From Volkswagen to BMW and Ikea, European investments in China seem to have no obstacles, even in times of tariff war. Despite calls from Brussels to reduce the risk of economic ties with the Dragon, greenfield investments, i.e. those linked to the creation of new companies or the establishment of additional structures, rose to 3.6 billion euros in April -June 2024, according to estimates by Rhodium Group, a New York-based consultancy firm. The trend is well above the EU’s average quarterly investment of 1.8 billion noted from 2022, with German businesses accounting for 57% of the total in the first half of the year. The top five investors are Volkswagen, BMW, BASF, the Swedish Ingka group – which owns Ikea – and STMicroelectronics, the Franco-Italian microprocessor giant. While by sector, car manufacturers have catalyzed around half of the EU’s greenfield flows to China since 2022.
Momentum is probably driven by companies’ aim to localize their production: in other words, in efforts to protect their mandarin supply chains from geopolitical tensions, more and more companies are producing with the formula “in China for China”. However, “these investments strengthen the dependence of some of Germany’s largest companies on the Chinese market at a time when reducing economic risk from China is a declared political goal in Berlin and Brussels,” Rhodium found. This is also the lever that allows Beijing to keep the pressure high after the flare-up of EU duties on e-cars made in China.
The EU four-wheel industry fight against competition from Beijing, fueled by low-cost products. This week, Volkswagen announced the unthinkable, with the closure of three plants in Germany. And on Tuesday, Audi announced a stop to electric vehicles at its Brussels plant due to declining market shares in China. The same October EU vote on tariffs split the group of 27 when, for example, “the German government voted against”, laying the foundations for “a growing source of tension in the EU and between Europe and the United States”, observed Rhodium. China is on high alert over the ‘divide and conquer’ tactics it accuses the EU of as talks on electric vehicles continue: Brussels is accused of holding direct negotiations with manufacturers on prices, instead of focusing on a general agreement. As a result, SAIC and Geely had to deny the start of discussions on additional duties, effective from Thursday, with the EU Commission having explicitly mentioned them in its final report on the anti-subsidy investigation. The Chinese and European sides conducted eight rounds of talks with contributions from 12 Chinese e-car companies, amid significant gaps.
Both technical teams have entered a new phase of negotiations, but the scenarios are very complex and the positions distant. Beijing, on the other hand, continues its ‘divide and conquer’ policy: it has rebuked the countries that did not oppose the duties on e-cars (Italy included), it has launched provisional duties on brandy and launched plans to increase duties on large-engined cars from 15 to 25%, with repercussions on German exporters, but also on those of Slovakia, whose Prime Minister Robert Fico is visiting China. He is accompanied by half the government and a mega delegation of entrepreneurs aiming to make his country a hub for the Dragon’s electric car industry (and not only).
