The Platform

Photo illustration by John Lyman

The 2020s are poised to be a transformative era for Chinese design, particularly in the automotive industry.

The evolution of the Chinese automotive industry, as seen through its strategic engagement with Russian and Iranian markets, underscores the sector’s enduring significance in international diplomacy. During the late 1990s and early 2000s, ‘Made in China’ emerged as a formidable global phenomenon. However, the initial surge in Chinese manufacturing has since waned, primarily due to the inevitable increase in labor costs and the concentrated allocation of resources. Today, the focus of China’s economic growth has shifted. The coming decade is likely to be defined not by manufacturing, but by product design innovation. This transition is powered by substantial investments in research and development (R&D) within China, signaling a new era in its economic journey.

In the coming years, we will see transformative shifts as the adoption of virtual workspaces becomes more widespread, necessitating a careful balance with the ongoing growth in transportation infrastructure, a key aspect of diplomatic and commercial strategy. This era of change has been marked by a swift evolution in commercial diplomacy, pivoting around the advancements in virtual communication technologies. These changes are particularly pertinent as the world emerges from the restrictions of lockdowns and seeks to mitigate the accelerated economic challenges posed by the pandemic. It’s a delicate interplay between leveraging new virtual tools and maintaining the momentum in transportation projects that hold diplomatic significance.

The automotive trade among China, Russia, and Iran has been significant since the mid-2000s. However, recent geopolitical tensions, exemplified by Russia’s invasion of Ukraine in February 2022 and the war in Gaza between Israel and Hamas, have thrust the critical role of sanctions impacting energy and transportation sectors to the forefront. The intertwined nature of the automotive and oil industries is again under scrutiny. A notable development occurred in March 2021 when Iran and China inked the Iran-China 25-year Cooperation Program. This agreement, which came into effect in January 2022, secured Chinese petroleum companies’ access to Iranian oil. It also included a commitment by the Chinese Communist Party to invest $400 billion in Iran’s oil infrastructure over the next quarter-century, underscoring the strategic interplay between these nations’ energy and transportation ambitions.

China’s commitment to enhancing Iran’s oil infrastructure is a strategic move aimed at bolstering Iran’s capacity to export, with a particular emphasis on the automotive industry and related products to Iran and the broader Middle East. The formalization of this agreement coincided with Western nations developing their post-COVID recovery plans. This development highlighted China’s economic resilience, as it reported a modest growth of 2.3% in a year when average GDPs in North America and Western Europe contracted by approximately 10%. This contrast served as a stark reminder of China’s expanding economic influence during a period of global downturn.

Should the agreement be honored, it will reflect and contribute to the challenges faced by automotive manufacturers from North America, Western Europe, Korea, and Japan, who risk losing access to a burgeoning market of 1.6 billion potential customers with increasing rates of car ownership. This deal is poised to expedite the collaborative development of the automotive industries in Iran, Russia, and China, creating a powerful trifecta in the global automotive landscape.

The ratification of this agreement marks a pivotal shift in global trade dynamics, signaling a reorientation of international alliances that favor more direct trade relations with China. This comes even as countries like Mexico and Vietnam experience a resurgence in their manufacturing sectors. Nonetheless, China’s proportion of global consumer goods production has seen a gradual but persistent increase, edging from 28% in 2018 to 29% in 2019, and reaching 30% by 2021. This trend illustrates China’s unwavering ascent in the global manufacturing hierarchy.

The West may find valuable insights in examining the contribution of automotive exports to China’s economic resilience this decade. In 2021, the automotive sector was at the forefront of Chinese exports to Iran, with a staggering $627 million in sales, making it the most valuable single export category. The Chinese government and corporate sector’s commitment to the automotive market’s growth is evident in their research and development (R&D) investments. For instance, in the first half of 2023, the BYD Group not only generated more gross profits than Tesla but also invested more in R&D. Moreover, BYD is on track to overtake Tesla in the production of electric vehicles, signaling China’s rising prominence in the electric vehicle market.

Russia’s engagement with the Chinese automotive sector reflects Russian President Vladimir Putin’s pragmatic approach to economic policy. While domestically produced Russian cars like those from AutoVAZ and LADA are relatively pricey for the local market, Chinese brands provide more cost-effective alternatives. This is despite Russian initiatives encouraging officials to buy local brands. The exact value and rationale behind Russia’s costly domestic automotive market remain obscured, pending the release of private and governmental data.

The primary issue for modern Russian cars is not just their price, but how they are valued against their Chinese counterparts. For instance, the Lada Granta has fallen out of favor with Russian taxi companies. This is partly due to sanctions imposed after Russia invaded Ukraine, which led to compromises in quality, including the elimination of safety features.

Putin seems to recognize that ironically, the path to attracting investment and technological advancement in Russia might lie through allowing its automotive industry to lag. Consequently, established brands like LADA are relegated to a secondary role, a stark shift from their heyday as symbols of Cold War diplomacy.

On another front, the effectiveness of sanctions against Iran merits reconsideration. Iran’s vast rural areas necessitate the growth of its automotive sector. However, unlike in Russia, Iranian vehicles are priced competitively. This suggests that the preference for Chinese cars is a deliberate choice by Iranian consumers. Peugeot, through longstanding agreements with local manufacturers SAIPA and Iran Khodro, continues to lead in the Iranian market, accounting for 67% of new automobile registrations in 2022. This dominance speaks to a complex interplay between consumer choice, international partnerships, and the impacts of sanctions on the automotive industry.

In an economy increasingly dominated by globalized production, the rise of foreign market share is noteworthy. Manufacturing and product design are progressively centered in China, echoing a historical pattern. For instance, despite the revolutionary upheaval in Iran and subsequent sanctions during the Iran-Iraq War, supply chains for vehicle components and knock-down kits for models like the Toyota Land Cruiser and the Land Rover Defender were maintained, highlighted by a significant contract in 1986.

The 2020s are poised to be a transformative era for Chinese design, particularly in the automotive industry. This advancement is partly due to the limitations in virtual technology and the impact of sanctions, which have been further spurred by agreements such as the Iran-China 25-year Cooperation Program.

The importance of historical context in research and writing cannot be overstated, yet history does not repeat itself in a literal sense. The current geopolitical landscape, with its new political alliances, does not imply a failure to learn from the past. However, ignoring the current issues within the automotive industry could risk a regression to past problems. The burgeoning collaboration between the Russian, Chinese, and Iranian automotive sectors illustrates how technological advancements can reinforce longstanding trends rather than disrupt them.

The Anglo-American dominance in commercial diplomacy is waning, a reality acknowledged by British and American businesses, if not yet fully by policymakers. The most pragmatic and least harmful economic strategy would be a proactive reevaluation and adjustment of sanctions, rather than waiting for external pressures, such as those from the Chinese government, to dictate such changes.

A PhD candidate with the University of St Andrews, Guan Kiong's research interests focus on the evolving historical context of the automotive industry around the world during the 20th and 21st centuries. A former bike and piano salesman, Guan Kiong sees salespeople as informal ambassadors. Goods and services tell so much about how countries regard foreign products and how exporters view their clients. In an age where the effects of sanctions change day by day, we can no longer afford to sweep these tales under the brush of growth, productivity or any of the old school economic monikers any longer.