Europe-China tension rises: EU launches investigation against China’s subsidy for EVs
In an effort to stop a flood of inexpensive imports, the European Union is opening an investigation into Chinese subsidies for
electric vehicles
. This is a step up that might lead to retribution that would severely hurt the bloc's automakers. Shares in the European vehicle industry originally rose after Ursula von der Leyen, president of the European Commission, made her remark on the likelihood of protection against emerging Chinese competitors, but those gains were later reduced due to worries about a reaction. The president of the EU's executive arm warned on Wednesday that the world market is swamped with inexpensive Chinese automobiles and that the group would fight back, adopting an unusually tough attitude.In an effort to stop a flood of inexpensive imports, the European Union is opening an investigation into Chinese subsidies for electric vehicles. This is a step up that might lead to retribution that would severely hurt the bloc's automakers. Shares in the European car industry originally rose after Ursula von der Leyen, president of the European Commission, made her remark on the likelihood of protection against emerging Chinese competitors, but those gains were later reduced due to worries about a reaction. The president of the EU's executive arm warned on Wednesday that the world market is swamped with inexpensive Chinese automobiles and that the group would fight back, adopting an unusually tough attitude.
"Von der Leyen's announcement is a positive signal that the European Commission is recognising the increasingly asymmetric situation our industry is faced with," said Sigrid de Vries, director general of the European Automobile Manufacturers' Association, in an email to Bloomberg. China's "apparent advantage" is already having an effect on the domestic market share of European automakers. After more than a year of increasing subsidies in the US, China, the UK, and Europe, the probe represents the first tangible attempt to counteract competing governmental backing for green technology. Depending on the investigation's findings, the nations could adopt more assertive and reciprocal protectionist policies.
The European nations first protested that President Joe Biden's administration's passage of the Inflation Reduction Act broke free-trade laws before giving up and concentrating instead on carve-outs that would let their industries take advantage of the incentives.
The EV investigation into China is a component of von der Leyen's larger plan to "de-risk" ties with China without "de-coupling." This has shown itself in a number of ways, including EU moves to impose export limits on quantum computing and artificial intelligence technology and to restrict supplies of expensive semiconductors to Beijing. In order to rebalance bilateral economic ties, the bloc has also urged Beijing to open up its market and put in place new tools to address China's coercive practices that target nations such as Lithuania.
China has been home to a number of EV manufacturers supported by government incentives for both industry and consumers after European businesses invested substantially in Chinese joint ventures there for years.
Conflict with Beijing may be hazardous given that China is the largest market for Volkswagen AG and other German automakers. The Stoxx 600 Automobiles & Parts Index increased up to 2.2% intraday, the biggest since July 27, before giving back all of those gains to fall by 0.3%. The biggest automaker in Europe, VW, changed its growth from 3.8% to 0.2%. While many of China's startup businesses are still struggling to turn a profit amidst a fierce pricing war, the aggressive state industrial strategy is reminiscent of how China seized control of the solar-cell industry 10 years ago.
Von der Leyen stated, "We have not forgotten how China's unjust trade practices harmed our solar business. Many new enterprises were forced out by Chinese rivals who received significant subsidies. Innovative businesses were forced to declare bankruptcy. Last week's auto show in Munich raised awareness of the Chinese danger. Manufacturers, including the market leader in China for electric vehicles (EVs), BYD, Nio, and Xpeng, were active, displaying models meant to entice European consumers away from Volkswagen, Renault, and Stellantis brands.