China will cut the number of hybrid vehicles it ships to the European Union to about 350,000 a year. The EU will impose an import quota on hybrids and China has accepted it, allowing the two sides to avert the immediate risk of a full-blown trade dispute.
EU Trade Commissioner Maros Sefcovic and Chinese Commerce Minister Wang Wentao met in Beijing on the 8th and 9th of this month and agreed on 16 items including the hybrid export restrictions, trade and investment, export controls and intellectual property rights, Bloomberg reported on the 11th.
Under the agreement, the EU will move to cap hybrid vehicle imports at 350,000 units in the first year. The quota takes effect Dec. 1 and will rise 6% each year from the second year, running for a total of four years. To comply with the World Trade Organization's non-discrimination principle, the import limit will apply not only to Chinese-made hybrids but also to those from other countries.
Markets responded with relief to news of the agreement. Shares of Chinese automakers broadly gained on the Hong Kong exchange that day, with BYD, China's largest electric vehicle maker, rising as much as 2.7% at one point.
The agreement came ahead of an EU summit on the 15th and 16th of this month. Germany and France had pressed the European Commission for strong trade countermeasures, arguing that China's overcapacity and subsidy policies were threatening European manufacturing and jobs.
After the EU imposed countervailing duties of up to 35.3% on Chinese-made battery electric vehicles in 2024, Chinese automakers expanded exports of plug-in hybrid electric vehicles and conventional hybrid electric vehicles, which were excluded from the duties. As a result, Chinese automakers' share of Europe's hybrid market had risen to about 25% as of August this year.
Trade experts say the agreement favors China. Beijing avoided tough EU trade measures while making few concessions on the structural issues behind its vast trade surplus with the bloc, they said.
Joe Peissel, senior economist at Chinese research firm Trivium China, told Bloomberg that China had scored a diplomatic win, saying it offered various agreements and memorandums of understanding while leaving largely untouched the fundamental problems driving the trade imbalance. Henry Gao, a law professor at Singapore Management University, said China, already embroiled in a trade conflict with the United States, sought to avoid letting trade friction with Europe escalate as well.
China's dominant leverage over the global rare earth supply chain is also cited as a reason the EU would find it hard to take a hard line. Christopher Beddor, an economist at global research firm Gavekal Dragonomics, said that if the EU were to build large-scale tariff barriers, China could use restrictions on rare earth exports as a retaliatory tool.
