Beijing is undermining the industrial development of other countries by wielding its influence over outward investments made by Chinese manufacturing companies, with India being an example where exports of Chinese workers and equipment are limited, an academic said on Saturday.
Princeton University postdoctoral researcher and lecturer Kyle Chan (陳凱新), who specializes in industrial policy with a focus on China and India, in a Substack post on Saturday wrote that Chinese manufacturing companies are forging new global supply chains by setting up new plants around the world.
To circumvent tariffs and ensure market access, Chinese firms are building plants not only in major target markets such as the EU and Brazil, but also in “connector countries” such as Mexico and Vietnam to leverage their trade agreements with developed markets, he said.
Photo: AP
For example, Morocco has become a popular destination for Chinese investments in electric vehicles (EVs) or battery manufacturing, as it has trade agreements with the US and the EU, Chan said.
However, this global expansion is not solely driven by economic interests, as Beijing is also “trying to shape the global expansion of Chinese manufacturers,” he said.
For example, Beijing is engaging in “industrial diplomacy” — encouraging Chinese firms to set up plants in China-friendly countries, while discouraging them from investing in other countries, he added.
Beijing has been using outbound investments as a geopolitical means to “reward certain countries and punish others,” Chan said.
It has also been cementing its centrality in “new China-friendly global supply chains” by limiting the transfer of key techniques for batteries, EVs, rare earth processing and lithium extraction, he added.
China’s reluctance to share technologies could cause problems with its trade partners, Chan said.
For example, the Chinese Ministry of Commerce has instructed Chinese automakers, including BYD Co, SAIC Motor and Geely Auto, to suspend investments in EU nations that voted to levy additional tariffs on Chinese EVs and increase investments in those that voted against them, he said.
Hungary, the largest recipient of Chinese foreign direct investments in Europe, is the recipient of a US$7 billion 100 gigawatt-hour Contemporary Amperex Technology Co battery plant and a BYD plant scheduled to begin operations this year, Chan said.
Brazil, the largest recipient of Chinese foreign direct investments in Latin America, has also been rewarded with Chinese manufacturing plant investments due to positioning itself as a friend of China, with BYD and Great Wall Motor both building EV factories there.
In contrast, Chinese companies have been wary of investing in the Philippines partly due to tensions in the South China Sea, Chan said.
“For years, the Philippines has received only a fraction of the levels of Chinese foreign direct investments that its Southeast Asian peers like Thailand and Indonesia have received,” he said.
Beijing also appears to be barring Chinese firms from investing in India and limiting the flow of Chinese workers and equipment to the South Asian country, because it is “not only a geopolitical rival to China, but also a potential manufacturing threat,” Chan said.
“India is making a huge manufacturing push and has gotten a significant boost from multinational corporations seeking to diversify their production away from China,” he said.
For example, Apple went from making just 1 percent of its iPhones in India in 2021 to making 14 percent of them there last year, including its most premium model, the iPhone 16 Pro, he added.
Given “the stunning speed” at which India has increased its iPhone production, Beijing might have been “shocked” into taking countermeasures to “slow down India’s progress,” he said.
To some extent, China has been following the example of Japan and South Korea in relocating its production to other parts of Asia, a process in which “each country supports the industrial development of the next cohort of countries in a ‘flying geese’ pattern,” Chan said.
However, there is a marked difference between China’s approach and that of Japan and South Korea, Chan said.
“China appears willing to leverage its control over technology, machinery and critical inputs to actively undermine the industrial development of other countries,” he said.
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