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China warns against ‘vicious cycle’ of decoupling from the West

Qilai Shen/Bloomberg/Getty Images

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Chinese Premier Li Qiang has warned against a “vicious cycle” of economic decoupling from the West, as Beijing struggles to contain rising global pushback over soaring electric vehicle (EV) exports.

Speaking to international executives at the “Summer Davos” forum in the northeastern city of Dalian on Tuesday, Li also defended his country against accusations that Chinese overcapacity in key green industries has led to dumping of products such as EVs and solar panels on global markets.

“If countries only consider maximizing their own interests, if we ignore the interests of others, and even go back in history and engage in decoupling … it will only raise the economic operating costs of the entire society and the world,” he said.

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This will “drag countries … into a vicious cycle of scrambling for a cake that becomes smaller and smaller,” Li added. “This is something that we don’t want to see.”

The remarks by China’s second most powerful leader after Xi Jinping come a day after Canada became the latest Western country to consider imposing tariffs on EVs made in China. The Canadian government said on Monday that its workers faced “unfair competition” from Beijing’s “state-directed policy of overcapacity.” It will begin a 30-day public consultation period next month to assess possible responses.

Last month, the Biden administration quadrupled tariffs on EV imports from China, from 25% to 100%, aiming to protect American jobs and manufacturing. Chinese EV sales to the United States are tiny.

However, the challenges facing China’s EV makers grew when a much larger market followed suit weeks later. The European Union (EU), the biggest overseas buyer of Chinese EVs, announced additional provisional tariffs earlier this month because of what it called Beijing’s unfair support for companies that undercut European carmakers.

The two sides have agreed to start talks to negotiate on a possible compromise before the duties come into full effect in November, according to Reuters.

The best outcome would be for the EU to scrap its decision altogether before July 4, when the tariffs begin to kick in, outspoken Chinese state media outlet Global Times reported on Sunday.

China’s growing trade woes come against the backdrop of a sluggish economy, weighed down by its all-important real estate sector, which once accounted for as much as 30% of economic activity.

But Li struck an upbeat tone at the gathering of global executives. He took the opportunity to pitch China as a place to do business, saying it was a “large open market.” The premier said the economy had shown “promising signs of recovery” early in the year, with “strong” growth of 5.3% in the first quarter.

“This positive momentum is expected to continue through the second quarter, and we have both the confidence and the capacity to achieve our annual economic growth target of approximately 5%,” he said.

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