As 2023 got under way, it looked like the year would be dominated by three big things: Recession in the United States, China’s real estate implosion and the rise of artificial intelligence.

At the start of January, Bloomberg’s survey of economists put the odds of a US recession at 70 per cent, the Evergrande group in China had failed to restructure its debt and home buyers were boycotting their mortgage repayments, and ChatGPT had become the fastest-growing consumer software application in history, only a month after its launch.

But the recession never arrived, China didn’t go the way of America after its real estate collapse in 2007, and although AI produced a 20 per cent rally in the US stockmarket this year and plenty of conjecture, it is not changing our lives yet.

In fact one of the most important events of 2023, for the Australian and world economies, may have been a less noisy one: China quietly became the world’s biggest exporter of cars in March.

China had been the biggest manufacturer of cars since 2009, but its exports were minimal. It took a decade for its vehicle exports to overtake the US; it then went past both South Korea and Japan in 2022 and finally passed Germany in March this year to take the lead.

China’s stunning success as a car maker and exporter has not only transformed the global car industry, it is transforming China, and with it, Australia.

China’s trade surplus has tripled in four years, despite being in America’s sin bin, and that has not happened because North American or European consumers are buying three times as many plastic toys, iPhones or the other things on which China built its economy on over two decades.

China set about opening up new markets as the US market got harder, and at the same time it moved up the value-chain.

The cars are mostly not being sold in the US or Europe, but in south-east Asia, the Middle East and Latin America, the shift in the destination of China’s exports generally has been dramatic. In 2017, the value of Chinese exports to ASEAN economies was 60 per cent of its exports to the US; now it’s 120 per cent.

Tesla’s ‘Gigafactory’ in Shanghai. Photo: Getty

Just as importantly, while the cars are the most visible, there are also power plants, solar panels, earth-moving equipment, tractors, telecom switches, turbines, and machine tools – all the capital goods that are in high demand across India, Indonesia, Brazil and Saudi Arabia.

The tripling of China’s trade surplus has meant that the real estate bust of the past two years – which has been every bit as epic as Australia in 1989, Japan in 1990, Sweden in 1992, Thailand in 1997, South Korea in 1998, the US in 2008, and Spain in 2011 – did not crush the Chinese economy as those others did.

It seemed like a no-brainer to predict that China would go into recession like all those other victims of property busts, especially with the US also cutting off its access to technology and the US market for exports.

That it didn’t happen wasn’t an accident: China has massively subsidised its electric vehicle industry, including battery production, and set about opening up new markets to replace the US, especially in south-east Asia selling cars for less than $US10,000.

China’s Ministry of Industry and Information Technology (MIIT) pays car companies cash subsidies based on the number of EVs they produce.

Bloomberg reports that up to the end of last year, it had paid almost 39 billion yuan ($8.3 billion) to subsidise the production of about 3.76 million new-energy vehicles, about 31 billion yuan of which was paid just last year to 49 eligible car companies, with BYD getting the most, followed by Tesla.

In addition to that, almost all EVs sold in China are exempt from vehicle purchase tax and most EV companies are deemed high-tech businesses and therefore eligible for a lower corporate tax rate of 15 per cent, versus the usual rate of 25 per cent.

And all levels of government in China are providing EV companies cheap loans, land and grants, R&D payments and tax breaks, as well as subsidising public charging stations.

The impact of all this on Australia

When the federal budget was brought down in May, the iron ore price was $US100 a tonne, down from $US130 in March, and was widely predicted to keep falling as the Chinese property sector collapsed and the economy weakened – not least by Federal Treasury, which had pencilled in a price of $US60, up only slightly from the $US55 assumption it has been using, ludicrously, for seven years.

Instead the iron ore price has recovered all the way back to what it was in March, and then some. Currently it’s $US137.50 a tonne.

This is almost entirely because of cars, clad as they are in Chinese steel, made from Australian iron ore, and increasingly powered by Australian lithium.

We are partners with China in its hostile takeover of the global car industry, and not only is this by far the biggest export story for Australia and the world at the moment, it is one of the most important facts about our economy more generally, along with the new wave of Chinese students.

The suburb I live in is turning delightfully Chinese because it happens to contain a university, and I am seeing more and more Chinese electric vehicles on the road – mainly Teslas, but also a lot of MGs (yes, they’re both made in China), and some BYDs.

And by the way, the Teslas aren’t being sold through dealers but direct, online. How long before all other carmakers work out they don’t need dealers, and put the nation’s car salesforce out of work?

History will no doubt nominate the Israel-Gaza war and the end of rising interest rates as the key events of 2023, but I reckon a quiet achiever as far as 2023 events go was China’s ascension as the world’s largest exporter of cars.

Alan Kohler writes twice a week for The New Daily. He is finance presenter on the ABC News and also writes for Intelligent Investor