The China threat that’s already here – and on our roads

China's spy cars on Britain's roads

China’s spy cars on Britain’s roads

The presenters of Top Gear pulled no punches as they ridiculed Chinese cars on a visit to the country just over a decade ago.

“It is the most tragic looking thing,” Jeremy Clarkson boomed, looking down at one manufacturer’s effort to imitate the iconic Mini Cooper.

“Like someone has described a Mini to someone on the telephone, or sent a really blurry fax.”

“It’s awful,” agreed James May. “It is very cheap though.”

“It’s easy to see why they were copying,” a voiceover from Clarkson added. “Because when they tried to go it alone, the results weren’t very good.”

But fast-forward 11 years, and it is Chinese manufacturers who are laughing now.

In the past year, China has leapfrogged Germany and Japan to become the world’s biggest exporter of cars, shipping 1.07 million abroad in the first quarter of 2023.

The boom is being driven by the country’s emergence as a powerhouse in battery-electric vehicles (BEVs), the culmination of years of planning and massive state subsidies.

Already, more than one in four cars being exported by China are BEVs, with the total expected to hit 1.3 million this year alone.

At the same time, net zero rules are set to outlaw the sale of conventional petrol cars from 2030 in the UK and 2035 across the rest of Europe, giving Chinese brands including SAIC, BYD and Geely the opening they need to capture market share.

The shake-up has opened the door to a tsunami of Chinese BEVs hitting Britain’s roads in the coming years – and at unprecedentedly low prices.

With rivals such as Volkswagen, Ford and Toyota scrambling to catch up, Chinese manufacturers are poised to offer cars costing as much as €10,000 (£8,600) less than their European, Japanese and American competitors.

Experts, industry insiders and senior politicians say this looming shift threatens the survival of European car manufacturing – and poses worrying security questions for governments as well.

They describe a pattern of European complacency as China raced ahead in BEV technology, poured money into its domestic industries and developed strangleholds over supply chains that are crucial for battery production. Meanwhile, Europe diverged from America, choosing to put up almost no trade barriers to slow the coming influx of Chinese cars.

Now, the debts are coming due.

“We’re in a time of huge change and we in the UK have done the worst of both worlds,” says Andy Palmer, a veteran car industry executive known as “the Godfather of EVs” for his work on the Nissan Leaf.

“There is not much time left to correct the direction we are going in.”

Manufacturing offensive

Thousands of cars sit marshalled like soldiers, ready to be sent abroad, at the Port of Shanghai.

Jutting out into the East China Sea, the port – the world’s biggest by container volumes – exported more than 160,000 electric cars in the first three months of 2023 alone. It is a potent symbol of China’s newfound success in car manufacturing, both domestically and internationally.

For years the country’s brands struggled to compete with western rivals abroad, dogged by issues of quality in the eyes of many consumers.

In an attempt to overcome this problem, Beijing pressured foreign firms into forming joint ventures with Chinese counterparts when they set up factories in the country – in hopes that the students would eventually become the masters.

A large number of export vehicles are assembled at the port of Yantai to be shipped

Beijing has sought to dominate the electric vehicles global market as part of its Made in China 2025 strategy – NurPhoto

But in the background, the communist government also set in motion another plan to exploit the coming shift to BEVs. With technical breakthroughs and a strong domestic market, they spied an opportunity to vault ahead of the competition and become a global leader.

Under the “Made in China 2025” strategy, the electric vehicle sector was one of several industries Beijing set out to dominate.

Since 2009, China’s central and local governments have subsidised domestic BEV companies to the tune of $100bn, the Washington-based Center for Strategic and International Studies (CSIS) calculated. It is an investment that looks to have paid off handsomely.

More than half of the electric cars on roads worldwide are now in China, according to the International Energy Agency, while in 2022 the country accounted for around 60pc of all BEVs sold.

“This has been a particularly successful area of industrial policy in China,” says Ilaria Mazzocco, a senior fellow and China business expert at CSIS.

“And I think one thing to note is that these clean-tech industries are seen as an export industry by China, not necessarily just as a climate change issue.

“There is an economic logic to promoting these industries. For more than a decade, the state planners have been really focused on having an industrial upgrade in China, moving from lower value-added production to higher value-added, higher-technological production – and electric vehicles are the perfect example.”

