Editor's Note: It's been a dynamic week for China-Europe engagements. Dutch Prime Minister Rutte visited Beijing, while significant events like the country's prominent high-level CDF and the Boao Forum brought shakers and movers. Meanwhile, doubts arose regarding an estimate suggesting that China-made electric vehicles could reach a 25% market share in the EU this year. This estimate stems from a report advocating substantial tariffs on Chinese electric vehicle and battery imports. However, it's worth noting that what the European (and global) EV manufacturing industry really needs is cost-effectiveness and innovation in order to deliver affordable products to the market, rather than desperate and non-WTO-compatible tariff measures. Enjoy your read and have a restful weekend.

Focus

Electric vehicles made in China, including Tesla and European brands manufactured in China, will hold a 25% market share in the EU this year, so said a report released by a campaign group this week. The report suggests that the EU and the UK should increase tariffs on imported electric vehicles and battery products from China to protect Europe's automotive and battery manufacturing industries.

It presents a series of arguments and data to support this proposal, including the growth of Chinese brands in the European market, China's advantages in battery technology, and the potential "positive impact" of raising tariffs on European industries. However, many of the data, viewpoints, and policy recommendations in this report raise doubts.

The report's forecast regarding the market share of China-made EVs in the EU appears overstated. According to the report, approximately one-fifth (19.5%) of electric vehicles sold in Europe in 2023 originated from China, with an anticipated increase to 25% by 2024. However, this projection may lack sufficient scientific grounding, as it relies on linear assumptions for Chinese brands' market share and production and sales forecasts by Global Data for other brands. Such an approach overlooks the intricate dynamics of market competition and the potential growth of other brands.

The suggestion to increase tariffs on imported electric vehicles from China to around 25% as a response to China's technological advantages is worrisome. However, it seems that the authors of the report may not fully grasp or intentionally avoid discussing the significant adverse effects that such a protectionist measure could have on European consumers and the electric vehicle industry as a whole. Implementing high tariffs is likely to further elevate the already steep prices of electric vehicles in the European market, potentially reducing consumer interest in purchasing them and slowing down the adoption rate of electric vehicles. This could consequently impede the advancement of the European electric vehicle market.

As the report tailors its discussion to European politicians by highlighting supposed Chinese subsidies, it overlooks a crucial reality: China's worldwide competitive edge in the electric vehicle industry stems from market dynamics, competition, and innovation. As articulated in a media interview with a prominent Chinese automaker, local subsidies play a secondary role in cost reduction compared to "technology" and "efficiency." The interviewee emphasised that their company prioritises early and extensive investment in technology research and development, underscoring that innovation, rather than subsidies, is the primary driver of success.

Indeed, the swift growth of the electric vehicle market in the EU encounters its fair share of hurdles. Firstly, there are the high prices. In the EU market, electric vehicles typically command higher prices than traditional fuel vehicles. Additionally, when compared to established fuel vehicle production lines, the scale of electric vehicle production remains relatively small, and the benefits of economies of scale are not as apparent. Despite the policy support offered by many EU countries, such as car purchase subsidies and tax incentives, the purchase price of electric vehicles remains out of reach for many consumers.

Secondly, the construction of charging infrastructure is incomplete. Despite some progress in recent years, the number and distribution of charging stations are still insufficient compared to the growth of electric vehicle ownership. According to data from the European Automobile Manufacturers' Association (ACEA) in 2022, the Netherlands and Germany together accounted for nearly half of all public charging points in the EU. However, the growth of the electric vehicle market in some Eastern and Southern European regions is slow. The insufficient charging infrastructure limits the convenience of using electric vehicles, becoming a factor hindering further popularisation.

Furthermore, elevated energy expenses, a shortage of technological innovation and skilled talent, and a wave of substantial job cuts in the European automotive parts supplier sector collectively pose considerable challenges for the present European electric vehicle market. In this context, the suggestion to raise tariffs, while overlooking the genuine issues confronting the European electric vehicle market, appears impractical. The true concern lies in leveraging innovation and technology to instill confidence in more consumers to embrace electric vehicles.

It's essential to recognise that fostering mutually beneficial cooperation is the cornerstone of long-term development. Presently, China stands as the world's largest electric vehicle market, as highlighted by data from the China Association of Automobile Manufacturers. In 2023, China's production and sales of new energy vehicles surged to 9.587 million and 9.495 million vehicles, respectively, marking year-on-year increases of 35.8% and 37.9%. This dominance accounted for over 60% of global sales in this sector.

To safeguard and advance its own electric vehicle industry, Europe should prioritise initiatives aimed at promoting technological innovation, enhancing infrastructure development, and fostering stronger partnerships with Chinese enterprises. By leveraging China's extensive market advantages, Europe can strategically access the Chinese market and utilise Chinese manufacturing capabilities to address industry challenges and overcome obstacles effectively.

Considering electric vehicle affordability, Europe ought to continue lowering import tariffs on electric vehicles and essential components like batteries. This step is crucial to ensuring that purchase prices remain accessible to a wider consumer base, preventing electric vehicles from becoming exclusive toys affordable only to the wealthy.

