Europe recently uncovered disturbing evidence of illegal state aid provided by China to electric car manufacturers, prompting an investigation into the subsidy practices plaguing the European auto industry.

These allegations of heavy subsidies, tax exemptions and reduced supplies raised concerns about fair competition on the global electric car market.

Europe acts on its own initiative

This investigation was initiated by the European Commission itself without a formal complaint from the European automotive industry. The examined Chinese subsidy practices include various support mechanisms, such as:

• Direct money transfers : data indicate that the funds were directly allocated to Chinese manufacturers of electric vehicles;
• Export credits and credit lines : China’s state-owned banks would provide export credits and favorable credit lines to local manufacturers;
• Preferential export insurance : Chinese manufacturers would benefit from preferential export insurance;
• Tax exemption : dividend tax exemption, income tax reduction and import and export tax rebates are among the tax advantages offered;
• VAT reduction and discounted delivery : Chinese manufacturers have also received VAT exemptions and rebates, as well as the supply of raw materials, materials and components at preferential rates from the Chinese government.

The goal of the EU? Protect your automotive industry

The President of the European Commission, Ursula von der Leyen, expressed this clearly this investigation was intended to protect European industry. She argued that massive subsidies to Chinese manufacturers helped keep Chinese electric car prices artificially low, flooding global markets and putting European manufacturers at a disadvantage.

In response to the EU investigation, China rescinded the measure “protectionist” and warned that she would have a “negative impact on economic relations” between two blocks.

The ongoing investigation, which is expected to be completed within a maximum of 13 months, is crucial to determining whether countermeasures such as taxes on vehicles imported from China will be imposed.

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