In late April, China’s Ministry of Industry and Information Technology (MIIT) announced that that any xEVs applying for a Chinese government subsidy had to contain a battery manufactured by one of 25 Chinese-owned companies listed on MIIT’s “White List.” The announcement, which effectively closes the fastest growing advanced vehicle market in the world to non-Chinese battery suppliers, took many by surprise. LG Chem and Samsung, which recently invested hundreds of millions of dollars in Chinese battery manufacturing facilities and are pointedly not on the “White List”, are said to be extremely concerned. In the United States, XALT Energy last week laid off almost half its workforce as its prospects for securing Chinese bus battery orders appear to have collapsed.
Economic nationalism is not new to the Chinese battery market. China has long required that battery manufacturers in China be owned at least 51% by Chinese nationals. But the MIIT announcement seems to take protection of Chinese manufacturers to a new level. Notwithstanding the minimum domestic ownership requirement, it was previously perceived to be easier for foreign manufacturers to access the Chinese domestic battery market than the domestic battery markets of several other major Asian countries. Unfortunately, this may be changing.
China is the largest and fastest growing market for lithium-ion batteries in the world. According to research firm CCM, nearly 80% of new investment worldwide in Li-on batteries was located in China in 2014. There were 25 Li-ion battery projects in China with the scale of investment above RMB100 million (US$15 million). As for capacity, in 2015, the domestic output of power Li-ion battery in China increased to 15.7 GWh, triple than that of 2014. The prospect of participating in that market drove the aspirations of businesses around the world.
It is still a little unclear what is going on in China. Some industry insiders have suggested that the MIIT announcement was less about protectionism than about upset with LG Chem and Samsung about some of their business practices in the Chinese market.
But regardless of the cause, the perception that economic nationalism in China is growing that that its previously promising battery market may be closing to foreign firms are not positive signs. For every action there is a reaction, and there is reason to be concerned that some of those reactions could get out of hand and do damage to the worldwide advanced battery market.
There is a need in the industry for a frank understanding as to what the rules are in major battery markets for foreign-owned manufacturers and suppliers. While those markets were small, the inconsistencies between markets with respect to how foreign suppliers were treated mattered little. As advanced battery manufacturing becomes a major strategic industry in many countries, the inconsistencies will start to matter a lot more. The governments of those countries need to start talking soon and nip any problems in the bud.