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China can divide-and-trade a less welcoming Europe



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The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to fix grammar errors.

By Chan Ka Sing

HONG KONG, June 13 (Reuters Breakingviews) -China is failing to contain its rivalry with the West to the United States. The European Union's provisional tariffs on electric vehicles from the People's Republic announced on Wednesday are a setback to Beijing's relationship with the bloc. Yet President Xi Jinping will test the region's ability to form a coherent policy towards the world's second largest economy.

Sentiment appeared to be improving in April when German Chancellor Olaf Scholz brought a delegation to China, including business leaders from Volkswagen VOWG_p.DE to BMW BMWG.DE. A month later, Xi was cosying up to France's Emmanuel Macron in the Pyrenees mountains, before visiting Serbia and Hungary in his three-nation tour.

Xi's last two stops, while receiving less attention, now look shrewd following Brussels' latest move. During the Chinese leader's visit to Belgrade, the two countries announced a free trade agreement. Meanwhile, Hungary has emerged as an important trade and investment partner for China. The $96 billion BYD 002594.SZ, 1211.HK, for instance, is planning to build a production base in Szeged, which should help the automaker avoid the proposed 17% additional levy on top of the EU's pre-existing 10% duty. Prime Minister Viktor Orbán's government blasted the "brutal European punishment" of Chinese EV makers soon after the announcement.

Having Budapest onside will be helpful for Xi, as Hungary is set to take over the rotating EU presidency in July. That's around the same time the latest tariffs are set to kick in, though a final decision on definitive duties may not come until November. It opens up some room for Chinese officials to negotiate better trade terms, and to try and gain what they can from existing divisions between member countries. There's a lot at stake: EU imports from China have more than doubled since 2013, hitting 514 billion euros last year.

The choices Brussels makes in the coming months will determine the speed of Europe's energy transition at a time of rising concern about climate change. Beijing says it hopes the EU will reconsider the tariffs and stop going further in the “wrong direction”, per the official state news agency Xinhua. In the meantime, China's divide-and-trade policy will continue.


CONTEXT NEWS

The European Commission will provisionally apply additional duties on electric vehicles made in China and exported to the bloc, according to a press release on June 12. The duties range from 17.4% for BYD to 38.1% for state-backed SAIC. The provisional duties can be implemented from July, though a final decision will be made later in the year.



Editing by Una Galani and Aditya Sriwatsav

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