Additionally, Europe could hasten the deployment of charging infrastructure within its borders. Encouraging the participation of Chinese companies in the development of new energy infrastructure and supporting technological innovation, including initiatives like battery swap stations, would be beneficial. China leads in global battery production, while Europe excels in battery technology research and sustainable manufacturing. Strengthening dialogue and cooperation between China and Europe, particularly in areas like standardising charging infrastructure systems and piloting new practices, could prove fruitful.

Simultaneously, Europe could foster an environment conducive for more European electric vehicle companies to establish manufacturing operations in China. This would enable them to tap into the burgeoning Chinese electric vehicle market and bolster the global competitiveness of European brands by leveraging China's cost advantages in electric vehicle manufacturing. For instance, companies such as BMW and Tesla have already set up production facilities in China. By manufacturing in China, global enterprises can better cater to the Chinese and Asian markets, while also exporting products to regions like Southeast Asia, Africa, and South America, and subsequently re-importing them to Europe and the Americas. This approach facilitates strategic integration and expands globalisation strategies effectively.

Hot Topics

China wins WTO dispute with Australia over steel products

China has won a nearly three-year-long dispute with Australia at the WorldTrade Organization over tariffs on steel products that began during a low pointof bilateral relations between the countries, and Australia's trade ministersaid Wednesday his government accepted the ruling, AP reported.

Beijing took its complaint to the WTO in June 2021 over Australia's extraduties on railway wheels, wind towers, and stainless steel sinks imported fromChina. Trade in these products was worth 62 million Australian dollars ($40.4million) in 2022.

China lodges WTO dispute complaint targeting unfair US NEV subsidies

China has lodged a World Trade Organisation (WTO) dispute complaint over discriminatory subsidies on new-energy vehicles (NEVs) under the US Inflation Reduction Act (IRA), a Chinese Ministry of Commerce (MOFCOM) spokesperson said on Tuesday.

The US action has violated the WTO's rules, such as national treatment and most favoured nation treatment, and China firmly opposes the discriminatory act, the MOFCOM spokesperson said, adding that the US measures have seriously disrupted the global NEV industry and supply chains.

President Xi meets Dutch PM

Chinese President Xi Jinping on Wednesday met with Prime Minister of the Netherlands Mark Rutte in Beijing, Xinhua reported. Noting the Netherlands has become a veritable "gateway" for China-EU cooperation, Xi said China is ready to maintain exchanges at various levels with the Netherlands, adhere to communications and dialogue, and pursue mutual benefits and win-win results. China is willing to expand imports of high-quality goods from the Netherlands and welcomes Dutch enterprises to invest in China, said Xi, adding that it is hoped that the Dutch side will provide a fair and transparent business environment for Chinese enterprises.

China, EU conclude 6th High-Level People-to-People Dialogue on education, culture, youth and sport

On March 29, the 6th EU-China High-Level People-to-People Dialogue (HLPPD) on education, culture, youth and sport took place in Beijing, China. This was the first in-person meeting since 2017. The meeting was held as a follow-up of the EU-China Summit that took place in Beijing on 7 December 2023, where the EU and Chinese leaders agreed that the HLPPD would take place in 2024, according to the European Commission.

EU climate envoys plan joint trip to China

According to POLITICO, the EU's top climate diplomat and four of his national counterparts are planning a joint trip to Beijing next month to meet the new Chinese climate envoy. Germany, France, Denmark, and the Netherlands will send their top climate diplomats to join the trip, tentatively scheduled for April 8, in what is billed as an unprecedented effort by the EU to build a multinational diplomatic track to engage China on climate change.

Sino-Italian biodiversity conference kicks off in Rome

The first Sino-Italian Biodiversity Conference, launched in Rome on Tuesday, Xinhua reported. The conference focused on common challenges facing the scientific community, solutions adopted, and future collaboration between China and Italy in the monitoring, preservation, restoration, and valorization of biodiversity.

What are experts talking about?

Challenges and Responses in China's Critical Mineral Supply Chains

Source: International Studies Department, Chinese Academy of Social Sciences
Author: Wan Jun, Chen Zhen

Whether in terms of resource reserves, mining and processing capacity, consumption demand, or trade scale, China is known as a key mineral power. China's proven reserves of rare earths, tungsten, molybdenum, indium, gallium, germanium, and graphite are among the world's highest, and it is an important supplier to the international market, but it is highly dependent on imports for insufficient reserves of copper, aluminium, nickel, lithium, chromium, cobalt, platinum, and potash. In terms of the key mineral supply chain, China is generally at a disadvantage in the upstream resource end, has huge production capacity in the midstream processing and refining segment, and has obvious advantages, but still falls short of developed countries in terms of downstream advanced material preparation technology, process, quality, and reliability.

EU-China relations: De-risking or de-coupling − the future of the EU strategy towards China

Source: European Parliament

When looking at economic relations with China, European leaders should not overlook the value of interdependence as well as the real and potential sources of European strength. Economic interdependence and the deterring effect that mutual economic costs provide against coercive actions remain a relevant factor influencing China's behaviour. As such, the EU should look to ensure that it not only remains competitive, but also stands as an indispensable economic and technological player, both for China and a wider set of international partners. The EU should not lose sight of the leverage that this interdependence provides and the effect it could have on China's actions if used wisely, especially towards the goal of maintaining peace in the region.

Please note: the English version of this issue is slightly different from our Chinese one. The views and opinions expressed in this article do not necessarily reflect the official position of the CCCEU.

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