Volkswagen and BMW Each Investing 2.5 Billion Euros in China This Year
China Remains Most Attractive Market Despite Geopolitical Risks
Chinese Companies Grow on Patriotism and Domestic Demand
Western Regulations Limit Chinese Firms' Global Market Dominance
Germany's direct investment in China reached approximately 7.3 billion euros (about 11 trillion won) in the first half of this year alone. This surpassed last year's investment of 6.5 billion euros (about 10 trillion won). German automobile companies mainly led the investments, with Volkswagen and BMW planning to invest 2.5 billion euros (about 4 trillion won) each this year. However, the German government warned that companies should be cautious about investing due to increasing geopolitical risks in China. Despite this, what is the reason German automobile companies are increasing their investments in China?
First, the biggest reason is the size of the Chinese automobile market. In 2008, China had already become the world's largest automobile market. Looking at new car registrations in 2023, China ranked first with 25.8 million units, followed by the United States with 15.46 million, Europe with 12.85 million, India with 4.1 million, and Japan with 3.99 million. Ignoring this Chinese market risks not only losing profits but also missing the trends in the automobile industry.
Meanwhile, last year, for the first time, foreign joint ventures were overtaken by Chinese companies in market share in China. In 2020, Korean cars had a market share of 7%, but as of 2024, it is only about 2%. Chinese cars increased from 43% to 62% during the same period. American cars declined from 12% to 7%, and German cars also decreased from 19% to 16%. One reason for this change is Chinese patriotism. Seeing the harsh containment of China by Western countries centered on the United States, Chinese consumers likely hesitated to purchase cars from foreign companies. General Motors (GM), which once played a significant role in the Chinese market, recently announced plans to downsize its business in China.
Another reason is the revolutionary change in technology. In China, the sales share of new energy vehicles (NEVs) such as electric cars has already surpassed that of internal combustion engine vehicles. Except for Tesla, Chinese-made NEVs have an overwhelming market share about seven times that of foreign joint ventures. Most foreign joint ventures focus on internal combustion engine vehicles. As Chinese consumers prefer NEVs and foreign joint ventures lag in technological competitiveness, the market structure has changed significantly. The Chinese government's support has also played a major role in China’s technological lead. Among the top 10 publicly listed companies receiving national subsidies in 2023, CATL ranked first, Shanghai Automotive second, and BYD eighth.
In this situation, it is difficult for German companies to accept demands to reduce China risks. This is because they do not see the probability of war between China and Taiwan as high. They perceive abandoning the world's largest market where innovative technological development is taking place as giving up the future. They prioritize practical profits and future strategies over uncertain geopolitical risks.
However, does this mean Chinese electric vehicle companies will dominate the global market? Here, the international realities China faces pose significant barriers. The United States is discussing regulations on Chinese electric vehicles from a national security perspective. The European Union (EU) is considering imposing tariffs. Western companies are demanding that Chinese automobile parts companies relocate production bases to Southeast Asia, Eastern Europe, Mexico, and other regions.
When Japanese cars flooded the U.S. market in the past, there was fear of Japanese cars. However, currently, Japanese cars hold only about one-third of the U.S. market share. Since 1981, Japanese companies have relocated many production bases to the United States. U.S. companies, which had fallen behind, developed production technologies and caught up. Japanese cars did not eliminate American and German companies in the U.S. market. Similarly, as various countries regulate the market expansion of Chinese electric vehicle companies and non-Chinese companies narrow the technological gap, there will be limits to the market dominance of Chinese electric vehicle companies. Geopolitics that contain China are at work.
Kim Dong-gi, author of The Power of the Dollar & Lawyer
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