China’s green vision crosses US and EU red lines
Premier Li warns of a ‘destructive spiral’ as major economies push back against cheap Chinese EVs
Premier Li Qiang talked tough about China’s green tech revolution. But President Xi Jinping’s number two looked just as rattled as his boss in defending the tidal wave of cheap Chinese electric vehicles flooding the global market.
In a swipe at United States tariffs on state-subsidized EVs pouring out of the world’s second-largest economy, Li warned “of a destructive spiral,” Bloomberg News reported.
His comments came just hours after Beijing tried to head off a tariff war with the European Union. The EU has imposed duties of up to 48% on Chinese EVs that threaten to swamp the single market.
“Regressive actions of decoupling [would drag the world into a] destructive spiral, [where] the fierce competition for a larger slice ends up in a diminishing pie,” Li said today at the World Economic Forum, or ‘Summer Davos,’ in the Chinese city of Dalian.
When green turns to red:
- His speech echoed remarks he made at last year’s conference, the Financial Times revealed.
- Only this time, the threat of a full-blown trade war with the US and its allies is a distinct possibility.
- On Monday, Canada took a step towards making Chinese electric vehicle imports more expensive, according to CBC News.
- Last week, the EU imposed tariffs of up to 48% on EVs imported from China.
- Beijing has since called for them to be scrapped and agreed to talks with Brussels.
- In May, the United States slapped 100% tariffs in response to Beijing’s “unfair trade practices.”
The emergence of economies of scale can dilute costs.
Premier Li Qiang
Between the lines: “The continuous emergence of economies of scale can effectively dilute enterprises’ innovation costs … which is the real source of the strong competitiveness of China’s new industries,” Li said.
Big picture: “Economies of scale,” government funding, and depressed wages in the manufacturing sector have been used by Beijing before to prop up sluggish domestic demand. The policies practically wiped out the solar power and wind turbine sectors in the US and EU.
Delve deeper: Billions of dollars have been pumped into China’s EV industry through state subsidies. Policies to suppress salaries have only added to cutting costs. Last year, the basic factory wage at BYD, China’s largest EV maker, was 2,360 yuan a month or US$324.
China Factor comment: Major economies are not going to stand idly by and watch President Xi’s mercantile strategy destroy their industrial base to boost flagging Chinese growth numbers.