The green revolution, ‘made in China’: The two sides of Europe’s ecological transition 

At the entrance to the factory, there’s an inscription on the wall: “Developing new energy vehicles is the only way for China to go from being a great automobile country to an automobile power. Xi Jinping.” That’s how things are in the People’s Republic: the communist leadership sets the course, develops five-year plans and — years later — the guidelines are translated into this incessant hydraulic clatter. You can hear the hum of the assembly lines and the chorus of metallic growls.

BYD, the Chinese plug-in giant, has opened the doors of one of its factories in Xi’an, the ancestral capital of the Chinese empire, to a small group of journalists. The company (whose name is an acronym for “Build Your Dreams”) is competing with Tesla for the position of the world’s leading producer of electric cars. At the moment, when plug-in hybrids are taken into account, BYD surpasses Elon Musk’s company.

“In this factory, we have the capacity to produce 3,000 vehicles a day,” one of the guides explains. The journalists have just climbed into tourist carts that move along one side of the assembly line. An army of robotic arms is adjusting parts. There are few human beings: sparks fly as the skeletons of the cars move forward and take shape. The guide stresses that part of BYD’s secret is that the firm carries out the research and development of 100% of the vehicles’ key components, such as the electric motors and the batteries. “It’s very detailed,” the guide notes.

The visit is a rare and fleeting look at the insides of an industry in which China has become the undisputed leader, with more than 30.16 million cars produced last year (including all types of engines). This is far ahead of the county’s closest rival, the U.S., which produces 10.6 million cars annually, according to data from the International Organization of Motor Vehicle Manufacturers (OICA).

Today, the Asian giant is the great production center for manufacturers involved in the ecological transition. Electric cars are the spearhead. Meanwhile, Chinese leadership is also dominating the wind and solar energy sectors.

In Europe, Chinese dominance over this production — as well as in the extraction of critical resources required for the green transformation — has become a headache. On the one hand, windmills, solar panels and cheap plug-in cars are needed to meet decarbonization objectives but, at the same time, there’s a need to avoid excessive dependence and protect national industries from a Chinese sector that’s strongly subsidized by Beijing.

China is responsible for 60% of the world’s wind turbine manufacturing capacity, more than 80% of solar cell manufacturing, and almost 40% of heat pump manufacturing. This is according to a report on “distortions” in the Chinese economy, which was published in April 2024 by the European Commission as part of a “trade defense” investigation. The report delves into the fine print of the latest five-year plans, as well as the Made in China 2025 program. In the document, Beijing envisions a world headed towards “a future with low or zero carbon emissions,” with its renewable energy sectors entering a new stage to “leapfrog stages of technological development.” The document cites numerous examples of direct aid, such as tax reductions or preferential treatment in public tenders, and even the possible use of forced labor.

“As with any business or product, Europe depends on China and other countries to successfully master the transition. These interdependencies are the norm rather than the exception. While it’s essential to raise awareness about these dependencies, they’re misused by politicians to justify unnecessary protectionist policies,” says Norbert Rücker, head of Economics & Next Generation Research at Swiss bank Julius Baer. The EU’s view, however, is different. In September of 2023, when announcing the investigation into the Chinese electric car, European Commission President Ursula von der Leyen mentioned the need to increase “economic security.”

The EU’s energy dependence on Russia — and the catastrophic consequences of this — are fresh on Brussels’ mind. “Just think of China’s restrictions on the export of gallium and germanium, essential for products such as semiconductors and solar panels,” said Von der Leyen, citing a recent example. Beijing has warned that, if it deems it necessary, it will play with the power conferred by its dominance.

This dominance is indeed overwhelming, according to Francisco Carranza, CEO of the Spanish company Basquevolt. His firm seeks to provide Europe with a solid-state battery that will allow it to produce cheaper vehicles with greater autonomy, without depending so much on Chinese technology and materials. “They’ve positioned themselves in such a way that they control all the layers of the electric car, from the vehicle to the raw materials, including the batteries. It’s difficult to reach a context in which Europe can be independent of China,” he reflects.

China has the largest battery producers in the world (CATL and the aforementioned BYD), which supplies its own and other cars. This company produces its own chips and it even has a ship, the Explorer No. 1, that’s the first in a fleet destined to take its electric cars to ports around the world. Its arrival in the EU — together with other Chinese brands, such as MG (from SAIC Motor) or Chery — led Brussels to approve tariffs of up to 35.3% on Chinese cars, in response to state subsidies in its production chain. An angry Beijing has reported the case to the World Trade Organisation (WTO), considering the measure to be a mere tool of “protectionism.” The Chinese government has also responded with tariffs and investigations into the import of European products, raising the specter of a trade war while negotiations continue. In the automotive sector, there are those who wonder whether what the EU is doing — with plans such as Strategic Projects for Economic Recovery and Transformation (PERTE) in Spain, which subsidizes the industry with billions of euros — is actually different from what it accuses China of doing.

The Asian giant, whose economy is limping along due to the effects of a gigantic real estate bubble, relies on a good part of its growth to a change of model based on high-tech manufacturing. Investment in industries in this sector has grown by 9.3% year-over-year between January and October of 2024, while investment destined for residential and commercial construction has plummeted by 10.3%. The country needs to export goods to reactivate its finances… and it’s well aware of the desire for green products. “The world urgently needs them,” says Wang Huiyao, a former adviser to the Chinese government. He now heads the Beijing-based Center for China and Globalization. “China is the country that has developed the greatest capacity, we must seize this opportunity,” he adds. In its negotiating arguments with Brussels, the government in Beijing always repeats this idea: without Chinese products, the EU won’t be able to undertake its green transition. And, if it taxes them with tariffs, the process will be much more expensive.

