Editor's Note: Greetings! As autumn cools, China-EU trade tensions continue to intensify. This week, China's Ministry of Commerce announced temporary anti-dumping measures on EU-origin brandy, requiring importers to pay deposits ranging from 30.6% to 39%. At the same time, reports indicated that the EU might offer a "compensation mechanism" to French brandy producers. On Friday, the European Commission announced an anti-dumping investigation into Chinese hardwood plywood exports to the EU. Meanwhile, European Council President Michel warned that the ongoing electric vehicle(EV) dispute could potentially develop into a broader trade conflict. Dive into this edition of the CCCEU Weekly Update for the latest insights on China-EU dynamics. Enjoy reading and have a fantastic weekend.

Focus

As autumn sets in, the trade pressure between China and the EU is intensifying, with the term "trade war" appearing more frequently in news headlines on both sides.

Brandy and Hardwood Plywood Join the China-EU Anti-Dumping "Targets"

This week, China's Ministry of Commerce announced that starting from October 11, it will impose temporary anti-dumping measures on imported brandy from the EU, requiring companies to provide deposits ranging from 30.6% to 39.0%.

According to Politico, based on data from the French Cognac industry association BNIC, China is the second-largest export market for French Cognac after the U.S., with 61.5 million bottles exported to China in 2023. In terms of the value, Reuters reported that France exported $1.7 billion worth of brandy to China last year, and analysts predict that the new measures could lead to a 20% increase in brandy prices in China.

On Friday, Bloomberg reported that French Minister for European Affairs, Benjamin Haddad, said the EU and France are discussing an EU-wide "compensation mechanism," possibly including financial aid, to support French brandy producers.

Voices are expressing concern about luxury goods being targeted next in France. Analysts from the Rhodium Group stated that the brandy tariffs are too small to influence EU policymakers' decisions on EVs tariffs.  "If China would go after larger agricultural exports from the EU or, for instance, luxury goods, cosmetics or cars, it could soon be a different story. "

However, analysts suggested that it is unlikely China will target luxury goods next.

In addition to brandy, China is investigating EU imports of pork, dairy products, and large-engine vehicles.

The EC hit back. On Friday morning, the EC announced an anti-dumping investigation into Chinese hardwood plywood exports to the EU. The investigation was requested by the Greenwood Consortium, which represents nine major hardwood plywood producers in the EU, the EC said. The statement reads "On the basis of a comparison of prices in the representative international markets, in particular Turkish statistics, with those in the country concerned, the complaint establishes that the raw material distortions appear to result in prices in China significantly below those of representative international markets."

According to the Financial Times, in 2023, the EU imported about 750,000 cubic meters of hardwood plywood, worth approximately $357 million.

Plywood is commonly used in stoves, walls, floors, furniture, and even in ships and vehicles due to its ability to withstand extreme temperatures.

Michel Warns of Possible "Full-Scale Trade War Amid EV Tariff Dispute: "The Door is Not Closed, But the Situation is Challenging"

On October 11, Chinese Premier Li Qiang met with European Council President Charles Michel during the East Asia Cooperation Leaders' Meetings in Vientiane, Laos.

According to Xinhua, Premier Li stated that China views Europe as an important partner in its foreign policy and modernization efforts. He emphasized China's role as a key partner in Europe's energy and green transitions and for fostering peace and development. He urged the EU to adopt an objective and rational approach towards China. Li told Michel that China is "willing to continue working with EU leaders to further consolidate the stable and positive momentum in China-EU relations."

Agence France-Presse (AFP) reported that Michel stressed that China must "adjust its behavior" to address the escalating tariff disputes with Europe, warning that the conflict could escalate into a full-scale trade war. Regarding EV tariffs, Michel remarked, "My impression is that the door is not closed, but it's a very difficult and challenging situation."

After what were described as "frank and candid" talks with Premier Li, Michel expressed hope that the EU and China could reach price undertakings on EVs in the coming days or weeks, although he acknowledged that it would be challenging.

Tough "Price Undertakings" Negotiations, Rumored Ideal Range: €35,000 to €40,000

Tense negotiations on China-EU price undertakings for EVs are ongoing, with sparse details due to confidentiality. According to prior reports by trade outlets such as Mlex and Reuters, Geely-owned Volvo is reportedly close to an agreement with the European Commission.

On Wednesday, Reuters reported that three EU sources revealed the Commission had rejected a Chinese proposal for price undertakings last month, which would have set the minimum price for EVs in Europe at €30,000 ($32,946). While unverified, this figure offers a reference for understanding the negotiations.

The report, citing data from research firm JATO Dynamics, noted that the average price of EVs in China is less than half that of Europe and the U.S. In the first half of 2023, the average price of a Chinese EV was around €32,000 ($35,126), including models like the BYD Seagull, priced below €10,000.

Meanwhile, Chinese automakers such as SAIC and BYD set slightly higher prices for their EVs in Europe, generally above €30,000. While these EVs sell for far less in China, the €30,000 price floor may not fully offset the impact of government subsidies. For instance, the BYD Seagull, a smaller EV model, is expected to be priced just below €20,000 when it launches in Europe next year.

