Commission Implementing Regulation (EU) 2024/1866of 3 July 2024imposing a provisional countervailing duty on imports of new battery electric vehicles designed for the transport of persons originating in the People’s Republic of China

Available at http://www.eximbank.gov.cn/aboutExim/profile/zczy/201902/t20190225_8813.html

.

(437) At the general level, Article 34 of the Bank law, which applies to all financial institutions operating in China, provides that commercial banks shall conduct their business of lending in accordance with the needs of the national economic and social development and under the guidance of the industrial policies of the State. Although Article 4 of the Bank Law states that, commercial banks shall, pursuant to law, conduct business operations without interference from any unit or individual. Commercial banks shall independently assume civil liability with their entire legal person property, the investigation showed that Article 4 of the Bank law is applied subject to Article 34 of the Bank law, i.e. where the State establishes a public policy the banks implement it and follow State instructions.

(438) In addition, Article 15 of the General Rules on Loans provides that In accordance with the State’s policy, relevant departments may subsidize interests on loans, with a view to promoting the growth of certain industries and economic development in some areas.

(439) Similarly, Decision No 40 instructs all financial institutions to provide credit support specifically to encouraged projects. As already explained in Section 3.1 and more specifically in recitals (210) - (211), projects of the BEV industry belong to the encouraged category. Decision No 40 hence confirms the previous finding with respect to the Bank law that banks exercise governmental authority in the form of preferential credit operations. The Commission also found that the NFRA has far-reaching approval authority over all aspects of the management of all financial institutions established in the PRC (including privately owned and foreign owned financial institutions), such as

According to the Implementing Measures of the CBIRC for Administrative Licensing Matters for Chinese-funded Commercial Banks (Order of the CBIRC [2017] No 1), the Implementing Measures of the CBIRC for Administrative Licensing Matters relating to Foreign funded Banks (Order of the CBIRC [2015] No 4) and the Administrative Measures for the Qualifications of Directors and Senior Officers of Financial Institutions in the Banking Sector (CBIRC [2013] No 3). After the CBIRC was replaced with the NFRA, the Implementing measures were not amended.

:

approval of the appointment of all managers of the financial institutions, both at the level of headquarters and at the level of local branches. Approval of the NFRA is required for the recruitment of all levels of management, from the most senior positions down to branch managers, and even includes managers appointed in overseas branches as well as managers responsible for support functions (e.g. the IT managers); and

a very long list of administrative approvals, including approvals for setting up branches, for starting new business lines or selling new products, for changing the Articles of Association of the bank, for selling more than 5 % of their shares, for capital increases, for changes of domicile, for changes of organisational form, etc.

(440) The Bank law is legally binding. The mandatory nature of the Five-Year Plans and of Decision No 40 has been established above in Section 3.5.1.5. The mandatory nature of the NFRA regulatory documents derives from its powers as the banking regulatory authority. The mandatory nature of other documents is demonstrated by the supervision and evaluation clauses, which they contain.

(441) Decision No 40 of the State Council instructs all financial institutions to provide credit support only to investment projects pertaining to the encouraged category and promises the implementation of other preferential policies for projects pertaining to the encouraged industries category On this basis, banks are required to provide credit support to the BEV industry as an encouraged industry.

(442) Furthermore, even private commercial banking decisions must be overseen by the CCP and remain in line with national policies. In fact, one of the State’s three overarching goals in relation to banking governance is now to strengthen the Party’s leadership in the banking and insurance sector, including in relation to operational and management issues in companies. In this respect, the Three Year Action Plan of the CBIRC for the years 2020 to 2022 instructs to further implement the spirit embodied in General Secretary Xi Jinping’s keynote speech on advancing the reform of corporate governance of the financial sector. Moreover, the Plan’s section II aims at promoting the organic integration of the Party’s leadership into corporate governance: we shall make the integration of the Party’s leadership into corporate governance more systematic, standardised and procedure-based […] Major operational and management issues must have been discussed by the Party Committee before being decided upon by the Board of Directors or the senior management.

(443) Also, the GOC has recently stipulated that even shareholders of financial institutions need to facilitate the exercise of the GOCs control via the institution’s corporate governance framework, as follows: Large shareholders of bank and insurance institutions shall support bank and insurance institutions in establishing an independent and sound corporate governance structure with effective checks and balances, and encourage and support banks and insurance institutions to ensure the organic integration of Party leadership with corporate governance

(449) As explained in recital (440), the Commission considered that the Chinese Bank law and Decision No. 40 are of a mandatory nature. Furthermore, the findings of this investigation as well as the Commission's findings in previous investigations concerning the same subsidy programme

See for example the HRF, Tyres and E-bikes cases cited in footnote 12, respectively in Section 3.4.1.1.b and Section 3.5.1.1.

did not support the claim that banks do not take government policy and plans into account when making lending decisions. For example, the Commission found that the three groups of sampled exporting producers benefited from preferential lending at below-market interest rates.

(450) The investigation showed that Article 15 of the General Rules on Loans was actually applied in practice, and that Articles 4, 5 and 41 of the Bank law were applicable subject to Article 34 of the Bank Law, i.e. where the State establishes a public policy the banks implement it and follow State instructions. In fact, while Articles 4 and 5 of the Bank Law are part of Chapter I, which sets the general provisions, Article 34 is part of Chapter IV, which establishes the basic rules governing loans. The wording of Article 34: commercial banks carry out their loan business upon the needs of national economy and the social development and under the guidance of the State industrial policies, demonstrates that this provision is not of a guiding nature but has rather a mandatory character and provides a clear instruction to banks to take into account the State industrial policies when carrying out their loan business. In this particular case, as mentioned in recital (221), the Energy-saving and New Energy Vehicle Industry Development Plan (2012-2020) clearly points to credit management and loan evaluation systems to encourage the development of energy-saving and new energy vehicle industries. The Commission also noted that the Decision No. 40 of the State Council instructs all financial institutions to provide credit support only to encouraged projects and promises the implementation of ‘other preferential policies for projects pertaining to the encouraged industries category’s. While Article 17 of the same Decision requires banks to respect credit principles, the Commission could not establish during the investigation that this was done in practice. To the contrary, loans were provided to the exporting producers irrespective of their financial situation and creditworthiness. This finding is not new and was already made in previous investigations

Ibidem footnote 12

.

(451) Finally, as noted in recitals (442) to (444) above, the fact that all the bank’s major operational and management issues are reviewed by the Party, which is thoroughly embedded in the corporate governance structure of the banks, and the fact that the performance of the banks is evaluated in line with their efforts to serve strategic and emerging enterprises such as the BEV industry, also shows the tight and binding nature of the regulatory framework over the operations of the financial institutions.

(452) In the absence of concrete evidence of creditworthiness assessments, the Commission therefore examined the overall legal environment as set out above in recitals (434) to (444), in combination with the behaviour of the cooperating State-owned bank regarding loans provided to the sampled companies. This behaviour contrasted with its official stance as in practice EXIM bank was not acting based on thorough market-based risk assessments.

(453) In the course of the investigation, the Commission found that loans were provided to the three sampled groups of exporting producers at interest rates below or close to the Loan Prime Rate (LPR), as announced by the National Interbank Funding Center (NIFC). The LPR was introduced on 20 August 2019, and replaces the previous PBOC’s central bank benchmark rate

http://www.pbc.gov.cn/zhengcehuobisi/125207/125213/125440/3876551/de24575c/index2.html.

. The provision of financing at rates below or close to the country’s risk-free interest rate on the interbank market clearly shows that risk was not adequately taken into consideration. In the absence of cooperation by financial institutions or refusal to provide information pertaining to the sampled groups by the EXIM bank despite the existence of a bank authorization, the Commission had to use facts available and thus concluded that the loans were granted regardless of the companies’ real financial and credit risk situation, as established in section 3.5.2.3 below. Hence, the loans were provided below market rates when compared to the rate corresponding to the risk profile of the sampled exporting producers.

(454) Moreover, as concerns specifically EXIM Bank, it is undisputable that this is a policy bank directly pursuing government policies by its own admission. As explained on its website

See http://english.eximbank.gov.cn/Profile/AboutTB/Introduction/.

, EXIM bank is a State-funded and State-owned policy bank directly under the leadership of the State Council and dedicated to supporting inter alia China’s foreign trade and implementing the going global strategy.

(455) On that basis, the Commission concluded that the GOC has created a normative framework with respect to lending to encouraged industries that had to be adhered to by the managers and supervisors of the bank, which are appointed by the GOC and accountable to the GOC. This normative framework did not leave any margin of manoeuvre to the managers and supervisors of the bank as to whether to follow this framework or not with respect to the sampled exporting producers, thus putting the management of that bank in a position of dependence.

(456) Therefore, the GOC relied on the normative framework in order to exercise control in a meaningful way over the conduct of the cooperating State-owned bank whenever it was providing loans to the BEV industry.

(457) As explained in recital (434), the Commission sought proof of the exercise of control in a meaningful way based on concrete loans. However, the cooperating State-owned bank did not provide certain necessary information, including its specific credit risk assessment related to the sampled companies. In the absence of concrete evidence of such credit risk assessments, the Commission examined the overall legal environment applicable to lending to encouraged industries such as the BEV industry in combination with the behaviour of the cooperating State-owned bank and established that the bank was not acting based on thorough market-based credit risk assessments.

(458) Furthermore, as explained in recital (453), loans were provided to the three sampled groups of exporting producers at interest rates below or close to the Loan Prime Rate regardless of their financial and credit risk situation. Therefore, considering the risk profile of the sampled exporting producers described in Section 3.5.1.10 below and that, according to the risk analysis performed by the Commission, the exporting producers should have received a B credit rating and should thus have paid interest rates significantly above the risk-free rate, the Commission concluded that the loans at issue were provided below market rates.

(459) The Commission therefore concluded that the GOC has exercised meaningful control over the conduct of the cooperating State-owned bank with respect to its lending policies and assessment of risk concerning the BEV industry.

3.5.1.6.

Conclusion on cooperating State-owned financial institutions

(460) The Commission established that the partially cooperating State-owned bank implemented the legal framework set out above in the exercise of governmental functions with respect to the BEV sector. Therefore, it was acting as public body in the sense of Article 2(b) of the basic Regulation read in conjunction with Article 3(1)(a)(i) of the basic Regulation and in accordance with the relevant WTO case-law.

3.5.1.7.

Non-cooperating State-owned financial institutions

(461) The General Rules on Loans

The General Rules on Loans promulgated by the PBOC on 28 June 1996.

promulgated in 1996 aimed to regulate the activities connected with loans in particular, with the promotion of specific socio-economic development

Chapter 1, Article 1 of the General Rules on Loans promulgated by the PBOC on 28 June 1996.

. According to Decision No. 40

Decision of the State Council Regarding Promulgating the Implementation of Interim Provisions on the Promotion of Industrial Restructuring, 2 December 2005, Guo Fa [2005] No.40.

, the GOC also intervenes into the lending operations of financial entities by designating industrial sectors which should benefit from privileged access to credit and mandating financial institutions to take into account industrial state policies when providing loans.

(462) The prominent role of State policy considerations (instead of purely commercial ones) which the State imposes upon the commercial banks, particularly State-owned financial institutions, in shaping their lending strategies is also clearly visible in the MOF’s Notice on the Commercial banks performance evaluation method issued on 15 December 2020. According to the notice’s provisions, the performance evaluation criteria of commercial banks have to take into account how entities serve the national development objectives and the real economy, and in particular how they serve strategic and emerging industries. Article 4 of the notice stipulates that the performance evaluation of commercial banks shall provide a strong and effective guarantee that national macro-policies will be implemented

See the Notice on the Commercial banks performance evaluation method, issued on 15 December 2020 by MOF; at: http://jrs.mof.gov.cn/gongzuotongzhi/202101/t20210104_3638904.htm.

.

(463) As set out in Section 3.3.1.1 above, none of the State-owned financial institutions except for EXIM bank, which provided loans to the sampled companies, replied to the specific questionnaire. The list of the banks includes: Agricultural Bank of China, Bank of Beijing

See Bank of Beijing Y2022 Annual Report (April 2023) https://pdf.valueonline.cn/web/viewer.html?v=20200509&file=https://oss.valueonline.cn/cloud-irh-bucket/public/formal/0/167278f7-743a-4dca-be0f-bb065e3f8748.pdf

, Bank of China, Bank of Communications Co. Ltd, Bank of Kunlun

See Bank of Kunlun Co. Ltd abstract of annual report 2022 https://www.klb.cn/eklbank/resource/cms/2023/06/2023062916001985556.pdf

, Bank of Nanjing

See Bank of Nanjing 2023 Annual Report https://q.stock.sohu.com/newpdf/202458060499.pdf

, Bank of Ningbo

See the PBOC list of China’s systematically important banks for 2022 available at: http://www.pbc.gov.cn/en/3688110/3688172/4437084/4655510/index.html.

, Bank of Shanghai

See Bank of Shanghai 2022 Annual Report https://www.bosc.cn/en/AnnualReport/202306/P020230630696730742992.pdf

, Bank of Tianjin

See Bank of Tianjin Annual Report 2020 https://www.bankoftianjin.com/tianjinyinwen/investor_relations97/investor_calendar/financial_reports/2021101306303981693/2021101306294251287.pdf

, China CITIC Bank

See China CITIC Bank, 2021 Annual Report; available at: https://file.finance.sina.com.cn/211.154.219.97:9494/MRGG/CNSESH_STOCK/2022/2022-3/2022-03-25/7912624.PDF.

, China Construction Bank Corporation, China Everbright Bank

See China Everbright Bank, 2021 Semi-Annual Report; available at: https://vip.stock.finance.sina.com.cn/corp/view/vCB_AllBulletinDetail.php?stockid=601818&id=7512500.

, China Industrial Bank Co. Ltd

See ICBC, Annual Report 2021; available at: file.finance.sina.com.cn/211.154.219.97:9494/MRGG/CNSESH_STOCK/2021/2021-8/2021-08-27/7488935.PDF.

, China Merchants Bank

See China Merchants Bank, Annual Report 2022, p. 125; available at: https://pdf.dfcfw.com/pdf/H2_AN202303241584543269_1.pdf.

, China Minsheng Bank

See China Minsheng Bank, Annual Report 2022; available at: https://ir.cmbc.com.cn/media/mc3d2wm2/%E4%B8%AD%E5%9B%BD%E6%B0%91%E7%94%9F%E9%93%B6%E8%A1%8C2022%E5%B9%B4%E5%B9%B4%E5%BA%A6%E6%8A%A5%E5%91%8A.pdf, p. 94.

, Export-Import Bank of China – EXIM bank, ICBC, Ping An Bank

See Ping An Bank, Homepage – Investor Relations – Major Shareholders; available at: https://group.pingan.com/investor_relations/major_shareholders.html.

, Shanghai Automotive Group Finance Co., Ltd

See SAIC Motor Corporation Limited https://www.saicmotor.com/english/images/investor_relations/annual_report/2022/7/12/763203D083E54499855A319FB8356217.pdf

, Shanghai Pudong Development Bank Co. Ltd

See Shanghai Pudong Development Bank, 2021 Semi-Annual Report; available at: https://static.sse.com.cn/disclosure/listedinfo/announcement/c/new/2021-08-28/600000_20210828_4_HEBMzsvE.pdf.

., Chong Hing Bank Limited

See Chong Hing Bank Limited Corporate structure : https://www.chbank.com/en/personal/footer/about-ch-bank/investor-relations/group-members-and-structures/index.shtml

Huishang Bank Co., Ltd.

See Annual report 2023 https://inv.hsbank.com.cn/uploads/iis/202404/11165178-0.PDF

,Sun Life Everbright Asset Management Co. Ltd.

See Annual report 2023 https://staticpacific.blob.core.windows.net/press-releases-attachments/1656728/HKEX-EPS_20240417_11162624_0.PDF

,and the Zhongyuan Bank Co., Ltd

See Annual Report 2023 https://www1.hkexnews.hk/listedco/listconews/sehk/2024/0328/2024032801590.pdf

. The GOC did not provide information neither on the ownership of the banks, or on their governance structure, risk assessment or examples relating to specific loans to the BEV industry.

(464) Therefore, in line with the conclusions reached in Section 3.3.1.1, the Commission decided to use facts available to determine whether those State-owned financial institutions qualify as public bodies.

(465) In a previous anti-subsidy investigation

Commission Implementing Regulation (EU) 2018/1690 of 9 November 2018 imposing definitive countervailing duties on imports of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries and with a load index exceeding 121 originating in the People's Republic of China (OJ L 283, 12/11/2018, p.1 (§210 and §211))

the Commission established that the banks which had provided loans to the sampled groups of exporting producers in the investigation were partially or fully owned by the State itself or by State-held legal persons. Since the banks did not reply to the specific questionnaire, the Commission used publicly available information, such as the bank's website, annual reports, information available in bank directories or on the internet, In line with the findings of this past investigations the Commission Staff Working Document

Updated Commission Staff Working Document on Significant Distortions in the Economy of the People’s Republic of China for the purposes of Trade Defence Investigations, 10 April 2024, SWD(2024) 91 final (the China Report) – Chapter 6.3 Banking Sector, pp. 137-144.

confirmed that the State dominates the banking sector

See also Chorzempa, M. and Véron, N., Will China’s impending overhaul of its financial regulatory system make a difference?, PIIE, March 2023, p. 2; available at: https://www.piie.com/sites/default/files/2023-03/pb23-1.pdf.

by maintaining controlling stakes in all state-owned commercial banks, as well as by being the majority shareholder in a number of joint-stock commercial banks, either through direct investment by Central Huijin or indirectly through other state-owned legal entities. Recital (468) below list those banking entities reported by the exporting producers in which the State holds a majority shareholding .and in the absence of changes since recent similar investigations

Ibidem footnote 12

, it was considered that all State-owned financial institutions that provided financing to the sampled exporting producers as partially or fully owned by the State itself or by State-held legal persons.

3.5.1.8.

Conclusion on all State-owned financial institutions

(466) In light of the above considerations, the Commission established that all State-owned Chinese financial institutions that provided financing to the three sampled groups of cooperating exporting producers are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation.

(467) In addition, even if the State-owned financial institutions were not to be considered as public bodies, the Commission established on the basis of the same information that they would be considered entrusted or directed by the GOC to carry out functions normally vested in the government within the meaning of Article 3(1)(a)(iv) of the basic Regulation for the same reasons, as set out in Section 3.5.1.9 below. Thus, their conduct would be attributed to the GOC in any event.

3.5.1.9.

Private financial institutions entrusted or directed by the GOC

(468) As in previous investigations

See Commission Implementing Regulation (EU) 2017/969 of 8 June 2017 imposing definitive countervailing duties on imports of certain hot-rolled flat products of iron, non-alloy or other alloy steel originating in the People's Republic of China and amending Commission Implementing Regulation (EU) 2017/649 imposing a definitive anti-dumping duty on imports of certain hot-rolled flat products of iron, non-alloy or other alloy steel originating in the People's Republic of China (OJ L 146, 9.6.2017, p. 17) (HRF case), Commission Implementing Regulation (EU) 2018/1690 of 9 November 2018 imposing definitive countervailing duties on imports of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries and with a load index exceeding 121 originating in the People's Republic of China and amending Commission Implementing Regulation (EU) 2018/1579 imposing a definitive anti-dumping duty and collecting definitively the provisional duty imposed on imports of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries, with a load index exceeding 121 originating in the People's Republic of China and repealing Implementing Regulation (EU) 2018/163 (OJ L 283, 12.11.2018, p. 1) (Tyres case), Commission Implementing Regulation (EU) 2021/2287 imposing definitive countervailing duties on imports of aluminium converter foil originating in the People’s Republic of China (OJ L 458, 22.12.2021, p. 344) (ACF case), and Commission Implementing Regulation (EU) 2020/776 of 12 June 2020 imposing definitive countervailing duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt (OJ L 189, 15.6.2020, p. 33) (GFF case), Commission Implementing Regulation (EU) 2022/72 imposing definitive countervailing duties on imports of optical fibre cables originating in the People’s Republic of China (OJ L 12, 19.1.2022, p. 34) (OFC case).

, the Commission established in the case at hand that the following banks and private financial institutions operating in China had provided loans to the sampled groups of exporting producers in the investigation at hand: China Postal Savings Bank Co. Ltd., Citibank (China) Co., Ltd., DBS Bank (China)

Limited, East West Bank (China) Co., Ltd., Hana Bank (China) Co., Ltd., HSBC Bank (China) Limited, Mitsubishi UFJ Bank (China) Co., Ltd., Mizuho Bank (China) Co., Ltd., OCBC Wing Hang Bank (China) Limited, Standard Chartered Bank (China) Limited, Sumitomo Mitsui Banking Corporation (China) Co., Ltd., United Overseas Bank (China) Limited, and the Yushan Bank (China) Co. In line with the corresponding analysis provided in Section 3.5.1.8, it was considered that these banks and private financial institutions have been operating under the supervision of the CBRC have been entrusted or directed by the GOC, Since no information was provided indicating otherwise, the Commission maintained the same conclusion in the present investigation.

(469) The Commission analysed whether all these financial institutions had been entrusted or directed by the GOC to grant subsidies to the BEV sector within the meaning of Article 3(1)(a)(iv) of the basic Regulation.

(470) According to the WTO Appellate Body, entrustment occurs where a government gives responsibility to a private body and direction refers to situations where the government exercises its authority over a private body

WT/DS/296 (DS296 United States – Countervailing duty investigation on Dynamic Random Access Memory (DRAMS) from Korea), Appellate Body Report of 21 February 2005, para. 116.

. In both cases, the government uses a private body as a proxy to make the financial contribution, and in most cases, one would expect entrustment or direction of a private body to involve some form of threat or inducement

Appellate Body Report, DS 296, para. 116.

. At the same time, Article 3(1)(a)(iv) does not allow Members to impose countervailing measures to products whenever the government is merely exercising its general regulatory powers

Appellate Body Report, DS 296, para. 115.

or where government intervention may or may not have a particular result simply based on the given factual circumstances and the exercise of free choice by the actors in that market

Appellate Body Report, DS 296, para. 114 agreeing with the Panel Report, DS 194, para. 8.31. on that account.

. Rather, entrustment or direction implies a more active role of the government than mere acts of encouragement

Appellate Body Report, DS 296, para. 115.

.

(471) The Commission noted that the normative framework concerning the industry mentioned above in recitals (434) to (442) applies to all financial institutions in the PRC, including privately owned financial institutions. To illustrate this, the Bank Law and the various orders of the CBIRC cover all Chinese-funded and foreign-invested banks under the management of the CBIRC.

(472) Furthermore, the majority of loan contracts with private financial institutions had similar conditions as the contracts with State-owned banks, and the lending rates provided by the private financial institutions were similar to the rates provided by the State-owned financial institutions. This shows that de facto preferential lending conditions are granted by those banks in accordance with the GOC’s control over the banking sector.

(473) In the absence of any divergent information received from the private financial institutions, the Commission concluded that, in so far as the BEV industry is concerned, all financial institutions (including private financial institutions) operating in China under the supervision of the NFRA have been entrusted or directed by the State in the sense of Article 3(1)(a)(iv), first indent of the basic Regulation to pursue governmental policies and provide loans at preferential rates to the BEV industry

See the cases cited in footnote 12 before.

.

3.5.1.10.

Credit ratings

(474) In previous anti-subsidy investigations, the Commission already determined that domestic credit ratings awarded to Chinese companies were not reliable, based on a study published by the International Monetary Fund

IMF Working Paper Resolving China’s Corporate Debt Problem, by Wojciech Maliszewski, Serkan Arslanalp, John Caparusso, José Garrido, Si Guo, Joong Shik Kang, W. Raphael Lam, T. Daniel Law, Wei Liao, Nadia Rendak, Philippe Wingender, Jiangyan, October 2016, WP/16/203.

, showing a discrepancy between international and Chinese credit ratings. Indeed, according to the IMF, over 90 %

of Chinese bonds are rated from AA to AAA by local rating agencies. This is not comparable to other markets, such as the EU or the United States of America (US). For example, less than 2 % of firms enjoy such top-notch ratings in the US market. Chinese credit rating agencies are thus heavily skewed towards the highest end of the rating scale. They have very broad rating scales and tend to pool bonds with significantly different default risks into one broad rating category

Livingston, M. Poon, W.P.H. and Zhou, L. (2017). Are Chinese Credit Ratings Relevant? A Study of the Chinese Bond Market and Credit Rating Industry, in: Journal of Banking & Finance, p. 24.

. According to the China bond market insight 2021 by Bloomberg

China bond market insight 2021, https://assets.bbhub.io/professional/sites/10/China-bond-market-booklet.pdf,.

, five Chinese local rating agencies dominate the bond market: China Chengxin, Dagong, Lianhe, Shanghai Brilliance, and Golden credit rating, and around 90 % of the bonds are rated AAA by local rating agencies. However, many of the issuers have received a lower S&P global issuer rating of A and BBB

China bond market insight 2021, Footnote 59, p. 31.

.

(475) In addition, foreign rating agencies, such as Standard and Poor’s and Moody’s, typically apply an uplift over the issuer’s baseline credit rating based on an estimate of the firm’s strategic importance to the Chinese Government and the strength of any implicit guarantee when they rate Chinese bonds issued overseas

Price, A.H., Brightbill T.C., DeFrancesco R.E., Claeys, S.J., Teslik, A. and Neelakantan, U. (2017). China’s broken promises: why it is not a market-economy, Wiley Rein LLP, p. 68.

.

(476) To complement this analysis, previous cases showed that the GOC can also exercise its influence over the credit rating market.

(477) According to the information provided by the GOC in previous cases, there were 14 credit rating agencies active on China’s bond market, including 12 domestic rating agencies. Second, there is no free entrance on the Chinese credit rating market. It is essentially a closed market, since rating agencies need to be approved by the China Securities Regulatory Commission (CSRC) or the PBOC before they can start operations

See Footnote 71 in Commission Implementing Regulation EU) 2022/72 of 18 January 2022 imposing definitive countervailing duties on imports of optical fibre cables originating in the People’s Republic of China and amending Implementing Regulation (EU) 2021/2011 imposing a definitive anti-dumping duty on imports of optical fibre cables originating in the People’s Republic of China.

. The PBOC announced mid-2017 that overseas credit rating agencies would be allowed to carry out credit ratings on part of the domestic bond market, under certain conditions. However, these credit rating agencies follow Chinese rating scales and are thus not exactly comparable with international ratings, as explained in recital (475).

(478) Finally, a 2021 research by Allianz Global Investors confirms the Commission’s findings, stating that China’s onshore credit rating system differs from international rating conventions. For example, onshore bonds rated AA+ would typically be rated as high yield on an international scale

Available at https://ch.allianzgi.com/-/media/allianzgi/globalagi/china-microsite/9-things-to-know/9-things-to-know-about-chinas-bond-markets.pdf

.

(479) Finally, the OECD pointed out in 2022 that [d]eficiencies in the credit-rating market, including inflated ratings and weak warning systems hinder the healthy development of the bond market

See OECD Economic Surveys,: China, March 2022, p. 34-35; available at: https://www.oecd-ilibrary.org/docserver/b0e499cf-en.pdf

.

(480) Furthermore, the Commission has also determined

See the Commission Staff Working Document on Significant Distortions in the Economy of the People’s Republic of China for the purposes of Trade Defence Investigations, 10 April 2024, SWD(2024) 91 final (the China Report) – Chapter 6, pp. 156-160,.

that the Chinese credit rating system cannot be considered to be solely driven by market forces and that it operates on a distorted basis.

(481) In view of the situation described in recitals (474) to (478), the Commission concluded that Chinese credit ratings do not provide a reliable estimation of the credit risk of the underlying asset. Those ratings were also distorted by the policy objectives to encourage key strategic industries, such as the BEV industry.

3.5.2.

Preferential financing: loans

3.5.2.1.

Types of loans

(1) Short-term and long-term loans

(482) The Commission established that companies in all three sampled groups used various short-term and long-term loans to finance their activities. These loans were mainly used for daily operations, working capital needs, for special projects, investments or to replace other loans. The sampled groups of exporting producers also used short-term and long-term export credits.

(2) Loans with the specific purpose to replace other loans (revolving loans)

(483) In the course of the investigation, the Commission found that one of the sampled groups contracted loans with the specific purpose to replace the capital repaid on loans at the maturity date by fresh capital from new loans. Such revolving loans are usually a sign of liquidity problems of the borrower and involve a greater risk exposure for the banks granting them. In line with the findings in previous investigations

Commission Implementing Regulation (EU) 2017/969 of 8 June 2017 imposing definitive countervailing duties on imports of certain hot-rolled flat products of iron, non-alloy or other alloy steel originating in the People's Republic of China and amending Commission Implementing Regulation (EU) 2017/649 imposing a definitive anti-dumping duty on imports of certain hot-rolled flat products of iron, non-alloy or other alloy steel originating in the People's Republic of China (OJ L 146, 9.6.2017, p. 17) (HRF case), Commission Implementing Regulation (EU) 2018/1690 of 9 November 2018 imposing definitive countervailing duties on imports of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries and with a load index exceeding 121 originating in the People's Republic of China and amending Commission Implementing Regulation (EU) 2018/1579 imposing a definitive anti-dumping duty and collecting definitively the provisional duty imposed on imports of certain pneumatic tyres, new or retreaded, of rubber, of a kind used for buses or lorries, with a load index exceeding 121 originating in the People's Republic of China and repealing Implementing Regulation (EU) 2018/163 (OJ L 283, 12.11.2018, p. 1) (Tyres case) and Commission Implementing Regulation (EU) 2020/776 of 12 June 2020 imposing definitive countervailing duties on imports of certain woven and/or stitched glass fibre fabrics originating in the People's Republic of China and Egypt (OJ L 189, 15.6.2020, p. 33) (GFF case).

, the Commission established that with this practice some companies could rearrange their liabilities and obtain the funds without which they would not be able to meet their repayment obligations, evidencing therefore problems to repay debt.

(3) Financing with the aim to restructure long term debt

(484) In the course of the investigation, the Commission found that certain sampled companies issued bonds with the specific purpose of debt repayments, namely loans. The Commission established that by restructuring their debt via this instrument, some companies could rearrange and defer their liabilities as well as obtain the funds without which they would not be able to meet their repayment obligations, evidencing therefore problems to raise funds.

(485) The use of bonds to that aim raises concerns on the ability of a given company to pay for its debts, therefore questioning not only its short-term liquidity, but also the solvency in the long term. The existence of bonds issued with the purpose of repayment of loans in a given company is therefore considered an indication that the company is in a worse financial situation than what the financial statements would suggest at first sight, and that there is an additional risk related to its short and long-term financing.

3.5.2.2.

Specificity

(486) As demonstrated in Section 3.5.1.5, several legal documents, which specifically target companies in the BEV sector, direct the financial institutions to provide loans at preferential rates to the BEV industry. These documents demonstrate that the financial institutions only provide preferential financing to a limited number of enterprises or industries, which comply with the relevant policies of the GOC. The Commission considered that the reference to the BEV industry is sufficiently clear as this industry is identified either by its name or by a reference to the product that it manufactures or the industry group that it belongs to.

3.5.2.3.

Calculation of the subsidy amount

(487) The Commission calculated the amount of the countervailable subsidy based on the benefit conferred on the recipients during the investigation period. According to Article 6(b) of the basic Regulation, the benefit conferred on the recipients is the difference between the amount of interest that the company has paid on the preferential loan and the amount that the company would have paid for a comparable commercial loan, which the company could have obtained on the market.

(488) As explained in Sections 3.5.1 and 3.5.2 above, the loans provided by Chinese financial institutions reflect substantial government intervention and do not reflect rates that would normally be found in a functioning market.

(489) The sampled groups of companies differed in terms of their general financial situation. Each of them benefitted from different types of loans during the investigation period with variances in respect of maturity, collateral, guarantees and other conditions. For those two reasons, each company had an average interest rate based on its own set of loans received.

(490) The Commission assessed individually the financial situation of each sampled group of exporting producers in order to reflect these particularities. In this respect, the Commission followed the calculation methodology for preferential financing through loans established in the anti-subsidy investigation on aluminium converter foil originating in the PRC, as well as the anti-subsidy investigation on hot-rolled flat steel products originating in the PRC, the anti-subsidy investigations on tyres originating in the PRC, certain woven and/or stitched glass fibre fabrics originating in the PRC and optical fibre cables originating in the PRC

OJ L 458, 22.12.2021, p. 344 (recital 237) (Aluminium foil case) OJ L 146, 9.6.2017, p. 17, recitals (152) to (244) (HRF case), OJ L 283, 12.11.2018, p. 1, recital (236) (Tyres case), OJ L 189, 15.6.2020, p. 33, recital (300) (GFF case) and OJ L 12, 19.1.2022, p.75, recital 294 (OFC case).

, as explained in the recitals below. As a result, the Commission calculated the benefit from the preferential financing through loans practices for each sampled group of exporting producers on an individual basis and allocated such benefit to the product under investigation.

(1) BYD Group

(491) The Commission noted that the BYD Group was awarded an AAA rating by a Chinese credit rating agency in 2020. In light of the overall distortions of Chinese credit ratings mentioned in Section 3.5.1.10, the Commission concluded that this rating is not reliable.

(492) As mentioned in recitals (452) to (459), the lending Chinese financial institutions did not provide any creditworthiness assessment. Hence, in order to establish the benefit, the Commission had to assess whether the interest rates for the loans accorded to the BYD Group were at market level.

(493) The BYD Group presented itself in a generally profitable financial situation with a profit margin of around 6 % according to its own financial accounts. The group used short-term and long-term debt to finance its operations. The Commission assessed the short-term liquidity and the long-term solvency situation of the company.

(494) Regarding short-term liquidity, the Commission used the current ratio. This ratio measures the company’s ability to pay short-term obligations, including short-term debt.

(495) The company’s current ratio was at 0,89 in 2021, decreased to 0,75 in 2022 and then decreased to 0,68 in the investigation period. Despite the AAA rating attributed to the company in 2020, the company’s current assets were thus not enough to pay the short-term obligations. This does not justify a high credit rating, for which a company should present a ratio of at least 2.

(496) Considering this short-term liquidity indicator, the Commission concluded that the company at issue presented short-term liquidity problems which results in having a high-risk debtor profile.

(497) The Commission based the long-term solvency risk assessment on the debt ratio. This ratio measures the company’s ability to meet its long-term debt obligations. It is used by lenders and bond investors when assessing the company’s creditworthiness.

(498) The debt ratio measures the amount of liabilities, in particular long-term debt. The company had a high debt to equity ratio of 0,78, which points to the fact the company is financing its activity through debt. The debt-to-equity ratio also increased continuously from 0,67 in 2021 to 0,78 in the IP, which points to the fact the company is financing more and more of its activity mainly through debt. The higher the debt-to-equity ratio, the higher the financial risk of the company is, which means that the company may have a harder time servicing its existing debts.

(499) Therefore, considering the liquidity and solvency issues described in recitals (495) to (498), the Commission considered that the company was not in a solid financial situation and a high risk profile for potential lenders and investors.

(500) Moreover, the Commission analysed the debt-to-equity ratio of the individual companies with the highest rate of financial benefits and found that their debt-to-equity ratio in 2022 ranged from 0,71 up to 0,97.

(501) Following the above and in view of the overall distortions of Chinese credit ratings, mentioned in Section 3.5.1.10, the Commission concluded that the AAA credit rating awarded to the BYD Group is not reliable.

(502) The Commission considered that the overall financial situation of the group corresponds to a B rating, which does no longer qualify as investment grade.

(503) Based on publicly available data on Bloomberg, the Commission used as a benchmark the premium expected on bonds issued by firms with a B rating, which was applied to the PBOC Loan Benchmark Rate, or after 20 August 2019 to the Loan Prime Rate as announced by the NIFC

See recital (453) above.

in order to determine the market rate.

(504) That mark-up was determined by calculating the relative spread between the indices of US AA rated corporate bonds to US B rated corporate bonds based on Bloomberg data for industrial segments. The relative spread thus calculated was then added to the PBOC Loan Benchmark Rate, or after 20 August 2019 to the Loan Prime Rate published by the NIFC, at the date when the loan was granted

In case of fixed interest loans. For variable interest rate loans, the PBOC benchmark rate during the IP was taken.

and for the same duration as the loan in question. This was done individually for each loan provided to the group of companies.

(505) As for loans denominated in foreign currencies, the same situation in respect of market distortions and the absence of valid credit ratings applies, because these loans are granted by the same Chinese financial institutions. Therefore, as found before, B rated corporate bonds in relevant denominations issued during the investigation period were used to determine an appropriate benchmark.

(2) Geely Group

(506) As mentioned in recitals (452) to (459), the Chinese lending financial institutions did not provide any creditworthiness assessment. Hence, in order to establish the benefit, the Commission had to assess whether the interest rates for the loans accorded to the Geely Group were at market level.

(507) The Geely Group reported a profitable financial situation with a 3% profit margin according to its own financial accounts. However, profitability declined compared to 2021. Its return on equity ratio, which is the group’s ability to turn equity capital into net profit, decreased from 8 % in 2021 to 5 % at the end of the investigation period.

(508) Geely Group used short-term and long-term debt to finance its operations. The Commission assessed the short-term liquidity and the long-term solvency situation of the group.

(509) Regarding short-term liquidity, the group presented an average current ratio of 1,03 during the investigation period. Although the current ratio is slightly above 1, the company’s current assets are just enough to pay the short-term obligations, which is not sufficient to justify a high credit rating, for which a company should present a ratio of at least 2. The quick ratio of the company was 0,79 at the end of the IP, 0,76 in 2022, and 0,79 in 2021, while a quick ratio of at least 1 is considered as a reference. In fact, a company that has a quick ratio below 1 may not be able to pay off its current liabilities in the short-term. The cash ratio of the company was on average 0,4 in the IP; therefore, the company had insufficient cash at hand to pay its short-term debt. Considering the short-term liquidity indicators, the Commission concluded that the company at issue presented short-term liquidity problems which results in having a risk debtor profile.

(510) Concerning long-term debt, the Geely group had a high Debt-to-Assets ratio of 0,69, which means that 69 % of the assets of the company are financed by debt. The Debt-to-Equity ratio was 2,1 in 2021, 2,11 in 2022 and 2,22 at the end of the IP, which points to the fact the company is financing its activity mainly through debt. The higher the Debt-to-Assets and the Debt-to-Equity ratios are, the higher the financial risk of the company is. In addition, during the investigation period, one of the companies of the group (Ningbo Hangzhou Bay Geely Automobile Parts Co., Ltd.) concluded a debt-to-equity swap deal with State-owned banks, in order to improve its debt structure. Under such a deal, the company could convert part of its debt to State-owned banks into shares, and thus reduce the liabilities on its balance sheet.

(511) Furthermore, the Commission found that Geely Group contracted loans with the specific purpose of replacing loans. As explained in Section 3.5.2.1 the existence of revolving loans is considered an indication of additional risks related to liquidity problems.

(512) Similarly, the Commission found that Geely Group issued bonds with the purpose of debt restructuring. In this case, as explained in Section (4), the Commission considered that this is a sign of being in a worse financial situation than what the financial statements would suggest at first sight, and that there is an additional risk related to its short and long-term financing.

(513) The Commission noted that the Geely Group was awarded an AAA rating by a Chinese credit rating agency. In light of the overall distortions of Chinese credit ratings mentioned in Section 3.5.1.10, the Commission concluded that this rating is not reliable.

(514) The Commission considered that the overall financial situation of the group corresponds to a B rating. According to Standard & Poor's credit rating definitions, a debtor rated B is more vulnerable than a debtor rated BB, but the debtor currently still has the capacity to meet its financial commitments. Nevertheless, adverse business, financial, or economic conditions may impair the debtor's capacity or willingness to meet its financial commitments. This benchmark is therefore considered appropriate to reflect the additional risk arising from the use of revolving loans and bonds issued for debt restructuring purposes.

(515) The premium expected on bonds issued by firms with this a B rating was then applied to the PBOC Loan Benchmark Rate, or after 20 August 2019 to the Loan Prime Rate as announced by the NIFC in order to determine the market rate.

(516) That mark-up was determined by calculating the relative spread between the indices of US AA rated corporate bonds to US B rated corporate bonds based on Bloomberg data for industrial segments. The relative spread thus calculated was then added to the PBOC Loan Benchmark Rate, or after 20 August 2019, to the Loan Prime Rate as announced by the NIFC, at the date when the loan was granted, and for the same duration as the loan in question. This was done individually for each loan and financial leasing provided to the company.

(517) As for loans denominated in foreign currencies in the PRC, the same situation in respect of market distortions and the absence of valid credit ratings applies, because these loans are granted by the same Chinese financial institutions. Therefore, as found before, B rated corporate bonds in relevant denominations issued during the investigation period were used to determine an appropriate benchmark.

(3) SAIC Group

(518) As mentioned in recitals (452) to (459) above, the Chinese lending financial institutions did not provide any creditworthiness assessment. Hence, in order to establish the benefit, the Commission had to assess whether the interest rates for the loans accorded to the Geely Group were at market level.

(519) SAIC Motor Corporation Limited reported at consolidated group level a profitable financial situation with a 4 % profit margin according to its own financial accounts. However, profitability declined compared to 2021. Its return on equity ratio, which is the group’s ability to turn equity capital into net profit, decreased from 13% in 2021 to 8 % at the end of the 2022.

(520) SAIC Motor Corporation Limited used short-term and long-term debt to finance its operations. The Commission assessed the short-term liquidity and the long-term solvency situation of the group.

(521) Regarding short-term liquidity, the group presented an average current ratio of 1,07 in 2022. Although the current ratio is slightly above 1, the group’s current assets are just enough to pay the short-term obligations, which is not sufficient to justify a high credit rating, for which a company should present a ratio of at least 2. The quick ratio of the company was 0,87 in 2022, and 0,97 in 2021, while a quick ratio of at least 1 is considered as a reference. In fact, a company that has a quick ratio below 1 may not be able to pay off its current liabilities in the short-term. The cash ratio of the group was on average 0,4 in 2022. Therefore, the group had insufficient cash at hand to pay its short-term debt. Considering the short-term liquidity indicators, the Commission concluded that the group at issue presented short-term liquidity problems which results in having a risk debtor profile.

(522) Concerning long-term debt, the SAIC Motor Corporation Limited at consolidated level had a high Debt-to-Assets ratio of 0,66, which means that 66 % of the assets of the group are financed by debt. The Debt-to-Equity ratio was 1,79 in 2021 and 1,94 in 2022, which points to the fact the company is financing its activity mainly through debt. The higher the Debt-to-Assets and the Debt-to-Equity ratios are, the higher the financial risk of the company is. In addition, in the period between 2009 and 2015, two of the exporting producers of the group (SAIC Maxus Automotive Company Limited and Nanjing Automobile (Group) Corporation), concluded four debt-to-equity swap deals with State-owned banks, in order to improve their debt structure. Under such a deal, the companies could convert part of their debt to State-owned banks into shares, and thus reduce the liabilities on their balance sheet. In addition, in 2017, SAIC Motor Corporation Limited benefited from an equity injection involving among others State-owned financial institutions, which again had a positive impact on the debt structure of the group. Although these events took place before the investigation period, they had a lasting structural effect on the balance sheet.

(523) Furthermore, the Commission found that the group contracted loans with the specific purpose of replacing loans. As explained in Section 3.4.2.1 the existence of revolving loans is considered an indication of additional risks related to liquidity problems.

(524) The Commission noted that the SAIC Motor Corporation Limited was awarded an AAA rating by a Chinese credit rating agency. In light of the overall distortions of Chinese credit ratings mentioned in Section 3.4.1.9, and the group’s financial situation as described above, the Commission concluded that this rating is not reliable.

(525) The Commission considered that the overall financial situation of the group corresponds to a B rating. According to Standard & Poor's credit rating definitions, a debtor rated B is more vulnerable than a debtor rated BB, but the debtor currently still has the capacity to meet its financial commitments. Nevertheless, adverse business, financial, or economic conditions may impair the debtor's capacity or willingness to meet its financial commitments. This benchmark is therefore considered appropriate to reflect the additional risk arising from the use of revolving loans and bonds issued for debt restructuring purposes.

