. Fears are spreading across several G20 countries and beyond. Since 2023, Argentina, Brazil, India, Vietnam and the EU have launched anti-dumping and anti-subsidy investigations against China. Brazil, Canada, Indonesia, Mexico, South Africa, Turkey, the US and the EU have imposed tariffs on certain high-value-added Chinese imports, including, among others, electric vehicles, according to the article. Trade barriers are one of the symbols of this new era of protectionism: more than 27,000 interventionist measures have been approved since 2019, according to Global Trade Alert.

Chinese factories see falling demand and payment delays, expect tough year ahead – Credit: @Zhong Min/European Pressphoto Agency

China’s new expansion goes beyond a reaction to tariffs, says Julien Chaisse, a professor specializing in international economic law and arbitration at City University of Hong Kong. “It reflects a strategic response to global fragmentation in supply chains,” says Chaisse. The plan has been underway for more than a decade. “Chinese companies are becoming global actorsestablishing production centers outside China for avoid tariffs and secure long-term economic footholds in regions such as Africa and Latin America.”

In his opinion, the trade barriers of the EU and the US are aimed at ” reduce China’s global dominance in key industries” and believes that, in part, they can slow down the Asian giant. “But they also push their companies to be more agile and integrate globally.” According to Chaisse, companies would be showing their capacity for adaptation and strategic planning “often underestimated in Western analyses.” They reconfigure their operations to avoid tariffs, maintain access to essential markets, while expanding their relations with emerging economies. They mitigate geopolitical risks and expand their spheres of influence.

By Guillermo Abril