Beijing blasts EU's subsidy probe of EVs as protectionist

SHANGHAI -- The Chinese government criticized the launch of a probe by the European Commission into China's electric vehicle subsidies as protectionist and warned it would negatively impact economic and trade relations.

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 on Thursday.

"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.

European Commission President Ursula von der Leyen announced the investigation on Wednesday, accusing China of flooding global markets with electric cars that had artificially low prices because of huge state subsidies.

The probe, which could take up to nine months, may lead to tariffs close to the 27.5 percent level already imposed by the U.S. on Chinese EVs, a person familiar with the matter told Bloomberg. 

Retaliatory action

The investigation prompted analyst warnings of retaliatory action from Beijing as well as pushback from Chinese industry executives who say the sector's competitive advantage is not due to subsidies.

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 such as Southeast Asia.

Still, it could hurt perceptions of Chinese EV makers as they expand abroad, Bernstein analysts said in a client note. The manufacturers have been accelerating export efforts as slowing consumer demand in China exacerbates production overcapacity.

The China Passenger Car Association, which represents automakers, said the nation's booming EV exports are not because the industry received large subsidies, but because China's supply chain is highly competitive. It is only now that Chinese companies pose a competitive threat that Western nations are starting to react.  

The EU's concerns are an "inevitable accompanying phenomenon after China's new energy vehicles became stronger," Cui Dongshu, secretary general of the PCA said in a statement. "Only when they become stronger will some people pay attention, and some people will feel uncomfortable."

He said on his personal WeChat account that the price of China-made cars exported to Europe is generally almost double the price they sell for in China.

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

China's growing market share

EU officials believe Chinese EVs are undercutting the prices of local models by about 20 percent 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 percent and could reach 15 percent in 2025.

In 2022, 35 percent of all exported electric cars originated from China, 10 percentage points higher than the previous year, according to U.S. 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 percent of batteries and vehicles sold were made in China in 2022, it said.

The single largest exporter from China is U.S. giant Tesla, CSIS data showed. It accounted for 40 percent of EV exports from China between January and April 2023, up from 37 percent in 2022.

Strained relations

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. Relations 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 companies 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."

Bloomberg contributed to this report