China, EU strike deal to halve Chinese hybrid exports

China and the European Union have reached a deal that could cut Chinese exports of hybrid cars to the bloc by more than half, European Trade Commissioner Maros Sefcovic said yesterday (9 October) after talks in Beijing aimed at reducing the EU's ballooning trade deficit with China.

The "shared understanding" would "moderate" China's exports of hybrids and plug-in hybrids to the EU, cutting imports by several million cars over four years, Sefcovic said after the two-day talks, without offering details on how the agreement would be implemented.

The understanding followed three months of discussions between Sefcovic and Chinese officials, including Commerce Minister Wang Wentao. It comes after years of disputes between Beijing and Brussels over soaring Chinese exports, including cars.

EU leaders will discuss the outcome at the start of their summit in Brussels next Thursday to determine whether the agreement marks the beginning of a rebalancing of the bloc's trade deficit with China, which has swelled to more than €1 billion ($1.12 billion) a day.

Sefcovic said he believed the two sides had achieved a very good result.

"Having said that, this is far from the end. It is a crucial first step – but only a first step – in the process of rebalancing," he told reporters in Beijing.

Bernd Lange, chair of the European Parliament's trade committee, said the hybrid deal needed to extend to other sectors as well and that the EU should also deploy trade defence measures more effectively.

Chinese Commerce Minister Wang told Sefcovic that China was not the root cause of the EU's problems, but a partner in solving them, according to the Chinese ministry.

The two sides also reached understandings on reducing Chinese import duties on around €4 billion worth of EU exports, including car parts, olive oil and footwear, and on streamlining China's granting of export licences for rare earths and permanent magnets, Sefcovic said.

Chinese car imports to EU surge

EU governments are alarmed by the sharp rise in car imports from China as their own carmakers lay off workers, notably at Volkswagen, where 100,000 jobs are at stake. Imports of plug-in hybrids into the EU increased by 86% in the year to September, while prices fell by 20%. More than half of these vehicles are now from China, compared with a 30% share of plug-in hybrid electric vehicle imports by value in 2025.

The dispute between China and the EU over cheap Chinese electric vehicle exports, which led to EU tariffs in 2024, has strained bilateral ties. It has since broadened to include Chinese measures against EU brandy, pork and dairy, as well as Chinese restrictions on exports of rare earths and critical minerals.

Paris and Berlin are among the hardest hit by Beijing's measures, with France accounting for 90% of EU brandy exports to China and Germany heavily exposed in the dairy sector.

China and the EU said in a joint statement that they would continue discussions on price undertakings as an alternative to tariffs. However, Chinese electric vehicle exports have started to increase again this year despite the tariffs.

German auto industry group VDA cautiously welcomed the agreement but said it was too early to determine whether it would address unfair competition. Mercedes-Benz said the deal showed that constructive dialogue was the right way to address challenges and should provide greater predictability.

Matthias Schmidt, a European automotive research analyst, said countries such as Germany had considered themselves immune to the threat from Chinese carmakers but were now waking up and asking Brussels to step in.

"The result is this statement from Sefcovic today," he said. "Now Berlin is asking London to join them, and Brussels, given the UK accounts for 30% of Western Europe's Chinese new car sales."

As part of Friday's agreement, China's commerce ministry said it would also continue facilitating the approval of export licences for rare earths and permanent magnets through a "green channel" mechanism.

Trade imbalance at heart of dispute

Chinese exports to the EU totalled $560 billion last year, according to UN Comtrade data, up from $517 billion in 2024. Exports to major economies, including Germany, Italy, Spain and Poland, each rose by around 10% from a year earlier, while shipments to Hungary jumped by 43%.

Meanwhile, China imported $268.3 billion worth of European goods last year, down from $269.4 billion a year earlier, led by purchases from Denmark, Ireland and France.

China needs foreign buyers for the flood of relatively cheap, state-subsidised goods that its own consumers cannot absorb. The EU is torn between welcoming those imports to ease living costs and keeping them out to rebuild its own factories.

European Commission President Ursula von der Leyen warned the European Parliament last month that the trade gap had reached a tipping point and that the 27-member bloc would use all the tools at its disposal to rebalance the relationship.

China and the EU will continue exploring the possibility of lowering tariffs on certain goods and maintaining dialogue on market access for medical devices, the Chinese ministry said. Sefcovic and Wang are due to meet again in March 2027, with a video conference scheduled for January.