Hildegard Mueller on competition with China + Xiaomi’s car is a big hit

Dear reader,

The Beijing Auto Show is entering its second week. Our reporters on site note how self-confident China’s NEV start-ups are, many of which have only been around for ten years or less. On the other side are traditional companies that build very good cars and have a lot of experience, including, of course, German brands such as BMW, VW and Daimler.

However, many Chinese customers believe that German cars cannot compete in terms of technology. Who needs a perfectly tuned chassis and high safety standards in China when you are usually stuck in traffic jams in Beijing or driving at the speed limit on the freeway anyway?

Nevertheless, Hildegard Mueller from the German Association of the Automotive Industry believes that the Germans are well positioned. In an interview with Julia Fiedler, however, she criticizes the framework conditions in Germany and Europe that are holding companies back. After all, they need “China speed” in order to survive.

Xiaomi, in particular, has recently demonstrated this notorious Chinese speed. At the Beijing Auto Show, people lined up to see the SU7, the new model from the company that has made a name for itself as a smartphone manufacturer. Xiaomi founder Lei Jun was even celebrated like a pop star during a tour of the exhibition center.

Probably also motivated by the many pre-orders, he plans to turn Xiaomi into one of the largest EV manufacturers over the next few years. The smartphone business, where Xiaomi now ranks third behind Apple and Samsung in global sales, will also finance this. Joern Petring has written down for you what role good marketing plays here and why the SU7 looks uncannily similar to a Porsche.

Your
Fabian Peltsch

VDA President Hildegard Mueller: ‘Europe is not expanding its strengths fast enough’

By

Julia Fiedler

The sales of German car manufacturers in China have stabilized recently. Is that reason for a sigh of relief? 

It shows that we accept the competition, that we are at the forefront, and that the Chinese sales market remains very important. Market growth in China is highly dynamic. You should look not only at the percentage market shares but also at the absolute figures. The Beijing Auto Show demonstrates that German manufacturers have embraced the challenge. They already offer over 130 purely electric models, and there will be significantly more this year and next. 

Here in China, development is extremely fast. Having to wait a year for new car models is a pretty long time…

The Chinese also have a lot of concept cars here. Much of what they are showing here at the exhibition will only go into production in the next year or two. It is important for us now that we can quickly convert production lines and obtain the relevant permits. We are investing around 280 billion in R&D by 2028 and a further 130 billion in converting plants. That is why fast planning and approval processes are crucial for us to be able to put the cars that we have developed technologically into series production and onto the road.

China knows how to do technology, design and premium. Many Chinese customers consider cars from EV start-ups that cost under 30,000 euros to be premium models. Is this a threat to German manufacturers?

You shouldn’t necessarily draw conclusions about premium cars based on their design. German manufacturers still have a lot to offer when it comes to power electronics and efficiency, for example – our premium models in particular are still very much in demand here, especially among young people. It’s not just the design that makes a sports car.

Let’s talk technology: Two types of drives are popular in the Chinese market that German manufacturers do not offer: Vehicles with range extenders and plug-in hybrids. Have the German manufacturers overlooked or ignored an important trend?

The German car industry has always supported plug-in hybrids, but regulations have made it increasingly difficult for the technology and it has been politically maligned. That’s why I think the accusation that the German car industry has missed out on something here is too short-sighted. Of course we offer hybrid vehicles. This reveals a fundamental problem with German and European policy: All too often, the goals are accompanied by a set of paths and instruments. Reality now shows more and more frequently that this is the wrong approach. The focus in Europe is very one-sided, something our association has always criticized. Global markets are different, which is why we also need regulation and a strategy that recognizes and addresses this. 

Can you give an example of this criticism?

In Europe, we are very harshly measured against the fleet limits – yet the charging infrastructure requirements are not consistently implemented. Two examples: In China, eight electric cars share one charging point, compared to 21 here. And in many EU countries, the expansion of charging infrastructure is still in its infancy. In the German state of Thuringia, for example, there are more public charging points than in Bulgaria. I don’t understand how most European countries plan to achieve the goal of no more combustion engines by 2035 at the end of the day if nothing changes in this respect.

