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Brussels launches the fight against cheap Chinese electric cars that are flooding Europe

European Commission President Ursula von der Leyen highlighted the threat that Chinese car subsidies pose to European manufacturing – Stefan Wermuth/Bloomberg

Brussels has launched an investigation into Chinese state subsidies for electric vehicle makers as it vowed to protect the European car industry from a ‘race to the bottom’.

The head of the European Commission, Ursula von der Leyen, warned that subsidies for Chinese carmakers risk undermining competition in the bloc and threatening the continent’s manufacturing sector.

Speaking at the bloc’s parliament in Strasbourg, Ms von der Leyen, president of the European Union’s executive branch, said: “Global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by enormous state subsidies.”

The investigation is the first step towards possible higher import duties on Chinese-made vehicles. Cars imported from China currently face a 10% tariff when entering the EU.

The bloc already imposes strict tariffs on a range of Chinese imports to prevent ‘dumping’ of cheap goods ranging from steel to fiber optic cable.

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The focus on electric vehicles comes as Chinese manufacturers ramp up exports in response to declining demand at home as the economy slows. Exports are up 68% so far this year, according to the China Association of Automobile Manufacturers.

European manufacturers have complained that they cannot compete with these cheap imports, arguing that prices are kept artificially low by weaker safety standards, cheap but polluting energy sources and state subsidies.

Ms von der Leyen said: “Europe is open to competition, but not to a race to the bottom.”

“This is disrupting our market and as we will not accept this disruption from within our market, we will not accept it from without.”

The Chinese government has helped elevate the electric vehicle market to the largest in the world by pouring billions of dollars into subsidies. Electric vehicle manufacturers receive direct state support, while the government also offers incentives to buyers.

France pushed the EU chief to launch the investigation amid concerns that Europe could fall behind in the transition to electric vehicles if the country does not take a stronger stance against China’s protectionism.

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The European Commission’s internal market chief, Frenchman Thierry Breton, warned last week that Europe is increasingly “relegated to net imports of electric vehicles or solar panels.”

Paris has already announced subsidies for new electric cars tied to manufacturers’ CO2 emissions, a policy that penalizes Chinese manufacturers, which tend to be more dependent on coal-generated electricity.

The tougher stance on electric car subsidies comes against a backdrop of rising tensions between Beijing and the West.

Ms von der Leyen said it remains “critical” for Europe to maintain “communication and dialogue” with the world’s second-largest economy.

“Reduce the risks, don’t disconnect. This will be my approach at the EU-China summit later this year.”

The EU plans to ban cars with combustion engines from 2035 as part of its Green Deal initiative to reduce emissions.

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