China Warns Carmakers of Risks in Establishing Overseas Plants, Sources Say

SHANGHAI – China’s commerce ministry has recently cautioned local automakers about the potential risks associated with investing overseas. This warning comes during a time when these companies are eager to expand globally in response to declining growth within their domestic market.

In a meeting held earlier this month, officials advised against investing in India, referencing a directive from the central government. They “strongly advised” against making investments in Russia and Turkey, while adopting a more diplomatic approach to the concerns linked with establishing factories in Europe and Thailand. Additionally, they encouraged automakers to utilize foreign factories for the final assembly of vehicles using components exported from China, thereby addressing potential geopolitical risks.

However, there were no specific guidelines issued regarding the safeguarding of core electric vehicle technologies within China, according to sources familiar with the discussions, who chose to remain anonymous due to the sensitivity of the information.

The Ministry of Commerce has not yet responded to requests for comment on these matters.

Relations between China and India have been strained since border clashes in 2020, leading India to increase scrutiny over Chinese investments and suspend significant projects. State-owned SAIC Motor Corp Ltd has faced challenges in its Indian endeavors for several years. In an effort to create a more favorable operating environment for its MG brand, the company announced plans in April to engage Indian investors.

Meanwhile, Chinese brands have been capturing a larger market share in Russia as Western automakers withdraw amid sanctions. Reports indicate that Chery is in discussions with Russian manufacturers to produce vehicles within the country.

As Chinese automakers pursue international growth, they are contending with excessive production capacity and sluggish domestic demand, triggering a fierce price war. Their attempts to penetrate major auto markets like Europe and the United States have also been met with increased tariffs on electric vehicles.

While several European nations, including Spain and Italy, are actively attempting to attract investment from Chinese automakers, companies remain wary about establishing independent local production. This undertaking demands considerable capital and a comprehensive understanding of local regulations and cultural nuances.

Geely, the second-largest automaker in China by sales, is exploring potential locations for a plant in Europe but has not fully committed to establishing local production, as its executives indicated recently. Similarly, Leapmotor has opted to collaborate with local firms, recently launching electric vehicle production through a joint venture with Stellantis at the automaker’s Polish plant.