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The European Commission announced Wednesday it is opening an anti-subsidy investigation into electric vehicles imported from China. The probe aims to determine if Chinese government subsidies are unfairly boosting the global competitiveness of Chinese EVs and undercutting European automakers.
Commission President Ursula von der Leyen revealed the investigation during her annual State of the Union address to the European Parliament. She stated the EU is “open to competition, not for a race to the bottom” and cited concerns over the rapid growth in Chinese EV exports flooding into Europe in recent years.
China’s auto exports more than doubled in 2021, rising over 30% from 2020 levels according to a report by Bernstein analysts. EVs accounted for a significant portion of this growth as China aims to dominate the global electric car market.
The investigation comes amidst growing alarm that generous Chinese government subsidies and other favorable policies are propping up domestic EV makers and allowing them to gain market share in Europe through cut-rate pricing.
“There are rules on fair competition. And we must all play by the rules,” von der Leyen emphasized in her speech announcing the probe. The Commission will examine whether Chinese EV subsidies violate international trade rules against protectionism and unfair competition.
Under World Trade Organization principles, production subsidies that give a country’s exporters an advantage are prohibited if they have an adverse effect on the domestic industry of another WTO member. The EU contends China’s extensive subsidies cross this threshold.
China rejects accusations that its EV policies are protectionist. “China’s support policies for the new energy vehicle industry are open and transparent, conform to WTO rules, and are beyond reproach,” stated Chinese Foreign Ministry spokesperson Mao Ning in response to the EU investigation.
Major Chinese electric carmakers like BYD and SAIC have grown rapidly due to generous government incentives and mandates for EV purchases in China. Now they are using this subsidy-fueled scale to export aggressively to Europe and capture market share from incumbent automakers.
The probe highlights intensifying EU-China trade tensions as Chinese manufacturers backed by state support make inroads across European markets in sectors like solar panels, steel, and now EVs. “Europe is open to competition, but we must avoid being naively open,” asserted von der Leyen.
With electrical vehicles key to Europe’s net-zero emissions goals, the Commission wants to ensure domestic manufacturers have a level playing field to compete as the industry scales up. The probe will examine data on EV imports and pricing to determine the size and impact of Chinese subsidies. Findings are expected within 12 months.
The investigation sends a warning shot to China that Europe will fight back if unfair subsidies undercut European EV makers. But experts say directly counteracting China’s subsidies through Europe’s own producer incentives could spark a ‘subsidies race’ that disadvantages consumers.
Striking the right balance on EV subsidies will be critical as electric cars go mainstream in the 2020s. “We cannot allow a subsidies race to start,” cautioned von der Leyen. For now, the EU is putting China on notice that it will combat unfair competition even as both sides vie for EV supremacy.
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