In recent years, Europe’s auto industry has reeled from the influx of low-cost, high-quality Chinese electric vehicles (EVs). Even as Brussels imposes tariffs on Chinese-made EVs, their market share only continues to grow. As of December, more than 9 percent of all new automobiles sold in Europe were made in China, with some estimates expecting Chinese EVs to account for roughly 20 percent of the Western European market by 2028.

Brussels’s retaliatory tariffs reflect a common Western view that high-value Chinese products are competitive in global markets largely because of state subsidies. To be sure, China’s EV industry has benefited immensely from Beijing’s subsidies, easy credit, and tax relief. That explanation, however, is far too narrow and risks severely underestimating the scale of the challenge ahead.

The more consequential story—that will likely make Chinese EVs even more competitive in the near future—is Beijing’s evolving approach to overseas industrial policy. At the core of this approach is an increasingly coordinated model of public- and private-sector activity.

State-owned enterprises (SOE) lay the groundwork for favorable investment environments abroad by undertaking massive infrastructure projects and securing access to strategic resources. Boosted by Beijing’s diplomatic ties and international clout, private companies leverage these state-backed platforms as a springboard for trade by bringing in investment, production capacity, and industry-specific expertise.

The advantages of this approach for Beijing—and the challenge that it poses to foreign companies—are already on full display in Morocco, where years of existing strategic investment, infrastructure development, and geopolitical maneuvering are pushing China closer to vertically integrating EV supply chains, bypassing tariffs, and further reshaping Europe’s auto industry.

It is only in recent years that Morocco has emerged as a key node in China’s EV empire.

For decades, Beijing maintained much closer ties with Morocco’s neighbor and rival, Algeria, but that began to change in the early 2010s as the Belt and Road Initiative (BRI) took off. In 2016, Morocco joined the growing ranks of countries signing “strategic partnerships” with China, making mutual commitments to expand economic cooperation and recognize each other’s core interests.

The next year, Morocco officially entered the BRI, and China has since poured millions of dollars into Morocco’s energy and transportation sectors. Almost a decade later, that economic relationship has expanded dramatically: In March, China’s committed investment in the country exceeded $10 billion, concentrated mostly in the EV and energy sectors.

China’s EV manufacturing capacity in Morocco builds on years of large-scale, state-backed investment in transportation infrastructure and natural resources. Over the past decade, Chinese SOEs have collaborated on major infrastructure and development projects in Morocco, including bridges, highways, and smart cities. Some of these are directly relevant to the EV industry, such as the chemical processing unit in Khouribga, home to one of the world’s biggest reserves of phosphate, which is critical for EV battery production.

This SOE-led scramble for resources and construction-heavy projects paved the way for private Chinese companies in the EV sector to establish footholds in Morocco and ship to overseas markets. Tanger Tech City, China’s SOE-led flagship collaboration with Morocco, is located less than 30 miles from Tanger Med, the largest container port in Africa. Taking advantage of no-fee business registration and tax-free dividends, private Chinese companies—including the global battery giant BTR New Material Group as well as tire manufacturers Sentury Tire and Guizhou Tyre—have established or announced plans to establish production bases in the industrial zone.

Elsewhere in the country, major private investments include battery manufacturer Gotion’s $1.3 billion factory and a $2 billion joint-venture battery materials factory between China’s CNGR Advanced Material and the Moroccan private equity firm Al Mada.

This isn’t to deny the role of subsidies and preferential financing, which Beijing sees as key tools for supporting companies that are expanding internationally. A 2024 directive, for instance, called on Chinese financial institutions to improve credit approval and lending procedures and to enhance cross-border settlement to “better support companies expanding into international markets.” Closer collaboration among Chinese banks, semi-official trade organizations, and Moroccan banks has also helped to streamline financing and channel investment into the African market.

But these policies are useful to Chinese firms because they are operating in an industrial landscape that SOEs have already shaped, with relatively easy access to necessary resources and infrastructure.

China’s success with this approach has only been possible because it also advances Rabat’s desire to expand domestic manufacturing capability and position Morocco as Africa’s next industrial powerhouse. Chinese investment is expected to generate sorely needed jobs; Morocco’s unemployment rate has hardly dipped below 10 percent for the past decade, and youth unemployment in cities stands at a staggering 47 percent. Officials claim that the Gotion factory alone will create 17,000 local jobs, including 2,300 high-skilled positions.

