On July 17, 2024, Chinese car manufacturer BYD signed an agreement with the Turkish Ministry of Industry and Technology to build a factory worth $1 billion, with an annual capacity of 150,000 vehicles, and to establish a mobility and R&D center. The company is expected to start actual production by the end of 2026.
This agreement is anticipated to boost Chinese investments in the struggling Turkish economy, providing a significant push and creating a nurturing environment to turn Turkey into a promising market for attracting more car brands. This agreement is the first of its kind and marks a pivotal point in the history of bilateral relations, coming at an important time for both sides. While China seeks to strengthen its position as a global economic power by expanding its presence in the Middle East, Turkey is turning eastward amid ongoing disputes with Washington and continued European Union reservations about Turkish membership, with some European leaders calling for a “privileged partnership” instead of full membership.
Multiple Dimensions
China’s move to enhance its investments in Turkey’s automotive sector aligns with a strategy to expand alliances with regional powers that possess the industrial infrastructure necessary to extend Chinese leadership in the global automotive sector. Thus, Beijing aims to achieve several objectives through the BYD deal, including:
Leveraging Turkey’s Emerging Market Advantages: Turkey is considered an emerging and attractive market for Chinese investments, which increased in 2023 to about $2.8 billion in direct investments. Turkey offers tempting competitive advantages to China, including advanced technology, cheap labor, competitive prices, and diverse consumer segments that can accommodate various car models. Additionally, Turkey’s strategic geographical location is advantageous from a Chinese perspective.
Circumventing Tariff Issues: The focus on intensifying Chinese automotive investments in Turkey stems from a desire to circumvent tariff issues imposed by Turkey on Chinese car imports. On June 8, 2024, Ankara decided to impose an additional 40% tariff on Chinese car imports, having already imposed additional tariffs on electric car imports from China in 2023.
Utilizing Turkey’s External Connections: Chinese investments in Turkey’s automotive market aim to capitalize on Turkey’s pragmatic connections with key car markets, particularly in Europe. Given the ongoing economic disputes and political tensions between China and Western powers, which hinder China’s influence in European markets, Beijing seeks to exploit the customs union agreement between Turkey and European countries to bypass European import restrictions on Chinese cars. Chinese factories in Turkey will be treated as Turkish products, allowing China to overcome European hurdles, particularly tariffs.
Transforming Turkey into a Global Automotive Production Base: Turkey has become an attractive manufacturing base for many global automotive companies, including Ford, Fiat, Toyota, Hyundai, Renault, and Mercedes. Turkey is home to about 250 global car suppliers, including 30 of the top 100 global suppliers, and exported over a million vehicles to dozens of external markets by the end of 2023. Turkey ranks second after the UK in exporting cars to European markets, making it an appealing destination for Chinese automotive investments.
Neutralizing Western Opposition: Chinese automotive companies’ expansion in Turkey coincides with Western attempts to curb Chinese growth in the sector. On May 14, 2024, Washington announced a hike in tariffs on imported Chinese electric cars to 100%, up from 25%, with the EU taking similar steps. The Turkish market offers a compelling alternative for Chinese automotive activities, helping Beijing mitigate the negative impact of increased Western tariffs.
Mutual Benefits
BYD’s expansion in the Turkish market is expected to yield several positive outcomes for Sino-Turkish relations, including:
Enhancing Comprehensive Strategic Partnerships: With Chinese automotive companies keen to invest more in the Turkish market, not limited to BYD, potential expansions from other Chinese car manufacturers like SWM are likely. These new Chinese directions could lead to a “comprehensive strategic partnership” between Ankara and Beijing.
Supporting Turkey’s Electric Car Industry: China’s efforts are expected to support Turkey in developing its electric car industry by forming joint ventures for building factories. Chinese companies can contribute to advancing Turkish automotive technologies, transferring expertise to local workers. This could also encourage global car manufacturers to increase their investments in Turkey.
Transforming Turkey into a Hub for Chinese Car Models: With the agreement between Turkey and BYD, Turkey is expected to become a new center for producing and selling various Chinese car models. There is significant acceptance of Chinese brands in the Turkish market, with 12 Chinese brands by the end of 2024. BYD Atto 3 and MG 4, two Chinese electric car models, ranked third and fourth among the best-selling electric cars in Turkey by February 2024.
Developing Sino-Turkish Trade: Sino-Turkish trade relations have seen significant growth, with bilateral trade reaching about $48 billion by the end of 2023. China is Turkey’s top trade partner in Asia. The recent agreements between Turkey and BYD are expected to further increase bilateral trade, with Turkey serving as a promising market and a gateway to Europe for Chinese car manufacturing and sales.
Coordinating on Regional Issues: Increased Chinese automotive investments in Turkey are likely to enhance bilateral coordination on various regional issues to protect mutual interests. Turkey offers fertile markets and competitive advantages for the Chinese automotive sector, while Turkey seeks to revive its economy through more controlled Chinese investments and the expansion of Chinese brands domestically. BYD’s investments reflect both countries’ desire to secure and develop shared interests and relations.
Enhancing Investments
In conclusion, BYD’s move to increase its investments in the Turkish market highlights the two countries’ commitment to strengthening future relations, especially as Turkey turns eastward and China aims to expand its activities in markets close to Europe.