The EU must network more

How important is cooperation in Europe for the automotive industry to remain competitive? 

We are living in geopolitically turbulent times. It is a fact that Europe’s political relevance is also due to its economic strength. This is a strength that we are currently not consolidating and expanding sufficiently. What is important now? Firstly, we need to strengthen and improve our international networking. Where is the capital markets union? What about a common foreign and security policy? What about a targeted European energy policy? In the member states, we still prefer to define ourselves against each other rather than with each other. This weakens us compared to large economic areas. 

What other problems do you see?

We Europeans are far too slow in negotiating free trade agreements. The investment agreement with China – certainly not an easy discussion – has been on hold for two years. Every non-concluded trade agreement harms European interests and thus not only growth and prosperity, but also, for example, our influence regarding our climate action and human rights goals, because we lack the necessary relevance. If the world starts to act without Europe, then we will have a massive problem on our hands. We can still prevent this, but it will require a change in thinking. Companies will seek and find their ways – European and German technologies and our car manufacturers will continue to be successful. But whether value creation will then happen in Germany is, unfortunately, a different matter. One thing is certain: We will build more than 15 million electric cars by 2030. Whether we can sell them in Germany also depends on the design and implementation of the aforementioned framework conditions.

VDA rejects punitive tariffs against Chinese EVs

Let’s stay with Europe: When it comes to punitive tariffs, the VDA clearly opposes them. But doesn’t an EU subsidy investigation like this also serve to clearly signal to China that we insist on a level playing field? After all, the Chinese are clearly pursuing their own interests.

The Chinese have an interest in shaping things with us. Our main topic of discussion with the Chinese car manufacturers was precisely this issue – the extent to which Europe will seal itself off. The export quota for Chinese-made cars is 16 percent, while three out of four of our cars are exported. So it is a paradox if we now blame the Chinese for this – precisely because our business model and prosperity are based on exports. Of course, we clearly tell our interlocutors in China that we criticize the tendency that the Chinese market is being closed off and the unequal treatment of German and Chinese companies. Critical dialog and negotiations at eye level are what is needed now. The anti-subsidy investigation does not fall into this category. Instead, it is a kind of automatism that no longer has a political dimension. 

What do you recommend instead?

Looking to the future, we should take another look at the investment agreement and consider what a joint approach could look like. As a matter of principle, our negotiating position will be stronger if we strengthen our location and, thus, our economy. Only as a global economic power can we communicate with China on eye level – acting critically, constructively and confidently, making our interests clear internationally and holding negotiations in our interests.

What lessons can we draw from the espionage cases involving Volkswagen and the German AfD party when it comes to our dealings with China? 

I fundamentally disapprove of espionage, regardless of which country carries it out. The German government has rightly criticized and condemned this very clearly and it requires further clarification.  The basic principle is that we are in international competition in all dimensions, with espionage, cybercrime and many other issues that need to be raised. The German economy is doing a lot to protect itself – and of course we also need a clear response from the rule of law in such matters. 

Mueller: Change through trade has not failed

You once said that the concept of change through trade has not failed in your eyes. What do you mean by that? 

It is not helpful to see Russia’s illegal war of aggression and its consequences as proof of this concept’s fundamental failure. The discussion in Europe about this is very short-sighted. I remain convinced that economic cooperation and internationally interlinked trade can bring about positive change. The more competitiveness we have, the more this concept will work. 

What does this mean for us?

Germany and Europe must have an interest in open markets and negotiations, we are a continent whose relevance is based on its economic strength more than any other and not on military strength or the size of our population. We can use our economic strength to help other countries grow. And we need to strengthen this approach and engage in exchange. However, change through trade does not mean becoming unilaterally dependent. We must take our own de-risking seriously, which is exactly what our companies are doing. It is important that de-risking must also be politically facilitated and not just demanded. 

