德國(guó)汽車(chē)制造商在中國(guó)的坎坷道路-2023-04-市場(chǎng)解讀

October27,2022GregorSebastianMERICSMercatorInstituteforchinastudiesGermany’scarmakersandpolicymakersshareaninterestinthelong-termsuccessoftheGermanautomotiveindustry.However,theyarenolongeralignedonhowbesttoachievethisgoalandtocalibrateexposureandentanglementwithChina.GermancarmakersaredeepeningtheirintegrationintoChina'sinnovationsystem.ByestablishingpartnershipswithChinesetechcompaniesandincreasinginvestmentintoresearchanddevelopment(R&D),theyaretryingtoretaintheirmarketsharesinChina'semergingelectricvehicle(EV)market.Forsometechnologies,Germancarmakersaremovingawayfroma“inChina,forChina”R&Dstrategytowhatcouldbecomean“inChina,fortheworld”one.TheyareincreasingtheirproductdevelopmentandresearchactivitiesinChinanotjustforthelocalmarketbutfortheglobalone,too.TheirnewChinainvestmentscouldhelpGermancarmakersremaingloballycom-petitiveandevenoutpacetheirrivals.However,thepoliticalandgeopoliticalcircum-stancesofthelast30yearswithregardtoChinahavechanged,andtheirdeeperintegra-tionnowtakesplaceinaradicallydifferentenvironment.ThenewChinainvestmentsofGermancarmakerscoulddisrupttheirstrategicalignmentwiththeircountry’spolicymakers.Whiletheinvestmentscouldhelpthemretaintheirglobalcompetitiveness,thesemightalsobenefitChina’seconomymorethanGermany’s.GermancarmakersareinabindbetweenholdingbackonfurtherinvestmentsinChinaandpotentiallylosingglobalcompetitiveness.AgreaterentanglementinBei-jing’sgoalscanpotentiallyalienatekeystakeholdersincludingingovernmentandcivilsocietyaswellasinvestors.Underthesecircumstances,Germany’sgovernmentshouldreconsiderthelogicofwhathascometobecalledautomotiveforeignpolicy.Goingforward,whatisgoodforGermancarmakersinChinamightnotbegoodforGermany(andEurope).Policymak-ersshouldassessthenewrealitiesandfine-tunegovernmentsupportmechanisms,suchasinvestmentguarantees,forthelong-termbenefitoftheGermaneconomy.InvestmentguaranteesHigh-levelbusinessdelegationsPublicpolicysupportOutboundinvestmentscreeningTransparencyrequirementsMoreselectiveinvestmentguaranteesDiversificationPromotionofinvestmentguaranteesContinuedpoliticalsupportUntilrecently,GermancarmakersinChinaenjoyedstrongpoliticalsupport.Withinthepastyeartidespolicyhasyettocrystallize.ThedeepentanglementofGermany’sautomotivecompaniesinChinahaslongbeenamaindriverofBerlin’sChinapolicy.CEOsofGermancarmakershavebeenfrequentparticipantsingovernment-organizedtripstoChina.All-cabinetgovernmentconsultationswereusedtoshapecorridorsforfuturecooperation,forinstance,onautonomousdriving.Germany’sgovernmenthasfrequentlylobbiedonbehalfofthecountry’sautomotiveindus-tryandusedforeigneconomicpolicytoolstocreateasupportiveenvironment.ThelogicforthishaslongbeenthatwhatisgoodforGermancarmakersinChinaisalsogoodforGerma-ny(andEurope).Afterall,inGermanytheautomotivesectoraccountsfornearly10percentofGDP,40percentofresearchanddevelopment(R&D)spendingandemploys800,000peopleinmanufacturing.However,thecombinationofamoreassertiveChinaandemergingChinesecompetitioncreatenewrisksforthislong-standingsymbioticrelationship.Whilethereisalotofun-certaintyintheirboardrooms,Germany’scarmakersstillwanttoincreaseinvestmentanddeepentheirR&DfootprintinChina.Meanwhile,manypolicymakersincreasinglyhigh-petitioncreatelightgrowingeconomicdependencies,humanrights