(526) That mark-up was thus determined by calculating the relative spread between the indices of US AA rated corporate bonds to US B rated corporate bonds based on Bloomberg data for industrial segments. The relative spread thus calculated was then added to the PBOC Loan Benchmark Rate, or after 20 August 2019, to the Loan Prime Rate as announced by the NIFC, at the date when the loan was granted, and for the same duration as the loan in question. This was done individually for each loan and financial leasing provided to the company.

(527) As for loans denominated in foreign currencies in the PRC, the same situation in respect of market distortions and the absence of valid credit ratings applies, because these loans are granted by the same Chinese financial institutions. Therefore, as found before, B rated corporate bonds in relevant denominations issued during the investigation period were used to determine an appropriate benchmark.

3.5.2.4.

Conclusion on preferential financing: loans

(528) The Commission established that all sampled groups of exporting producers benefited from preferential financing through loans during the investigation period. In view of the existence of a financial contribution, a benefit to the exporting producers and specificity, the Commission considered preferential financing through loans a countervailable subsidy.

(529) The subsidy rates established with regard to the preferential financing through loans during the investigation period for the sampled groups of companies amounted to:

Preferential financing: loans

Company nameSubsidy rateBYD Group0,16 %Geely Group0,81%SAIC Group1,38 %

3.5.3.

Preferential financing: other types of financing

3.5.3.1.

Credit lines

(a) General

(530) The purpose of a credit line is to establish a borrowing limit that the company can use at any time to finance its current operations thus making working capital financing flexible and immediately available when needed. The credit line agreements granted to the sampled groups refer to the various forms of financing available to the companies signing such agreements, which cover all types of short-term financing, such as short-term loans, bank acceptances, letters of credit, etc. Furthermore, according to financial literature, credit lines are also prevalent in a majority of cases in market economies. For example, they account for over 80% of the bank financing provided to U.S. public firms

https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/08/Fic/dt0821e.pdfNALYSIS OF CORPORATE CREDIT LINES (bde.es)

. Furthermore, in Canada, where bank acceptances are a direct and unconditional liability of the accepting bank (as is the case in China), banks would normally only accept bank acceptance draws from corporate borrowers that have an established line of credit with that bank

https://www.bankofcanada.ca/wp-content/uploads/2018/06/SDP-2018-6.pdf

. Therefore, the Commission considered that in principle, all short-term financing of the sampled companies, such as short-term loans, bank acceptance drafts etc., should be covered by a credit line instrument.

(b) Findings of the investigation

(531) The Commission established that Chinese financial institutions provided credit lines to each sampled group in connection with the provision of financing. These consisted of framework agreements, under which the bank allowed the sampled companies to use various debt instruments, such as working capital loans, bank acceptance drafts and other forms of trade financing within a certain maximum amount.

(532) As mentioned in recital (530) above, all short-term financing should be covered by a credit line. Therefore, the Commission compared the amount of the credit lines available to the cooperating companies during the investigation period with the amount of short-term financing used by these companies during the same period to establish whether all short-term financing was covered by a credit line. Where the amount of the short-term financing exceeded the credit line limit, the Commission increased the amount of the existing credit line by the amount actually used by the exporting producers beyond that credit line limit.

(533) Under normal market circumstances, credit lines would be subject to a so-called arrangement or commitment fee to compensate for the bank’s costs and risks at the opening of a credit line, as well as to a renewal fee charged on a yearly basis for renewing the validity of the credit lines

See for example: https://en.wikipedia.org/wiki/Line_of_credit, https://users.ssc.wisc.edu/~jchoi266/Choi_Jason_JMP.pdf, https://pages.stern.nyu.edu/~sternfin/vacharya/public_html/pdfs/working-papers/ARFE_ContingentCredit_AJS.pdfARFE_ContingentCredit_AJS.pdf (nyu.edu), https://www.business.hsbc.uk/-/media/library/business-uk/pdfs/156-business-banking-price-list.pdf .

. These fees cover administrative costs, such as the cost of processing the application, and performing security checks, but also the cost stemming from the prudential requirements imposed on banks, since the capital committed under a credit line diminishes the capital ratios of the bank, which it needs to maintain to ensure against systemic risks. However, the Commission established that all sampled group of companies benefited from credit lines provided free of charge. Therefore, a benefit was conferred to the investigated groups of companies within the meaning of Article 6(d) of the basic Regulation.

(c) Specificity

(534) As mentioned in recital (210), according to Decision No 40 financial institutions shall provide credit support to encouraged industries.

(535) The Commission considered that since credit lines are intrinsically linked to all types of short-term financing provided to the sampled companies, they should be considered as a form of a preferential financial support by financial institutions to encouraged industries such as the BEV sector. As specified in Section 3.1 above, the BEV sector is among the encouraged industries and is therefore eligible for all possible financial support.

(d) Calculation of the subsidy amount

(536) In accordance with Article 6(d)(ii) of the basic Regulation, the Commission considered the benefit conferred on the recipients to be the difference between the amount that they paid as a fee for the opening or the renewal of the credit lines by Chinese financial institutions, and the amount that they would pay for a comparable commercial credit line obtained at an undistorted market rate.

(537) None of the sampled companies paid a fee for their credit line. Similarly, the Commission did not find any in-country credit line fees in previous investigations. To the contrary, the only instance in which a sampled exporting producer paid a credit line fee concerned a company which obtained credit lines from two banks whose headquarters were established in a financial jurisdiction other than the PRC, and which thus were subject to fees as is the usual practice on world financial markets

See Tyres case, recital (297).

. Publicly available information seems to suggest that in some cases, credit line charges are levied for companies in China

See example Bank of China: Credit Line https://www.bankofchina.com/en/cbservice/cb2/cb22/200806/t20080630_1324055.html(bankofchina.com)

, but the level of these fees could not be found. Therefore, the Commission had no other choice than to look for an appropriate benchmark fee outside China. The rates for the arrangement fee and for the renewal fee were thus established at 1,75 % and 1,25 % respectively by reference to publicly available data

https://www.metrobankonline.co.uk/business/borrowing/products/business-overdrafts/ consulted on 29 April 2024.

.

(538) In principle, the arrangement fee and the renewal fee are payable on a lump sum basis at the time of the opening of a new credit line or the renewal of an existing credit line respectively. However, for calculation purposes, the Commission took into account credit lines which had been opened or renewed before the investigation period, but which were available to the sampled groups during the investigation period and also the credit lines that were opened during the investigation period.

3.5.3.2.

Bank acceptance draft

(a) General

(539) Bank acceptance drafts are a financial product aimed at developing a more active domestic money market by broadening credit facilities. It is a form of short-term financing that might reduce fund cost and enhance capital efficiency of the drawer

See website of the People’s Bank of China: https://www.boc.cn/en/cbservice/cncb6/cb61/200811/t20081112_1324239.html

. In addition, as stated by the PBOC on its website, the bank acceptance draft can guarantee the establishment and performance of the contract between the buyer and the seller, as well as promote the capital turnover via the intervention of Bank of China’s credit

Ibid.

. In addition, on its website DBS Bank advertises bank acceptance drafts as a mean to improve working capital by deferring payments

See website of DBS Bank: https://www.dbs.com.cn/corporate/financing/working-capital/bank-acceptance-draft-bad-issuance

. The general conditions for the issuance and use of bank acceptances are set out in the Negotiable Instruments Law of the People’s Republic of China

https://english.www.gov.cn/services/doingbusiness/202102/24/content_WS6035f46ec6d0719374af97ba.html

.

(540) The Commission already established in previous investigations that bank acceptance drafts are largely used as a means of payment in commercial transactions as a substitute to a money order thus, facilitating the cash turnover and the working capital of the drawer

See GFF case, recitals (359) to (370), Aluminium foil case, recitals (334) to (356), and OFC case, recitals (358) to (370).

.

(541) Indeed, bank acceptance drafts can only be used to settle genuine trade transactions and the drawer must produce sufficient evidence in that respect, e.g. through purchase/sales agreement, invoice and delivery order etc. Bank acceptance drafts may be used as a standard means of payment in purchase agreements together with other means such as remittance or money order.

(542) The bank acceptance draft is drawn by the applicant (the drawer, which is also the buyer in the underlying commercial transaction) and accepted by a bank. By accepting the draft, the bank accepts to make unconditional payment of the amount of money specified in the draft to the payee/bearer on the designated date (the maturity date).

(543) In general, the bank acceptance contracts contain the list of the transactions covered by the amount of the draft with indication of the payment due date with the supplier and the maturity date of the bank acceptance draft.

(544) The Commission also established that bank acceptance drafts in China are issued within the framework of a bank acceptance draft agreement specifying the identity of the bank, suppliers and buyer, the obligations of the bank and the buyer and detailing the value per supplier, the payment due date agreed with the supplier and the maturity date of the bank acceptance draft.

(545) The Commission also established that credit line agreements generally list bank acceptance drafts as possible use of the finance limit along with other short-term financial instruments such as working capital loans.

(546) Depending on the conditions established by each bank, the drawer might be required to make a small deposit in a dedicated account, make a pledge and pay acceptance commission. In any event, the drawer is obliged to transfer the full amount of the bank acceptance draft to the dedicated account at the latest at the maturity date of the bank acceptance draft.

(547) Once accepted by the bank, the drawer endorses the bank acceptance draft and transfers it to the payee, who is also the supplier in the underlying commercial transaction, as a payment of the invoice. Consequently, the payment obligation of the buyer (drawer) towards the supplier (payee) is cancelled. A new payment obligation of the buyer is created towards the accepting bank for the same amount (the drawer has the obligation to pay the bank in cash before the maturity of the bank acceptance draft). This was further confirmed by the GOC during the verification visit in a previous investigation

See GFF case, recital (381).

, namely that once the company pays the supplier with the bank acceptance draft, they no longer have an obligation in relation to the supplier but to the bank because the one who requested the bank acceptance draft to be issued will need to pay the bank in full on maturity date. Therefore, the issuance of a bank acceptance drafts has the effect to replace the obligation of the drawer towards its supplier by an obligation towards the bank.

(548) The maturity of bank acceptance drafts varies depending on the conditions set by each bank and can go up to 1 year.

(549) The payee (or bearer) of the bank acceptance draft has three options before the maturity:

wait until maturity to be paid in cash the full amount of the face value of the draft by the accepting bank;

endorse the bank acceptance draft, i.e. use it as a means of payment for its liabilities towards other parties; or

discount the bank acceptance draft with the accepting bank or another bank and obtain the cash proceeds against the payment of a discounting rate.

(550) The issuance date of the bank acceptance draft generally corresponds to the payment due date agreed with the supplier but can also be a date prior or posterior to the payment due date. The investigation found that, as far as the sampled companies are concerned, the issuance date was generally on or before the due date of the payment with the supplier and in some cases even after the payment due date. The Commission established that the maturity of the bank acceptance drafts of the sampled companies is in most cases from 1 month up to 12 months after the payment due date of the invoice.

(551) Regarding the accounting treatment of bank acceptance drafts, they are recognized as liabilities to the bank in the accounts of the drawers, i.e. the sampled exporting producers. The Credit Reference Center of the People’s Bank of China (CRCP) recognises bank acceptance drafts as unsettled credit provided by banks at the same level as loans, letters of credit or trade financing. It should also be noted that the CRCP is fed by the financial institutions, which grant various types of loans, and that such financial institutions have thus recognised bank acceptance drafts as liabilities to them. Furthermore, the bank acceptance agreements collected during the investigation provide that, should the buyer not make the full payment on the expiry date of the bank acceptance drafts, the bank would treat the amount unpaid as an overdue loan to the bank.

(552) From a cash point of view, the instrument therefore de facto grants the drawer a deferred due date of payment because the actual cash payment of the transaction amount occurs at the maturity of the bank acceptance draft and not at the moment when the drawer had to pay its supplier. In the absence of such a financial instrument, the drawer would either use its own working capital, which has a cost, or contract a short-term working capital loan with a bank in order to pay its suppliers, which also has a cost. In fact, by paying with bank acceptance drafts, the drawer uses the supplied goods or services for a period of 1 month to 1 year but without advancing any cash and without bearing any cost.

(553) As an illustration of the use of bank acceptance drafts as a substitute of short-term loans, the Commission established that some sampled companies barely had any loans. However, the bank acceptance drafts issued by these companies during the investigation period represented a significant part of their liabilities. For example, two of the companies in the SAIC Group barely had any loans, but outstanding bank acceptances at the end of the investigation period represented around 20% of their current liabilities.

(554) Under normal market circumstances

See for example the case of Canada: https://www.bankofcanada.ca/wp-content/uploads/2018/06/SDP-2018-6.pdfm,.

, as a financial instrument, bank acceptance drafts would imply a cost of financing for the drawer. The investigation showed that all the sampled companies used bank acceptance drafts during the investigation period and only paid a commission for the acceptance service provided by the bank, which was in general 0,05 % of the face value of the draft

In line with the rate set in the Administrative measures for payment and settlement 393/1997, issued by the PBOC

. However, none of the sampled companies bore a cost for the financing via bank acceptance drafts by deferring the cash payment of the supply of goods and services. Therefore, the Commission considered that the investigated companies benefitted from financing in the form of bank acceptance drafts for which they did not bear any cost.

(555) Considering the above, the Commission concluded that the bank acceptance system put in place in the PRC provided all sampled exporting producers a free financing of their current operations, which conferred a countervailable benefit as described in recitals (562) to (566) below, in accordance with Article 3(1)(a)(i) and 3(2) of the basic Regulation.

(556) This is in line with previous investigations, where the Commission established

See GFF case, recital (385), Aluminium foil case, recital (353), and OFC case, recital (373).

that bank acceptance drafts effectively have the same purpose and effects as short-term working capital loans, as they are used by companies to finance their current operations instead of using short-term working capital loans, and that consequently, they should bear a cost equivalent to a short-term working capital loan financing.

(557) In the course of the investigation, the BYD Group explained that for certain bank acceptances it had a bank acceptance offset system in place with different banks. The Commission deemed that the issuing of an offset agreement does not alter the fact that a bank acceptance was issued, and in light of the evidence found in recitals (539) to (556), the Commission considered the offset bank acceptances in its calculation of the benefit for the BYD Group.

(b) Specificity

(558) Concerning specificity, as mentioned in recital (534) according to Decision No 40, financial institutions shall provide credit support to encouraged industries.

(559) The Commission considered that bank acceptance drafts are another form of preferential financial support by financial institutions to encouraged industries such as the BEV sector. Indeed, as specified in Section 3.1 above, the BEV sector is among the encouraged industries and is therefore eligible for all possible financial support. Moreover, similar to credit lines, bank acceptance drafts are intrinsically linked to other types of preferential lending such as loans, and as they are part of the credit support specifically provided to encouraged industries, so the public body analysis and the specificity analysis as developed in Sections 3.4.1.1 to 3.4.1.5, as well as Section 3.4.2.2 above for loans is equally applicable.

(560) Furthermore, in 2020, the CBIRC issued a notice in which it states that in order to strengthen credit support to downstream enterprises in core enterprises, banking financial institutions may provide credit support for downstream enterprises to obtain goods and pay for goods by opening bank acceptance bills, domestic letters of credit, advance financing, etc

国家金融监督管理总局 (cbirc.gov.cn)

. Bank acceptance drafts, as a form of financing, are thus part of the preferential financial support system by financial institutions to encouraged industries, such as the BEV industry.

(561) No evidence was provided that any undertaking in the PRC (other than within encouraged industries) can benefit from bank acceptance drafts under the same preferential terms and conditions.

(c) Calculation of the subsidy amount

(562) For the calculation of the amount of the countervailable subsidy, the Commission assessed the benefit conferred on the recipients during the investigation period.

(563) As mentioned in recital (531), the Commission found that the sampled exporting producers used bank acceptance drafts to address their needs for short-term financing without paying a remuneration.

(564) The Commission thus concluded that bank acceptance drawers should pay a remuneration for the period of financing. The Commission considered that the period of financing started on the date of the issuance of the bank acceptance draft and ended on the maturity date of the bank acceptance draft. Regarding bank acceptance drafts issued before the investigation period and bank acceptance drafts with a maturity date after the end of the investigation period, the Commission calculated the benefit only for the period of financing covered by the investigation period.

(565) In accordance with Article 6(b) of the basic Regulation, considering that bank acceptance drafts are a form of short-term financing and that they effectively have the same purpose as short-term working capital loans, the Commission considered that the benefit thus conferred on the recipients is the difference between the amount that the company had actually paid as remuneration of the financing by bank acceptance drafts and the amount that it should pay by applying a short-term financing interest rate.

(566) The Commission determined the benefit resulting from the non-payment of a short-term financing cost. The Commission considered, as established in previous investigations

See GFF case recital (399), and Aluminium foil case, recital (356).

, that bank acceptance drafts should bear a cost equivalent to a short-term loan financing. Therefore, the Commission applied the same methodology as to short-term loans financing denominated in RMB, described in Section 3.5.2.3.

3.5.3.3.

Discounted bills

(a) General

(567) The investigation showed that Chinese financial institutions discounted receivables to the BYD group in return for cash.

(568) Through this operation, financial intermediaries advanced amounts of receivables before their due date. The companies received early funds by transferring the rights of future receivables to financial institutions after the deduction of fees and the applicable discount rates. The applicable discount rate should specifically compensate for the risk of default, which is highly influenced by the credit rating of the last entity liable to meet the payment obligation.

(569) As established in previous investigations

See GFF case recital (413) to (419).

,under normal market circumstances, the applicable discount rate should compensate for the bank's costs and risks. As explained in Sections 3.5.1 and 3.5.2 above, the loans provided by Chinese financial institutions reflect substantial government intervention, in particular affecting the credit rating of the exporting producers, and do not reflect rates that would normally be found in a functioning market.

(570) The benefit thus conferred on the recipients would be the difference between the discount rate applied by Chinese financial institutions and the discount rate applicable for a comparable operation on the market, for instance a loan.

(b) Specificity

(571) Concerning specificity, as mentioned in recital (210) according to Decision No 40, financial institutions shall provide credit support to encouraged industries.

(572) As established in previous investigations

See GFF case recital (413) to (419).

, the Commission considered that discounted bills are another form of preferential financial support by financial institutions to encouraged industries such as the BEV sector. Indeed, as specified in Section 3.1 above, the BEV sector is among the encouraged industries and is therefore eligible for all possible financial support. Discounted bills, as a form of financing, are part of the preferential financial support system by financial institutions to encouraged industries, such as the BEV industry.

(573) No evidence was provided that any undertaking in the PRC (other than within encouraged industries) can benefit from discounted bills under the same preferential terms and conditions.

(c) Calculation of the subsidy amount

(574) As mentioned in recital (567), the Commission found that one sampled exporting producer used discounted bills to address its needs for short-term financing.

(575) In accordance with Article 6(b) of the basic Regulation, considering that discounted bills are a form of short-term financing and that they effectively have the same purpose as short-term working capital loans, the Commission considered that the benefit thus conferred on the recipients is the difference between the discount rate actually paid and the amount that it should pay by applying a short-term financing interest rate.

(576) The Commission determined the benefit resulting from the non-payment of a short-term financing cost. The Commission considered that discounted bills should bear a cost equivalent to a short-term loan financing. Therefore, the Commission applied the same methodology as to short-term loans financing denominated in RMB, described in Section 3.5.2.3.

3.5.3.4.

Support for capital investment

3.5.3.4.1.

Debt- to-equity swap

(a) General

(577) The Commission established that one of the Geely group companies, Ningbo Hangzhou Bay Geely Automobile Parts Co., Ltd (NHBGAP), carried out during the investigation period a debt-to-equity swap for CCBC Financial assets investment Co., Ltd, subsidiary of the Industrial and Commercial Bank of China. CCBC Financial assets investment Co., Ltd is an investment fund belonging to the State-owned bank, considered a public body and/or entrusted or directed according to section 3.5.1.1 above.

(578) There is no information on the file on the conditions according to which such a debt-to-equity swap took place during the investigation period.

(579) The Commission considered that a bank would not convert debt to equity under normal market conditions without further compensation. It considered that equity is a far more speculative financial instrument than debt, as there is no certainty that the bank will recover its original capital investment. Furthermore, equity does not necessarily ensure a return on investment, in contrast to the interest rate associated with a loan. The increased risk CCBC Financial assets investment Co., Ltd has undertaken thanks to this debt-to-equity swap is supported by evidence of weak financial situation contained in Geely Group, as described in recitals (507) to (514). Also, during the period from 2021 to the investigation period, NHBGAP significantly expanded its business operations, experiencing a nearly tenfold increase. Consequently, it is likely that the company required additional liquidity to support this growth, a need that was met by releasing funds previously tied up in long-term debt arrangements, which was beneficial to NHBGAP.

(580) In light of the above considerations, the Commission concluded that during the investigation period the debt-to equity swap conferred a benefit to NHBGAP and that this benefit was provided by public body or entity otherwise entrusted or directed by the State in pursue of industrial policy objectives.

(b) Specificity

(581) The Commission considered that the preferential financing through debt-to-equity swap is specific within the meaning of Article 4(2)(a) of the basic Regulation since the investors are entities, which operate under the guidelines of the State’s policies that list BEV as an encouraged industry. In any event, the information available points towards the granting of this ad hoc subsidy to Ningbo Hangzhou Bay Geely Automobile Parts Co., Ltd, which makes the subsidy specific to an enterprise.

(c) Calculation of the benefit

(582) There was no evidence on the file for the Commission to assess whether the significant risks the banks undertake have been somehow compensated or factored into the investment made. However, all the elements explained in recital (579) point to a specific economic situation of NHBGAP and to the industrial objectives pursued with this transaction, supporting the conclusion that it did not have market logic reflecting the significant actual risks involved, such as likely need for liquidity for financing growth of the company and weak financial situation of the Geely Group overall, as explained in section 3.5.2.3 above.

(583) Consequently, the Commission considered the transaction as equivalent to debt forgiveness, and treated it as a loan financing at free interest. Therefore, the Commission decided to follow the calculation methodology for loans as described above in Section 3.4.2. This means that the relative spread between US AA corporate bonds and the applicable US B corporate bonds with the same duration is applied to the benchmark interest rates published by the PBOC to establish a market-based interest for loans, which is then compared with the actual interest rate paid by the company in order to determine the benefit.

3.5.3.4.2.

Capital injections

(a) Geely Group

(1) General

(584) The Commission established that two of the Geely group companies, Zhejiang Geely Automobile Co., Ltd. (ZGA) and NHBGAP, during the investigation period benefited from funds provided by State-owned entities, namely Xi'an Jixiang Automobile Industry Partnership, Hubei Jiyuan Yangtze River Industrial Fund Partnership and BOC Financial assets Investments Co., Ltd. through special forms of equity injections.

(585) These funds were transferred in the form of equity increases that, however, did not automatically provide the investors with full shareholders rights. The investors, despite having transferred the funds, did not gain full access to shareholding rights, nor received any payment of interest in exchange.

(586) As established in previous investigations,

See GFF case recital (430) to (432).

to compensate for the use of funds, a company would transfer a portion of the company’s ownership shortly after the funds had arrived, or it would register the funds as a debt. However, in this case, this form of financing is in fact closer to a classic interest-free shareholder loan for a long period of time than to an equity instrument.

(587) In light of the above considerations, the Commission concluded that during the investigation period these two related companies, benefited from access to substantive amounts of financing for which they did not bear any cost via companies acting as a funding mechanism. Since this special form of equity injections in question did not confer shareholders rights to the investors, the Commission considered that they had a similar effect similar as to a free interest loan.

(588) Using publicly available information, such as, annual reports, information available in business directories or on the investors’ websites or publicly available databases, the Commission found that the investors that had provided funds to the Geely Group were partially owned by the State.

(589) Concerning Xi'an Jixiang Automobile Industry Partnership, the Commission found that more than 63% of the shares were ultimately held by the local government and SOEs. Specifically, 99,9% of the shares are owned by Dexiang Automobile Industry, which in turn is owned 53,72% by Xi’an Xiangji automobile partnership, which in turn is related to KINGFAR Group (Xi’an JINGFAR Economic Development Group), an SOE held by the management committee of the Xi’an Economic and Technological Development Zone, where the local government has the final decision-making authority and supervision over the company, including management appointment, decision on its strategic development and investment plan and supervision of its major funding decisions. Xi’an Kingfar receives ongoing government support in forms of capital/asset injections and financial subsidies to support its business operations

https://lhratingsglobal.com/wp-content/uploads/bsk-pdf-manager/2023/11/Rating-Report_Xian-Kingfar-EN-20231127.pdf

. Dexiang Automobile Industry is also 10,6% owned by Yuanxiang automobile company Ltd. which is also owned by the aforementioned SOE (Xi’an JINGFAR Economic Development Group).

(590) Similarly, the Commission established that Hubei Jiyuan Yangtze River Industrial Fund Partnership, a venture capital vehicle of the government of central Hubei province

https://www.cbinsights.com/investor/yangtze-river-industry-fund

, is a SOE. According to the fund’s website, Yangtze River Industrial Fund is listed among the top Chinese Government Guidance Funds since, at least, 2017. The fund focuses on the national strategy and the construction of modern industrial clusters in Hubei province, develops around strategic emerging industries such as (among others) new energy and intelligent connected vehicles, which is clear evidence of link between the management of the fund and the implementation of major GOC industrial projects in Hubei province. Among its industrial projects Lotus Global Smart Factory Project and Geely Intelligent Network Headquarters Project are mentioned on funds website

https://yangtze-fund.com/

.

(591) Through these funds, the GOC directly transferred funds to the Geely group. As explained in recital (582), the Commission established that their operations did not follow a purely market logic and did not reflect the actual market risks associated with the transactions investigated. Rather, in line with the governmental policies to encourage specific industries, as established in Section 3.1 above, those investors did not behave as a normal market operator would do when financially supporting the Geely Group.

(592) The Commission further established the existence of formal indicia of control by the State of those investors. In particular, in the absence of specific information indicating otherwise, the Commission considered that managers and supervisors in the State-owned companies owning the entities at issue are assumed to be appointed by and accountable to the State based on the conclusions reached in Sections 3.5.1.5 to 3.5.1.8

(593) In addition, the Commission considered that this equity injection serves as another form of preferential financial support for encouraged industries. As mentioned in Section 3.1, the BEV sector falls within the category of encouraged and strategic industries, making it eligible for all available financial support. Furthermore, the Memorandum on sufficiency of evidence

See Memorandum on sufficiency of evidence, Section 3.3.3: Equity investments financed by the state or otherwise incentivized by the government.

, provides extensive information about Guidance Funds, which were established to invest in China’s high-growth sectors, including BEVs. Through these guidance funds, the GOC directly or indirectly transfers funds to the Chinese BEV via State-owned or State-backed equity funds.

(594) Likewise, BOC Financial assets Investments Co., Ltd. was found to be a wholly owned subsidiary of the Bank of China. Concerning the financial institutions involved in the equity injection, the Commission already established in section 3.4.1.7 above that all State-owned Chinese financial institutions that provided financing to the three sampled groups of cooperating exporting producers are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation. In the alternative, as Xi'an Jixiang Automobile Industry Partnership, Hubei Jiyuan Yangtze River Industrial Fund Partnership and BOC Financial assets Investments Co., Ltd, BOC Financial assets Investments Co., Ltd could be considered a funding mechanism by the GOC in the sense of Article 3(1)(a)(iv).

(595) In addition, even if the State controlled entities and financial institutions were not to be considered as public bodies, the Commission established that they would be considered entrusted or directed by the GOC to carry out functions normally vested in the government within the meaning of Article 3(1)(a)(iv) of the basic Regulation for the same reasons, as set out in recital (269). Thus, their conduct would be attributed to the GOC in any event.

(2) Specificity

(596) The Commission considered that the preferential financing through equity is specific within the meaning of Article 4(2)(a) of the basic Regulation since the investors are entities, which operate under the guidelines of the State’s policies that list BEV as an encouraged industry. In any event, the information available points towards the granting of this ad hoc subsidy to Geely Group, which makes the subsidy specific to an enterprise.

(3) Calculation of the benefit

(597) The Commission considered that Geely Group benefitted from substantive financing through equity, which had an effect similar to loan financing at free interest. Therefore, the Commission decided to follow the calculation methodology for loans as described above in Section 3.5.2. This means that the relative spread between US AA corporate bonds and the applicable US B corporate bonds with the same duration is applied to the benchmark interest rates published by the PBOC to establish a market-based interest for loans, which is then compared with the actual interest rate paid by the company in order to determine the benefit.

(b) SAIC Group

(598) In addition to the direct loans and other forms of preferential financing, SAIC Motor Group Corp. also benefited from funds provided by its parent company and State-owned financial institutions, through an equity injection to support BEV projects, IT projects related to auto finance business, projects related to intelligent mass customization business models and to forward-looking technology and internet of vehicles.

(1) Findings of the investigation

(599) The Commission established on the basis of publicly available information that in 2017, SAIC Motor Corporation Limited benefitted from an equity injection of RMB 15 billion, provided by its parent company, its employees and six financial institutions

https://auto.ifeng.com/xinnengyuan/20170123/1081051.shtml

. Although SAIC Motor Corporation Limited is a publicly listed company, the funds for this equity injection were raised through a non-public offering approved by the CSRC, in which only the parent company, employees and selected financial institutions could participate.

(600) As mentioned in recital (318), several companies of the SAIC Group did not provide questionnaire replies. Shanghai Automotive Industry Group, the parent company of SAIC Motor Corporation Limited, is one of the group’s companies that did not cooperate. Furthermore, as mentioned in section above, the GOC did not provide the necessary information concerning financial institutions. Therefore, the Commission had to resort to facts available as far as its assessment of this transaction is concerned.

(601) Concerning the financial institutions involved in the equity injection, the Commission already established in section 3.5.1.8 above that all State-owned Chinese financial institutions that provided financing to the three sampled groups of cooperating exporting producers are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation.

(602) In addition, even if the State-owned financial institutions were not to be considered as public bodies, the Commission established on the basis of the same information that they would be considered entrusted or directed by the GOC to carry out functions normally vested in the government within the meaning of Article 3(1)(a)(iv) of the basic Regulation for the same reasons, as set out in Section 3.5.1.9.

(603) In addition to the evidence provided in the previous sections, it is also important to note that according to the Guiding Opinions on Building a Green Financial System, the GOC aims to actively support the qualified green enterprises to obtain financing via initial public offerings and secondary offerings, to actively assist qualified green enterprises in their efforts for IPOs, and to help listed green enterprises to issue additional shares via secondary offerings according to legal procedures

Guiding Opinions on Building a Green Financial System, issued by CSRC, No. 228 [2016]

. This last point exactly corresponds to the situation at hand.

(604) Concerning Shanghai Automotive Industry Group, the Commission could establish based on the information submitted by SAIC Motor Corporation Limited that this company is fully owned by SASAC. However, the Commission could not find any publicly available financial statements, or any other meaningful public information available on this company. The Commission could also not find any investments of the parent company in any other companies of the SAIC Group. Furthermore, although Shanghai Automotive Industry Group and SAIC Motor Corporation Limited have different business registration numbers, all searches in the public domain for the parent company systematically returned results for its sole subsidiary, SAIC Motor Corporation Limited. Finally, the Commission noted that several members of the Board of SAIC Motor Corporation Limited also exercised similar functions on the Board of Shanghai Automotive Industry Group. In the absence of any further information, it is therefore reasonable to assume that Shanghai Automotive Industry Group is a non-operational shell company. Since no evidence could be found of operational activities at the level of this company that would require significant funding, and since the only known investment of the company is SAIC Motor Corporation Limited, the only possible flow of funds is from its full owner, SASAC, to the listed entity, SAIC Motor Corporation Limited. The transaction should thus be regarded as equivalent to a direct cash injection by the GOC into SAIC Motor Corporation Limited.

(2) Benefit

(605) The Commission then analysed whether the financial contribution provided by GOC via SASAC and via several financial institutions conferred a benefit to SAIC. Due to the non-cooperation of SAIC and the GOC, the Commission had to base its findings on facts available according to Article 28 of the basic Regulation.

(606) The body of evidence above has shown that the mandate and objective of SASAC and of financial institutions is to implement governmental policies and plans, including by providing financial support and funding for the encouraged sectors among which BEV is one.

(607) Based on the evidence on file and in accordance with Article 28 of the basic Regulation, the Commission concluded that the financial contribution provided by SASAC and various financial institutions conferred a benefit within the meaning of Article 3(2) of the basic Regulation to the SAIC Group in the sense that it did not have to obtain such financing from other sources and pay a corresponding market interest rate for such financing.

(3) Specificity

(608) Concerning specificity, as mentioned in recital (210), according to Decision No 40, financial institutions shall provide credit support to encouraged industries.

(609) The Commission considered that this equity injection amounts to another form of preferential financial support to encouraged industries such as the BEV sector. Indeed, as specified in Section 3.1 above, the BEV sector is among the encouraged and strategic industries and is therefore eligible for all possible financial support. Equity injections, as a form of financing, are part of the preferential financial support system to encouraged industries, such as the BEV industry

See Memorandum on sufficiency of evidence, Section 3.3.3: Equity investments financed by the state or otherwise incentivized by the government

.

(4) Calculation of the subsidy amount

(610) In the absence of reporting of this equity injection by the SAIC group, the Commission had to resort to facts available in application of Article 28 of the basic Regulation to the determine the subsidy amount conferred by the financial contribution by SASAC and various financial institutions in the form of an equity injection. In the absence of cooperation, the Commission could not link this capital increase to specific assets and depreciate the equity injection over a period equivalent to the depreciation of the assets at stake. Consequently, the Commission considered such equity injection as equivalent to a loan. Indeed, in the absence of this capital increase, the company would have had to secure an equivalent amount of financing on the financial market. Thus, the benefit was calculated using the same method as that described in Section 3.5.2.3.

3.5.4.

Bonds

(611) All of the sampled groups benefited from preferential financing in the form of bonds.

3.5.4.1.

Legal basis/Regulatory Framework

Law of the People’s Republic of China on Securities (version 2014) (Securities Law)

Lastly amended on 28 December 2019 by Presidential Decree No 37 with effect from 1 March 2020.

;

Administrative Measures for the Issuance and Trading of Corporate Bonds, Order of the China Securities Regulatory Commission No 113, 15 January 2015;

Regulation on the Administration of Corporate Bonds, issued by the State Council on 18 January 2011;

Measures of the Administration of Debt Financing Instruments of Non-financial Enterprises on the Inter-bank Bond Market Issued by the People’s Bank of China, Order of the People’s Bank of China [2008] No 12, 9 April 2008.

Guiding Opinions on Building a Green Financial System, issued by CSRC, No. 228 [2016];

Notice on Issuing the Green Bond Endorsed Projects Catalogue (2021 Edition), issued by the PBOC, NDRC, and CSRC, No. 96 [2021], effective 1 July 2021;

Green Financial Evaluation Programme for Banking Financial Institutions issued by the PBOC, effective 1 July 2021;

Monetary policy tool to support carbon emission reduction projects, issued by the PBOC, 8 November 2021;

Guidelines on Environmental Disclosure for Financial Institutions, issued by the PBOC, 22 July 2021;

Environmental Equity Financing Tool, issued by the PBOC, 22 July 2021;

Clarifying Mechanisms in Relation to Carbon Neutrality Bonds, issued by NAFMII, 18 March 2022;

Green Debt Financing Instrument Business Guidelines for Non-financial Enterprises, issued by NAFMII;

Guidelines on the Issuance of Green Bonds, issued by the NDRC.

(612) In line with the regulatory framework, bonds cannot be issued or traded freely in China. The issuance of each bond must be approved by various governmental authorities, such as the PBOC, the NDRC or the CSRC, depending on the type of bond and the type of issuer. In addition, according to the Regulations on the Administration of Corporate Bonds, there are annual quotas for the issuance of corporate bonds.

(613) Furthermore, according to Article 16 of the Securities Law applicable during the IP, a public offering of corporate bonds should satisfy the following requirements: the usage purpose of the proceeds shall comply with State industrial policies […] and the proceeds from a public offering of corporate bonds shall be used for approved purpose(s) only. Article 12 of the Regulations on the Administration of Corporate Bonds reiterates that the purpose of the raised funds must comply with the industrial policies of the State. The issuance of bonds under such conditions targets an encouraged industry such as the BEV industry and corresponds with the practice of financial institutions to support those industries

See OFC case, recitals (400) and (401).

.

(614) According to Article 16(5) of the Securities Law, the coupon rate of the corporate bonds shall not exceed the coupon rate stipulated by the State Council. In addition, Article 18 of the Regulations on the Administration of Corporate Bonds provides further details by stating that, the interest rate offered for any corporate bonds shall not be higher than 40 % of the prevailing interest rate paid by banks to individuals for fixed-term savings deposits of the same maturity.

(615) Furthermore, Article 18 of the Administrative Measures for the Issuance and Trading of Corporate Bonds stipulates that only certain bonds complying with strict quality criteria, such as an AAA credit rating, may be issued in a public manner to public investors or be issued in a public manner to qualified investors only at the sole discretion of the issuer. The corporate bonds that fail to meet these standards can be issued in a public manner only to qualified investors. Therefore, it results that most corporate bonds are issued to qualified investors which have been approved by the CSRC and which are Chinese institutional investors.

(616) On top of the commonly known bonds, so called green debt instruments specific to this investigation were also found. According to the Notice on Issuing the Green Bond Endorsed Projects Catalogue, green bonds refer to marketable securities that use raised funds specifically to support green industries, green projects, or green economic activities that meet specified conditions, and are issued in accordance with legal procedures …, including but not limited to green financial bonds, green corporate bonds, green enterprise bonds, green debt financing tools and green asset-backed securities. These debt instruments can thus only be issued by companies active in certain industrial activities listed in a catalogue of green industrial activities. The production and sales of new energy vehicles, as well as of their key components, is one of them.

(617) Green debt instruments allow companies to raise funds at preferential rates. In line with the Green Financial Evaluation Programme for Banking Financial Institutions of the PBOC, Chinese banks need to subscribe to such green debt instruments in order to reach a given threshold in their financial asset base that will contribute to a positive assessment of their performance by the bank regulating authority. In addition, according to the PBOC’s Monetary policy tool to support carbon emission reduction projects, financial institutions have to provide financing in support of the green industrial activities in the above-mentioned catalogue to companies at preferential interest rates close to the level of the country's loan prime rate. In return, the People’s Bank of China proposes preferential refinancing rates to the banks for the green funds disbursed

https://english.www.gov.cn/statecouncil/ministries/202111/08/content_WS61892c79c6d0df57f98e4ace.html

.

(618) Though the legal and regulatory framework of this alternative source of funds was clearly identified, the GOC refused to provide any information in this regard. Findings were thus based on facts available under Article 28 of the basic Regulation.

(619) BEV producers used two types of green debt instruments, i.e. green bonds and green Asset backed securities (ABS). ABS are in essence green bonds backed up by assets as a collateral. They consist in repackaging automotive loans provided to individuals and leasing companies as collateral for an asset-backed debt instrument issued on the bond market, and on which a given interest rate applies. This system allows the BEV producers to replace mid-term receivables on car loans by liquidities immediately available, and thus to pre-finance their loan business on a very beneficial basis, since the interest rates paid on the ABS are far below the interest rates charged to their customers for the car loans.

(620) Furthermore, as an encouraged industry under the Guiding Catalogue for Industry Restructuring, the BEV industry is entitled to credit support by financial institutions based on Decision No 40. The fact that the bonds issued by the sampled companies bear a low interest rate; i.e. an interest rate close or below the LPR, is a strong indication that financial institutions, which are the major investors in these bonds, are obliged to provide credit support to these companies and take into account other considerations than commercial considerations when taking the investment or financing decision, such as government policy objectives. Indeed, an investor operating in market conditions would be more sensitive to the financial return on the investment and would most probably not invest in corporate bonds bearing very low interest rates. This is especially the case for financial institutions, as the return of these bonds is close to or lower than the rate at which they can obtain funds themselves from other financial institutions. Moreover, the conclusions reached by the Commission about the financial situation of the three groups of exporting producers in Section 3.5.2.3 above in terms of their liquidity and solvency profiles further indicate that investors operating in market conditions would not invest in financial instruments such as these groups’ bonds, offering low financial returns, while the issuer presents high liquidity and solvency risks. Therefore, in the Commission’s view only investors having motivations other than a financial return on their investment, such as compliance with the legal obligation to provide financing to companies in encouraged industries, would make such an investment.

3.5.4.2.

Financial institutions acting as public bodies

(621) According to the China bond market insight 2022 by Bloomberg, the bonds listed in the interbank bond market account for 88% of the total trading volume of bonds

https://assets.bbhub.io/professional/sites/10/China-bond-market-booklet-2022.pdf, p. 15,

. According to the same study, most of the investors are institutional investors, including financial institutions. In particular, commercial banks represent 57% of the investors and policy banks represent 3%

Idem, p. 33.

. Therefore, investors buying bonds are mainly Chinese banks, including State-owned banks.

(622) On the basis of the above, the Commission considered that there is a body of corroborating evidence, according to which a major proportion of the investors in the corporate bonds issued by the sampled companies, are financial institutions which have a legal obligation to provide credit support to BEV producers.

(623) As described in recital (612), Article 16 of the Securities Law and Article 12 of the Regulations on the Administration of Corporate Bonds require that a public offering of corporate bonds complies with the industrial policies of the State. This has the effect that bonds can only be issued for purposes that are in line with the targets of the planning of the GOC regarding encouraged industries as explained in recital (619). The institutional investors, which are, as shown in recital (620), to a large extent commercial banks and policy banks, have to follow the policy orientations laid down in Decision No 40, which read together with the Guiding Catalogue for Industry Restructuring, provides for specific treatment of certain projects within certain encouraged industries, such as the BEV industry. The beneficial treatment to all of the sampled groups resulted in the decision to invest in bonds issued with an interest rate that does not reflect market-based criteria.

(624) Furthermore, as described in Section 3.5.1.1 above, the financial institutions are characterized by a strong State presence, and the GOC has the possibility to exercise a meaningful influence on them. The general legal framework in which these financial institutions operate is also applicable to bonds. Furthermore, a supplementary detailed regulatory framework exists for green bonds.

(625) In Section 3.5.1.1 above, the Commission concluded that State-owned financial institutions are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation and that they are in any event considered entrusted or directed by the GOC to carry out functions normally vested in the government within the meaning of Article 3(1)(a)(iv) of the basic Regulation. In Section 3.5.1.9 above, the Commission concluded that private financial institutions are also entrusted and directed by the government.

(626) The Commission also sought concrete proof of the exercise of control in a meaningful way based on concrete issuances of bonds. It therefore examined the overall legal environment as set out above in recitals (611) to (619), in combination with the concrete findings of the investigation.

(627) The Commission found that the bonds were issued with an interest rate below the level that should have been expected given the companies’ financial and credit risk situation, including below the risk-free reference rate published by the NIFC as referred to in recital (632) below.

(628) In practice, interest rates on bonds are influenced by the credit rating of the company, similar to loans. However, the Commission concluded in recital (481) that the local credit rating market is distorted and credit ratings are unreliable.

(629) In light of the above considerations, the Commission concluded that the Chinese financial institutions followed the policy instructions laid down in Decision No 40 and in the relevant guidelines pertaining to green bonds by providing preferential financing to companies pertaining to an encouraged industry and thus acted either as public bodies within the meaning of Article 2(b) of the basic Regulation or as bodies which are entrusted or directed by the government within the meaning of Articles 3(1)(a)(iv) of the basic Regulation.

(630) By organising the issuance of a bonds with an interest rate below the market rate corresponding to the actual risk profile of the issuer, as determined in section 3.5.2.3 above, and by accepting to invest in such bond, the financial institutions provided a benefit to the sampled producers.

3.5.4.3.

Specificity

(631) The Commission considered that the preferential financing through bonds is specific within the meaning of Article 4(2)(a) of the basic Regulation as the bonds cannot be issued without approval from government authorities, and the Securities Law states that the issuance of bonds must comply with the State’s industrial policies. As already mentioned in recital (439) and (619) the BEV industry is regarded as an encouraged industry in the Guiding Catalogue of Industry Restructuring.

(632) In addition, concerning green bonds specifically, they can only be issued by companies active in certain industrial activities listed in a catalogue of green industrial activities.

3.5.4.4.

