China is halting investments in electric vehicles in Europe due to a tax dispute

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• China has ordered domestic automakers to halt major investments in European countries that support higher taxes on Chinese electric vehicles (EVs).
• Foreign car owners are being encouraged to invest in EU countries that oppose the tax plan, while being careful in countries that have stopped.
• The move is part of a wider strategy by the Chinese government to create leverage in ongoing trade talks with the EU on an alternative to tariffs..

Chinese Authorities have ordered domestic automakers to halt major investments in European countries that support higher taxes on Chinese electric vehicles (EVs). The directive follows the EU’s introduction of new tariffs of up to 45.3 percent after a year-long investigation that divided the bloc and prompted a retaliatory response from Beijing. At a meeting on October 10 called by the Chinese Ministry of Commerce, famous manufacturers such as BYD, SAIC and Geely were advised to stop large investments in countries that support the tariffs. On the other hand, foreign car makers present at the meeting were encouraged to invest in EU countries that opposed the tax plan. In addition, they had to be careful in countries that were avoiding.

The move appears to be part of a wider strategy by the Chinese government to create leverage in ongoing trade talks with the EU on an alternative to tariffs. Just days before this announcement, news emerged that the European Union would send officials to Beijing for further discussions on alternatives to tariffs on Chinese EVs. While reaching an agreement to replace the new tariffs remains complicated and the proposals are still being developed, both sides are exploring a “price guarantee” agreement as a possible solution . This agreement would aim to regulate export prices and export volumes rather than imposing tariffs.

Challenges in the negotiations

However, the negotiations face several challenges. Proposals currently under consideration do not meet EU standards, including WTO compliance and enforcement requirements. Despite recent progress in simplifying the terms of potential price guarantees, especially for new EV models that have not yet been exported, it is still difficult to reach a consensus. One point of contention is that China maintains a single umbrella agreement that includes all manufacturers and is governed by a national trade body representing major exporters such as SAIC Motor and BMW Brilliance.

Additional problems

Complicating this complex landscape, Chinese battery manufacturer SVOLT Energy recently announced plans to cease European operations by January 2025. The company will close its German subsidiaries and will lay off workers, citing poor EV sales and financial stress as factors. This decision highlights the challenges facing Chinese companies operating in the EU market due to growing tensions between the two regions.

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