MNI: China Plans EU EV Production To Avoid Trade War

Beijing will likely offer to move some electric-vehicle production to the European Union as part of a long-term deal to avert a trade war, a key issue ahead of this week's China-EU summit, a Chinese policy advisor and international affairs experts have told MNI.

"China is now expecting the EU to impose tariffs," said Qi Yue, deputy director at the international cooperation department at the State-owned Asset Administration Commission of the State Council.

The EU has opened an investigation into China's use of subsidies and cheap financing within its EV industry, which has fuelled a rapid export increase. Chinese EVs account for 8% of the Eurozone's market with imports totalling 313,723 last year. The trade could reach 15% by 2025 and tip 1.2 million units a year by 2030, according to ABI Research.

Officials from China’s Ministry of Commerce have labelled the EU's investigation “pre-determined,” and potentially in breach of World Trade Organisation rules. Advisors have told MNI a deal with France could also help China avoid tariffs. (See MNI: France Deal Key To Avoid EU Trade War - China Advisor)

Beijing, however, will likely not retaliate in the hope it can achieve a more mutually beneficial solution over time, said Wang Yiwei, director at the Institute of International Affairs at Renmin University. “A deal will be reached that involves Chinese firms localising production within the EU, similar to how German car manufacturers have accessed China's domestic market,” he predicted.

Hu Biliang, dean of the Emerging Markets Research Institute at Beijing Normal University, said the large trade volume between China and Europe meant both sides could not afford a trade war and, given the currently low economic importance of new energy vehicles (NEVs), an agreement was possible.

Chinese carmakers were investigating potential EU production, but this will take time and likely start with kit assemblies, according to Namrita Chow, business intelligence analyst at the Association of European Vehicle Logistics.

The EU plans to finalise its probe by June 2024 at the latest. NEV exports to the EU increased 112% y/y between January-July this year and 361% from the same period in 2021, customs data showed. Cui Dongshu, secretary general at the China Association of Automobile Manufacturers, recently warned EU tariffs could jump to 20% from 10% if the investigation rules against China.

SUMMIT AHEAD

EU President Ursula von der Leyen recently told reporters her visit to Beijing will aim to “level the playing field” on trade issues and address Chinese overcapacity, which has distorted EU markets, while EU Trade Commissioner Valdis Dombrovskis has previously pointed to 2022's EUR365.7 billion trade deficit, which had increased by 46% y/y.

Chinese expectations for the summit remain low due to the ongoing trade issues, but it shows a negotiated settlement is possible, Wang noted. “The summit at least stabilises relations, but it's possible it ends without a joint statement being issued,” he said, adding the recent thaw in China-U.S. relations following the San Francisco meeting will also help sooth the EU.

As an export led economy, Chinese leaders have repeatedly stressed the need for the EU and U.S. to resist decoupling and deglobalisation, with China’s Premier Li Qiang this week calling for greater international supply-chain cooperation.