VM Interview: "New Energy Vehicles are central to China's strategy"

At the Beijing Motor Show, we met Beatrix C. Keim. She is the Director of Business Development & China Projects at CAR, the Center Automotive Research. Keim studied in China and managed multiple projects on-site for various companies over decades, making her a recognized China expert in the automotive business. She speaks fluent Mandarin and also helped us on-site to interpret a few sentences more accurately and provided us with detailed background knowledge.

VM: China is building and growing at a breakneck pace - isn't there a risk of overheating?

Keim: Fundamentally, China now claims to be a world power due to its resources and industrial production. Especially since the nation has now taken a special place, primarily as an "extended workbench," but also as a general production site for all types of industrial products. This is why production volumes have been massively built up here in the last ten to twenty years, which has led to overcapacity in many areas. Not only in the automotive sector but also in the consumer goods sector and the construction industry. Keyword Evergrande.

VM: One of the largest real estate developers in China that collapsed dramatically. Why did that happen when everything in China is state-planned?

Keim: Because growth and prosperity came very quickly. Industrial production grew massively and quickly, along with wealth and migration. And already in the 1990s, the car rapidly replaced the bicycle, and the private apartment replaced the television or refrigerator.

One has to imagine it like this: China is always modernizing in loops. Simple apartments were quickly followed by more comfortable and larger units, which could quite possibly offer 150 to 200 square meters of living space.

The state also granted generous loans for this. Nonetheless, the whole thing overheated. Sometimes cities were also planned on greenfields, which then became ghost towns as they had hardly any industrial production or transport connections. And: The entire financing was run on credit, assuming practically unlimited growth. But even in China, interest must be served. And when COVID slowed down the world economy, it naturally had a full impact on the Chinese economy.

VM: Which disrupted all the nice plans?

Keim: Correct. Let's take the example of the new-energy start-ups, for which a support plan was set up in 2012 that led to over 500 new companies. In the end, however, only 200 companies were able to apply for a production license from the MIT, which meant that either they had to buy into other, already producing manufacturers, or in the worst case, they had invested a huge amount in research and development but were not allowed to produce anything.

Which led to the development of a new car that never made it to the streets.

Then came Corona and the subsequent focus of the West on regionalizing development and production to become more independent of China again - partly due to fragile supply chains - which of course also had an immediate impact on the Chinese economy. This is why the Ministry of Commerce shifted to a real "cuddle course" to create new investment incentives and collaboration opportunities for Western companies.

VM: Can all this even be planned?

Keim: Not entirely. Because the population could hardly keep up with this growth. Nevertheless: In China, everything has to be approved, including the prominent cooperation between the Volkswagen Group and Xpeng. In the 1980s, the automotive industry was declared a strategically important sector for China, along with railways and aviation.

VM: I would consider the Chinese high-speed rail network to be more innovative than the car models coming to Europe. Even if I look at the entire industry innovation from the perspective of the mobility transition. This also includes New Energy Vehicles.

Keim: We must not have any illusions here: yes, the rail and metro network in the cities has been massively expanded. Of course, it was also about relieving the sometimes completely overloaded roads and improving air quality, but: China cannot get out of internal combustion engine production because it simply cannot afford it!

VM: Why is that? Aren’t a lot of brands and models coming to Europe, especially with electric cars?

Keim: Everything works wonderfully in the megacities of Tier 1 or Tier 2. But there are also Tier 3, 4, 5, or 6 cities. The latter no longer have a million inhabitants, and the infrastructure there is far from ready. Here you can be happy if you find a few gas stations. The "New Energy Vehicles," which include hybrids, plug-ins, fuel cells, and hydrogen drives, are primarily promoted to counter something against the established car countries, which did not succeed with internal combustion engines. Of course, this also advances the climate neutrality of mobility, but primarily it was a politically motivated strategic decision.