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China’s booming EV industry shows the way out of middle-income trap
Anthony W.D. Anastasi
Published: 3:45pm, 2 May, 2023
Robotic arms assemble cars on the production line for Leapmotor’s electric vehicles at a factory in Jinhua, Zhejiang province, on April 26. Photo: Reuters
China’s rise as a producer and net exporter of cars has been as impressive as it has been rapid. Despite making traditional fossil-fuel-powered vehicles, China’s success can be found in its electric vehicle (EV) producers.
This is important for China at this moment. Of course, there are environmental reasons, yet there are important economic development reasons as well. The automotive industry is considered a late industry, meaning the technological and industrial requirements for building the industry are quite high and hard to achieve, which translates into the ability to extract more profit from exchange.
Creating late industries which generate high profits, such as the automotive industry, is essential for countries that want to graduate to high-income status and avoid the middle-income trap. This raises the question of whether China’s EV industry is its ticket out of the middle-income trap.
First, what is the middle-income trap? According to a report published by the World Bank and the China State Council Development Research Centre, 101 of the 114 countries at middle-income status in 1960 were still there by 2008. Therefore, during about 50 years, just 13 countries were able to make the transition to high-income status.
Policymakers in middle-income countries such as China should ask why the transition is so difficult. As middle-income countries develop, their wages grow higher, making them less competitive in low-value-added industries such as textiles.
For countries to avoid a situation where they are stuck in low-value-added industries, with increasingly uncompetitive wages, they must upgrade their industries to compete in these late industries. Judging by how few nations have graduated to high-income status, this is clearly a difficult feat, as it is hard to acquire the technological know-how to compete in these industries.
China’s largest shipment of electric vehicles sets sail from Shanghai port
Looking at the successes of two of China’s East Asian neighbours, Japan and South Korea, we can see that their automotive industries played a large role in their industrial upgrading and economic development. Both Japan and South Korea are among the “breakout” cases, meaning they have successfully avoided the middle-income trap.
However, China faces very different challenges today, not least the global economic conditions. The automotive industries built by Japan and South Korea that helped them avoid the middle-income trap were based around traditional fossil-fuel-powered vehicles, and it would be foolish to believe that building the same industries in today’s world would yield similar results.
This brings us to why the EV market is so important. Globally, it was worth an estimated US$205.5 billion in 2022 and is expected to expand to about US$1.7 trillion by 2032. Companies that carve out a dominant position will be able to extract large profits well into the future.
China is the world’s largest EV market and EV producer, and the world’s second-largest exporter of cars. Chinese car exports held relatively steady from 2009 to 2020 before spiking in 2021, growing by more than 450 per cent from the first quarter of 2021 to the first quarter of 2023. China’s rise as an exporter of cars has been a surprise to many. How has Beijing been able to pull it off?
There are many factors contributing to the success of the Chinese EV industry. First, Beijing has made significant investments in the industry through subsidies, tax incentives and infrastructure development. This has helped spur innovation and growth.
Additionally, Chinese EV manufacturers have been able to leverage their domestic market advantage to gain a foothold in the global market. Many of these companies have focused on developing affordable, high-quality EVs that appeal to a broad range of consumers.
One notable example is the Chinese EV manufacturer BYD, which has captured a significant share of the global market by offering a range of affordable, good-quality vehicles. In 2022, BYD sold more EVs than any other carmaker in the world.
Another key factor in the Chinese EV industry’s success is the rapid development of battery technology. Chinese companies have made significant advancements in this area, leading to increased range and improved performance. This has helped address one of the biggest concerns of buyers: the limited range of electric vehicles.
Looking to the future, the Chinese EV industry is poised for continued growth and success. As the demand for EVs continues to rise, Chinese companies are well positioned to meet this demand with their innovative and affordable products.
So will China’s EV industry enable it to avoid the middle-income trap? Yes and no. China’s economy is vast, and a single industry does not have a large enough influence on the country’s GDP per capita to the point where it can reach high-income status.
