EU seeks to put brakes on China without hurting ties

BRUSSELS

When the EU launched an investigation into Chinese electric car subsidies, Brussels wanted the world to know that it will protect the automotive sector that is the jewel in Europe's industrial crown, even if it upsets Beijing.

European Commission President Ursula von der Leyen was resolute when she announced the probe on Sept. 13, denouncing unfair practices that undercut European competitors, but sparked an angry retort from China.

Beijing warned the investigation would harm trade ties and accused the EU of "naked protectionism", triggering fears of a trade war.

Those tensions will no doubt be there when EU trade commissioner Valdis Dombrovskis heads to China for a four-day visit starting on Sept. 23.

The EU faces an almost impossible balancing act in its relations with China, which the bloc variously describes as a partner on global issues, an economic competitor and a systemic rival.

On one hand, Brussels wants to maintain ties with Beijing to help resolve issues it believes can only be solved on a global level, such as climate change.

On the other, the EU is seeking to reduce its dependence on China, heeding lessons from its past over-reliance on Russia for fossil fuels.

Experts say this latest move demonstrates that the EU is willing to take action in line with its oft-repeated claim that it will "de-risk" but not "decouple" from China.

The driving force behind von der Leyen's announcement was the EU's bitter experience with China over solar panels.

During her speech last week, she pointed to firms pushed out by cheaper Chinese solar panels that flooded the European market in the late 2000s, while others were forced to file for bankruptcy.

The car industry is significant for Europe, providing direct and indirect jobs to around 14 million Europeans, some 6.1 percent of all EU employment.

China's carmakers are a growing threat, and this year it became the world's largest exporter of cars, overtaking Japan for the first time.

The share of Chinese electric car brands in Europe is surging, reaching 6.1 percent between January and July this year, rising from a low base of 0.5 percent in 2019.

China's success is in large part due to its early investment in batteries and its domination of critical raw materials used in much clean tech.

The EU is also rushing to pass a law to move away from relying on China for key materials such as lithium as part of a broader approach to bring more production to Europe and diversify its trading partners.

Not everyone is convinced that China is guilty of unfair practices.

Ferdinand Dudenhoeffer, an expert at the Center Automotive Research in Germany, accused von der Leyen of making "unfounded" claims, stressing that China's success was due to "long-term" thinking and a "very strong" focus on developing electric cars.

France pushed for a probe because "the French car industry is almost invisible in China", Dudenhoeffer said, accusing Paris of seeking to protect its manufacturers at the expense of Germany's carmakers, since 40 percent of their sales are in China.