Beijing has blasted a European Commission probe into China's electric vehicle (EV) subsidies, dubbing it protectionist.
The People's Republic has said the investigation could damage trading relations between the two, according to a Reuters report, while the German car industry has collectively recoiled at the EC's intervention.
Ursula von der Leyen, President of the European Commission, announced the probe, accusing China of saturating global markets with low-priced EVs, subsidised by the state.
China's Ministry of Commerce denounced the investigation as a "naked protectionist act," warning it would adversely affect China-EU economic and trade relations, Reuters said.
Analysts from the Eurasian Group cautioned that Beijing might retaliate with countermeasures against European industries if Brussels imposes duties on subsidised Chinese EVs.
German car manufacturers have expressed reservations about the probe. Mercedes Benz stated that protectionist measures are counterproductive, while Bosch warned that a trade war would be detrimental to all parties involved.
Volker Treier, head of trade at the German Chamber of Commerce and Industry, suggested that Europe should address competition distortions without resorting to punitive tariffs.
The investigation comes amid strained EU-China relations, influenced by geopolitical factors such as Beijing's alliance with Moscow and the EU's efforts to reduce dependency on China.
The outcome of the probe could set the tone for the upcoming annual China-EU Summit and may influence broader trade negotiations.
Market reactions have been mixed. Shares of European carmakers like BMW, Volkswagen, and Mercedes fell between 0.7% and 1.6%. Meanwhile, Hong Kong-listed shares of Chinese EV makers like BYD and Geely also experienced declines.
As industry background, analysts at UBS in Hong Kong shared with clients a few "relevant facts":
- China’s direct EV subsidy is zero in 2023, compared to €5k in France, €4.5k in Germany and US$7.5k in the US;
- EVs still enjoy purchase tax exemption in China compared to 10% levied on gasoline cars, but this is for domestic sales only;
- Carmakers still receive some government subsidies related to new plants or R&D, which amounted to 0.4% revenue for BYD in 2022, 1.2% for Nio and 0.9% for CATL;
- Tesla Shanghai accounted for circa 40% of China’s EV exports in H123, of which the majority goes to Europe.
"In our view, it is hard to be categorical that the net effect of these policies is to subsidise a US firm that would then have a pronounced impact on the EU market," Hong Kong-based UBS analyst Paul Gong said.