Where will the German automotive industry be in China in five years?

The German automotive industry will be an innovative leader and at the forefront. I believe that it will have more to offer than relevant competitors, particularly in the value creation approach of the entire supply chain and in terms of sustainability – and will leave the competition behind. 

Hildegard Mueller has been President of the German Association of the Automotive Industry since February 2020. She was a member of the German Bundestag from 2002 to 2005 and Minister of State to former Chancellor Angela Merkel from 2005 to 2008. From 2016 to 2019, she was Chief Operating Officer of Grid & Infrastructure at innogy SE and, from 2008 to 2016, Chairwoman of the Executive Management Board of the German Association of Energy and Water Industries in Berlin.

Xiaomi steals the spotlight at the Beijing Auto Show

By

Jörn Petring

The longest lines at Beijing’s Auto Show form at the Xiaomi booth. Employees from Western car brands are also patiently waiting in line to see the SU7 and take a quick seat in the first electric car made by the Beijing-based technology company.

Xiaomi launched sales of its SU7 a month ago. And despite the brutal price war in the Chinese market, where affordable and good electric cars are abundant, the Xiaomi car seems to be winning over customers.

Xiaomi founder Lei Jun, who received a pop star-like reception during his tour of the motor show last Thursday, reported 75,723 preorders for the car. He said that these were now being processed and production was being increased.

By June, 10,000 cars are expected to roll off the production line each month, meaning that over 100,000 vehicles can be shipped by the end of the year. Lei also announced at the trade fair that the company’s car division is set to grow strongly over the next few years. Its current 6,000 employees in this division are far from enough. That is why more junior staff are being recruited from top universities.

Surging profits in the smartphone business

One thing is sure: Xiaomi has the financial firepower to shake up the Chinese EV market. The company’s smartphone business is particularly booming. In terms of global sales, the Chinese company ranked third behind Samsung and Apple in the first quarter. And Xiaomi has also recently outperformed most Chinese technology groups and car manufacturers in the stock market.

The share price has climbed by 60 percent in the past twelve months. Investors also seem to be buying into Lei’s narrative, who is convinced that his company can become one of the largest manufacturers of electric cars. “As a challenger, Xiaomi has great advantages in various areas such as marketing, technological innovation and production,” believes Cui Dongshu, Secretary General of the Chinese Automobile Association (CPCA).

Porsche comparison as clever marketing

Xiaomi has shown its marketing skills in particular these days. It is no coincidence that the design of the first vehicle resembles a Porsche. Admittedly, many Chinese Internet users poke fun at this approach. For example, some videos mockingly place Porsche lettering on the Xiaomi vehicle, accusing the Chinese manufacturer of making a shameless copy. However, marketing expert Lei is well aware that the most important thing for sales is that his car is talked about.

Xiaomi also compares the SU7 with carefully selected performance data from the electric Porsche Taycan on its own advertising boards – and, of course, comes out on top. Xiaomi has even pitted its own car against a Porsche on the racetrack.

Xiaomi knows how to build smartphones on wheels

In other words, the company is deliberately trying to create the image of an unbeatably priced “people’s sports car.” Indeed, the SU7 is very affordable, with prices ranging from 28,000 euros to 40,000 euros, depending on the model.

Xiaomi entered the smartphone market many years ago with a similar strategy. Back then, Lei not only dressed like the late Apple founder Steve Jobs. He also held his product presentations in a very similar way. The Xiaomi stores also felt a bit like a visit to the Apple Store. All of this quickly made Lei Jun and Xiaomi famous.

However, Xiaomi’s ultimate intention is, of course, not copying a Porsche. What is likely to be decisive for Chinese buyers is the SU7’s software and entertainment system. Experts have been telling us for years that the Chinese no longer want to buy cars; they want smartphones on wheels. And Xiaomi certainly knows how to build smartphones.

