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EU probe into Chinese EVs: ‘The whole supply chain is subsidized’

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In Brussels, Belgium, EU officials announced new taxes on Chinese electric vehicles (EVs) and shared the findings of an ongoing investigation into “state subsidies”.

Dozens of EU officials spent 250 working days in China, visiting more than 100 companies and gathering thousands of pages of evidence.

“The whole supply chain is subsidised,” a senior official at the meeting was quoted as saying by the SCMP, reporting on the findings of the investigation, which many predict could spark a trade war.

The official pointed out that this meant that the Chinese government was subsidising all players, and that this chain extended from the refining of lithium used in batteries, to the production of cells and batteries, to the production of BEVs [battery electric vehicles], and even the transport of BEVs to EU markets.

Automotive manufacturer pledges to ship hybrid cars to Europe

According to the SCMP reporter, “Chinese business representatives were shocked by the presentation. After a quick check of the figures, an executive from an electric car company promised to start shipping hybrid cars to Europe instead, as they would not be subject to such high taxes.

“The EU has ignored facts and WTO rules, disregarded China’s repeated strong opposition and acted unilaterally, disregarding the objections and warnings of many EU member governments and industries,” China’s Ministry of Commerce said in a statement minutes after receiving the notification.

Separate tariffs for three Chinese companies

Following the announcement in September by Ursula von der Leyen, President of the European Commission, that an investigation into Chinese electric cars would be launched, work began immediately and the sample size was reduced from 21 Chinese groups exporting electric vehicles to Europe to three.

These were BYD, soon to become the world’s biggest seller of electric vehicles; Geely, which spent the 2000s acquiring major European brands such as Volvo; and SAIC Motor, owner of the iconic MG and Volkswagen’s joint venture partner.

The final tax on most Chinese electric vehicle exports to Europe will be a weighted average calculated on the basis of the subsidies on the books of these three companies. This is likely to mean an additional tax of around 21 per cent on average.

When experts realised that the giant SAIC was on the list, they predicted that the countervailing duties could far exceed the EU’s average rate of 19 per cent.

Details of the EU investigation: Thousands of questionnaires sent out

As part of the investigation, the companies were sent questionnaires of more than 60 pages and 18,000 words each. They asked for access to financial information and forensic-level details of the assistance each received from the Chinese state.

According to the SCMP, the document said: “It is in your own interest to answer as accurately and completely as possible and to provide supporting documentation. You may supplement your answer with additional data”, but in reality it was a veiled threat to “comply or you will be excluded from the European market”.

According to Rhodium Group research, only SAIC chose not to comply and on Wednesday found itself facing the highest import tax on all EU electric vehicle shipments and the third highest tax ever imposed by the EU.

This tax is on top of the existing 10 per cent rate, meaning the cars will cost almost 50 per cent more.

Other companies, including BYD and Geely, will be taxed at a lower rate than standard EU models, with a weighted average of 21 per cent.

BYD could benefit from new taxes

“SAIC is very dependent on the European market and has no plans to localise production yet, so it will be very affected,” said Ilaria Mazzocco, an expert on China’s electric vehicle trade at the Centre for Strategic and International Studies.

BYD, on the other hand, appears to be in a good position with an EU factory, low tariffs and a geographically diversified market.

The EU also sent a series of questionnaires to the Chinese government, asking it to forward them to selected lithium suppliers and local banks. Beijing refused.

“The Chinese government has been very active in seeking justification for various steps. There has been a lot of interaction, but less positive activity on their side in terms of providing us with the information we requested,” the senior EU official said.

Instead, according to the EU, Beijing has tried to obstruct the investigation with a series of threats that have multiplied as the Brussels probe has drawn to a close.

EU not afraid of WTO

Brussels is confident it has a “watertight” justification for the tariffs and is not worried about a WTO challenge that would point to the fact that some Chinese companies pay lower taxes than their European competitors.

