China claps back at EU for car subsidies investigation

The EU has launched a probe into the state subsidies that could have allowed China to flood the European market with cheap EVs. The investigation was announced by the commission president Ursula von der Leyen during her State of the Union address to parliament on Wednesday 13 September.

“Global markets are now flooded with cheaper electric cars,” von der Leyen said. “And their price is kept artificially low by huge state subsidies. This is distorting our market.”

The next day, the Asian giant attacked the move, calling it an act of “naked protectionism” and vowing to protect the “legitimate rights” of Chinese automotive companies. 

“It is a naked protectionist act that will seriously disrupt and distort the global automotive industry supply chain, including in the EU, and it will have a negative impact on China-EU economic and trade relations,” the Chinese commerce ministry said in a statement.

“China will pay close attention to the protectionist tendency and follow-up actions of the European side, and firmly safeguard the legitimate rights and interests of Chinese enterprises.”

The EU investigation has been deemed one of the most serious battles in the bloc’s journey towards reducing its reliance on Chinese products. It will cover any battery-powered cars made in China, which includes international brands such as Tesla, Renault and BMW, as well as Chinese carmakers. 

China has warned that the investigation could harm bilateral trade agreements between the blocs, and also lead to rising car prices for European residents. 

The probe is a response to the rapid growth of Chinese EV exports, which quadrupled last year and rose 31 per cent in August alone, China Passenger Car Association (CPCA) data showed. The European Commission said China’s share of EVs sold in Europe could reach 15 per cent in 2025, due to the average prices being typically 20 per cent lower than EU-made models.

“Europe is open for competition, but not for a race to the bottom,” von der Leyen said.

However, Wang Lutong, director-general of the Chinese foreign ministry’s department of European affairs, pointed out that “many EU members subsidise their EV industries”.

“In what position is the commission to launch an anti-subsidy investigation into EVs from China? This is nothing but sheer protectionism,” he said.

The decision is a political victory for France, which has pushed for harsher actions against China’s market expansion. Other nations such as Germany are more reliant on trade relations with Beijing and have asked to proceed with caution, although they have supported the probe. 

The move reminded many of the EU-China battle regarding solar panel exports from 10 years ago. In 2012, Brussels imposed tariffs on Chinese-made solar panels, only to lift them six years later because it could not reach its renewable energy targets without Chinese production. 

“We won’t let our market be flooded by over-subsidised EVs that threaten our companies, as happened with solar panels,” said Laurence Boone, France’s Europe minister.

After the launch of the probe, the commission will have up to 13 months to assess whether to impose tariffs above the standard 10 per cent EU rate for cars.

Following the news, shares in Chinese carmakers fell on Thursday. BYD was down 1.4 per cent in Hong Kong, Geely dropped 0.3 per cent and EV start-up Nio fell 0.8 per cent.