Simultaneously, China has leveraged its dominance of critical minerals – including half the world’s refining capacity for lithium, a key battery metal – to create a supply chain that runs top to bottom, and encouraging foreign firms to set up shop there too.

Contemporary Amperex Technology Limited (CATL), based in the city of Ningde in the Fujian province, is now the world’s biggest lithium battery manufacturer, with Ford, Volkswagen, BMW and Tesla among its customers.

This is attracting significant factory investment, with even western companies such as Tesla setting up shop there, ensuring that the lion’s share of value – including jobs and taxes – remains in China.

Together with the enormous size of the Chinese market, these factors have helped to drive down dramatically the cost of making BEVs.

“By being very, very focused on where they spend engineering dollars, they’re able to bring cars to market quickly, but are also not burdened with as much of the fixed costs that would be in a traditional manufacturer,” says Andrew Bergbaum of consultancy AlixPartners.

However, a glut of state subsidies has allowed a plethora of auto manufacturers to spring up, triggering a vicious price war at home.

This is what is now driving many Chinese companies to aggressively push their wares abroad, in a quest for bigger profits.

In 2023, the country is set to export 1.3 million BEVs, up from 679,000 last year when draconian Covid lockdowns were still in force, analysts at market research firm Canalys have predicted.

Not only are these vehicles seen as high quality, boasting long ranges, attractive designs and smart interiors, they are also extremely cheap.

One brand British motorists should expect to see more of is BYD, which recently unveiled an electric hatchback that it plans to sell for less than £8,000 – far cheaper than many petrol-fueled models.

The compact Seagull, which has four doors, is smaller than a Ford Fiesta and will be able to drive up to 252 miles on a single charge, according to the company.

That is enough, in theory, to make the entire five-hour drive from central London to Rishi Sunak’s constituency of Richmond, in north Yorkshire.

Other Chinese auto giants have snapped up legacy brands already known to consumers. SAIC Motor, a state-owned company, bought MG in 2007 and is introducing its European BEVs under the marque.

Geely, a privately-owned Chinese group, has also owned Volvo since 2010.

At the same time, the UK and Europe have cheerfully left the door open to competition from Chinese car makers.

A SAIC Motor MG Cyberster concept electric sports car

Chinese car maker SAIC is importing electric vehicles to Europe under the MG marque – Zhe Ji/Getty Images AsiaPac

Under World Trade Organisation rules, Britain and the bloc levy 10pc tariffs on imported Chinese vehicles but allow consumers to claim subsidies for purchasing them.

The approach contrasts sharply with that of America, where Joe Biden is showering firms that set up BEV factories with subsidies and hitting Chinese car imports with tariffs of 27.5 per cent.

There is also growing political scrutiny of deals with China-based companies, with some Republicans calling for a review of Ford’s plan to build a $3.5 billion factory in Michigan – using technology licensed from CATL.

“Europe’s BEV market is comparatively far more open than those of China and the US, where national or regional assembly is a prerequisite to qualify for purchase subsidies and where import duties on foreign vehicles are higher,” a report by Allianz said in May.

Researchers at Allianz called for Europe to seek “reciprocity” in trade terms.

Ominously, however, they also warned China’s lead in EV technology is now so great that it “cannot be bridged” by 2030 – when Britain and Europe will impose restrictions on the sale of new petrol cars – and that Europe should cut its losses by encouraging Chinese car makers to set up factories here instead.

“Allowing Chinese investment in European car assembly should not be a taboo, despite the symbolic dimension of such a decision and the likely opposition of some European car makers,” they argued.

“All else unchanged, it would be far more beneficial for Europe to have China-branded vehicles on its roads if they were assembled locally rather than imported.”

At the moment, Britain’s automotive industry employs 182,000 people in manufacturing and contributes £14bn to the economy per year, according to the Society of Motor Manufacturers and Traders (SMMT). The auto industry in Germany, Europe’s biggest car producer, employs almost 800,000.

But with a net zero ban on petrol cars now less than seven years away, the coming invasion of Chinese cars is putting national governments in an invidious position, warns the CSIS’s Mazzocco.

“On the one hand, you actually have very cheap, affordable, decent value electric vehicles coming from China, which we know are beneficial to decarbonising our transport sectors,” she says, “and from that point of view, it is actually a positive thing to have increased competition.

