China criticises EU’s alleged ‘naked protectionism’ against electric cars

Beijing has attacked the EU’s anti-subsidies investigation into China’s electric car industry as a “naked protectionist act” and warned that it will have a negative impact on relations in its first official comments on the probe.

China’s commerce ministry vowed to protect the “legitimate rights” of its companies and reminded the EU of the strong presence and long history of European producers in the world’s second-largest economy.

“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 ministry said in a statement.

European Commission president Ursula von der Leyen announced the investigation on Wednesday, kicking off what might be one of the most serious battles with Beijing in the bloc’s efforts to “de-risk” from China.

Chinese electric vehicles still represent only a small share of the bloc’s market, but they are rising fast and could hit 15 per cent within two years. Their ascent has worried the EU, which had its solar panel market dominated by Chinese producers more than a decade ago.

Passenger cars powered by combustion engines are a big polluter, accounting for more than 60 per cent of total CO2 emissions from EU road transport.

For China, the EV industry is a bright spot in an economy that is struggling to emerge from the pandemic. Beijing is looking to advanced technology and the green transition to help China’s economy reduce its dependence on the property sector.

China’s EV makers themselves are suffering from oversupply problems. Exports to the EU were one of the great hopes for the industry after the US limited access by levying heavy tariffs on Chinese car imports while offering subsidies for domestically produced EVs.

Chinese automotive brands are forecast to this year account for more than 50 per cent of their home market for the first time, and the country is on track to become the world’s biggest car exporter, displacing Japan.

“It really is the dawning of the Chinese automotive-making era,” said Stephen Dyer, partner and managing director at consultancy AlixPartners in Shanghai. “It’s not surprising that the EU has taken notice.”

Dyer said Chinese companies were eager to export to Europe to boost capacity utilisation and revenue growth and to win brand recognition by selling in mature European markets.

Chinese automakers had benefited from a range of central government subsidies that in the five years to 2022 totalled $57bn — almost five times the total the US spent on incentives for the industry before President Joe Biden’s Inflation Reduction Act, he said.

Provincial and local governments also provide subsidies.

German carmakers, in particular, have enjoyed a strong position in China’s car market but have recently come under pressure from the explosion in EV sales from domestic producers.

“EU automobile companies have invested and operated in China for many years, and the Chinese market has become the largest overseas market for many EU automobile companies,” China’s commerce ministry said.

It added that China’s EV industry had achieved its competitiveness “through hard work”.

“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 enterprises,” the ministry said.

Bill Russo, founder of Shanghai-based advisory firm Automobility, said EU anti-subsidy measures “could place a moat around Europe, as protectionist measures in the US have also done”.

This would force European consumers to pay more for EVs from non-Chinese producers, Russo said, adding that it would also “slow down the rate of adoption of EVs as they will be priced higher with less competition coming from China”.

Shares in Chinese carmakers fell on Thursday, with Warren Buffett-backed BYD, the world’s biggest seller of battery electric cars and hybrid plug-ins, down 1.4 per cent in Hong Kong.

Hangzhou-based Geely, which owns Volvo and Lotus, slid 0.3 per cent. EV start-up Nio declined 0.8 per cent, while Xpeng rose 0.5 per cent.

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