China Slams New European Commission Probe Into EV Subsidies, Sparking Trade Tension

The European Commission has recently launched a formal investigation into China's electric vehicle (EV) subsidies, accusing Beijing of distorting the market and undercutting European manufacturers.

Reuters tells us that this unexpected probe, announced by European Commission President Ursula von der Leyen, has ignited a fiery response from China, sparking fears of a looming trade showdown.

EU's Accusations and China's Retaliation

The European Commission alleges that China's massive state subsidies have led to artificially low prices for its electric cars, thereby flooding global markets.

According to Brussels, this has unfairly undercut European manufacturers, creating an uneven playing field.

China has vehemently denied these allegations, with its Ministry of Commerce condemning the investigation as a "naked protectionist act" that threatens global automotive supply chains.

"China will pay close attention to the EU's protectionist tendencies and follow-up actions," the Ministry stated, hinting at potential retaliation.

Market Repercussions

Reuters reports that the market reaction to this brewing trade dispute has been palpable.

Shares of major Chinese EV makers took a hit as soon as the news broke. Market leader BYD saw its stock closing by 1.2%, while smaller rivals Geely Auto and Nio fell by 0.5% and 0.9%, respectively.

Xpeng, on the other hand, managed to reverse losses, rising by 0.4%.

State-owned car giant SAIC, renowned for its MG brand, witnessed a more substantial drop in its Shanghai-listed shares, falling as much as 3.4% before closing down 0.3%.

Notably, this investigation has also affected European automakers, with BMW, Volkswagen, Mercedes, and Stellantis all declining their shares between 1.1% and 2.2%.

Understanding the EU Probe

To comprehend the significance of this investigation, it is crucial to grasp how anti-subsidy probes work.

They are initiated when a foreign country is suspected of unfairly subsidizing companies, leading to a competitive advantage and potential harm to the domestic industry.

In this case, the EU claims that China's substantial subsidies have created a price differential of approximately 20% between China-made electric cars and their European counterparts.

This has made Chinese brands, such as BYD, Nio, and Xpeng, highly competitive in the European market.

Industry Implications

EuroNews notes that if the European Commission finds evidence of harm from Chinese subsidies, it could impose tariffs on Chinese electric cars, adding to the existing 10% import duty. These tariffs would counterbalance the unfair advantage derived from subsidies.

However, the scope and extent of these tariffs would depend on the evidence collected during the investigation and feedback from European firms.

Member states would have the option to block these tariffs, but only if they secure a qualified majority representing at least 65% of the EU population.

Regardless of the outcome, this investigation signifies a significant escalation in EU-China relations.

Impact on the EV Industry

China's dominance in the EV sector, fueled by subsidies and a comprehensive supply chain control, has allowed its brands to capture 8% of the European electric car market, a figure expected to rise to 15% by 2025, according to the European Commission's estimates.

While European automakers strive to compete with their Chinese counterparts, this investigation reflects the EU's commitment to maintaining fair competition and addressing perceived distortions in the EV market.

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