Beijing has coupled this economic engagement with a subtle diplomatic shift in favor of Rabat’s claims over Western Sahara. For decades, China has avoided explicitly backing either Morocco or Western Sahara, though its rhetoric often leaned toward the latter—and thus to the latter’s main sponsor, Algiers. With one exception in 2018, it consistently voted in favor of United Nations Security Council resolutions extending the peacekeeping mission in Western Sahara and affirming support for the Sahrawi people’s right to self-determination.

However, in recent years, China has done an about-face. In 2024, its Ministry of Foreign Affairs implicitly acknowledged the importance of the Western Sahara question for Rabat, stating, “China supports Morocco in maintaining national security and stability and is ready to work with Morocco to continue firmly supporting each other on issues concerning their respective core interests.” Then, last fall, Beijing abstained on the most recent U.N. resolution on the matter, which for the first time endorsed Rabat’s proposal to formally establish Western Sahara as an autonomous region under Moroccan sovereignty.

The full payoff of China’s Moroccan gambit will materialize if and when localized EV manufacturing matures, which could take years. That is still a tall order, as evidenced by the recent shelving of a BYD assembly plant project that had been stalled since 2017 due to budget issues and limited local charging infrastructure, according to a company executive.

Though Chinese automakers are not yet building assembly plants in Morocco, the country matters for everything “upstream” of assembly. It is becoming an integrated ecosystem for the production of batteries, tires, and other components, which reduces Chinese EV companies’ reliance on direct shipments from China and lowers costs for Chinese assembly plants in Europe and Africa.

Morocco also offers Chinese firms convenient access to the European market through the Tanger Med port and—more importantly—a rules-based pathway through Brussels’s tightening trade defenses. Currently, the EU imposes duties of up to 35 percent on EVs manufactured in China. However, vehicles that qualify as Moroccan in origin can enter the European market duty-free. That includes vehicles assembled in Morocco, so long as foreign parts make up less than 45 percent of the finished vehicle’s ex-works price.

In short, if Chinese EV companies succeed in establishing vehicle assembly factories and fully integrating supply chains in Morocco, they will be able to sell vehicles to Europe under a “Made in Morocco” label, avoiding both the 10 percent EU standard automobile tariff and the additional punitive tariff on Chinese-made EVs—reducing the total tariff effect from as much as 45 percent to zero. This would pose an unprecedented threat to what remains one of the EU’s most important industries.

China is rolling out this coordinated approach to overseas industrial policy elsewhere to varying degrees.

In Thailand, for example, China is a key investor in the Eastern Economic Corridor, a flagship regional development initiative anchored by a high-speed railway that will connect several Thai cities and seaports to China. The corridor has, in turn, provided an attractive environment for private Chinese investment. China is now the corridor’s largest source of foreign direct investment, primarily in the EV sector and related industries. Like Tanger Tech City, the corridor offers private Chinese companies major tax incentives and more convenient access to the Association of Southeast Asian Nations’ market.

The United Arab Emirates offers another example. In 2017, Chinese SOE Jiangsu Provincial Overseas Cooperation and Investment Company Limited (JOCIC) partnered with Abu Dhabi Ports to develop an industrial and special economic zone inside the Khalifa Port’s free trade zone. JOCIC set up a wholly owned UAE subsidiary to manage the park, which lets it attract Chinese private capital while insulating the parent company from project-level and geopolitical risk. The park’s location provides Chinese companies with a convenient base for expansion into the Persian Gulf and wider Middle Eastern markets, along with exemptions from value-added tax and other financial incentives. As of 2025, more than 40 Chinese companies had collectively committed more than $700 million to the park, with a focus on EVs and renewable energy.

Beijing has long seen its SOEs as tools for advancing its broader economic interests. As China in recent years has emphasized “small and beautiful” projects, the SOE-led megaprojects are often viewed as commercially disappointing holdovers from an earlier and more profligate era of BRI. Nevertheless, under this coordinated strategy, Beijing has been able to capitalize on the advantages secured by past infrastructure projects and deepen its presence in the overseas market.

As governments in industrialized economies respond to China’s surge of high-value manufactured exports, they must recognize how the sources of Chinese firms’ advantages are changing. Today, those advantages come not just from subsidies and cheap credit at home but also from integrated ecosystems abroad, built through coordination between public and private enterprise.

This means that Brussels’s retaliatory tariffs and the recently announced limits on hybrid EVs imported from China, on their own, are unlikely to stem the tide of EVs made by Chinese firms operating around the world. China’s rivals—even in industrialized economies—will struggle to compete unless they can coordinate across borders and build supply chains and infrastructure that leverage or, far less plausibly, completely sidestep what China has already put in place.