How China Plans to Save Its Economy by Flooding the West with Cheap Cars

Chinese carmakers are no doubt the beneficiaries of some extraordinarily generous subsidies.

„Subsidies and tax breaks have created chronic overcapacity and vicious price competition – as well as ruthlessly efficient firms,” ​​said Yanmei Xie of Cavegal Research. Last year, policymakers unveiled new support measures.

With re-election in mind, van der Leyen has promised to lead the charge to protect Europe's industrial backbone. Car manufacturing is particularly sensitive because European leaders see it as „the past and future foundation of the nation's industrial success,” Xie said.

Chinese electric cars are already subject to a 25pc tariff in the US, so with protectionism high there, trade with Europe is more important than ever for China. However, the EU has launched an anti-subsidy investigation into China's electric car sector.

Officials believe the subsidies have already helped Chinese imports cut European EV prices by a fifth. Tariffs of 10 to 15pc have been threatened. Additional inquiries could come for wind turbines, steel and medical devices, Xie believes.

The fate of Europe's solar industry may serve as a precedent. The continent's solar panel manufacturers have begged Brussels for help after being crushed by cheap imports and oversupply from China, but German Economy Minister Robert Habeck has warned that trade restrictions could bankrupt EU companies that assemble and install solar panels using imported components.

Miguel Stilwell d'Andrade, boss of Portuguese utility EDP, has pointed out that the cost of solar panels in the US is twice that of Europe as a result of tariffs on Chinese imports.

EU Financial Services Commissioner Mairead McGuinness worries the transition to green energy could be crushed.

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Western carmakers are too afraid of retaliation. Many have significant Chinese operations, and most rely on Chinese parts, especially batteries, for their electric models: in curbing Chinese expansion, they can sell more cars, but they need more Chinese materials to make them.

Tu Le, founder of Sino Auto Insights, accuses the industry of hypocrisy. “Look at how much these foreign legacy automakers have exploited the Chinese market in the last 40 years. Volkswagen, Toyota and General Motors cannot do without them. So the idea that they don't want to compete, or they only want to compete with China on their terms and domestic markets, is a bit rich.

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