China’s Quest to take over Global Trade

A $4.3 billion battery power plant deal in Spain by CATL, a Chinese battery manufacturing company has been officially made public. It’s nothing like the Europeans have ever seen. This investment will result in creating of arguably the biggest battery manufacturing facility in the EU.

The decision came after Spain refused to vote in favoring the tariffs against Chinese EV imports.

But Spain is just second most favorite country for China. It’s most dear one is Hungary, A country with a $7 billion investment by China for a mega battery factory and a new BYD automotive plant.

Just across the Gibraltar strait, Morocco has accumulated up to $10 billion Chinese foreign direct investment (FDI). There are solar power, battery, EV and renewable energy projects slated to be contracted. The mega investment in Morocco reflects not its economy or growth potential. It simply highlights its friendly trade relations with the EU and the US.

And that’s not all. Countries like Turkey, Mexico, Thailand, and Vietnam have seen a splurge of Chinese money pouring in into their bank accounts.

All the money-flow is a symbol of a growing Chinese agenda: Industry diplomacy.

The Chinese ministry of commerce has explicitly encouraged its firms to not invest in countries in favor of imposing tariffs. It has directed these firms to shift their focus towards those who haven’t.

One thing to notice here is that the Chinese firms have been seeking greenfield investments (Creating from the beginning) instead of simply acquiring established firms. According to Kyle Chan, China wants to create its own ecosystem of supply chain all from the very scratch — in a way it wants entirely.

China has, for the first time ever, limited its export of its core technology like the EVs manufacturing, rare earth metals like Germanium, and lithium. Previous the country was known for giving mass access to its resources to the market so that it could adopt and bring home new technologies from the outside world. But things seem different now.

Brazil is another country in this list. It shares better trade relations with the West while relying on China to revitalize its economy. The most famous projects are the EV plants in Brazil which were previously owned by Mercedes and Ford in Brazil. Great Wall and BYD, two Chinese firms have taken over them and will start operating from there

Countries like Brazil know the perks of heavy Chinese FDI. The money will build industries and infrastructure. It will help create thousands of jobs and put up better trade linkages. The money helps them justify their rule and help in keeping the local economy stabilized. It’s unlikely these countries will make any move against it.

The entire strategy reflects the Chinese dream: a new supply chain and logistics ecosystem, designed, created, and managed by China. It’s the future of trade and arguably the biggest weapon that Xi Jinping could pull off against the West.

The mega-plan is made up of three crucial phases.

The first one is acquiring the natural resources that are necessary for industrial productions. In recent year, African countries have seen a tremendous amount of Chinese FDI inflows. Most of the money is directed towards acquiring mines and mineral sites. This helps in keeping a solid grip on the raw material which would further be weaponized against unfriendly countries.

The second phase seeks to establish strong land and trade routes across different regions. By connecting different countries, seamless and uninterrupted trade activities could thrive. First introduced in 2013, Belt and Road initiative has been the biggest examples of this. A centerpiece of Xi Jinping’s foreign policy, the Belt and Road initiative covers an investment of 150 countries across the globe mostly in Asia and Africa. A 21st century maritime silk route is also a part of this. The objective lies in bridging the gap between countries not only by land and railways and seas, but also digitally and through energy power structures.

The third phase is developing industries of Chinese manufacturers in different countries. This will give China the ultimate leverage in global trade. The industries range from automotive to EV, electronics, and, energy equipment., and semiconductors. The goal is simple: to have everything ready before the demand peaks in the market.

The volatile global geopolitical situation gives China an advantage to reshape the global trading structure. It wants countries to side with it and to rely on its resources. With the potential control Xi Jinping can gain, a new world order would not be that far.