[Global Focus] Beyond Consumer Goods to High-Tech Products... The 'Made in China' Bombardment

China, once mass-producing textiles and other goods,
now dominates high-tech products?what happens next?
Global responses are spreading,

but China, skilled in evading regulations,
even threatens retaliatory tariffs.
The EU signals tough regulations on China,
while divisions emerge among member states.

China's high-tech products are threatening the global ecosystem. Chinese companies, backed by massive government subsidies, are engaging in 'dumping exports' at rock-bottom prices. Although countries around the world have announced barriers against China's dumping offensive, tensions are rising as China, having accumulated decades of know-how in evading regulations, has also warned of retaliatory tariff measures. Meanwhile, while the European Union (EU) is conducting a high-intensity investigation into China's trade practices, concerns are emerging that the 'de-risking' policy against China may lose momentum due to changes in the attitudes of some member states.

'Made in China' Leads the High-Tech Sector

The Wall Street Journal (WSJ) recently stated, "China is no longer just a country that assembles products for foreign companies but has become a leader in the high-tech field." Environmentally friendly industries such as electric vehicles, lithium-ion batteries, and solar panels have been dominated by China in recent years, successfully achieving low-cost mass production and pushing global competitors into crisis. According to Natixis Securities, the export share of this sector in China surged more than fourfold from 1% in 2018 to 4.2% last year.

The New York Times (NYT) reported that it took China only four years to transform from a laggard in the automobile industry to the world's largest automobile exporter. The key contributor was BYD, which became the world's largest electric vehicle manufacturer in the fourth quarter of last year. Since the Chinese government's electric vehicle subsidy policy was implemented in 2008, BYD has received subsidies totaling $2.6 billion by 2022. This enabled the company to establish a stable supply chain through vertical integration of electric vehicle production processes, including automotive parts, lithium batteries, and semiconductors. This approach allows for mass production at lower manufacturing costs without being affected by external factors. The secret behind pricing the new small electric vehicle model, Seagull, at $10,000 while still maintaining profit margins lies here. BYD, targeting the European and Southeast Asian markets, aims to double its export sales to 400,000 units this year compared to the previous year.

BYD's low-price offensive is leading to a price-cutting bloodbath competition within the industry. Especially, the Chinese electric vehicle industry, including BYD, is targeting the European market, where tariff barriers are lower than in the United States, turning Europe into a haven for Chinese cars.

Moreover, the speed of China's electric vehicle battery technology development is astonishing. According to Bloomberg, CATL, the world's largest lithium battery manufacturer based in China, unveiled a lithium iron phosphate (LFP) battery at the Beijing Motor Show on the 26th that can travel 600 km with a 10-minute charge and over 1,000 km on a full charge. This is an upgraded version of the 'Qilin Plus' LFP battery released by CATL in August last year, which could travel up to 400 km with a 10-minute charge and 700 km on a full charge.

By aggressively securing overseas lithium mines, China also holds an advantage in battery prices. According to Rystad Energy, Chinese companies have acquired stakes in 20 lithium mines in South America and Africa over the past two years. The construction cost of CATL's battery factory targeting the Bolivia region is about half that of competitors from Korea, Japan, and Europe. CATL continues to significantly reduce battery prices this year, putting pressure on the global battery industry.

Solar panels have been dominated by Chinese products, causing prices to plummet. As a result, European solar panel manufacturers such as Sistobi (France), Meyer Burger (Switzerland), and REC (Norway) have all shut down their factories within the past six months. According to Bloomberg NEF, recent solar panel prices are about half of those from the same period last year, with further declines expected.

US and EU Regulations Against China... China Strikes Back

Governments worldwide have announced more than 70 import-related measures targeting China since early last year. The strengthening of protectionism against China by governments worldwide stems from concerns that although China's oversupply might have short-term positive effects, domestic companies will lose competitiveness and dependence on China will inevitably increase. Not only the United States but also the EU is conducting counter-subsidy investigations that could impose countervailing duties on Chinese electric vehicles and is investigating extraterritorial subsidy regulations to exclude Chinese solar panel companies from EU public procurement participation.

China has also launched a counterattack. On the 26th, the Standing Committee of the National People's Congress held a meeting and passed a new tariff law by vote, effectively allowing retaliatory tariffs starting in December. The core of the law permits the Chinese government to impose equivalent tariffs on goods from countries that violate agreements. Until now, China has responded to protectionist policies targeting itself by various countries by stating that the "new theory that Chinese exports threaten global industries" is merely an excuse by certain Western countries to undermine China's development and international cooperation environment and to benefit their own industries more, signaling a readiness to retaliate. Additionally, China has evaded global regulations through 'tricks' such as seeking breakthroughs via the China-led economic cooperation group BRICS or forming partnerships with global companies.

Concerns Over a Second China Shock... China Raises GDP Forecast from 4.6% to 4.8%

Due to strong export performance, China's gross domestic product (GDP) forecast has been revised upward from 4.6% to 4.8%. Bloomberg reported, "At the beginning of this year, China's product exports and government support for advanced technology showed better-than-expected momentum."

The market is concerned about a 'second China shock.' The flood of ultra-low-priced Chinese products is raising fears of a China-originated 'deflationary export' (price declines amid economic downturn). However, the WSJ explained that this situation differs from the late 1990s when China dumped cheap light industrial products. The WSJ stated, "At that time, China mainly produced low-priced goods, but today it makes everything," adding, "China's ultimate goal is to become the global leader in advanced manufacturing."

Meanwhile, as the US and EU lead regulations against China's oversupply, attention is focused on the possibility of changes in the attitudes of EU member states. On the 27th, the WSJ cited sources saying, "The German government is considering scaling back plans to strengthen scrutiny of Chinese capital investments in Germany." This came after Chinese President Xi Jinping met German Chancellor Olaf Scholz in Beijing earlier this month. President Xi is scheduled to visit France, Hungary, and Serbia consecutively next month. The WSJ predicted, "Germany's decision could raise concerns that Western support for the aggressive efforts by the US and EU to curb China's global influence is weakening among Western allies."