Calculation of the subsidy amount

(633) Since bonds are in essence another type of debt instrument, in principle similar to loans, and since the calculation methodology for loans is already based on a basket of bonds, the Commission decided to follow the calculation methodology for loans as described above in Section 3.5.2.3. This means that the relative spread between US AA corporate bonds and US B corporate bonds with the same duration is applied to the PBOC Loan Prime Rate to establish a market-based interest rate for bonds, which is then compared with the actual interest rate paid by the company in order to determine the benefit.

(634) As noted in the recital (378), at least one Geely Group company was found to have issued ABS applicable in the IP, for which no information had been provided by the group. For this company the calculation of the subsidy amount was based on the information found in the public domain, namely information issued to investors on stock exchanges and the benefit found at the other cooperating sampled group.

(635) As highlighted in recital (329), several related companies in the SAIC Group did not provide a questionnaire reply. This was notably the case for several group companies specializing in financing activities. For these companies, the calculation of the subsidy amount was based on the information relating to amounts, start and end dates and interest rates of the bonds, found either in publicly available financial statements or in information issued to investors on stock exchanges.

3.5.4.5.

Conclusion on preferential financing: other types of financing

(636) The Commission established that all sampled groups of exporting producers benefited from preferential financing in the form of credit lines, bank acceptance drafts and bonds. In view of the existence of a financial contribution, a benefit to the exporting producers and specificity, the Commission considered these types of preferential financing a countervailable subsidy.

(637) The subsidy rate established with regard to the preferential financing described above during the investigation period for the sampled groups of companies amounted to:

Preferential financing: other types of financing

Company nameSubsidy rateBYD Group3,60 %Geely Group3,30 %SAIC Group8,27 %

3.6.

Grant Programmes

(638) The Commission found that all three sampled groups of companies benefitted from a variety of grant programmes.

3.6.1.

Direct cash grants

(639) Only one of the sampled exporting groups, the BYD Group, provided the underlying information for the grants received during the investigation period. The other two sampled exporting groups did not provide any legal basis for the grants received and therefore the calculation of the subsidy amount related to the direct cash grants given to these exporting groups was based upon facts available, in accordance with Article 28 of the basic Regulation.

(640) The grants received by the BYD Group related to technology, innovation and development, the purchase of fixed assets, industrial support and promotion, and cash awards for labour, taxation, and various other purposes.

(a) Legal basis

(641) The grants to the BYD Group were awarded by national, provincial, city, or district government authorities and appeared to be specific to the group, or specific in terms of geographical location or type of industry. The level of legal detail for the particular law under which these benefits were granted, if there was any legal basis for them at all, was not disclosed. However, the Commission was given for all the grants a copy of a document issued by a government authority which accompanied the grant of funds (referred to as the notice).

(b) Findings

(642) Given the large amount of grants that the Commission found in the financial accounts of the BYD Group, only a summary of the key findings is presented in this Regulation. Evidence of the existence of numerous grants and the fact that they had been granted by various levels of the GOC were provided to the BYD Group in its specific disclosure.

(643) With regard to the other two sampled exporting groups, the Commission found that they had only given the total amount of grants received in their questionnaire replies with a differentiation between grants related to income and grants related to assets and were not willing to provide a more detailed breakdown and the legal basis of the various grants received.

(644) The Commission found that among the instruments through which the GOC steers the development of the BEV sector, there are direct state subsidies. These subsidies were confirmed in the publicly available annual reports of the sampled exporting producers and during the on-spot verifications and were received as other income or as deferred income in the exporting producers’ financial accounts.

(c) Conclusion

(645) These grants constituted subsidies within the meaning of Article 3(1)(a)(i) and Article 3(2) of the basic Regulation, as a transfer of funds from the GOC in the form of grants to the sampled groups of companies took place and a benefit was thereby conferred.

(646) Most of these funds were booked as government subsidies in the accounts of the sampled exporting groups. The detailed information on these grants provided by BYD Group has been taken by the Commission as positive evidence of a subsidy that conferred a benefit.

(647) The Commission assessed all the grants received by BYD Group and found that not all were specific to the production of BEVs. The grants related to technology, innovation and development, the purchase of fixed assets, and industrial support and promotion were considered to be specific within the meaning of Articles 4(2)(a) and 4(3) of the basic Regulation given that, from the documents provided by the BYD Group, they appear to be limited to certain companies, certain industries, such as the BEV industry, or specific projects in specific regions.

(648) Furthermore, these grants did not meet the non-specificity requirements of Article 4(2)(b) of the basic Regulation, given that the eligibility conditions and the actual selection criteria for enterprises to be eligible are not transparent, not objective and do not apply automatically.

(649) Since the other two sampled exporting groups did not provide any detailed information with regard to the grants they received, the Commission based its findings on Article 28 of the basic Regulation and concluded that all the grants received by these groups were specific and related to the production of the product concerned.

(d) Calculation of the subsidy amount

(650) The benefit was calculated as the amount received in the IP, or allocated to the investigation period where the amount was depreciated over the useful life of the fixed asset to which the grant received before the investigation period was related.

(651) The subsidy rates established with regard to all grants during the investigation period for the sampled exporting producers were as follows:

Grants

Company nameSubsidy rateBYD Group0,61 %Geely Group2,31 %SAIC Group8,56 %

3.6.2.

Fiscal Subsidy Policy for the Promotion and Application of New Energy Vehicles

(652) The investigation established that the GOC, both at central and sub-central level transferred funds to the BEV producers in the form of cash disbursements per unit of BEVs sold in China, directly benefiting BEV producers. This constitutes a direct transfer of funds to the BEV producers based on their sales in China.

(653) The scheme applies to New Energy Vehicles (NEVs), including BEVs, sold domestically. The amount of the cash disbursements is set at the level of the central government and varies depending on the period during which the sales took place and the type of NEVs (for instance battery electric vehicles or plug-in hybrids).

(654) The programme is limited to the sales of NEV models listed in a catalogue published by the GOC. To receive disbursements, BEV producers are required to submit every year a comprehensive liquidation report along with detailed information about their sales from the previous year. This shall include sales invoices, technical specifications of the products, and vehicle registration details. Once submitted, the relevant authorities at various government levels verify the provided data. Subsequently, the funds are transferred to the producers.

(a) Legal basis

(655) The legal basis for this program is the Notice on Financial Support Policies for the Promotion and Application of New Energy Vehicles from 2016 to 2020 ([2015] No.134), which was revised by the Notice of the Ministry of Finance on Adjusting Policy of Fiscal Subsidies for the Promotion and Application of New Energy Vehicles ([2016] No. 958), further amended by the Notice on Fiscal Subsidy Policies for Improving Promotion and Application of New Energy Vehicles ([2020] No. 86) and the Notice on the Fiscal Subsidy Policy for the Promotion and Application of New Energy Vehicles in 2022 ([2021] No. 466).

(b) Findings of the investigation

The GOC's intention to directly support the domestic BEV industry

(656) Contrary to the claim made by the GOC and other parties that this subsidy was intended to benefit consumers, the investigation established that the programme was intended to increase the sales of domestic producers by means of disbursements from State resources. The program is designed to promote the development of the NEV industry and it is specifically addressed to NEV producers (as opposed to consumers).

(657) The main purpose of this subsidy scheme was to promote the accelerated development of the new energy vehicle industry, including the BEV industry. Specifically the Notice on the financial support policy for the promotion and application of new energy vehicles from 2016 to 2020 reads: In order to maintain policy continuity and promote the accelerated development of the new energy vehicle industry, the Ministry of Finance, the Ministry of Science and Technology, and The Ministry of Industry and Information Technology and the National Development and Reform Commission (hereinafter referred to as the four ministries and commissions) will continue to implement subsidy policies for the promotion and application of new energy vehicles from 2016 to 2020 in accordance with the requirements of the Guiding Opinions of the General Office of the State Council on Accelerating the Promotion and Application of New Energy Vehicles (Guobanfa [2014] No. 35). Later amendments and revisions contain similar language

Notice of the Ministry of Finance on Adjusting Policy of Fiscal Subsidies for the Promotion and Application of New Energy Vehicles (Caijian [2016] No. 958), Notice on Fiscal Subsidy Policies for Improving Promotion and Application of New Energy Vehicles (Caijian [2020] No. 86) and the Notice on the Fiscal Subsidy Policy for the Promotion and Application of New Energy Vehicles in 2022 (Caijian [2021] No. 466).

.

(658) NEV producers rather than consumers, are at the heart of the Fiscal Subsidy Policy. NEV producers are the addressees of the program; they are the one who must meet the requirements to receive disbursements; they must provide the information related to their production and sales process. This includes the submission of previous year’s fund calculation reports, along with details on product sales, operations, including sales invoices, product technical parameters, and vehicle registration information. Furthermore, they were encouraged to develop monitoring and control platforms to report this information.

(659) NEV producers (along with local governments) were also the direct addressees of a punitive mechanism in case of fraud, and the legal framework provides that actions are to be taken directly against producing companies that obtain the subsidies through illegal means.

(660) Finally, the main reasons for the discontinuation of the programme, on 31 December 2022, were related to the development of the NEV industry in China. As acknowledged by the GOC

According to Notice on the Fiscal Subsidy Policy for the Promotion and Application of New Energy Vehicles in 2022 (Cai Jian [2021] No. 466),

, it decided to end the programme when it considered that the Chinese NEV industry had reached an appropriate level of development and scale.

(661) Furthermore, the fact that the programme was limited to domestically produced NEVs shows that the purpose of the programme was to develop the production rather than the consumption of BEVs. Indeed, the Commission established that no imported vehicle benefited from this scheme. The GOC was specifically requested to provide information on the extent to which imported BEVs benefited from the scheme over its duration. The GOC claimed that imported BEVs were eligible for this programme, however, the GOC acknowledged that this subsidy had never been granted to importing companies or foreign producers. In fact, the GOC was unable to show the existence of a procedure for foreign producers or importer to request and receive funds under the Fiscal Subsidy Policy. Additionally, according to available information

Why a Chinese Company Dominates Electric Car Batteries, New York Times, December 22, 2021.

https://www.nytimes.com/2021/12/22/business/china-catl-electric-car-batteries.html.

, NEVs could only be subsidized if the battery was made by a Chinese company. As a result, it was concluded that this programme has only benefited BEV producers in China and was only designed for them.

The duration of the programme, the role of local authorities and parallel programmes developed

(662) As explained under recital (641) - (659), NEVs sold after 31 December 2022, are no longer eligible for the Fiscal Subsidy Policy. The investigation established, however, that BEV producers continued to benefit from this subsidy scheme during the investigation period and will continue to benefit from funds received under this scheme for an extended period of time after the investigation period.

(663) For instance, the transfer of funds related to all eligible BEVs sold and registered in 2020 took place only at the end of 2023. The investigation also revealed that funds were transferred during the investigation period to sampled exporting producers for cars sold in 2018. Therefore, the Commission concluded that BEV producers will continue to benefit from direct transfer of cash under this scheme in the years following the investigation period.

(664) Furthermore, the investigation revealed that local authorities, under the direct or indirect guidance of the GOC, have established a large number of similar programmes, some of which closely resemble the national scheme. These local initiatives share the common objective to incentivize the production of BEVs which will result in continued support for Chinese BEV manufacturers.

(c) Benefit

(665) During the IP, BEV producers benefited from direct cash disbursements from the GOC based on their reported sales.

(666) Sampled producers and the GOC claimed that the subsidy primarily benefits consumers, not producers, since, allegedly, producers would be advancing the subsidies to consumers on behalf of the government while selling the vehicles. Under this scheme, when BEV manufacturers sell a new energy vehicle product, the company establishes a price with the customer. The price paid by the customer is, allegedly, the result of discounting the subsidy amount from a theoretical base price established by the company. This discount should account for the subsidy amount. In this sense, the customer is supposed to be paying a discounted price, for which the company is later reimbursed for by the Government.

(667) Despite the alleged intention to benefit consumers, the reality is that the GOC directly transferred funds in the form of direct cash to BEV producers based on their economic activity and reported past sales. This unequivocally represents a clear incentive for the production of BEVs and conferred a tangible benefit to the producers.

(668) Moreover, the investigation revealed that the presence or absence of the subsidy did not correlate with the final price charged to consumers. There was no noticeable impact of the subsidy on the price charged to consumers before or after its removal.

(669) There is evidence that prices to consumers for representative models remained stable or even decreased across all three sampled companies following the formal end of the Fiscal Subsidy Policy programme in December 2022. If during the life of the scheme, the prices of the vehicles sold in 2022 had been reduced by the subsidy amount, the prices of those vehicles should have risen by the same amount in January 2023 once the vehicle was no longer eligible for the subsidy.

(670) However, the opposite occurred. Prices for those models either remained the same or gradually decreased over the rest of the investigation period. Therefore, the subsidy in 2022 did not benefit consumers in terms of getting lower prices. Instead, producers set prices that allowed them to capture the full subsidy.

(671) In addition, the investigation established that the GOC did not implement any measures to ensure that the benefits of the subsidy were passed on to customers and price setting was left to the discretion of the producers. Thus, by its design and operation, this scheme aimed at benefiting NEV’s producers.

(672) Due to the temporal discrepancy between the sale of BEVs and the disbursement of government funds, which producers are unable to predict, the uncertainty regarding disbursement timing can extend up to four years. As a result, the benefit to producers fully materializes when the disbursements are finally received.

(d) Specificity

(673) The subsidy is specific as it targets only the NEV industry, including the BEV industry. Furthermore, among BEV producers, the programme only benefited BEV producers in China and was only designed for them.

(e) Conclusion

(674) The Commission considered that the Fiscal Subsidy Policy described above is a subsidy within the meaning of Article 3(1)(a)(i) of the basic Regulation because there is a financial contribution in the form of a direct transfer of funds that confers a benefit to the company concerned.

(f) Calculation of the subsidy amount

(675) The subsidy was granted based on the quantities of BEV unit sold in China. The amount of benefit in the investigation period has been calculated on the basis of the disbursements received for BEVs under this scheme by the sampled producers during the investigation period.

(676) The subsidy rate established with regard to this scheme during the investigation period for the sampled exporting producers amounts to:

Company nameSubsidy rateBYD Group2,18 %Geely Group2,14 %SAIC Group2,28 %

3.7.

Government provision of goods and services for less than adequate remuneration (LTAR)

3.7.1.

Government provision of land use rights for less than adequate remuneration

(677) All land in the PRC is owned either by the State or by a collective, constituted of either villages or townships, before the land’s legal or equitable title may be patented or granted to corporate or individual owners. All parcels of land in urbanized areas are owned by the State and all parcels of land in rural areas are owned by the villages or townships.

(678) Pursuant to the PRC Constitution and the Land Law, companies and individuals may however purchase land use rights (LUR). For industrial land, the leasehold is normally 50 years, renewable for a further 50 years.

(a) Legal basis/Regulatory Framework

(679) The land-use right provision in China falls under Land Administration Law of the People’s Republic of China

See Land Administration Law of the PRC of 25 June 1986, as amended, available at: https://www.fao.org/faolex/results/details/en/c/LEX-FAOC003560,.

. In addition, also the following documents are part of the legal basis:

(1) Property Law of the People’s Republic of China (Order of the President of the People’s Republic of China No 62)

See Property Law of the PRC of 16 March 2007, available at: http://www.npc.gov.cn/zgrdw/englishnpc/Law/2009-02/20/content_1471118.htm.

;

(2) Land Administration Law of the People’s Republic of China (Order of the President of the People’s Republic of China No 28)

See Regulation on the Implementation of the Land Administration Law of the PRC of 27 December 1998, as amended, available at: https://www.fao.org/faolex/results/details/en/c/LEX-FAOC170451,.

;

(3) Law of the People’s Republic of China on Urban Real Estate Administration (Order of the President of the People’s Republic of China No29)

See https://law.pkulaw.com/chinalaw/d8db5e659bc282b9bdfb.html.

;

(4) Interim Regulations of the People’s Republic of China Concerning the Assignment and Transfer of the Right to the Use of the State-owned Land in the Urban Areas (Decree No 55 of the State Council of the People’s Republic of China)

See https://law.pkulaw.com/chinalaw/66cde758ad66f43bbdfb.html.

;

(5) Regulation on the Implementation of the Land Administration Law of the People’s Republic of China (Order of the State Council of the People’s Republic of China [2014] No 653)

See https://law.pkulaw.com/chinalaw/6ef282863f024c04bdfb.html.

;

(6) Provision on Assignment of State-owned Construction Land Use Right through Bid Invitation, Auction and Quotation (Announcement No 39 of the CSRC)

See https://law.pkulaw.com/chinalaw/58891db210496a5fbdfb.html?keyword=%E5%9B%BD%E6%9C%89%E5%BB%BA%E8%AE%BE%E7%94%A8%E5%9C%B0%E4%BD%BF%E7%94%A8%E6%9D%83.

; and

(7) Notice of the State Council on the Relevant Issues Concerning the Strengthening of Land Control (Guo Fa (2006) No 31)

See https://www.gov.cn/zwgk/2006-09/05/content_378186.htm.

.

(b) Findings of the investigation

(680) According to Article 10 of the Provision on Assignment of State-owned Construction Land Use Right through Bid Invitation, Auction and Quotation, local authorities set land prices according to the urban land evaluation system, which is updated every three years, and the government’s industrial policy.

(681) In previous investigations

See HRF case recitals (295) to (299), Tyres case recitals (488) to (490), GFF case recitals (500) to (502), OFC case recitals (541) to (543), ACF case recitals (540) to (548).

, the Commission found that prices paid for LURs in the PRC were not representative of a market price determined by free market supply and demand, since the auctioning system was found to be unclear, non-transparent and not functioning in practice, and prices were found to be arbitrarily set by the authorities. As mentioned in the previous recital, the authorities set the prices according to the urban land evaluation system, which instructs them among other criteria to consider also industrial policy when setting the price of industrial land.

(682) The current investigation did not show any noticeable changes in this respect. For instance, the Commission found that most of the sampled groups of companies obtained their LUR for the exact price as offered in a bidding procedure by the local authorities.

(683) The above evidence contradicts the claims of the GOC that the prices paid for LUR in the PRC are representative of a market price, which is determined by free market supply and demand.

(c) Conclusion

(684) The findings of this investigation show that the situation concerning acquisition of LUR in the PRC is non-transparent and the prices were arbitrarily set by the authorities.

(685) Therefore, the provision of land-use rights by the GOC should be considered a subsidy within the meaning of Article 3(1)(a)(iii) and Article 3(2) of the basic Regulation in the form of provision of goods, which confers a benefit upon the recipient companies. As explained in recitals (676) to (679) above, there is no functioning market for land in the PRC and the use of an external benchmark (see recital (688)) demonstrates that the amount paid for land-use rights by the sampled exporting producers is well below the normal market rate.

(686) In the context of preferential access to industrial land for companies belonging to certain industries, the Commission noted that the price set by local authorities has to take into account the government’s industrial policy, as mentioned above in recital (680). Within this industrial policy, the BEV industry is listed as an encouraged industry. In addition, according to Decision No 40 of the State Council, public authorities shall take into account The Guiding Catalogue of the Industrial Restructuring and the industrial policies when providing land. Article XVIII of Decision No 40 makes clear that industries that are restricted will not have access to land use rights. It follows that the subsidy is specific under Article 4(2)(a) and 4(2)(c) of the basic Regulation because the preferential provision of land is limited to companies belonging to certain industries, in this case the BEV industry, and government practices in this area are unclear and non-transparent.

(d) Calculation of the subsidy amount

(687) As in previous investigations

See Tyres case, GFF case, OFC case, and ACF case.

and in accordance with Article 6(d)(ii) of the basic Regulation, land prices from the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei) were used as an external benchmark

Upheld by the General Court in Case T-444/11 Gold East Paper and Gold Huacheng Paper versus Council, Judgment of the General Court of 11 September 2014 ECLI:EU:T:2014:773.

. The benefit conferred on the recipients is calculated by taking into consideration the difference between the amount actually paid by each of the sampled exporting producers (i.e., the actual price paid as stated in the contract and, when applicable, the price stated in the contract reduced by the amount of local government refunds/grants) for land use rights and the amount that should normally have been paid on the basis of the Chinese Taipei benchmark.

(688) The Commission considers Chinese Taipei as a suitable external benchmark for the following reasons:

the comparable level of economic development, GDP and economic structure in Chinese Taipei and a majority of the provinces and cities in the PRC where the sampled exporting producers are based;

the physical proximity of the PRC and Chinese Taipei;

the high degree of industrial infrastructure in both Chinese Taipei and many provinces of the PRC;

the strong economic ties and cross border trade between Chinese Taipei and the PRC;

the high density of population in many of the provinces of the PRC and in Chinese Taipei;

the similarity between the type of land and transactions used for constructing the relevant benchmark in Chinese Taipei with those in the PRC; and

the common demographic, linguistic and cultural characteristics between Chinese Taipei and the PRC.

(689) Following the methodology applied in previous investigations

See GFF, OCS, Solar panels, and OFC cases.

, the Commission used the average land price per square meter established in Chinese Taipei corrected for inflation and GDP evolution as from the dates of the respective LUR contracts. The information concerning industrial land prices as of 2013 was retrieved from the website of the Industrial Bureau of the Ministry of Economic Affairs of Taiwan

https://lvr.land.moi.gov.tw.

. For the previous years, the prices were corrected using the inflation rates and evolution of GDP per capita at current prices in USD for Chinese Taipei as published by the IMF for 2013.

(690) The subsidy rate established with regard to this subsidy during the investigation period for the sampled exporting producers amounts to:

Company nameSubsidy rateBYD Group1,20 %Geely Group0,84 %SAIC Group0,67 %

3.7.2.

Government provision of batteries and key inputs for the production of batteries (namely lithium iron phosphate) for less than adequate remuneration

(a) Introduction

(691) In the Memorandum on sufficiency of evidence, the Commission found that a large number of specific plans appear to exist by which the GOC or local governments provide support specifically to the development of BEV’s raw and input materials, as well as for batteries. The evidence contained in the Memorandum on sufficiency of evidence showed that the GOC created a framework whereby all levels of the BEV industry chain are supported, from the mining of key raw materials for the production of inputs to midstream inputs and the final product, with a view to quickly and strongly develop the BEV industry. This was confirmed by the analysis carried out by the Commission showing that the GOC envisions the upstream raw material suppliers and battery suppliers as part of a wider framework for the development and promotion of the BEV industry as a whole.

(692) Lithium, cobalt, nickel, copper (used in the form of copper foil), aluminium (also used in the form of aluminium foil and as aluminium strip for the casing of the cells), and graphite, are the main raw materials used in lithium iron phosphate (herein referred as lithium or LFP) and nickel-manganese-cobalt oxides (NMC) batteries. Both types of batteries fall under the umbrella of the so-called lithium-ion batteries. The Commission found that the BYD Group was the only vertically integrated sampled BEV exporting producer producing LFP batteries for BEVs. The Commission collected information from the BYD Group on the raw materials used in the production of cells for the battery pack (i.e. aluminium strip, aluminium foil, copper foil, graphite and LFP). Given the importance of LFP in the production process of batteries (amounting to around [25% - 35%] of the battery’s costs of production), the Commission focused its investigation at provisional stage on the provision of LFP for less than adequate remuneration.

(693) In the course of the investigation, the Commission found in particular that the only vertically integrated group was sourcing LFP from related and unrelated suppliers for the production of BEV batteries. LFP is the type of lithium used in LFP batteries and is obtained by mixing lithium carbonate with iron phosphate. LFP is the main component of the battery cells, representing overall around [25 – 35] % of the battery pack cost.

(694) The other two groups (SAIC and Geely) sourced their batteries from unrelated and related suppliers, as well as from joint ventures with Contemporary Amperex Technology Company Limited (CATL). The battery pack is the main cost-driver of BEVs, representing overall [40 – 50] % of the cost of production.

(695) At this stage of the proceeding, the Commission thus focused on the main cost-drivers in the production of BEVs, namely, (1) the provision of batteries as regards the non-integrated BEV exporting producer, and (2) the provision of LFP as regards the integrated BEV exporting producer, as the main raw material used in the production of batteries.

(b) Non-cooperation and use of facts available

(696) As pointed out in Section 3.3.1.1, although requested to do so, the GOC did not forward the specific questionnaire intended for suppliers of raw materials and batteries of BEVs to known suppliers in China. In addition, the GOC failed to provide crucial information on the characteristics of the domestic market of input materials for BEVs in China and its economic operators.

(697) Since the Commission received no information from the GOC on the legislative framework in place, on the domestic market structure, on price-setting mechanisms and prices and on the shareholding of companies, the Commission considered that it had not received crucial information relevant to the investigation.

(698) In the absence of any information provided by the GOC concerning the number and ownership of domestic suppliers of raw materials and batteries for BEVs, the Commission had to rely on facts available within the meaning of Article 28(1) of the basic Regulation. In this regard the Commission analysed specific plans on the Chinese new energy vehicles (NEVs) battery industry, of which BEVs are part, and the situation of the suppliers of raw materials for the vertically integrated exporting producer and related suppliers of batteries of the two non-vertically integrated sampled exporting producers. Where necessary because of the absence of information on file, the Commission had to draw inferences from the facts and information available on file.

(699) As pointed out in Section 3.3.2, the SAIC Group failed to provide information related to cost of production, bills of material, product specifications including the chemical composition of the raw material purchased from suppliers and supporting purchase transaction-by-transaction listing for suppliers although requested to do so. In this context, the Commission considered that it was missing crucial information necessary to arrive at a reasonably accurate finding and that it had to rely on facts available in accordance with Article 28(1) of the basic Regulation.

(700) Consequently, as far as the non-integrated BEV exporting producers are concerned, the Commission could only rely on the information collected from the Geely Group. Considering that both non-integrated BEV exporting producers source their batteries from similar battery suppliers and that the Commission could base its findings as regards the provision of batteries to the Geely Group on data directly provided by its suppliers, the Commission considers that the information concerning the Geely Group amounts to a reasonable replacement of the necessary information in order to make findings for the SAIC Group. However, the Commission still relied on the information collected from the SAIC group that could be verified; notably the names of the battery suppliers to the SAIC group.

3.7.2.1.

Government provision of batteries for less than adequate remuneration

(701) In order to establish the existence of a countervailable subsidy, three elements must be present under Articles 3 and 4 of the basic Regulation: (1) a financial contribution; (2) a benefit, and (3) specificity.

3.7.2.1.1.

Financial contribution

(a) Battery suppliers acting as public bodies

(702) The Commission first analysed whether the battery suppliers could be found to amount to public bodies so that the provision of batteries for less than adequate remuneration could be attributed to the GOC within the meaning of Article 3(1)(a) of the basic Regulation. As explained in detail in Section 3.5.1.1, recitals (409) to (418), the legal standard for the existence of a public body must be interpreted in accordance with the WTO jurisprudence detailed therein. On the basis of the relevant case law referred to in recitals (409) to (418), whether the inputs producers in China engaged in supplying inputs are public bodies (i.e. entities which possess, exercise or vested

with authority to exercise governmental functions) should be examined having due regard (i) to legal and economic environment prevailing in the country in which the investigated entities operate, (ii) the relationship between the entities at hand and the government, and (iii) the core characteristics and functions of the relevant entities.

(703) Furthermore, as pointed out in recital (416), the Appellate Body emphasised the relevance of the non-cooperation by the government in question in order to make findings that some entities are public bodies.

Appellate Body Report, US – Anti-dumping and Countervailing Duties on Certain Products from China), WT/DS379/AB/R, paragraph 349.

Indeed, in the context where an investigating authority has to examine the elements about the relationship between the government and certain entities exercising governmental functions, the government is in possession of key information necessary to make a determination about public bodies. If the government withholds such information, the investigating authority may draw inferences from the lack of co-operation, including that the requested information would, for instance confirm key State presence in those entities which implies the exercise of its meaningful control over those entities. Thus, evidence of formal indicia of State ownership, direct control by the State, and government intervention in the market to achieve certain policy objectives may show, also in a context where there is no cooperation by the government in question, that the input producers are vested with government authority and exercise governmental functions.

(704) Finally, in order to be considered public bodies, the suppliers at issue would not necessarily have to be controlled by the GOC in every sale of input to downstream producers. The central question is whether the entities themselves possess the core characteristics and functions that would qualify them as public bodies.

(1) Legal and economic environment prevailing in the PRC

(705) As explained in detail in recitals (197) to (203), the legal and economic environment in the PRC in which BEV input suppliers operate is characterised by strong presence and extensive control by the government, where the State exerts a decisive influence on the allocation of resources and on their prices. Thus, in the context of analysing the legal and economic environment the GOC created for the supply of inputs for BEVs for less than adequate remuneration, it is therefore worth recalling at the very outset the level of intervention by the GOC and CCP over the Chinese economy (see, in particular, recital (201)).

(706) In line with the socialist market economy doctrine, the GOC lays claim on shaping the economic structure of the country, not least in view of Article 11 of the Constitution, according to which the government explicitly exercises supervision and control also over the non-public sectors of the economy (see in particular recital (199)), including therefore even privately-owned BEV input suppliers. Based on this constitutional anchoring and with institutional and organisational structures in place, the GOC is in position to pursue its policy objectives, notably through the elaborate planning system (see also recital (203)) and the adoption of specific measures, including of support, to key operators in encouraged sectors.

(707) As will be detailed below, the development of the upstream inputs for the production of batteries and the batteries are interlinked, as the development of both upstream and midstream inputs serve in turn the development of the BEV sector. The GOC has not only put forward policies and measures for the development of the BEV sector and the industries around it but created an all-encompassing framework. This framework shows how the GOC intervenes in the market so that input suppliers are not free market operators but entities which performed the assigned governmental functions, namely, to develop the BEV industry. Therefore, this section will analyse both policy objectives pertaining to upstream materials (i.e. key inputs in the production of batteries) and midstream inputs such as batteries, as well as specific measures adopted by the GOC pursuing those objectives.

(2) GOC’s policy objectives to develop the BEV industry

(708) Section 3.1 has detailed the relevant background and context explaining the importance the GOC attaches to the development of the BEV industry, including via the development of the industries surrounding it as instrumental for the success of BEV producers. The overarching policy objective to encourage the BEV sector including via the supply of inputs is shown by a large number of regulations and other policy documents and plans issued by different governmental bodies to supervise each aspect of these sectors concerning batteries and/or their inputs.

(709) The 2017 Action Plan for Promoting the Development of the Automotive Power Battery Industry (2017 Battery Action Plan),

See at: https://www.gov.cn/xinwen/2017-03/02/content_5172254.htm#2.

covered inter alia at recitals (230) to (232), shows how the policy guidance of the Government encompasses the whole value chain of NEVs.

(710) This plan was adopted in order to implement the Notice of the State Council on Issuing the Development Plan for the Energy Saving and New Energy Vehicle Industry (2012-2020) (Guofa [2012] No. 22) and the Guiding Opinions of the General Office of the State Council on Accelerating the Promotion and Application of New Energy Vehicles (Guobanfa [2014] No. 35) (…) and to promote the healthy and sustainable development of the new energy vehicle industry

See at: https://www.gov.cn/xinwen/2017-03/02/content_5172254.htm#1

. Furthermore, the 2017 Battery Action Plan foresees a development of the battery industry with a goal to serve in turn the development of the NEV industry, of which the BEV industry is part of (power batteries are the heart of electric vehicles and the key to the development of the new energy vehicle industry). These links between the battery plan and the main plans supporting BEV production show that the GOC encouraged the development of the battery industry as instrumental to the development of the BEV sector. In particular, it shows that the development of the battery industry is directed to serve the purposes of the development of the BEV industry by reducing costs in order to supply cheaper batteries. Finally, it shows the preference accorded by the GOC to domestic battery producers, with a view to strengthening them and encourage their market penetration abroad.

(711) In addition to the 2017 Battery Action Plan mentioned above, the legal basis of the most relevant rules and regulations are the following:

13th Five Year Plan for the Development of Strategic and Emerging Industries

Available at : https://www.gov.cn/zhengce/content/2016-12/19/content_5150090.htm. An English translation is available at https://cset.georgetown.edu/publication/national-13th-five-year-plan-for-the-development-of-strategic-emerging-industries/

;

14th Five Year Plan for Raw Material Industry Development (14th Raw Materials FYP)

Full text of the plan available at: https://www.miit.gov.cn/zwgk/zcwj/wjfb/tz/art/2021/art_2960538d19e34c66a5eb8d01b74cbb20.html.

;

Catalogue of Encouraged Industries in the Western Region (Order No. 40 [2021]) (Encouraged Industries Catalogue)

Available at https://www.ndrc.gov.cn/xxgk/zcfb/fzggwl/202101/t20210126_1265895.html

;

Catalogue for Guiding Industrial Restructuring (Order No. 49 [2019]) (the Industrial Catalogue)

Available at https://www.gov.cn/zhengce/2021-12/27/content_5713262.htm

;

Energy-saving and NEV Industry Development Plan (2012-2020) (NEV Plan 2012-2020)

Available at https://www.gov.cn/gongbao/content/2012/content_2182749.htm

;

Guiding Opinions on Expanding Investment in Strategic Emerging Industries and Cultivating Strengthened New Growth Points and Growth Poles (Order No. 1409 [2020]) (Guiding Opinions on Investment)

Available at https://www.ndrc.gov.cn/xxgk/zcfb/tz/202009/t20200925_1239582.html. An English translation is available at https://cset.georgetown.edu/publication/new-chinese-ambitions-for-strategic-emerging-industries-translated/

;

Notice by the Ministry of Industry and Information Technology and the State Administration for Market Regulation on the coordinated and stable development of the lithium-ion battery industry chain and supply chain (Notice on the battery industry)

Available at https://www.gov.cn/zhengce/zhengceku/2022-11/20/content_5727976.htm

;

New Energy Vehicle Industry Development Plan (2021-2035) (NEV Plan 2021-2035)

Chinese version available at: http://www.gov.cn/zhengce/content/2020-11/02/content_5556716.htm and https://www.ndrc.gov.cn/fggz/fzzlgh/gjjzxgh/202111/t20211101_1302487.html?code=&state=123, English overview available at: https://transition-china.org/wp-content/uploads/2022/01/New-Energy-Vehicle-Industrial-Development-Plan.pdf.

;

Made in China 2025 (MIC 2025)

See at: https://www.gov.cn/zhengce/content/2015-05/19/content_9784.htm ; English translation available at: https://cset.georgetown.edu/wp-content/uploads/t0432_made_in_china_2025_EN.pdf

;

Mineral Resources Law (MRL)

Available at https://www.mee.gov.cn/ywgz/fgbz/fl/201904/t20190429_701421.shtml. An English version is available on the website of the National People’s Congress (NPC): http://www.npc.gov.cn/zgrdw/englishnpc/Special/CombatingClimateChange/2009-08/28/content_1516264.htm

;

Standardized conditions of the Lithium-ion battery industry – 2021 version (Standardized conditions)

Available at https://www.miit.gov.cn/zwgk/zcwj/wjfb/gg/art/2021/art_8c1b0573f1234c138faa03d0c38c8eda.html. In particular, see attachment 1.

.

(712) The instruction of the aforementioned plans are reflected and implemented in the corresponding provincial, regional, municipal and local plans. Examples of this include, but are not limited to:

Action Plan for Promoting High-Quality Development of New Energy Batteries and Materials Industry in Guizhou Province in 2022 (Guizhou Action Plan)

Available at http://gzvcpe.org/index.php?id=483

Fujian province’s Guiding Opinions on Accelerating the High-Quality Development of the Lithium Battery, New Energy and New Materials Industry (Fujian Guiding Opinions’)

Available at https://h5.drcnet.com.cn/docview.aspx?version=edu&docid=6705522&leafid=47&chnid=1022

;

Ningde City’s Special Plan for the High-Quality Development of the Manufacturing Industry during the 14th Five-Year Plan (Ningde Manufacturing Plan)

Available at https://www.ningde.gov.cn/zfxxgkzl/zfxxgkml/fggzhgf/xzgfxwj/202111/P020211122362938546996.pdf

;

Shandong Zhaozuang Municipality development plan 2021- - 2025 on developing the lithium battery industry ('Shandong development plan)

Available at http://www.zzctp.gov.cn/zwgk/xxgkml/qzbm/jjfzj/202206/P020220608303013167796.pdf

;

Shenzhen province’s Opinions on supporting the high-quality development of the new energy automobile industry chain (Shenzhen plan)

Available at https://img3.gelonghui.com/pdf/b614c-1c9440f1-f551-4fe9-8501-2578ae44e544.pdf

;

Sichuan Suining 14th Five-Year Plan on lithium battery development (Suining Plan)

Available at https://www.shehong.gov.cn/gongkai/show/bb8dce09764e4cb2aa9d9374f6e31743.html

;

Yichun Mineral Resources Plan (2021-2025)

Available at http://www.yichun.gov.cn/ycsrmzf/kjgh/202212/c173570ca3d7465aa8b27f999b0d3d00/files/%E5%AE%9C%E6%98%A5%E5%B8%82%E7%9F%BF%E4%BA%A7%E8%B5%84%E6%BA%90%E6%80%BB%E4%BD%93%E8%A7%84%E5%88%92%EF%BC%882021-2025%E5%B9%B4%EF%BC%89-20221215142744694.pdf

;

Notice on several policy measures to improve and strengthen the lithium battery new energy industry in our province (Notice No. 21 [2022]) (Measures on li-ion battery)

Available at http://www.yichun.gov.cn/ycsrmzf/jxszc/202210/12e1a57f3eb24bae9a873a819b6baca2.shtml

;

Yichun municipality’s Several Opinions on Strengthening the Management of Lithium Mineral Resources (Yichun Lithium Mineral Resources)

Available at https://www.yichun.gov.cn/ycsrmzf/yff8e/200911/b1fc3970e57b494bb9c413632d1b47f9.shtml

.

(713) All the plans referred to above are interlinked with the more general BEV plans covered in section 3.1. In particular, the GOC built a support framework encompassing all levels of the BEV industry chain, from the mining and provision of raw materials for the production of inputs, to inputs such as batteries, e-motor, etc., to the final product.

(714) The Mineral Resources Law (MRL)

Available at https://www.mee.gov.cn/ywgz/fgbz/fl/201904/t20190429_701421.shtml. An English version is available on the website of the National People’s Congress (NPC): http://www.npc.gov.cn/zgrdw/englishnpc/Special/CombatingClimateChange/2009-08/28/content_1516264.htm

is the national law regulating the extraction of mineral resources and the registration of mining rights. The MRL was initially promulgated by the Standing Committee of the National People's Congress on March 19, 1986 and amended in 1996 and 2009. Article 3 of the MRL states that [m]ineral resources belong to the State, and Article 4 explains that [t]he State-owned mining enterprises are the main body in mining mineral resources. The State guarantees the consolidation and expansion of State-owned mining enterprises. The Rules for Implementation of the Mineral Resources Law

Available at https://www.gd.gov.cn/zwgk/gongbao/1994/10/content/post_3357141.html. An English translation is available on the website of the FAO: https://faolex.fao.org/docs/pdf/chn128687.pdf

(Implementation Law) reaffirms state ownership over mineral resources, detailing what is covered under the Law

For example: lithium, copper, bauxite, nickel, graphite, phosphorous, mineral salt, etc.

and further defines in Article 3 that the State ownership over surface and subsurface mineral resources shall not be changed […]. The State Council represents the State to execute the ownership over mineral resources. The State Council authorizes the competent department of the State Council for geology and minerals to impose a unified control over the allocation of mineral resources in the whole country. Article 24 of the Implementation Law states that the distribution, development and utilization of mineral resources across the country should take into account the current and long-term interests of the central and local governments, and implement unified planning, effective protection, rational exploitation, and comprehensive utilization. In other words, the GOC ensures that these SOEs carry out the policy objectives set by the GOC and thus act within these legal constraints. Article 25 defines that the State Council and the relevant competent departments shall draft the national plan of mineral resources, which shall make an unified arrangement on the allocation of national mineral resources, and shall define reasonably the limits of consideration and approval and exploitation of mineral resources between the Central Government and the people's governments of provinces, autonomous regions and municipalities directly under the Central Government. The government thus has full control over the allocation of resources, can define who obtains the mining rights and the limits of what is mined, based on the principles of unified planning, rational geographical distribution, multi-purpose exploration, rational mining and multi-purpose utilization (Article 7 of the MRL). As a result of these binding rules, the covered SOEs exercise government functions.

(715) In December 2021, the Ministry of Industry and Information Technology (MIIT), Ministry of Science and Technology and Ministry of Natural Resources published the 14th Raw Materials FYP

Full text of the plan available at: https://www.miit.gov.cn/zwgk/zcwj/wjfb/tz/art/2021/art_2960538d19e34c66a5eb8d01b74cbb20.html.

. The plan covers several industrial sectors, and supports the establishment of lithium, nickel and cobalt enterprises and industrial clusters, and to [b]uild a mineral resource reserve system in which the state and enterprises jointly participate and combine product reserves and resource area reserves. Improve the ore trading market system and form an open, transparent, fair and reasonable pricing mechanism.

Available at https://www.gov.cn/zhengce/zhengceku/2021-12/29/content_5665166.htm

(716) While the MRL and the 14th Raw Materials FYP apply at the national level and are quite affirmative on the fact that mineral resources belong to the State, the New Energy Vehicle Industry Development Plan (2021-2035), provides evidence of support throughout the entire supply chain specifically to encourage the NEVs sector, which includes both BEVs and hybrids. The Plan mandates to [p]romote the development of the entire value chain of power batteries [and] encourage enterprises to improve their ability to secure key resources such as lithium, nickel, cobalt, and platinum

Available at https://www.gov.cn/zhengce/content/2020-11/02/content_5556716.htm

.

(717) The 13th Five Year Plan on the Development of Strategic and Emerging Industries set out the following objectives: Facing the development needs of (…) new energy vehicles and other industries, [China shall] expand high-strength light alloys, high-performance fibers, special alloys, advanced inorganic non-metallic materials, high-quality special steel, new display materials, power battery materials, (…) [and] increase the added value of new materials, build new material brands, and enhance international competitiveness. This Plan also includes key task 21 Realize the large-scale application of new energy vehicles and organize the implementation of new energy vehicle power battery improvement projects which only confirms the battery sector development is instrumental to the ultimate goal of NEV (including BEVs) development.

(718) The Catalogue for Guiding Industrial Restructuring (Order No. 49 [2019])

Available at https://www.gov.cn/zhengce/2021-12/27/content_5713262.htm

issued by the National Development and Reform Commission (NDRC) and into effect since 1 January 2020 consists of three categories – encouraged, restricted, and obsolete and demonstrates how the Government explicitly encourages and supports the development of certain industries and specific technologies, while discouraging, restricting and even prohibiting others. All main elements of the BEV supply chain, such as positive electrode materials such as LFP, lithium-ion batteries, electrolytes, lithium exploration projects

Under Section 11 (Petrochemical Industry), point 2: Exploration, development, and comprehensive utilization of scarce mineral resources such as sulfur, potassium, boron, lithium and bromine; development and application of technology for comprehensive utilization of phosphate ore dressing tailings; selection and utilization of low- and medium-grade phosphorite and fluorite ore; and comprehensive utilization of resources associated with phosphorite and fluorite ore.

, high-performance copper foil materials, graphite, aluminium, and steel for the industry new energy are indicated as encouraged industries. This further restates that government does not consider the BEV industry as a stand-alone industry but envisions the creation of an all-encompassing framework for the development of this industry, and for the creation of favorable market conditions that allow the BEV producers to gain a competitive edge over foreign players. The 2019 Catalogue for Guiding Industrial Restructuring was replaced by the 2024 edition, effective on 1 February 2024

See https://www.ndrc.gov.cn/xxgk/zcfb/fzggwl/202312/t20231229_1362999.html

. The latest catalogue is characterized by an expanded focus on new high-tech and green tech sectors falling into the category as encouraged industries, such as smart manufacturing, machine automation, green hydrogen carbon capture, utilization, and storage, and next-generation solar cells.

(719) The NEV Plan 2021-2035 confirms the policy guidance on the whole supply chain from key raw materials such as lithium, nickel and cobalt to the improvement of the process and production efficiencies so as to implement battery technology breakthrough actions; carry out research on key core technologies such as positive and negative electrode materials, electrolytes, separators, and membrane electrodes, strengthen technical research on the shortcomings of high-performance, lightweight, high-safety, low-cost, and long-life power batteries

See footnote 237.

