The European Union is introducing new regulations aimed at ensuring that Chinese companies invest and share technological expertise in Europe as part of a broader strategy to protect its domestic industries and advance clean energy goals.
According to EU officials, Brussels is preparing to make technology transfer and local manufacturing requirements mandatory for Chinese companies seeking subsidies. The initiative is part of a pilot scheme for €1 billion in grants to support battery development, which could potentially be expanded to other subsidy schemes.
This policy echoes China’s approach, which often requires foreign businesses to transfer intellectual property to access the Chinese market. Though EU officials note that the scope of these regulations is currently limited, the criteria for technology transfer could be subject to further refinement before the official tender announcement in December.
This development marks a continuation of the EU’s shift towards stricter trade policies with China, driven by concerns over cheaper, environmentally damaging imports that potentially undercut EU businesses, which are held to rigorous environmental standards.
Last month, the European Commission confirmed additional tariffs of up to 35% on electric vehicles (EVs) imported from China, supplementing the existing 10% duty. In tandem, the Commission has also tightened requirements on hydrogen subsidies, stipulating that only a quarter of parts in electrolysers—the equipment used to produce hydrogen—can be sourced from China.
US Pressure and Global Trade Concerns
The EU’s evolving trade approach comes amidst signals from advisors to US president-elect Donald Trump that Washington may encourage Brussels to adopt stricter barriers against Chinese imports. Trump’s proposed 60% tariffs on Chinese exports could lead to a significant redirection of Chinese trade towards the EU. In such a scenario, the EU might need to consider additional protectionist measures to prevent a surge in Chinese imports.
A senior EU diplomat remarked that aligning with US trade policies on China could pose complex choices for the EU. The decision would not only affect its trade relations but also impact the EU’s climate goals and economic stability.
Balancing Climate Ambitions with Economic Protection
The EU is currently grappling with balancing its ambitious climate targets and the economic constraints facing its domestic industries. To reduce dependency on Chinese imports for clean technology, the EU recently included domestic production requirements in legislation designed to boost sustainable technologies. However, enforcing these requirements may introduce added costs and complexity for European companies, potentially delaying decarbonisation efforts.
Elisabetta Cornago, a senior research fellow at the Centre for European Reform, stated that the EU is actively seeking solutions to enhance trade defences, anticipating a possible increase in redirected Chinese exports. However, she also cautioned that stricter restrictions on Chinese technology imports could potentially disrupt the EU’s transition to greener technologies. By enforcing stringent trade measures in the name of innovation support, the EU risks raising prices, which may slow down consumer adoption of electric vehicles and other clean technologies.
Chinese Investment in European Clean Technology
While these regulatory adjustments are still under discussion, they have already begun to influence the behaviour of major Chinese firms. CATL, the world’s largest battery manufacturer, has committed substantial investments in Europe, establishing so-called “gigafactories” in Germany and Hungary.
Shanghai-based Envision Energy is following suit, allocating significant capital towards facilities in France and Spain. Both companies are attempting to secure a foothold in the EU market and contribute to the European battery supply chain, a critical component of the EV industry.
However, a person familiar with China’s trade strategy revealed to FT that the Chinese commerce ministry has cautioned domestic carmakers against extensive investments in Europe due to political uncertainty. Chinese car manufacturers have been advised to limit their European operations to final assembly stages, reflecting apprehensions about the evolving trade environment in Brussels.
Challenges for European Battery Industry
Meanwhile, Northvolt, the EU’s flagship battery producer based in Sweden, is facing significant financial difficulties. Struggling to scale up production, Northvolt’s challenges highlights the complexities faced by European companies as they attempt to compete with larger, well-resourced Chinese manufacturers.
Batteries constitute a significant portion of EV production costs, accounting for over a third of the vehicle’s total price. Consequently, maintaining a robust battery supply chain is crucial for the EU’s automotive industry as it seeks to transition towards more sustainable, low-emission vehicles.
Image source: electrek.co
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