Judging by the EU’s findings, the inspectors found subsidies everywhere they looked. Lithium processors and battery makers are told by the state to sell to electric vehicle companies at below-market prices, while car companies are exempt from battery excise taxes.

The companies issue green bonds, which state financial institutions are required to buy, and are given preferential land, income tax breaks and cheap refinancing options mandated by the People’s Bank of China.

Chinese companies’ market share in the EU rises to 25 per cent

The EU believes its own companies are suffering as a result. Between January 2020 and September 2023, Chinese companies increased their market share in the EU from 4 per cent to 25 per cent, while the share of their local competitors fell from 69 per cent to almost 60 per cent, officials said.

The inspectors added that Chinese subsidies are “jeopardising” Europe’s green transition by depressing the price at which European companies can sell electric vehicles, meaning that in some cases they are making a loss on every vehicle sold.

BYD’s growth plans unaffected

Chinese electric vehicle maker BYD, led by billionaire Wang Chuanfu, can withstand the EU’s additional tariffs on electric vehicles from China and take market share from harder-hit rivals, analysts say, according to Forbes.

Shares in the Chinese carmaker jumped 8.8 per cent in Hong Kong and up to 6 per cent in Shenzhen on Thursday as the tax hike was significantly lower than the 30 per cent previously expected.

The EU said BYD would have to pay an additional 17.4 per cent tax on top of the current 10 per cent from next month.

Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities International, said: “The market believes that the impact on BYD will not be as severe as previously feared. Compared with other Chinese automakers, BYD may have an advantage in the region at the moment,” said Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities International.

SAIC calls for ‘decision review’

Ng says BYD could take market share from SAIC as tariff hikes could reduce the appeal of the MG brand in Europe.

Thanks to its competitive pricing, MG counts Western Europe as its biggest market, where it was the fifth-largest EV brand by deliveries last year, according to market research firm Canalys.

The MG4, for example, has a starting price of 28,990 euros, compared with around 33,000 euros for its main rival, Volkswagen’s ID.3.

In a public statement, SAIC called on the EU to reconsider its decision, which it said would have a major negative impact on economic cooperation between China and the region.

Strong reaction from German car industry

On the other hand, the new tariffs imposed by Brussels have led to a split between Germany on the one hand and France on the other.

Berlin worked behind the scenes to stop the tariff increases, while Paris backed Leyen. One senior official said the Germans even used the term “so-called overcapacity” in the meetings as a sign of how much they were aligned with Beijing.

Wolfgang Niedermark, a board member of the Federation of German Industries, said: “The focus now should be on minimising the negative impact on international supply chains and European companies. European companies have no interest in an escalation of the trade conflict with China,” Niedermark said.

The VDA, which represents carmakers such as Volkswagen, BMW and Daimler, strongly criticised the decision, with president Hildegard Müller warning that it was “another step away from global cooperation”.

European carmakers producing electric vehicles in China will also be affected. The largest group is Dacia and BMW, which will face an import duty of 21%.

This is even higher than Chinese carmaker BYD, which will see a lower tariff of 17.4% for participating in the Commission’s investigation and providing evidence that it benefits from less state support.

ACEA, the European Automobile Manufacturers Association, whose members have more diverse interests, said it had merely “noted” the decision.

German government pushes for negotiations

“The European Commission’s punitive tariffs are hitting German companies and their best products,” said German Transport Minister Volker Wissing (FDP) in X.

“Vehicles must become cheaper, not through trade wars and market fragmentation, but through more competition, open markets and significantly better business conditions in the EU,” Wissing wrote.

Similar comments were made by Economy Minister Robert Habeck (Greens), who told German media that “tariffs are always a political measure of last resort and often the worst option”.

“It is very important that talks take place now,” Habeck said, calling for negotiations between the EU and China.

