China has an incentive to keep road to Europe open
To protect itself, China is proposing lowering its import tariffs on large-engine vehicles from Europe if Berlin convinces the EU to drop extra duties on China.
HONG KONG, June 26 (Reuters Breakingviews) - China and the European Union have agreed to start talks on the bloc’s plan to impose additional import tariffs on China-made electric vehicles; Beijing wants the barriers scrapped, per the Global Times. The negotiations ahead of a November deadline to finalise the levies underscores official concern for the future direction of the broader trade relationship.
The issue threatens the $18 trillion economy more than its carmakers. They can survive EU tariffs, ranging from 17.4% on BYD to 38.1% on Volkswagen’s main partner SAIC Motor because the rates do not entirely erase China's EV’s price advantage. Companies like BYD can also drive around the tariffs by setting up factories in friendly EU member states including Hungary and Poland.
While the two companies could log a similar return on equity in 2024, according to research from Morningstar, results for the first three months of the year show AIA's new business profit a larger and growing faster.
For China, EVs are just the tip of the issue. They are a fast-growing source of exports, but at $11.5 billion last year, the sector accounts for 2% of Chinese exports to EU, according to Breakingviews calculations. It sends everything from telecom equipment to solar panels to the region. Overall the EU accounted for 15% of China's exports in 2023, and is its second-largest export market, according to Chinese customs data.
Look no further than the ongoing Euro 2024 soccer championship for a timely reminder of China's extensive interest in the Western market. BYD has taken over from German carmaker Volkswagen as the main sponsor of the tournament. China's $7 billion electronics manufacturer Hisense Home Appliance is sponsoring TV panels and video-assisted referee (VAR) technology. Alibaba-affiliate Alipay is the global payment partner for the competition.
It would hurt Beijing to add a full-blown trade war with the EU to its escalating one with the United States, even though China warns it will take “every necessary measure” to safeguard its interests. Premier Li Qiang on Tuesday warned "regressive actions of decoupling" would "drag the world into a destructive spiral".
To protect itself, China is proposing lowering its import tariffs on large-engine vehicles from Europe if Berlin convinces the EU to drop extra duties on Chinese EVs, Bloomberg reported, citing people familiar with the discussion. Chinese carmakers could also form joint ventures with their European peers, Politico reported citing unnamed diplomats and senior officials. That would mimic how foreign carmakers once were forced to operate in China. Talks could yet keep the road to Europe for China open.
China and the European Union have agreed to start talks on the bloc's planned additional import tariffs on Chinese-made electric vehicles, according to senior officials of both sides, Reuters reported on June 22. The tariffs are due to be finalised by November 2.
