Why is German industry worried about Chinese criticism of EU probe?

China has criticised the European Commission’s probe into its electric vehicle subsidies as being protectionist. Beijing claims that the investigation has harmed business ties between China and the EU. Analysts and Chinese industry executives who contend that the sector’s competitive advantage is not the result of subsidies are worried about the inquiry, which might result in punitive tariffs.

The probe, according to China’s Ministry of Commerce, is a blatantly protectionist move that will disrupt and distort the global automotive supply chain, including that of the European Union, and have a severe effect on economic and trade ties.

The level of unity within the EU will determine how much tariffs could be imposed. A year-long effort by President Emmanuel Macron to force the EU to become tougher on trade and insist on level playing fields has included calls for such an investigation from France.

Other EU nations see that the bloc needs to be more proactive and perceive China as more of an adversary than a partner. A decade ago, Germany resisted duties on imports of Chinese solar panels out of fear of retaliation, opening the door for a deal with Beijing. The latest EU measure was hailed by German Economy Minister Robert Habeck, but the German auto sector was more reserved.

Mercedes Benz argued that protectionist measures were ineffective, while Bosch, the largest automotive supplier in the world, argued that a race towards punitive tariffs and trade barriers would result in only losers. According to some analysts, the investigation shouldn’t represent a significant risk to Chinese EV manufacturers because they might choose to focus on other developing markets, such Southeast Asia.

European automakers’ shares were among the largest decliners on the euro zone stock index as of 14:25 GMT. BMW, Volkswagen, Mercedes, and Stellantis all saw declines of 0.7% to 1.7%. In its initial answer to the investigation, Stellantis encouraged healthy competition as it fosters innovation and excellence in our sector globally for the benefit of society and our clients.

The European Commission’s extraordinary decision to launch the anti-subsidy investigation without any sector complaints as the catalyst coincides with larger political tensions between the EU and China. Due to Beijing’s links to Moscow following the invasion of Ukraine by Russian forces and the EU’s effort to rely less on the second-largest economy in the world, relations have become tight.

The EV probe will set the tone for talks ahead of the annual China-EU Summit, which is due to take place before year-end.