Australia is in a tense stand-off with China. But nobody told Australia’s car buyers who are gobbling up Chinese imports at a rate never before seen.
The phenomenon shows just how broad the Chinese economic relationship with Australia has become, and how hard it will be for either side to fully untangle itself, even as political relations become dangerously rocky.
China has rapidly developed it automotive sector, following in the footsteps of its east Asian neighbours Japan and Korea. The country is home to dozens of marques, several of which are proving very successful in Australia.
As the next graph shows, sales of Chinese cars are up 40% this year, while sales of German cars are down 30%.
For now, the absolute number of cars sold is moderate. Imports of Chinese cars to Australia are just under 16,000 — less than 10% of Japan’s sales volumes (188,000) and a quarter as many as Korea (77,000).
But the Chinese domestic car market is the biggest in the world — 21 million cars were sold last year. As domestic demand in that country dips during coronavirus, expect more to leak into the global market.
From a buyer’s perspective, the appeal of a Chinese car is blindingly obvious. You drive off the lot with much more money left in your pocket.
MG was once Morris Garages, based in Oxfordshire, but is now owned by SAIC Motor Corporation Limited, a Shanghai-based company owned by the Chinese state. After early unsuccessful export forays with the Chery and Great Wall brands, China has grabbed a couple of foreign brands to help ease the way for its exports.
China’s car industry has been open to foreign help for ages. As early as 1984, under the influence of leader Deng Xiaoping, China welcomed Volkswagen to the country.
VW established a joint venture in Shanghai and hasn’t looked back. It is the top-selling brand in the country with more than twice the market share of the second-placed Honda.
Foreign investment and know-how have meant China’s car industry has leapt ahead quickly. China had eight cars per 1000 people in 2003. It now has 188. (Australia has 730, Hong Kong has 92.)
China leverages foreign intellectual property to this day. As well as MG, it owns another once-famous British marque, LDV. If you find yourself behind an LDV in traffic these days you can be sure it is made in China and fully Chinese-owned.
Volvo is Chinese-owned too, by Hangzhou-based automotive conglomerate Geely. Geely makes some Volvos in China. Buy a luxury European car and there’s a chance it is made in China — although Volvo Australia doesn’t make it easy it find out precisely where its cars are made. Tesla has also opened a factory in China.
Making cars in Asia is certainly not a new move for the global automotive industry. Australia’s second biggest source of cars is Thailand, despite Thailand not having recognised brands. So we can expect a great flow of Chinese cars to Australia, at least so long as the economic relationship is not torn apart by the political.
The dramatic deterioration in the relationship between Australia and China comes on top of the politicisation of several Australian exports. Beef, barley and wine exports have all been in dispute. Education too.
China’s President Xi Jinping seems to have taken a leaf out of the book of US President Donald Trump and is antagonising trade partners, a major break with Chinese practice. But China is not America. It is a low-middle income country with a dependence on exports for growth. (America, meanwhile, has the lowest trade-to-GDP ratio of any country.)
This is why Chinese car exports are so interesting. The history of the Chinese car industry is an illustration of its dependence on the rest of the world for its progress. China has arguably saturated its domestic market; its cities are very dense and its roads are beyond clogged.
For now, China exports only 3% of its car production, but if it wants its economy to keep growing it will need to export more.
Australia’s modest but fast-growing Chinese car market represents part of a huge opportunity for China to make its economy stronger.
We need to recognise that we are not just takers of cheap Chinese cars. We’re important to China’s economic development — and economic development is the source of legitimacy for the Chinese government.
In the great geopolitical game we may be small — but we’re not bereft of leverage over China.