EU warns of ‘possible’ Chinese retaliation over electric car probe

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The EU’s anti-subsidy investigation into China’s electric-car industry could provoke retaliatory measures from Beijing, senior EU officials have warned, even as the bloc’s ministers said the probe was crucial for safeguarding trade rules.

“We have to address this issue seriously,” Paolo Gentiloni, the EU’s economy commissioner, told reporters at a two-day meeting of EU finance ministers in Santiago de Compostela, Spain. “I think there’s no specific reason for retaliation [from Beijing], but retaliation is always possible.”

European Commission president Ursula von der Leyen said on Wednesday that Brussels would investigate Chinese electric vehicles on concerns that they were “distorting” the EU market, a probe that could constitute one of the largest trade cases launched given the scale of the market.

The months-long probe, which could lead to higher tariffs on Chinese imports, is aimed at buying more time for Europe’s legacy carmakers to adapt to the green transition as China’s battery-powered models threaten to swamp the growing market.

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The move comes as the EU strives to find a balance in its wider strategy towards China, with Brussels seeking to treat Beijing as a rival in economic and geopolitical terms, but also as a key trade partner for many of its member states and a critical part of its green technology supply chains.

“We’re emboldened and feel like we shouldn’t shy away from a fight with them on this. We are quite confident that if there are moves from the Chinese side, then we have the strength to respond to that,” said a senior EU official of the attitude inside the EU’s executive arm.

“The bigger concern is what would happen internally if China targeted individual business sectors in individual countries,” the official added.

European Commission president Ursula von der Leyen delivers her State of the Union speech on Wednesday
European Commission president Ursula von der Leyen announced the probe during her annual address to EU lawmakers on Wednesday © Julien Warnand/EPA-EFE/Shutterstock

Valdis Dombrovskis, the EU’s trade commissioner, who is set to travel to Beijing next week for previously arranged talks, said the investigation would be “fact-based”.

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“We are just at the start of a fact-based investigation when we will consult extensively, including with Chinese authorities and industry. We will now follow this well-established process through, one step at a time,” Dombrovskis said.

“We welcome global competition because it makes our companies stronger. But competition must be fair. This is why engaging with China on this issue is essential, and I look forward to meeting my Chinese counterparts next week in Beijing,” he added.

China’s commerce ministry on Thursday called the probe “a naked protectionist act that will seriously disrupt and distort the global automotive industry and supply chain . . . and will have a negative impact on China-EU economic and trade relations”.

“China will pay close attention to the EU’s protectionist tendencies and follow-up actions, and firmly safeguard the legitimate rights and interests of Chinese companies,” it said in a statement.

The issue will be discussed by EU finance ministers at Santiago de Compostela, where reforms of the bloc’s fiscal rules and the future leadership of the European Investment Bank are also set to be debated.

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“We just want everybody to abide by the same [trade] rules, that’s it. Nothing against China,” said Bruno Le Maire, France’s finance minister, as he arrived at the meetings on Friday. “This decision has been taken . . . to protect the interests of the European economy.”

Christian Lindner, Germany’s finance minister, also endorsed the commission’s investigation, and said it was important that all countries abide by international trade rules.

German carmakers in particular have enjoyed a strong position in China’s car market, but they have recently come under pressure from electric models produced by Chinese brands.