China Accuses EU of ‘Naked Protectionism’ in Fight for EV Market

China blasted the European Union’s probe into Beijing’s electric car subsidies as a “naked act of protectionism,” as the battle to access the bloc’s growing clean-car market risks sparking a trade war between the two economic powerhouses.

(Bloomberg) — China blasted the European Union’s probe into Beijing’s electric car subsidies as a “naked act of protectionism,” as the battle to access the bloc’s growing clean-car market risks sparking a trade war between the two economic powerhouses.

The decision to launch an investigation into Beijing’s state subsidies will have a “negative impact” on the EU’s relationship with China, the Commerce Ministry warned on Thursday. The EU said it is trying to protect jobs and supply chains at home, as it claims China is unfairly flooding the market with cheap vehicles.

“It is a naked act of protectionism that will seriously disrupt and distort the global automotive industry chain,” the ministry said in a statement. China’s EV industry has thrived due to “innovation” and a “complete industrial supply chain,” it added.

Shares of leading Chinese EV makers fell slightly Thursday. BYD ended 1.2% lower in Hong Kong while SAIC Motor Corp., which owns MG, declined 0.3% onshore after paring some losses.

The immediate impact of any European tariffs on China’s economy is likely to be limited, as more than 80% of the passenger cars produced in the Asian nation were sold domestically in the first eight months of this year. China’s EV market has been a rare bright spot in its sputtering post-pandemic recovery, maintaining growth and bolstering exports.

Read More: From Cheap Money to Tax Breaks, EVs in China Get a Lot of Love

The bloc’s decision to push back against China’s growing EV prowess is a blow to President Xi Jinping’s strategy of courting the EU as a bulwark against US challenges to the world’s second-largest economy. It also highlights the EU’s difficulties in fostering trade ties with China while also guarding against perceived supply chain and national security risks.

Henry Wang Huiyao, founder of the Center for China and Globalization research group based in Beijing, called the EU’s move surprising and “counterproductive” to the overall relationship.

“It’s certainly not helping the trend in the relations that were gradually heading toward recovery,” he said. “The EU is a champion of multilateral rules. If they have an issue they should go to World Trade Organization.”

The EU’s decision to hit China with the threat of tariffs will likely cast a long shadow over the bloc’s talks in Beijing later this month. The EU’s executive vice president and trade chief, Valdis Dombrovskis, is making a trip to the capital that’s designed to pave the way for a long-anticipated leaders’ huddle this year. The visit will give China a chance to present its case over the probe. 

The Commerce Department in Beijing on Thursday said its EV sector had grown due to “persistent efforts of tech innovation” and its “complete industrial supply chain.” China’s EV car exports to the 27 European Union nations were worth 47% of the value of total exports in the sector last year, according to Chinese customs data. That number fell to 44% in the first seven months of 2023.

The EU clearly disagrees. European Commission President Ursula von der Leyen on Wednesday said the global market was overrun with cheap Chinese cars sold at “artificially low” prices due to Beijing’s support. While it’s unclear how united the bloc was over the probe, Berlin said the EU’s executive arm had given forewarning.

“I knew the commission was looking at it critically,” said Germany’s Economy Minister Robert Habeck. “There is a good relationship of trust and very close coordination with the commission on such issues.”

The probe that has a roughly nine-month timeframe will likely result in new EU tariffs on Chinese EV imports and impact non-European automakers such as Tesla Inc., which export cars from China. The Asian giant could face tariffs close to the 27.5% level already imposed by the US on Chinese EVs, according to a person familiar with the matter. 

Jens Eskelund, president of the European Union Chamber of Commerce in Beijing, said he supported a level-playing field on ruled-based trade practices. “The European Chamber expects to see a fact based probe with a view to ensure such principles for all market participants,” he added.

While the near-term impact of the EU probe will likely be limited, it will weigh on the “growth outlook of companies with aggressive expansion plans in the EU, like BYD,” Morgan Stanley analysts including Tim Hsiao said in a note to clients. 

Chinese brands most likely to be hit hard are Zhejiang Geely Holding Group Co., which has the top Chinese presence, while BYD Co. and Nio Inc. are also pushing into the continent and starting to challenge market leaders Volkswagen AG, Tesla Inc. and Stellantis NV.

What Bloomberg Opinion says …

“Over the past 12 months, Europe has woken up to the fact that China is now capable of building technologically sophisticated electric models. Rather than seeking political favors, European auto manufacturers should focus on improving their own competitiveness and developing EVs that consumers can actually afford.”

Chris Bryant, columnist

Read the full article here.

Europe’s investigation, as well as aggressive moves by Washington to counter China, are part of a broader rethink by governments in developed economies to protect production closer to home. US President Joe Biden has not only maintained a slew of tariffs imposed on China during the previous administration, but also instituted new curbs on cutting-edge chips citing national security concerns.

Europe’s decision is likely informed by past experience of China dominating the steel and solar markets by exporting in huge quantities at low prices, said Deborah Elms, executive director at the Asian Trade Centre in Singapore.

“Once the domestic industry in other markets gets swept away,” she said, “the space is clear for foreign firms to dictate prices and standards.”

–With assistance from Yujing Liu, Peter Vercoe, William H. Davis, Chunying Zhang, Jinshan Hong, Jasmine Ng, James Mayger, Fran Wang and Petra Sorge.

(Updates throughout.)

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