12/8/2024 |Articles are machine translated
The partnership between Chinese and European manufacturers is now taking a whole new shape. | Photo: EP presse service
Cooperation between China and Europe in the automotive industry began 40 years ago when the first Volkswagen Santana was assembled in China from imported parts. The partnership between Chinese and European manufacturers is now taking on a whole new dimension. German companies are at the forefront of the drive to the ‘Middle Kingdom’ – even though last July the German government called on the largest companies to reduce their dependence on China.
For years, the Chinese market has been dominated by global automakers in conjunction with local partners. For many of them, it has also become the most important one, as it generates a steadily high income for them. But as data from the China Association of Automobile Manufacturers (CAAM) shows, a larger share of the world’s largest car market has already been captured by Chinese brands. The Western ones are struggling at least to hold on, because they are well aware that success in China is essential for their survival.
China’s expertise in production efficiency, combined with its technical superiority in electrified drives and information systems, has radically changed the position of both sides. The situation is even more complicated for European companies, given that the Chinese are much faster in implementing new projects, have the latest technology, but also control the sources of key raw materials.
The huge Chinese market is a strong magnet for foreign investment. At the same time, there has been a radical turnaround – instead of building factories and production technologies, resources are being channelled into the construction of research and development centres. A number of government measures are designed to boost the confidence of foreign investors. For example, the Chinese State Council has issued a circular calling on relevant departments and regional authorities to encourage the establishment of foreign-funded R&D centres.
“The number of foreign-funded R&D centres has mushroomed in China, especially in the country’s three major international technology innovation centres, namely Beijing, Shanghai and the Guangdong-Hong Kong-Macao region,” said Wu Jiaxi, a senior official of the Ministry of Science and Technology, during a briefing on trade policy.
The growing number of foreign clusters of R&D centres in China plays an important role in creating China’s open innovation ecosystem, according to statements by officials from the Ministry of Commerce and the Ministry of Science and Technology published on their websites. The Communist Party of China’s decisions are creating conditions to attract further investment in high-tech development and technical innovation, which is supporting the rapid growth of global industrial and innovation chains.
Suzhou Industrial Park, where Bosch has been operating since 1999. This year, the company received approval to begin the second phase of construction of a research, development and assembly centre focused on NEV (new energy vehicle) components and research and development of autonomous systems: Suzhou Industry Park
From 2012 to 2021, foreign-funded R&D investment in China by large industrial corporations doubled to more than 337.7 billion yuan (more than a trillion crowns). China’s strong attraction for foreign-funded R&D centres can be attributed to several key factors, ranging from its huge open market to its comprehensive industrial ecosystem and, more recently, its very supportive business environment. One of China’s key strengths in building R&D centres is also its pool of technically educated personnel, which is lacking today, especially in Europe.
The success of Chinese government policy in this respect is illustrated by the World Intellectual Property Organisation’s (WIPO) ranking of science and technology clusters for 2023, which lists the locations where the world’s most important science and technology activities are concentrated. Among the top 100 science and technology clusters in the world, 21 are located in the United States, nine in Germany and four each in Japan, South Korea, India and Canada (only Poland appears in the ranking from Eastern Europe). However, the country that has created the highest number of new R&D sites in the world is China, with 24 science and technology clusters, three more than in 2022. China also filed the most patent applications in 2022, according to WIPO data.
The Chinese leadership is well aware that young scientific and technical talent is the driving force behind an innovation-driven economy. The Communist Party leadership therefore places great emphasis on developing their effective resources. It strives to improve the academic environment for talented scientists and technicians so that they do not have to do a great deal of non-research work in their teaching, which consumes much of their time and energy at the expense of real research. The document, issued in 2022 by the Ministry of Science and Technology, promoted the innovative potential of young scientists and engineers by expanding opportunities for their growth.
Cultivating a cadre of top technical and scientific talent involves a combination of domestic investment in higher education and recruiting international talent from abroad. The current strategy builds on the TTP’s Thousand Talents Program, which aimed to attract science and technology professionals from abroad, primarily, but not exclusively, from overseas Chinese communities. This programme was launched by the State Council of the People’s Republic of China in 2007 and has been amended several times. In 2019, it has given way to several new initiatives, including the construction of three talent centers in Beijing, Shanghai, and Shenzhen geared toward students abroad.
The strategy for finding technical talent was detailed to China Daily by Lin Rupeng, secretary of the Party Committee of Jinan University in Guangzhou, capital of Guangdong province. As part of building the system, a mechanism is being established to discover young talents using big data, artificial intelligence and other information technology tools, and comprehensive lists of potential talents are being prepared based on their education, work experience, research achievements, competencies, development potential, teamwork ability and management skills. Thus, China is systematically identifying not only talented athletes and artists, but also engineers and scientists, and creating conditions for their professional development.
