April 15, 2024

(Bloomberg) — The European Union needs to investigate Chinese support for electric vehicles as a result of the massive subsidies it provides the industry, according to the head of the bloc’s executive arm.

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“We like competition but it has to be fair competition,” European Commission President Ursula von der Leyen said in an interview with Bloomberg. “What we see is massive subsidies in the EV sector in China, which is of course unleveling our playing field.”

The commission announced an anti-subsidy probe last week, which could lead not only to tariffs on made-in-China EV imports, but retaliation from Beijing as well. The EU’s probe underscores its difficulties in fostering trade ties with the world’s second-biggest economy while also guarding against perceived supply chain and national security risks.

Beijing has called the move, which may trigger import tariffs on Chinese vehicles, “a naked act of protectionism.” If tariffs are imposed, China’s most powerful response would be to restrict access to its vast market — something that would hit German automakers hardest as they sold 4.6 million cars there last year.

The EU’s trade chief Valdis Dombrovskis will shortly head to China to discuss pressing issues including the EV subsidies, von der Leyen said.

German Foreign Minister Annalena Baerbock told Bloomberg Television on Sunday that the EU must reduce its reliance on China and that she supports the EVs investigation.“If you are bound too closely it can endanger yourself.” She added that “cutting down on our dependency” was necessary with a country like Russia that invaded Ukraine, “but also now with regard to China.”

The investigation marks the first concrete step to beat back rival state support for green technologies after more than a year of ever larger subsidies in the US, China, the UK and Europe.

The EV probe against China is part of a broader EU effort to “de-risk” the relationship without “de-coupling.” This has included restricting sales of high-end semiconductors and implementing export controls related to quantum computing and artificial intelligence. The bloc has also put in place new instruments to address China’s coercive practices.

With China the biggest market for Volkswagen AG and other German carmakers, tangling with Beijing could be risky. BMW AG imports its battery-powered iX3 from China, with Mini models due to follow. The Munich-based carmaker generated 33% of its operating profit from the country last year, followed by Porsche, VW and Mercedes-Benz, analysts at Citigroup Inc. estimated in a note late last month.

Speaking of the state support provided to the Chinese EV industry, von der Leyen said: “We don’t accept this in the internal market for our companies so we also don’t accept it for Chinese companies and therefore the investigation now for subsidies for EVs in China.”

–With assistance from John Follain.

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