‘China urges its carmakers not to invest in EU countries voting for tariffs’

With the European tariffs coming into force this week, China is putting pressure on its carmakers not to invest in countries that voted for the tax wall. Mainly France and Italy were the driving forces for imposing tariffs, and instead, China suggested favoring Germany or Hungary, who voted against them.

According to Reuters, quoting two people briefed about the matter, the Chinese Ministry of Commerce already gave the directive on October 10th at a private meeting with carmakers BYD, Geely, and SAIC, among others. None of the carmakers present wanted to comment.

Belgium, China’s import hub

In the vote on October 4th, ten EU members backed tariffs, five voted against them, and 12 abstained. Among the abstentions was Belgium, Europe’s primary hub for imported cars from China, with the Port of Antwerp-Zeebrugge.

Prior to the final decision on tariffs, Chinese carmakers dumped as many EVs as possible in Zeebrugge. Nowadays, some 80,000 China-built EVs are parked on the harbor site for further transport into Europe.

Complaint with the WTO

China accuses the European Union, and especially French President Macron, of protectionism. It filed an official complaint with the World Trade Organization (WTO) against the EU tariffs, which amount to more than 45% in some cases.

China also installed so-called anti-dumping measures against brandy originating from the EU. Furthermore, China will investigate the import of European cars with powerful engines. But the latter would rub up some of its ‘allies’ within Europe the wrong way, like Germany.

Chinese market paramount

For premium brands like Mercedes and BMW, the world’s biggest auto market, China, is paramount to selling their performance ICE cars with larger profit margins, helping them to bear the burden of gigantic investments in electrification.

According to figures from the German Association of the Automotive Industry (VDA), in 2023, €15.1 billion worth of German cars were delivered to China, while German automotive suppliers exported parts worth €11.2 billion.

Those carmakers are still investing heavily in China. According to figures from the German Bundesbank, China’s economy benefitted from €7.28 billion ($8.03 billion) of direct investments from German companies in the first six months of this year, somewhat 13% higher than the total figure for 2023.

Tariffs up to 45.3%

However, as a two-thirds majority among the EU member states was not found to stop the Commission’s proposal on tariffs for Chinese EVs, they became mandatory for five years with the official publication on Wednesday.

Tariffs differ according to the EU’s investigation into ‘unfair’ Chinese government subsidies and the willingness of companies to cooperate in the investigation. That means – on top of the already existing 10% levy – an additional 17% for BYD, 18.8% for Geely, and 35,3% for SAIC (MG) and all others that didn’t cooperate with the EU’s investigation.

European brands such as BMW, Volvo, Dacia, and Renault, produced in China and exported to the EU, are also subject to an additional import duty of 20.7%. Tesla negotiated the best deal with 7.8% on top of the 10%.

Chinese-built Western EVs

Imports of Chinese-built Western EVs – like Tesla’s Model 3, BMW’s iX3, and Volvo’s EX30 – make up most of the imported cars, some 60%. Volvo, for instance, is preparing to avoid tariffs on the EX30 by building it in its Ghent factory from 2025 onwards.

The Chinese Ministry of Commerce’s attempt to play the EU member states off against one another by putting pressure on its carmakers seeking to invest in factories in Europe has to be seen in the light of ongoing negotiations.

Courting China for Investments

BYD already gave its hand away by showing interest in Turkey for a new European factory and Hungary – on of the EU members opposed to tariffs – where it already has a bus manufacturing facility.

Italy and France are among the EU countries that have been courting Chinese automakers for investments but have pushed the tariffs through. SAIC, one of China’s biggest carmakers with successful EV brands like MG, was planning a second European parts center in France this year and is looking for a Europen location for a factory.

According to Reuters, “the Italian government is in talks with Chery, China’s largest automaker by exports, and other Chinese automakers, including Dongfeng Motor, about potential investments.”

Negotiations with the Chinese government have failed so far, but the Commission is now aiming for deals with individual manufacturers on a minimum price for cars and quotas for their imports. In return, Chinese carmakers can count on European concessions.

Until now, such individual deals have been rejected because they are insufficient. However, both sides desire to develop alternatives to the high penalty rates quickly.