How China plans to save its economy by flooding the West with cheap cars

There’s little doubt that Chinese carmakers have been the beneficiaries of some extraordinarily generous subsidies.

“Subsidies and tax breaks have created chronic overcapacity and vicious price competition – as well as ruthlessly efficient firms,” Yanmei Xie of Gavekal Research said. Last year, policymakers unveiled fresh support measures.

With re-election on her mind, Von der Leyen has promised recriminations to protect Europe’s industrial backbone. Car-making is particularly sensitive because European leaders see it “as both the past and future foundation of the bloc’s industrial success”, Xie said.

Chinese electric cars are already subject to a 25pc tariff in the US, so with protectionism high there, trade with Europe is more important for China than ever. However, the EU has launched an anti-subsidy probe into China’s electric car industry.

Officials believe subsidies have already enabled Chinese imports to undercut European EV prices by a fifth. Tariffs of 10 to 15pc have been threatened. Additional investigations could come for wind turbines, steel, and medical devices, Xie believes.

The fate of Europe’s solar industry may act as a precedent. The Continent’s solar panel manufacturers have begged Brussels for help after being crushed by cheaper imports and oversupply from China, but German Economy Minister Robert Habeck has warned that trade restrictions could bankrupt EU companies that assemble and install solar panels using imported parts.

Miguel Stilwell d’Andrade, boss of Portuguese utility EDP has pointed out the price of solar panels in the US is more than double that of Europe as a result of duties on Chinese imports.

EU Financial Services Commissioner Mairead McGuinness worries the transition to green energy could be crushed.

Western carmakers fear reprisals the most. Many have substantial Chinese operations, and most rely on Chinese parts, particularly batteries, for their electric models: In curbing Chinese expansion, they might sell more cars, but they would need more Chinese materials to manufacture them.

Tu Le, founder of Sino Auto Insights, accuses the industry of hypocrisy. “Look at how much these foreign legacy automakers have taken advantage of the China market over the last 40 years. Volkswagen, Toyota, and General Motors would not be who they are without that. So the thought that they don’t want to compete, or they only want to compete with China on their terms and in their domestic markets is a bit rich.”