German companies in particular are taking advantage of the opportunities offered by China. German FDI in China reached a new record in 2023, with German companies investing a total of €12 billion. According to a report by the German Economic Institute, based on Bundesbank data, Germany’s direct investment in mainland China and Hong Kong increased by 10.3 percent last year, the largest growth since 2014. This shows that German companies are willing to invest heavily in the Chinese economy, even though economic cooperation with China is viewed with disfavor in the European Union, and in July last year the German government urged major companies to reduce their dependence on China.
BMW chairman Oliver Zipse told the IAA Mobility trade fair in Munich last September: “It is impossible to separate ourselves from China because China is important in terms of raw materials, production capabilities and the size of the economy.”
Data shows that large German companies consider the Chinese market to be strategically very important. A survey published in January by the German Chamber of Commerce showed that 73 percent of large and 50 percent of small and smallest companies operating in China plan to increase investment in the next two years.
BMW boss Oliver Zipse: “It is impossible to separate from China” | Photo: BMW
Among the many projects of European carmakers in China, let’s take a look at the biggest ones from the last few months.
Volkswagen has signed an investment agreement with Hefei, the capital of East China’s Anhui province, to build a research, development and purchasing centre for fully connected electric vehicles. Volkswagen Group China is investing €2.5 billion to expand its centre there to accelerate innovation. “This additional investment underlines our ambition to rapidly expand our local innovation strength,” said Ralf Brandstätter, Chairman and CEO of Volkswagen Group China. The centre in Hefei will work closely with Volkswagen’s joint ventures in China and will take on major development tasks. It will be Volkswagen’s largest research and development centre outside Germany.
The agreement follows an expanded partnership agreement that Volkswagen signed in the spring with Xiaopeng Motors, the Chinese manufacturer of XPeng electric vehicles. The deepening cooperation between the Chinese start-up, founded in 2014 and which sold 140,000 cars last year, and the German car giant shows the growing strength of Chinese electric vehicle manufacturers.
VW Group CEO Oliver Blume told Xinhua news agency that Volkswagen’s focus on China is clear: “We will combine our experience and knowledge with new technologies developed in China. This combination will make us stand out. The exchange of engineers between Volkswagen and XPeng is a good opportunity. For me, it is always important to have a win-win situation when entering into a partnership. We have done this in the past with our partners FAW and SAIC. I see the new partnership with XPeng and the joint venture with Horizon Robotics as a positive for the future.”
Volkswagen ID concept. Code shows a new form of electric vehicles with design and technology inspired by Chinese partners and customers: Volkswagen
Mercedes-Benz has opened a new building for its research and development centre in Shanghai. The center will enable efficient software and hardware development and complex environmental simulations to facilitate testing. “China is one of the key drivers of technological progress in the global automotive industry. Over the years, we have invested heavily in local research and development. As the most comprehensive R&D team outside Germany, the R&D network in Beijing and Shanghai has become a pioneer for innovation and future trends within the Group,” said Hubertus Troska, Member of the Board of Management of the Mercedes-Benz Group.
Truck manufacturer Scania (part of the VW Group’s Traton Group) is also actively targeting the Chinese market. Scania is investing in the construction of a zero-emission factory in the city of Rugao in eastern China’s Jiangsu province. In addition to the factory, it is setting up a research and development company there to integrate new technologies and new components into Scania’s modular system.
Scania China Group President Mats Harborn commented, “The Chinese economy is now moving from a focus on quantity to a focus on quality, sustainability and efficiency. At the heart of this transformation is sustainable and efficient transport and logistics. We therefore believe that our company can play an important role here. In more than 60 years, Scania has never made such a large investment overseas. This investment is important for the future of the Chinese market, but also for us to be able to export from here to other markets. We want to take advantage of China’s innovative strength.”
New investments in technical development in China are coming not only from automakers, but also from their suppliers. Bosch is investing €1 billion in an engineering and manufacturing centre in Suzhou, in the eastern Chinese province of Jiangsu. Here, solutions and products for electromobility and autonomous driving will be developed. “China’s modernisation offers many opportunities that can benefit the whole world, especially when it comes to sustainability,” said Bosch CEO Stefan Hartung. Bosch already has four factories in Suzhou, employing 10,000 workers. China is the Bosch Group’s largest market in the world. Bosch China President Chen Yudong said Bosch will continue to invest in China to meet growing demand from Chinese customers.
Robert Bosch Venture Capital has established Boyuan Capital for investment coverage of the company’s activities in China. | Photo: Bosch
Continental began building its first tyre production base in China in 2009. In 15 years, from the establishment of the tyre plant to investments in automated logistics, robotics and product innovation, Continental has spent 10 billion yuan (€1.35 billion). The new plant in Hefei, with its advanced production technologies, will start operations as the company’s most important production base in the Asia-Pacific region this July. “We expect a very positive trend in our development in China over the next 10 to 20 years. Continuous investments underline our confidence in the development of the Chinese economy. With the rapid growth of China’s automotive market, our tire sales are steadily increasing,” said Continental Tire Hefei plant deputy general manager Zhou Yuan.
