Managing the EV competition
EU can bolster its automakers without putting roadblocks in way of Chinese green vehicle exporters
Editor’s note: The world has undergone many changes and shocks in recent years. Enhanced dialogue between scholars from China and overseas is needed to build mutual understanding on many problems the world faces. For this purpose, the China Watch Institute of China Daily and the National Institute for Global Strategy, Chinese Academy of Social Sciences, jointly present this special column: The Global Strategy Dialogue, in which experts from China and abroad will offer insightful views, analysis and fresh perspectives on long-term strategic issues of global importance.
In recent weeks, giant ships carrying thousands of Chinese electric vehicles (EVs) landing in Europe have created angst among the top European Union policymakers and automobile manufacturers. BYD, in particular, has been making inroads in the European market by offering competitive and stylish models.
Amid growing “alarm”, the EU is preparing to launch an investigation into Chinese EVs as part of a probe into state subsidies prohibited by the World Trade Organization (WTO). If proved, punitive tariffs will be imposed to protect European EV makers.
Authorities from Beijing, including China’s Ambassador to the EU Fu Cong, have called the EU’s probe “unfair” while other Chinese officials and industry watchers say it is “pure protectionism”. Regardless, the probe is underway, with scheduled verification visits. Such probes are not unusual. In the not-so-distant past, similar inquires have been applied to key goods, including solar panels and textiles from China. The EU itself, among other powers, provides subsidies to semiconductor manufacturers.
But one can foresee that if punitive measures are taken, China will take countermeasures. Tit-for-tat measures could escalate into economic confrontation and a subsequent protracted trade war.
In principle, there are viable approaches to resolve the issue. One is the contingency formula ensuring there is enough steam to enable successful European competition for some time. The “Renault formula”, for example, proposes designing cheaper models and functional EVs without frills, and cutting logistic costs, as the French company sees itself able to keep about 80 percent of its supply chain within 300 kilometers of its production sites.
But a significant number of the EU carmakers claim that due to Chinese EV makers’ exceptional competitive edge, such a strategy might not be enough. The European Automobile Manufacturers’ Association argues that European automakers are insufficiently backed by their governments, whose decarbonization strategy has obliged firms to produce the battery vehicles at which the Chinese excel.
It might seem unavoidable for the EU Commission to collide with the Chinese authorities sometime this year or the next. Meanwhile, there are some more considerations that come into play. The possibility of Donald Trump winning the US presidential election. It would likely bring disruptive geopolitical unpredictability in free trade and globalization.
Now that the 1990s and early 2000s hyper-globalization period is moving into a post-hyper-globalization era, the need to adjust global rules is apparent. Reforming the WTO might take a long time as there are many different interests. During the WTO’s recent 13th Ministerial Conference in Abu Dhabi, there was no agreement to launch deliberations on key challenges, including industrial subsidies and the environment.
One feasible solution for China and the EU is the Comprehensive Agreement on Investment that was concluded in principle at endDecember 2020. Following almost seven years of negotiations, it was hailed as evidence of Europe’s strategic autonomy. But in March 2021, just three months later, EU parliamentary approval for the agreement was derailed by issues unrelated to trade and investment.
One of the most reasonable ways to move ahead would be to intensify dialogue to address economic, trade and green issues, with a sense of urgency.
Seen from Spain, what could Madrid and Beijing do to inject vitality and confidence into EU-China relations? Having celebrated 50 years of diplomatic relations last year and set to commemorate 20 years of their Comprehensive Strategic Partnership Agreement in 2025, the two sides have various fields for cooperation. One case in point to highlight is the Strategic Projects for Economic Recovery and Transformation (PERTE).
PERTE’s most recent and vanguard project is the one approved by Madrid in late February involving Shanghai-based green-tech company Envision Group, one of the beneficiaries of the Electric Vehicle PERTE initiative with 300 million euros ($328.2 million) in aid. Envision has announced that it has begun constructing a battery gigafactory in the Spanish city of Caceres. Spanish President Pedro Sanchez has hailed the project, and the Spanish formula deserves study across Europe.
Meanwhile, the more we wait for the EU to properly define what “de-risking” is, the more the risks will lead us to into decoupling. One of the various interpretations in Europe is that “de-risking” is indeed a narrative that leads to decoupling rather than to a clear path of managing risks, and in this sense, it is potentially a self-fulfilling prophecy.
The lack of a clear definition translates into investing uncertainties. Let us be clear, Chinese companies, like any competitive enterprises, are always ready to cooperate. Another thing is when top-level action is taken by the EU, without a proper perspective, it sweeps away, like an avalanche, a good part of industries and investments.
Now it is up to Brussels, plus the EU member states’ capitals, and Beijing to keep the multidimensional bilateral picture at stake at balance and proceed accordingly. The message should be that there is enough space to compete in the world.