BY ANTONIA ZIMMERMANN AND JORDYN DAHL, Politico, 26 June 2024

LONDON - As Brussels gets tougher on Chinese imports, Beijing is diversifying its strategies to maintain access to key markets.

The “Shanghai of Morocco,” less than half an hour’s drive from the port city of Tangier, is for now little more than a construction site.

But fast-forward a couple of years and the industrial park — officially named “Cité Mohammed VI Tanger Tech” after the country’s king — could already be teeming with Chinese auto component-makers and electric car battery-producers.

As Brussels and Washington throw up trade barriers, establishing itself in Morocco’s booming auto sector is a key part of China’s strategy to safeguard its access to those markets. To wit, it allows Beijing to leverage the North African country’s ambition to become a leader in the electric vehicle revolution, taking advantage of its proximity to Europe and its existing trade accords with both the European Union and the U.S.

In May, U.S. President Joe Biden quadrupled tariffs on electric vehicles from China to 100 percent. On June 12, meanwhile, the European Commission announced extra provisional duties of up to 38.1 percent on made-in-China electric vehicle imports from July 4 — a level that was much higher than expected.

“Tariffs on made-in-China goods will only accelerate the regionalization of Chinese supply chains to such places as Morocco in order to circumvent such barriers,” said Bill Russo, a Shanghai-based automotive analyst.

Beijing is fully aware of the prospect of growing restrictions, with Chinese investment in Morocco’s electric vehicle sector booming. Just this month, Beijing’s Gotion High-Tech signed a deal with the government to build the country’s first EV battery gigafactory, at a total cost of $1.3 billion.

Morocco’s trade agreements with European countries and the U.S. were among the decisive factors that helped get the Gotion deal over the line, Mohcine Jazouli, the country’s minister delegate in charge of investment, said at the signing ceremony.

A person from the Chinese business sector, who was not authorized to speak publicly, called investment in Morocco a “good option” to maintain access to the EU’s EV market, arguing that it’s “already on the radar of some EV-makers” and allows access to “other markets beyond Europe.”

‘Enormous potential’

To Chinese companies, finding ways to skirt tariffs and trade restrictions through backdoor manufacturing hubs is a familiar game.

Every tenth car sold in Mexico, for example, is Chinese. Although no Chinese auto firm has started manufacturing vehicles there yet, the country’s proximity to the U.S. is ringing alarm bells in Washington.

The fear among U.S politicians is that carmakers will use Mexico — which has a regional free-trade agreement with the U.S. and Canada — as a backdoor to circumvent Washington’s tariffs and shake up a market that is struggling with a flood of cheaper and more efficient vehicles. In 2023, the U.S. ranked sixth in the world in vehicle exports, behind Mexico, South Korea and Germany — compared to fourth prior to 2020. BYD, China’s largest manufacturer, is currently scoping out Mexico for a new battery plant.

A similar story is now unfolding on Europe’s doorstep, just across the Strait of Gibraltar.

“Morocco has an enormous potential, particularly in the automotive sector,” said Steven Jackson, emeritus professor at the Indiana University of Pennsylvania.

Now a critical manufacturing hub for the industry, Morocco last year overtook China, Japan and India — the traditional powerhouses — to become the leading car exporter to the EU. Exports surged to $14 billion, with the largest share of cars shipped to France, Italy and Spain.

Morocco has long been a darling of French automotive company Renault, which first established a manufacturing presence there in 2012 and now produces more than 287,000 vehicles annually. Its popular Dacia Sandero model is made almost exclusively in Morocco, leading Renault to dub the North African nation “Sandero-land.” Franco-American-Italian carmaker Stellantis is also growing its presence in the country.

Beijing was acutely aware of that potential when it started pursuing closer ties with Rabat, a strategy that gained momentum in 2016 with a visit by King Mohammed to China, where the two sides signed a strategic partnership.

Doing so doesn’t come without diplomatic risk, however. It forces Beijing to thread the diplomatic needle between its ambitions in Morocco and in its eastern neighbor, Algeria — with whom China enjoys far closer relations, but whose ties with Rabat remain fraught after a series of crises since the countries’ independence.

But while “Algeria was the old friend of the established ... political and commercial relationship, Morocco had the potential, and China has been trying to push that potential to have a good relationship with these two incompatible countries,” Jackson argued.

Through the back door

With Morocco seeking foreign investment to help it become a leader in new-energy vehicles and batteries that are meant to land in Europe, conditions are ripe for Chinese companies to set up shop.

Rabat aims to ensure that made-in-Morocco EVs represent up to 60 percent of the cars it exports ahead of the EU’s planned 2035 ban on new fossil-fuel cars, Ryad Mezzour, the country’s industry and trade minister, said in April. Together with occupied Western Sahara, Morocco holds 70 percent of the world’s phosphate reserves — used for fertilizer production but also in cheaper models of EV batteries.

Chinese EV-makers, the person from the Chinese business sector said, tend to set up a plant “if they have big sales in the country or nearby” or “if the country has better access to their targeted market or [a] favorable business environment for them.”

Stability, geographical proximity to a key market, a rich industrial landscape and cheap labor — that’s exactly what Morocco offers, according to Christian Géraud Neema Byamungu, an expert on China-Africa relations and the Francophone Africa editor of the China Global South Project.

As gaining access to key markets is key to justifying the higher cost of producing abroad, Morocco’s abundance of cheap labor — caused by a six-year drought that has pushed farmers out of employment and sent unemployment rates soaring — is a decisive factor. Quoting Mezzour, Chinese state media Xinhua said Chinese manufacturers benefited from the low cost of making batteries, which is 50 percent cheaper than in Europe.

Following on, the last several months have seen a series of Chinese investments in the batteries sector, with Chinese EV battery manufacturers Hailiang, Shinzoom and BTR New Material Group all announcing plans to set up manufacturing plants. Morocco has also seen a number of joint ventures between Chinese and Western EV battery companies.

As China’s influence grows, the EU could opt to up the ante. Bowing to pressure from Washington, Mexico has started refusing to offer additional incentives such as low-cost public land or tax cuts for investment in EV production to Chinese carmakers. Should he return to the White House, Donald Trump has vowed to impose tariffs on cars crossing the border from Mexico.

In the long term, however, Byamungu, the expert, expects this strategy will push Western powers to take a less hawkish approach to China.

“Private companies still need Chinese money … As much as they want fully to cut off the ties, the reality of private companies will kick in, and will force them to dilute their approach,” he said.