German firms fear retaliation

German companies are also concerned about possible Chinese retaliation, with Volker Treier of the German Chambers of Industry and Commerce (DIHK) warning that “the tariffs announced by the Commission on Chinese e-cars will not be without consequences for the export-oriented German economy”.

Fears were fuelled by the response of the Chinese Ministry of Commerce, which said it was ready to “take all necessary measures” to protect the interests of its manufacturers.

“It is also up to China to come to Europe with constructive proposals to prevent an escalation of trade conflicts and to stop anti-competitive behaviour consistently and quickly,” said VDA’s Müller, calling on the EU and China to resolve the issue through negotiations.

Müller said they needed China to solve global problems, including climate change, and argued that a trade war would jeopardise this transformation.

Objections from the Czech Republic and Malta

Like the German manufacturers, the Czech Association of the Automotive Industry has announced that it believes such measures could have a negative impact.

“On the contrary, it was the removal of trade barriers that led to an increase in international trade and prosperity in recent years, especially in the automotive sector, which relies on strong exports,” said Zdeněk Petzl, the association’s executive director.

Petzl warned that China could aggravate already tense trade relations by retaliating against Europe and the US, stressing that European car companies import more than 90 per cent of key materials for electric vehicles and batteries from China.

“The introduction of new tariff measures will certainly be felt by Chinese manufacturers and may slow their growth, but we do not expect it to affect China’s subsidy policy,” Petzl said, advocating a systemic approach to strengthen European industry, increase competitiveness and open new markets.

Malta’s energy minister, Miriam Dalli, told The Post last month: “We don’t want tariffs that don’t help us achieve our decarbonisation goals. Having more expensive products will not help us achieve our ambitious targets,” she told The Post last month.

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Germany’s decision on Junge Welt

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Last Thursday, the Berlin Administrative Court rejected an appeal by Junge Welt (JW), Germany’s only left-wing daily newspaper founded in 1947, against the inclusion of the newspaper in the annual report of Germany’s domestic intelligence agency, the Federal Office for the Protection of the Constitution (BfV).

The court ruled in favour of the spy agency, which had placed the paper under surveillance for ‘left-wing extremism’. An urgent appeal was rejected in March 2022.

The ruling is intended to provide a legal basis for the claim that the newspaper was ‘unconstitutionally’ and ‘justifiably’ under surveillance by the secret service. The banning of the far-right magazine Compact, which was banned with immediate effect on Tuesday and confiscated by the Interior Ministry, shows how far-reaching the consequences could be.

JW’s fundamental rights are already severely restricted. The inclusion of the newspaper in the annual report of the secret service has a chilling effect on interview partners and readers and generally complicates and hinders the professional practice of journalists and broadcasters.

The plaintiff had therefore requested that the newspaper’s inclusion in 23 annual reports of the secret service since 1998 be annulled.

After the ruling, Dietmar Koschmieder, managing director of JW, said that an appeal would be lodged and, if necessary, the case would be taken to the European Court of Justice.

Koschmieder, a member of the German Communist Party (DKP), accused the court in its ruling of adopting ‘crude and stupid things’ from the constitutional report.

The president of the court, Wilfried Peters, sided with the BfV from the outset. According to the World Socialist Website, he made no secret of his view that socialist and Marxist politics should be banned in Germany.

Echoing the defendant’s arguments, Peters argued that the newspaper represented a ‘class point of view’ and referred favourably to Marx and Lenin, which was already unconstitutional.

According to the president, Junge Welt could not fall within the scope of freedom of the press because it not only published, but also displayed ‘political aims’ against the ‘free democratic basic order’ by organising an annual conference against capitalism.

The court said that the newspaper had given a voice to ‘extreme left-wing authors’, had referred to organisations on the ‘extreme left-wing spectrum’ and had allegedly failed to distance itself sufficiently from political forces advocating violence in parts of its coverage.