Yet, if we view the success of China’s EV industry as a single chapter in a much longer story of China’s economic development, we see that China is well positioned to break into late industries. If this success continues in other hi-tech, high-profit-generating industries, then we could safely say that China is on its way to high-income status.
www.scmp.com
- Creating advanced industries which generate high profits is essential for countries that want to graduate to high-income status
- While one industry cannot sufficiently influence China’s GDP per capita, its success in the EV sector is just the kind of progress needed for a prosperous future
Anthony W.D. AnastasiPublished: 3:45pm, 2 May, 2023
Robotic arms assemble cars on the production line for Leapmotor’s electric vehicles at a factory in Jinhua, Zhejiang province, on April 26. Photo: Reuters
China’s rise as a producer and net exporter of cars has been as impressive as it has been rapid. Despite making traditional fossil-fuel-powered vehicles, China’s success can be found in its electric vehicle (EV) producers.
This is important for China at this moment. Of course, there are environmental reasons, yet there are important economic development reasons as well. The automotive industry is considered a late industry, meaning the technological and industrial requirements for building the industry are quite high and hard to achieve, which translates into the ability to extract more profit from exchange.
Creating late industries which generate high profits, such as the automotive industry, is essential for countries that want to graduate to high-income status and avoid the middle-income trap. This raises the question of whether China’s EV industry is its ticket out of the middle-income trap.
First, what is the middle-income trap? According to a report published by the World Bank and the China State Council Development Research Centre, 101 of the 114 countries at middle-income status in 1960 were still there by 2008. Therefore, during about 50 years, just 13 countries were able to make the transition to high-income status.
Policymakers in middle-income countries such as China should ask why the transition is so difficult. As middle-income countries develop, their wages grow higher, making them less competitive in low-value-added industries such as textiles.
For countries to avoid a situation where they are stuck in low-value-added industries, with increasingly uncompetitive wages, they must upgrade their industries to compete in these late industries. Judging by how few nations have graduated to high-income status, this is clearly a difficult feat, as it is hard to acquire the technological know-how to compete in these industries.
Looking at the successes of two of China’s East Asian neighbours, Japan and South Korea, we can see that their automotive industries played a large role in their industrial upgrading and economic development. Both Japan and South Korea are among the “breakout” cases, meaning they have successfully avoided the middle-income trap.
However, China faces very different challenges today, not least the global economic conditions. The automotive industries built by Japan and South Korea that helped them avoid the middle-income trap were based around traditional fossil-fuel-powered vehicles, and it would be foolish to believe that building the same industries in today’s world would yield similar results.
This brings us to why the EV market is so important. Globally, it was worth an estimated US$205.5 billion in 2022 and is expected to expand to about US$1.7 trillion by 2032. Companies that carve out a dominant position will be able to extract large profits well into the future.
China is the world’s largest EV market and EV producer, and the world’s second-largest exporter of cars. Chinese car exports held relatively steady from 2009 to 2020 before spiking in 2021, growing by more than 450 per cent from the first quarter of 2021 to the first quarter of 2023. China’s rise as an exporter of cars has been a surprise to many. How has Beijing been able to pull it off?
There are many factors contributing to the success of the Chinese EV industry. First, Beijing has made significant investments in the industry through subsidies, tax incentives and infrastructure development. This has helped spur innovation and growth.
Additionally, Chinese EV manufacturers have been able to leverage their domestic market advantage to gain a foothold in the global market. Many of these companies have focused on developing affordable, high-quality EVs that appeal to a broad range of consumers.
One notable example is the Chinese EV manufacturer BYD, which has captured a significant share of the global market by offering a range of affordable, good-quality vehicles. In 2022, BYD sold more EVs than any other carmaker in the world.
Another key factor in the Chinese EV industry’s success is the rapid development of battery technology. Chinese companies have made significant advancements in this area, leading to increased range and improved performance. This has helped address one of the biggest concerns of buyers: the limited range of electric vehicles.
Looking to the future, the Chinese EV industry is poised for continued growth and success. As the demand for EVs continues to rise, Chinese companies are well positioned to meet this demand with their innovative and affordable products.
So will China’s EV industry enable it to avoid the middle-income trap? Yes and no. China’s economy is vast, and a single industry does not have a large enough influence on the country’s GDP per capita to the point where it can reach high-income status.
Yet, if we view the success of China’s EV industry as a single chapter in a much longer story of China’s economic development, we see that China is well positioned to break into late industries. If this success continues in other hi-tech, high-profit-generating industries, then we could safely say that China is on its way to high-income status.
Opinion | China’s booming EV industry shows the way out of middle-income trap
Creating advanced industries which generate high profits is essential for countries that want to avoid the middle-income trap. While one industry alone cannot lift China to high-income status, its success in the booming EV sector is just the kind of progress needed to secure a prosperous future.
www.scmp.com