Beijing calls espionage allegations ‘pure invention’

The Chinese government rejects allegations of espionage in connection with four arrests in Germany as “pure invention.” China “resolutely opposes any smearing and slander,” said Chinese Foreign Ministry spokesman Wang Wenbin in Beijing on Friday. He urged Germany to “be vigilant against attempts to harm bilateral relations.” He added that China had already taken “serious steps” because of Germany’s unfounded accusations. On Thursday, Germany’s ambassador to China, Patricia Flor, was summoned in response to the allegations.

The most far-reaching of the four espionage cases is that of Jian G., an employee of Maximilian Krah, a politician from the far-right Alternative for Germany (AfD) party. Jian G. allegedly passed on information from the European Parliament to the Chinese intelligence agencies and spied on Chinese dissidents in Germany. As the German news magazine Der Spiegel reported on Friday, Krah’s office is said to have repeatedly requested documents from the EU Parliament that were classified as “sensitive” or “restricted,” including analyses of the foreign trade strategies of partner states or documents on the progress of trade talks.

As has now been confirmed, the accused had also offered to cooperate with the German Federal Intelligence Service (BND) years ago. However, according to information from the German Press Agency, the foreign intelligence service refused cooperation. Jian G. later approached the Saxon Office for the Protection of the Constitution, but they did not consider him trustworthy either. He was arrested on Monday evening and is currently in custody. Krah is under preliminary investigation by the Dresden public prosecutor’s office for possible money payments from Russian and Chinese sources. fpe

China hosts ‘Palestine summit’ with Hamas and Fatah representatives

China will host a ‘Palestine summit’ with the participation of representatives of Hamas and Fatah. The two rival Palestinian groups and a diplomat based in Beijing made the announcement on Friday, according to Reuters. The talks will focus on the unity of Palestine.

It would be the first official visit by Hamas members to China since the start of the Gaza war. A Fatah official told Reuters news agency that a delegation led by the group’s most senior official, Azzam Al-Ahmed, had traveled to China. A Hamas official said the faction’s team for the talks, led by senior Hamas official Moussa Abu Marzouk, would also fly to China later on Friday.

“We support strengthening the authority of the Palestinian National Authority, and support all Palestinian factions in achieving reconciliation and increasing solidarity through dialogue and consultation,” said Chinese Foreign Ministry spokesperson Wang Wenbin at a regular briefing on Friday, without confirming the meeting.

China has lately demonstrated growing diplomatic influence in the Middle East, where it enjoys strong ties with Arab nations and Iran. Last year, Beijing brokered a breakthrough peace deal between longstanding regional foes Saudi Arabia and Iran. rtr

Blinken ends China trip with a lot of mutual criticism

US Secretary of State Antony Blinken met with President Xi Jinping at the conclusion of his China trip on Friday. The two agreed to set up a new working group on artificial intelligence, which is to begin its work in the coming weeks. Bloomberg quotes the top politicians as saying that this was a signal that they wanted to further stabilize relations.

Nevertheless, Blinken’s trip showed that the relationship between Washington and Beijing remains very difficult – and that both must repeatedly reassure themselves that they can and want to cooperate with each other. “China and the United States should be partners, not rivals,” Xi told Blinken, according to the Beijing Foreign Ministry. “The two countries should help each other succeed rather than hurt each other, seek common ground and reserve differences rather than engage in vicious competition.” It is Beijing’s constant mantra that accuses the US of pursuing a policy of containment. Foreign Minister Wang Yi did the same during his five-and-a-half-hour meeting with Blinken, saying endless US measures were suppressing China’s economy. Wang noted that although relations were generally stable, “negative factors” were increasing.

In particular, Blinken criticized China’s support for Russia in the Ukraine war. China is the main supplier of military machine tools and chemicals used in ammunition and rocket fuel, he said. “Russia would struggle to sustain its assault on Ukraine without China’s support.” Bloomberg described the nature of Blinken’s talks as “confrontational.” However, both sides had refrained from the harshest rhetoric. Before his talks in Beijing, Blinken was in Shanghai. ck

EU Commission tightens rules for Shein

The EU Commission plans to subject the Chinese textile supplier Shein to more extensive controls. According to the Brussels authority, Shein has been added to the category of “very large online platforms” under the Digital Markets Act (DMA) on Friday – making Shein, like TikTok, subject to stricter regulations.