The ZF Group has three plants in China. ZF Group CEO Holger Klein told Xinhua news agency that China is a crucial position within the ZF Group as its development contributes significantly to the group’s global business expansion. “It’s not just a question of quantity. It is also a question of quality. Chinese consumers have high expectations for the most intelligent systems in their cars. We are fully aware of the strength and rapid technological progress of the Chinese automotive industry and are ready to work and grow together,” said Graciana Petersen, Head of Strategy and Transformation at ZF Group.
ZF Group opened a new R&D center in Guangzhou, the capital of South China’s Guangdong province, where it also started construction of an automotive electronics plant.The technology centre in Guangzhou is its fourth in China.It focuses on software development, mechatronics and systems integration.
Wu-chan (Wuhan) in central China’s Hubei province will be the largest airbag manufacturing plant in the Asia-Pacific region for the ZF Group’s Passive Safety Division.Here, the ZF Group is investing in a production base as well as a research and development center for ZF Wuhan Automotive Safety Systems.”ZF is playing an increasingly important role in China and in the global automotive supply chain. We will continue to invest in China and contribute to China’s sustainable development,” said Renee Wang, president of ZF China.
ZF China President Renee Wang and ZF Group CEO Holger Klein, who says the low age of customers in China is very impressive, which is completely changing their acceptance of new technologies. | Photo: ZF
According to independent analysts at the Rhodium Group, the Bundesbank’s latest figures show that German companies are increasingly reinvesting their profits from operations in China. Companies such as Volkswagen and BASF are thus reducing their share of the German market, while increasing the number of jobs, investment in research and development and production of goods for export in China.
According to the Rhodium Group, the rapid growth of investment in China and the reduction in the number of employees in Germany suggest that a gap is emerging between the interests of these companies on the one hand and the interests of their employees in Germany and the German economy on the other.
If there is talk in Europe that car imports from China will threaten the European car industry, then it is worth considering the list of suppliers of the BYD Dolphin electric car, which is manufactured in Shenzhen in Guangdong province. In addition to the lithium iron phosphate battery, electric drive system and electronics from its own production, the technical partners for the development and supply of components are AWS, Benteler, Bosch, Brembo, Brose, Continental, Devialet, DVN Audio, Edscha, FIAMM, Forvia, Gestamp, Infineon, Kostal, Michelin, Shell Recharge, Stabilus, SUSPA, Valeo and ZF.
It is also clear from this that the links between the European and Chinese automotive industries today are much more extensive than many people realise. Therefore, any ill-considered decision can cause great and irreversible damage even where it was not intended.
The information that former Škoda Auto chief designer Jozef Kabaň has joined the Chinese company SAIC Motor has caused a media uproar. However, Kabaň has become “just” another in a line of top designers who have worked for Volkswagen in the past and are now changing their style in the service of Chinese car companies. German designers in particular are creating a new design language for Chinese car companies. For example, Stefan Sielaff (formerly of Bentley) works for Geely, Klaus Zyciora (formerly of Volkswagen) works for Chongqing Changan, Wolfgang Egger (formerly of Alfa Romeo and Audi) has been with the BYD Group for seven years and the legendary Walter de Silva also works for FAW with his studio. The recently deposed Audi designer Marc Lichte is also heading to China.
Design in China is changing. While the front bonnets of cars from Stuttgart, Munich and Ingolstadt are taking on frightening proportions, for many Chinese manufacturers the shape follows the Bauhaus idea of combining function and design. Wolfgang Egger says: “Western carmakers have long thought that Chinese customers demand an abundance of baroque chrome jewellery. This is a mistake. Only here in China have I learned that beauty is global. It’s not true that the Chinese want to adorn everything with gold and silver. They love pure form. That’s why we removed all the decorative elements.”
Engineers and designers work closely together. “This is important because the pace of development here is much faster. A car is developed in less than three years, whereas European manufacturers take four to five years to do it,” says Egger.
Jozef Kabaň, the former chief designer of Škoda Auto, has become “just” another in a line of top designers who have worked for Volkswagen in the past and are now changing the style of the Chinese carmaker. | Photo: SAIC
Over 3,500 exhibitors showcased innovative technologies and solutions for the entire supply chain at last year’s Automechanika Shanghai – Shenzhen 2023. The focus was on intelligent systems, efficiency, networking and autonomous driving. Supply chains in China today are characterized by high quality production from local manufacturers and pioneering technologies. Unlike Europe, China does not rely only on electromobility, but also on conventional drives combining highly efficient combustion engines with plug-in hybrid systems. The fair also showed the significant focus of Chinese suppliers on the aftermarket with innovative, data-driven solutions for tools, equipment and services. The city of Shenzhen, with a population of more than 17 million, is adjacent to Hong Kong.
Automechanika Shanghai 2023. | Photo: Automechanika
