China has reportedly told its automakers to halt big investments in European countries that support extra tariffs on Chinese-built electric vehicles, a move that is likely to spice up the trade war between Beijing and European Union (EU) further.
The new EU tariffs of up to 45.3% were enacted on October 30 after a year-long investigation that divided the bloc and prompted retaliation from Beijing. Ten EU members including France, Poland and Italy supported tariffs in a vote, while five members including Germany opposed them and 12 abstained.
Chinese automakers including BYD, SAIC and Geely were told at a meeting held by the Ministry of Commerce on October 10 that they should pause their heavy asset investment plans such as factories in countries that backed the proposal, claimed a Reuters report.
Several foreign automakers also reportedly attended the meeting, where the participants were told to be thoughtful about their investments in countries that abstained from voting and were “encouraged” to invest in those that voted against the tariffs, the people said.
The move by Chinese authorities to suspend some investment in Europe may suggest that the Xi Jinping government is seeking leverage in talks with the European Union over an alternative to tariffs, while keen to avoid a sharp fall in electric vehicle exports to the key market.
Europe accounted for more than 40% of EVs shipped from China in 2023, according to Reuters’ calculations using data from the China Passenger Car Association. Given the 100% tariffs on Chinese-made EVs in the United States and Canada, a drop in EV exports to Europe will result in Chinese automakers facing overcapacity in their home market.
During a visit to China by Spanish Prime Minister Pedro Sanchez in September 2024, a Chinese company agreed to build a USD 1 billion plant in Spain to make machinery used for hydrogen production. Spain was one of the 12 EU states that abstained during the voting on tariffs.
Italy and France are among key EU countries extending olive branches to Chinese automakers for investments, but they have also been warned by the bloc about the risks a flood of cheap Chinese EVs poses to European manufacturers.
State-owned SAIC, China’s second-largest auto exporter, is choosing a site for an EV factory in Europe and has been separately planning to open its second European parts centre in France in 2024 to meet growing demand for its MG-brand cars.
The Italian government is in talks with Chery, China’s largest automaker by exports, and other Chinese automakers, including Dongfeng Motor, about potential investments.
BYD is also building a plant in Hungary, which voted against the tariffs. The Chinese EV giant has also been considering relocating its European headquarters from the Netherlands to Hungary due to cost concerns, Reuters claimed.
The automakers were also told by Beijing that they should avoid separate investment discussions with European governments and instead work together to hold collective talks. The latest directive follows a similar warning in July 2024 when the commerce ministry advised China’s automakers not to invest in countries such as India and Turkey, and to be cautious with investments in Europe.
In the latest escalation, the European Commission will set out extra tariffs ranging from 7.8% for Tesla to 35.3% for SAIC, on top of the EU’s standard 10% car import duty.
The Commission, which oversees EU trade policy, has said tariffs are required to counter what it says are unfair subsidies including preferential financing and grants as well as land, batteries and raw materials at below-market prices. It also stated that China’s spare production capacity of three million EVs per year is twice the size of the European market.
“China does not agree with or accept the ruling. We also noticed that the EU side indicated it would continue to negotiate with China on price commitments,” China’s commerce ministry reacted to the news, while expressing hopes to find a “solution acceptable to both sides as soon as possible to avoid escalating trade friction.”
The China Chamber of Commerce to the EU said it was profoundly disappointed by the “protectionist” and “arbitrary” European Union measure and was “disheartened by the lack of substantial progress in negotiations to find an alternative to tariffs.”
Beijing has launched its own probes into imports of EU brandy, dairy and pork products in apparent retaliation, apart from challenging the EU measures at the World Trade Organisation (WTO).