This means that the company must take precautions over the next four months to guarantee protection against counterfeit products and more extensively prevent infringements of intellectual property. The company also has to commit to annual risk assessment reports. According to the company, more than 45 million people in the European Union use Shein’s ultra-fast fashion range on average, including many underage consumers. fpe

Surprise visit to Beijing: Premier receives Elon Musk

Tesla boss Elon Musk arrived in China on Sunday on a surprise visit. According to a Bloomberg report, he met with Premier Li Qiang just hours after his arrival. According to state broadcaster CCTV, Musk told Li that Tesla is willing to deepen its cooperation with China. Li emphasized how Tesla is a successful example of trade cooperation between the US and China. Musk had previously met Ren Hongbin, who is responsible for international trade within the government.

Bloomberg and Reuters report, citing insiders, that Musk wants to discuss the introduction of Tesla’s driver assistance system during his talks with officials. The US car manufacturer introduced the corresponding software for its cars four years ago. However, it is not yet available in China. This month, Musk hinted that Tesla may make the software available to customers in China “very soon.”

According to Reuters, another matter is the authorization to transfer data abroad. Tesla has kept all data collected in China since 2021 in the country in accordance with the requirements of local supervisory authorities. According to the company, it has not been transferred to the US, where Tesla is headquartered.

Since entering the Chinese market a decade ago, Tesla has sold more than 1.7 million vehicles there. The plant in the economic hub of Shanghai is the company’s largest in the world. fpe/ck

Challenges for EU-China trade due to China’s industrial subsidies

By Frank Bickenbach, Dirk Dohse, Rolf J. Langhammer and Wan-Hsin Liu

For years, US and EU trade policymakers have complained about China’s massive industrial subsidies that may have distorted trade in favor of Chinese suppliers in these important markets. A study by the Kiel Institute for the World Economy shows that

China’s industrial subsidies are many times higher than those of OECD countries,
direct subsidies are granted to almost all listed companies in China,
these direct subsidies have increased in the recent past, both in absolute terms and in relation to GDP, and
subsidies flow to practically all stages of production and are also granted to consumers.

Among other things, it remains unclear,

to which extent different subsidies are trade-neutral (and therefore fundamentally WTO-compliant) or linked to export success or the preference for domestic over imported goods and are therefore prohibited under WTO subsidy law,
whether they subsidize inputs such as batteries or end products such as finished cars to different degrees and thus subsidize certain stages of the value chain more than others, and
whether they keep marginal suppliers on the market to, e.g., protect the state-owned banks that provide the loans.

What lies behind China’s subsidy offensive strategy as an objective in global economic competition, particularly on the EU market, offers scope for various explanations, for example,

the adjustment of the “dual circulation” strategy announced in 2020, in which the promotion of domestic demand was prioritized over export orientation, to the weak demand during but also after the end of the Zero-Covid Policy, to the pressure on the RMB and to the trade conflicts with the US,
strategic goals such as achieving dominance in markets of future highly relevant “green tech” products and in the associated value chains, or
security policy objectives such as data access control via, for example, modern digital technologies in electric vehicles.

Both European companies and the EU Commission, which is responsible for the EU’s trade policy, are currently facing the question of how to react to China’s subsidy offensive.

European companies appear to be divided in their response, depending on

whether they are direct competitors of Chinese companies on the EU market and are therefore more in favor of countermeasures by the EU Commission or whether they are processors of Chinese products and are therefore more opposed to such measures, and
whether they are large companies with a significant amount of direct investment in China that benefit at least in part from Chinese subsidies themselves and which view the development of the Chinese market just as positively as their ability to prevent forced technology transfers, or whether they are small or medium-sized companies that do not have this capacity of large companies or do not share their positive assessment.

