China Manufacturing Worries The Rest Of The Globe
China goods are actively invading the world market for the right reasons; more affordable with better quality. The West is certainly concerned, as they should be.
First it was other consumer goods; clothing and miscellaneous stuffs. Now, it is electronics, semiconductors and electric vehicles (EV). Goods from the republic has invaded most parts of the world, catalysing various sanctions for fear of monopoly. Are sanctions a viable solution to protect the country’s economy?
Business Insider noted, Chinese manufacturers are pumping out so many solar panels that the resulting global glut and price crash are prompting some people to line their garden fences with them.
US Treasury Secretary Janet Yellen reportedly is seeking to address over-manufacturing during her visit to China. Yellen is one of the top US officials who have visited China during Biden’s tenure. Yellen said that the problem of excess Chinese manufacturing capacity had intensified recently, according to Reuters. She said it was “leading to production capacity that significantly exceeds China’s domestic demand, as well as what the global market can bear.” Yellen said other regions feeling the heat from China’s overproduction included Europe, Mexico, and Japan.
Japan Concedes China’s Formidability
In the automotive segment, Suzuki remains composed despite Indonesia’s automotive market is increasingly bustling with the Chinese brands entering and seeking a niche in the EV segment, Kompas reported. Chery, Neta, Build Your Dreams (BYD), Great Wall Motor (GWM), and newcomer GAC have attracted domestic consumers with affordable prices for pure EVs or Battery Electric Vehicles (BEV).
Suzuki, a major automotive manufacturer from Japan, actually welcomes the competition. This is in spite of its earthshaking announcement of its plan to cease assembling cars in Thailand, one of its major markets.
“We are very open and very happy with the various competitions that exist. This means all competitions will enliven the automotive industry in Indonesia, consumers will have many choices and we are happy to undergo the competition,” Harold Donnel, 4W Marketing Director of PT Suzuki Indomobil Sales (SIS), told Kompas.com in South Jakarta.
Suzuki to date does not have EVs, yet remains confident in selling its vehicle product line, some of which are equipped with mild hybrid technology. As its current focus is on presenting vehicles that fit into the public’s purchasing power segment.
Elsewhere, Financial Times have also observed Japan is increasingly apprehensive with China. Japanese carmakers are “very scared” by the rapid development of Chinese electric vehicles and risk becoming “followers” if they cannot innovate more quickly, the head of Sony-Honda’s joint venture has warned.
Yasuhide Mizuno said Japan’s companies needed to change their conservative corporate culture and called for a breakthrough in manufacturing to keep up with Chinese rivals, which within a few years have become some of the world’s leading vehicle exporters.
“Chinese competitors are very strong, and I’m very scared of their implementation and execution speed,” said Mizuno, Chief Executive of Sony Honda Mobility, at the company’s headquarters in Tokyo. “Japanese carmakers are a bit nervous or sensitive before launching a car. We need to change this kind of behaviour, otherwise China will be first and we will always be followers,” added Mizuno, who led Honda’s China operations until 2020.
Despite an ambitious target to phase out petrol cars by 2040, Honda has lagged behind rivals in the global race for electrification. It agreed to team up with Nissan in March to develop EVs in order to survive the competition against high-tech, low-cost models from China.
The 50-50 joint venture between Honda and Sony was established in 2022 to combine Honda’s car manufacturing strength with Sony’s software and entertainment expertise. The company plans to start delivering its EV to North America by 2026.
Mizuno said Chinese competitors were moving faster than he had anticipated. Buoyed by large government subsidies and the recruitment of top Japanese, European and US engineers, the development time of Chinese EVs — from concept to production — has shrunk to as little as 18 months, he estimated, adding that was less than half of the time it took to develop a car in Japan.
“Since China-made EVs will not be entering the US, the choices for consumers will be limited,” Mizuno said. “But instead of feeling good that Chinese cars will not be coming in, I feel that we should launch a car that can directly compete with Chinese rivals.”
Afeela, Sony-Honda’s premium car meant to showcase how software can be incorporated into the manufacturing process, will target what Mizuno described as “wealthy geeks” and will not be mass produced. Mizuno added that Japanese carmakers should not be complacent after the US quadrupled tariffs on Chinese EVs to 100%, in effect shutting out groups such as BYD and Nio from the market.
Despite a recent slowdown in the rapid growth of EVs, Mizuno said he still expected EV sales to dominate the US, Chinese and European car markets by 2035. Sony is expected to benefit from the joint venture by moving closer to the car manufacturing process and boosting sales of image sensors to the sector. However, many analysts have questioned what Honda has to gain from the partnership.
Mizuno argued the joint venture would be equally valuable for Honda since it would obtain expertise in software development from Sony engineers. “Software might be the new weapon in the car development process,” he said.
Tech Tsunami
Foreign companies are also moving their manufacturing facilities out of China to establish production hubs in other countries as trade tensions continue to brew between China and the US. Malaysia, the world’s sixth largest exporter of semiconductors in the world, has greatly benefited from this strategy known as China Plus One, where companies diversify their business outside of China.
Malaysia has a 50-year edge in the sector given that Intel established its first international manufacturing plant in the northern state of Penang. Intel is also building another factory in Penang that will be the US States chip giant firm’s overseas facility for advanced 3D chip packaging.
Malaysia is on a particularly attractive spot given that many semiconductor and EV companies relocating to Southeast Asia to bypass trade restrictions and strengthen their supply chains. The country has an existing ecosystem in Penang and the neighbouring Kulim in Kedah. This provides an option for technology companies seeking to date-risk amidst intense rivalries between the US and China over cutting-edge technologies.
Beijing reportedly knows the country has an overcapacity problem in some sectors, which is also bad for its own economy. After all, Chinese solar manufacturers are feeling the heat from solar-panel overcapacity. In March, Longi Green Energy Technology, the world’s largest solar-cell manufacturer, announced it was laying off thousands of workers amid overcapacity and low prices.
Following China’s annual parliamentary sessions last month, Chinese Premier Li Qiang pledged in his annual policy report to “prevent overcapacity” in key industries. Still, China is framing the West’s concerns about overcapacity as protectionism and as moves to curtail the country’s economic development.
“While it is just basic economics that surplus products naturally seek out markets elsewhere once domestic demand is met, and Western nations have been doing that for centuries, when it comes to China, it becomes an ‘overcapacity problem’ threatening the world,” China’s Xinhua state news agency wrote in an opinion piece in late March, calling the West’s critique a “double standard.”
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