As a candidate, President Donald Trump vowed to revitalize America’s infrastructure and promised $1 billion for transportation projects. But while Washington only tepidly contemplates such spending, China is rapidly moving ahead to transform transportation on its terms.
China’s leadership is codifying the next generation of transportation
technologies into an ambitious national strategy and matching policy with
billions for innovation and deployment. Recognizing that the sector is
shifting toward low carbon options worldwide, Beijing is planning to uproot
America’s competitive edge in the global market. Unless it is willing to cede
the remaking of the transportation industry to China, the United States must
invest more.
With continued economic development and urbanization, transportation needs in
China—the world’s largest auto market, with 28 million vehicles sold last
year—will only increase. As more Chinese citizens become wealthier, they will
travel longer and more often. But the prospect of a rapid expansion of
traditional automobiles and other vehicles with internal combustion engines
unnerves a government already under extreme pressure to rein in pollution at
home.
That’s partly why Beijing is targeting what it terms new energy vehicles, or
NEVs—the class of cars that includes pure electric vehicles, plug-in hybrids
and fuel-cell vehicles. But it is also driven by the economic opportunities in
becoming this century’s Detroit. If Chinese companies are the first to create
mass-market NEVs, they will dominate new markets abroad and dictate global
standards for the next generation.
Having released multiple economic plans, China zeroed-in on NEVs as a
“strategic and emerging industry.” This national designation is more than
symbolic; it unlocks major investment support from the central government for
research and development. China’s 2015 National Security Law also prioritizes
local innovation, and recent trends have demonstrated that Beijing will not shy
away from using the law to force foreign, nondefense-related companies to
transfer technology or store their data on Chinese servers.
Beijing requires foreign automakers that want to operate in China to have a
joint venture with a Chinese company as majority owner. For the past decade,
Chinese agencies have also required foreign automakers operating in China to
“demonstrate mastery” over, and hold intellectual property rights in, core NEV
technologies. As a result, foreign automakers have been compelled to forfeit
their intellectual property to Chinese companies they are coerced to partner with.
But foreign automakers are still rushing into China’s market: Fiat-Chrysler,
for example, is looking for a Chinese partner to develop its electric
and autonomous vehicles business.
Trends point to electric vehicles being popular globally, not just in China.
The most aggressive forecasts see electric vehicles making up one-third of the
world’s car fleet by 2040. This is, in part, because plunging battery prices
will help them become cheaper than internal combustion vehicles by 2025. The
cost of lithium-ion battery packs has dropped by nearly 80 percentin the
past six years. Based on this progress, prices could fall below $100 per
kilowatt-hour in 2030, down from $1,000 per kWh in 2010—a staggering reduction
for electric cars’ most expensive components.
National campaigns to reduce pollution and combat climate change are also
popularizing electric vehicles. The United Kingdom and France, among other
European countries, plan to ban gasoline and diesel cars by 2040. But the biggest
draw for automakers is still China. In addition to being the world’s
largest auto market for the past six years, China offers generous
subsidies that can cover up to one-quarter of an electric vehicle’s cost.
Last year, electric car sales there increased by 53 percent to
507,000 vehicles, more than the combined sales of the U.S. and Europe, the next
two largest markets, in the same period. China aims to sell roughly 3
million electric vehicles a year by 2020.
It is likely that whichever firm captures the Chinese
market for electric cars will capture the lion’s share of global sales.
The huge potential for profit is pushing the auto industry
to tailor its offerings to a market with Chinese characteristics. Volkswagen is
rolling out four affordable all-electric vehicles, and Volvo plans to
make only hybrid and electric vehicles in two years. Both companies paid a
heavy price to compete in China. Volkswagen partnered with Chinese firms to
gain access; Volvo, previously a Swedish brand, is now owned by Geely, a
Chinese company. Even Detroit mainstay Ford is looking to China to
develop its new line of electric cars, which it might eventually export to
America.
It is likely that whichever firm captures the Chinese market for electric cars
will capture the lion’s share of global sales. Most short-term global growth
will be centered in China, given the government’s strong incentives to
consumers. When the technology eventually takes hold globally, the market
leaders will have honed their craft in Shenzhen rather than Stockholm. Although
Nissan-Renault is the world’s largest manufacturer of electric
vehicles, Chinese competitors like Geely are catching up quickly.
Unfortunately, the most likely scenario is that Chinese companies will flood
the market to secure a monopoly and push out competitors, as Chinese solar
panel companies have done for the past decade.
China has taken a big but ultimately safe bet on the future of transportation,
dedicating money and political will—unlike the United States. Spending by the
U.S. government on research and development for electric vehicles peaked
in 2009. Under the Trump administration, the Energy Department’s budget request
for next year cuts funding levels by an additional one-third overall, and
one-quarter for battery technologies.
Although developing better hybrid and electric vehicles is necessary to avoid
the worst effects of climate change, a Chinese-led electric car market will not
produce optimal climate outcomes. Unlike Washington, Beijing does not allow competition
within its own market; for example, it recently shut out Korean NEV
battery manufacturers. Imagine a world where market leaders only produce
marginal performance and cost improvements each year. Such gradual progress
would not adequately combat global warming.
Washington cannot expect Tesla, Ford and GM to go it alone against Beijing. But
it can guarantee American innovation and competitiveness. U.S. policymakers should
reverse course and expand funding for research and development on the next
generation of vehicle technologies. Government funding is crucial to
commercialize early-stage energy innovation. Despite their prospective benefits
to the economy and even national security, such designs are stymied by high
capital costs and long timelines before reaching mass-market viability. The
influence and lobbying of fossil-fuel companies, which enjoy their own
government subsidies, are another major roadblock.
To its credit, the Trump administration has correctly singled out the national
security implications of America’s imbalanced trade relationship with China.
The White House should focus its efforts on the transportation sector and
advocate for fair market access for its automotive companies in China, which
currently face exceedingly high tariffs and exploitative joint venture
requirements. Even under these conditions, the U.S. managed to export $8.9
billion worth of cars to China in 2016. Washington should negotiate trade
terms with Beijing that slow intellectual property theft to maintain America’s
innovative advantage, leveraging Chinese hesitation to start a trade war with
the United States. Beijing has already attempted to negotiate steel
concessions with the Trump administration to avoid any trade war. While Chinese
companies have sway, they cannot risk hostile trade action from the U.S. that
would put the whole auto market in jeopardy, especially now that China is contemplating
banning internal combustion vehicles altogether.
Finally, Congress should advance a truly ambitious infrastructure bill in line
with tomorrow’s transportation needs. In partnership with the private sector,
it could fund charging stations for electric vehicles across the country,
removing a barrier to domestic sales, and expand hybrid and fully electric
public transportation. Failing to would help put the future of transportation
in Beijing’s hands.
**Ashley Feng is a research associate in the China Studies program at the
Council on Foreign Relations.
****Sagatom Saha is the research associate for energy and U.S. foreign
policy at the Council on Foreign Relations.
****More:
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