. Batteries for NEVs are covered also in Section 2 of Chapter IV, labelled Promote the innovative application of key systems, which strives to promote the development of the whole value chain of batteries. This includes, notably, encouraging companies to secure access to key resources such as lithium, nickel, cobalt and platinum. The NEV Plan 2021-2035 and the 2017 Battery Action plan, which provide also for tax exemptions and incentives and investment support from the government, constitute the main governmental plans covering the battery industry.

(720) The Made in China 2025 is another example of the all-encompassing governmental support of the industry. Announced in 2015, this is a national strategy which focuses on ten core sectors that receive special support and attention in the period up to 2025. The support is granted through loans from State-owned banks on a non-commercial basis and as well as exemption from compliance with certain standards and regulations, among other privileges. The Chinese battery industry is included in the sectors to be supported as an instrumental part of the NEV sector: Energy saving and new energy vehicles: Continue to support the development of electric vehicles and fuel cell vehicles, (…) and improve the engineering and industry of core technologies such as power batteries, drive motors, high-efficiency internal combustion engines, advanced transmissions, lightweight materials, and intelligent control capabilities, so as to form a complete industrial system and innovation system from key components to complete vehicles [emphasis added], and promote independent brands of energy-saving and new energy vehicles to be in line with international advanced levels

See Point III.6.6 of the State Council Notice on MIC 2025 available at: https://www.gov.cn/zhengce/content/2015-05/19/content_9784.htm

.

(721) The Guiding Opinions on Expanding Investment in Strategic Emerging Industries and Cultivating Strengthened New Growth Points and Growth Poles (Order No. 1409 [2020])

Available at https://www.ndrc.gov.cn/xxgk/zcfb/tz/202009/t20200925_1239582.html. An English translation is available at https://cset.georgetown.edu/publication/new-chinese-ambitions-for-strategic-emerging-industries-translated/

by the NDRC mandate that in key industrial areas such as the new materials

Section II(4): Improve the technical levels of rare earth, vanadium-titanium, tungsten-molybdenum, lithium, rubidium-cesium, graphite, and other special resources in the links of mining, smelting, and deep processing.

and the NEVs industry, the government should create industrial clusters and promote the formation of new regional growth poles, optimize the business environment and increase fiscal and investment support. The Guiding Opinions also promote national strategic emerging industries through the use of fiscal, land, financial, S&T, talent, intellectual property, etc. policies.

Section III(9) of the Guiding Opinions on Expanding Investment in Strategic Emerging Industries.

Section IV of the Guiding Opinions gives clearer instructions on funding and investment support, such as: government funds, venture capital, and government-funded industry investment funds. The Guiding Opinions encourage financial institutions to increase support for core enterprises in the production chain and optimize financial services for upstream and downstream enterprises in the production chain, and also encourage banks to establish financial service centres or business units for emerging industries, including NEVs. The Guiding Opinions explicitly support cooperation between government, banks and enterprises, and support the increase in the issuance of bonds by enterprises in strategic emerging industries, including NEVs. At the financial level, the designated responsible departments are the PBOC, the China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, and the NDRC

Section IV(15) of the Guiding Opinions on Expanding Investment in Strategic Emerging Industries.

.

(722) Furthermore, both battery producers and suppliers of raw materials used in the production of batteries are also included in the Encouraged Industries Catalogue and can benefit from a reduced tax rate of 15 %.

(723) While the objectives and the measures laid out in the plans and policy documents at central level provide guidance concerning the development of the batteries and the upstream inputs connected to the new energy vehicles sector for the benefit of the BEV industry as a whole, the provincial and local plans are also targeted to address the specifics of their territory and the companies established there. In particular, they provide detailed goals and targets on how to build local production and control supply chains for the domestic industry, encompassing every aspect of the industry’s development and giving clear instructions on the type of incentives offered to companies along the supply chain.

(724) Several local Mineral Resources Plans exist, which constitute the guidelines for provinces and cities for the exploration and mining of mineral resources and set the target for 2025 for the exploration and development of mineral resources. One such example of that is the Yichun Mineral Resources Plan (2021-2025)

Available at http://www.yichun.gov.cn/ycsrmzf/kjgh/202212/c173570ca3d7465aa8b27f999b0d3d00/files/%E5%AE%9C%E6%98%A5%E5%B8%82%E7%9F%BF%E4%BA%A7%E8%B5%84%E6%BA%90%E6%80%BB%E4%BD%93%E8%A7%84%E5%88%92%EF%BC%882021-2025%E5%B9%B4%EF%BC%89-20221215142744694.pdf

. The stated goal of the Yichun Mineral Resources Plan is to build a lithium battery industry base with international influence

See Chapter 4, Section 1 of the Yichun Mineral Resources Plan.

. This plan also provides a detailed overview about the newly planned mines and industries around it. For example, the Yichun Yashan Tantalum-Niobium-Lithium Mining Development Zone is built with the goal of supporting the development of Yichun lithium battery and new energy industry cluster worth 100 billion

See column 6 of the Yichun Mineral Resources Plan.

.

(725) The Suining Plan contains provisions on development targets (by 2025 […] the [annual production of] positive electrode material will reach more than 800000 tons, and the positive electrode material precursor will reach more than 500000 tons), annual production targets (accelerate […] the annual production capacity of lithium-ion batteries which should reach 100GWh, of which the power battery production capacity will reach 60GWh. […] Promote the construction of a

five-in-one urban lithium battery energy complex consisting of charging, storage, preparation, replacement and sales, and strive to ensure that the city’s lithium battery industry’s operating income exceeds 100 billion yuan), and profit targets (by 2025 (…) We will strive to cultivate three enterprises with operating income exceeding 10 billion yuan and 15 enterprises with operating income exceeding 1 billion yuan, and create a tiered development cluster of large, medium, small and micro enterprises), while the Shandong Development Plan gives instructions on the sales targets (From 2021 to 2025, we will introduce more than 5-10 lithium battery leading enterprises that produce light power, power and energy storage batteries, cultivate a group of supporting enterprises with sales revenue between 500 million and 1 billion yuan, and form an industrial cluster of 50-100 upstream and downstream enterprises in the lithium battery new energy industry chain).

(726) Jiangxi is a major lithium production hub, and the province where Yichun, dubbed as the lithium capital of Asia

On the dispute of Lithium Capital in China from the Perspective of Yichun of Guoxuan Suo Mine, Shanghai Metals Market. Available at https://news.metal.com/newscontent/101490021/on-the-dispute-of-lithium-capital-in-china-from-the-perspective-of-yichun-of-guoxuan-suo-mine

, is located. Due to its rich lithium reserves, the province pays particular attention to the new energy materials and lithium battery sector. In October 2022, the province issued the Notice on several policy measures to improve and strengthen the lithium battery new energy industry in our province (Notice No. 21 [2022])

Available at http://www.yichun.gov.cn/ycsrmzf/jxszc/202210/12e1a57f3eb24bae9a873a819b6baca2.shtml

(Measures). Support is shown at all levels of the supply chain, starting from the supply of mineral resources up to the set-up of lithium battery industries. The Measures, for example, envision the establishment of guidance funds for the exploration, development and investment in lithium mineral resources

Point 5 of the Measures.

. The battery industry in Jiangxi is supported by several types of compensation, rewards

Point 3 of the Measures.

, and support in terms of land use, electricity use

Point 1 of the Measures.

, gas use, etc.,

Point 8 of the Measures.

including equity pledges, and insurance compensation.

(727) The Commission also found that already in 2009 the Yichun Municipality started to direct and protect the city’s mineral resources to promote the development of the battery new energy industry. This is covered by Yichun municipality’s Several Opinions on Strengthening the Management of Lithium Mineral Resources

Available at https://www.yichun.gov.cn/ycsrmzf/yff8e/200911/b1fc3970e57b494bb9c413632d1b47f9.shtml

(Yichun Lithium Mineral Resources). Article 3 further defines that the Yichun Lithium Battery New Energy Industry Development Leading Group Office is responsible for guiding and coordinating the comprehensive development and utilization of lithium mineral resources in the city, and for ensuring a stable supply of lithium for the city’s battery enterprises. In Article 6, the municipal government further instructs lithium mining enterprises to actively support and help [Yichun’s] battery new energy enterprises to become bigger and stronger, establish a long-term cooperative, mutually beneficial strategic partnership between [mining companies and battery companies]. Article 7 gives instructions on the pricing mechanism in place to prevent price monopoly. The Leading Group is in charge of tak[ing] the lead in organizing lithium new energy enterprises and [mining companies] to make adjustments based on the market development trend under the premise of determining a benchmark price, and uniformly negotiate and determine the lithium mica supply price required by lithium new energy enterprises.

(728) Also the Fujian provincial plans and Ningde municipal plans contain specific provisions on the type of support offered, sometimes going as far as explicitly mentioning the companies supported. This is namely the case of the largest world battery producer CATL, which is headquartered and has important production facilities in this province.

(729) The Fujian Province’s 13th Five Year Plan on the Development of New Energy Vehicles indicates that with CATL at the core [Fujian Province] shall actively promote the expansion of industry chains such as power batteries

Available at https://pdf.dfcfw.com/pdf/H3_AP201709300922205858_01.pdf

.

(730) The Fujian Guiding Opinions supports investment in high-quality projects in the fields of lithium batteries, new energy and new materials, and seeks to promote financial institutions to cooperate with related industries and special funds to carry out investment and loans, increase credit support for lithium battery, new energy and new materials industry projects including interest discount support for major construction projects in the field of lithium battery new energy and new materials production bases. The Plan also proposes to create an independent and controllable industrial innovation system, supporting the development of innovation platforms like the National Engineering Research Center for Electrochemical Energy Storage Technology of CATL. This is a reflection of the implementation of national policies carried out by a local government, in cooperation with a private enterprise. In fact, the construction of a power battery innovation platform, built upon cooperation between enterprises, universities and research centers, is among the key tasks of the 2017 Battery Action Plan

See Section III (1) of the 2017 Battery Action Plan

.

(731) Ningde City’s Special Plan for the High-Quality Development of the Manufacturing Industry during the 14th Five-Year Plan

Available at https://www.ningde.gov.cn/zfxxgkzl/zfxxgkml/fggzhgf/xzgfxwj/202111/P020211122362938546996.pdf

sets out the goal of reaching 350GWh lithium battery production capacity by 2025, and to become an industry leader through the development of CATL. CATL’s deep links with the governments of different municipalities and provinces are also reflected by the strategic cooperation agreement signed in 2021 between CATL and Guizhou Provincial People’s Government

Available at https://www.catl.com/en/news/790.html

, resulting in the CATL Guizhou New Energy Power and Energy Storage Battery Manufacturing Base project.

Info available at https://www.catl.com/news/6263.html

These deep links are also explicitly confirmed by CATL Guizhou’s Director of Operations declaring that CATL Guizhou Company will continue to adhere to innovative and high-quality development (…) and actively support and comply with the high-quality development goals of the Gui'an New District Party Working and Management Committee and contribute to the creation of a new energy industry chain in Guiyang and Gui'an

See Guizhou Daily, 10 March 2023 available at http://szb.eyesnews.cn/pc/cont/202303/10/content_88202.html

. Guiyang and Gui’an are both located in Guizhou province. Other examples of close governmental involvement include the comprehensive cooperation agreement with the government of Zhaoqing,

CATL signs comprehensive cooperation agreement with the city of Zhaoqing, CATL, 12 October 2023. Available at https://www.catl.com/en/news/6122.html

the strategic cooperation agreement with the government of Sichuan province

Sichuan Province and CATL deepen strategic cooperation, CATL, 05 February 2024, available at https://www.catl.com/en/news/6213.html

and Shudao Investment Group, a state-owned investment group.

CATL and Shudao Investment Group reach strategic cooperation, CATL, 18 February 2024. Available at https://www.catl.com/en/news/6218.html

In addition, CATL also cooperates on lithium hexafluorophosphate, a type of lithium used as electrolyte in lithium-ion batteries, and iron phosphate with Guizhou Phosphate Chemical Group, a State-owned enterprise. Moreover, in December 2021, CATL Guizhou, a subsidiary of CATL, set up Guizhou Shidai Mining Co., Ltd., a mining company with Guizhou Phosphate Chemical Group

CATL sets up mining company after BYD, CnEVPost, 4 January 2022. Available at https://cnevpost.com/2022/01/04/catl-sets-up-mining-company-after-byd/

. Guizhou Phosphate Chemical Group is mentioned in the Guizhou Action Plan, which sets specific production targets for the companies located in Guizhou province that produce materials used for the energy transition. The plan contains clear targets on the annual production of lithium iron phosphate, electrolyte, which conducts ions between the anode and the cathode in lithium-ion batteries and gives clear indication on which governmental departments and units are responsible for these targets. In particular, among the several companies mentioned, Guizhou Phosphorus Chemical New Energy's annual production should reach 30000 tons of iron phosphate, Guizhou Yuneng's should reach an annual production of 150000 tons of lithium iron phosphate.

(732) The development of CATL and the city of Nindge are inextricably linked, as the city sets out the goal of reaching 350GWh lithium battery production capacity by 2025, and to become an industry leader by [focusing] on promoting the third, fourth and fifth phase capacity expansion of CATL and CATL New Energy Technology and the construction of CATL FAW projects, continue to expand the two major industrial leaders of CATL and CATL New Energy Technology, further expand power battery production capacity and market share […]

Chapter III, Section 1 of the Ningde Manufacturing Plan.

. Other support measures include for equipment purchase subsidies

See Point 2 of the Ningde Measures available at https://www.ningde.gov.cn/zfxxgkzl/zfxxgkml/fggzhgf/xzgfxwj/202206/t20220629_1637471.htm

, rewards based on enterprises’ annual output

For example, see Point 3 of the Ningde Measures.

, and financial support

For example, under point 7 of the Ningde Measures: Encourage state-owned enterprises to explore the establishment of equity funds for new energy industry [supply] chain projects.

.

(733) Lastly, regarding Shenzhen where among others the headquarters of BYD are located, the Shenzhen Plan gives detailed instructions on the type of financial support that banking and financial institutions should provide to the industry all throughout its supply chain, starting from the procurement of goods up to boosting consumer consumption of new energy vehicles. For example, the Shenzhen plan allows for support[ing] core enterprises in issuing supply chain bills, and encourage financial institutions to increase discount financing of supply chain bills, […] support[ing] banking financial institutions to focus on the development direction of the new energy vehicle industry economy […] formulating full life cycle financial service plans, and implementing flexible loan pricing and interest repayment methods

Section III (1.7) of the Shenzhen plan.

. For new energy vehicles companies, the plan mandates financial institutions to increase credit support for technological transformation, R&D investment, production expansion, increase the proportion of medium and long-term loans

Section III (1.1) of the Shenzhen plan.

and to [a]ctively explore and develop innovative products such as new energy vehicle points income rights pledge loans and carbon emission reduction loans to support the green and low-carbon development of vehicle companies

Ibid.

(734) Power battery companies are supported by financial institutions through financial guarantees, investment-loan linkage, syndicated loans, etc.,

Section III (1.2) of the Shenzhen plan.

while motor and electronic control companies are supported through science and technology loans, venture capital, equity financing, etc

Section III (1.3) of the Shenzhen plan.

. At the final stage of NEV consumption, [b]anking financial institutions are encouraged to increase their support for automobile consumer credit, explore innovations in online loan products, adopt new digital risk control methods, improve customer process experience, and provide differentiated financial service solutions

Section III (1.6) of the Shenzhen plan.

. In addition, the Shenzhen plan mandates to [s]upport car companies to establish automobile consumer finance companies and other institutions to provide professional financial services for new energy vehicle consumption and further increase the market penetration rate of new energy vehicles

Ibid.

. Section III (1.9) of the Shenzhen plan envisages support of the entire industry chain from financial institutions for all kinds of NEV enterprises (start-ups, small, medium, micro enterprises) through loans, external direct investment, government guarantees, bank loans risk compensation funds, awards and subsidies. Lastly, the Shenzhen plan recommends to [m]ake good use of Shenzhen enterprise bond issuance financing subsidy project funds to support qualified new energy vehicle companies in issuing debt financing instruments, corporate bonds, enterprise bonds and other corporate credit bonds. The industry is supported both at the domestic level, and also on the international stage (“[o]ptimize cross-border financial services to support new energy vehicle companies in going global)

Section III (1.12) of the Shenzhen plan.

.

(735) The plans emphasize the need to further integrate the battery and electric vehicles industries through securing key raw materials, reduce costs and support the promotion and R&D advancement of batteries to improve the performance of battery electric vehicles and promote its popularization.

(736) The Commission also found in the various plans and policy documents listed above in this section that enterprises involved in the production and processing of inputs for the BEV industry can benefit from a number of preferential schemes, such as:

Access to government funds, venture capital, and government-funded industry investment funds

Bonds

Export restrictions

Government-backed equity pledges

Guidance funds

Insurance compensation

Land, electricity and gas at cheaper prices

Loans from State-owned banks at a non-commercial basis;

Preferential fiscal policies

Purchase subsidies

Rewards

(737) In sum, the above documents and evidence confirm that the GOC policy objective as implemented therein was to encourage the development of the BEV industry inter alia by supporting the industries of batteries and their inputs as a key factor for the successful achievement of such objective.

(3) Specific measures adopted by the GOC pursuing its policy objectives to develop the BEV industry

(a) Public support to the industry of battery producers and their inputs

(738) In addition to those mentioned in recital (736), the Commission identified several legal sources indicating public support to the industry of battery producers and their inputs with the final goal of developing those sectors for the benefit of BEV producers. These sources clearly show the strong interference and central government control in the batteries and inputs for batteries sector, with regard to production, sales targets and price controls. This is not a mere regulatory framework for the input suppliers, but the framework in which input suppliers are given authority which has enabled them to develop governmental functions relating to the marketing and supply of inputs (i.e. batteries and lithium), so as to achieve the relevant government objective of developing the NEV sector, of which BEVs are part. Measures supporting LFP and batteries shows that there is an intention to develop the BEV industry via supporting the upstream inputs. Input suppliers are provided with the means to perform their public functions, namely, to develop the BEV industry, thanks to the support of the GOC.

(739) The Commission also examined whether battery producers were also receiving financial support from the GOC that allowed them to implement national policies and act as public bodies. In view of the limited information available to the Commission because of no cooperation, the Commission had to rely on facts available. In this regard, the Commission relied on publicly available information relating to CATL and to the information provided by the battery producers related to the Geely and SAIC groups.

(740) The available information relating to CATL showed that it was able to become a profitable and influential company thanks to government support and the characteristics of the Chinese domestic market. In particular, public sources indicate that up to 2020, government funding equalled a fifth of its net income

See CATL 2020 Annual Report, and also: Why a Chinese Company Dominates Electric Car Batteries, The New York Times, 22 December 2021, available at https://www.nytimes.com/2021/12/22/business/china-catl-electric-car-batteries.html

. This support was confirmed by more recent publication showing that CATL received 5.72 billion yuan ($790 million) in 2023, more than double its figure the year before. and accounting for 13% of its net profit

https://asia.nikkei.com/Business/China-tech/CATL-tops-China-s-corporate-subsidies-list-outranking-oil-majors

.

(741) The Commission also established that the battery producers related to the Geely and SAIC groups, that provided a questionnaire, also benefitted from countervailable subsidies such as preferential financing, tax exemption and reduction programmes and grants. This is also in line with the Commission’s findings described in recital (735).

(742) In the absence of cooperation by unrelated LFP suppliers, the Commission could not ascertain whether LFP suppliers also benefitted from government support in a similar way to the battery producers. Yet, given the regulatory framework and national policies in force, the Commission could draw inferences that, similarly to battery producers, LFP producers also benefitted from government financial support in various forms.

(743) Consequently, the Commission concluded that the GOC artificially kept the battery producers and LFP producers financially afloat in order to allow them to exercise their government authority to sell batteries and LFP for less than adequate remuneration to Chinese BEV producers.

(b) GOC’s measures on pricing of batteries and on cost reductions for the BEV industry

(744) The GOC implemented several measures to ensure that the batteries and their inputs would be supplied at cheap prices to the BEV industry. Furthermore, the GOC ensured that the corresponding costs for the BEV industry of such important inputs for the BEV production would be reduced. These measures clearly favoured the BEV industry. Among them, the following documents show this.

(745) Specific instructions on the cost of batteries were already included in the NEV Plan 2012-2020, which mandated that by 2015, power battery modules should cost less than 2 yuan/watt-hour, and this cost should be further reduced to less than 1.5 yuan/watt-hour by 2020

Section 5(1), NEV Plan 2012-2020.

. The plan also mandated for the establishment of 2-3 leading power battery enterprises with a production and sale scale of more than 10 billion watt-hours, and to form 2-3 backbone production enterprises for positive and negative electrodes, electrolytes and other key materials

Section 2(2), NEV plan 2012-2020.

. The plan shows how the government has played a pivotal role in the development of the industry, by adher[ing] to the combination of government guidance and market drive. In particular, during the initial period, the government will actively play the role of planning guidance and policy incentives, gather scientific and technological and industrial resources, encourage the development and production of energy-saving and new energy vehicles, and guide market consumption

Section 2(2), NEV plan 2012-2020.

. This was to be achieved through allocation of central funds, tax preferential policies and support from financial institutions

Section 5(2) and 5(3), NEV Plan 2012-2020.

.

(746) The 2017 Battery Action Plan, developed in accordance with the goals set out in the Made in China 2025, set out three key tasks: first, further reduce costs and ensure the supply of high-quality power batteries before 2018; second, by 2020, the system specific energy density will strive to reach 260 watt-hours/kilogram, and the cost will be reduced to less than 1 yuan/watt-hour; third, by 2025, the energy density will reach 500 watt-hours/kilogram.

(747) In this respect, evidence on price caps shows that the provision of those goods regulated by the GOC become a governmental function which is then executed by the input suppliers acting as the public bodies. The GOC is setting very specific qualitative development targets in order to achieve market stability and bring down costs. Therefore, the growth of the battery industry must be coordinated

Section 1(2), 2017 Battery Action Plan.

and the R&D is directed towards the improvement of lithium-ion power batteries

Section 2(2), 2017 Battery Action Plan.

, the main battery type used for BEVs. To achieve these goals, the 2017 Battery Action Plan provided for an increase [of] policy support

Section 4(1), 2017 Battery Action Plan.

. This policy support includes the guiding role of the government and the [e]xemption from excise tax if the power battery product is eligible; [p]ower battery enterprises are eligible to benefit from tax incentives such as those for high-technology enterprises, technology transfer and technology development

Section 4(1), 2017 Battery Action Plan.

.

(748) The 2017 Battery Action Plan also covers the relationship between government and industry associations as highlighted in Section 4(3) of the plan by giv[ing] full play to the role of industry associations and other organizations, and exchange and cooperate on […] policy measures and suggestions, strengthen industry self-discipline management, and promote the coordinated development of power batteries and related industries. The role of industry associations in the Chinese economic system will be examined in recital (778) .

(749) Above all, government intervention across the entire supply chain and its goal to lower prices for the benefit of the BEV industry is evident from the Notice on the battery industry, which envisions cooperation between upstream and downstream actors to stabilize expectations, clarify the quantity and price, ensure supply, and win-win cooperation

See Point 2 of the Notice on the battery industry.

. The Notice on the battery industry also instructs local markets supervision departments to strengthen supervision and strictly investigate and deal with hoarding, price gouging, unfair competition and other behaviours in the upstream and downstream of the lithium battery industry, so as to maintain market order

Idem.

.

(750) This further indicates how pervasive is the GOC interference in proactively ensuring that prices in the battery supply chain must be aligned downwards in order to favour market stability to the advantage of BEV producers. Hence, the GOC has set out the provision of these goods at certain price as a government function which is in turn executed by public bodies.

(751) Even more tellingly, government interference on domestic raw material prices is also reflected in press statements given by the MIIT. During a press conference held in Beijing in April 2022 on the price hikes in raw materials used in electric cars, a spokesperson of the MIIT, affirmed that we will push [the prices of raw materials] back toward the reasonable level as soon as possible, that the ministry will help accelerate the development of local resources in China and that The sector's stable operation is facing great pressure that requires all relevant parties to cope with together

Ministry set to stabilize price hikes affecting auto industry, State Council of the People’s Republic of China, 25 April 2022. Available at https://english.www.gov.cn/statecouncil/ministries/202204/25/content_WS62664ddcc6d02e5335329e3a.html

. This was a follow-up of a symposium held in March 2022 by the MIIT and the Department of Raw Materials Industry and the First Department of Equipment Industry of the MIIT, together with the Price Department of the NDRC and the State Administration for Market Regulation on the price increases of upstream materials for power batteries

Available at https://m.thepaper.cn/kuaibao_detail.jsp?contid=17182063&from=kuaibao

. The China Nonferrous Metals Industry Association (CNMIA), China Association of Automobile Manufacturers (CAAM), and the China Automotive Power Battery Industry Innovation Alliance (CAPBIIA), and other industry organizations, as well as relevant persons in charge of key upstream and downstream enterprises in the lithium resource development, lithium salt production, cathode materials, power batteries and other industrial chains attended the meeting

Available at https://m.yicai.com/news/101354043.html

.

(752) Cost reduction is particularly stressed in the government-mandated guidelines for the Li-ion battery industry, the Standardized conditions of 2021 propose technical standards, such as minimum energy density of battery packs of 180 Wh/kg

See section III, point (1) of the Standardized conditions.

, and to guide enterprises to reduce manufacturing projects that simply expand production capacity, strengthen technological innovation, improve product quality, and reduce production costs

See section I, point (3) of the Standardized conditions.

.

(753) The Commission also found that some of the raw materials used in the production of batteries are subject to export restrictions, such as export control measures and no refund of the domestic VAT, if exported. The stated policy objective of these measures is to discourage their export and create a domestic oversupply, so that there are cheap domestic prices and at sufficient quantities for the benefit of domestic downstream industries, including BEV producers.

(754) In this respect, the Commission found that LFP, the type of lithium used in batteries, is not subject to the 13 % VAT refund upon export, making the domestic price of these raw materials artificially lower for domestic consumption.

(755) Since 2006, the Chinese government has been imposing temporary export restrictions on graphite-related goods with the Decision on the temporary export control of graphite-related products (Announcement No. 50 [2006])

Available at http://exportcontrol.mofcom.gov.cn/article/zcfg/gnzcfg/zcfggzqd/202111/432.html

. The Decision subjects seven types of graphite-related products

HS codes: 3801100090, 3801900000, 6815100000, 8545110010, 8545110090, 8545190000, and 8545900000.

to temporary export control measures. The temporary export control measures were repealed by the announcement on Optimizing and Adjusting Temporary Export Control Measures on Graphite Items (Announcement No. 39 [2023])

Available at http://www.mofcom.gov.cn/article/zcfb/zcblgg/202310/20231003447368.shtml

, published on 20 October 2023, and effective from 1 December 2023. At the same time, the policy adds two new types of graphite products to the export control list. Graphite is also subject to export restrictions in the form of no refund of the 13 % domestic VAT if exported

See HS codes: 38011000 at https://hd.chinatax.gov.cn/nszx2023/cktslcx2023.html

.

(756) The Commission also found that some types of copper are subject to an export duty of 30 % under the 2022 Tariff Adjustment Plan

Available at http://cws.mofcom.gov.cn/article/swcjzc/202201/20220103246934.shtml, see exhibit 7.

and the 2023 Tariff Adjustment Plan

Available at https://www.gov.cn/zhengce/zhengceku/2022-12/29/content_5734125.htm, see exhibit 6.

An additional 5 – 15 % provisional export tax is levied based on the relevant HS code.

(757) Finally, the Commission also found that China is consolidating its rare earths industry, also necessary for BEV battery production, to control, among others, pricing levels, and secure strategic, economic, and sustainability goals. In particular, in December 2021 three state entities merged to establish the China Rare Earth Group Co. Ltd, covering around 62% of total heavy rare earths supplies in China

https://www.china-briefing.com/news/china-merges-three-rare-earths-state-owned-entities-to-increase-pricing-power-and-efficiency/

. Consequently, at national level the Government undertook other measures, such as the imposition of export restrictions, with the same aim to increase supply to the domestic producers with low priced and available raw materials necessary to produce, among others, BEVs.

(c) Conclusion

(758) In conclusion, governmental guidelines, opinions, and regulations concerning the BEV industry demonstrate that the government steers the industry towards its development and improvement through cost reduction and stable supply of key inputs. Furthermore, the government has set out a system of clear and constant control and monitoring of the pricing of batteries and their inputs to ensure that the BEV industry can source them at cheap prices and in sufficient quantities.

(759) All of the above demonstrates that the GOC has established at central and local level a number of policies and measures targeting suppliers of batteries and inputs in order to support ultimately the BEV industry. All these inputs constitute a significant part of the cost of production of BEVs. As a result of these policies, the GOC sets out targets for ensuring a stable and ample supply of these batteries and inputs, coupled with cheaper prices, to the benefit of BEV producers in the form of a significant cost reduction, thereby allowing them to sell BEVs at cheaper prices including on the Union market. Evidence of the financial support provided to battery producers was covered in recitals (739) - (743).

(1) Relationship between the input suppliers and the GOC

(760) Having analysed the legal and economic framework in which the input suppliers operate, heavily dictated by the GOC’s policy objectives to develop the BEV industry via input suppliers, the Commission also analysed the characteristics of the Chinese domestic market of batteries, the evidence of State presence/ownership in input suppliers as well as other indicia that the GOC exercised meaningful control over those entities (including their organisational features, chains of decision making authority and the overall relationship with the GOC).

(761) The Commission sought information on the structure of the domestic market of batteries. As explained in Section 3.3.1.2, the GOC failed to cooperate with regard to the input materials suppliers operating on the Chinese domestic market, including suppliers of batteries for BEVs, and did not provide clarification or crucial information on the domestic market of batteries. Therefore, the Commission had to base its conclusions on facts available in accordance with Article 28 of the basic Regulation.

(762) In this regard, the Commission relied on four sets of information, i.e. the information presented in the Rhodium report

Distortions in International Markets and China: Government Support in Electric Vehicle Batteries, Rhodium Group, December 2022 (herein referred to as the Rhodium report). page 42.

, the geographical battery cell market balance as presented by Benchmark Mineral Intelligence (BMI)

https://www.benchmarkminerals.com/forecasts/lithium-ion-batteries/

, a report by the China Automotive Power Battery Industry Innovation Alliance

See the report by the China Automotive Power Battery Industry Innovation Alliance published on 11 January 2024, and reported on https://libattery.ofweek.com/2024-01/ART-36001-8120-30623203.html#:~:text=%E8%BD%A6%E9%87%8FTOP15%E3%80%82-,2023%E5%B9%B4%E5%85%A8%E5%B9%B4%E5%9B%BD%E5%86%85%E4%B8%89%E5%85%83%E5%8A%A8%E5%8A%9B%E7%94%B5%E6%B1%A0%E4%BC%81%E4%B8%9A,%E5%8A%9B%E7%A5%9E%E3%80%81%E5%B7%A8%E6%B9%BE%E6%8A%80%E7%A0%94%E3%80%82&text=%E5%8D%AB%E8%93%9D%E6%96%B0%E8%83%BD%E6%BA%90%E3%80%81%E5%B7%A8,%E7%AC%AC11%E4%B8%8E%E7%AC%AC15%E3%80%82

and the information provided by the sampled groups that purchased batteries.

(763) The information presented in the Rhodium report shows that with the exception of LG Energy Solution, the Chinese EV battery market is dominated by domestic players

Rhodium report, p. 41

. More specifically, the report shows that Chinese-owned battery manufacturers held over 88 % market share on the Chinese domestic market in 2021, leaving only 4 % market share to battery manufacturers that are foreign-owned. As for the remaining 8 %, no indication of the home country was indicated. Yet, considering the limited share of major foreign battery suppliers on the Chinese market and in the absence of cooperation by the GOC, the Commission inferred that the other producers would be also Chinese owned. The same report also established that CATL had over 52 % market share in the Chinese market in 2020. In the absence of information to the contrary, the Commission concluded that these findings were also valid during the investigation period.

(764) The Commission also established that the ten identified battery producers presented in the Rhodium report were either members of the CBIA (or of its executive council), the CIAPS and/or partially State-owned. While the members of the CBIA and CIAPS represented over 86 % of the market share, the members holding vice chairmanship or sitting on the executive council at some time held over 62 % market share in 2021. The report also indicated that there was a set of policies aiming to favour Chinese domestic battery suppliers

Rhodium report, p. 58.

.

(765) The geographical battery cell market balance presented by BMI

https://www.benchmarkminerals.com/forecasts/lithium-ion-batteries/

shows that the Chinese battery supply accounted for over 170 % of the local demand in 2022 and 2023 also pointing to a clear dominance of the Chinese battery producers on their local market.

(766) Furthermore, the China Automotive Power Battery Industry Innovation Alliance report indicated that around 97 % of the 2023 market share of installed capacity

See footnote 323, Table 4.

was held by Chinese domestic battery producers. The Chinese battery producing members of the CBIA represented at least 66 % of the market share, while BYD, the second largest producer representing 27 % of China’s installed capacity in 2023, is part of the CIAPS. One company, China Aviation Lithium Battery (CALB), was both a member of the CBIA executive council and a state-owned enterprise. CATL alone represented more than 40 % of China’s total installed capacity in 2023 and is a member of the executive council of the CBIA.

(767) The Commission also noted that the CBIA and the CIAPS do not publish the full list of their members online. The Commission was able to ascertain companies’ participation in the CBIA, CIAPS, and other industry associations by looking at their annual reports and other information available online, such as the list of members of their executive bodies. In the absence of information provided by the GOC as well as of official public data covering the full list of members of the CBIA and the CIAPS, the Commission drew inferences that even more battery suppliers could be members of these associations.

(768) Eventually, while no conclusion could be drawn with regard to the value of the battery purchases made by the SAIC Group due to their non-cooperation, the Commission established that the suppliers of batteries that it reported were all located in the PRC. As for the Geely Group, at least 65 % of its purchases were made from companies that were either members of the CBIA, CIAPS or partially State-owned. As far as the SAIC Group is concerned, while no information on purchase value or volume could be verified, the information on file shows that its four main battery suppliers were partially directly or indirectly State-owned, members of the CBIA or closely associated with it through one of the suppliers’ shareholder (CATL).

(769) Based on the above, the Commission concluded that the Chinese domestic market is served almost exclusively by domestic battery suppliers. A significant majority of those suppliers are members of associations such as CBIA and CIAPS and/or are State-owned.

(770) The Commission further examined the relationship between the GOC and the battery suppliers, to establish whether the government exercised meaningful control over the entities at hand and their conduct on the market. The role played by the associations is crucial to show how the GOC, through the associations, ensures the implementation of its policy objectives to develop the BEV industry.

(771) In the absence of any information provided by the GOC concerning the number and other information on the formal indicia of government ownership and control of domestic suppliers of batteries for BEVs, the Commission had to rely on facts available according to Article 28 of the basic Regulation. For this purpose, the Commission analysed the situation of the battery suppliers of the two non-integrated sampled groups (Geely and SAIC groups). As mentioned before, the GOC did not provide the requested information on ownership and control of the battery suppliers and/or the associations of battery producers. In addition, the unrelated battery suppliers to the Geely and SAIC groups failed to provide a questionnaire reply and information on ownership and control by the GOC. The Commission therefore had to seek this information in the public domain. When the Commission was unable to find information in the public domain, it had to draw inferences on the basis of Article 28 of the basic Regulation.

(772) With regard to the SAIC Group, while no information on purchase value or volume could be verified, the information on file still showed that the SAIC Group’s four main battery suppliers, accounting for a major share of their battery purchases, were partially directly or indirectly State-owned. As far the Geely group is concerned, 3 out of 14 battery suppliers were found to be partially State-owned. A large share of the battery suppliers of the SAIC and Geely groups were also found to be part of industry associations. Furthermore, the Commission also established that out of the top ten identified battery producers presented in the Rhodium report

Rhodium report, p. 58.

and active on the Chinese domestic market in 2020, at least 7 of them were partially State-owned.

(773) As already mentioned in recitals (763), the battery suppliers found to be part of either the CBIA or the CIAPS represented over 86 % of the market share in China in 2020. CALB was both a member of the CBIA executive council and a state-owned enterprise (recital (765)). CATL, a key operator on the Chinese market accounting for 52 % of the total Chinese domestic market in 2020 is a direct and indirect (through joint ventures) supplier to the Geely and SAIC groups and a member of the executive council of the CBIA.

(774) In the absence of cooperation by the GOC, the Commission had to rely on publicly available information in order to determine which of those suppliers are members of associations. The Commission noted that the CBIA and the CIAPS do not publish the full list of members online. The Commission was however able to ascertain companies’ participation in the CBIA, CIAPS, and other industry associations by looking at their annual reports and other information available online, such as the list of members of their executive bodies. In the absence of information provided by the GOC as well as of official public data covering the full list of members of the CBIA and the CIAPS, the Commission drew inferences that even more suppliers are likely to be members of these associations.

(775) Furthermore, the CBIA only publishes the list of members part of the executive council and of new members. The latter includes the members that joined starting in March 2017, while the association has been founded in 1988. According to information online, the association has more than 500 group members

See https://baike.baidu.com/item/%E4%B8%AD%E5%9B%BD%E7%94%B5%E6%B1%A0%E5%B7%A5%E4%B8%9A%E5%8D%8F%E4%BC%9A/7368598

. The Commission sought information about the members included in the incomplete list available online and found that some SOEs were part of it, including not only raw material suppliers and battery manufacturers, but also State-owned investment funds and research institutes. On this basis, the Commission inferred that the GOC could exercise direct control over entities covering a wide range of essential actors involved not only in the battery sector and lithium needed for batteries, but in the BEV sector as a whole. The fact that several actors across the entire BEV supply chain are part of the CBIA reinforces the evidence that the GOC built a framework encompassing all levels of the supply chain.

(776) The Commission analysed the Articles of Association of the CBIA and CIAPS in order to assess the level of government control over the associations and their members. For this purpose, the Commission had to rely entirely on facts available according to Article 28 of the basic Regulation due to the refusal by the GOC to provide information on the characteristics of its market and on the associations the Commission requested information about, including both the CBIA and the CIAPS (recital (279)).

(777) In its comments on the application of Article 28, as detailed in recital (282), the GOC denied any control over the CBIA and formal affiliation with the association. The investigation revealed, however, that the GOC’s statement that it had no control over the CBIA, and that the association is not formally affiliated with the GOC, were factually incorrect. On the contrary, the Commission found that the GOC exercises control of the CBIA, and also of the CIAPS.

(778) First, the CBIA is an industry association under the direct management of the State Council. The State Council is the executive organ of the National People's Congress and the highest organ of state power in China. It is composed of a limited number of people including the premier, vice premiers and the secretary-general. Article 3 of the CBIA’s Articles of Association

China Battery Industry Association Articles of Association (herein referred as CBIA AoA), available at http://www.chinabattery.org/content2/11/1104/1053234.html

also provide that the Association adheres to the overall leadership of the Communist Party of China and […] establishes organizations of the Communist Party of China to carry out party activities and provide necessary conditions for the activities of party organizations. Thus, the CBIA is not an independent association established by market actors and acting according to the free economy market principles, but an entity guided by the GOC and managed by it through the State Council and thus in charge of achieving public policy objectives set by the GOC.

(779) Many Chinese industry associations define their role in their Articles of Association as to serve as a bridge between the government and their members. The Measures for Comprehensive Supervision on Industry Associations and Chambers of Commerce issued by the NDRC, the Ministry of Civil Affairs, and eight other departments in 2016 called for the establishment of party organisations in industry associations and chambers of commerce, and that party building

Party building work can be diverse and ultimately aims at expanding the party’s influence in enterprises, associations, administrations etc. An official definition of party building is available here http://dangjian.people.com.cn/n1/2022/0624/c117092-32455009.html The content of party building work is relatively rich, including a series of tasks such as political construction, ideological construction, organizational construction, style construction, discipline construction, anti-corruption struggle, and system construction.

requirements shall be written in the articles of associations of the industry associations. Despite the fact that in 2019, the NDRC launched an exercise with the declared task of institutional separation of industry associations and chambers of commerce from government, the NDRC Opinions

Opinions on the Implementation of the Reform of Comprehensively Decoupling Industry Associations and Chambers of Commerce from Administrative Organs, NDRC, Ministry of Civil Affairs et. al., 14 June 2019 ; available at: http://www.gov.cn/xinwen/2019-06/17/content_5400947.htm

issued in this connection formally foresaw a separation of institutions, functions, financial assets etc., they ensured not only a continued financial dependency of industrial associations on the government authorities but also the continued full CCP control over them: Party building work bodies of social organizations at all levels shall [...] strengthen concrete guidance, deeply promote Party building in decoupled industry associations and chambers of commerce, [...] comprehensively strengthen the Party's leadership over industry associations and chambers of commerce, and ensure that the Party's work is uninterrupted and the role of Party organizations is not weakened in the decoupling process. [...] Party building work bodies of social organizations at all levels shall urge industry associations and chambers of commerce to introduce the requirement of Party building work into their articles of association, so as to complete the working mechanisms ensuring the Party organizations’ participation in decision-making on major issues and to standardize management

Section 4 of the NDRC Opinions.

. The opinions also ensured a financial dependency of the industry associations over government authorities and full CCP control over them

See the China Report – Section 2.3.3, pp. 24-25 and Point 3(2) of the NDRC Opinions, according to which administrative organs are encouraged to purchase services from qualified industry associations.

.

(780) Second, the executive power of the CBIA is exercised by the board of directors, which is elected by the general assembly composed of all the members of the association, amongst the members companies (Article 21 of the Articles of Association). The GOC is also fully involved in the selection of the board of directors’ candidates. According to Article 22 of the Articles of Association of the CBIA, the committee in charge of selecting the candidates includes representatives of the board of supervisors and representatives of the Party organization. In the event that the board of directors cannot convene, the members of the committee are directly selected by the party building leadership agency. Party building organs are in charge of all activities related to the expansion of Party ideology. According to the Opinions on the Implementation of the Reform of Comprehensively Decoupling Industry Associations and Chambers of Commerce from Administrative Organs (herein referred to as Opinions on industry associations), party building work bodies of social organisations shall comprehensively strengthen the Party's leadership over industry associations and chambers of commerce, and ensure that the Party's work is uninterrupted and the role of Party organizations is not weakened in the decoupling process. [...] Party building work bodies of social organizations at all levels shall urge industry associations and chambers of commerce to introduce the requirement of Party building work into their articles of association, so as to complete the working mechanisms ensuring the Party organizations’ participation in decision-making on major issues and to standardize management

See Section 2.3.3 of the China Report, pp. 25-26, and also Section 4 of the NDRC Opinions

. The general meeting of members to elect and

remove directors must also be convened with the approval of the Party building leadership agency. Influence of the government on the daily activities of the association is further emphasised in Article 36 of the Articles of Association, which impose that the persons in charge of association must [a]dhere to the leadership of the Communist Party of China, support socialism with Chinese characteristics, resolutely implement the party’s line, principles, and policies, and have good political qualities. The persons in charge of the association include the Chairman, twenty-three Vice Chairmen and one Secretary General. Several SOEs are also appointed as Vice Chairmen. Based on the above, the CBIA is not only under the management of the State Council, but the GOC also remains in control of the administration of the CBIA and of the key individuals in charge of its work.

(781) Furthermore, Article 46(5) of its Articles of Association provides that the board of supervisors shall report problems existing in the work of the Association to the party-building leadership agencies and industry management departments. It is recalled that in DS379, in the context of Chinese State-owned commercial banks (SOCBs), information relevant for the assessment whether an entity is a public body also included evidence about chief executives being government appointees, whereby the CCP retained significant influence in their choice, as covered in recital (415).

