The automotive industry is a driver of technological progress, industrial strength, and a strategically vital sector for developed economies. As a central pillar of Europe’s economy, it provides employment to 13.8 million people, accounting for around 7%
of total EU employment. In Germany, the sector contributes roughly 5% of GDP and supports more than 800,000 jobs. Cars have long ceased to be mere mechanical means of getting from point A to point B. In today’s world, they are technologically advanced, mobile digital computers. Accordingly, in Germany—the European leader in the sector—automotive manufacturing also leads in research and development investment, accounting for 37%
of the country’s total R&D expenditure.
The development of the automotive industry inevitably stimulates related sectors—metallurgy, chemicals, electronics, software, and artificial intelligence. Control over automotive technologies in the current landscape ensures technological sovereignty and enables the setting of rules for global trade. Europe understands this. It also recognises that China—the leader in the electric vehicle race—has surged far ahead, in part thanks to the very European automotive companies that once helped it develop. Now, it appears, Europeans hope to adopt the very set of measures that China successfully implemented over several decades—a framework that opened Europe’s access to the once-closed Chinese market, stimulated EU foreign direct investment in China, and enabled Chinese firms to acquire coveted European technologies.
The history of China’s automotive industry is unique. Deng Xiaoping’s pragmatic policies, pursued under the motto “It doesn’t matter whether a cat is black or white, as long as it catches mice”, were aimed not only at opening China’s economy to the outside world, but, more importantly, at developing domestic industry through the transfer of technology and managerial expertise from foreign firms to Chinese partners. Initially an outsider in automotive manufacturing—in 1980, total vehicle output stood at only around 5,000 units, and by 1990 China had fewer than ten car manufacturers—the country rapidly transformed itself into a global automotive leader thanks to a strict localisation policy.
What lessons can be drawn from this history? First, in the early 1980s, special economic zones were established, offering tax incentives, simplified bureaucracy, flexible labour policies, and encouraging the creation of joint ventures designed to transfer skills and knowledge to domestic industry. Foreign ownership was capped at 50% in order to protect local producers. Second, as incomes rose, demand for passenger vehicles surged, leading to a flood of imports. To shield the fragile domestic industry, tariffs were set as high as 250%. Third, in 1994, China’s National Development and Reform Commission introduced an automotive policy encouraging state-owned enterprises to partner with international manufacturers in joint ventures. Later, in 2001, China joined the WTO and, to meet its obligations, gradually reduced tariffs on imported vehicles to 25%
over a five-year transition period. Contrary to Western expectations, however, the share of imported cars did not increase, but instead fell further—from around 6% in 2001 to 3% in 2006—thanks to a combination of tariffs, import quotas, and expanding domestic capacity. From that point on, it has remained at this level.
Finally, in 2001, China placed a strategic bet on electric vehicles, incorporating the necessary technologies into its five-year plan as a priority research area. Today, Chinese companies such as BYD and NIO dominate the global electric vehicle market. Even the pandemic did not hinder the steady growth of China’s automotive industry—on the contrary, it strengthened the country’s position in its ambition to become a global leader in the climate agenda.
The Valdai Discussion Club was established in 2004. It is named after Lake Valdai, which is located close to Veliky Novgorod, where the Club’s first meeting took place.
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