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CHINA/EU TRADE WAR AS CHINA VEHICLES INTO THE EU GROW #471

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Graham Perry
Graham Perry
Experienced Arbitration Lawyer | China & Chinese Business Affairs | Public Speaker/Lecturer.

China commentators including the South China Post and Nikkei Asia have focused on the 13 September announcement by European Commission President Ursula von der Leyen that an EU investigation is to be made by the EU  whether to impose punitive tariffs on Chinese EVs, saying: “Global markets are now flooded with cheaper Chinese electric cars, and their prices [are] kept artificially low by huge state subsidies.”

EU action will have wide implications for the European Union economy, consumers and even climate change goals. The decision came just before a high-level economic and trade dialogue between China and the EU that will take place on 2 October 2023 in Beijing. It also happens as several Chinese automakers, hoping to reassure local authorities in Europe worried about the arrival in Europe of cheap EV’s, have announced plans to start manufacturing in Europe, emphasizing job creation in hopes of reassuring local authorities increasingly worried about the influx of cheap EVs.

China has emerged as a global hub for legacy carmakers due to its enormous manufacturing capacity, backed by consistent government support, innovative engineering and battery technology, – the result of a generation of arduous efforts.

Last year, China sold about 6.9 million new energy vehicles and installed 2.6 billion charging points, contributing 35 per cent to global EV exports, according to the International Energy Agency. China’s market share of EV sales in Europe is, however, just 8 per cent, the EU said, and could reach 15 per cent by 2025.

European EV manufacturers are concerned fret that China’s formidable transformation into the world’s leading EV production and innovation hub  could drive them out of the market. The EU probe is a protectionist act and von der Leyen is trying to seek political gains ahead of the European elections. What’s more, it risks escalating tensions, provoking retaliation and undermining the China-EU economic and trade relationship through to next year, given that the European Commission will have up to 13 months to decide the fate of tariffs on Chinese EVs, which are already subject to 10 per cent duty.

In their separate meeting with Chinese Premier Li Qiang on the sidelines of the recent G20 Summit in India, European Council president Charles Michel and von der Leyen expressed interest in maintaining “stable and constructive relations” with China and admitted that Beijing had a key role to play to find solutions to global problems including climate change.

Yet such trade defence measures run counter to their pledges and will also debilitate EU climate ambitions. The bloc has laid out a proposal, under its “Fit for 55” plan, to cut car emissions by 55 per cent by 2030 from 2021 levels and down to zero by 2035. The EU projects there will be 30 million electric cars on European roads by 2030. In 2022, there were just an estimated 3.1 million EVs on the continent.

Increased tariffs on Chinese EVs would make the target harder to achieve, given that European consumers are already unhappy with the high prices of electric cars and the bloc is facing challenges to phase out internal-combustion-engine (ICE) vehicles.

There is history here. The EV probe is reminiscent of a trade dispute from a decade ago, when the European Commission launched an anti-dumping and anti-subsidy investigation into solar panels imported from China, prompting Beijing to launch an anti-dumping probe into European wine. In July 2013, the two sides settled the solar-panel dispute through negotiations, avoiding a trade war.

But that can also be seen as a lesson for countries such as Germany said Harald Kumpfert, former vice-chairman at the Shenyang branch of the European Union (EU) Chamber of Commerce in China.

Kumpfert stressed that EU countries may not want the EV industry to become another solar-panel disaster, where a technologically leading industry was knocked out completely by low-cost imports,” he said.

“An important factor is that German automobile companies did not foresee the speed and scale of developments in China. Beijing has slammed the commission’s move as “sheer protectionism”, and announced that China will continue to impose anti-subsidy duties on potato starch imports from the EU for the next five years.

This week, Beijing’s special representative for Europe, Wu Hongbo, said the EU’s anti-subsidy investigation into Chinese EVs “has aroused widespread concern in China and the international community”. Tensions will grow.

GRAHAM PERRY

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