The Chinese economic unravelling is creating other problems for the rest of the world. Falling domestic demand is forcing Chinese industries with unused capacity to turn to exports at scale. Automobiles is one such industry, especially gasoline powered cars.
“Overall exports of Chinese goods, everything from furniture to consumer electronics, slumped 5.5 percent in the first eight months of this year, according to data released on Thursday. But China’s car industry has quadrupled exports in just three years, surpassing Japan this year as the world leader. This year, exports of cars surged 86 percent through July.”
The consumption slowdown is exacerbated by Chinese preference of electric cars:
“Chinese households’ appetite for spending — on new cars and almost everything else — has waned as real estate prices have fallen. Consumer confidence has shown few signs of recovering even after the lifting of nearly three years of stringent “zero Covid” policies.
When Chinese households buy cars, they increasingly choose electric vehicles from local manufacturers, which lead global production of EVs. The result is an immense supply of gasoline-powered models that Chinese consumers no longer want but that still sell abroad.
Chinese carmakers are stuck with unused factory capacity to build about 15 million gasoline-powered cars a year. They have responded by sending more than four million cars this year to foreign markets, at bargain prices.”
And China has a competitive advantage:
“Steel and electronics used in cars are cheap in China, giving automakers here an advantage. Local governments in China also give the companies nearly free land, loans at near-zero interest and other subsidies.
After years of quality gains and technology improvements, Chinese cars, even ones with out-of-fashion combustion engines, are turning heads at industry events like the Munich auto show this week.”
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