In comparison, European EVs are at a disadvantage in terms of both price and production capacity. JATO data shows the average price of European battery EVs is €66,000, with most low-cost models (around €20,000) not expected to hit the market until 2025. Volkswagen, for example, aims to launch its €20,000 EV by 2027.

According to one EU source, the ideal price undertaking range for negotiations would be between €35,000 and €40,000, though this has not been confirmed.

The ongoing "price undertakings" negotiations between China and the EU remain uncertain, with high tariffs looming over their trade relations. The inclusion of brandy and plywood may only be the beginning of a larger confrontation. Business groups are urging the EU to stay calm and rational to navigate the economic pressure and avoid a deeper crisis.

News

Senior Chinese official urges France to play constructive role in China-EU consultations

According to Xinhua, Wang Yi, a member of the Political Bureau of the Communist Party of China Central Committee and director of the Office of the Central Commission for Foreign Affairs, expressed the hope that France will view China-EU economic and trade relations with a positive and open attitude, encourage the EU side to meet China halfway, and play a constructive role in consultation and negotiations between the two sides.

Wang made those remarks Thursday during phone talks with French President's Diplomatic Counselor Emmanuel Bonne.

Chinese commerce minister, U.S. commerce secretary held phone talk

China's Commerce Minister Wang Wentao held a telephone talk with U.S. Commerce Secretary Gina Raimondo on Tuesday, according to China's Ministry of Commerce. The two sides conducted candid, in-depth and pragmatic communication on economic and trade issues of respective concern, with a focus on the implementation of the important consensus reached between the two heads of state of China and the United States at the San Francisco meeting.

China-EU team to continue talks after bloc's ruling on Chinese Evs

China has recently engaged in "intensive communications" with the United States and the European Union on EVs trade issues, state news agency Xinhua reported on Wednesday, citing people familiar with the matter.

The China-EU working team will continue consultations following the EU's final anti-subsidy ruling on Chinese EVs on Oct. 4.

Spain Urges EU to Avoid a Protectionist Escalation With China

The European Union and China must continue talks to avoid an escalation of protectionist measures that would lead to a "lose-lose" situation for both economies, Spain's top economic official said to Bloomberg Television.

BMW Q3 sales fall 13%, weighed by China, delivery stops

BMW sales fell in the third quarter, weighed down by weak performance in China and delivery stops due to problems with the integrated braking system (IBS), the German premium carmaker said on Thursday. Group sales dropped by 13% in July-September to 540,882 units, while in China they fell by 29.8% to 147,691 units.

German auto supplier ZF mulling more plant closures

According to Xinhua, Germany's second largest auto supplier ZF is considering closing more plants as the auto industry is undergoing a difficult transformation towards electro-mobility, German media reported on Wednesday.

This comes after the company announced in August plans to cut between 11,000 and 14,000 jobs in Germany by 2028 as part of a cost-reduction strategy aimed at easing its debt burden.

China launches first monetary policy tool to support capital market

According to China Daily, China's central bank announced Thursday that it has decided to set up Securities, Funds and Insurance companies Swap Facility (SFISF), with the initial scale of 500 billion yuan (about 71 billion U.S. dollars) for "the healthy and stable development of the capital market."

Euro Traders Position for More Pain Ahead of ECB Rates Decision

According to Bloomberg, options markets are flagging the worst weekly retreat for the euro since July, as traders bet the European Central Bank will cut interest rates next week.

What are the experts talking about?

New Developments in EU Economic and Trade Protectionism

Source: China Institutes of Contemporary International Relations
Author: Dong Yifan

In recent years, influenced by shifts in the geopolitical landscape and industrial transformations, the European Union has shown a trend of extending and intensifying its traditional economic and trade protectionism, particularly in the aftermath of the COVID-19 pandemic and the Ukraine crisis. This trend is characterized by a diversification of policy tools, an expansion of coverage, and an increasing emphasis on security and ideology. The EU has been active in deploying anti-subsidy investigations, tightening investment and technology trade policies, among other measures.

The reasons behind this shift are complex and varied, including a political shift to the right, the growing influence of geopolitical and value-based competition, and a focus on self-preservation under the goal of strategic autonomy. As one of the most significant global economic players, the EU's rapid embrace of protectionism risks undermining its own development and harming bilateral economic and trade relations with key partners like China, while also reshaping the global economic and industrial landscape.

The European Commission's duties on Chinese electric vehicles are a mistake

Source: Bruegel

Authors: Uri Dadush

The European Commission is poised to impose countervailing duties (CVDs) of up to 35.3% on electric vehicles (EVs) imported from China, in addition to the European Union's existing 10% car tariff. Despite opposition from Germany and other member states, the Commission can proceed following a qualified majority vote on 4 October.

Critics argue the duties will harm EU consumers, particularly low-income citizens, by keeping EV prices high, limiting access to affordable green vehicles. China's dominance in EV production, driven by economies of scale and competitive advantages, has resulted in lower-cost, high-quality vehicles that pose a threat to European manufacturers.

Long-term, the CVDs may provoke Chinese retaliation, reduce EU industry competitiveness, and contribute to global trade fragmentation. These duties could also weaken European manufacturers' ability to compete in global markets, further escalating trade tensions. Critics suggest that a better approach would involve increasing transparency around Chinese subsidies and implementing temporary, WTO-compliant safeguard measures if necessary, rather than isolating China with punitive duties.

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.