(782) The relationship between the CBIA and the GOC is further confirmed in NDRC reports

See https://www.ndrc.gov.cn/fzggw/jgsj/cys/sjdt/202010/t20201030_1249440.html. In particular, Xia Nong, the first-level inspector of the Industry Department of the National Development and Reform Commission expressed the hope that the CBIA would continue to play a good role as a bridge and link under the background of the new development pattern of dual circulation […]

and press articles online. In a report on the 8th Member Congress of the CBIA held in Beijing in 2020, Zhang Chonghe, President of China National Light Industry Council (CNLIC), of which the CBIA is part and receives guidance from

The list of associations part of the CNLIC is available at http://www.cnlic.org.cn/footers/footer-dgxxh.html

, emphasized that the CBIA has served as a good assistant of the government

Adhere to the Party Building to lead the work of the association and promote the transformation and upgrading of the battery industry and green development, Sohu, 31 October 2020. Available at https://www.sohu.com/a/428642882_118081

, proposing amendments to several industry policies, and reflecting the demands of enterprises to the government, among other achievements. Similarly, to the CBIA, the CNLIC is under the management of the SASAC of the State Council, and its business scope includes participating in the formulation of industry plans and industrial policies, build industrial clusters and regions focused on light industry, standardize industry behaviour and undertake other tasks entrusted by the government and relevant departments

The articles of associations of the CNLIC are available at http://www.cnlic.org.cn/footers/footer-zc.html

. In fact, according to the association itself, it has always been committed to serving the government (emphasis added)

Meng Xiangfeng, assistant to the chairman of CATL, and his delegation visited the association for exchanges, CBIA, 15 February 2023. Available at http://www.chinabattery.org/content2/11/1102/1054254.html

.

(783) The same provisions apply for the CIAPS. As in the case of the CBIA (see recital (779)), the executive power is exercised by the board of directors (Article 21). The GOC is fully involved in the selection of the board of directors’ candidates. According to Article 22 of the Articles of Association of the CIAPS, the committee in charge of selecting the candidates includes representatives of the board of directors, representatives of the board of supervisors and representatives of the Party organization. In the event that the board of directors cannot convene, the members of the committee are directly selected by the party building leadership agency. Thus, not only is the CBIA under the management of the State Council, but the GOC also remains in control of the administration of the CBIA and of the key individuals in charge of its work. Article 46(5) of its Articles of Association also provide that the board of supervisors shall report problems existing in the work of the Association to the party-building leadership agencies and industry management departments.

(784) Article 21 of the CIAPS Articles of Association provide that the directors of the association shall [a]dhere to the leadership of the CCP, support socialism with Chinese characteristics, resolutely implement the party's line, principles, and policies, and possess good political qualities. In the same case as with the CBIA, in the event that the board of directors cannot convene, the members of the committee are directly selected by the party building leading organ. Not only is the CIAPS under the management of the State Council, but the GOC also remains in control of the administration of the association and of the key individuals in charge of its work.

(785) As demonstrated in recital (779), the GOC set up a system that ensures that all management and administrative bodies of the association, such as the board of directors, the Chairman, the Vice Chairmen and the Secretary General, are selected in order to advance the policy objectives of the CCP and the GOC. As already extensively covered in recitals (197) to (203) and recitals (704) to (705), the legal and economic environment in the PRC in which BEV input suppliers operate is characterised by strong and extensive control by the government. Evidence of such extensive control is found, among others, in Article 11 of the Constitution, according to which the government explicitly exercises supervision and control also over the non-public sectors of the economy (see in particular recital (199)).

(786) In addition, the Commission has also established the presence and pervasive influence of CCP members and organisations in multiple battery suppliers. In accordance with the Company Law

Available at http://mg.mofcom.gov.cn/article/policy/201910/20191002905610.shtml

, not only in SOEs but also in private companies an organisation of the Communist Party of China shall be established to carry out the activities of the party in accordance with the Constitution of the Communist Party of China. The company shall provide the necessary conditions for the activities of the party organisation. Furthermore, the 2017 Opinions of the CCP Central Committee and the State Council on Creating a Healthy Environment for the Development of Entrepreneurs, Promoting Entrepreneurship and Allowing Full Play to the Role Played by Entrepreneurs

Available at http://www.gov.cn/zhengce/2017-09/25/content_5227473.htm

leave no doubt as to the role of CCP organisations in companies: Educate and guide private entrepreneurs to support the leadership of the party and support the party building work of enterprises. Establish and improve the party building work mechanism of non-public enterprises, actively explore various ways of party building work, and strive to expand the coverage of party organization and work in non-public enterprises. Give full play to the political core role of party organizations in the masses of workers and the political leading role in the development of enterprises. As a matter of fact, CATL CCP members consider their party building work is also to lead the development of the enterprise

See press report https://www.fjdaily.com/app/content/2022-10/20/content_1635848.html

.

(787) Evidence of CCP control over not only State-owned enterprises, but also private entities, is further confirmed by the provision of the Corporate Governance Guidelines for Listed Companies mandated by the CSRC in 2018

See https://www.gov.cn/gongbao/content/2019/content_5363087.htm

, which mandates in Article 5 that in listed companies, according to the provisions of the Company Law, organizations of the Communist Party of China shall be established to carry out party activities. Listed companies shall provide the necessary conditions for the activities of party organizations. State-controlled listed companies shall, in accordance with the Company Law and relevant regulations, and in light of the company's equity structure, business operations, and other actual conditions, incorporate relevant requirements for party building work into their articles of association.. This confirms that the CCP exerts influence over all types of companies in China, and that it can use party building work units within businesses to exert its influence. Furthermore, some of the biggest battery makers in China (CATL, BYD and Gotion) are all listed on the Shenzhen Stock Exchange and are bound by the guidelines issued by the CRSC. This is confirmed by Article 12 of CATL’s Articles of Association, which mandates that the company shall establish a Communist Party organization and carry out party activities in accordance with the provisions of the Constitution of the Communist Party of China. The company provides the necessary conditions for the activities of the Party organization

See CATL Articles of Association of May 2022, available on CATL’s website: https://www.catl.com/uploads/1/file/public/202204/20220426200308_qr532d21u6.pdf

.

(788) Moreover, Zeng Yuqun, the Chairman and General Manager of CATL is also the Vice Chairman of the All-China Federation of Industry and Commerce (ACFIC) since December 2022

Zeng Yuqun, Chairman of CATL, was elected as the new Vice Chairman of the All-China Federation of Industry and Commerce, The Paper, 13 December 2022. Available at https://finance.sina.cn/2022-12-13/detail-imxwnyvt2285318.d.html

. The ACFIC is a chamber of commerce led by the CCP, with private enterprises and private economic actors as the main body

See the Articles of Association of the ACFIC, available at https://www.acfic.org.cn/bhjj/gk/zc/.

. Based on the articles of association of the ACFIC, its scope is to strengthen and improve the ideological and political work of private economic actors and to guide private economic actors to consciously combine their individual development with the national development (Article 1 and Article 1(2)). According to Article 2 of the Articles of Association, ACFIC is also in charge of carrying out investigations and research around the implementation of the CCP policies. The guiding principle of the association is also to assist the government in managing and serving the private economy (Article 3).

(789) Based, inter alia, on (a) the level of control the GOC exercises over the Chinese industry associations analysed in this section (namely the CBIA and the CIAPS), (b) the fact that most of the Chinese domestic battery producers were found to be part of them, and (c) the fact that CATL, the biggest battery producer in China was also appointed as Vice Chairmen of the CBIA

See http://www.chinabattery.org/channel3/12/1053074/1.html

, and of the ACFIC, a chamber of commerce led by the CCP with the explicit intent to guide private enterprises into implementing the CCP policies, the Commission concluded that the batteries market is dominated by several companies which are managed and controlled by the State through their participation in the CBIA and the CIAPS. Given the presence in the management of the associations as well as the direction of its business decisions, the GOC exercises meaningful control over the battery suppliers through their participation in the CBIA and the CIAPS.

(2) Core characteristics and functions of the battery suppliers

(790) The organisation of the input suppliers via associations and their relationship with the GOC show how the input suppliers are vested with governmental authority in the performance of public functions. Rather than acting as free market operators, the input suppliers perform the assigned governmental function of developing the BEV industry. Those functions are performed by the input suppliers, having the direct support of the GOC, when providing key inputs to the BEV producers for less than adequate remuneration.

(791) As already covered in Section 3.1, the Commission found evidence that the GOC has full control over both the CBIA and the CIAPS and their members. Therefore, the Commission focused its investigation on the functions performed by the CBIA, the CIAPS, and their members, which can be characterised as of governmental nature.

(792) The CBIA is fully involved in the formulation of industrial policies through the issuing of opinions and suggestions to the government and in the implementation of the legislative and regulatory framework of the battery sector. Chapter II, Article 6(1) and 6(10) of the Articles of Association of the CBIA explicitly state that the business scope of the Association is to [p]articipate in the formulation and organization of the implementation of the battery industry development plan […] and promote the implementation of plans and related policies formulated by the government, as well as [u]ndertake other tasks authorized or entrusted by the government and relevant departments. In this regard, the Commission recalls that the implementation of plans is not a mere indicative framework but is mandated by law, including by the Constitution of the PRC

The China Report – Chapter 4.3.1, p. 93 and also Article 62, 67 and 89 of the Constitution of the People’s Republic of China, available at https://english.www.gov.cn/archive/lawsregulations/201911/20/content_WS5ed8856ec6d0b3f0e9499913.html

.

(793) The Commission found evidence in this regard on the CBIA website

See China Battery Industry Association holds a discussion meeting on the formulation of the 14th Five-Year Plan for the Development of the Battery Industry, China Battery Industry Association, 23 August 2021. Available at http://www.chinabattery.org/content2/11/1102/1053190.html

. The CBIA, together with representatives from the MIIT, and key enterprises such as CATL, and Sunwoda, another smaller Chinese battery producer, took part in a discussion meeting to formulate the 14th Five-Year Plan for the Development of the Battery Industry

Later finalised as the 14th Five-Year New Energy Storage Development Plan. Available at https://www.ndrc.gov.cn/xwdt/tzgg/202203/P020220321550104020921.pdf

and propose revisions on industrial policies, domestic and foreign consumer markets, and green development,

among others. According to what was reported on the CBIA website, the working group and the MIIT worked closely together on the preparation of the plan, so that it can become a guiding document that can lead the industry and serve the government and enterprises.

(794) The CBIA was also found to be vested with extraordinary power to strengthen industry discipline and to regulate the activities of the association, industry and members, and coordinate members relations

See Article 6(8) of the CBIA AoA.

. Strengthening industry (self-discipline and market behaviour are specific instructions provided for in several national plans, as covered in recitals (747) and (748). Article 11 of the CBIA Articles of Associations provides that members shall comply with the Association’s regulations and implement the resolutions of the Association.

(795) In addition to the evidence found in the Articles of Association of the CBIA, in the introduction of the association available on its website, it is stated that its purpose is to reflect the demands of enterprises and industries, regulate the behaviour of enterprises and industries, safeguard the legitimate rights and interests of its members, implement national policies and laws, promote the continuous improvement of the economy, technology and management level of the whole industry, and promote the development of the whole industry, […] to foster the market for the industry […] and to coordinate issues in corporate production, sales and export

Available at http://www.chinabattery.org/detail/1101.html

. According to the CBIA manifesto

See http://www.chinabattery.org/channel3/11/1053046/1.html

, the mission of the association is to serve members’ needs, industry development and government management wholeheartedly and the aim is to create a first-class association that leads the development of the global battery industry. Based on Article 2 of the Articles of Association, its scope is also to serve as a bridge between the government and members. According to Article 10(2) of the CBIA Articles of Association, members also supervise the work of the Association.

(796) The CIAPS is another association comprised of enterprises and institutions related to the battery industry. The purpose of the association is not only to serve its members, but also assist them in expanding in domestic and foreign markets, and to promote the overall technological progress and industrial development of the industry. Similarly to the CBIA, Article 3 of the CIAPS’ Articles of Association

Available at https://www.ciaps.org.cn/news/show-htm-itemid-39456.html

provides that the association adheres to the leadership of the Communist Party of China and abides by national policies, and carries out party activities. The CIAPS is also entrusted with making recommendations to government departments on the formulation of battery industry policies and regulations (Article 6(1)), and to act as a link between government by conveying the demands of members to the government, and by in turn assisting members in the implementation of governmental policies (Article 6(1)), organize the formulation of industry rules and regulations, assisting the government in regulating the market behaviour, expand markets for members, create conditions for establishing an external environment of fair and orderly competition and safeguard the interests of both its members and the industry (Article 6(3)). Lastly, Article 6(14) provides that the association undertake[s] matters entrusted by government departments and carr[ies] out other activities that are beneficial to the industry. Members taking part in the CIAPS have the also the power to supervise the work of the Association (Article 10).

(797) Furthermore, the Articles of Association of the CIAPS impose obligations to its members as provided for in Article 11 thereof that members shall comply with the Association’s charter and various regulations and implement the resolutions of the Association.

(798) Therefore, the CIAPS not only performs advisory functions for the government and acts as a facilitator between the GOC and its members but is also vested with the extraordinary authority to regulate the market behaviour of its members and of also other entities active in the battery industry. Similar provisions on the market behaviour of their actors and pricing mechanism are included in the Articles of Association of the Shenzhen Battery Industry Association (SBIA), of which Sunwoda is part of. The SBIA is under the management of the Shenzhen government, and explicitly provides for coordination in price disputes among their members. In particular, the SBIA’s articles of association state that [u]nder the guidance of the price administration department, supervise the pricing of products or services within the industry, coordinate price disputes among members, and maintain fair competition

See Article 8(8) of SBIA’s Articles of Association available at http://www.szbattery.org/bylaws.html

.

(799) As in the case of the CBIA, the members of the CIAPS are vested with governmental authority in the sense that they have the power, individually and collectively, to influence and take decisions for the Association, to perform duties or functions on behalf of the government for the development of the BEV industry. These associations also exercise government functions in that their role is to implement the GOC policies to provide batteries and raw materials at cheap prices for the development of the BEV industry and supervise that all the relevant suppliers are fully complying with them. In light of this, the Commission considered the CIAPS and its members to be public bodies within the meaning of Article 1.1(a)(1) of the SCM Agreement.

(800) The Commission further assessed whether the battery suppliers individually, and in particular CATL, a major operator on the Chinese domestic market, possess governmental authority and whether they exercise this authority in the performance of governmental functions. The evidence showed that the battery suppliers abide to and implement the GOC’s policy objectives set out in point (i) of Section 3.7.2.1.1 and thus perform governmental functions.

(801) Thee role of a public body exercising government functions is aptly illustrated by the behaviour of CATL in the battery and BEV market whereby it built a network of strategic joint ventures with the following state-owned enterprises: FAW, GAC, Dongfeng, SAIC, Chang’an Automotive and, more recently, with BAIC

FAW/CATL established a new company, Ningde, a popular brand, gathered six state-owned enterprise partners, Sohu, 26 April 2024. Available at https://www.sohu.com/a/310427005_205282

. These partnerships show close governmental links that help not only consolidate CATL’s position but also benefit the BEV industry in the sense that they ensure a stable supply to these BEV producers from a member of the executive council of the CBIA

On SAIC, see CATL, SAIC’s joint ventures celebrate first spade cut for power battery base phase II, Gasgoo, 22 June 2021. Available at https://autonews.gasgoo.com/m/70018344.html

See last paragraph: This agreement enables them to begin discussions on a broad range of areas including joint development, stable supply […]

On FAW, see China's FAW Secures NEV Battery Supplies by Teaming With Energy Champion CATL, Yicai, 28 February 2019, available at https://www.yicaiglobal.com/news/china-faw-secures-nev-battery-supplies-by-teaming-with-energy-champion-catl: For FAW, the tie-up may ensure a stable stream of power unit supplies at a competitive price

On GAC, see GAC and CATL Agreed to Establish Two Joint Ventures, GAC Group, 19 July 2018. Available at https://www.gac.com.cn/en/csr/detail?baseid=16931: For GAC, this cooperation will secure stable supply of core components of new energy vehicles, further reduce procurement cost, and enhance its market competitiveness.

. In the same spirit, CATL also signed a joint venture agreement with the Geely group

https://www.electrive.com/2019/01/02/geely-catl-found-battery-jv-in-china/

aiming at ensuring a stable supply and lower[ing] the procurement price for parts and consequently increase the competitiveness of electric cars. This shows that such dynamics are not limited to state-owned BEV producers but also influences the behaviour of the privately owned companies.

(802) With regard to transactions with related companies, the Commission established that Article 46 of the Articles of Association of CATL provide that transactions between the Company and its related parties may be exempted from being submitted to the shareholders' meeting for deliberation when […] the pricing of related party transaction shall be stipulated by the State

https://www.catl.com/uploads/1/file/public/202204/20220426200308_qr532d21u6.pdf

. A similar provision is contained in CATL’s Related Transaction Management System, Article 22 thereof

https://vip.stock.finance.sina.com.cn/corp/view/vCB_AllBulletinDetail.php?stockid=300750&id=9876443.

. The Commission considered that there would be no reason why such a provision would be necessary if there were no instances of the State-fixing prices in this industry, in particular when purchasing/selling raw materials and/or batteries. Considering the above-mentioned joint ventures signed between CATL and state-owned BEV producers, the existence of joint ventures between CATL and the two non integrated sampled producers, and the large share of battery purchases made by the Geely and SAIC groups from CATL, it appears that the GOC plays a key role in the price mechanism relating to the batteries supplied to the BEV industry and that CATL exercises government authority in the performance of its functions.

(803) As the leading battery producer in China, accounting for 52 % of the domestic battery market

Rhodium report, p. 42

, CATL also features extensively in national and local plans, especially in Guizhou and Fujian. In Guizhou, CATL signed several cooperation agreements with the local government, as covered in recital (730). Moreover, the creation of the National Engineering Research Center for Electrochemical Energy Storage Technology of CATL is the reflection of one of the key tasks of the 2017 Battery Action Plan

See Section III (1) of the 2017 Battery Action Plan

(recital (729)). CATL, as the backbone of the development of China’s lithium battery industry […] took the lead and jointly established the National Engineering Research Center for Electrochemical Energy Storage Technology

The awarding ceremony of the National Engineering Research Center for Electrochemical Energy Storage Technology was grandly held at CATL, CATL, 22 January 2019. Available at https://www.catl.com/news/4041.html

. The research center is comprised of six universities including Tsinghua University and Xiamen University, two scientific research units including China Electric Power Research Institute and China Automotive Technology R&D Center, and seven upstream and downstream enterprises including Xiamen Tungsten Industry Co., Ltd. The scientific research units and Xiamen Tungsten Industry Co., Ltd are all SOEs.

(804) The National Engineering Research Center for Electrochemical Energy Storage Technology is one of the latest examples of CATL undertaking key national tasks. For example, in CATL’s 2019 corporate social responsibility report, the company underlines that, among its main achievements, in 2016, it undertook specific R&D tasks both on New Energy Vehicles and smart grid under the 13th Five Year Plan national key R&D plan; founded the CATL New Energy Technology Li Ningde Times New Energy Technology Co., Ltd. Co., Ltd. Academician Expert Workstation; established Jiangsu CATL Technology Co., Ltd

See page 10 of CATL’s CSR Report of 2019, available at https://www.catl.com/uploads/1/file/public/2020/04/30/15882360220084qox1w.pdf

.

(805) In addition to cooperation with SOEs and undertaking national key tasks, the Commission found that in 2023, CATL started offering price rebates, which triggered other players to follow suit in order to keep market share. According to information online, CATL provided lithium carbonate for car manufacturers at CNY 200000 per ton, lower than the market price of about CNY 470000 per ton in order to solidify some customers’ loyalty, namely Li Auto, NIO, Huawei, and Zeekr, one of the brands commercialised by the Geely group

See CATL reportedly cut lithium costs for strategic customers, DigTimes Asia, 20 February 2023. Available at https://www.digitimes.com/news/a20230220VL203/catl-china.html

. CATL’s preferential program targets some strategic companies, which are required to procure 80 % of their batteries from CATL over the next three years

Ibid.

. In July 2023, the battery-maker allegedly also asked cathode material suppliers to offer a 5 percent to 10 percent discount in settling lithium carbonate prices

See CATL reportedly asks suppliers to offer up to 10% discount on lithium carbonate prices, CnEVPost, 20 July 2023. Available at https://cnevpost.com/2023/07/20/catl-asks-up-to-10-discount-on-lithium-prices-report/

. To keep up with CATL, other battery-manufacturers launched a similar reduction

See CATL launches lithium ore rebate plan to car companies, setting off a price war in the battery industry, 36kr, 17 February 2023. Available at https://36kr.com/p/2135430109806721

. This discount offered by CATL was confirmed by the evidence found in the verified sampled producers of the Geely group. In fact, during the investigation period, the models produced by the Zeekr brand were found to be subject to a higher subsidy margin for batteries, as compared to other producers.

(806) Based on the above, the Commission further examined whether the fact that the battery suppliers were vested with government authority and considered public bodies had an impact on prices for the Chinese domestic BEV producers.

(807) The Commission concluded in recital (798), that both the CBIA and the CIAPS were vested with governmental power to regulate and steer the economic behaviour of its members to the benefit of the BEV industry. In the case of the CBIA, the association is vested with the power to strengthen industry self-discipline and to regulate the association, industry and behaviour of members

Article 6(6) of the CBIA Articles of Association.

. The CBIA has also the power and task to coordinate issues in corporate production, sales and export

See CBIA Introduction.

. This system is in compliance with the provisions of the Notice on the battery industry, referred to in recital (748), which provides that behaviours of upstream and downstream battery players should be supervised and regulated accordingly. As already pointed out in recital (748), the Notice on the battery industry instructs State authorities to strengthen supervision and strictly investigate and deal with hoarding, price gouging, unfair competition and other behaviours in the upstream and downstream of the lithium battery industry, so as to maintain market order

Idem.

. This role is intrinsically assigned to all public bodies, be it the associations CBIA and CIAPS or their members.

(808) Given the power conferred to the industry associations in question and their members over pricing mechanisms, the Commission examined the effect of governmental control over industry associations in terms of batteries and lithium/LFP.

(809) As already examined in point (i) of Section 3.7.2.1.1, the GOC set up a network of industry associations whose members are vested with governmental authority and exercise governmental functions notably because of their power in controlling the association they are part of, which is in turn vested with authority to exercise governmental functions. This finding is notably based on the influence that associations, such as CBIA and CIAPS, have on the legislative, regulatory and normative frameworks that apply in the PRC. For all associations and their members, the Commission found that these powers are not limited to the drafting of policies and laws, but also include the strengthening on industry self-discipline whereby the associations regulate the behaviour of its members and extend to the setting of prices of raw materials and market behaviour of companies in the PRC.

(810) As mentioned in Section 3.3.1.2, as a consequence of the non-cooperation of the GOC, the Commission did not receive any questionnaire reply from any unrelated battery supplier, nor any information concerning the Chinese battery market such as its structure, the ownership of its economic operators or the level of prices. Also, although contacted by two of the sampled groups with which it had joint ventures, CATL refused to provide a questionnaire reply so that the Commission did not have crucial information in order to assess the situation of CATL based on its own data.

(811) Furthermore, as mentioned in section 3.3.2.3 in the absence of verifiable information provided by the SAIC group, the Commission was left with a limited set of information pertaining to the Geely Group only. Considering the much lower market share of this company on the Chinese market in terms of BEVs sales and consequently a lower volume of battery purchases in comparison with the SAIC Group, this information was not considered by itself sufficient to draw meaningful conclusions with regard to the effect of governmental control over power battery industry association on battery prices charged to BEV producers. Consequently, the Commission had to rely on other facts available.

(812) The facts relied on by the Commission consisted of the information publicly available such as market intelligence information from BMI

Data provider and market intelligence publisher for the lithium-ion battery to electric vehicle (EV) supply chain, https://www.benchmarkminerals.com/price-assessments/lithium-ion-batteries/reports/

, information on the main battery player in the Chinese market, CATL, verified purchase information relating to the Geely group and certain verified information relating to a battery supplier related to the SAIC group.

(813) The BMI data presents monthly lithium-ion battery cell price assessments for the Chinese, European, Asian (excluding PRC) and North American markets expressed on an ex works basis. As far as the investigation period is concerned, it shows that the ex-works NMC cell price per kW/h was at least 10 % and up to 30 % higher in the EU, North American or Asian markets than on the Chinese market regardless of the specific NMC chemistries (111, 523, 622 or 811). In the absence of publicly available cell price assessment for LFP cells and in the absence of cooperation by the GOC, the price difference between the Chinese and other markets was also considered valid for LFP cells. Such comparison should be seen against the background that the market share of Chinese battery producers in the EU and North American markets exceeded 60 %

https://www.benchmarkminerals.com/price-assessments/lithium-ion-batteries/reports/

in 2022 and 2023 so that Chinese battery producers can be considered price setters on these markets. While this price comparison shows that the prices on non-Chinese markets are systematically higher, the Commission also considered that this analysis was made on a conservative basis since the price quotations were made on ex-works basis so that shipping costs from the PRC to these markets were not taken into account. Should shipping costs be included and considering the market share of Chinese battery producers on these markets, the price difference would be even higher.

(814) As for CATL, in the absence of more precise data, the Commission analysed the annual reports of CATL for the period 2021-2022

CATL annual report 2022, p. 17 and p. 18 and CATL half year report 2023, p. 15 and p. 148.

. The reports showed a deterioration of profitability on the Chinese domestic market which was compensated by higher profits recorded on the export side. While the company reported high gross profit margins both on the domestic and on the overseas market for batteries in December 2021, this trend was reversed in June 2022, when the company started to lose profitability on the Chinese domestic market, while it increased its profit margin on the export side. In the absence of cooperation by CATL either through the non-cooperation of the GOC or CATL’s refusal to provide a questionnaire reply in its quality of related supplier of batteries to two sampled groups, the Commission relied on facts available and inferred that the decrease in profitability on the domestic Chinese market for batteries was the reflection of the governmental policies aiming at the provision of batteries to BEV producers on the domestic market for less than adequate remuneration. On the contrary, the export markets were not affected by such policies so that the profitability remained stable and even increased as a consequence of the higher prices offered by CATL on these markets. This clearly shows that CATL was unable to maximise its profits in China and take rationale business decisions as a normal market player operating in an open market economy. Instead, CATL was forced by the GOC policies to supply batteries at cheaper prices to the domestic BEV industry and could only achieve a normal level of profit on the exports of batteries, whose prices were not polluted by the GOC overarching policies in favour of the BEV industry. Such practice is also confirmed by the provisions contained in CATL’s Articles of Associations and Related Transaction Management System, as explained in recital (801), which provide that prices of any kind of transactions with related entities shall be set by the State.

(815) The Geely group purchased its batteries through its various entities in the form of packs and modules both from unrelated and related suppliers. Given the existence of joint ventures between the Geely group and CATL, these two companies were considered related in the framework of this proceeding. On this basis, the Commission established that the majority of the purchases were made from related companies.

(816) The related battery suppliers of the SAIC and Geely groups also sold batteries for export during the investigation period. The Commission established that these exports were made at higher prices (on a kw/h basis) than the price paid by the Geely group to unrelated suppliers. Furthermore, the Commission also established that the related battery suppliers of the SAIC and Geely groups exported the same batteries at a significantly higher price than that charged on the domestic market. Depending on the models, the price difference exceeded 25 %, which points to different price behaviours depending on the destination of the batteries, supporting the findings in recital (813).

(817) Based on the above, the Commission concluded that the governmental control over power battery industry associations and their members leads to a preferential treatment towards domestic BEV producers. More concretely, battery producers charge lower prices to BEV producers on the domestic market than on export markets. Consequently, the Commission concluded that the battery producers acting as public bodies implemented national policies aiming at providing batteries for less than adequate remuneration to the domestic BEV producers.

(3) Conclusion

(818) On the basis of the information analysed above, the Commission considered that the companies supplying batteries are vested with government authority and exercise government functions in that they implement the GOC policies covered in point (i) of Section 3.7.2.1.1 rather than acting according to the free market principles in order to maximise their profits. Their company decisions and management are clearly affected by the GOC policies to supply batteries at cheaper prices for the development of the BEV industry, as well as to follow the guidance on production targets, which therefore cannot be considered expression of private behaviour in a free market economy. The evidence found on the pricing behaviour on the export market vis-à-vis the domestic pricing behaviour further confirms that battery producers in China abide by the GOC policies rather than by free market principles.

(819) In addition, considering the functions performed by the Chinese industry associations the battery suppliers were part of (i.e. the CBIA and the CIAPS), and the pervasive GOC influence over the associations, and the powers the members of such associations acquired by taking part in them, the Commission concluded that taking part in the CBIA and the CIAPS conferred members with governmental authority, in the sense that members have the power, individually and collectively, to influence and take decisions for the Association, to perform duties or functions on behalf of the government for the development of the BEV industry. These associations also exercise government functions in that their role is to implement the GOC policies to provide batteries at cheaper prices for the benefit of the BEV industry, and supervise that all the relevant suppliers are fully complying with them. Because of the GOC plans and all these strict control and supervision mechanisms governing the associations, the acts of these associations and their members, as well as the other suppliers, are in fact acts of the GOC.

(820) The characteristics of the Chinese domestic market and the pricing mechanisms that are implemented and monitored by the battery associations, their members, and the battery and LFP suppliers, further corroborate the conclusion that they are vested with government authority and exercise governmental functions. In particular, the GOC created an environment whereby battery and LFP would be provided to BEV producers for less than adequate remuneration.

(821) On this basis, the Commission concluded that the battery suppliers are considered to be public bodies within the meaning of Article 3(1)(a) of the basic Regulation.

(b) Battery suppliers acting as private bodies entrusted or directed by the GOC

(822) In the alternative, even if battery producers were not to be considered as public bodies in the sense of Article 3(1)(a) of the basic Regulation, the Commission established on the basis of the information described in this section that they would be considered entrusted or directed by the GOC to carry out functions normally vested in the government within the meaning of Article 3(1)(a)(iv) of the basic Regulation for the reasons set out below. Thus, their conduct would be attributed to the GOC in any event.

(823) Article 3(1)(a)(iv), second indent of the basic Regulation states that a financial contribution exists if a government: entrusts or directs a private body to carry out one or more of the type of functions illustrated in points (i), (ii) and (iii) which would normally be vested in the government, and the practice, in no real sense, differs from practises normally followed by governments. The type of functions described by Article 3(1)(a)(iii) of the basic Regulation occurs where a government provides goods or services other than general infrastructure, or purchases goods…. Those provisions mirror paragraphs (iii) and (iv) of Article 1.1(a)(1) of the SCM Agreement and should be interpreted and applied in the light of the relevant WTO case law.

(824) The WTO panel in US – Export Restraints ruled that the ordinary meaning of the two words entrust and direct in Article 1.1(a)(1)(iv) of the SCM Agreement require that the action of the government must contain a notion of delegation (in the case of entrustment) or command (in the case of direction). It rejected the US cause-and-effect-argument and asked for an explicit and affirmative action of delegation or command. However, in a subsequent case (US – Countervailing duties on DRAMS), the Appellate Body held that the replacement of the words entrusts and directs by delegation and command is too rigid as a standard. According to the Appellate Body, entrustment occurs where a government gives responsibility to a private body and direction refers to situations where the government exercises its authority over a private body. In both cases, the government uses a private body as proxy to effectuate the financial contribution, and in most cases, one would expect entrustment or direction of a private body to involve some form of threat or inducement.

(825) At the same time, paragraph (iv) of Article 1.1(a)(1) of the SCM Agreement does not allow Members to impose countervailing measures to products whenever the government is merely exercising its general regulatory powers or where government intervention may or may not have a particular result simply based on the given factual circumstances and the exercise of free choice by the actors in that market. Rather, entrustment and direction implies a more active role of the government than mere acts of encouragement. Moreover, the WTO did not consider that leaving discretion to a private body is necessarily at odds with entrusting or directing that private body […]. While there may be cases where the breadth of discretion left to the private body is such that it becomes impossible to properly conclude that that private body has been entrusted or directed (to carry out a particular task), this is a factual/evidentiary matter to be addressed on a case-by-case basis. In line with those WTO rulings, not all government measures capable of conferring benefits equate to a financial contribution under Article 3 of the basic Regulation and Article 1.1 (a) of the SCM Agreement.

(826) In a nutshell, the relevant WTO rulings provide that:

(i) the determination of whether there is a financial contribution under Article 1.1(a)(1) of the SCM Agreement should focus on the nature of the government action, rather than on the effects or the results of the government action. In other words, it is well acknowledged that governments intervene in the market as regulators and, when so doing, they cause effects on the market and its operators. In this sense, a government may legitimately impose export taxes in order to generate revenue in case of a very competitive commodity in the international markets. In contrast, there is no such legitimate imposition of export restrictions when it becomes evident that the use of such an instrument together with other mechanisms to keep commodities in the domestic market, and to force suppliers to sell below market prices, are part of a broader scheme engineered by the government to support a particular industry or set of industries to boost their competitiveness. Thus, the nature of the government action, including its context, object and purpose, is relevant in assessing the financial contribution element;

(ii) entrustment or direction would involve an explicit and affirmative action addressed to a particular party in relation to a particular task or duty, this being very different from the situation in which a government intervenes in the market in some way, which may or may not have a particular result given the factual circumstances and exercise of free choice by the actors in that market. Ultimately, the key question behind the concepts of entrustment or direction is whether the conduct in question, i.e. the financial contribution in the form of provision of goods for less than adequate remuneration, can be attributed to the government or still is the free choice of the private operators in view of market considerations, such as regulatory constraints;

(iii) Article 1.1(a)(1)(iv) of the SCM Agreement is, in essence, an anti-circumvention provision and, thus, a finding of entrustment or direction requires that the government gives responsibility to a private body or exercises its authority over a private body in order to effectuate a financial contribution. In most cases, one would expect entrustment or direction of a private body to involve some form of threat or inducement, which could, in turn, serve as evidence of entrustment or direction. However, governments are likely to have other means at their disposal to exercise authority over a private body some of which may be more subtle than a command or may not involve the same degree of compulsion;

(iv) There must be a demonstrable link between the government act and the conduct of the private body. There is no reason why a case of government entrustment or direction should not be premised on circumstantial evidence (such as implicit and informal acts of delegation or command), provided that such evidence is probative and compelling. In this respect, evidence of the government's intention to support the downstream industry (for example, through publicly stated policies or government decisions, or other governmental actions), or the existence of other government measures ensuring a particular result on the market (e.g. an export restraint together with a government measure preventing operators subject to those restraints from stocking their products or a government price regulation with a view to keeping domestic prices low for the product concerned), may be relevant to determine the existence of a financial contribution under Article 1.1 (a)(1)(iv) of the SCM Agreement (in particular as an indirect manner for the government to provide goods, as provided in sub-paragraph (iii)). In some circumstances, guidance by a government can constitute direction. Finally, depending on the circumstances, a private body may decide not to carry out a function with which it was so entrusted or directed, despite the possible negative consequences that may follow. This does not show, however, on its own, that the private body was not entrusted or directed.

(827) In line with that case-law, assuming that battery suppliers are private bodies within the meaning of Article 3(1)(a)(iv) of the basic Regulation, the Commission examined, on the one hand, the nature of the GOC's actions, i.e. whether the GOC's intervention involves the entrustment or direction of battery producers to provide batteries for less than adequate remuneration to BEV producers; and, on the other hand, the action of the battery suppliers i.e. whether the battery producers provide inputs to the Chinese BEV producers for less than adequate remuneration and hence whether there is a demonstrable link between the GOC’s actions and the conduct of the battery suppliers acting as a proxy for the GOC. Finally, the Commission assessed whether the function carried out by the battery suppliers would normally be vested in the government, i.e. whether the provision of batteries to BEV producers in China is a normal government activity, and whether such function does not, in real sense, differ from the practices normally followed by governments, i.e. whether the actual provision of inputs by producers, in no real sense, differs from what the government would have done itself.

(828) In view of the WTO case-law referred to in recitals (822) - (826), the Commission analysed first whether the GOC’s support to the Chinese BEV industry in the form of provision of batteries for less than adequate remuneration is effectively an objective of the various government measures in question and not merely a side effect of the exercise of general regulatory power. The investigation examined in particular whether the lower prices of batteries found were part of the government’s objectives, or whether the lower prices were rather an inadvertent by-product of general governmental regulation. The Commission concluded that the various interventions by the GOC had as their objective to support the BEV industry, and that the lower battery prices were an intended objective of these measures, which were in turn enforced through the industry associations that have the obligation to respect and enforce these plans.

(829) The GOC took a number of measures throughout the years to achieve its policy goal. Section 3.1 has detailed the relevant background and context explaining the importance the GOC attaches to the development of the BEV industry and the industries around it.

(830) As explained in detail in the previous point (i) of Section 3.7.2.1.1,, the GOC has created a series of measures which apply to all companies irrespective of whether they are State-owned or privately owned, aimed at directing them towards the supply of batteries at cheap prices. In particular, the 2017 Battery Action Plan contains specific instructions on the pricing of batteries, mandating that by 2020, the system specific energy density will strive to reach 260 watt-hours/kilogram, and the cost of power batteries will be reduced to less than 1 yuan/watt-hour. By 2025, the energy density will reach 500 watt-hours/kilogram.

(831) Moreover, the battery industry is heavily supported in China. A large number of regulations, issued by different governmental bodies supervising each aspect of the battery sector exist, as demonstrated in point (i) of Section 3.7.2.1.1, and in particular the 2017 Battery Action Plan covered in recitals (708) - (710)-, the NEV Plan 2012-2020 (recital (744)), and the measures in Jiangxi, Fujian and Shenzhen (recitals (725) - (733)). The Commission found evidence in national and local policies that battery producers were benefitting from a series of support measures, covered in recital (735). These include rewards, provision of land, electricity and gas at cheaper prices, loans from state-owned banks at a non-commercial basis and preferential fiscal policies. The Commission also established that the battery producers related to the Geely and SAIC group that provided a questionnaire also benefited from preferential policies, such as preferential financing, tax exemption and reduction programmes and grants (recital (740).

(832) By providing financial support to battery producers, the GOC further directed companies to increase and support the domestic supply of batteries in favour of the development of the BEVs industry. Such a support acts as an inducement for battery suppliers to fully align their behaviour with the GOC’s policy objectives to develop the BEV industry.

(833) Moreover, in the section above, the Commission already established how the GOC ensures a particular conduct from the battery suppliers through the Chinese industry associations (i.e. CBIA and CIAPS), which are not independent industry associations, in light of the level of control by the GOC over them (recitals (777) - (784)) and the functions they perform (recitals (791) - (798)). As already covered in recitals (763) and (772), battery suppliers that were members of the CBIA and/or CIAPS represented 86 % of the market share in 2020, and 93 % of China’s total installed capacity in 2023. The Commission also found that the aforementioned Chinese industry associations were not independent associations acting according to free economic principles, but entities guided by the GOC and managed by it through the State Council (recitals (777) - (784)). In particular, both associations were found to be undertaking tasks entrusted by the government, and their role is to assist the government in the implementation of governmental policies and in regulating the behaviour of their members. The fact that the associations and their members are vested with the power to strengthen industry self-discipline and to regulate the association, industry and behaviour of members, and, in the case of the CBIA specifically also to coordinate issues in corporate production, sales and export. Hence, these two associations exercise government functions in that their role is to implement the GOC policies to provide batteries at cheaper prices for the benefit of the domestic BEV industry, and supervise that all the relevant suppliers are fully compliant with them. In light of this, the Commission considered the CBIA and the CIAPS to be public bodies within the meaning of Article 1.1(a)(1) of the SCM Agreement.

(834) Moreover, at the CBIA’s 7th Members Congress, the association expressed that the association should give full play to its role as an industry self-regulatory organization, shoulder the important responsibilities of maintaining market behaviour, guiding the industry to orderly competition, rule constraints, supervising self-discipline, and optimizing development, […] restrains and punishes behaviors that disrupt market order, harm the interests and image of the industry, and strives to create a fair and orderly development environment for the battery industry [emphasis added]

See https://www.clii.com.cn/qgytpxw/qgyzhtpxw/201507/t20150721_3875898.html

. This shows that, members must abide by the directions of the association aimed at regulating the economic behaviour of their members in order to comply with GOC policies, in order to avoid repercussion inflicted upon them by the CBIA. This further shows that the GOC, through the associations, mandates the battery producers to abide by a certain conduct from the battery producers. Additional evidence that the GOC actively participates in the market and intervenes when issues with prices and supply arise has been found in the press statements given by the MIIT in 2022 (recital (750)), when the MIIT pledged to push [the prices of raw materials] back toward the reasonable level as soon as possible

See footnote 308.

.

(835) Furthermore, the Commission observed that the provisions contained in CATL’s Articles of Associations and Related Transaction Management System, as explained in recital (801), provide that there are instances when prices of any kind of transactions with related entities shall be set by the State. Given the fact that CATL is by far the biggest supplier on the domestic market and has joint ventures with State owned BEV producers as well as with the two non-integrated sampled producers, the Commission inferred, in the absence of cooperation by CATL, that the GOC plays a key role in the price mechanism relating to the batteries supplied to the BEV industry and that CATL’s behaviour is not that of a free market operator as far as the Chinese domestic market is concerned.

(836) This is further exemplified by CATL’s irrational behaviour on the domestic and export markets (recital (813)), where CATL sacrifices profits on sales of batteries in the Chinese domestic market. Indeed, its irrational behaviour shows that it was directed by the GOC policies to supply batteries at cheaper prices to the domestic BEV industry, rather than following a market driven behaviour which would suggest that it sells batteries mostly on export markets where it could have optimised substantially its profits during the investigation period. As explained in recitals (738) - (742) above, the GOC also provided financial support to the batteries suppliers to ensure that the companies in question can stay afloat and develop further their capacities so that they can pursue their irrational behaviour directed by the GOC of providing batteries at low prices and sufficient quantities to the BEV producers, rather than redirecting their sales to exports, whereby they would have achieved significant profits.

(837) The Commission considered that, in view of the evidence available, the GOC took a more active role than mere acts of encouragement, as required by the WTO Appellate Body

Appellate Body Report, DS 296, para. 115.

. The measures taken by the GOC restrict the freedom of action of the battery producers by limiting in practice their business decision at what price to sell their product, as shown in the plans covered in point (i) of Section 3.7.2.1.1, to the benefit of the BEV industry. The role of the GOC went well beyond an ordinary intervention as a market regulator in the battery sector. The relevant measures not only regulated general aspects of the market but imposed a specific behaviour on battery companies. All these measures were undertaken in order for battery companies to provide batteries at cheaper prices for the benefit of the BEV industry. That intention was made clear through numerous policy statements and actions covered in point (i) of Section 3.7.2.1.1.

(838) By obliging battery companies to comply with these measures, which were in turn enforced through the industry associations that have the obligation to respect and enforce these plans, the GOC deprived them of the ability to freely choose their selling strategies according to market considerations. In other words, these measures clearly constitute a demonstrable link between the government actions and the conduct of the battery companies. The GOC used the battery companies as a proxy to support the BEV producers.

(839) Finally, the Commission assessed whether the actual provision of inputs by producers, in no real sense, differs from what the government would have done itself. The Commission considered this to be the case. Rather than providing the batteries directly to the BEV industry in order to achieve the GOC public policy objectives of boosting the development of this industry, the GOC through a set of measures induces private entities to do so on its behalf. Moreover, to the extent that such provision of goods by the government involves some revenue expenditure (such as the provision of subsidies to the inputs or the sacrifice of income by providing goods for less than adequate remuneration), such an action should be understood as the typical functions normally vested in the government.

See Panel Report, United States – Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (Drams) from Korea, WT/DS296, 21 February 2005, footnote 57 ([W]e consider that the reference to functions normally vested in the government should also be understood to mean functions of taxation and revenue expenditure. (…) To the extent that loans and restructuring measures involve taxation or revenue expenditure, they are capable of falling within the scope of that provision).

(840) In light of the above, the Commission concluded that the set of measures adopted by the GOC lead to a financial contribution in the form of government's provision of batteries for less than adequate remuneration to the Chinese BEV producers under Article 3(1)(a)(iv) of the basic Regulation. Battery suppliers are induced by the GOC to provide batteries for less than adequate remuneration

See also section 3.7.2.1 on benefit.

to the BEV industry so that their conduct must be attributed to the GOC, and it is not merely an unintended result of the GOC’s actions. The GOC ensures that battery prices are controlled via the industry associations and the support granted to battery producers to abide by the GOC’s policy objectives.

3.7.2.1.2.

