From Shanghai with an E-Vehicle

How China is transforming global economy before our eyes

Shanghai is currently hosting its 20th International Auto Show. This year's Auto Shanghai, held from April 18 to 27, puts the spotlight on vehicles powered by alternative energy sources. These include electric cars, cars powered by hybrid engines, or by hydrogen fuel cells. But the main focus is on EVs: the auto show features some 100 new car models, out of which 70 are EVs.

The name of Tesla, a US-based manufacturer of electric cars, has long become a familiar household name. And yet far fewer people may be aware that China has been the world's largest market for electric vehicles for the last eight years. And while Chinese car brands may account for only 15% of all global car market sales, China's EVs generate more than 50% of the sales revenue worldwide. The country currently produces 39 different EV brands.

Today, it is not the US or Europe who are leading the way in creating environmentally friendly vehicles, one of the most important sectors of the global economy of the future.

It is China that has the absolute lead in this sector, hands down.

The dramatic breakthrough in the development of the nation's automotive sector took place in a space of time that is just a tad longer than one decade. While China saw less than 500 electric cars being sold back in 2009, nearly 7 million of them are now sold there every year. Just over the past couple of years, the country's annual sales of passenger EVs have grown from 1.3 million to 6.8 million units.

China has been able to exploit the potential of state regulation of the market to its advantage with great success. Between 2009 and 2022, combined government subsidies and tax breaks for EV manufacturers amounted to more than USD 29 billion. Early on, the government additionally supported manufacturers by giving them orders to produce vehicles, primarily to help boost the development of the nation's public transport system by transitioning to electric buses and electric cabs.

As a result, China has managed to ride the wave of technological transition in the transportation sector that had just been getting off the ground (for example, Tesla had been founded as recently as in 2003) and, practically overnight, from a historical point of view, become the global leader of a nascent industry. And so, the expectation is that it is China who will be the principal beneficiary of the zero-carbon transportation industry over the next 30 to 40 years.

Zero-carbon transition: getting ahead of the pack 

In some form or another, most countries have already committed to achieving Net Zero carbon neutrality by 2050 or by 2060, either by issuing a declaration to that effect or by passing full-fledged legislation. Among these countries are China, the United States, Russia, India, the European Union, Brazil, South Africa, and Japan.

In reality, however, transitioning to a "carbon-free world" may take different routes. Some will be able to enjoy an easier and faster transition, while others will have to make considerable sacrifices and it may take them longer to make this happen than they might have originally hoped. But it is already obvious that this goal has been embraced by the international community in full earnestness and for the long haul, and that, as a result, no country in the world will be able to evade the profound transformation of their economies, policies and ways of living that such a transition will precipitate. What is also quite clear is that this challenge cannot be addressed without transitioning to environmentally clean modes of transport.

EVs are becoming a major factor in countries' pursuit of maintaining their international competitiveness and political prestige.

China intends to take a leadership role in the field of transportation. The country's government plans to make its entire vehicle fleet completely "green" by 2035.

BloombergNEF's Electric Vehicle Outlook 2021 is predicting that sales of passenger EVs will grow dramatically over the next few years. Sales will rise from 3.1 million in 2020 to 14 million in 2025, or perhaps even sooner than that: in 2021, that number was already at 12 million.

In 2025, 14 million passenger EVs will account for 16% of global passenger car sales, but in some countries this share will be much higher. For example, Germany's electric cars will account for nearly 40% of overall sales by 2025, whereas in China, the world's largest car market, this share will be at 25%.

Meanwhile, China is consolidating its leadership in the renewable energy sector. According to BloombergNEF, there were a total of 260 gigawatts' worth of solar panels installed globally in 2022, of which one-third (with the capacity of 87.4 gigawatts) were installed in China.

In all, China has invested USD 273 billion in renewable energy in 2022, or 55% of the USD 495 billion invested in renewable energy globally. China's "solar farms" accounted for USD 164 billion of the USD 308 billion invested in the sector worldwide.

China's clean future

For China, the challenge of transitioning to clean transport and energy is a matter of fundamental importance. As one of the most populous countries in the world, with a huge urban population and an advanced manufacturing industry, China has been beset by a host of grave environmental issues. A lot of that has to do with poor air quality, negatively affected by traffic emissions.

That said, China is one of the world's leaders in terms of the pace of improvements to its air quality. According to Clean Air Asia, an international NGO headquartered in Manila, the Philippines, average annual concentrations of PM2.5 (suspended particulate matter and finest droplets of fluids ranging from 10 nm to 2.5 μm in diameter) and sulfur dioxide in China dropped by about 56% and 78%, respectively, between 2013 and 2021.

What is driving these rapid improvements is not only the ongoing shift to electric vehicles, but also a generally more exacting approach to conservation. However, the impact of increased use of electric vehicles on dealing with the challenge of improving the quality of air in China's megacities, where the transition from fossil fuels to RES will affect not only passenger cars and public transport, but also the country's still-popular two- and three-wheelers, will only be growing going forward.

Today's China is an impressive demonstration of what a country can achieve in a span of only 10 to 15 years if it takes a strategic approach to state regulation of its markets and makes skillful use of its competitive advantages.

One such advantage is China's absolute dominance in the field of rare-earth minerals mining (it holds 36.7% of all global reserves) and, accordingly, in advancing battery technologies that could account for up to 40% of the cost of an EV.

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