The European Commission has released a 712-page report in April before announcing temporary tariffs on electric vehicles manufactured in China. The report delves into the various subsidies provided by the Chinese Communist government to Chinese enterprises.
Trade experts view this report, intended for anti-dumping cases, as a supporting document for investigations into anti-subsidy measures for electric vehicles. It sends a signal to China that the EU is serious and opens the door for handling future cases.
According to the report, a key pillar of the Chinese Communist regime’s power is controlling appointments within all political institutions, the military, state-owned enterprises, and public institutions, achieved through the so-called cadre system.
Some key findings of the report include the Chinese government providing direct and indirect support to state-owned enterprises or those effectively controlled by them, even if they hold minority stakes. This support includes providing low-cost financing through state-owned banks to state-owned enterprises regardless of their profitability, along with financial aid from provincial and local governments.
For instance, when Nio, an automaker, faced financial difficulties in 2020, the city of Hefei came to the company’s rescue, increasing its investment in Nio to a 24.1% stake through multiple entities. Nio then relocated its headquarters to Anhui province. Local branches of six state-owned banks agreed to provide a credit line of 10.4 billion RMB (1.6 billion USD) to this loss-making company.
State-owned enterprises hold a significant share in the new energy vehicle and battery industries. The Communist Party tightly controls state-owned enterprises, including those with minority stakes, and has close ties to their management.
SAIC Motor Group, through its ownership of the British automotive brand MG, accounted for two-thirds of Chinese-manufactured vehicle sales in Europe last year. The Chairman of the company, Chen Hong, also serves as the Party Secretary of SAIC Motor Group.
China has four major traditional automakers known as the “Big Four”: SAIC, Dongfeng, FAW Group, and Changan Automobile Company. There are also several important electric vehicle manufacturers in China, including Nio, Huachen, Chery, GAC, and JAC Motors.
Since 2005, the Chinese government has supported electric vehicle manufacturers through five-year plans, including initiatives like “Made in China 2025” and various subsidies at national and local levels. Direct subsidies for electric vehicles started in 2010 and remain in effect.
Last year, the Chinese government extended the tax exemption period for electric vehicle purchases until 2027, with the amount reaching 11.9 billion USD in 2022 alone.
“The further extension of the tax exemption indicates continuous government intervention in the new energy vehicle market to ensure its economic vitality,” the report said, adding that the tax exemption also helps lower the prices of new energy vehicles.
Most credit rating agencies in China are state-owned, leading to ratings that “severely skew towards the top end of the rating spectrum.”
By the end of 2020, 96% of Chinese bonds were rated “AA” or higher, with 38% receiving a “AAA” rating. In comparison, fewer than 10% of companies in the U.S. market receive such high ratings. Therefore, “credit risk information drawn from Chinese credit ratings cannot be directly compared with ratings from other markets like the EU or the U.S.”
Better credit ratings aid enterprises in securing financing.