Beijing has directed its carmakers to stop investing in countries supporting the European Union’s tariffs on China-made electric vehicles, with the new levies going into effect starting Wednesday.
Chinese automakers including BYD, SAIC, and Geely were told at a meeting held by the Ministry of Commerce on October 10 that they should pause their heavy asset investment plans — such as factories — in countries that backed the levies in a vote held earlier this month, two people briefed about the matter told Reuters.
Participants were also told to be prudent about their investments in countries that abstained in a vote held on the tariffs early this month.
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Ten EU members, including Italy, France, Netherlands and Denmark, backed tariffs during the vote that ratified the EU’s plan to impose additional EVs. Another 12 countries, including Belgium, Greece, Spain and Sweden abstained.
Only five countries, including Germany and Hungary, voted against.
Chinese carmakers at Beijing’s meeting were “encouraged” to invest in countries that voted against the tariffs, the people said. Several foreign automakers also attended the meeting, they added.
China’s diktat could prove to be challenging for its carmakers who are looking to expand operations in the EU amid increasing competition at home.
Chinese automakers are also producing 3 million excess EVs per year and the most obvious outlet for them is Europe, given other big markets like the United States and Canada have imposed 100% tariffs on China-made electric cars.
That said, the directive from Beijing will also create challenges for several European states that are chasing Chinese carmakers to set up manufacturing plants within their borders in order to create jobs and aid their green transition.
Italy and France — which voted in favour of tariffs — and Spain — which abstained — have all had investment discussions with Chinese carmakers like SAIC and Chery. But they have also warned of the risks that a flood of cheap Chinese EVs pose to European manufacturers.
State-owned SAIC, which is China’s second-largest auto exporter, is choosing a site for an EV factory in Europe and has been separately planning to open its second European parts centre in France this year to meet growing demand for its MG-brand cars.
BYD, meanwhile, is building a plant in Hungary, which voted against the tariffs. The Chinese EV giant has also been considering relocating its European headquarters from the Netherlands to Hungary due to cost concerns, two separate people with knowledge of the matter said.
45.3% tariffs go in effect
The directive comes as, starting Wednesday, Chinese electric vehicles heading to Europe will be subject to tariffs as high as 45.3%. The two sides remain unable to reach an alternative solution despite weeks of negotiations.
The European Commission said on Tuesday it will impose definitive countervailing duties on imports of battery electric vehicles (BEVs) from China for a period of five years.
It will, however, not collect provisional duties it imposed on imported Chinese EVs starting July, the EC said.
The levies mark the conclusion of the European Commission’s year-long investigation into Chinese carmakers, who, it says, massively undercut European firms in prices due to “unfair” subsidies provided by Beijing. Prices of China-made EVs are typically 20% below those of EU-made models, the EC has said.
According to the EC, backing from Beijing includes cheap land for factories, tax breaks, cheaper financing from state-controlled banks, lower priced raw materials like lithium from state-owned suppliers, and even subsidised batteries — which can be the most component in an electric car.
“By adopting these proportionate and targeted measures after a rigorous investigation, we’re standing up for fair market practices and for the European industrial base,” Valdis Dombrovskis, the EC’s executive vice-president and Commissioner for Trade, said in a statement.
“In parallel, we remain open to a possible alternative solution that would be effective in addressing the problems identified and WTO-compatible,” he added.
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The duties include a 17% levy on all cars made by BYD and an 18.8% levy on those from Geely. These will be on top of the EU’s standard 10% car import duty.
The highest additional tariffs — of 35.3% — will hit China’s state-owned SAIC Motor, which the EC says did not cooperate with its probe. SAIC said on Wednesday it will file a lawsuit at the European Union’s Court of Justice to protect its rights and interests.
The European Commission’s countervailing investigation was “wrong in determining subsidies,” SAIC said, adding that the EC had “inflated subsidy rates” by ignoring key information and the firm’s counter arguments.
China’s commerce ministry, meanwhile, said it did not agree with or accept the EC’s ruling. But, it added that Beijing still hopes to find a “solution acceptable to both sides as soon as possible to avoid escalating trade friction.”
A spokesperson for the ministry also said in press conference on Wednesday that China had initiated dispute settlement proceedings against the European Union at the World Trade Organisation over the levies.
The EC’s investigation was “protectionist” and enabled “unfair competition” in the name of “fair competition,” the spokesperson said, while also criticising the Commission’s methods during the probe.
China has previously accused the EC of using the anti-subsidy investigation as a means to spy on China’s EV supply chains. It has also accused the Commission of trying to undermine negotiations on the levies by conducting “separate negotiations with different EV makers”.
In the October 10 meeting, Chinese officials also told automakers to avoid separate investment discussions with European governments and instead work together to hold collective talks.
- Reuters, with additional editing and inputs from Vishakha Saxena
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