Subsidies for China-built cars in Ghent: Smart move or a band-aid for industry's woes?

The future of car manufacturing in Ghent, Belgium, hinges on a complex interplay of national interests and global economic strategy, particularly concerning Chinese investment. Flanders has provided subsidies to the Volvo Car Gent factory, a facility now owned by China's Geely, to secure its continued operation and potential assembly of Chinese car brands.

This decision has ignited a debate, questioning whether it represents astute economic policy or a "kiss of death" for Belgian industry. The situation is particularly charged given Premier Bart De Wever's earlier strong warnings to the European Commission about China's "dumping" of cheap, unfairly competitive products. Yet, De Wever has also hailed the factory's rescue, highlighting the pragmatic, albeit ironic, outcome of securing jobs through the very companies he previously criticized.

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China is our economy is destroying.

Experts view this move as a logical, albeit complex, strategy. Dorien Emmers, a lecturer in Chinese studies and economics at KU Leuven, notes that Europe has actively sought to attract value creation and employment from Chinese firms, especially in green technology and electric vehicles, areas where China currently leads. This approach mirrors historical strategies, as Roel Gevaers, a professor of transport economics at the University of Antwerp, points out. In the 1960s, Europe attracted American companies with incentives, and later, Japanese automakers faced similar accusations of market disruption before becoming key industrial players.

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The Volvo factory is saved.

Gevaers argues that if Chinese companies are indeed disrupting markets by dumping products, it is pragmatic to encourage them to produce locally, thereby mitigating potential problems. This perspective resonates with economists who, despite generally favoring less subsidy reliance, see the pragmatism in this situation. Geert Noels, chief economist at Econopolis, acknowledges the preference for addressing root causes but recognizes the need to alleviate immediate issues with subsidies.

The economic stakes are substantial, with Volvo Gent contributing around 800 million euros in added value and directly employing 6,000 people, with indirect employment reaching 20,000. Gevaers emphasizes that the subsidy amount is minor compared to this broader economic impact. He also frames the decision within a global context where countries increasingly use subsidies to attract local production, citing Germany's success in securing Tesla's gigafactory. The underlying logic is that to remain relevant in the automotive industry, such measures are now necessary.

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Europe also started to focus a few years ago on bringing the value creation and employment of Chinese companies here.

However, the strategy is not without its critics. Filip De Beule, a professor of economics and international trade at KU Leuven, questions whether supporting established sectors like automotive manufacturing, which he terms an "old industry," should be a government priority. He likens such efforts to "picking winners," suggesting that governments ideally should foster a competitive economic environment and let industries naturally emerge. Despite this critique, De Beule concedes that symbolic dossiers like the Volvo Gent subsidy can hold value.

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Look at what we did in the 60s. We brought American companies to Europe, with subsidies and tax benefits, to come and produce here. In the 70s and 80s, the same applied to Japanese car manufacturers: just like the Chinese now, they seemed to be the big economic villains back then.