EU escalates response to Chinese EV industry amid concerns over Europe's competitiveness

The European Commission (EC) has expedited its response to the potential disruption of the European Union's (EU) auto industry by Chinese electric vehicle (EV) manufacturers, according to reports from Tuesday. This move comes amid rising concerns over Europe's competitiveness, influenced by the fragility of the German economy, the impending entry of BYD (SZ:002594) electric vehicles into the European market, and ongoing revisions to Europe's Economic Security Policy.

In a swift turn of events, the EC has initiated an investigation into China for suspected commercial dumping of electric vehicles in Europe. This action has been taken more rapidly than expected, considering the significant economic ties between Germany and China. The probe bears similarities to a previous inquiry into Chinese solar panels.

Reacting strongly against this move by the EC, China has criticized German Foreign Minister Annalena Baerbock for referring to Xi Jinping as a dictator during a U.S. visit. The fallout from this situation has further strained relations between the two nations.

In related developments, the French Ministry for the 'Green Transition' is modifying government grants for EV purchases, which will no longer apply to most Asian-made EVs. The German Bundesbank has also issued an unexpected warning to German industry about the need to minimize their risk exposure to China.

The EU's assertive stance is partly motivated by additional evidence of corporate espionage by China, its lack of engagement at the G20, and its open alliance with Russia. German car manufacturers such as Volkswagen (ETR:VOWG_p), which holds a 13% market share in China, are particularly susceptible. Any retaliatory measures such as tariffs or restrictions on battery materials like lithium would signify a clear escalation by China.

Complicating matters further, Italy has chosen to disengage from China's Belt Road Initiative (BRI), and German car companies' reliance on China as an export market could potentially exacerbate the EU's apprehensions about China's growing influence. These developments underscore the escalating tensions between the EU and China, with the auto industry at the crux of their economic confrontations.

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