De-risking or green imports? The EU is in a dilemma

The EU Commission faces a number of fundamental conflicts of interest in its response to Chinese subsidies. These conflicts exist, among other things, between

the aforementioned conflicting interests of different types of European companies and the governments representing these interests,
the interests of generally more and less protectionist member states and fundamentally more “China-friendly” and more “China-critical” governments,
the stronger enforcement of overall-European interests and the consideration of the specific interests and blocking capabilities of individual member states in view of a “divide and rule” strategy of the Chinese government,
promoting the green transformation of the EU economy by importing cheap, subsidized Chinese green technology products (e.g. e-cars, wind turbines) and promoting Europe’s own green-tech industries,
the promotion of (fair) European-Chinese trade and investment relations and the reduction of Europe’s economic dependence on China (de-risking), and
the more consistent application of the trade protection and anti-subsidy instruments available to the EU Commission and the risk of Chinese retaliatory measures.

The impact on EU-China trade is determined by various drivers, including

the prospects of overcoming the weak demand in the global economy and in China in particular,
the demographically and technologically determined sectoral structural change in trade from goods to services, especially digitally generated services,
the continuation of the parallel policy of all three major economic powers (the US, the EU and China) of restricting trade with each other in favor of direct investment in the domestic market, i.e. pursuing an economically expensive regional import substitution policy,
the European Commission’s policy of countering China’s export offensive with the threat of restricting access to the EU market for Chinese goods, including digitally produced services, and possibly also implementing this threat, thereby following the example of the US and imposing the costs of China’s supply surpluses on China itself, and
- the prospects of the Chinese government giving in to negotiations with the EU on the reduction of subsidies that are particularly harmful to the EU.

It is not currently possible to derive a definite forecast for the development of EU-China trade from this complex geopolitical situation. In terms of volume, the growth rates of the pre-COVID19-pandemic phase will be a thing of the past and in terms of structure, it will be difficult for the EU to establish a similarly attractive sourcing country for industrial goods as already exists with China and as the USA has established in the tech services sector with a few dominant companies.

The asset of a large internal market in the EU and its common trade and competition policy remains undisputed. The EU could make even better use of its strengths vis-à-vis third countries if the goal of completing the Single Market were not still a long way off, particularly in the services sector, even after thirty years of the Single Market Program.

Frank Bickenbach is Deputy Head of the Research Center “International Trade and Investment” and a Senior Researcher in the Research Center “Innovation and International Competition” at the Kiel Institute.

Dirk Dohse is Research Director of the Research Center “Innovation and International Competition” at the Kiel Institute.

Rolf J. Langhammer is a Senior Researcher at the Kiel Institute. He was also Vice President of the Kiel Institute until 2012.

Wan-Hsin Liu is a Senior Researcher at the Kiel Institute and Coordinator of the Kiel Centre for Globalization.

This article is part of the event series “Global China Conversations” of the Kiel Institute for the World Economy (IfW). On Monday (29.04.2024, 11.00 a.m., CEST), Volker Treier, Head of External Economic Affairs at the German Chamber of Industry and Commerce, and Rolf J. Langhammer, Senior Researcher at the Kiel Institute for the World Economy, will discuss the topic: “Chinese industrial subsidies: Impact on EU-China Trade?“. China.Table is the media partner of this event series.

A university graduate from Hunan went viral last week with a unique way of finding a job. For around 130 euros, he rented a billboard in the Guangzhou Zhujiang Business District metro. On it, the young data analyst displayed his CV with a QR contact code and the message “Finding work and finding a partner is not easy for anyone.” The ad was on display for four days. Over 30 companies showed interest. He told local media that he had already arranged several job interviews.

CHINA.TABLE EDITORIAL OFFICE

Amelie
Richter

Marcel
Grzanna

Fabian
Peltsch

Julia
Fiedler

Angela
Köckritz

Jörn
Petring