“It’s a legitimate claim,” opines economist Michael Pettis, an expert on Chinese finance. He believes that, to undertake this green transition, at least in the short-term, it would be better to buy from the country that has the greatest comparative advantage in the production of these goods. That is, China. But the long-term is another matter. “These importing countries have to make a calculation. What’s more worthwhile: this flood of products that are cheap, but create unemployment in the [Eurozone]? Or the cost of imposing tariffs?”

“In the EU, the energy transition is already a fact, not something of the future,” replies a diplomatic source based in Beijing, who insists that the market hasn’t been closed to Chinese electricity, only “rebalanced” to avoid unfair competition. The community bloc, he adds, is ahead of China in many aspects: emissions are 37% lower than in 1990, while those of the Asian giant — the world’s leading per capita emitter of greenhouse gases — continue to grow. China has even just surpassed the EU in terms of historical emissions, according to the specialized media outlet Carbon Brief. And despite the fact that China is the country that installs the most renewable power in the world, nearly 60% of its electricity is still produced with coal. It’s also the energy that powers its factories: “The production cycle of these electric cars is more polluting than those made in Europe,” concludes this source, who nevertheless assumes that it is “obvious that [China’s] electric cars are of unbeatable quality and price. And they’ll continue to enter the European market.”

The EU wants to avoid what happened with solar panels: it was once a powerhouse, until China bolstered its production machinery, with the help of state aid. In any case, the solar sector in China is currently experiencing the effects of these subsidies, which has fueled a new problem: the main manufacturers recorded large losses in the third quarter of 2024, due to serious excess capacity and price wars. According to Bloomberg, Longi, one of the world’s largest solar panel producers, has recorded four consecutive quarters of declines and plans to lay off 30% of its workforce. This year, the company was the subject of an EU investigation into foreign subsidies, after submitting to a public tender in Romania: it ended up withdrawing. During a recent visit by EL PAÍS to the Longi headquarters in Xi’an, a communications representative for the company declined to respond when questioned about both issues.

Chinese cars, made in Europe

Chinese production isn’t innocuous. The shadow of the possible closure of three Volkswagen factories and the dismissal of thousands of workers is already hanging over Germany. The opening of Chinese factories in Europe could be part of the agreement between Beijing and Brussels… something that Spain is also waiting for. The country has already secured a first Chinese plant, belonging to Chery, which will use the facilities that Nissan abandoned at the end of 2021 to produce its own models. The Chinese firm will also bring back Ebro — a Spanish brand that has been extinct since 1987 — together with its Spanish partner, EV Motors. Another company that’s considering setting up production in Spain is SAIC Motor, the most affected by the tariffs on Chinese cars. Prime Minister Pedro Sánchez met with executives from the firm during his visit to China in September of 2024.

In any case, the impact of tariffs remains to be seen. This is because, for example, a large part of European electric cars use Chinese batteries, which account for around half of the total cost of the vehicle. China controls almost two-thirds of world production in this sector, according to a study by Natixis CIB. Renault, meanwhile, is equipping its electric vehicles — which are manufactured in northern France — with batteries from AESC Envision, a Chinese company that will build a gigafactory in Spain, for which it has requested public aid from the government’s Electric and Connected Vehicle Fund. CATL, which is already building a battery plant in Hungary, is also planning another one in Spain, with the help of Stellantis, the largest automobile producer in the country. It manufactured more than one million vehicles in 2023.

Envision also took advantage of Prime Minister Sánchez’s tour of China to announce an investment of more than $900 million to build an electrolyzer factory in Spain, essential for the production of renewable green hydrogen. Other countries such as Hungary — or countries like Turkey, which are outside the EU but maintain free trade agreements with the bloc — have also benefited from large Chinese investments such as those announced by CATL or BYD.

Control over key materials

China is the world’s largest supplier of critical raw materials, which are essential in “strategic areas, such as renewable energy, digital, aerospace, and defense technologies,” according to a 2023 study by the European Commission. There are well-known examples, such as rare earth elements that are used to manufacture wind turbine motors, lithium for batteries, or silicon for semiconductors. This past week, the steel giant ArcelorMittal pointed out that it’s not profitable to produce green steel from renewable hydrogen in Europe, despite the large state subsidies. China’s production capacity, on the other hand, means that green steel can be produced more cheaply.

China’s strategy is to control all stages of the value chain, from the extraction of materials to final output. In the field of lithium, it has large companies to do this, such as Ganfeng Lithium or Tianqi Lithium. The country also accounts for almost all of the world’s graphite production, another key material in battery anodes. “Without graphite, there’s no battery,” Carranza explains. All gigafactories use this material.” The project that his company, Basquevolt, is working on replaces graphite with lithium, a material that “China also dominates, but less so,” he clarifies.

According to the Lowy Institute, the Asian giant has 7% of the world’s lithium reserves, but processes nearly 70% of global lithium. And according to Reuters, it also refines more than 90% of the world’s graphite. Beijing imposed export restrictions on this material in 2023, in response to the previous blow dealt by Washington to curtail the Chinese semiconductor sector.

With Donald Trump — who has announced tariffs of 60% on all Chinese products — it’s foreseeable that this battle will intensify. In this version of global uncertainty 2.0, various analysts believe that Beijing will seek a rapprochement with the EU, taking advantage of the likely geopolitical distancing between both sides of the Atlantic. Today, the Chinese government sees itself as being better prepared than in 2018. And the sale of green products is a key part of its strategy.

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