A current EU probe into Chinese subsidies that was launched earlier this month may include a look at non-Chinese electric vehicle makers like Tesla and BMW. While the exact scope of the investigation is still being determined, it is clear that the EU is concerned about the impact of Chinese subsidies on the European EV market.
EU has gathered evidence of significant distortions in the European market, where vehicles produced in the bloc are facing steep competition from cheaper offerings of products made in China. Union is concerned that Chinese subsidies are giving Chinese EV makers an unfair advantage over their European competitors.
However, the investigation could stretch up to 13 months, and it is possible that it could lead to the imposition of countervailing duties on Chinese EVs. This would make Chinese EVs more expensive in the EU market, and it could give European EV makers a competitive advantage.
How is China giving subsidies to manufacturers?
China employs a multifaceted approach, encompassing direct financial assistance, tax exemptions, low-interest loans, and infrastructure support, all aimed at supporting its burgeoning EV industry. These subsidies have catapulted China into a global leader in the EV sector, but they’ve also raised questions about their impact on international trade dynamics.
These are the ways in which China provides subsidies:
- Direct Financial Assistance: The Chinese government extends direct financial aid to EV manufacturers. For instance, in 2022, they allocated 13.8 billion yuan (approximately US$2.1 billion) in subsidies to the EV industry.
- Tax Benefits: EV manufacturers in China enjoy tax exemptions, including those related to the purchase tax and vehicle consumption tax, which can translate into significant savings running into billions of dollars.
- Low-Interest Loans: China provides low-cost loans to EV manufacturers through state-owned banks, giving them a notable competitive advantage over foreign counterparts.
- Infrastructure Subsidies: The Chinese government subsidizes the construction of charging stations and other infrastructure that supports the EV industry. This includes subsidies for the purchase of charging equipment, the installation of charging stations, and the construction of battery swapping stations as well.
The rising geopolitical tension
From the perspective of the European Union, there are valid reasons for apprehension regarding the impact of Chinese subsidies on the European EV industry. These subsidies have undeniably created an uneven playing field, unfairly favoring Chinese EV manufacturers over their European counterparts. This disparity could potentially result in job losses within the European EV sector and undermine the EU’s ambitions to cultivate a robust domestic EV manufacturing sector. This, in turn, raises concerns about the EU’s economic resilience and self-sufficiency in the face of a rapidly evolving EV-dominated landscape.
At the same time, it carries inherent risks that extend beyond economic considerations. In geopolitical terms, it has the potential to exacerbate already strained relations between the EU and China. The investigation could inadvertently contribute to heightened diplomatic tensions and trade disputes, with far-reaching implications across various sectors beyond the industry. Moreover, it may introduce obstacles for European businesses seeking to compete in the vast and lucrative Chinese market. This could result from potential retaliatory measures or strained diplomatic ties, which may hinder European companies’ market access and overall competitiveness.
Where does the international diplomacy currently stand?
Valdis Dombrovskis, the executive VP of the European Commission, took a trip to China last Friday, engaging in discussions with Chinese authorities in both Shanghai and Beijing. Notably, Chinese officials repeatedly raised the EU investigation during the four-day visit. Dombrovskis emphasized the investigation’s legitimacy, assuring Chinese authorities that it adheres to well-established anti-subsidy protocols and complies with relevant EU and WTO principles. He underscored the investigation’s reliance on factual evidence and highlighted ample opportunities for engagement with Chinese stakeholders.