EU probe into Chinese electric vehicle subsidies stirs debate over 'unfair' treatment

The European Union's decision to increase tariffs on Chinese electric vehicles has triggered a debate about whether the country is being unfairly singled out.

China is not alone in subsidising its domestic industry, but critics say the scale of its subsidies sets it apart. However, one Chinese economist defended state support for EVs, saying Brussels has not understood the thinking behind them.

Trade tensions between the two sides escalated this month after the EU announced punitive tariffs of up to 38 per cent on electric vehicles imported from China, claiming Beijing's "unfair" subsidies had led to overcapacity, which distorted the market and damaged EU firms.

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Beijing dismissed the accusations and hit back with an anti-dumping probe into EU pork imports.

Yuyuan Tantian, a social media channel affiliated with China's state broadcaster CCTV, said on Friday that the EU's anti-subsidy probes "have far exceeded the range of traditional anti-subsidy investigation and abused the rules of the World Trade Organization".

It said over the past decade the EU has launched anti-subsidy probes that went beyond direct government subsidies to other areas such as land, loans and electricity supplies.

The platform has previously accused EU investigators of demanding "core business secrets" and "snooping".

Wang Yong, deputy academic dean at the school of new structural economics at Peking University, said the EU was labouring under a "misconception" about China's dominance of the global EV market.

Rather than being the result of state subsidies, he said they were the result of fierce competition at home.

"The domestic market in China is already highly competitive. In order to survive in the domestic market, prices have to continuously decrease," Wang said.

He also said EVs could bring broader societal benefits such as conserving energy and helping the environment, but may need large investments upfront and struggle to turn a profit. "So of course, they definitely need subsidies," said Wang.

Central and local governments in China provided between 200 billion and 250 billion yuan (US$27.5-34 billion) in direct subsidies to EV makers over a 13-year period before ending them last year, Securities Times reported in November last year

It is still offering tax cuts for buyers and has said these will remain in place until 2027, while critics of China's approach have said a vast number of other subsidies are on offer and have complained of a lack of transparency.

One study, by US-based consulting firm AlixPartners in July 2023, calculated that the value of Chinese government subsidies for EV buyers alone could be as much as US$57 billion over a six-year period from 2016 to 2022.

A number of European governments also offer subsidies for EV buyers, while in the US manufacturers can receive subsidies if they comply with certain rules on components produced in North America - a move both Europe and China have criticised as unfair.

According to Berlin-based think tank Sinolytics, Germany and the United States both offered higher tax credits for buyers than China last year, with US$7,500 (€6,800) available to American buyers, compared with €6,200 per vehicle in Germany and €4,000 in China.

But James Zimmerman, former chairman of the American Chamber of Commerce in China, said China's subsidies went way beyond incentives for buyers.

"They include significant governmental handouts that prop up local manufacturers with cheap land resources, steep discounts on energy inputs, a docile workforce and cheap labour, financing for production, grants for R&D investments, bulk purchases by government agencies, and lower corporate income taxes since EVs are designated as high-tech enterprises."

Zimmerman, a partner in international law firm Perkins Coie, also said: "All governments do indeed provide certain types of subsidies, but it's an issue of fairness and competitiveness.

"If subsidies and preferential treatment are so extensive that they distort the markets and result in inefficiencies, then such subsidies are not fair and amount to anti-competitive conduct."

Jacob Gunter, lead analyst at Berlin-based think tank the Mercator Institute for China Studies, said the EU's tariff hike was justified as it was the scale of the subsidies in China "that's so significant" compared with relatively "modest" European subsidies.

"This is about subsidies as a tool to promote the development of industries and to become strong in certain industries and highly competitive in certain industries," he said, adding this type of policy was generally not regarded with favour by the WTO.

Gunter said the EU's investigation had been thorough and "there has been extensive public documentation of things that the Chinese government had made publicly available for a very long time about the level of subsidisation, the availability of cheap loans, free land, all of the traditional sorts of industrial policy".

He added: "We're talking about potentially tens of thousands of dollars worth of support, extensive amounts of below market financing, all sorts of different things. But when added together it's an incomparable level of subsidies."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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