LDN - Business

China urges EU to reverse 'wrong practices' on EV tariffs

[June 13, 2024] By Liz Lee and Laurie Chen

BEIJING (Reuters) -Beijing on Thursday slammed EU tariffs on Chinese electric vehicles as protectionist behavior and said it hoped the European bloc would correct its "wrong practices" and handle trade frictions through dialogue.

The reaction from China and others embroiled in the dispute, including European and Chinese car makers, points to clear opposition to the EU decision and an eagerness to de-escalate the situation.

Industry insiders say both Europe and China have reasons for wanting to strike a deal in the months ahead to avoid the addition of billions of dollars in new costs for Chinese electric car makers, as the EU process allows for review.

China said it would take "all necessary measures" to safeguard its interests after the European Commission announced on Wednesday it would impose extra duties of up to 38.1% on imported Chinese electric cars from July.

"We urge the EU to listen carefully to the objective and rational voices from all walks of life, immediately correct its wrong practices, stop politicizing economic and trade issues, and properly handle economic and trade frictions through dialogue and consultation," Chinese foreign ministry spokesperson Lin Jian said at a regular press briefing.

ROOM TO FIND SOLUTION

Brussels seemed to have left some room for the two sides to continue their consultations to find a solution and avoid the worst scenario, state news agency Xinhua said in a commentary.

"It is hoped the EU will make some serious reconsideration and stop going further in the wrong direction," it said.

Beijing has rejected the EU and U.S. argument that China's EV industry is running at a degree of overcapacity that threatens overseas automakers through subsidized exports. It says tariffs will slow the uptake of electric vehicles, endanger climate-change goals and push costs higher for consumers.

The EU's move comes less than a month after Washington revealed plans to quadruple duties for Chinese EVs to 100%.

Brussels said it also would combat Chinese subsidies with additional tariffs ranging from 17.4% for BYD to 38.1% for SAIC, on top of the standard 10% car duty. That takes the highest overall rate to nearly 50%.

State-owned SAIC, which counts on joint ventures with Volkswagen and General Motors to be China's largest automaker, said on Thursday it was deeply concerned by the tariffs.

SAIC has been China’s biggest automaker for nearly two decades but its sales have come under pressure and it has been working to reduce headcount, Reuters has reported.

The EU has made clear that European regulators would view loans from Chinese state-owned banks and government ownership as subsidies subject to additional tariffs.

In a sign China has little intention of dialing back on support, the government of the city of Shenzhen on Thursday announced measures to encourage the integration of new energy vehicles with the electric grid, including subsidies of up to 15 million yuan ($2 million) for each vehicle-to-grid project.

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A man holds a charging plug to charge a car at a Smart Charge electric vehicle (EV) charging station in Beijing, China February 2, 2024. REUTERS/Florence Lo/File Photo

NO DEATH BLOW

China's auto industry, a mix of state-owned and private firms, has cost advantages over foreign competitors in part because of government subsidies and the nation's dominance of battery-minerals refining, analysts say.

But the high level of competition in China's EV market, the world's largest, has also driven companies to innovate in ways that have brought down costs.

The EU provisional duties are set to apply by July 4, with the investigation due to continue until Nov. 2, when definitive duties, typically for five years, could be imposed.

Chinese EV maker stocks mostly shrugged off the news, which was expected. The Hong Kong-listed shares of BYD closed up 5.8%.

"The EU tariff hike result is slightly positive for BYD vs our previous tariff expectation of 30%, which improves BYD’s export growth visibility into 2Q/3Q24," Citi said in a research note.

Geely Auto rose 1.7% and Leap Motor gained 2.7% while Great Wall Motor's Hong Kong shares eased 1.2%. In Shanghai, shares of SAIC Motor fell 1.6%.

Joe Mazur, senior analyst at research consultancy Trivium China, said Chinese EV makers would be forced to pass along some of the cost increases to consumers.

"But it's by no means a death blow to the Chinese EV industry in Europe," he said.

Chinese automakers have charged more for exports than they have in their home market, offering some protection from the tariffs. BYD, for example, charges more than double — sometimes nearly triple — the price it gets for three key models in China.

While European automakers are being challenged by an influx of lower-cost EVs from Chinese rivals, there is virtually no support for tariffs from the continent's auto industry.

Some of the biggest opponents include Europe's largest automakers such as BMW, Volkswagen, Stellantis, and Mercedes Benz.

German automakers in particular are heavily dependent on sales in China and fear retribution from Beijing. European auto firms also import their own Chinese-made vehicles.

Shares in some of Europe's biggest carmakers - which make a big portion of their sales in China - fell on Wednesday due to fears of Chinese retaliation.

($1 = 7.2515 Chinese yuan renminbi)

(Reporting by Beijing newsroom, Zoey Zhang in Shanghai, Mei Mei Chu and Eduardo Baptista in Beijing, Farah Master and Donny Kwok in Hong Kong; Writing by Anne Marie Roantree; editing by Stephen Coates, Miral Fahmy, Bernadette Baum and Christina Fincher)

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