







When a two-year-old Chinese startup unveiled the Byton—a high-end, artificially intelligent, fully electric sport utility vehicle that is 40 percent cheaper than a Tesla Model X—at last week’s Consumer Electronics Show, it not only threw down the gauntlet in the race to develop smart electric cars. The company also signaled that Chinese manufacturing has entered a new phase.

Just as China has become a global player in personal computers, solar panels, and integrated circuits to the point that the nation is among the world’s largest producers, we expect China will become a major supplier in new sectors such as aerospace, smart cars, and robotics in the near future. Until now, the Chinese have been held back in these sectors in large part because of concerns over quality and safety. But the fact that Future Mobility Corp was able to poach some of the biggest names in tech and electric vehicles from companies like BMW, Google, and even Tesla to develop the Byton shows how quickly the landscape can change and how Western companies cannot afford to be complacent.

The Byton has the financial muscle of the nation’s “Made in China 2025” initiative behind it. The 10-year program is dedicated to help China take on top-tier manufacturers in the United States, Europe, and Japan in industrial sectors once considered too technologically sophisticated for low-cost, mass production, like robotics; biopharma and advanced medical equipment; aerospace; power generation; and rail.

Chinese momentum

This stated ambition to transform China into a leading manufacturing power has been greeted thus far by an astounding lack of concern, or even curiosity, among European and US industrial incumbents. To be sure, Chinese electric cars have been unveiled in the past and have not made it beyond China, which is the biggest market for EVs in the world. Worse, some have ended up in bankruptcy. Nonetheless, the Byton, which is said to be aiming for a production of around 300,000, has global ambitions and demonstrates China’s capacity and unwavering determination to make it happen—perhaps well before 2025 in some sectors. And with Guangzhou Automobile Group (GAC) still rumored to be eyeing a bid for Fiat-Chrysler and showing up at the North American International Auto Show in Detroit this week with a new electric car aimed at digital natives and other new models, it’s clear that China is determined to keeping pushing forward.

This means that Western manufacturers owe it to their stakeholders to prepare strategies, including increased investment in research and development, which reflect the very possible presence of a new, lower cost competitor on their turf. And that preparation needs to begin now, not after China has launched products that match and surpass the West. To wait would create a situation reminiscent of Japan’s battering of the US auto industry in the 1970s when Detroit chose to ignore the success of small cars and kept producing gas-guzzling behemoths.

When companies have national and provincial support and access to low-cost capital, things happen quickly. Beginning in 2007, China provided as much as $18 billion in cheap capital for its then fledgling solar panel industry. By 2012, major European and US solar panel manufacturers began filing anti-dumping challenges to the new Chinese industry. But by 2015, seven of the top 10 solar-panel manufacturers were Chinese, and China controlled almost half of the photovoltaic solar market.

More M&A deals

As China pushes forward with Made in China 2025, it is pursuing a similar strategy of tapping cheap capital and searching out mergers and acquisitions. Foreign investors recognize the potential of Chinese manufacturing might and increasingly feel more confident about putting money into Chinese ventures as China gradually embraces a market economy and introduces more transparency. Indeed, in Europe, the value of M&A deals in aerospace, automotive, electronics and machinery has jumped from $3.8 billion in 2014 (before the Made in China initiative was launched) to $14.6 billion in 2015 and more than $22 billion in 2016.





The recent takeover of German robot manufacturer Kuka by the Chinese group Midea also illustrates how China is coming into its own. Midea committed to maintain Kuka’s headquarters in Germany and support Kuka’s development strategy until 2023. Nonetheless, Kuka’s intellectual property remains at risk in the long term as does Germany’s strategic position in the robotics industry.

State-Owned Enterprises (SOE) also are consolidating to develop critical technology and achieve brand recognition. For instance, in June 2015, China Railway Rolling Stock Corporation (CRRC) was created from two SOEs and became the largest rolling stock manufacturer in the world. Similarly, in August 2016, Aviation Industry Corp. of China (AVIC) and Commercial Aircraft Corp. of China (COMAC) joined forces with the Chinese Government to set up Aero Engine Corp. of China (AECC).

Jets made in China

With COMAC and Aero Engine, the ambition is to accelerate the development of indigenous commercial aircraft engine and aircraft production and eventually build an industry. Here, China bumps up into stringent global safety regulations and certification that pose sizable hurdles Chinese manufacturers have yet to overcome.

Still, China has leverage given the size of its domestic market, which on its own can sustain substantial production. And in the case of any Made in China industry, there’s always the possibility of regulatory measures against foreign competitors, especially given the rise of protectionism worldwide.

The potential for disruption from Made in China 2025 is great, and Chinese foreign direct investment could translate into a potent technological force capable of taking on competitors like General Electric, BMW, or Airbus. The uncertainty is more in the timing—a question of when, not if, China will crack the global marketplace in cars, rail equipment, aerospace production, or robotics. But the speed at which the Byton came to fruition shows the future will likely be realized in a matter of years—not decades. So those who choose to wait will likely play catch-up when these what-ifs become reality.

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