Why Chinese green tech firms can be transformative for the Global South

China surpassed Japan as the world’s leading car exporter last year based on data from automobile manufacturer associations in the two countries. However, most of those exports were internal combustion engine cars while electric vehicles (EVs) represented only about 25 per cent of exports. In 2022, Japanese car manufacturers produced about 17 million cars overseas, more than four times the 3.8 million units exported.

Given the significant trade barriers Chinese EVs face in the United States and in Europe, these companies might have no choice but to follow Japan’s path of overseas expansion if they want to pursue Western markets. In their global expansion, Chinese green tech multinational corporations could make a greater impact than Toyota and Honda before them.

BYD is building factories in Thailand, Brazil, Mexico, Uzbekistan and Hungary. While not limited to EVs, Geely and SAIC are looking to expand their overseas plants.

While China represented about 60 per cent of global EV sales last year, Europe and the US combined made up 35 per cent of the worldwide market and are thus too important to be overlooked. To mitigate the risks of European trade barriers, Chinese car companies are setting up factories in Hungary, Spain and Italy.

In 2022 and 2023, China’s EV-related industries made about US$60 billion in outbound foreign direct investment. Three quarters of that amount went to Europe, the Middle East, North Africa and Asia. CATL and Svolt have built large factories overseas. While much of the recent investment was battery-related or upstream, firms are now shifting downstream to EV manufacturing.

While investments upstream and midstream have been driven by supply and other economic considerations, market access to overcome trade barriers has become a key factor behind downstream investments in EV production. Hence, many downstream investments will be in the European Union or countries with free-trade agreements with the US or the EU.

Workers on the assembly line at the Great Wall Motors manufacturing plant in Rayong, Thailand, on January 12. The carmaker’s first electric vehicles rolled off the production line in Thailand at the start of the year. Photo: Xinhua

The expansion of China’s green tech companies to Asian economies such as South Korea and Thailand would reinforce their positions as manufacturing hubs. Factories in Spain and Italy could help revitalise these economies.

If China raises its investment in Mexico to create an export base to the US and deepens the green tech supply chain there, it could provide a significant lift to Mexico’s economic development provided it can overcome some of its long-standing institutional constraints.

It is in the best interests of the US to see revitalised manufacturing within North America, even if it is not within its own borders. While there are limits to how much China alone can transform Mexico’s economy, its contributions could lift Mexico’s economic prosperity in ways that the US has not. Instead of perceiving Chinese investment in Mexico as a threat, the US should welcome it given the multiple benefits a stronger Mexican economy would bring.

For starters, economic stability in Mexico could help moderate the flow of migrants to the US. A more prosperous Mexico could become an expanded market for US exports. Strengthening Mexico’s economy also improves the robustness of the North American supply chain. The US and China could see a win-win overlap of their green tech ecosystems in Mexico.

The countries with free-trade agreements with both the EU and US come in a wide variety. They include developed economies such as Canada, Israel, South Korea and Singapore. Some, such as Panama and Jordan, do not have well-developed industrial bases. The middle-income countries which could be a sweet spot for China’s green tech investment are mostly in Latin America, with an exception being Morocco.

An aerial view of the Noor II and Noor III solar power projects in Ouarzazate, Morocco, on June 8, 2018. Photo: Xinhua

Beyond East Asia, Europe and Mexico, Morocco has emerged as a key beneficiary of Chinese outbound investment in green tech given its trade agreements with both the EU and US. China’s green internationalisation holds the greatest transformative promise in a smaller middle-income economy like Morocco, which is not a tech powerhouse like Israel or a larger economy like Mexico.

Morocco also holds strong potential in solar and wind energy. To fully benefit from foreign investment, Morocco needs to broaden its participation in the green tech value chain. Just as importantly, recipients of foreign investment must leverage these opportunities to upgrade their human capital.

As China’s green tech multinational firms expand beyond Asia to locations as diverse as Europe and North Africa, they can draw lessons from Asian pioneers such as Sony and Samsung, as well as their domestic peers such as Midea and Huawei. They must adapt to local conditions, sometimes through strategic partnerships. They must develop robust and resilient supply networks.

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They must navigate a complex geopolitical landscape. Most importantly, and perhaps most challenging, they must transcend their Chinese origin and become truly global companies with a global talent pipeline. Beyond their core strengths of innovation and process management, whether they can develop the intercultural competence of global people management will define their success.

As the rise of China’s green tech giants reshapes the landscape of global production, this shift transcends mere corporate growth. It heralds transformative waves across industrial ecosystems of the Global South.

As these Chinese multinational firms expand their presence internationally, they could reshape global production networks towards the Global South and accelerate the transition to a green economy. For stakeholders in global markets, embracing this change through collaboration and coordination with Chinese green tech companies will maximise global benefits in this transformation. By working together to strengthen sustainable supply chains, they can harness the power of Chinese green tech to build a more sustainable future for all.

Winston Mok, a private investor, was previously a private equity investor

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Why Chinese green tech firms can be transformative for the Global South

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