Benefit, specificity and calculation of the subsidy amount

(a) Benefit

(841) As explained in Section 3.3.1.2, no unrelated manufacturing supplier of LFP or batteries provided information to the Commission by replying to the specific questionnaire intended for suppliers of input in China. Given the existence of a relationship between the two non-integrated sampled producers and CATL, the latter was also requested to fill in a questionnaire but failed to do so.

(842) As a consequence, the Commission had to rely on facts available in accordance with Article 28 of the basic Regulation in order to determine the level of the benefit for the sampled exporting producers that purchased batteries on the domestic market.

(843) The Commission concluded that suppliers of batteries were considered to be public bodies or private companies entrusted and/or directed by the GOC to provide batteries for less than adequate remuneration.

(844) In accordance with Articles 3(2), 5 and 6(d) of the basic Regulation, the Commission assessed the amount of countervailable subsidies in terms of the benefit conferred on the recipient, which was found to exist during the investigation period.

(845) In order to determine the existence of benefit and its amount the Commission first assessed whether prices in China could amount to an appropriate benchmark.

(846) In view of the non-cooperation by the GOC and consequent lack of information on the Chinese domestic battery market, the Commission considered that it was not appropriate to base its benchmark on Chinese domestic prices because of the large market share of suppliers of batteries that were members of the CBIA or CPIAS and the findings that the Chinese market was distorted due to the applicable national and sectoral policies implemented by the domestic battery suppliers covered in Section 3.7.2.1, and in particular the ones relating to pricing.

(847) The Commission identified two possible sources for establishing an appropriate benchmark for the batteries: Bloomberg New Energy Financials (BNEF) and Benchmark Mineral Intelligence (BMI)

Data provider and market intelligence publisher for the lithium-ion battery to electric vehicle (EV) supply chain, https://www.benchmarkminerals.com/price-assessments/lithium-ion-batteries/reports/

. Whereas BNEF provided a useful source of information, the use of BNEF did however not allow to calculate potential benchmark prices for the investigation period using monthly prices. BNEF did not identify a price per chemistry per geographical area either. Furthermore, it did not report ex-works prices so that price comparisons could be affected by different delivery terms. On the contrary, the BMI data allowed the calculation of benchmarks for the IP, per chemistry (LFP and NMC) and geographical area

Regions available were the North America, Asia, China and Europe.

, on an ex-works basis. It could also weigh the different sub-chemistries of NMC batteries (111, 523, 622, 811) based on the corresponding demand in the EV sector. However, it only reported prices per kw/h at cell level, not at pack level. Considering the level of accuracy in terms of time period, geographical area, chemistry and delivery terms, BMI was considered the most appropriate source to establish a benchmark price for cells. In addition, the ex-works prices used from the selected source was a conservative alternative, since the actual battery purchases may have been carried-out on various delivery terms including different transport costs.

(848) In order to calculate a corresponding benchmark for NMC battery cell out of China

The out of China benchmark relied on prices applicable in North America, Europe and Asia, therefore excluding China.

, the Commission used an average benchmark price weighted on the demand of sub-chemistries of NMC battery in the EV sector as reported by BMI. In the absence of benchmark for LFP battery cell out of China, it was considered reasonable to establish this price by applying the ratio of NMC battery cell benchmark in and out of China

In China benchmark relied on prices applicable in China. The out of China benchmark relied on prices applicable in North America, Europe and Asia, therefore excluding China.

.

(849) In order to calculate a corresponding benchmark for battery packs, the Commission used LFP and NMC battery cell benchmarks out of China described in the recitals above and applied cell to pack ratio, based on publicly available information published by BNEF

https://about.bnef.com/blog/lithium-ion-battery-pack-prices-hit-record-low-of-139-kwh/ and https://about.bnef.com/blog/lithium-ion-battery-pack-prices-rise-for-first-time-to-an-average-of-151-kwh/

. The cell to pack ratio was confirmed by the data on the case file provided by one of the cooperating groups.

(850) The benefit for the Geely group was calculated by taking into consideration the difference between the amount actually paid by the sampled exporting producers for batteries (cells, modules, and packs) and the amount that should normally have been paid on the basis of the established benchmark.

(851) As explained in recital (815), the Commission established that two related battery suppliers sold batteries for export at a significantly higher price than the same batteries sold on the Chinese domestic market.

(852) Whereas no accurate conclusion could be drawn with regard to the battery purchases made by the SAIC Group in view of the lack of cooperation as described in Section 3.3.2, the Commission established that, at least, the 4 main battery suppliers were state-owned, members of the CBIA and/or closely associated with it through CATL. The Geely Group was found to purchase over 65 % of its batteries from companies that were members of one of these two associations. Based on the above and in the absence of any other information, this was considered representative of the situation on the domestic Chinese batteries market.

(853) Consequently, it was considered that the two non-integrated sampled producers purchased their batteries from key operators considered as public bodies or private bodies entrusted or directed by the GOC and that the Chinese BEV producers benefitted from batteries sold for less than adequate remuneration.

(854) In addition, due to the partial non-cooperation of the GOC, the Commission lacked crucial information on the market situation in China of suppliers of batteries and on possible adjustments that needed to be made.

(855) On this basis, the Commission concluded that the prevailing conditions on the Chinese market did not justify adjustments, in light of the lack of market conditions in the country of origin, and in line with the provisions of Article 6(d)(ii) of the basic Regulation, and calculated therefore the benchmark using the methodology described before.

(b) Specificity

(856) The set of measures applied by the GOC were directed to benefit exclusively the NEV industry, of which BEVs are part, since the batteries in question that are subject to the measures are only used by the NEV industry.

Moreover, the specific legal acts and various documents covered in point (i) of Section 3.7.2.1.1 clearly identify the BEV industry as beneficiary of the measures in question.

(857) The Commission therefore concluded that subsidies in the form of provision of batteries at less than adequate remuneration are not generally available but are specific within the meaning of Article 4(2)(a) of the basic Regulation. Moreover, there was no evidence submitted by any of the interested parties suggesting that such form of subsidies is based on objective criteria or conditions in the sense of Article 4(2)(b) of the basic Regulation.

(c) Calculation of the subsidy amount

(858) The Commission analysed prices on a kW/h basis and took chemistry (NMC vs LFP), battery type (module vs pack), and relationship into account. On this basis, it concluded that purchase prices from related companies were on average

The price comparison between related and unrelated suppliers was made by taking purchase volumes into account in order to calculate a weighted average price difference.

higher than purchases prices from unrelated suppliers. Such difference exceeded 8 % and, in some cases, even 20% for certain combinations of chemistry/battery type.

(859) In view of such differences, the Commission analysed the information on file relating to transfer price in order to determine whether such transactions could be considered as made at arm’s length. However, the information on file i.e. submitted price agreements and contracts did not include any information in this regard. In this context and in the absence of claim by the Geely group that such transactions were at arm’s length, the Commission was not in a position to use such prices and replaced them with the price paid per kw/h for similar products to unrelated suppliers. When certain companies within the Geely group did not purchase from unrelated suppliers, the weighted average price per kw/h for similar products, at Geely group level, was used. This comparison was made on a kw/h basis taking the battery chemistry, namely LFP and NMC, and the battery type into account (cell, module or pack). In the absence of an applicable benchmark for modules, the cell price benchmark was used as a conservative alternative. The benchmarks were based on the battery cell prices sourced from BMI

Data provider and market intelligence publisher for the lithium-ion battery to electric vehicle (EV) supply chain, https://www.benchmarkminerals.com/price-assessments/lithium-ion-batteries/reports/

considering the average LFP or NMC cell prices outside China during the IP, as established in the recitals above.

(860) Considering the partial non-cooperation by the SAIC group with regard to the supply of batteries and corresponding data as described in Section 3.3.1.4, the Commission had to rely on facts available. In this regard it relied on a significant volume of purchases by the other sampled group that purchased batteries. The considered transactions excluded certain batteries destined to BEV models that were not similar to those sold by SAIC.

Provision of batteries for less than adequate remuneration

Company nameSubsidy rateGeely group10,32 %SAIC group13,24 %

3.7.2.2.

Government provision of LFP for less than adequate remuneration

(861) As noted before, one of the sampled exporting producers (BYD Group) is vertically integrated. Thus, for this group, the Commission examined whether the provision of key raw materials for the production of batteries used in the models made by this group could amount to a countervailable subsidy. At this stage, the Commission focused this inquiry on the main key component used for batteries, LFP, representing more than 25 % of the costs of production of the battery.

(862) In order to establish the existence of a countervailable subsidy, three elements must be present under Articles 3 and 4 of the basic Regulation: (1) a financial contribution; (2) a benefit, and (3) specificity. The Commission will examine those elements below.

3.7.2.2.1.

Financial contribution

(a) LFP suppliers acting as public bodies

(863) The Commission first analysed whether the LFP suppliers could be found to amount to public bodies so that the provision of this key raw material for less than adequate remuneration could be attributed to the GOC within the meaning of Article 3(1)(a) of the basic Regulation. As explained in detail in Section 3.5.1, recitals (409) to (418), the legal standard for the existence of a public body must be interpreted in accordance with the WTO

jurisprudence. On the basis of the relevant case law referred to in recitals (409) to (418), whether the inputs producers in China engaged in supplying inputs are public bodies (i.e. entities which possess, exercise or vested with authority to exercise governmental functions) should be examined having due regard (i) to legal and economic environment prevailing in the country in which the investigated entities operate, (ii) the relationship between the entities at hand and the government, and (iii) the core characteristics and functions of the relevant entities.

(i) Legal and economic environment prevailing in the PRC

(864) In recitals (704) – (758), the Commission already examined the legal and economic environment prevailing in China showing how from the inputs (including raw materials such as LFP), to mid-inputs (such as batteries), the GOC has established a framework ensuring that input suppliers comply with the GOC’s policy objectives to develop the BEV industry. The relevant measures adopted by the GOC to achieve its policy goal of supporting the main industries across the BEV supply chain for the benefit of the BEV producers, encompassing both upstream key materials used in the production of batteries, and batteries, is covered in point (i) of Section 3.7.2.1.1.

(865) In particular, the Mineral Resources Law and the Rules for Implementation of the Mineral Resources Law (recital (723)) show how the State envisages mineral resources as belonging to the state, and that the government has full control over the allocation of resources and can define who obtains the mining rights and the limits of what is mined. The 14th Raw Materials FYP (recital (714)) supports the establishment of a mineral resource reserve system in which the state and enterprises jointly work together. Overall, the GOC has created a system whereby it can exercise full control over mineral resources.

(866) Several incentives to suppliers of raw materials used in the production of batteries are also available, such as tax incentives (recital (721)), guidance funds, rewards, equity pledges (recital (720)).

(867) In addition, the Commission found that lithium iron phosphate is not subject to the 13 % VAT refund upon export, making it cheaper and abundant for domestic consumption as compared with export (recital (753)). Evidence of GOC intervention in the pricing of raw materials for new energy vehicles was found in press statements by the MIIT in 2022 (recital (750)), when the government pledged to push the price of raw materials used in NEV (including lithium) back to a reasonable level.

(868) All of the above demonstrates that the GOC has established at central and local level a number of policies and measures targeting input suppliers in order to support ultimately the BEV industry. All these inputs constitute a significant part of the cost of production of BEVs. As a result of these GOC policies ensuring a stable and ample supply of these inputs, coupled with cheaper prices, BEV producers benefit from subsidies in the form of a significant cost reduction, thereby allowing them to sell BEVs at cheaper prices including on the EU market.

(a) Relationship between LFP suppliers and the GOC

(869) Having analysed the legal and economic framework in which the input suppliers operate, heavily dictated by the GOC’s policy objectives to develop the BEV industry via input suppliers, the Commission also analysed the characteristics of the Chinese domestic market of LFP, the evidence of State presence/ownership in input suppliers as well as other indicia that the GOC exercised meaningful control over those entities (including their organisational features, chains of decision making authority and the overall relationship with the GOC).

(870) LFP is a type of lithium derived from lithium carbonate. While lithium carbonate can be sourced from suppliers both within and outside China - most of China’s imports of lithium carbonate come from Chile and Argentina

Based on Global Trade Atlas (GTA) import statistics of China, HS code 28369100, from October 2022 to September 2023.

• according to information available online, around 75 % of the worldwide lithium refining takes

place in China

See The battle to break China’s battery-making supremacy, in five charts, Bloomberg, 1 December 2022, available at https://www.bloomberg.com/professional/insights/commodities/the-battle-to-break-chinas-battery-making-supremacy-in-five-charts/

. This means that the world is dependent on China for lithium refining, and China’s dominant position in this market allows them to be price-setters on the international stage. This was further confirmed by China’s import data of LFP from the rest of the world, which showed that insignificant quantities of LFP were sourced from third countries

Based on GTA import statistics of China, HS code 28429040, from October 2022 to September 2023.

.

(871) The Commission was unable to find more information on government ownership and control for the LFP supplier market as a whole in the public domain. Given the absence of cooperation by GOC as explained in more details in Section 3.3.1.2 and by the BYD group as far as its main related supplier is concerned as explained in Section 3.3.4, the Commission could draw inferences that it is likely that the degree of government ownership and control of the LFP suppliers could be more significant than the level of information available on it.

(872) In this respect, information available online on the market share of lithium producers in China

See China's lithium iron phosphate production (January-August) Top 10 list, ESCN, 16 October 2023. Available at https://www.escn.com.cn/20231016/ea32ade01ece4dce95eec0ed92e91ce8/c.html#:~:text=%E4%BD%9C%E4%B8%BA%E7%94%B5%E6%B1%A0%E7%9A%84%E6%A0%B8%E5%BF%83%E6%9D%90%E6%96%99,%E7%89%B9%E7%91%9E%E3%80%81%E5%B1%B1%E4%B8%9C%E4%B8%B0%E5%85%83%E3%80%82

showed that the information submitted by the BYD Group could be deemed representative of the Chinese domestic market. The Commission considered the information submitted by the sole sampled vertically integrated producer (the BYD group), deeming it representative of the whole Chinese market of LFP. The Commission identified nine suppliers of LFP to the BYD Group. When the Commission was unable to find information in the public domain, it had to draw inferences on the basis of Article 28 of the basic Regulation.

(873) The Commission established that all nine Chinese lithium suppliers were located in China. Hence, the Commission inferred that the Chinese LFP market was dominated by domestic suppliers.

(874) The Commission also established that the activities of the LFP suppliers are regulated by the same subordinated associations as the battery producers, i.e. the CBIA and CIAPS

https://file.finance.sina.com.cn/211.154.219.97:9494/MRGG/CNSESZ_STOCK/2023/2023-4/2023-04-13/8980089.PDF, p. 29

, whereby the same provisions covered in Section 3.7.2.1 apply to LFP suppliers. As noted in recital (773), the CBIA and the CIAPS do not publish the full list of members online. The Commission was able to ascertain companies’ participation in the CBIA, CIAPS, and other industry associations by looking at their annual reports and other information available online, such as the list of members of their executive bodies. In the absence of information provided by the GOC as well as of official public data covering the full list of members of the CBIA and the CIAPS, the Commission reckoned that even more suppliers could be members of these associations. Indeed, among the nine suppliers of LFP to the BYD group, the Commission found that at least two of them were members of the CBIA and also partially state-owned. Two other suppliers were also found to be partially State-owned. According to its annual report, one of the partially state-owned companies was also managed as an enterprise having State-owned equity

See https://q.stock.sohu.com/newpdf/202352048916.pdf, p. 82

. Another company was found to be a member of the CIAPS. The SOE and the other members of the CBIA and the CIAPS represented 90 % of the total quantity of LFP supplied to the sampled exporting producer and up to 92 % of the total value during the investigation period. One of the biggest suppliers was not only a member of the CBIA, but also part of its executive council. Consequently, the Commission established that several suppliers of LFP, representing most of the total quantity of LFP sourced by BYD, and also being some of the biggest market players, were found to be members of the CBIA and/or the CIAPS.

(875) Based on the above, the Commission concluded that the Chinese domestic market for LFP is largely dominated by domestic suppliers that are, to a large extent members of subordinated associations such as CBIA, CIAPS and Hunan Battery Industry association and/or state-owned.

(876) The Commission further examined the relationship between the GOC and the LFP suppliers, to establish whether the government exercised meaningful control over the entities at hand and their conduct on the market.

(877) The Commission also found evidence of CCP influence through party building association in some of the major suppliers of LFP to the BYD group. Similarly to CATL (recital (786)), the Articles of Association of three LFP suppliers to the BYD group contained specific provisions on the establishment of CCP organisations and party activities within the company.

(878) The Commission found that 89 % of the total quantity of LFP supplied to the BYD Group and up to 91 % of the total value during the IP were sourced from LFP suppliers that were members of the CBIA and/or the CIAPS. Another main LFP supplier was also partially state-owned and managed, according to its Annual Reports, as an enterprise having state-owned equity.

(879) Based on (a) the level of control the GOC exercises over the Chinese industry associations analysed in point (ii) of Section 3.7.2.1.1 (namely the CBIA and the CIAPS), and (b) the fact that most of the Chinese domestic LFP producers were found to be part of them, were state-owned or managed as an enterprise having State-owned equity (recital (873), and (c) the fact that several LFP suppliers’ articles of association contained provisions on the establishment of CCP organisations within the company (recital (876)), the Commission concluded that the LFP market is dominated by several companies which are managed and controlled by the State through their participation in industry associations such as CBIA and the CIAPS. Given the presence in the management of the associations as well as the direction of its business decisions, the GOC is capable of exercising meaningful control over the battery suppliers, also through their participation in the CBIA and the CIAPS.

(b) Core characteristics and functions of the lithium suppliers

(880) In the absence of any information provided by the GOC concerning the number and other information on the formal indicia of government ownership and control of domestic suppliers of lithium and batteries for BEVs, the Commission had to rely on facts available according to Article 28 of the basic Regulation. For this purpose, the Commission analysed the situation of the lithium suppliers reported by the sole sampled vertically integrated producer (the BYD group). When the Commission was unable to find information in the public domain, it had to draw inferences on the basis of Article 28 of the basic Regulation.

(881) The Commission found that some of these suppliers were directly or indirectly partially State-owned. In particular, the Commission established that the main LFP supplier to the BYD group, Hunan Yuneng New Energy Materials Co. Ltd was partially state-owned as at least 21,9% of its shares were held by state-owned entities in 2022

See http://file.finance.sina.com.cn/211.154.219.97:9494/MRGG/CNSESZ_STOCK/2023/2023-4/2023-04-13/8980089.PDF p76

. Despite this apparent partial state ownership, this company was managed as a state-owned shareholding enterprise

See https://q.stock.sohu.com/newpdf/202352048916.pdf, p. 82

. Three other suppliers to the BYD group were also found to be partially directly or indirectly state-owned

http://file.finance.sina.com.cn/211.154.219.97:9494/MRGG/CNSESH_STOCK/2023/2023-4/2023-04-25/9055616.PDF p115; https://platform.wirescreen.ai/organization/1390c27a-e67d-5198-ab30-8eab6da0f784; http://file.finance.sina.com.cn/211.154.219.97:9494/MRGG/CNSESZ_STOCK/2023/2023-3/2023-03-07/8868659.PDF p88

.Moreover, the Commission also established the presence and pervasive influence of CCP members and organisations in multiple LFP suppliers to BYD. The framework in which CCP organisations operate in companies and their purpose have been described in recitals (785) and (786). Lithium suppliers of the BYD Group, accounting for over 90% of its LFP purchase in value or volume were found to be part of industry associations acting as public bodies within the meaning of Article 1.1(a)(1) of the SCM Agreement, and whose participation in the association conferred the same public authority to its members.

(882) The Commission assessed whether the LFP suppliers are vested with governmental authority and whether they exercise this authority in the performance of governmental functions. The evidence showed that the LFP suppliers abide to and implement the GOC’s policy objectives set out in point (i) of Section 3.7.2.1.1 and thus perform governmental functions.

(883) Given the lack of cooperation from the GOC (see Section 3.2.3), the Commission had to rely on information available online. The Commission found evidence of LFP suppliers undertaking national tasks, for example, in Anju district (Suining city, Sichuan) and in Yunnan. These two projects concern the subsidiaries of Hunan Yuneng New Energy Materials, the major LFP producer in China

See China strengthens LFP investments in 2023 but structural surplus looms, S&P Global, 9 May 2023, available at https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/metals/050923-china-strengthens-lfp-investments-in-2023-but-structural-surplus-looms

whose main customers are BYD and CATL

See Cathode Supplier Yuneng’s 2022 Revenue Reached Nearly RMB 42.8 Billion, of Which CATL and BYD Accounted for Over 80%, Energy Trend, 24 April 2023, available at https://www.energytrend.com/news/20230424-31816.html

. Moreover, during the investigation period both BYD and CATL were among the shareholders of Hunan Yuneng New Energy Materials, together with a state-owned group

See http://file.finance.sina.com.cn/211.154.219.97:9494/MRGG/CNSESZ_STOCK/2023/2023-4/2023-04-13/8980089.PDF,. p.76

.

(884) Suining district is particularly important for its lithium reserves. As already covered in recital (724), the Commission found evidence on national plans containing provisions on annual production, profit targets and development targets, such as, by 2025, an annual production of more than 800000 tons of positive electrode materials and more than 500000 tons of positive electrode precursors. Within this framework, in 2021, Hunan Yuneng New Energy Materials, China’s leading LFP producer, and Suining city signed an agreement for the construction of project yielding 110000 tons of lithium battery positive electrode materials annually

See https://www.suining.gov.cn/phone/articshow/c6304818bb3e48138a25e7523d599a6e.html

. This is one of several agreements signed with other companies in the field of batteries for the construction of China's Lithium Industry Capital, which is one of the key goals of the Suining Plan.

(885) In 2021, Yunnan Yuneng New Energy Battery Materials signed an agreement with Anning Municipal Government for the establishment of a production line in Anning Industrial Park

Yunnan Central New Area accelerates the creation of new energy battery industry cluster, Yunnan Province Government, 08 July 2022, available at https://www.yn.gov.cn/ztgg/zxylcyfzqy/cypyzds/202207/t20220708_244167.html

. Yunnan Yuneng is another subsidiary of Hunan Yuneng New Energy Materials referred in recital (883). This agreement is part of the wider framework of agreements for the construction of the Dianzhong New Area; as reported by the Yunnan province’s government website, The Three-Year Action Plan for the Development of New Energy Battery Industry in Yunnan Province (2022-2024) ('Yunnan Action Plan') [emphasis added] clearly states that new energy battery manufacturing industrial bases will be built in the Dianzhong New Area and other places. The Party Working Committee and Management Committee of the New Area immediately anchored the goal of building a 100 billion-level new energy battery industrial cluster in Anning to lay out the entire industrial chain. Focusing on the production of core materials such as positive and negative electrodes, diaphragms, copper foil/aluminum foil, electrolytes, shells and other auxiliary materials for new energy batteries, focusing on the leading production and manufacturing of battery cells and battery PACKs, carrying out precise investment promotion, and striving to form a complete industrial chain gathering place, and strive to build an important national green new energy battery industrial cluster in Anning area by the end of the 14th Five-Year Plan

Ibid.

. Thus, based on the evidence found, the construction of production lines in Anning Industrial Park is also meant at achieving the goals contained in the Yunnan Action Plan.

(886) Based on the above, the Commission further examined whether the fact that the LFP suppliers were vested with government authority and considered public bodies had an impact on prices for the Chinese domestic BEV producers.

(887) In the absence of cooperation by any unrelated or related lithium supplier, as explained in section 3.3.1.2, the Commission had to rely on facts available. In this regard, it is recalled that crucial information concerning the structure of the domestic market of raw materials, as well as the mechanism of price settings were not available to the Commission. Therefore, the Commission had to rely on facts available and considered that the information provided by the vertically integrated sampled producer was illustrative for the situation on the Chinese domestic market of LFP.

(888) The Commission concluded in recital (795) that both the CBIA and the CIAPS were vested with governmental power to regulate and steer the economic behaviour of its members to the benefit of the BEV industry and the LFP suppliers activities are also regulated by the same subordinated associations (see recital (873)) .

(889) LFP is a type of lithium derived from lithium carbonate, and China’s dominant position in its refining means that China’s dominant position in this market allows them to be price-setters on the international stage. As already described in recital (869), the Commission found that China imported marginal quantities of LFP,

Based on GTA import statistics of China, HS code 28429040, from October 2022 to September 2023.

showing that Chinese domestic suppliers are price-setters rather than price-followers and can enjoy discretion in their pricing behaviour considering the dominant position China holds in the refining of LFP.

(890) This was further confirmed by the fact that 100 % of the suppliers of LFP of the BYD Group were based in the PRC.

(891) With regard to prices themselves, the Commission established that the average monthly purchase price for LFP by the sole integrated BEV producer decreased by [40-60%] over the investigation period whereas the average monthly export price of the same product originating in the PRC remained stable over the same period.

Based on GTA export statistics of China, HS code 28429040, from October 2022 to September 2023.

Such price decrease could be observed for all major suppliers of LFP to the BYD group. In the Commission’s view, this confirms that the GOC, via the mechanism in place, notably the industry associations and support measures to LFP producers, ensures that LFP is provided to BEV producers at cheap prices and the LFP suppliers strictly follow the price mechanism in place. LFP producers are required to perform public functions when providing LFP to domestic producers, as opposed to act as rational economic operators.

(892) As far as BYD’s main supplier is concerned, the Commission established that its contract with the BYD group contained a provision relating to price ensuring that it would benefit from the most favourable supply

This means that the conditions of the supplier to BYD shall not be less favourable than the conditions this supplier provides to other clients. For example, the price for the supplier to BYD shall not be higher to the price to other clients for the same product.

; i.e. that it would not pay a higher price than any other customer of Hunan Yuneng New Energy Materials Co. Ltd. This provision is also confirmed in the IPO prospectus issued by the same company indicating that Party A [Hunan Yuneng New Materials Co. Ltd] promises to provide Party B [the BYD group] with the most favorable supply conditions for lithium iron phosphate (including supply of lithium iron phosphate quantity, supply price), and shall not be higher than the lowest price of similar products sold by Party A to any other customers

https://pdf.dfcfw.com/pdf/H2_AN202302021582656416_1.pdf , p. 1.1.384

. The same document also acknowledged that BYD was a strategic investor of Hunan Yuneng New Materials Co. Ltd.

(893) Furthermore, while CATL is also both a strategic investor and major customer of Hunan Yuneng New Materials Co. Ltd

https://pdf.dfcfw.com/pdf/H2_AN202302021582656416_1.pdf , p. 1.1.47

, the Commission established in recital (801) that its Articles of Association provide that the pricing of related party transaction shall be stipulated by the State

https://www.catl.com/uploads/1/file/public/202204/20220426200308_qr532d21u6.pdf

. Hence, considering the relationship between the two companies and in the absence of any other evidence pointing to the contrary, the Commission considered that the price paid by CATL for LFP was set by the State. This covers a major share of the LFP purchased on the Chinese market destined to BEV producers given the fact that CATL is the biggest independent battery producer in China

Rhodium report, p. 41

(894) Consequently, considering that Hunan Yuneng New Materials Co. Ltd is bound to provide the BYD group with the most favourable supply conditions for LFP in terms of prices as described in recital (891), the Commission inferred that CATL and the BYD group, the two major battery producers on the Chinese market, were purchasing LFP at the most favourable price which was set by the State thanks to a price mechanism designed by the GOC to benefit the BEV industry.

(895) In view of the above considerations, the Commission established that the suppliers of LFP are not free to set prices according to normal market considerations and to maximise their profits. This is not only illustrated by the GOC intervention in the market as described in recital (750) but also by the price setting mechanism benefitting the main economic operators in the battery and BEV industry as described in recitals (891) to (893). The above confirms that LFP suppliers provide BEV producers with this input for less than adequate remuneration, thereby conferring a benefit to the BEV producers.

(c) Conclusion

(896) On the basis of the information analysed above, the Commission concluded that the LFP suppliers are vested with governmental authority and exercise governmental functions. Because of the GOC plans and the applicable strict control and supervision mechanisms governing the associations, the acts of these associations and their members, as well as the other suppliers, are in fact acts of the GOC.

(897) The Commission considered likewise that the companies supplying lithium phosphate are also vested with government authority and exercise government functions in that they also have to abide by the GOC policies covered in Section 3.7.2 rather than acting according to the free market principles in order to maximise their profits. Their company decisions and management are clearly affected by these GOC policies to supply LFP at cheaper or set prices for the development of the BEV industry, as well as to follow the guidance on production targets, which therefore cannot be considered expression of private behaviour in a free market economy. The evidence found on pricing on the domestic market, and on the pricing behaviour on the export market vis-à-vis the domestic market further confirms that LFP producers in China abide by the GOC policies rather than by free market principles.

(898) The characteristics of the Chinese domestic market and the pricing mechanisms that are implemented and monitored by the battery associations, their members, and the LFP suppliers, further corroborate the conclusion that they are vested with government authority and exercise governmental functions.

(899) As a result, the Commission considered that the GOC created an environment whereby LFP would be provided to vertically-integrated BEV producers and battery producers such as CATL, which acts as a public body implementing government policy, for less than adequate remuneration. On this basis, the Commission concluded that the batteries associations including the CBIA and CIAPS, the members of these associations and all other suppliers of batteries and lithium are also considered to be public bodies within the meaning of Article 1.1(a)(1) of the SCM Agreement as they have no choice but to comply with the overarching GOC policy objectives in favour of BEV producers.

(b) LFP producers acting as private bodies entrusted with functions or directed by the GOC

(900) In addition to the findings of the LFP producers being a public body for the purpose of Article 3(1)(a) of the basic Regulation, the Commission also examined in the alternative whether the GOC provided a financial contribution by entrusting or directing LFP producers (as private bodies) to provide batteries to the BEV producers for less than adequate remuneration, as provided by Article 3(1)(a)(iv) of the basic Regulation.

(901) This analysis is carried out based on the applicable legal standard covered in recitals (822) - (826). The Commission analysed first whether the GOC’s support to the Chinese BEV industry in the form of provision of LFP for less than adequate remuneration is effectively an objective of the various government measures in question and not merely a side effect of the exercise of general regulatory power. The investigation examined in particular whether the lower prices of LFP found were part of the government’s objectives, or whether the lower prices were rather an inadvertent by-product of general governmental regulation. The Commission concluded that the various interventions by the GOC had as their objective to support the BEV industry, and that the lower battery LFP-prices were an intended objective of these measures, which were in turn enforced through the industry associations that have the obligation to respect and enforce these plans.

(902) The GOC took a number of measures throughout the years to achieve its policy goal. Section 3.2 has detailed the relevant background and context explaining the importance the GOC attaches to the development of the BEV industry and the industries around it.

(903) The LFP industry, together with the battery industry, is heavily supported in China. A large number of regulations, issued by different governmental bodies supervise each aspect of the battery sector exist, and also their upstream materials as demonstrated in Section point (i) of Section 3.7.2.1.1, and in particular Mineral Resources Law and the Rules for Implementation of the Mineral Resources Law (recital (723)) and the 14th Raw Materials FYP (recital (714)). Moreover, evidence of GOC intervention in the pricing of raw materials for new energy vehicles was found in press statements by the MIIT in 2022 (recital (750)), when the government pledged to push the price of raw materials used in NEV (including lithium) back to a reasonable level.

(904) Moreover, the Commission already established that the Chinese industry associations (i.e. CBIA and CIAPS) are not independent industry associations, in light of the level of control by the GOC over them (recitals (777) - (784)) and the functions they perform, which demonstrates that they are vested with government authority (recitals (791) - (798)). In particular, members of CIAPS have the power to strengthen industry self-discipline and to regulate the association, industry and behaviour of members while CBIA members have the power to coordinate issues in corporate production, sales and export. Hence, these two associations exercise government functions in that their role is to implement the GOC policies to provide LFP at cheaper prices for the benefit of the domestic BEV industry, and supervise that all the relevant suppliers are fully compliant with them.

(905) This confirms that LFP suppliers are not acting as free market operators in the Chinese domestic market and are not taking economically rational decision, as exemplified by the trend in the domestic and export prices of LFP (recital (919)), whereby domestic and export prices follow completely different trends. Indeed, their irrational behaviour shows that it was directed by the GOC policies to supply LFP at cheaper prices to the domestic BEV industry. This is further confirmed by the findings in recital (892) above, whereby the Commission inferred that the majority of LFP prices on the market, that is the LFP purchased by CATL and BYD from related suppliers, are directly and indirectly fixed by the State.

(906) Moreover, the Commission found evidence in national and local policies that LFP suppliers are eligible to a series of support measures, covered in point (i) of Section 3.7.2.1.1. It is recalled that no upstream supplier cooperated in this investigation, and thus the Commission was not able to ascertain whether LFP suppliers were recipients of the support measures listed in point (i) of Section 3.7.2.1.1. In this regard, the Commission established that BYD’s main LFP supplier, Hunan Yuneng New Energy Materials, benefitted from a wide range of direct grants on top of the income tax benefits that it can avail thanks to its high-tech enterprise certificate

http://file.finance.sina.com.cn/211.154.219.97:9494/MRGG/CNSESZ_STOCK/2023/2023-4/2023-04-13/8980089.PDF, pp. 122, 128 and 150

.

(907) On this basis and given the support framework created by the GOC, it is reasonable to infer that other LFP suppliers would also benefit from such incentives, so that the GOC could further direct companies to increase and support the domestic supply of LFP in favour of the development of the BEVs industry.

(908) Moreover, as already covered in recitals (873), LFP suppliers that were members of the CBIA and/or CIAPS represented over 90 % of the total quantity of LFP supplied to the BYD Group and over 90 % of the total value during the investigation period. The Commission also found that the aforementioned Chinese industry associations were not independent associations acting according to free economic principles, but entities guided by the GOC and managed by it through the State Council (see point (ii) of Section 3.7.2.1.1(a)). In particular, both associations were found to be undertaking tasks entrusted by the government (recitals (781) and (783), and their role is to assist the government in the implementation of governmental policies and in regulating the behaviour of their members. The fact that the associations and their members are vested with the power to strengthen industry self-discipline and to regulate the association, industry and behaviour of members, and, in the case of the CBIA specifically also to coordinate issues in corporate production, sales and export shows that the associations are public bodies entrusted by the GOC to direct its members to adapt their economic decisions for the benefit of the BEV industry.

(909) The Commission considered that, in view of the evidence available, the GOC took a more active role than mere acts of encouragement, as required by the WTO Appellate Body

Appellate Body Report, DS 296, para. 115.

. The measures taken by the GOC restrict the freedom of action of the LFP producers by limiting in practice their business decision at what price to sell their product, as shown in the plans covered in Section 3.2, to the benefit of the BEV industry. The role of the GOC went well beyond an ordinary intervention as a market regulator. The relevant measures, including export restrictions on LFP and support measures to LFP suppliers, not only regulated general aspects of the market but imposed a specific behaviour on LFP suppliers. All these measures were undertaken in order for LFP suppliers to provide LFP at cheaper prices for the benefit of the BEV industry. That intention was made clear through numerous policy statements and actions covered in Sections 3.7.2.1.1 and 3.7.2.2.1.

(910) By obliging LFP suppliers to comply with these measures, which were in turn enforced through the industry associations that have the obligation to respect and enforce these plans, the GOC deprived them of the ability to freely choose their selling strategies according to market considerations. In other words, these measures clearly constitute a demonstrable link between the government act and the conduct of the battery companies. The GOC used the battery companies as a proxy to support the BEV producers.

(911) Finally, the Commission assessed whether the actual provision of LFP, in no real sense, differs from what the government would have done itself. The Commission considered this to be the case. Rather than providing LFP directly to the BEV industry in order to achieve the GOC public policy objectives of boosting the development of this industry, the GOC through a set of measures induces private entities to do so on its behalf. Moreover, to the extent that such provision of goods by the government involves some expenditure (such as the provision of subsidies to the inputs or the sacrifice of income by providing goods for less than adequate remuneration), such an action should be understood as the typical functions normally vested in the government.

(912) In light of the above, the Commission concluded that the set of measures adopted by the GOC lead to a financial contribution in the form of government's provision of LFP for less than adequate remuneration to the Chinese BEV producers under Article 3(1)(a)(iv) of the basic Regulation.

3.7.2.2.2.

Benefit, specificity and calculation of the subsidy amount

(a) Benefit

(913) As explained in Section 3.3.1.2, no unrelated manufacturing supplier of LFP or batteries provided information to the Commission by replying to the specific questionnaire intended for suppliers of input in China. The related LFP supplier of BYD did not provide a questionnaire reply, and the Commission could not assess whether the price at which the BYD group purchased LFP could be deemed at arms’ length.

(914) As a consequence, the Commission had to rely on facts available in accordance with Article 28 of the basic Regulation in order to determine the level of the benefit for the sampled exporting producers that purchased LFP and batteries on the domestic market.

(915) The Commission concluded in recitals (895) - (898) that suppliers of LFP were considered to be public bodies and/or private companies entrusted and directed by the State.

(916) In accordance with Articles 3(2), 5 and 6(d) of the basic Regulation, the Commission assessed the amount of countervailable subsidies in terms of the benefit conferred on the recipient, which was found to exist during the investigation period.

(917) The Commission therefore first assessed whether prices in China could amount to an appropriate benchmark.

(918) Due to the partial non-cooperation of the GOC, the Commission lacked crucial information on the market situation in China of suppliers of raw materials used in the production of batteries and on possible adjustments that needed to be made. The Commission found that the prevailing conditions in the PRC market were distorted in view of the applicable national and sectoral policies implemented by all economic operators.

(919) Several examples of heavy government intervention and support across the entire BEV supply chain, that prevented the normal market dynamics to determine the price exist. The prices of the main input used in the production of batteries, i.e. LFP, was therefore deemed not to be a market price, but a price influenced by the government to achieve its policy objectives.

(920) This is also evidenced by the fact that the domestic prices at which BYD was purchasing LFP were significantly lower than the Chinese export price. The Commission found that the steep downward trend (over 30 %) observed in the domestic purchase price for LFP over the investigation period was completely disconnected from the evolution of the export price from the PRC to the rest of the world that remained rather stable. Hence, the data available to the Commission showed, not only, that the GOC, via the associations and its members acting as public bodies, established a pricing mechanism for the raw materials used for batteries and in particular, LFP, but also the effect of that mechanism was visible on the Chinese domestic market during the investigation period.

(921) For that reason alone, the Commission considered that the domestic prices of LFP in China are distorted and cannot be used as benchmark for the purpose of determining the benefit.

(922) Therefore, the Commission had to look for appropriate out-of-country benchmarks.

(923) In line with Article 6(d), second subparagraph, (ii) of the basic Regulation, the Commission analysed the biggest producers of LFP as the closest possible proxies for an undistorted Chinese domestic price.

(924) Given the dominant market position of China in the production of LFP and the fact that no other out-of-country prices could be found and, considering the impossibility to draw a comparison between Chinese domestic prices and out-of-country prices, the Commission had to rely on export prices from China to the rest of the world, delivered on FOB basis. These prices were thus considered as an appropriate benchmark in light of the existing dominant conditions on this specific type of lithium, and the lack of any other reasonable benchmark. On this basis, the Commission found the domestic prices of LFP to be lower than the export prices to the rest of the world.

(b) Specificity

(925) The set of measures applied by the GOC ensuring the provision of LFP for less than adequate remuneration, including export restraints and support to LFP producers to comply with the GOC’s policy objectives and plans, are benefitting only certain industries which purchase LFP. In addition, LFP is a specific type of refined lithium for the production of batteries used in BEVs.

(926) The Commission therefore concluded that subsidies in the form of provision of LFP for the production of batteries at less than adequate remuneration are specific within the meaning of Article 4(2)(a) of the basic Regulation. Those subsidies are limited to a class of enterprises or industries, notably those using LFP as an input material. Moreover, there was no evidence submitted by any of the interested parties suggesting that such form of subsidies is based on objective criteria or conditions in the sense of Article 4(2)(b) of the basic Regulation.

(c) Calculation of the subsidy amount

(927) The Commission compared the domestic price at which the BYD Group purchased LFP during the investigation period with the average Chinese export price during the investigation period

Based on GTA export statistics of China, HS code 28429040, from October 2022 to September 2023.

.

(928) Since one of the suppliers of LFP was also found to be a related company to the BYD Group for part of the IP, and in the absence of a questionnaire reply from this supplier, as covered in Section 3.3.4, the Commission did not have evidence on file that the prices set by the upstream supplier and the BYD Group were not affected by their relationship. The Commission had thus no evidence of such prices to be at arm’s length, and thus replaced this price with the average purchase price of LFP from unrelated suppliers.

(929) The benefit for BYD was calculated by comparing the domestic prices with the Chinese export price of LFP, in view of China’s dominant position in the refining of this type of lithium. As described in recital (400), since the Commission did not have evidence on file whether the purchases of LFP from the related supplier were at arm’s length, the average price from the related LFP supplier was replaced by the average purchase price sourced from unrelated suppliers. No adjustments were made.

Provision of lithium for the production of batteries for less than adequate remuneration

Company nameSubsidy rateBYD group7,35 %

3.8.

Revenue foregone through tax exemption and reduction programmes

(1) Enterprise Income Tax (EIT) reduction for High and New Technology Enterprises

(930) According to the Law of the People's Republic of China on Enterprise Income Tax ('EIT Law'), high and new technology enterprises to which the State needs to give key support benefit from a reduced enterprise income tax rate of 15 % rather than the standard tax rate of 25 %.

(a) Legal basis

(931) The legal basis of this programme is Article 28 of the EIT Law and Article 93 of the Implementation Rules for the Enterprise Income Tax Law of the PRC

Implementing Regulations of the Enterprise Income Tax Law of the People's Republic of China (Revised in 2019) - Order of the State Council of the People's Republic of China No. 714.

, as well as:

Circular of the Ministry of Science and Technology, Ministry of Finance and the State Administration of Taxation on revising and issuing Administrative Measures for the Recognition of High-Tech Enterprises (No. 32 of 2016);

Circular of the Ministry of Science and Technology, the Ministry of Finance and the State Administration of Taxation on Revising and Issuing the Guidelines for the Administration of Accreditation of High-tech Enterprises, (No. 195 of 2016);

Announcement of the State Administration of Taxation on the Application of Preferential Income Tax Policies to High-tech Enterprises (Announcement No. 24 of 2017);

The 2016 Catalogue of High-tech Fields Supported by the State

http://kj.quanzhou.gov.cn/wsbs/xgxz/201703/t20170322_431820.htm.

.

(932) Furthermore, in January 2021, the NDRC issued the 2020 version of the Catalogue of Encouraged Industries in the Western Region (Order No. 40 of 2021), effective from 1 March 2021. Encouraged enterprises located in 12 western provinces, autonomous regions, and cities can enjoy the preferential policy of levying enterprise income tax at a reduced tax rate of 15%. The Catalogue encourages Sichuan, Yunnan, Qinghai, Shaanxi, Gansu, Inner Mongolia and Guangxi to develop the lithium industry. Copper, aluminium, and graphite are also included in the Catalogue.

(933) Chapter IV of the EIT Law contains provisions regarding Preferential Tax Treatment. Article 25 of the EIT Law, which stands as a chapeau for Chapter IV, provides that The State will offer income tax preferences to Enterprises engaged in industries or projects the development of which is specially supported and encouraged by the State. Article 28 of the EIT law provides that the rate of enterprise income tax on high and new technological enterprises needing special support of the State shall be reduced to 15%.

(934) Article 93 of the Implementation Rules for the Enterprise Income Tax Law clarifies that:

The important high and new technology enterprises to be supported by the state" as referred to in Clause 2 of Article 28 of the Enterprise Income Tax Law refer to the enterprises which own key intellectual property rights and satisfy the following conditions:

1. Complying with the scope of the Key State Supported High and New Technology Areas;

1. The proportion of the research and development expense in the sales revenue shall be no less than the prescribed proportion;

1. The proportion of the income from high-tech technology/product/service in the enterprise's total revenue shall be no less than the prescribed proportion;

1. The proportion of the technical personnel in the enterprise's total employees shall be no less than the prescribed proportion;

1. Other conditions prescribed in the Measures for the Administration of High-Tech Enterprise Identification.

Measures for the Administration of High-Tech Enterprise Identification and Key State Supported High and New Technology Areas shall be jointly formulated by the technology, finance and taxation departments under the State Council and come into effect after approved by State Council.

