It didn’t take a fortune teller to predict China’s reaction to the proposal for an investigation into whether Chinese brands engage in dumping on the export of their electric cars (read the news here). China’s response has arrived, and it’s not mild. Reuters reports the content of a statement from the Chinese Ministry of Commerce: “China believes that the investigative measures proposed by the European Union are actually intended to protect its own industry in the name of ‘fair competition.’ It is a pure protectionist act that will seriously disrupt and distort the global automotive industry and supply chains, including those of the EU, and will have a negative impact on the economic and trade relations between China and the European Union.”
The aforementioned investigation was initiated by the European Commission, but it’s worth noting that several figures, including President Macron, French ministers, and Renault CEO Luca De Meo, have somehow foreshadowed or catalyzed it. The accusation of dumping, supported by massive incentives and state aid, could be mirrored by concerning numbers: according to Chinese customs data, exports to the EU increased by 8.6% to €526 billion in 2022, while EU imports plummeted by 7.9% to $267 billion due to weak Chinese demand. This significantly increased the EU’s trade deficit with China for the second year in a row. Analysts suggest that this investigation will further strain an already tense relationship with China due to these trade imbalances.
Beijing is feared to retaliate, and Chinese industry leaders may deny that the sector’s competitive advantage is due to state subsidies. The Chinese Ministry of Commerce has also stated that “China will pay close attention to the EU’s protectionist trends and actions that may follow and will firmly safeguard the legitimate rights and interests of Chinese companies.” On the European side, France appears unified, with other EU countries viewing China more as a rival than a partner. Germany, on the other hand, is more fragmented, with German Economy Minister Robert Habeck welcoming the European Commission’s proposal.
GERMAN CAUTION (AND CHINESE AS WELL)
German automotive industry representatives are more cautious, given the significant investments made in China. Mercedes stated that protectionist measures are counterproductive, while global components giant Bosch said a race to punitive tariffs and trade barriers would have no winners. Volker Treier, head of trade at the German Chamber of Commerce and Industry, believes that Chinese distortions of competition are a problem Europe should address, “but if possible, not with excessive subsidies or new tariffs decided at the end of a long and troubled process.” The news agency sought comments from various Chinese brands: while Nio and Geely declined to comment on the EU investigation, BYD, Xpeng, and SAIC did not respond to requests for a statement. Stellantis took a balanced stance, stating that it welcomes “fair competition that drives innovation and performance in our industry globally, benefiting citizens and our customers.”
COULD IT BE DUMPING?
It’s worth considering that according to the U.S. think tank Center for Strategic and International Studies (CSIS), in 2022, 35% of all exported electric cars came from China, with most destined for Europe. Interestingly, the largest exporter from China is an American brand, Tesla, which also produces in China. According to EU officials, the prices of Chinese electric vehicles exported to the European market are cut by around 20%, increasing pressure on European manufacturers to produce low-cost electric vehicles. The European Commission has also stated that the share of Chinese electric vehicles sold in Europe has risen to 8% of the total and could reach 15% by 2025.