“On the other hand, there is a real risk for countries that have large automotive industries. If your decarbonisation policies lead to de-industrialisation and job losses, you’re eventually going to get backlash.

“If production is moved to China, you could get the equivalent of the China shock in the heart of Europe – which could have some very negative effects.

“You may get a populist wave of anti-climate activists, for example, if you experience widespread unemployment.”

New frontline of espionage

About 150 miles east of Beijing, the beach resort of Beidaihe sits perched on the coast of the Bohai Sea.

Known as the “summer capital”, with government departments having once moved there annually to escape the heat, today the district is where China’s communist elites like to take their holidays.

If you drive a Tesla, however, then you had better find another place to relax.

Last year, authorities in the district turned away Teslas for at least two months, starting from July 1, citing reasons related to “national affairs”.

And it is not the only example of restrictions being placed on the American company’s cars in China.

Teslas have also been barred in the past from driving through parts of Chengdu where Xi Jinping, the Chinese president, was due to visit.

The restrictions underscore fears that the modern car – a computer on wheels that utilises a battery of sensors, microphones, cameras and software programmes – risks becoming a new front in global espionage, much as smartphones have already.

And while car makers have traditionally focused on locking down individual cars, in recent years they have also been forced to consider a range of other vulnerabilities, as criminals and hackers have devised ever more ingenious ways to copy the radio signals of car keys or even seize control remotely.

In one well-known experiment, hackers remotely disabled a Jeep Cherokee’s transmission while a journalist was driving it down a US motorway. This led to the recall of 1.4 million vehicles.

More recently, exercises by cyber security experts in the UK have resulted in vehicles being remotely compromised, with control taken away from the driver by an attacker crouched behind a laptop keyboard.

Sources who spoke on condition of anonymity said these trials – which revealed “gaping holes” in security – were carried out at the request of sceptical car manufacturers who refused to believe such hacks were possible until they were demonstrated in front of them.

Yet the type of security threat likely to be posed by China will not necessarily come from external actors.

Modern cars are increasingly dependent on “over the air” software updates, which they receive through a mobile phone-style SIM card that is built into the vehicle.

If a malicious actor gained access to these update systems, through servers known as “the backend”, they could beam out software that allows them to spy on vehicles and their driver remotely.

The concern is that this is not only vulnerable to hackers, but also potentially the manufacturers themselves, with those in China subject to national security laws that force them to comply with government requests.

“If somebody is able to attack the backend then, potentially, that might also have implications on the safety of the vehicle… you would be able to update the software,” says Martin Emele, of the Automotive Information Sharing and Analysis Centre.

This is the case for all new cars, wherever they are made in China, Europe or the US. A SIM card allows the car to receive updates, new features and security patches, just like a smartphone. In a crash a car will phone the emergency services. To do this, it needs a microphone and a link to the outside world. Cameras inside make sure you are not nodding off at the wheel.

All of this can be used to spy on you if security is lax, says Ken Munro, a security expert and ethical hacker at Pen Test Partners, a company that tests for security holes.

“We did a bunch of work on aftermarket car alarms. And we discovered that in many of them, you could actually remotely enable the microphones and listen to people in the cars.”

He believes that shoddy code poses more of a risk than state hacking. But last week, academic Jim Saker warned The Telegraph that in a worst case scenario, the cars could be remotely paralysed, representing a security risk to Britons.

This risk is compounded by the fact that Chinese technology is proliferate in western supply chains.

Chinese technology company Huawei may have been kicked out of the UK’s 5G network, but in December, the company reportedly made sales of its smart car technology to Mercedes Benz, Audi, BMW, and Porsche, putting Huawei products in 15 million cars a year.

The car makers were approached for comment.

In mitigation, “the Chinese market is highly, highly competitive”, Bergbaum of AlixPartners says, offering some protection since a car maker which did not protect a buyers’ data would quickly find itself short on custom and have its market snapped up by a rival.

“Clearly it’s something that should be monitored by the government.”

And with cheap Chinese cars soon expected to flood the UK and European markets, the question may soon become a far more urgent one for policymakers.

Stealth war

Over in Westminster, meanwhile, the potential invasion of Chinese cars is only just flickering onto the radar.

Government insiders claim they are alive to potential security issues, after spooks reportedly discovered a Chinese-made “geolocating device” in a car used for official business.