(935) The above-mentioned provisions clearly specify that the reduced enterprise income tax rate is reserved to important high and new technology enterprises to be supported by the State which own key intellectual property rights and satisfy certain conditions such as complying with the scope of the Key State Supported High and New Technology Areas.

(936) According to Article 11 of the Administrative Measures for the Recognition of High-Tech Enterprises, to be recognized as high-tech an enterprise must simultaneously meet certain conditions among which: it has obtained the ownership of intellectual property rights, which plays a central role in technically supporting its main products (services), through independent research, transfer, grant, mergers and acquisitions, etc. and “the technology that plays a central role in technically supporting its main products (services) is within the range predetermined in the high-tech fields supported by the state.

(937) The key high technology fields supported by the State are listed in the 2016 Catalogue of High-tech Fields Supported by the State. This catalogue clearly mentions under I. Electronic Information, point 4. Communication technology optical transmission network and optical transmission system technology, which cover optical fibre cables, as high technology fields supported by the State.

(938) Companies benefiting from this measure have to file their income tax return and the relevant annexes. The actual amount of the benefit is included in the tax return.

(b) Findings of the investigation

(939) The Commission found that companies within the sampled exporting producer groups qualified as high-tech companies during the investigation period and thus enjoyed a reduced EIT rates of 15 %.

(c) Benefit

(940) The Commission considered that the tax offset at issue is a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOC that confers a benefit to the companies concerned. The benefit for the recipients is equal to the tax saving.

(d) Specificity

(941) This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation as the legislation itself limits the application of this scheme only to enterprises that are operating in certain high technology priority areas determined by the State. The BEV industry is such a high technology priority.

(942) In addition to the EIT reduction based on high-tech enterprise status, EIT reduction to 15 % is available to NEV (including BEV) manufacturers also on the basis of criteria related to their physical location. In particular, if an enterprise is located in the Western region, the EIT may be paid at the reduced rate of 15 %.

(943) Thus, the legislation pursuant to which the granting authority operates, explicitly limits access to a subsidy to certain sectors and geographical regions.

(e) Calculation of the subsidy amount

(944) The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipients during the investigation period. This benefit was calculated as the difference between the total tax payable according to the normal tax rate and the total tax payable under the reduced tax rate.

(945) The subsidy rate established for this specific scheme was 0,36 % for BYD group.

(2) Preferential pre-tax deduction of research and development expenses

(946) The tax offset for research and development entitles companies to preferential tax treatment for their R&D activities in certain high technology priority areas determined by the State and when certain thresholds for R&D spending are met.

(947) More specifically, R&D expenses incurred by an enterprise when it conducts any R&D activity, an extra 100% of the amount of R&D expenses actually incurred shall be deducted before tax payment, in addition to the deduction of actual expenses as prescribed, as of 1 January 2023, provided that the said expenses are not converted into intangible assets and included in the current profits and losses.

(948) If the said expenses have been converted into intangible assets, such expenses may be amortized at the rate of 200% of the costs of the intangible assets before tax payment as of 1 January 2023.

(a) Legal basis

(949) The legal basis for the programme is Article 30(1) of the EIT Law, along with article 95 of the Implementation Rules for the Enterprise Income Tax Law of the PRC as well as the following notices:

Announcement of the State Administration of Taxation on Issues concerning the Attribution Scope of the Weighted Pre-tax Deduction of R&D Expenses (Announcement No 40 of 2017);

Announcement of the Ministry of Finance and State Administration of Taxation on Further Improving the Policies Regarding Weighted Pre-tax Deduction of R&D Expenses (Announcement No 7 of 2023);

(b) Findings of the investigation

(950) The Commission found out that companies within the sampled groups enjoyed additional deduction on research and development expenses incurred from the research and development of new technologies, new products and new techniques.

(c) Benefit

(951) The Commission considered that the tax offset at issue is a subsidy within the meaning of Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOC that confers a benefit to the companies concerned. The benefit for the recipients is equal to the tax saving.

(d) Specificity

(952) This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation as the legislation itself limits the application of this measure only to enterprises that incur R&D expenses in certain high technology priority areas determined by the State, such as the BEV sector. Thus, the legislation pursuant to which the granting authority operates, explicitly limits access to a subsidy to certain enterprises and sectors.

(e) Calculation of the subsidy amount

(953) The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipients during the investigation period. This benefit was calculated as the difference between the total tax payable according to the normal tax rate and the total tax payable after the additional 100 % deduction of the actual expenses on R&D.

(954) The subsidy rate established for this specific scheme was 0,57 % for BYD group, 0,03 % for Geely group, and 1,53 % for SAIC group.

(3) Dividends exemption between qualified resident enterprises

(955) The EIT Law offers income tax preferences to Enterprises engaged in industries or projects the development of which is specifically supported and encouraged by the State and in particular, exempt from tax the income from equity investment, such as dividends and bonuses, between eligible resident enterprises.

(a) Legal basis

(956) The legal basis for the programme is Article 26(2) of the EIT Law, along with the Implementation Rules for the Enterprise Income Tax Law of the PRC.

(957) Article 25 of the EIT, which stands as a chapeau for Chapter IV Preferential Tax Policies, provides that The State will offer income tax preferences to Enterprises engaged in industries or projects the development of which is specially supported and encouraged by the State. Furthermore, Article 26(2) specifies that the tax exemption is applicable to income from equity investments between eligible resident enterprises, which appears to limit its scope of application to only certain resident enterprises.

(b) Findings of the investigation

(958) The Commission found that some companies in the sampled groups received an exemption from tax of dividend income between qualified resident enterprises.

(c) Benefit

(959) The Commission considered that this scheme is a subsidy under Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOC that confers a benefit to the companies concerned. The benefit for the recipients is equal to the tax saving.

(d) Specificity

(960) This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation as the legislation itself limits the application of this exemption only to qualified resident enterprises which have the major support of, and the development of which is encouraged by the State. Thus, the legislation pursuant to which the granting authority operates, explicitly limits access to a subsidy to certain enterprises and sectors.

(e) Calculation of the subsidy amount

(961) The Commission has calculated the amount of the subsidy by applying the normal tax rate to the dividend income that has been deducted from taxable income.

(962) The subsidy rate established for this specific scheme was 0,17 % for Geely group, and 1,09 % for SAIC group.

(4) Accelerated depreciation of equipment used by High-Tech enterprises

(963) According to Article 32 of the EIT law, where accelerated depreciation of fixed assets of an enterprise is really necessary due to technological advancement or other reasons, the number of years for the depreciation may be lessened or the accelerated depreciation method may be adopted.

(a) Legal basis

(964) The legal basis for the programme is Article 32 of the EIT Law, along with the Article 98 of the Implementation Rules for the Enterprise Income Tax Law of the PRC as well as the following notices:

Notice of the Ministry of Finance and the State Administration of Taxation on Further Improving the EIT Policies for the Accelerated Depreciation of Fixed Assets (Notice No.106 of 2015);

Announcement on Issues concerning Further Improving the Enterprise Income Tax Policies for the Accelerated Depreciation of Fixed Assets (State Administration of Taxation Announcement No. 68 of 2015);

Notice by the Ministry of Finance and the State Administration of Taxation of the Relevant Enterprise Income Tax Policies for the Deduction of Equipment and Instruments (Notice No. 54 of 2018);

Announcement of the State Administration of Taxation on the Implementation of Relevant Enterprise Income Tax Policies for the Deduction of Equipment and Instruments (State Administration of Taxation Announcement No. 46 of 2018);

Announcement of the Ministry of Finance and the State Taxation Administration on Expanding the Scope of Application of the Preferential Policies on the Accelerated Depreciation of Fixed Assets (Announcement No. 66 of 2019);

Announcement of the Ministry of Finance and the State Taxation Administration on Extending the Implementation Period of Certain Preferential Tax Policies (Announcement No. 6 of the Ministry of Finance and the State Administration of Taxation in 2021);

Announcement of the Ministry of Finance and the State Taxation Administration on the Relevant Enterprise Income Tax Policies for the Deduction of Equipment and Instruments (Announcement No. 37 of the Ministry of Finance and the State Administration of Taxation in 2023)

(965) According to the Notice on the Policies of Deduction of Equipment and Appliances for Enterprise Income Tax Purposes (Cai Shui [2018] No. 54), where the unit value of a piece of equipment or appliance newly purchased by an enterprise during the period from January 1, 2018 to December 31, 2020 does not exceed RMB five million, the enterprise is allowed to include such value in the cost and expenses of the current period on a lump-sum basis for deduction upon calculation of its taxable income, and is no longer required to calculate depreciation on an annual basis. This legislation is not industry-specific.

(966) As regards assets with unit value above 5 million RMB, the Notice on Fine-tuning the Enterprise Income Tax Policies Applicable to Accelerated Depreciation of Fixed Assets (Cai Shui [2014] No. 75) and the Notice on Further Fine-tuning the Enterprise Income Tax Policies Applicable to Accelerated Depreciation of Fixed Assets (Cai Shui [2015] No. 106) continue to apply. According to theses notices, fixed assets purchased by companies in 10 key industries may opt for the accelerated depreciation method.

(b) Findings of the investigation

(967) The Commission established that, during the investigation period, the sampled groups have not applied accelerated depreciation for assets with unit value that exceeds 5 million RMB. Therefore, since those assets did not fall under Notice Cai Shui [2014] No. 75 and Notice Cai Shui [2015] No. 106, the Commission found that the exporting producers did not benefit from countervailable subsidies.

(5) Technology transfer revenue deduction

(968) The tax offset for technology transfer entitles companies to preferential tax treatment for their export activities. Under this scheme 50% of the revenue gained from selling the technology abroad is deductible from EIT base, limited up to the level of break even.

(a) Legal basis

(969) The legal basis of this programme is Article 27 of the EIT Law, as well as:

Notice of the State Administration of Taxation on Issues relating to Exemption and Reduction of Enterprise Income Tax on Income from Technology Transfer (Notice No. 212 of 2009).

(b) Findings of the investigation

(970) The Commission found that one of the sampled groups benefitted from a transfer technology income tax deduction for the technology transferred abroad.

(c) Benefit

(971) The Commission considered that this scheme is a subsidy under Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOC that confers a benefit to the companies concerned. The benefit for the recipients is equal to the tax saving.

(d) Specificity

(972) The subsidy is specific withing the meaning of Article 4(2)(a) and Article 4(4)(a) of the basic Regulation as the legislation pursuant to which the granting authority operates, explicitly limits access to a subsidy to enterprises involved in transfer of technologies and under the condition of export performance.

(e) Calculation of the subsidy amount

(973) The Commission has calculated the amount of the subsidy by applying the normal tax rate to the technology transfer income that has been deducted from taxable income.

(974) The subsidy rate established for this specific scheme was 0,05 % for the Geely group.

(6) Battery consumption tax exemption

(975) The battery consumption tax exemption entitles BEV producers that purchased certain batteries to an exemption of the normally applicable 4% consumption tax. This scheme is limited to certain products including lithium batteries.

(a) Legal basis

(976) The legal basis for the programme can be found in the following documents:

Circular of the Ministry of Finance and the State Administration of Taxation on Imposing Consumption Tax on Batteries and Coatings (No. 16 of 2015) (the circular on batteries);

Announcement of the State Administration of Taxation on Issues concerning the Administration of the Imposition of Consumption Tax on Batteries and Coatings (Announcement No 5 of 2015);

Announcement of the State Administration of Taxation on Clarifying Matters relating to the Imposition of Consumption Tax on Batteries and Coatings (Announcement No 95 of 2015).

(977) According to the circular on batteries, batteries became subject to consumption tax at the applicable rate of 4%. However, certain types of batteries such as lithium primary batteries and lithium-ion batteries were exempted from such consumption tax.

(978) Such circular was originally published to promote energy conservation and environmental protection.

(b) Findings of the investigation

(979) The Commission found out that at least one sampled group enjoyed a 4% consumption tax exemption on its purchases of batteries.

(c) Benefit

(980) The Commission considered that this scheme is a subsidy under Article 3(1)(a)(ii) and Article 3(2) of the basic Regulation because there is a financial contribution in the form of revenue foregone by the GOC that confers a benefit to the companies concerned. The benefit for the recipients is equal to the tax saving.

(d) Specificity

(981) This subsidy is specific within the meaning of Article 4(2)(a) of the basic Regulation as the legislation itself limits the application of this measure only to certain batteries such as lithium primary batteries and lithium-ion batteries. The investigation also revealed that such batteries are primarily used in the BEV sector. Thus, the legislation pursuant to which the granting authority operates, explicitly limits access to a subsidy to certain enterprises and sectors.

(e) Calculation of the subsidy amount

(982) The amount of countervailable subsidy was calculated in terms of the benefit conferred on the recipients during the investigation period. This benefit was calculated based on value of the batteries purchased during the IP to which the normally applicable 4% consumption tax was applied.

(983) Considering the methodology used to calculate the subsidy amount pertaining to the provision of batteries for less than adequate remuneration as described in Section 3.7.2, no subsidy amount was calculated for the non-integrated BEV producers.

(984) The subsidy rate established for this specific scheme was 1,37 % for the BYD group.

(7) Subsidisation as regards non-cooperating companies (SAIC Group)

(985) As described in section 3.3.2.2 and in recital (336), certain related companies within the SAIC group failed to provide a questionnaire reply although the scope of their activities would normally have required them to submit a questionnaire reply based on the instructions contained in the questionnaire and subsequent note to the file clarifying the activities requiring the submission of a questionnaire reply

Note to the file: Related companies required to submit a questionnaire reply. (t23.005730)

.

(986) In the absence of reply by certain related companies involved in research and development (R&D) activities and the supply of certain parts and components listed in the Memorandum on sufficiency of evidence, the Commission had to rely on facts available for these companies. In particular, the Commission relied on its assessment about subsidisation for similar companies of the other non-vertically integrated sampled exporting producer to determine the level of subsidisation.

(987) As far as R&D companies are concerned, the SAIC group provided a questionnaire reply for one related company involved in such activities. The Commission identified another related company involved in the same activities. However, the SAIC group refused to provide a questionnaire reply for this company. Hence the Commission had to rely on facts available.

(988) As the Commission could only partially verify the information provided by the related R&D company, the Commission considered that the findings related to this company were not representative. Hence, the Commission decided to rely on the amount of subsidisation established for the verified R&D companies within the Geely Group. In the case of the Geely Group, all companies with R&D related activities concerning the product under investigation provided a questionnaire reply that could be verified subsequently. Consequently, the Commission decided to base its findings for the SAIC Group based on the amount of subsidisation established for the verified R&D companies within the Geely Group. The subsidy amounts related to the following schemes: preferential financing as described in section 3.5, grant programmes as described in section 3.6, provision of land use rights for less than adequate remuneration as described in section 3.7.1 and revenue foregone through tax exemption and reduction programme as described in section 3.8. Those amounts were added to the overall subsidy result for the SAIC Group.

(989) Certain related companies within the SAIC Group involved in the supply of inputs (excluding batteries and their components) did not provide a questionnaire reply. The Commission first considered the amounts of subsidisation found for the related suppliers of batteries and their components. However, considering the share that these products represent in the total cost of production in comparison with that of the parts supplied by the related companies that did not provide a questionnaire reply, the Commission considered that such companies were not representative. The Commission then turned to the verified information for companies supplying inputs, excluding batteries and their components and considered that the amount of subsidisation established for the sole related supplier

This supplier is not active in the supply of batteries so there is no overlapping of provision of batteries at less than adequate remuneration described in Section 3.7.2.

that was verified at this stage of the proceeding constituted a reasonable basis for its findings in view of its activities (supply of inputs) and the share that these products represented in the total cost of production. The subsidy amounts related to the following schemes: preferential financing as described in section 3.5, grant programmes as described in section 3.6, provision of land use rights for less than adequate remuneration as described in section 3.7.1. Those amounts were added to the overall subsidy result for the SAIC Group.

3.9.

Other schemes

(990) The Memorandum on sufficiency of evidence also listed other schemes for which there was sufficient evidence tending to show the existence of countervailable subsidies available for the BEV producers. The Commission also acquired information in the course of the investigation on additional programmes benefiting the sampled exporting producers which may also be countervailable. Without prejudice to their countervailability, the Commission provisionally decided not to issue findings on these programmes at this stage. The list of such programmes includes but is not limited to:

Provision of power for less than adequate remuneration;

Provision of other raw materials for the production of batteries for less than adequate remuneration;

Preferential insurance : export credit insurance

Grants under measure for the Parallel Administration of the Corporate Average Fuel Consumption (CAFC) and New Energy Vehicle (NEV) Credits of Passenger Vehicle Enterprises (the Parallel Credits Measure)

Consumption tax exemption, license plate fee exemption, and other cash subsidies for BEV producers;

VAT exemptions and import tariff rebates for the use of imported equipment and technology and VAT rebates on domestically-produced equipment;

Export tax rebates

(991) The Commission reserves the right to investigate further the countervailability of these schemes and issue findings until the definitive findings of this investigation are disclosed, or subsequently in the context of a review pursuant to Article 19 of the basic Regulation.

3.10.

Conclusion on subsidisation

(992) Based on the information available, the Commission calculated the amount of countervailable subsidies for the sampled exporting producers in accordance with the provisions of the basic Regulation by examining each subsidy or subsidy programme, and added these figures together to calculate a total amount of subsidisation for each exporting producer group for the investigation period. To calculate the overall subsidisation below, the Commission first calculated the percentage subsidisation, being the subsidy amount as a percentage of the company’s total turnover. This percentage was then used to calculate the subsidy allocated to exports of the product concerned to the Union during the investigation period. The subsidy amount per piece of product concerned exported to the Union during the investigation period was then calculated, and the rates below calculated as a percentage of the Costs, Insurance and Freight (CIF) value of the same exports per piece.

(993) In accordance with Article 15(3) of the basic Regulation, the total subsidy amount for the cooperating exporting producers not included in the sample was calculated on the basis of the total weighted average amount of countervailing subsidies established for the cooperating exporting producers in the sample with the exclusion of negligible amounts as well as the amounts of subsidies established in the circumstances referred to in Article 28(1) of the basic Regulation. However, the Commission did not disregard findings partially based on facts available to determine those amounts. Indeed, the Commission considers that the facts available used in those cases did not affect substantially the information needed to determine the amount of subsidisation in a reasonable manner, so that exporters who were not asked to cooperate in the investigation will not be prejudiced by using this approach

See also, mutatis mutandi, WT/DS294/AB/RW, US — Zeroing (Article 21.5 DSU), Appellate Body Report of 14 May 2009, paragraph 453.

.

(994) Given the high rate of cooperation of Chinese exporting producers and the representativeness of the sample also in terms of subsidy eligibility, the Commission considered it appropriate to set the amount for all other companies at the level of the highest amount established for the sampled companies. The all other companies amount was applied to those companies which did not cooperate in the investigation.

CompanyAmount of countervailable subsidies

BYD Group:

BYD Auto Company Limited

BYD Auto Industry Company Limited

Changsha BYD Auto Company Limited

Changsha Xingchao Auto Company Limited

Changzhou BYD Auto Company Limited

Fuzhou BYD Industrial Company Limited

Hefei BYD Auto Company Limited

Jinan BYD Auto Company Limited

17,4 %

Geely Group:

Asia Euro Automobile Manufacture (Taizhou) Company Limited

Chongqing Lifan Passenger Vehicle Co.,Ltd.

Fengsheng Automobile (Jiangsu) Co., Ltd.

Shanxi New Energy Automobile Industry Co., Ltd.

Zhejiang Geely Automobile Company Limited

Zhejiang Haoqing Automobile Manufacturing Company Limited

19,9 %

SAIC Group:

SAIC MAXUS Automotive Company Limited

SAIC Motor Corporation Limited

Nanjing Automobile (Group) Corporation

37,6 %Other cooperating companies20,8 %All other companies37,6 %

1. INJURY

4.1.

Definition of the Union industry and Union production

(995) The like product was manufactured by around 10 groups of producers in the Union, some of which produced the like product in several legal entities, during the investigation period. Most of these companies are original equipment manufacturers (OEMs) of internal-combustion engine (ICE) vehicles that are transitioning to the production of BEVs following the entry into force of Regulation (EU) 2019/631

Regulation (EU) 2019/631 of the European Parliament and of the Council of 17 April 2019 setting CO2 emission performance standards for new passenger cars and for new light commercial vehicles, and repealing Regulations (EC) No 443/2009 and (EU) No 510/2011, OJ L 111 of 25.4.2019, p. 13.

setting the CO2 emission performance standards for new passenger cars and vans. Other companies are pure BEV producers. They together constitute the Union industry within the meaning of Article 4(1) of the basic Regulation.

(996) The transitioning of the Union market from ICE vehicles to BEVs represents a relevant factor in this case which affects a number of indicators relating to the state of the industry. The transitioning from ICE vehicles to BEVs implies high upfront as well as continuous investments and costs in a new developing market with fast increasing consumption. The Union industry started to invest in electrification before 2020

https://autovista24.autovistagroup.com/news/volkswagen-electric-vehicle-leader/

. As shown in Table 10 the sampled Union producers invested EUR 2 bn per year during the period considered while the total investments for the transition to the electrification are estimated to EUR 170 bn as stated in recital (1092). The examination of all the economic factors having a bearing on the state of the Union industry should be carried out by having due regard to the nature of the Union industry as being in this transition. Thus, the resulting trends may be affected and follow a different pattern than those observed in situations of other more mature industries.

(997) The total Union production during the investigation period was established at around 1,6 million pieces. The Commission established this figure on the basis of Prodcom

The production data for 2023 will be publicly available on 1 July 2024.

and crosschecked it against all other available sources of information concerning the Union industry. This included sampling replies and publicly available data on producing group websites.

(998) Some of the Union producers also manufactured the product under investigation in the country concerned during the period considered in joint ventures with Chinese companies. These producing groups (BMW, Renault and Mercedes-Benz) imported the product concerned from China in that period. In fact, during the investigation period each such Union group of producers imported mainly one model of BEVs from China and thus complemented its portfolio of BEVs that it manufactured in the Union and sold on the Union market. These producers imported a quantity of around [4,7 – 5,7]% of the Union consumption in the investigation period as explained in Table 12. Tesla also imported significant quantities of BEVs from China. Volvo, which is owned by the Chinese company Geely, did not import BEVs with the brand Volvo from China during the investigation period. Its shareholder though, Geely, exported BEVs from China to the Union under different brands.

(999) In defining the Union industry and Union production, the Commission did not focus on brands or OEM groups, but on the origin of production of BEVs. Therefore, the Commission included all Union production of BEVs (i.e. BEVs brought into existence or made in the Union) in its injury, causation and Union interest analyses.

4.2.

Determination of the relevant Union market

(1000) Bearing in mind that there was no significant captive market for BEVs, the Commission examined all economic indicators relating to the Union industry on the basis of data for the free market.

4.3.

Union consumption

(1001) The Commission established the Union consumption on the basis of both apparent and actual consumption.

(1002) Apparent consumption took into account the total sales of the Union industry on the Union market as reported by the European Environment Agency

https://co2cars.apps.eea.europa.eu/?source=%7B%22track_total_hits%22%3Atrue%2C%22query%22%​3A%7B%22bool%22%3A%7B%22must%22%3A%5B%7B%22constant_score%22%3A%7B%22filter%22%3A%7B%22bool%22%3A%7B%22must%22%3A%5B%7B%22bool%22%3A%7B%22should%22%3A%5B%7B%22term%22%3A%7B%22year%22%3A2022%7D%7D%5D%7D%7D%2C%7B%22bool%22%3A%7B%22should%22%3A%5B%7B%22term%22%3A%7B%22scStatus%22%3A%22Provisional%22%7D%7D%5D%7D%7D%5D%7D%7D%7D%7D%5D%7D%7D%2C%22display_type%22%3A%22tabular%22%7D

(EEA) for 2020, 2021 and 2022, and as reported by S&P Global Mobility

https://www.spglobal.com/mobility/en/index.html

for the investigation period since this information was not made yet publicly available by EEA by the time this regulation was published, as well as imports from Member States customs data. Customs data was collected from eight Member States with large volumes of imports and the largest regional seaports: Belgium, France, Germany, Italy, Netherlands, Slovenia, Spain and Sweden. A granular examination of this data enabled a distinction to be made between imports of BEVs (as clarified in recitals (184)) and imports of other goods such as quadricycles, electric mobility scooters etc. Only very minor volume of imports were reported by other Member States and their very low average price indicated that they concerned, by and large, other products outside the product scope. The data from these eight Member States was, therefore, on a conservative basis, accepted as an accurate indicator of BEV imports.

(1003) It should be noted that, as explained in recital (1084), the Union industry mainly works on orders and therefore its sales volume closely equates to the number of BEV registrations of BEVs manufactured in the Union.

(1004) Actual consumption took into account all registered BEVs on the Union market as reported by the ACEA.

(1005) To be noted that both EEA and ACEA report the total number of registrations of all BEVs in the Union. When comparing the data, there is a very small difference between the two sources ranging between –0,34% to 1,15% during the period considered.

(1006) Union consumption developed as follows:

Table 1

Union consumption (pieces)

https://www.acea.auto/files/20220202_PRPC-fuel_Q4-2021_FINAL.pdf, https://www.acea.auto/files/20230201_PRPC-fuel_Q4-2022_FINAL-1.pdf, https://www.acea.auto/files/Press_release_car_registrations_full_year_2023.pdf, https://www.acea.auto/files/Press_release_car_registrations_September_2023.pdf. To be noted that the data reported by ACEA slightly differs from one source to the other.

https://www.acea.auto/files/ACEA-Pocket-Guide-2023-2024.pdf, https://www.acea.auto/files/20230201_PRPC-fuel_Q4-2022_FINAL-1.pdfhttps://www.acea.auto/files/20230201_PRPC-fuel_Q4-2022_FINAL-1.pdf, https://www.acea.auto/files/Press_release_car_registrations_September_2023.pdfhttps://www.acea.auto/files/Press_release_car_registrations_September_2023.pdf.

Source:

S&P Global Mobility, EEA, ACEA and Member States Customs data

202020212022Investigation periodApparent Union consumption55046089738411489501649486Index100163209300Actual Union consumption (registrations of BEVs)53873487798511234441519082

Index100163209282registered BEVs as a % of all passenger vehicle registrations5,4%9,1%12,1%14,6%Index100169224270

(1007) Apparent and actual consumption on the Union market increased by 200% and 182% respectively over the period considered. This increase reflects a progressive transition of the Union passenger car market from ICE vehicles to BEVs.

(1008) The difference between the figures for actual and apparent consumption represents the extent of stocks on the Union market. Such stocks were not identified in meaningful quantities for Union producers as the Union producers are mainly producing based on orders as explained in recital (1084) and were therefore mainly attributed to the stocks of imported vehicles.

(1009) The increase in the number of BEVs registered as a percentage of all passenger vehicle registrations shows a progressive transition of the Union market from ICE passenger vehicles to BEVs.

4.4.

Imports from the country concerned

4.4.1.

Volume and market share of the imports from the country concerned

(1010) The Commission established the volume of imports on the basis of Member State customs data as well as from the number of registrations of imported BEVs. Such imports were based on the country of origin. The market share of the imports was established on the basis of (a) the volume of actual imports or (b) the registration of imported vehicles as a percentage of respectively (a) the apparent consumption data or (b) actual consumption as shown above in Table 1.

(1011) Imports into the Union from the country concerned on the basis of Member State customs data developed as follows:

Table 2a

Import volume in pieces and market share

Sources:

Member States Customs data

202020212022Investigation periodVolume of imports from the country concerned (pieces)21243134952256712412425Index10063512081941Market share3,9%15,0%22,3%25,0%Index100390579648

(1012) The actual volume of imports from China increased by 1841% over the period considered.

(1013) The market share of imports from China increased from 3,9% in 2020 to 25,0% in the investigation period, an increase of over 500% or roughly 21 percentage points.

(1014) The volume of imports into the Union from the country concerned based on the number of registrations developed as follows:

Table 2b

Import volume in pieces and market share

Sources:

EEA and S&P Global Mobility

202020212022Investigation periodRegistrations following importation from the country concerned (pieces)18934132768246090346345Index10070113001829Market share3,5%15,1%21,9%22,8%Index100430623649

(1015) The number of registrations following importation from the country concerned increased from less than 19000 pieces in 2020 to over 340000 pieces in the investigation period. This is an increase of 1729% over the period considered.

(1016) On this basis, the market share of imports from China increased from 3,5% in 2020 to 22,8% in the investigation period, an increase of over 500% or over 19 percentage points.

(1017) The difference between the volume of actual imports and registration following importation from China (around 66000 pieces) demonstrates substantial stocks on the Union market of BEVs of Chinese origin. Further evidence of stocks was provided by the sampled exporting producers, which reported stocks of around 63000 pieces at the end of the investigation period. Taking into account non-sampled Chinese exporting producers, the Commission estimated that actual stocks, ready for sale on the Union market, likely reached 66000 pieces. This would represent around 4,3% of consumption on the Union market (registrations) in the investigation period or around 19% of the volume of registrations following importation from China during the same period.

4.4.2.

Prices of the imports from the country concerned, price undercutting and price suppression

(1018) The Commission established the prices of imports on the basis of Member States’ Customs data.

(1019) The weighted average price of imports into the Union from the country concerned developed as follows:

Table 3

Import prices (EUR/ piece)

Source:

Member State Customs data

202020212022Investigation periodChina28154245102644125269Index100879490

(1020) The prices of Chinese imports on the Union market fell by 10% over the period considered.

(1021) However, this development should be seen also in the context of a continuously changing mix of BEV models imported from China as imports increased over the period considered as shown in Tables 2a and 2b.

(1022) For the purpose of making a fair comparison between the imported products and the like products produced by the Union industry, the Commission used a system of product categorisation based on product control numbers (PCN) which took into account the key characteristics of the BEVs having an impact on the selling price by the Union industry, and in particular the length, range, power and type of wheel drive

Wherever multiple attributes were observed to be closely linked not only with price, but also with each other, the Commission considered keeping in the PCN only one of these attributes. For instance, having already included the range in the PCN, it was not considered meaningful to add also the battery capacity, given that the two are closely linked.

,

Notwithstanding the conclusion that a market segmentation is not appropriate in this case, the Commission noted that length is closely associated with the segments defined in the most commonly used car categories (i.e. based on letters A, B, C, etc).

. In this respect, whilst the BEVs are complex products, with a very large number of distinct attributes and features (even vehicles that are marketed under a single commercial model name, can be offered in a wide range of configurations, also depending on the choice by the customer of attributes that are offered as an option), this does not mean that all these distinct attributes have a significant impact on price and therefore should be taken into account when comparing prices. The Commission noted that the interested parties did not comment on the structure of the PCN.

(1023) The Commission determined the price undercutting during the investigation period by comparing:

(i) the weighted average sales prices per product type of the sampled Union producers charged to unrelated customers on the Union market, adjusted, where necessary, to the price to a dealer; and

(ii) the corresponding weighted average prices per product type of the imports from the sampled cooperating Chinese producers to the first independent customer on the Union market, adjusted, where necessary, to the price to a dealer.

(1024) The investigation revealed that in this specific case the sales channels of the Union producers and the Chinese exporting producers are very complex and can include numerous intermediaries between the producer and the first unrelated customer. The investigation showed that there are three different levels of trade (see recital (1025)) with at least four types of sales models (see recital (1027)). Consequently, the Commission decided, in view of the specific circumstances of this case, to determine the existence of price undercutting at dealer’s level (price to the dealer). Indeed, the Commission established that this is the central point where competition takes place, and the majority of the sales transactions are realised. The sales to the dealer or via the agent or to key accounts represent around 95% of the total sales of the Union industry and around 78% sales of the Chinese exporting producers. Furthermore, no distinction between related and unrelated dealers was needed as the investigation confirmed that prices to all dealers were made at arm’s length.

(1025) The three main levels of trade are as follows:

(i) the Producing Entity (PE) or the importing entity of the Chinese exporter (IE) which manufactures or imports BEVs and sells the BEVs to the next level of trade, i.e. related National Sales Company (NSC) or unrelated General Distributor (GD). Some PEs have a home market (typically country where the production happens or where the European headquarters of the IE are established) in which they also perform the functions of an NSC.

(ii) the NSCs related to the PE/IE which are focused on marketing and sales activities taking into account the specificities of the market in which they operate. NSCs typically exist in the major markets of the PE and distribute the BEVs via their related and unrelated distributor network (dealers and/or agents). In countries where there is no related NSC (typically countries where small quantities are sold) the sales are made through an unrelated GD (typically exclusive for the country). The GDs perform similar functions as NSCs and distribute the BEVs via their related and unrelated distributor network (dealers and/or agents).

(iii) Distribution networks made of dealers and agents. Dealers are the entities buying BEVs from NSCs and GDs and selling them to the final customer. Agents are companies that perform the same functions as a dealer without however taking ownership of the vehicle at any point. These companies might act as dealers for other types of vehicles, such as ICE vehicles.

(1026) In general, for each country, the PE/IE or NSC sets the Manufacturer’s Suggested Retail Price (MSRP), which is the price that a manufacturer recommends for retailers to sell their BEVs. However, in countries where there is no sales entity related to the producer, the MSRP is set up by the unrelated GD which performs functions similar to the NSCs. The MSRP is set based on the price that the Union producer charges to the unrelated GD.

(1027) The main sales models identified are the following:

(i) Standard dealer model – the BEV is sold by the PE/IE or the NSC to the dealer and from the dealer to the final customer. The dealer often receives a discount from the PE. Therefore, there is no adjustment necessary to the dealer net price. The price paid by the final customer is typically unknown to the PE as the dealers negotiate that price making use of their margin (difference between MSRP and dealer price).

(ii) Agency model – the BEV is sold directly to the customer from the PE/IE or the NSC. The sale is intermediated by an entity which is called an agent who does not assume ownership of the vehicle but negotiates and closes the sale. For this work the agent receives a commission. These entities can be the same companies that normally act as dealers for other types of cars. They perform functions similar to those of the dealer. Therefore, a price comparable to a price to a dealer was obtained by adjusting the final end-user price with the commission of the agent.

(iii) Large fleet sales model which is specific for certain categories of large customers such as rental companies, governmental entities and large private companies. The PEs/IEs or the NSCs negotiate and sell the BEVs directly. These are volume sales for both Union producers and the Chinese exporting producers and are considered to be similar to a dealer level as a discount is applied for the volume of sales.

(iv) Unrelated GD model - in this case, in order to arrive at a dealer price, the Commission added to the unrelated distributors’ price an estimate of their SG&A costs (using as a proxy the average SG&A of the Union producer’s or exporting producer’s NSCs in the other countries, which ranged from 0,5% to 3,6% for Union producers and from 2,1% to 8% for exporting producers). A notional profit of 3% was also added for sales to unrelated GDs by both Union producers and exporting producers. For the Union producers, such adjustment concerns around 5% of their sold quantity, while for the exporting producers, 22% of their sold quantity.

(v) Online sales – Certain exporting producers (and their NSC) have been selling online directly to final customers, including private individuals, without the intermediation of a dealer or agent. The prices of these sales could not be adjusted to a dealer level at this stage of the investigation, except for the allocation and deduction of monetary rewards for the achievement of specific sales volume targets, provided to companies performing marketing activities (e.g. operating showrooms and providing test drive services) in the area where such online sales originated.

(1028) The price comparison was made on a type-by-type basis for transactions at the same level of trade (price to a dealer or equivalent), duly adjusted where necessary as explained above, and after deduction of rebates and discounts or other incentives for sales to companies operating at the level of a dealer or agent. The result of the comparison was expressed as a percentage of the sampled Union producers’ theoretical turnover during the investigation period.

(1029) It showed a weighted average undercutting margin of 12,7% by the imports from the country concerned on the Union market.

(1030) Bearing in mind that competition is largely based on price, and that its prices are very transparent (i.e. known in the market), such a margin is considered significant.

(1031) The matching between the Chinese PCNs and the Union PCNs was above 90% for each of the exporting producers. Two Chinese PCNs were each compared with one closely resembling Union PCN. In both cases, the used Union PCN corresponded to lower technical specifications compared to the Chinese PCN, therefore, the comparison was in favour of the Chinese exporting producer.

(1032) Moreover, it should be noted that the prices of the BEVs of BYD and SAIC include a warranty for the BEV for 7 years while the warranty for the BEVs of the Union industry was of 2 years only. Therefore, the undercutting found in recital (1029) is understated.

(1033) With regard to price suppression, the development of sales prices and unit production costs in the Union throughout the period considered in table 7 showed evidence of significant price suppression. The Union industry was unable to raise its prices to cover its costs. This meant that the Union industry made losses on sales of BEVs throughout the period considered.

(1034) In particular, the Commission found that the selling price of the sampled Chinese exporting producers were 30% lower than the weighted average cost of production of the Union industry. This indicator was established on a type-by-type basis.

(1035) A major factor in this price suppression was that the registrations following importation of Chinese subsidised imports were able to increase in volume by 1729% and reach a 22,8% market share in the investigation period as compared to 2020 as shown at Table 2b. These sales were mainly at the expense of Union producers which were losing market share. Furthermore, the price suppression was also explained by the evidence that the Chinese imports compete with the Union sales regardless of the product type. Even if the Union would increase its sales of more expensive models, those too would compete with a type of Chinese BEV. This has contributed to the Union industry making double digit losses as shown in table 10.

(1036) The CCCME claimed that in the price comparison, the Commission should take into account the brand of the BEV. The CCCME further argued that the brand value of the producer drives sales and resales prices of the BEV and the Union BEV producers can charge much higher prices for their BEVs in every segment on the basis of their brand value.

(1037) The Commission noted that the CCCME did not explain how the Commission should take the brand into consideration for the price comparison. Furthermore, it also noted that any brand value that the Union producers might have, was built on their long and extensive experience in manufacturing ICE vehicles which cannot be presumed to be carried over to BEVs automatically. This is due to the fact that the electrification is a game changer as regards non-price competition by challenging the traditional features on which ICE car makers have built their competitive advantage. Common values used by carmakers include performance, fuel efficiency, technology, reliability, safety and design. However, these product attributes are being challenged by the adoption of electric technologies. For example, the BEVs are redefining performance because of the characteristics of electric engines. Of all characteristics, range is the most critical because of the low performance of BEVs vs ICE cars and the substantial gap between BEVs models as regards maximum range. Furthermore, the rapid growth of Tesla is a clear example that the brand value built on ICE cars, or lack thereof, is of marginal relevance when it comes to success and pricing power in the BEV market. Therefore, the claim was rejected.

(1038) The CCCME also claimed that in the price comparison the Commission should consider the data of all sampled Chinese exporting producers and any other Chinese exporting producers that have submitted individual examination requests and in particular that of Tesla as it accounted for about 50% of the BEV exports to the Union in the investigation period.

(1039) The undercutting margin as well as all the other microeconomic indicators are calculated based on the verified data reported by the sampled Chinese exporting producers and sampled Union producers. As it was explained in recital (49), Tesla was not sampled as a Chinese exporting producer. Consequently, the data of this exporting producer that requested individual examination was not included in the undercutting calculation. Therefore, the claim was rejected.

(1040) Company 24 claimed that the BEV market was not a homogenous market because of two main reasons. Firstly, because there was no independent BEV market, as the BEV market was part of the passenger vehicle market, which included ICE vehicles and the BEVs were competing with the ICE vehicles. Secondly, because the BEV market was divided in several segments. Company 24 stated that market segmentation was relevant for an accurate assessment of the state of Union industry and therefore Company 24 claimed that the Commission should differentiate between different BEV market segments. Company 24 further specified that while the EU classifies cars in categories based on their size and features, other criteria such as price and brand image are key factors for determining the segmentation of the market. As concerns sales prices, Company 24 specified that the BEV market could be divided into entry, mid, premium and luxury. Company 24 also stated that there was a clear distinction within each segment between premium brands and base-level brands, based on aspects such as performance, functionalities, features, distributions networks and after sales services. Company 24 further stated that these factors effectively determine the degree of competition between market players and whether any two products are close alternatives. Company 24 also stated that most Union producers of BEV have so far focused on more premium vehicle models, which allowed for larger profit margins and as a result EU brands are not strongly present in entry-level segments which contrasts with the situation in the traditional ICE sector. It follows that according to Company 24, the imports from China and in particular the Chinese BEV brands have so far mostly targeted the base level across the cheaper segments of the market where EU alternatives are not yet strongly present. Therefore, Company 24 claimed that the Chinese imports mostly complement rather than compete with the Union industry on the Union BEV market.

(1041) The Commission recalled that the passenger vehicles market included several powertrains: ICE, hybrids (non-pluggable), plug-in hybrids (PHEVs), BEVs, and fuel-cell vehicle (FCV). The FCV and BEVs are vehicles with zero-emissions while PHEVs, hybrids and ICE have a combustion engine. These types of vehicles may be competing with each other but only to a very limited extent. At the same time these types of vehicles are also very limitedly competing with motorcycles, electrical bicycles, scooters etc. However, the scope of the current investigation are the BEVs and not all passenger vehicles or mobility vehicles. To the extent that there is any competitive relationship with other vehicles, this element would not bring those vehicles within the scope of this investigation; nor such limited competition, if any, would put into question the findings made in this investigation as to the impact of the subsidised imports on the Union industry of the like product (BEVs).

(1042) The Commission also recalled that there was no universally accepted segmentation for passenger cars and noted that the classification system referred to in the Initiation document was based on generic descriptions of what is traditionally referred to as segments in this industry, rather than on objective and measurable criteria provided by the Union industry. As a result, there was no clear dividing line between the alleged segments. In the Initiation document the Commission referred to such segments in the sense of product types of BEVs. This is all the more so the case for the segmentation proposed by Company 24, which did not provide even a description of the alleged segments, but only names (i.e. entry, mid, premium and luxury) using common marketing terms which have a wide margin of interpretation.

(1043) The Commission also noted that while BEVs encompass a variety of different types, they all share the same basic characteristics and the same main use, which is the transportation of a small number of persons from one point to another. They are also subject to the same regulations as regards for instance speed limits, licence requirements, and parts of the road network where they are allowed to circulate. In view of the above, the BEVs can be considered sufficiently interchangeable. Furthermore, as explained in recital (1022), the PCN took into account the key characteristics of the BEVs which had an impact the selling price by the Union industry, such as the length, range, power and type of wheel drive and, therefore, the like Union product type was compared with the similar Chinese product types meaning that the allegedly cheap or premium Chinese BEVs were compared to similar Union models respectively.

(1044) As regards the types of BEVs sold by Chinese producers and the degree of competition with Union producers, the investigation revealed that the Chinese exporting producers compete in full with the BEVs sold by the Union industry (as explain in recital (1031) the matching between the Chinese PCNs and the Union PCN was very high (higher than 90%)) on average and this matching corresponds to 88% of total sales of the sampled Union producers). In fact, the types of BEVs sold on the Union market by both Union producers and Chinese exporting producers was one of the criteria for the selection of the sample of Union producers and exporting producers as explained in recitals (33), (36) and (49).

(1045) In the investigation period, the Chinese exporting producers exported a wide range of BEV models at significantly varying prices, competing with the BEV models produced by Union producers and are planning to expand their portfolio for the Union market even further in the near future.

(1046) For example, the sampled Chinese exporting producer BYD sold on the Union market models with a list price lower than EUR 30000, such as the Dolphin, models with a list price at around EUR 40000 such as the Atto 3, but also models which it considers as premium or luxury with a list price of more than EUR 70000, such as the HAN and the TANG.

https://press.bydauto.be/byd-changes-the-price-of-the-atto-3-from-1-september-2023

Similarly, Geely group has marketed its Polestar BEVs as premium models,

https://media.polestar.com/be/nl/models/polestar-2/274707

and exported them to the Union during the investigation period. Another Geely produced BEV, the Lotus Eletre, is marketed as a hyper-SUV

https://lotusantwerp.be/lotus-eletre/

and offered in the Union market at list prices as high as EUR 150000.

(1047) Further to the types of BEVs sold during the investigation period, the Commission noted that the Union BEV market is continuously evolving and Union producers and exporters, including the Chinese exporters, are expanding every year their portfolio of offered BEVs. As an example, Stellantis group, a Union group of BEV producers, announced in October 2023 its new low-cost BEV Citroën e-C3, starting at 23300 EUR. Conversely, in March 2024 the sampled Chinese SAIC unveiled

https://www.saicmotor.com/english/latest_news/saic_motor/59418.shtml

a number of new models, including the high-class intelligent IM L6, the medium-to-large-sized hatchback electric sedan MG9, and the medium-to-large-sized pure electric coupe SUV MGS9. Other announcements for launching new BEVs models have been also stated in recital (1127).

