Automotive inward and outward FDI: the role of China in reshaping the automotive sector

Résumé:

Since 2008, the Chinese automotive sector has been the biggest in the world in terms of units produced (OICA, 2021). China managed not only to accumulate capabilities in the ICE sector at an incredibly fast pace but also achieved high economies of scale and productivity levels in EVs. This has been the result of consistent policymaking over decades, as well as coordinated mechanisms between different actors of the automotive ecosystem.

Methodology & Data: We will use unique data coming from the fDi market dataset, which contains greenfield FDI across sectors and countries between 2003 and 2023; one key dimension of the dataset is the distinction between different types of activities within each FDI (e.g., manufacturing, R&D, logistics, sales, etc.). Such functional differentiation allows us to look at how the Chinese automotive value chain evolved and how it became able to attract, and undertake, critical investments. The dataset further allows us to look at battery-related investment, being battery a subsector of electronic components. We analyse such investments in relation to automotive components over time to consider also China’s upgrade into battery production.

Research Question: This paper intends to explore how China has shaped the automotive GVC over time, being able to upgrade internally and moving towards strategic segments of the value chain. China makes up for more than 17% of all FDI in our dataset looking at the Automotive OEM and Automotive Component sectors, either as a source country or as a destination country. In addition, the country makes up for almost 30% of battery investments, again as a source or destination country globally. Starting from these premises, we will explore how China has reshaped, not only internally but also globally, these highly interrelated sectors and the related GVCs.

Practical and theoretical implications. Our paper has implications at the policy level in terms of strategies and key actors that are required to be involved in a long-term project of industrialisation and capabilities accumulation. At a practical level, a granular analysis at the functional and sub-sectoral level will shed further light on how critical key sectors require coordination to upgrade. At the theoretical level our contribution points to the realm of industrial innovation systems; China has been an interesting example in moving in the direction of building up productive capabilities while also ensuring that innovation and technological capabilities followed as part of a strategy to upgrade the overall sector. We will derive theoretical implications on industrial innovation systems and the nascent concept of industrial innovation policy.