,andgeopoliticalconcerns,oftenwithanundercurrentoffearthatEuropecouldloseitsindustrialcompetitiveness.Governmentandcarmakersstillshareaninterestinthelong-termsuccessoftheautomo-tiveindustry.Butstrategicalignmentonhowbesttoachievethisgoalandtocalibrateex-posureandentanglementwithChinaisnolongeragiven.Concernsaboutthecountryareproliferating.China’srecenteconomiccoercionofLithuaniabyseveringitstraderelation-ship,GermanyandChina’sdivergingviewsofRussia’sinvasionofUkraine,andconcernsrelatedtothehumanrightssituationinChinaandthefutureofHongKongorTaiwanareissuesthatcannotbesweptunderthecarpet.ThechangedpoliticalclimateinGermanyisalreadyaffectingcarmakers’Chinainvest-ments.InMay2022,thegovernmentdeniedVolkswagen’srequesttoprolongtheinvest-mentguarantees–aformofpoliticalriskinsurance–forsomeofitsChinainvestments,duetothepossibilitythatthiscouldsupporthumanrightabuses.1Furthermore,consid-eringthevulnerabilitiesexposedinGermany’srelationswithRussia,politicianshavebecomemorevocalincallingoncarmakerstodiversifyawayfromandtoreducetheirde-pendenceonChina.2TheshiftinSino-GermanrelationshasnotgoneunnoticedbyGermany’sthreebigcarmak-ers:BMW,Mercedes-Benz,andVolkswagen.Theydebatethetopicinternallyandtheirman-agersareawareofthechallengesintermsofbusinessoutlookandpoliticalenvironment.Nevertheless,thesecompaniesaredoublingdownontheiralreadysubstantialinvestmentsinChina.Astheyrapidlylosetothecountry’semergingelectricvehicle(EV)companies,andasglobalhigh-techdecouplingtendenciesbecomemorepronounced,thethreecar-makersseemtoconsidergreaterlocalpresencearationalresponse.VolkswagencallsChina“thesecondhomemarket.”3InJunethisyear,BMWopeneditsfourthfactoryinthecountrywhileAudi’snewjointventure(JV)withFAWbrokegroundonitsplantinChangchun.4Germany’sautomotiveinvestmentstockinChinaincreasedby65percentbetween2015and2020tototalEUR33.6billion.5ChinaisalsotheexceptiontothetrendofGermany’sfallingautomotiveFDI:withoutit,Germany’stotalautomotiveFDIstockwouldhavefallenbyEUR5.8billionoverthesameperiod.6Carmakersarethekeyplayerstowatchinthisstory,astheyhaveanoutsizedroleininvestmentrelations–whentheysetupnewplants,thesuppliersusuallyfollow.TheinvestmentdecisionsofthethreecarmakersarebynomeansjustanissueforGerma-ny.Thecountry’sautomotivesectoristhecenterpieceinEU-Chinaeconomicrelations.In2021,itsinvestmentaccountedfor42percentofEUFDIinChina.Atthesametime,theindustrylosingglobalmarketshareswouldhavesevereimplicationsformanufacturingnetworksthroughoutEurope,duetothecross-bordernatureofitsvaluechain.Exhibit170605040302010016,00014,00012,00010,0008,0006,0004,0002,0000Itwouldbeeasytoblamethecarmakersfortheslowunravelingoftheindustry’sstrategicalignmentwithatleastsomestakeholdersinthegovernmentasaresultofblindlypursuingshort-termprofitandignoringpoliticalchangeinChina.Buttheissueismorecomplex.Chi-naisnotonlyasalesmarketforGermany’scarmakers;ithasbecometheworld’sleadingEVmarket,anditmaywellbethelinchpinfortheirglobalcompetitiveness.Inotherwords,successinChinacouldbeinstrumentaltosecureprofitsforreinvestmentandmaintainthestrengthofGermancompaniesintheirhomeandthirdmarkets.ThisreportprovidesanassessmentoftheGermancarmakers’caseformoreinvestmentinChina,aswellasananalysisoftheopportunitiesandrisksthatarisefromdeepeningtieswiththecountryforthemandthegovernment.China’sautomotivemarkethasbecomeincreasinglyinnovativeandcharacterizedbyhome-growntechnologicaladvances.ThathasputtheGermancarmakersonthebackfoot.Tore-taintheircompetitiveness,theybelievetheyneedtotapintoChina’sinnovationecosystemanddeepentheirinvestmentfootprintinthecountry.ThemostsignificantfactorcontributingtothisemergingreversaloffortunesisChina’sriseastheworld’sleadingmarketforEVs.Over55percentofallEVsdriveonChineseroads,7andoneoutoffournewcarssoldinChinaispoweredbyanelectricbattery.8Atthesametime,thecapitalinjectionsofGermancarmakersarenowalsofocusedonproducinganddevelopingEVs.Investmenttrend1:GreaterautonomythroughmoreequityChina’sgovernmentbelievesthatitscarmakersarereadytobenefitfrominternationalcompetitionanditsupportsforeigninvestmentsinitsEVsector.Hence,ithasrelaxedre-strictionsonforeigninvestment,whichhasallowedGermancarmakerstoincreaseequitystakesintheirChinesejointventures.Theyhavebeeneagerlymakinguseofthesepolicychangestoincreasetheirprofitmarginsanddecision-makingpower.PrimeexamplesincludeBMWincreasingitsequitystakeinitsJVwithBrillianceAutomo-tivefrom50to75percentforEUR3.7billionandVolkswagenenteringintoaJVwithJACMotor.ThelatterisentirelyfocusedonEVproductionanddevelopment,withVolkswagenhavinga75percentmajoritystake(italsohasa50percentstakeinJACMotorsparent,JACGroup).Investmenttrend2:TransformChinaintooneoftheirautomotiveR&DhubsThebiggestchangeinGermancarmakers’investmentpatternsinChinaisthattheyarechannelingsignificantamountsintolocalR&D.Volkswagen’ssoftwaresubsidiary,CARIAD,isnowlocatedinBeijing,makingitthecompany’sfirstnon-EuropeanR&Dhub.Plansarenelingsignificantafoottodoublecurrentemployeenumbersto1,200by2023,withthen-CEOHerbertDiessamountsintolocalinJuly2022forecasting“severalthousandmoresoftwarepeopleinChina”inthecomingyears.9Mercedes-Benzisspendingheavilyonitsnew55,000sq.m.ChinatechcenterinBeijing–almostdoublethesizeofitsrecentlyopenedbatterye-CampusinStuttgart(seeExhibit2).Inpreviousdecades,Germancarmakersonlyundertookminimalresearchinthecountry.Fearingtechnologyleakage,theylocatedaslittledevelopmentaspossibleinChina,forinstance,tobuildslightlylongerandmorecomfortablecarsforChinesecustomers.Now,theirgreaterworryistofallfurtherbehindChinesecompetitors.ThedayswherenearlyallcoreproductdevelopmenttookplaceinMunich,Stuttgart,orWolfsburgareover.Investmenttrend3:TapintoChina’stechnologyecosystemInadditiontoR&Dinvestments,thethreecarmakersarealsolookingforpartnersinChina’stechnologyecosystem.Theywanttopairtheirhardwareknow-howwithChinesesoftwareskillsthroughdevelopmentpartnerships.Exhibit2withChinesefirms121086420(Until)20152016201720182019202020212022+AspartofwhathasbeendescribedasGermany’s“automotiveforeignpolicy,”thegovern-menthadsignaleditssupportforsuchtechnologypartnerships.10Today,allthreecarmakerscollaboratewithBaidu,whileBMWhasalsoformedaJVwiththeChinesesoftwaredevelop-erArchermind.Moresuchcollaborationsarelikely–forexample,BMWandAlibabaCloudarerunningajointinnovationbaseinShanghaiwiththeaimto“scouthigh-potentialstart-upstomatchtheirinnovativesolutionswithBMWGroup’sneeds.”11Forthemoment,thesepartnershipsarefocusedonanarrowsetoftechnologies:batteriesanddigitalsolutions.Non-ChinesefirmslikeBoschandQualcommremainkeysuppliersofmostotherhardwarestacksfortheGermancarmakers.ButChinesepartnersareclear-lybecomingmoreintegraltotheirproductdevelopment(EVbatteriesand,prospectively,semiconductors).Atthesametime,someChinesepartnerslikeBaiduarestartingtoenterthecarbusinessthemselves,makingthempotentialrivalstoo.Investmentmotivation1:StaveoffpressurefromChinesecompetitorsAkeyreasonbehindthispatternofchanginginvestmentsandpartnershipsisthatGermancarmakerswanttofendofftheirbiggestcrisisyetinChina.Theyhaverecentlybeencaughtoff-guardbyseverelossesinmarketshareinthecountryasconsumersturntobuyingEVs.TheirmarketsharesinChinaandEVsalesthereareinverselyrelated–themoreEVsthataresold,thelowertheirmarketshare.IntheperiodfromJanuarytoMay2022,itwasdown24percentcomparedtothesameperiodin2020(seeExhibit3,Exhibit4).Exhibit32520151050Apr'17Apr'18Apr'19Apr'20Apr'21Apr'17Apr'18Apr'19Apr'20Apr'21Apr'22Exhibit4108642011.3%11.3%3.5%.DomesticcompanieshavebeenthemainbeneficiariesoftheshifttoEVsintheChinesemarket.Amongthetop15EVproducersinChina,onlyfourcanbeconsideredtohaveforeignownership.In2021,BMWandMercedes-Benzhadmarketsharesoflessthan0.3percentinChina’sEVmarket,havingsoldfewerthan10,000unitseachinamarketof3.3millionunits.Volkswagenfaredbetterbutstillonlyhada3.7percentshareoftheEVmar-ket,comparedto11.3percentoftheoverallmarket(seeExhibit5).Exhibit5252015105029.3%TheweaknessofGermancarmakersinChina’sEVmarketseemstohaveitsrootsinalackofsupplyanddemand.Onthesupplyside,BMW,Mercedes-BenzandVolkswagenonlystart-edtoofferEVmodelsinChinaveryrecently,andwhentheydidsotheyfailedtoconnectwiththeyoungerandmoretech-focusedChineseconsumerswhopreferTeslaanddomesticalternatives.BMW,Mercedes-Benz,andVolkswagenhavebecomeaccustomedtohighChinarevenues,withroughlyafifthoftheirglobalrevenueoriginatinginthecountry.12ButtheirChineseEVcompetitors,withheavygovernmentsupport,willeatnotonlyintotheirChinamarketshares,butalsointotheirglobalones.Usingthisdomesticadvantage,companieslikeBYDhaveagoodshotatbecominginternationallysuccessful.Investmentmotivation2:LeverageChina’sinnovationecosystemgloballyTheGermancarmakersarelookingbeyondthecurrentcrisisandwanttointegratethem-selvesintoChina’sattractiveR&Dandtechnologylandscapetotakeadvantageofthefol-lowingfivefactors.China’sEVsupply-chaindominance:Throughindustrialpolicyandmassivestatefinancing,ChinahasextendeditscontrolovertheentireEVsupplychain(seeExhibit6).ThismakesitextremelyattractiveforGermancarmakerstosetupR&Dcenterstocollabo-ratewithleadingChinesecompaniesintheEVsupplychain,justastheyhavebeendoingwiththeirinternalcombustionenginesuppliersinGermany.Exhibit6components(2021)ManufacturingBatterycellmanufacturingcapacityElectrolytesSeparators ManufacturingBatterycellmanufacturingcapacityElectrolytesSeparators Lithium90%78%62%66%85%Rawmaterialrefining90%40%59%68%73%Batterycomponents0%Governmentsupportforinnovation:Chinacurrentlyspends2.44percentofGDP13onR&D(morethantheEUaverage)andhasplanstoincreasethisby7percentannu-allyuntil2025.Thecountry,havingpioneeredthelarge-scaleadoptionofEVpurchas-ingsubsidiestofuelinnovation,plansnowtomovefromastate-toamarket-drivenEVsectorbyphasingoutsubsidiesnextyear.Aspartofabusiness-to-governmentdata-shar-ingscheme,China-basedEVmanufacturersarerequiredtosharemechanicaldata–forinstance,ondrivingperformance–thatfirmsandresearcherscanaccess.14GovernmentsupportforAIinnovationalsogreatlyincreasestheinnovationcapacityoflocalfirmsandtheattractivenessofChina-basedR&Dactivities.15Adynamicmarketenvironment:ChinaleadstheworldinthenumberofavailableEVmodels.Chineseconsumerscanchoosebetween298models,whichis62percentmorethaninEuropeand373percentmorethanintheUnitedStates.16Collaborationopportunities:ThereareareaswheretheGermancarmakerscanlearnfromChinesecompanies.17WhiletheyarestilltryingtocatchupinEVs,theirChinesecompetitorshavemovedontofocusmoreondigitalsolutions.TechgiantslikeBaiduandXiaomihaveenteredtheEVsectorandbringwiththemacultureoffasterdevelop-mentcycles.Cardevelopmentnowtakestwotothreeratherthanfourtofiveyears.18Localgovernmentsupport:China’slocalofficialsviefortheattentionofmultinationalcompaniesbyremovingregulatorybarriersintechnologydevelopment.Thisismostpro-nouncedinautonomousdriving.In2018,Volkswagen-ownedAudiannouncedanewR&DandtestingcenterinWuxi,inJiangsuprovince,becauseofadvantageouslocalcon-ditionsforautonomousdrivingtesting.Aspartofitsresearch,AudiistightlyembeddingitselfinWuxi’stechecosystemandnowpartnerswiththeprovince’sMinistryofPublicSecurity,theWuxiPolice,Huawei,HorizonRobotics,andChinaMobile.19Exhibit7“BMWGroupisalsoscalingupitsdigi-talfootprintinChinaaswellasacceler-atingourtransformationtowardselec-trification.WewillcontinuetodeepenourcollaborationwithbothestablishedChinesetechplayersaswellasskillednewtalentstofostertheirrespectivestrengthoninnovation.”(JochenGoller,presidentandCEOofBMWGroupRe-gionChina,2021)20VehicleDevelopment:BMWisjointlydevelopinganEVversionoftheiconicMiniinChinawithJVpartnerGreatWallMotor,whichalsosuppliesthevehicleplatform.TheMiniwillbeexportedfromChinatoglobalmarkets.Mercedes-Benz“Inthefuture,IexpectourR&Dactivi-tiesinChinatogrowevenfurther,fosteringlocalinnovationandcontrib-utingtoourglobalsuccess”(HubertusTroska,memberoftheBoardofManage-mentofMercedes-BenzGroup,2021)21VehicleDevelopment:smartisnolongeraMercedes-Benzbrand;itnowjointlybelongstotheGermancarmakerandGeely.JointlythetwocompaniesaredevelopinganoverhauledsmartcarforglobalmarketsinChina,whereitwillbeproduced.Volkswagen“InChinawearewitnessinginnovationsindigitaltechnologies,autonomousdrivingandothersoftwaretechnologies.Andweareinvestingmoreresourcesinthisarea,andalsohopetointroducerelatedtechnologiesintotheGroup’sproductsfortheEuropeanmarketinthefuture.”(StephanW?llenstein,formerCEOVolkswagenGroupChina,2021)22SoftwareDevelopment:Volkswagenwantstouse“China-speed”todevelop“inChina,forChina”and“inChina,fortheworld.”BatteryDevelopment:ChinesebatterymakerGotionHigh-Tech(partlyVolkswagenowned)supportstheGermanOEMtodeployChina-developedbatterychemistryglobal-ly.GotionhasreplacedSwedishNorthvolttomanufacturebatterycellsinSalzgitter,Germany.GotionwillalsodevelopthefirstgenerationofunifiedcellsforVolkswagen.ToleveragethisattractiveR&Denvironment,Germancarmakersaremovingawayfroman“inChina,forChina”strategytowhatforcertaintechnologiescouldbecomean“inChina,fortheworld”model.Butthiswillnothappenacrossalltechnologies.Indigitalconnectiv-ity,forinstance,ChinaisalmostcompletelydecoupledfromtherestoftheworldduetoitsGreatFirewall.Butforbatteriesorautomotivesoftwaredevelopment,thereisacasetobemadeformovingpartsofthedevelopmentfromEuropetoChinabecauseofthecountry’scomparativeleadershipinthosetechnologies(seeExhibit7).WhiletheinvestmentandR&DactivitiesofGermancarmakersinChinacouldprovein-strumentalforthemtoretaintheirdominanceinthecountryandbeyond,thisincreasingintegrationiscomingatatimeofmajorgeopoliticalshifts.Theenvironmentinwhichthecarmakersoperatehaschangeddrasticallyduringthelastthreedecades.Chinahasnotonlybecomemorerepressiveinternally,asevidencedbyeventsinXinjiang.Italsoincreasinglyexertseconomicpressureexternally,asshownbyitstradeboycottsagainstAustralia,Lithuania,andTaiwan.InthecaseofLithuania,ChinademonstratedthattheautomotivesectorisnotexemptfromeconomiccoercionwhenitpressuredtheGermanautomotivepartssupplierContinentaltocutbusinesstiesintheBalticstate.23SomecountrieshaverampeduprestrictionsontradewithChina,addingcomplexityformultinationalsdoingbusinessthere.TheUnitedStateshassanctionedseveralChinesecompanies,andothercountrieshavetightenedexportcontrolsandemployednewinstru-mentstocombatChineseattemptstotransfertechnologyordistortglobalmarkets.Russia’sinvasionofUkrainehassignaledjusthowquicklyeconomictiescanunravelinthecaseofamajorgeopoliticalcrisis.Intheirstrategicassessment,GermancarmakersmustbalancetheopportunitiesarisingfromincreasingtheirR&DspendinginChina,whichbynomeansguaranteesanimprovementinmarketshares,againsttheemergingeconomicandpoliticalrisksinvolved.ThedecisionsthatGermancarmakersmaketodaytoretaintheircompetitivenesshavedi-rectconsequencesnotonlyforGermany’seconomybutalsoforEurope’ssincetheirhighlyspecializedvaluechainsstretchacrossEuropeanborders.NotableopportunitiesforGermany’scarmakersandeconomybecauseofdeeperintegra-tioninChinainclude:Globalcompetitiveness:GreaterR&DspendinginChinacanhelpGermancarmakersstaycompetitiveinthecountryandglobally.ThatcanhelppreventChinesecompaniesfromaccruingglobalmarketsharesincrucialtechnologies–suchasEVs,batteries,andautonomousvehicles(AVs)–fromthebaseofahugeandotherwiselargelyuncontestedhomemarket.Innovativeedge:GermancarmakerscanabsorbnewideasandtechnologiesfromChinaandaddthemtotheirglobalproductportfolio.Thisisparticularlyimportantinbatterytechnologyanddigitization,whereChinaismorecompetitivethanEurope.OtherforeigncarmakersaremorehesitanttouseChinaforglobalproductdevelopment,whichcouldgiveGermanonesacompetitiveedge.Supply-chainresilience:Inavolatilegeopoliticalenvironment,cooperationwithChi-nesetechgiantscouldhelpGermancarmakersretainaccesstoChina’smarketandbe-comelessreliantonUStechcompanies,thathavebeenabletopushGermanOEMsintoenteringrevenue-sharingagreements.24ItcouldalsoincreasetheirresilienceagainstBeijing’srequirementthatcertain“autonomousandcontrollable”technologiesshouldbesourcedlocally.Jobprotection:VolkswagenclaimsthatEUR4billionofitsprofitsmadeinChinaflowbacktoGermanyannually,whichhelpsemploy20,000to30,000engineersathome.25TheexactnumberofjobslinkedtorevenuesinChinaremainscontentious,asmostGermancarssoldthereareproducedthere,butthereiscertainlysomebenefitintermsofGermanemployment.NotablerisksforGermany’scarmakersandeconomyinclude:StuckinChina:Inrecentyears,Chinahasrolledoutseveralpoliciesthatcouldrestricttheexportoftechnologies,includingAIandautonomousdrivingcapabilities,andre-strictcross-borderdatatransfers.Theautomotivesectorisatthecenterofthecross-bor-derdata-managementregulationsandwasthefirsttoseetargetedregulation.ThisclearlycomplicatesthesharingofautomotivedataandcouldalsoderailtheexportofChina-developedR&D.outseveralpoliciesthatcouldrestricttheexportoftechnologiesUpgradingofcompetitors:WhileChinahasimproveditsprotectionregimeforintellec-tualpropertyrights(IPR),thisstillhasmajorweaknessesbydesign,particularlywhenitcomestotradesecrets.EnteringintocooperationagreementswithChinesetechcompa-niesthatoftenhavecar-buildingambitionsthereforebearstheriskoftechnologyleak-age.Greatervulnerability:Geopoliticalconflictscanhavesevereconsequencesforcompa-nies.Forinstance,in2021,Renaultsold18percentofitscarsinRussia;inearly2022itwasforcedtosellitsmajoritystakeinlocalcarmakerAvtovaztoaRussianscienceinstituteforjustoneruble.26ThemoreGermancarmakersinvestinChinaandarereliantonthecountryfortechnologydevelopmentandrevenue,themoreleverageBeijinghasoverthem.Humanrightsviolations:China’stechnologyleadersaredeeplyinvolvedinBeijing’ssuppressivemeasuresagainstpartsofthepopulation.Forinstance,Volkswagen’stech-nologypartnerDJI,adronemaker,isaccusedandsanctionedbytheUSTreasuryofassistinginthesurveillanceofMuslimminoritiesinXinjiang.27SuchcooperationcouldleadtoconsumerbacklashoutsideChina,ifnotoutrightsanctionsbytheUnitedStatesandothercountries.“AfterthisroundofChineseEVstakesoff,thenextcountrytoclashwithuswillnotbetheUnitedStates,butGermany,becausewewillprobablytakealargepartofGermancarmakersmarketshare.”28YaoYang姚洋ThisquotebyinfluentialChineseeconomistYangYaounderscoresthatChinaisanticipat-ingconflictwithGermanyovertheautomotivesector.Indeed,toincreasetheirleverage,ChinesepolicymakersareeagertofacilitateagreaterdependenceofGermanOEMsonChi-na,notjusteconomically,butalsotechnologically.ThenewChinainvestmentsbyGermancarmakersalsoharborthepotentialtoweakenGer-many’sautomotiveindustry.Inotherwords,whatbenefitsGermancarmakersinChina,mightnotbenefitGermany.ThethreedevelopmentsdescribedbelowhighlighthowitcouldbemainlyChinathatben-efitsfromtheselatestinvestments.GermancarmakerssafeguardingtheirmarketshareinthecountrythroughincreasedinvestmentsandoffshoringR&DcouldcomeatthecostoferodingGermany’smanufacturingandinnovationcapacity,whichwouldplayintoChina’swiderindustrialpolicygoals.1.Bringinghighvalue-addedactivitiestoChinaratherthanGermanyWhatbenefitsMoreR&DinChinacouldhelpretainGermancarmakers’competitivenessandprofits,whichifchanneledbacktoGermanycouldhelpemployengineersathome.ButthingscouldplayoutdifferentlyinwaysthatwouldbedetrimentalforGermanyinthreeways.First,theprofitsofGermancarmakersinChinamightincreasinglyfinanceR&Dactivitiesbasedthere.Forexample,someofthe20,000to30,000China-bankrolledVolkswagenengineersinGermanymightfindthemselvesreplacedbysoftwaredevelopersinCARIADinBeijingorengineersinthecompany’sHefeiR&Dcenter.Second,thebeneficialeffectsofnewtechnologicalknowledgecouldincreasinglyplayoutinChina.Third,itisunclearwhetherChina-developedtechnologieswillalwaysbeabletobebroughtbacktoGermanytoupgradelocalindustryandproductionprocesses.Fortheforeseeablefuture,GermancarmakerswillcontinuetodothebulkoftheirR&Datheadquarters,butinemergingfieldssuchasautonomousdriving,software,andbatteriesitcouldincreasinglytakeplaceinChinabecauseofcompetitiveadvantagesandamoredynamicmarketenvironment.Tosavecosts,carmakerswilltrytoutilizeeconomiesofscaleandonlydevelopspecifictechnologiesonce,forglobalmarkets.Volkswagen’sbatteryR&DactivitiesinChinaillustrate