China Slams EU's Car Probe as a 'Naked Protectionist Act'

Beijing has slammed the European Commission’s decision to launch a probe into China’s subsidies for electric vehicles and warned that it is risks damaging trade relations.

The angry reaction came as shares of most Chinese automakers fell on Thursday.

EC President Ursula von der Leyen announced the investigation on Wednesday (Sept 13), saying China was flooding global markets with electric cars at prices that were artificially low because of huge state subsidies.

The probe, which could result in punitive tariffs, has prompted analyst warnings of retaliatory action from Beijing as well as pushback from Chinese industry executives who say the sector’s competitive advantage was not due to subsidies.

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China seen hitting back if tariffs or duties imposed

The investigation “is a naked protectionist act that will seriously disrupt and distort the global automotive industry and supply chain, including the EU, and will have a negative impact on China-EU economic and trade relations,” China’s Ministry of Commerce said in a statement.

“China will pay close attention to the EU’s protectionist tendencies and follow-up actions, and firmly safeguard the legitimate rights and interests of Chinese companies,” it added.

Eurasian Group analysts warned that should Brussels ultimately levy duties against subsidized Chinese EVs, Beijing would likely impose countermeasures to hurt European industries.

Other analysts said the probe could slow capacity expansion by China’s battery suppliers, although the move should not pose a big downside risk for Chinese EV makers because they could turn to other growing markets like Southeast Asia.

Still, it could hurt perceptions of Chinese EV makers as they expand abroad, Bernstein analysts said in a client note.

China has slammed the EU's move to investigate subsidies given to Chinese carmakers. — Cars for export wait to be loaded onto cargo vessels at a port in Lianyungang, China. File photo: Reuters.

Exports have sped up as demand at home slows

The manufacturers have been accelerating export efforts as slowing consumer demand in China exacerbates production overcapacity.

Hong Kong-listed shares of market leader BYD and its smaller rival Xpeng fell by more than 3%, while Nio was down 4.7% in afternoon trading. Geely Auto was down by 0.4%.

Shanghai-listed shares of state-owned car giant SAIC, whose MG brand is the best-selling Chinese-made brand in Europe, fell as much as 3.4% before recovering most of its fall in afternoon trading.

Nio and Geely declined to comment on the EU probe, while BYD, Xpeng and SAIC did not respond to requests for comment.

The Shenzhen-listed shares of battery maker CATL fell by 0.77%. It did not respond to a request for comment either.

Relations strained by Beijing’s ties with Moscow

The anti-subsidy probe, initiated by the European Commission and not from any industry complaint, comes as the bloc navigates an already strained relationship with China.

Ties have become tense due to Beijing’s ties with Moscow after Russian forces swept into Ukraine, and the EU push to rely less on the world’s second-largest economy and also its No-1 trading partner.

In his meeting with von der Leyen on the sidelines of the G20 Summit in New Delhi on Saturday, Chinese Premier Li Qiang urged the bloc to provide a non-discriminatory environment for Chinese firms and urged stability in Sino-EU relations as a “hedge” against global uncertainties.

The EV probe will set the agenda and tone for bilateral talks ahead of the annual China-EU Summit, set to take place before year-end, with a focus returning to EU demands for wider access to the Chinese market and a rebalance of a trade relationship that Brussels describes as “imbalanced”.

Chinese EU Chamber strongly opposes probe

The Chinese Chamber of Commerce to the EU on Wednesday hit back at the move, saying it was opposed to the probe and that the sector’s competitive advantage was not due to subsidies.

Cui Dongshu, the secretary general of the China Passenger Car Association, said on his personal WeChat account on Thursday that he was personally “strongly against” the review and urged the EU to take an objective view of the industry’s development and not “arbitrarily use” economic or trade tools.

The price of China-made cars exported to Europe is generally almost double the price they sell for in China, he added.

EU officials believe Chinese EVs are undercutting the prices of local models by about 20% in the European market, piling pressure on European automakers to produce lower-cost electric vehicles.

The European Commission said China’s share of EVs sold in Europe has risen to 8% and could reach 15% in 2025.

In 2022, 35% of all exported electric cars originated from China, 10 percentage points higher than the previous year, according to US think-tank Center for Strategic and Internal Studies (CSIS).

Most of the vehicles, and the batteries they are powered with, were destined for Europe where 16% of batteries and vehicles sold were made in China in 2022, it said.

The single largest exporter from China is US giant Tesla, CSIS data showed. It accounted for just over 40% of EV exports from China between January and April 2023, up from 36.5% in 2022.