According to the i newspaper, the SIM card – placed inside a sealed part that was imported – was capable of transmitting location data and was discovered during a sweep of vehicles. China dismissed the claims as “groundless and sheer rumour”.

However, Conservative MPs are lobbying for the threat to be taken more seriously.

Dame Priti Patel, the former Home Secretary, believes the Government should slow the transition to electric vehicles if an influx of Chinese cars threatens to decimate the domestic car industry and pose security risks.

Previously, the Government stepped in to prevent Chinese telecoms giant Huawei from supplying technology used in the UK’s 5G mobile network, amid American concerns about the company’s links with authorities in Beijing.

Dame Priti Patel

Dame Priti Patel: ‘Net zero has to be match-fit for our country. We can’t end up being dependent on nations like China’ – Danny Lawson/PA

“The whole point about net zero is it should not disproportionately impact, disadvantage or discriminate against our country in any way,” Patel says.

“Under no circumstances can we revert backwards and end up being dependent on nations like China.

“We’ve just gone through the Golden Era where we were effectively cosying up to the Chinese state and that basically left our state institutions, our national security, key infrastructure assets, completely at risk from espionage, interception, being bought out and taken over, including companies that hold the data of British citizens.

“Our approach to net zero has to be match-fit for our country and make us secure when it comes to energy and technology… making sure that we have homegrown options, and that we are not franchising it out and giving it away to nations that, quite frankly, do pose a threat to us.”

She adds: “The risk exposure to our country and to British citizens is very real and it’s something that people need to go into with their eyes wide open, we can’t be naive about this anymore.”

With China having already ballooned its electric vehicle industry with a decade’s worth of subsidies, however, much of the damage is already done.

Shanker Singham, an international trade expert who advises the US and UK governments, says western countries should not shy away from imposing tariffs on Chinese cars where necessary.

But rather than imposing blanket restrictions, he suggests they should only target companies that can be shown to have received state support – and that they should be calibrated only to mitigate those benefits.

This would help put Chinese and western firms on a more even footing, Singham argues, while allowing those Chinese firms that are genuinely competitive.

“You want to give a signal to efficient China producers that have not benefited from government distortions – to the extent they exist – that we welcome their input, because it leads to better prices, better choice for consumers, all of the good things that come with international trade.

“But at the same time, you have a robust defensive mechanism to deal with their distortions.

“If you’re able to give those two signals to the Chinese government, you have a much greater chance of giving oxygen to the limited numbers of reformers who still exist there and making clear that, if you want to succeed in global markets, you need to eliminate your anti-competitive distortions. It’s a better way, and it’s more defensible economically.”

There is some hope for Britain’s dreams of securing more of a domestic BEV industry for itself. So far two battery gigafactories – around which experts say all other parts of the supply chain will orbit – are planned in Sunderland, by Nissan, and in Somerset by Jaguar Land Rover owner Tata.

Paul Atherley, the chairman of Tees Valley Lithium, a company hoping to open Europe’s biggest lithium refinery in Middlesbrough, says the UK’s access to vast wind energy and its chemical industry expertise could yet make it a key centre for critical minerals.

This would help to attract more battery and BEV manufacturers.

“Midstream is where China has dominance [of lithium],” Atherley explains. “That’s where we should be looking to draw on our chemical engineering heritage.”

Yet ultimately, it is the rock-bottom cost of Chinese cars that could prove the Achilles’ heel of western countries, argues car industry veteran Palmer, who says the Government must focus more on winning inward investment before it is too late.

“We’ve pursued net zero policies that are more ambitious than Europe, but we’ve taken away any advantage that gives to domestic industry,” he says.

“If you’re going to position yourself aggressively, you’ve got to back that up with an industrial strategy.

“The only place that has got access to affordable electric cars is China. And therefore, this ambitious strategy opens you up to competition from Chinese manufacturers, particularly at the lower end of the market, because they are the ones with the wherewithal to meet those price points.”

Worryingly for Europe, consumers may not take much persuasion either. Even Jeremy Clarkson, who once dismissed Chinese cars, now appears to be a fan.

In a recent newspaper review, the former Top Gear presenter hailed the new Lotus Emira as “very good value for money”, adding: “You could have three for the price of one scum-spec Ferrari.”

Lotus, as Clarkson noted, is yet another brand now owned by the Chinese.

Additional reporting by Gareth Corfield

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