The plaintiff’s lawyer, Heinrich, pointed out that a positive reference to Marx and Lenin is not synonymous with the ideology of ‘Marxism-Leninism’, which was declared unconstitutional in a 1956 Supreme Court ruling against the German Communist Party (KPD) for, among other things, advocating a one-party dictatorship. According to the ruling, only ‘Marxism-Leninism as interpreted by Stalin’ was unconstitutional.

In his ruling, Peters insisted that the BfV had drawn attention to the ‘extreme left-wing’ views of many JW writers and editors, and declared that Lenin, as a historical figure, had ‘fought most vigorously against the constitutional order’.

Judge Peters also set the value of the case at a staggering €115,000, including lawyers’ fees and court costs.

According to the court, there are numerous links between the editors and writers of Junge Welt and the German Communist Party (DKP), which is considered ‘extreme left-wing’.

In addition, Junge Welt does not openly declare its commitment to ‘non-violence’, and former ‘RAF terrorists’ have repeatedly been offered platforms by the newspaper.

The judge ruled that the normal amount in dispute for the BfV’s annual reports was actually 5,000 euros, but that these amounts had to be added together because there were 23 reports in total, albeit almost identical ones.

As a result, the JW broadcasters have to pay large sums of money to the court, even though the case is still ongoing and the judgement has not yet been finalised.

Sevim Dağdelen, foreign policy spokesperson for the Sahra Wagenknecht Alliance (BSW) in the Bundestag, criticised the ruling: ‘The decision undermines freedom of the press and democracy in Germany. Critical reporting on war and capitalism should be defended as part of the political decision-making process, not the job of the Federal Office for the Protection of the Constitution.

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Greece buys Russian gas through TurkStream

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According to the Berliner Zeitung, Greece has suddenly halted its ambitious LNG plans and opted to rely on gas from the TurkStream pipeline from Russia to Turkey.

The EU wants to end its dependence on Russian gas by 2027. Indeed, the share of Russian pipeline gas in EU gas imports will fall from 40 percent in 2021 to 8 percent in 2023.

However, according to the report, there are now signs that this trend will not continue. Some EU countries, such as Greece, have even started to import more Russian pipeline gas again. Instead, plans for additional LNG terminals have been put on hold.

Gas imports via TurkStream on the rise

According to Handelsblatt, around 60 percent of Greece’s gas imports currently come from Russia. In 2022, this figure will be only 14 percent.

Greece is not alone: Russia’s share of Austria’s gas imports has also risen from 87 to 91 per cent.

Hungary has signed new supply contracts with Gazprom for 2023.

Greece, however, had other plans last year. A project for five new LNG terminals was announced, which would make the country one of the most important LNG hubs in the region. The plan was to supply LNG as far as Ukraine.

But the Greek government has now backtracked. Our LNG capacity is more than sufficient,’ Handelsblatt quoted Greek Environment and Energy Minister Theodoros Skylakakis as saying. The future of the LNG projects is now uncertain.

Athens wants to block ship-to-ship transfers of Russian oil

However, according to a report in the Greek City Times, the Greek navy this week extended an advisory effectively banning shipping off the south-east coast of the Peloponnese and beyond.

According to three sources, the move is aimed at preventing ship-to-ship transfers of Russian oil in Greek waters.

In recent months, Greece has regularly issued and extended similar advisories for military exercises in the Gulf of Lakonia and off the island of Kythera (Chuha), urging commercial and other vessels to avoid these areas.

The latest advisory has been extended until 15 September 2024.

It is clearly effective in preventing the diversion of shipments that should not be diverted,” said one of the sources, citing this as one of the main reasons for the extension.

Russian gas continues to reach the EU

Data from the think tank Bruegel show that the EU’s gas imports from Russia are increasing.

In the first week of July 2024, they amounted to 648 million cubic metres, compared to only 562 million cubic metres in the same period in 2023.

In particular, more Russian gas was imported via pipelines in Ukraine and Turkey. For example, the TurkStream pipeline transported 344 million cubic metres of gas to the EU in the first week of July, compared to only 298 million cubic metres a year earlier, an increase of around 15 percent.

Russia has again overtaken the US in gas supplies to the EU

This results in lower demand for LNG in the EU, as pipeline gas is generally much cheaper.

In terms of total exports to Europe (pipeline gas and LNG), Russia has once again overtaken the US as the EU’s second largest gas supplier.

According to the Berliner Zeitung, it remains a difficult task for the EU to become independent of Russian gas by 2027.

The EU has so far imposed a total of 14 sanctions packages on Russia, but Russian pipeline gas has not yet been affected.

Russian LNG has also been sanctioned only indirectly. Only transhipment through a European port for resale to third countries is banned.

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NATO plans to seize Chinese infrastructure in Europe in case of ‘wider conflict with Russia’

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NATO officials are discussing taking action to reclaim some Chinese-owned infrastructure projects in Europe in the event of a wider conflict with Russia in the east of the continent, three officials involved in the talks told CNN.

A decade ago, as Europe struggled to emerge from the economic crisis caused by the global financial meltdown, the promise of infrastructure funding from Chinese-owned investment companies seemed like a great “windfall”, according to CNN.

Now, with the biggest ground war in Europe since World War II and Western warnings that Beijing is aiding Russia in the war, Nato countries see these investments as a “liability” and the allies have begun discussing ways to buy back some of these projects, officials said.

According to one US official, there are fears that Beijing could use its infrastructure in Europe to provide material support to Russia if the conflict escalates. The goal is to find a way forward well in advance of any potential conflict, the officials said.

Discussions at an early stage

The discussions also show that the NATO alliance is increasingly focused on China. The People’s Republic of China was strongly targeted in a joint statement issued by 32 heads of state and government at the 75th anniversary summit in Washington last Wednesday.

Discussions on infrastructure measures are still in the early stages, according to three officials involved, with varying levels of commitment among NATO members. One NATO diplomat said the United States, which is leading the talks, should continue the discussions bilaterally to ensure the necessary support.

From railways linking Eastern Europe to China to ports in the North and Baltic Seas, China has financed tens of billions of dollars of infrastructure investment under the Belt and Road Initiative (BRI), which European countries signed up to in 2013.

Infrastructure to be nationalised in case of war

A NATO official said that if war broke out, infrastructure ‘would almost certainly be nationalised or nations would temporarily take operational control under emergency security measures’. China could then take the confiscating countries to court, he said.

US officials believe that moves by European countries to force Russia to sell its assets after the Ukraine war have set a precedent for such takeovers or sales. For more than a year, Finland had repeatedly blocked the operation of the Helsinki Shipyard, a maker of icebreaking ships once owned by a Russian company, until Russia sold it to a Canada-based organisation in late 2023.

A senior US official said the talks had expanded beyond low-tech to include high-tech areas such as quantum computing, semiconductors and telecommunications infrastructure.

Blinken signals Pacific alliance against China

US Secretary of State Antony Blinken said on Wednesday that the war in Ukraine may be the reason why European and Asian countries have realised that their security depends on each other.

“Japanese Prime Minister Kishida said that what happens in Europe today could happen in East Asia tomorrow, and perhaps that was crystallised in Ukraine. When Russia renewed its aggression against Ukraine, Japan stood up, South Korea stood up, Australia stood up, New Zealand stood up, reflecting a recognition that these problems are interconnected,” Blinken said.

France reluctant to use NATO against China

While most NATO members have expressed some level of concern about China’s infrastructure, two officials involved in the discussions told CNN that France in particular has tried to shift the infrastructure debate to the European Union, which has authority over other economic issues.

According to the officials, tensions with France and other countries have influenced the language of the statement, with countries arguing that NATO is not the best platform to challenge China.

But many member states have a very real fear that Beijing could use these assets against the alliance in the future and continue to push for the alliance to defend against this threat, according to CNN.

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