(1048) Therefore, it was concluded that the Chinese exporting producers are not restricted to certain specific types of BEVs as Company 24 seems to suggest.

(1049) For the reasons above, the Commission concluded that BEVs form a single and continuous market of interchangeable products, and that a segment analysis was not warranted nor appropriate in this case. Therefore, the claim was rejected.

4.5.

Economic situation of the Union industry

4.5.1.

General remarks

(1050) In accordance with Article 3(5) of the basic Regulation, the examination of the impact of the subsidised imports on the Union industry included an evaluation of all economic indicators having a bearing on the state of the Union industry during the period considered.

(1051) As mentioned in recital (26), sampling was used for the determination of possible injury suffered by the Union industry.

(1052) For the injury determination, the Commission distinguished between macroeconomic and microeconomic injury indicators. The Commission evaluated the macroeconomic indicators on the basis of data from Prodcom, EEA, S&P Global Mobility, sampling data and websites of Union producers. These data are related to all Union producers. The Commission evaluated the microeconomic indicators on the basis of data contained in the questionnaire replies from the sampled Union producers. Both sets of data were found to be representative of the economic situation of the Union industry.

(1053) The macroeconomic indicators are: production, production capacity, capacity utilisation, sales volume, market share, growth, employment, productivity, magnitude of the subsidy margin, and recovery from past subsidisation.

(1054) The microeconomic indicators are: average unit prices, unit cost, labour costs, inventories, profitability, cash flow, investments, return on investments, and ability to raise capital.

4.5.2.

Macroeconomic indicators

4.5.2.1.

Production, production capacity and capacity utilisation

(1055) The total Union production, production capacity and capacity utilisation developed over the period considered as follows:

Table 4

Production, production capacity and capacity utilisation

https://ec.europa.eu/eurostat/databrowser/view/ds-056120__custom_10709623/default/table?lang=en To be noted that due to confidentiality Prodcom does not report the production volume for each Member State. The production data for 2023 will be publicly available on 1 July 2024.

Source:

Prodcom, sampling data and Union producers’ websites

202020212022Investigation periodProduction volume (pieces)54514290000012000001626263Index100165220298Production capacity (pieces)1642953264034137014764712037Index100161225287Capacity utilisation33%34%32%35%Index10010398104

(1056) Production of BEVs increased by around 200% over the period considered. The increase in production was substantial and relatively consistent over this period reflecting a progressive transition of the market from ICE vehicles to BEVs.

(1057) There is no official data regarding the total production capacity of the Union industry. Therefore, the total production capacity of the Union industry was calculated based on the verified capacity utilisation rate of the sampled Union producers and the total production volume of the Union industry. On this basis, production capacity increased over the period considered by 187%.

(1058) The investigation revealed that some Union producers were converting ICE vehicles production lines into BEVs production lines and therefore those production lines were dedicated entirely to the BEVs production, or they were producing BEVs in their assembly plants alongside ICE vehicles using essentially the same production process in order to leverage existing assets, processes and competencies and provide volume flexibility.

(1059) Depending on how the sampled Union producers were producing BEVs as explained in recital (1058) their production capacity was calculated in several ways as follows (i) based on the maximum number of BEVs able to be produced per day multiplied by the productive working time, considering 2-3 shifts, including maintenance, for 46-48 weeks per year, or (ii) based on the total production capacity for all passenger cars after deducting the production of all the other passenger vehicles apart from BEVs.

(1060) Capacity utilisation increased by 4% over the period considered. As the capacity utilisation was below 40% in the investigation period, it can be concluded that the Union industry has enough production capacity to satisfy the future increases in the demand for BEVs and in addition, more capacity can be allocated from ICE vehicle production to BEVs production.

4.5.2.2.

Sales volume and market share

(1061) The Commission established the Union industry’s sales volume on the Union market on the basis of EEA and S&P Global Mobility for registrations of BEVs manufactured in the Union.

(1062) On this basis the Union industry’s sales volume and market share developed over the period considered as follows:

Table 5

Sales volume and market share

Source:

EEA and S&P Global Mobility registration data

202020212022Investigation periodSales volume on the Union market (registrations) in pieces379138583992739101987586Index100154195260Market share (of apparent consumption)68,9%65,1%64,3%59,9%Index100949387Market share (of actual consumption - registrations)70,4%66,5%65,8%65,0%Index100959392

(1063) The sales of the Union producers increased by 160% over the period considered. This development was similar to the development in production over the same period. The BEVs were sold mainly through dealers. The main end users were consumers and key account companies which normally ordered the production of bespoke vehicles, rather than ordering from stock.

(1064) Despite the sharp increase in consumption, the market share based on apparent consumption by the Union industry decreased by 13% or 9 percentage points over the period considered or by 8% or more than 5 percentage points based on actual consumption. By contrast, the market share of imports from China increased more than fivefold in this booming market, at the expense of the Union industry.

4.5.2.3.

Growth

(1065) The Union industry production and sales (registrations) of BEVs showed a continuous and substantial growth over the period considered, in line with the progressive transitioning of the market from ICE vehicles to BEVs.

(1066) The growth of the Union industry in terms of sales in such increasing market was substantially lower than the increase in the consumption.

(1067) In terms of market share the Union industry decreased by 9 percentage points based on apparent consumption or more than 5 percentage points based on registrations over the period considered. Imported BEVs (registrations) held a market share of almost 34,8% in the investigation period. The largest and fastest growing market share over the period considered being held by Chinese exporting producers as shown above in Table 2a and Table 2b.

4.5.2.4.

Employment and productivity

(1068) Employment and productivity developed over the period considered as follows:

Table 6

Employment and productivity

Source:

Prodcom and sampled Union producers

202020212022Investigation periodNumber of employees399956605399939115835Index100165250290Productivity (piece/employee)14141214Index10010088103

(1069) Employment and productivity were calculated from the employment of the sampled Union producers extrapolated by the production volume of the entire Union industry.

(1070) The number of employees increased from around 40000 to around 116000 over the period considered, an increase of 190%. This development broadly followed the trend in production.

(1071) In general, the Union industry is transferring the employees from the production of ICE vehicles to the BEV production as the production of ICE vehicles is decreasing while the production of BEV is increasing. In this regard, the Union industry are safeguarding jobs by re-skilling (retooling and retraining) and providing opportunities to their employees to adapt to electric powertrains.

(1072) Productivity was relatively stable over the period considered.

4.5.2.5.

Magnitude of the subsidy amount and recovery from past subsidisation

(1073) All subsidy amounts were significantly above the de minimis level. The impact of the magnitude of the actual amounts of subsidisation on the Union industry was not negligible, given the volume and prices of imports from the country concerned.

(1074) This is the first anti-subsidy investigation regarding the product concerned. Therefore, no data were available to assess the effects of possible past subsidisation.

4.5.3.

Microeconomic indicators

4.5.3.1.

Prices and factors affecting prices

(1075) The weighted average unit sales prices of the sampled Union producers to unrelated customers (including the sales of the related companies which were made on an arm’s length basis) in the Union developed over the period considered as follows:

Table 7

Sales prices in the Union

Source:

Sampled Union producers

202020212022Investigation periodAverage unit sales price on the Union market (EUR/ piece)24404275573124433560Index100113128138

Unit cost of production (EUR/ piece)30683320293507938140Index100104114124

(1076) The Union industry average sales prices per piece increased by 38%. This development was affected by changes in the mix of models sold by the sampled Union producers over the period considered, especially bearing in mind that the Union market is gradually transitioning from ICE vehicles to BEVs and new models were being launched and sold throughout the period considered

https://alternative-fuels-observatory.ec.europa.eu/consumer-portal/available-electric-vehicle-models

.

(1077) The cost of production shown above is the full cost of production of the BEVs sold including components and raw materials, other manufacturing costs and selling general and administrative costs (SG&A) including research and development (R&D) expenses.

(1078) The Union industry average cost of production per piece increased by 24%. This development was also affected by changes in the mix of models being produced. In addition, the unit cost was also driven by the increase in the cost of components, especially batteries due to rising costs for raw materials including cobalt, nickel and lithium. The cost of other components also increased especially those affected by the energy crisis such as steel and other metals. A factor which had a downward impact on unit costs was the increase in the volume of production and sales as shown in Table 4 and Table 5, as the Union producers were able to spread the fixed costs over higher quantities of BEVs. The Commission noted that the BEV industry is a capital-intensive industry with high fixed costs and therefore a high volume of production leads to decreases in the unit cost of production.

(1079) The sampled Union producers set prices on the Union market according to the pricing of their major competitors for similar models. In general, the Union producers set up a list price for all the models or the MSRP, which is the price that a manufacturer recommends for retailers to sell their BEVs. The MSRP prices are regularly reviewed. However, even when MSRPs remain fixed, the final price that the customer pays can fluctuate due to the discounts offered by the seller to the consumer.

(1080) The BEV market is a highly competitive and rapidly evolving market. Furthermore, it is very transparent as all sellers of BEVs make public the MSRPs. Due to the price transparency, the BEV market is very price sensitive. Therefore, increases in prices caused by increases in costs usually lead to a reduction in sales quantities.

4.5.3.2.

Labour costs

(1081) The average labour costs of the sampled Union producers developed over the period considered as follows:

Table 8

Average labour costs per employee

Source:

Sampled Union producers

202020212022Investigation periodAverage labour costs per employee (EUR)70981749047834888198Index100106110124

(1082) The average labour cost increased by 24% over the period considered. This development reflected the increases in salaries and other labour costs in a period of high inflation especially in 2022 and 2023.

4.5.3.3.

Inventories

(1083) Stock levels of the sampled Union producers developed over the period considered as follows:

Table 9

Inventories

Source:

Sampled Union producers

202020212022Investigation periodClosing stocks (pieces)749394601550425431Index100126207339Closing stocks as a percentage of production4,5%3,3%4,4%5,2%Index1007497114

(1084) The investigation revealed that the Union industry works mainly on orders and therefore the stocks, as a percentage of production, were in general low.

(1085) Closing stocks of the sampled Union producers increased by 239% over the period considered reflecting the increase in production over this period. Closing stocks as a percentage of production increased by 14% over the period considered. This development was mainly due to the increase in the number of models offered to the market in the investigation period as compared to 2020.

4.5.3.4.

Profitability, cash flow, investments, return on investments and ability to raise capital

(1086) Profitability, cash flow, investments and return on investments of the sampled Union producers developed over the period considered as follows:

Table 10

Profitability, cash flow, investments and return on investments

Source:

Sampled Union producers

202020212022Investigation periodProfitability of sales in the Union to unrelated customers (% of sales turnover)–22,3%–10,9%–8,9%–10,8%Index-100-49-40-48Cash flow (EUR)-583165193-361393404-718123415-835344631Index-100-62-123-143Investments (EUR)2060595337199645605818100256762058540935Index1009788100Return on investments-248%-132%-56%-72%Index-100-53-22-29

(1087) The Commission established the profitability of the sampled Union producers by expressing the pre-tax net profit of the sales of the like product to unrelated customers in the Union as a percentage of the turnover of those sales.

(1088) The Union industry was loss-making throughout the period considered, although such losses overall decreased over that period. As shown in Table 7 the Union industry’s unit prices increased over the period considered at a higher rate than the increases in its unit costs. The reasons for these developments are described in section 4.5.3.1. Between 2020 and 2022 the Union industry managed to decrease its losses because it increased its sales quantity on the Union market. In this period the Union industry was ramping up its production and sales quantities and efficiencies were achieved in the spread of fixed costs across increasing number of produced pieces. Although, this growth continued in the investigation period, increases in raw materials prices and in the volume of subsidised imports at low prices meant that losses increased as compared to 2022 to reach the level of –10,8% at the end of the period considered.

(1089) The Union market was in a progressive transition phase over the period considered. As some Union producers manufactured BEVs and ICE vehicles on the same production lines as explained in recital (1058), the production costs of BEVs were decreased to some extent as the fixed costs were shared between BEVs and ICE vehicles. However, as explained in recitals (1222) and (1223), the Union industry needs to reduce its production and sales of ICE in the Union. Therefore, in order to move to a profitable situation and secure its future, the Union BEV industry needs to increase its production, sales and market share of BEVs, and thus reach economies of scale and continue to reduce its unit costs in comparison to its price levels.

(1090) The net cash flow is the ability of the sampled Union producers to self-finance their activities. The net cash flow was negative throughout the period considered. Net cash flow deteriorated over the period considered because of the increase in turnover and the increase in losses in absolute value. The cash flow situation described above has been supported by profits made by the Union industry on ICE passenger vehicles. However, as explained in recitals (1222) and (1223), the Union producers need to decrease their sales of ICE and therefore the profits that the Union industry obtains from the sales of ICE vehicles will decrease in the future.

(1091) Investment in the product concerned related mainly to R&D expenditure, new investment on production lines for BEV production, including the production and installation of batteries, and purchase of specific tools for the assembly of BEVs. Although these investments relate only to the sampled production entities, they demonstrate the massive investment needed to switch from ICE to BEV production. An important part of new investments is needed prior to the sale of BEVs. Further investment has already been committed and the investment is ongoing as the production sites are being gradually transitioned.

(1092) The investment of the entire Union industry for the transition to electrification has been estimated to about EUR 170 billion between 2022 and 2030

https://www.reuters.com/graphics/AUTOS-INVESTMENT/ELECTRIC/akpeqgzqypr/

. This corresponds to an average investment of approximately EUR 19 billion in each year of the period. These investments are planned for all types of BEVs. In particular, Volkswagen group is investing approximately EUR 20 billion to build at least six battery plants in Europe in the next years. BMW group plans to invest approx. EUR 1 billion to develop and produce BEVs at its plant in Steyr, in Austria, as of 2025. It is also investing approximately EUR 400 million to upgrade its plant in Munich, in Germany, and it is building a new plant in Hungary to produce its model Neue Klasse EV as of 2025. Stellantis group invested in a joint venture with Mercedes-Benz and TotalEnergies, called ACC, for battery cells. Mercedes-Benz also expects to set up four battery plants in the EU in the near future. Renault group is investing EU 10 billion in electrification through 2025.

(1093) The return on investments is the profit in percentage of the net book value of investments. It developed in a similar manner to the return on turnover in that it was negative throughout the period. The return on investment losses reduced over the period considered for the reasons described in section 4.5.3.4. It should also be borne in mind that the sampled Union producers did not all start investments in BEVs (and therefore did not start to obtain a return on those investments) in the same year. This clarification also had an impact on the return on investment trend stated in Table 10.

(1094) The sampled Union producers’ ability to raise capital should be seen in the context that the sampled Union producers are part of large industrial groups which funded the transition from ICE vehicles to BEVs. However, each year of this inevitable transition has increased the extent of losses made and has reduced the ability of the industry to raise capital in the future.

4.5.4.

Conclusion on the situation of the industry

(1095) As explained at recital (996), the situation of the Union industry must be analysed in the context of the Union market transitioning from ICE vehicles to BEVs.

(1096) In this context, apparent Union consumption increased during the period considered by 200% and actual Union consumption (based solely on registrations) increased during the period considered by 182%. These large increases reflect the scenario that the Union passenger vehicle market is transitioning from ICE vehicles to BEVs.

(1097) At the same time, import quantities from China increased massively from around 21000 pieces to over 412000 (i.e. by more than 1800 % over the period considered), that is substantially more than the increase in consumption. This is reflected in the Chinese imports’ market share that also increased massively from 3.9% in 2020 to 25% in the investigation period. Similar increases are shown in respect of registrations of Chinese BEVs following importation from China.

(1098) Production and sales of the Union industry increased by 198% and 150% respectively. Again, this apparent growth was not in line with the increase in consumption, meaning that the Union industry’s market share fell from 68,9 % in 2020 to 59,9% in the investigation period.

(1099) As explained, given the transitioning of the Union market several indicators were affected by the fact that the Union industry was gradually converting their production sites from ICE vehicles to BEVs. This conversion required large and steady investments in R&D and factory conversion costs, which stayed the same throughout the period considered. Capacity utilisation, profitability, return on investment and productivity showed slight positive trends due to the transition from ICE vehicles to BEVs, but they either remained negative or rather stable during the period considered.

(1100) The profitability and return on investment of the Union industry, despite showing improving trends, remained poor throughout the period considered. This indicated that the Union industry was not able to pass on its full significant costs in the transitioning context to its customers and that it was prevented from setting prices to customers at profitable levels. The analysis in section 4.5.3.1 demonstrates that Union industry’s prices were suppressed by the prices of the subsidised imports. The price undercutting of the subsidised imports from China at quantities which were continuously increasing, even in a market which was rapidly expanding, demonstrates that the main import competitor was China.

(1101) Despite an increase of sales and production driven by increasing demand due to the transition from ICE vehicles to BEVs, in the investigation period, the Union industry was still far from making a profit on BEVs. The situation in the investigation period of losses over 10% and continuing price suppression jeopardised the entire transition of the Union industry from ICE vehicles to BEVs. This has involved many billions of EUR investments and the redeployment of the huge workforce it employs, while the Union market was only 14,5% into the transition from ICE vehicle to BEVs as shown in Table 1.

(1102) The above indicators show that the transitioning from ICE to BEV started to be impeded towards the end of the period considered and in particular during the IP, when it can be observed the highest volumes of Chinese imports and the highest drop of market share by the Union industry. This is also shown by the fact that, despite the improving trends in some indicators during the period considered, most financial indicators were still negative and even started to deteriorate during the investigation period, including profitability, return on investment, and cash-flow. Even more tellingly, market shares consistently decreased throughout the period considered, achieving the lowest point at the end of the investigation period.

(1103) On the basis of the above, the Commission decided to examine whether the likely future developments of subsidised imports from China would jeopardise the successful transitioning from ICE vehicles to BEVs, thereby causing material injury to the Union industry.

1. THREAT OF INJURY

5.1.

Introduction

(1104) In accordance with Article 8(8) of the basic Regulation, the Commission examined whether a further increase of subsidised imports from China is likely to have a negative impact on the Union industry’s situation, and thus amount to a threat of material injury to the Union industry.

(1105) In the analysis of a threat of material injury to the Union industry, in accordance with Article 8(8), second subparagraph of the basic Regulation, the Commission considered such factors as:

the nature of the subsidy or subsidies in question and the trade effects likely to arise therefrom;

a significant rate of increase of subsidised imports into the Union market indicating the likelihood of substantially increased imports;

sufficient freely disposable capacity on the part of the exporter or an imminent and substantial increase in such capacity indicating the likelihood of substantially increased subsidised exports to the Union, account being taken of the availability of other export markets to absorb any additional exports;

whether imports are entering at prices that would, to a significant degree, depress prices or prevent price increases which otherwise would have occurred, and would probably increase demand for further imports; and

the level of inventories.

5.2.

The nature of the subsidy or subsidies in question and the trade effects likely to arise therefrom

(1106) In section 3.10, the Commission provisionally concluded on the existence of countervailable subsidies in accordance with the provisions of the basic Regulation.

(1107) Those subsidies show that the imports of the product concerned benefit from governmental support.

(1108) The significant undercutting and price suppression (preventing price increases which otherwise would have occurred) found during the investigation period is expected to affect the economic situation of the Union industry already observed during the investigation period even more negatively in the near future. The aggressive pricing behaviour of the Chinese imports and substantial market penetration are aided by the fact that the Union BEV market is very price sensitive and transparent.

(1109) Moreover, as explained in section 3.2, the GOC’s measures supporting its domestic BEV industry ensure that BEV exports remain very competitive at significantly lower prices than the Union industry’s prices, because of the lower costs of obtaining financing, goods or inputs for less than adequate remuneration and other benefits (as opposed to Union producers who cannot benefit from such significant support).

(1110) It is therefore foreseeable that the subsidised imports of the product concerned, because of the nature of the GOC's support measures, will continue to negatively affect the Union industry's economic situation.

5.3.

Significant rate of increase of subsidised imports into the Union market indicating the likelihood of substantially increased imports

Rate of increase of imports from China and their market share

(1111) The total imports of BEVs from the country concerned increased significantly from 21243 pieces in 2020 to 412425 pieces in the investigation period as showed in Table 2a and Table 2b.

(1112) The market share of the imports from China increased as well from 3,9% in 2020 to 25,0% in the investigation period based on total imports or from 3,5% in 2020 to 22,8% in the investigation based on registrations as stated in Table 2a and table 2b respectively. The Chinese exporting producers have gained market share with low-priced imports at the expense of the Union producers and imports from third countries.

Measures indicating likelihood of further substantial increase in imports

(1113) As shown above in section 3.2, there is evidence that the GOC’s policies target production and specifically exports of BEVs.

(1114) There are a number of elements showing that Chinese exporting producers are likely to continue exporting at high rates. Specifically, the GOC has implemented very recently a number of measures to target export markets and further increase exports also in light of significant overcapacities in the Chinese domestic market as explained in recitals (1140) to (1143).

(1115) As explained in recital (1149) China exported worldwide 1471136 BEVs in the investigation period, an increase of 659% as compared to 2020. The NEVs (BEVs and PHEVs) are very important for the Chinese economy. Thus, in his 2024 New Year message, the President of China stated that the NEVs are a new testimony of China’s manufacturing prowess

https://www.mfa.gov.cn/eng/zxxx_662805/202312/t20231231_11215608.html#:~:text=New%20energy​%20vehicles%2C%20lithium%20batteries,marched%20forward%20in%20high%20spirits

. However, the Chinese BEVs manufacturers are not merely restricted to their domestic market. In fact, the GOC is encouraging Chinese BEV producers to explore markets overseas and supports them in many ways in order to expand their export sales, including by developing sound legal consulting, testing, and certification systems. In this regard the Plan 2021–2035 sets five strategic tasks for China’s NEV industry for the next 15 years: (1) to improve the capacity for technology innovation; (2) to build a NEV industry ecosystem; (3) to advance industrial integration and development; (4) to build a sound infrastructure system; and (5) to increase openness and deepen international cooperation. As concerns the international cooperation, domestic firms are encouraged to make international development strategic plans, exploit overseas markets, and establish warehouses and post-sale service platforms abroad. The Plan 2021-2035 also emphasized that supporting services for international cooperation such as corporate compliance and legal consulting and test and certification services are to be strengthened. Additionally, the Plan 2021-2035 also guides the Chinese authorities to proactively participate in making the relevant international rules and standards

International Council on Clean Transportation (ICCT), China’s New Energy Vehicle Industrial Development Plan for 2021 to 2035, Policy Update, June 2021, available at: https://theicct.org/wp-content/uploads/2021/12/China-new-vehicle-industrial-dev-plan-jun2021.pdf.

.

(1116) In addition, on 18 February 2024 the Chinese city of Shenzhen has rolled out a plan to boost car exports

https://www.ft.com/content/efb4ceb4-6d46-4c2f-abf6-142b3bc5c3b6

,

https://finance.sina.com.cn/money/future/indu/2024-02-27/doc-inakmrzp1176024.shtml

. This plan covers 24 measures including support for factory construction and opening new sea routes. The local officials stated that they would introduce services to support car exporters, including improving export insurance, speeding up tax refunds and encouraging Chinese banks to provide consumer financing for overseas car buyers. The plan also called for exporters to purchase more car-carrying ships to create a Chinese-owned fleet of roll-on, roll-off vessels as stated in recital (1117).

(1117) The interest of the Chinese producers in exporting BEVs can be seen also from the fact that the Chinese BEV producers are ordering the manufacturing of a large number of roll-on/roll-off (ro-ro) ships which are specifically designed to transport vehicles overseas

https://chinapower.csis.org/analysis/china-construct-ro-ro-vessels-military-implications/#:~:text=In%​202022%2C%20China%27s%20top%20electric,their%20own%20ships%20as%20well

,

http://en.people.cn/n3/2023/0721/c98649-20047617.html

. It was reported that the Chinese shipyards may deliver upwards of 200 ro-ros between 2023 and 2026. That amounts to twice the number of ro-ros delivered from 2015 to 2022

https://chinapower.csis.org/analysis/china-construct-ro-ro-vessels-military-implications/#easy-footnote-bottom-2-9460

,

https://www.seatrade-maritime.com/shipyards/anji-building-seven-car-carriers-jinling-and-jiangnan-shipyards

. Furthermore, BYD appeared to have ordered six ro-ros (with options for two more). The vessels are expected to feature a capacity of some 7700 CEUs (car equivalent unit) each. BYD has already received its first vessel called BYD Explorer No. 1

https://www.marineinsight.com/shipping-news/chinas-byd-launches-first-chartered-car-carrier-to-ramp-up-exports/

,

https://www.bnnbloomberg.ca/byd-s-first-chartered-cargo-ship-for-evs-sets-sail-for-europe-1.2020585

,

https://www.carscoops.com/2024/01/the-first-chinese-built-ship-designed-to-export-cars-is-europe-bound-with-7000-byd-vehicles-aboard/

that is already being used to transport BEVs to the Union

https://www.reuters.com/business/autos-transportation/byds-first-chartered-vessel-sets-sail-with-5000-evs-europe-xinhua-2024-01-16/

. Also other Chinese car manufacturers, like SAIC, Cherry Automobile

https://www.reuters.com/business/autos-transportation/byds-first-chartered-vessel-sets-sail-with-5000-evs-europe-xinhua-2024-01-16/

, have ordered several of their own ro-ros

https://chinapower.csis.org/analysis/china-construct-ro-ro-vessels-military-implications/#easy-footnote-bottom-2-9460

,

https://www.saicmotor.com/english/latest_news/saic_motor/58994.shtml

. Moreover, the state-owned automaker Chery is partnering with Wuhu Shipyard to re-develop an old shipyard into a car carrier construction base on the coast of Shandong Province destined for the exports of BEVs

https://chinapower.csis.org/analysis/china-construct-ro-ro-vessels-military-implications/#easy-footnote-bottom-2-9460

,

https://www.seatrade-maritime.com/shipyards/chery-shipyard-venture-build-its-own-car-carriers

.

(1118) The above measures combined with the imminent plans of expansion of Chinese producers in major EU countries as described in recitals (1126) and (1127), as well as with the significant spare capacities in China as documented in recitals (1140) to (1143), show that China will continue to target aggressively export markets, indicating likelihood of substantially increased imports into the Union for the future.

Attractiveness and targeting the Union market

(1119) Among the export markets targeted by China, the Union market was the main export destination for the Chinese exporting producers, representing 33,1% of total Chinese exports of BEVs due to the fact that the Union market is the most attractive region for the Chinese exporting producers given its size, easy access, price levels and the clear roadmap to electric vehicles, as explained in the following recitals (1120) to (1123).

(1120) As concerns the size of the Union market, in 2023, 1538621 BEVs were registered on the Union market, representing 14,6% of total registered passengers car

https://www.acea.auto/files/Press_release_car_registrations_full_year_2023.pdf

. By contrast, the table below shows the size of the BEV market in other main countries and the proportion of BEVs in the total registered passenger cars.

Table 11

BEV market in third countries

https://www.strategyand.pwc.com/de/en/industries/automotive/electric-vehicle-sales-review-2023-q4.html#:~:text=In%20Q4%202023%20BEV%20sales,increase%20from%20the%20previous%20year

Source:

PwC - Strategy&, Electric Vehicle Sales Review Q4-2023

CountryBEV market 2023% in total registered passenger carsUSA11182867,2%UK31468416,5%South Korea1567679,0%Norway10458982,4%Australia872177,25%India823361,6%Türkiye645156,7%Switzerland5272820,9%Japan439911,7%Brazil193090,9%Indonesia170622,2%

(1121) As concern access to the Union market, the EU custom duty (most favoured nation duty - MFN duty) is 10%. By contrast, any other relevant markets are subject to high import barriers for imports of BEVs from China. In particular, the US market, while smaller than the Union market it represents still a substantial market size of over 1 million BEVs registered in 2023, is currently shielded by a total duty of 27,5% (2,5% MFN duty and 25% Section 301 duty

https://crsreports.congress.gov/product/pdf/IF/IF11346#:%7E:text=Section%20301%20divides%20​such%20actions,burdens%20or%20restricts%E2%80%9D%20U.S.%20commerce, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2024/may/us-trade-representative-katherine-tai-take-further-action-china-tariffs-after-releasing-statutory.

) applicable to imports of BEVs from China, with proposals published in May 2024 to increase the Section 301 duty to 100% as from August 2024

https://ustr.gov/about-us/policy-offices/press-office/press-releases/2024/may/us-trade-representative-katherine-tai-take-further-action-china-tariffs-after-releasing-statutory, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2024/may/ustr-issues-federal-register-notice-section-301-proposed-tariff-modifications-and-machinery, https://ustr.gov/sites/default/files/USTR%20FRN%20Four%20​Year%20Review%20Proposed%20Modifications%205.22.pdf.

. Moreover, Türkiye introduced a 40% additional tariff rate on imports of EVs from China

https://www.reuters.com/business/autos-transportation/turkey-imposes-40-additional-tariff-electric-vehicles-imports-china-2023-03-03/

in addition to the MFN duty of 10%, while India has 70% import tax on electric vehicles priced USD 40000 or less

https://www.financialexpress.com/business/express-mobility-budget-2023-imported-evs-further-out-of-reach-as-custom-duty-hiked-to-70-2968326/

, and 100% on those priced above USD 40000

https://www.businesstoday.in/technology/news/story/tesla-in-india-soon-govt-close-to-finalising-tax-breaks-for-foreign-ev-makers-report-417772-2024-02-16

. In January 2024 Brazil reintroduced a 10% tax on imports of BEVs, which will increase to 18% in July 2024 and to 35% by July 2026

https://www.reuters.com/business/autos-transportation/brazil-imports-chinese-electric-vehicles-surge-ahead-new-tariff-2024-04-05/

. This leaves the Union market as the only large, wealthy and mature automotive market open to the Chinese imports.

(1122) In terms of prices, as regards the same product types, the prices of BEVs on the Union market are significantly higher than prices of BEVs on the Chinese market and therefore provide to the Chinese exporting producers the opportunity to realize higher profits. As an example, as of March 2024, one of the best-selling Chinese cars, the BYD Atto 3, had a starting retail price in China of EUR 15358 (CNY 119800), while in Germany, which is its main European export market, its starting retail price was more than double, at EUR 31924 (EUR 37990 with VAT

Value added tax.

)

https://carnewschina.com/2024/03/04/2024-byd-yuan-plus-launched-2200-usd-cheaper-than-before/ and https://bydeurope.com/article/436.

. Similarly, also as of March 2024, Geely’s new Polestar 4 was offered in China with a starting price of EUR 38331 (CNY 299000) before discounts, while in Germany it had a starting price of EUR 53109 (EUR 63200 with VAT)

https://cnevpost.com/2024/03/07/polestar-cuts-polestar-4-price-in-china-2/ and https://media.polestar.​com/global/en/media/pressreleases/677832.

. Furthermore, prices in China are declining as shown by recent examples where, the price of a Model 3 Tesla in China fell by more than USD 4500 since January and NIO lowered its prices by USD 4200 in June

https://www.cnbc.com/2023/06/12/nio-cuts-prices-for-its-cars-and-delays-business-expansion-plans.html

. In March 2024 BYD also cut the price of its cheapest model, the Seagull, by 5%. In 2023 BYD cut the price of Yuan Plus (its best-selling car known as Atto 3 in the Union) by 12% on the Chinese market

https://www.reuters.com/business/autos-transportation/chinas-byd-lowers-starting-price-its-lowest-priced-ev-model-seagull-by-54-2024-03-06/

. This price decline in China provides a further incentive for companies to enhance its exports and gain a foothold in new markets with higher price levels such as the Union market.

(1123) Concerning the clear road map for BEVs in the Union, in contrast to other third country markets, the EU has set a very high target for the number of BEVs registrations. Thus, by 2035, 100% of the newly registered cars in the Union (more than 9 million cars) should be zero emission vehicles, in particular BEVs, while in the USA the target is only set with 50%.

(1124) As explained in recitals (1141) and (1142) China has already an overcapacity for NEVs (BEVs and PHEVs) that will be largely used for exports to the Union market, based on its attractiveness as compared to other third country markets.

(1125) Furthermore, during the investigation at least 14 Chinese exporting producers were present on the Union market such as Aiways, BYD, Chery, Dongfeng (with brands Dongfeng and Voyah), Geely

The Volvo brand of Geely was not imported from China during the period considered.

(with brands Polestar, Zeeker and Lotus), Great Wall Motors (with brand Ora), Hongqi, JAC (with brands JAC and DR), SAIC (with brands MG and Maxus), NIO, Ora, Seres, Skywell, and Zhidou

The list is not exhaustive.

. The market share of these Chinese exporting producers all together increased from 1,9% in 2020 to 7,3% in the investigation period as explained in Table 12.

(1126) After the investigation period, a large number of Chinese exporting producers announced that they intend to launch several new models of BEVs on the Union market, as well as to expand their presence on the Union market by entering the market of more EU Member States in the short term. These announcements clearly indicate the interest of the Chinese exporting producers in the Union market. For example,

The list of examples is not exhaustive.

Xpeng Inc who is already present in the Netherlands, intends to enter the German and French markets in 2024

https://www.reuters.com/business/autos-transportation/xpeng-says-it-plans-expand-into-more-european​-markets-next-year-2023-09-04/

. Dongfeng’s luxury brand Voyah who is already present in Finland intends to enter the Spanish and Portuguese markets in 2024 and possibly also the German, French, and Italian markets

https://www.electrive.com/2024/02/05/voyah-plans-to-enter-core-european-markets-in-2024/

. Great Wall Motor plans to expand its presence in the Union to seven additional countries apart from Germany, such as Italy, Spain, Portugal, the Netherlands, Belgium, Luxembourg, and Austria

https://cnevpost.com/2023/11/27/great-wall-to-enter-more-european-countries-report/

. Zeekr, the premium brand of Geely, also started to sell the brand Zeekr 001 in the Netherlands as of the end of 2023

https://cnevpost.com/2023/12/11/zeekr-begins-deliveries-europe/

.

(1127) Furthermore, BYD launched its sixth model of BEV on the Union market, the Seal U, in addition to Atto 3, the Dolphin, the Seal, the Han, the Tang

https://www.carmagazine.co.uk/car-news/first-official-pictures/byd/seal-u/?itm_source=Bibblio&itm_​campaign=Bibblio-related&itm_medium=Bibblio-footer-1

. MG also intends to launch the model IM L6 in the Union in 2025

https://www.carmagazine.co.uk/car-news/first-official-pictures/mg/im-concept/

. NIO intends to launch its cheaper sub-brand code-named Firefly in Europe in 2025

https://cnevpost.com/2023/12/15/nio-to-launch-firefly-brand-europe-2024/

. The Chinese premium electric vehicle maker Human Horizons’ HiPhi brand has announced the European pricing of its models and started accepting pre-orders in 2023 with prices of more than EUR 100000 in Germany

https://cnevpost.com/2023/06/20/hiphi-accepting-pre-orders-hiphi-x-z-europe/

. Furthermore, BYD stated that it intended to significantly increase its market share on the Union market from currently 1,1% to 5% by 2025

https://www.autonews.com/china/how-byd-aims-become-top-ev-player-europe

.

(1128) Furthermore, Transport & Environment

Expert group campaigning for clean and sustainable transport for all.

estimate that the market share of the Chinese brands and the European brands purchased by Chinese companies will reach a market share of 11% in 2024, 14% in 2025 and 20% by 2027

https://www.transportenvironment.org/wp-content/uploads/2024/03/TE-EV-tariffs-paper.pdf

.

(1129) In conclusion, in view of the GOC’s policy to encourage the Chinese producers to export BEVs, the high attractiveness of Union market, the massive overcapacity in China and significantly high spare capacities, as well as the fact that the volume of BEVs imports from the PRC has increased significantly since 2020 indicates the likelihood that such imports will continue to increase significantly starting in the very short term and continuing over the following years. This increase will mainly come from the Chinese homegrown brands and European brands purchased by Chinese companies at the expense of the Union industry, which will likely continue losing its market share.

Likely evolution of market shares of Chinese imports on the Union market

(1130) The CCCME claimed that in order to assess the Chinese BEV import volume and the likelihood of such imports to increase in the future, all BEVs imports from China and particularly the self-imports by the Union BEV industry should be assessed.

(1131) All subsidized imports of BEV originating in China are subject to the current investigation, regardless of the ownership of a specific company. In response to the claim, the Commission broke down all the imports from China into imports made from Chinese exporters related to the Union ICE OEMs (Renault, BMW and Mercedes-Benz) that are transitioning to production of BEVs on the Union market, imports from Tesla, and imports from all other Chinese imports such as European brands acquired in the past by Chinese companies (Polestar and MG), Chinese ICE OEMs (BYD, Chery, Dongfeng etc.), and Chinese EVs start-ups (NIO, Xpeng etc.).

(1132) The market share of imports of Chinese exporting producers related to the Union industry and of all other Chinese imports, based on registration, evolved as follows:

Table 12a

Breakdown of market share of Chinese imports

Neither EEA nor S&P Global Mobility report the origin of the BEVs. Therefore, for differentiating the BEVs volume of Tesla group models imported from China from the ones produced in the Union, the Commission used the exporters’ questionnaire reply submitted by Tesla for its request of individual examination as explained in recital (183). Furthermore, the respective data for the investigation period is not publicly available, therefore the Commission presented the information for the market share for Tesla in ranges. In order to protect the confidentiality of the data for Tesla, the Commission had to report the respective data for the imports of Chinese exporting producers related to the Union ICE OEMs transitioning to production of BEVs also in ranges, as otherwise Tesla data could be calculated by deduction. The Commission will provide the exact data in the definitive regulation once the necessary data become publicly available.

Source:

EEA and S&P Global Mobility

202020212022Investigation periodMarket share of imports of Chinese exporting producers related to the Union ICE OEMs transitioning to production of BEVs0,3%4,4%5,5%[4,7 – 5,7]%Tesla1,2%8,2%11,1%[9,8 – 10,8] %

Market share of all other Chinese imports1,9%2,5%5,1%7,3%

(1133) The table above shows that out of the total imports from China, the market share of the imports of the Union ICE OEMs that are transitioning to production of BEVs, while increasing between 2020 and 2021, remained relatively stable since 2021 and the investigation period, amounting to [4,7 – 5,7]% during the investigation period and is thus below the market share of all other Chinese imports, which increased from 1,9% in 2020 to 7,3% in the investigation period.

(1134) The Commission also established Chinese imports on a quarterly basis during the investigation period, which is shown in the below table.

Table 12b

Breakdown of market share of Chinese imports

Source:

S&P Global Mobility

Investigation periodOctober - December 2022January - March 2023April – June 2023July – September 2023Market share of imports of Chinese exporting producers related to the Union ICE OEMs transitioning to production of BEVs[4,2 – 5,8]%[4,3 – 5,9]%[3,8 – 5,3]%[5,6 – 6,8]%Tesla[10,6 – 12,2]%[12,8 – 14,4]%[8,9 – 10,4]%[6,6 – 7,8]%Market share of all other Chinese imports6,8%5,6%7,8%8,8%

(1135) The above table shows that on a quarterly basis, the market share of all other Chinese imports increased in three out of the four quarters during the investigation period, from 6,8% in the first quarter to 8,8% in the fourth quarter and exceeded the market share of imports made by the Union ICE OEMs that are transitioning to the production of BEVs, that amounted to [5,6 – 6,8]% during the investigation period.

(1136) In contrast with the high number of announcements made by the Chinese exporting producers as explained in recitals (1126) and (1127), the Union ICE OEMs transitioning to production of BEVs did not announce any major plans to import BEVs from China. Most of them have one BEV model or brand that is imported from China in significant lower volumes as compared to their production in the Union. For example, BMW announced that its iX3 BEV model that was imported from China during the period considered would stop being imported from

China as of 2025

https://www.bmwblog.com/2024/03/25/bmw-thinks-impact-chinese-imports-europe-exaggerated/

. The BMW group intends to import from China the brand MINI Cooper

https://carnewschina.com/2023/10/14/made-in-china-mass-produced-electric-mini-cooper-rolled-off-assembly-line-market-entry-in-2024/

, the Mercedes-Benz group the brand Smart, the Volkswagen group the brand Cupra and the Renault group the model Dacia Spring. The market share of these imports has been relatively stable since 2021 and is not expected to significantly increase in the very short term and in the imminent future.

(1137) Furthermore, the imports of Tesla from China are also not expected to increase significantly as the spare production capacity of Tesla is very low, if any. According to public information, Tesla intends to increase its production capacity in China. However, Tesla appears not to have received yet the necessary regulatory approvals and it is not clear whether it will receive them

https://www.reuters.com/business/autos-transportation/teslas-china-made-ev-sales-jump-687-yy-december-2024-01-03/#:~:text=Tesla's%20ambitious%20plans%20to%20expand,the%20Reuters​%20Auto%20File%20newsletter

.

(1138) The above therefore shows that it is likely that there will be an increase of market shares mainly from Chinese brands in the foreseeable future. Therefore, the claim was rejected.

5.4.

Sufficient freely disposable capacity and absorption capacity of third country markets

(1139) The GOC did not provide a list of the BEV manufacturers in China. Therefore, the Commission had to resort to publicly available information in this regard. It follows that according to Bloomberg, in 2023 there were around 100 Chinese electric car manufacturers in China, down from around 500 in 2019

https://www.bloomberg.com/features/2023-china-ev-graveyards/#:~:text=There%20are%20now%20​around%20100,from%20roughly%20500%20in%202019

.

(a) Capacity and spare capacity in China

(1140) As explained in recital (49), 21 Chinese groups of exporting producers came forward in the investigation by submitting a sampling reply. Based on these replies, as showed in Table 13, in the period considered, these Chinese exporting producers had an increasing capacity and spare capacity. During the investigation period their spare capacity reached almost 2,3 million BEVs, which is 1,5 times the total actual consumption of BEVs in the Union during the same period amounting to 1519082 pieces as shown in Table 1.

Table 13

Production and capacity of the Chinese cooperating exporting producers

Source:

Sampling replies of the Chinese exporting producers

Units202020212022Investigation periodProduction504068161066532743323991030Index100320650792Capacity2179815315378349454956278576Index100145227288Spare Capacity1675747154311816711632287546Index10092100137Capacity utilisation rate23%51%66%64%Index100221286275

(1141) However, the production, capacity and spare capacity data based on the cooperating exporting producers is incomplete. Information published by the China Association of Automobile Manufacturers (CAAM) shows that the total production of BEVs in China was of 5,8 million as stated in recital (1144). Therefore, assuming that the Chinese producers of BEVs that did not come forward in the investigation had the same capacity utilisation rate as the Chinese exporting producers that came forward, there was a total capacity in China of BEVs of 9,18 million units and a spare capacity of 3,34 million BEVs, which is 2,2 times the consumption of BEVs in the Union in the investigation period.

(1142) Furthermore, as on the same production lines a car manufacturer can produce both ICE cars and BEVs, the Commission looked also at the total production capacity for passenger cars in China based on publicly available information. It follows that in an article published by China Daily, it is mentioned that according to the China Passenger Car Association the production capacity in China for NEVs and ICE passenger cars stood at 40,89 million units in 2021

http://epaper.chinadaily.com.cn/a/202303/29/WS64238227a310777689887b55.html

. Furthermore, the press agency Reuters mentioned in an article that according to the China Passenger Car Association the total production capacity for passenger vehicles (NEVs and ICE cars), was of 43 million at the end of 2022 with a plant utilisation rate of 54,5%

https://www.reuters.com/business/autos-transportation/chinas-auto-workers-bear-brunt-price-war-fallout-widens-2023-09-05/

. Therefore, that the spare capacity for passenger vehicles in China was therefore of 23,4 million units. This spare capacity can be used to manufacture BEVs for the Union market.

(1143) Moreover, it has also been reported that the GOC is aware of the overcapacity for passenger vehicles and has implemented a stricter licensing regime for regulatory approvals that impact companies for establishing new production of EVs in China

https://www.ft.com/content/29d20e6c-29d0-4603-abeb-caf55f5dd9c3

. Nevertheless, new BEV producers are still setting up in China such as the Chinese smart consumer electronics maker Xiaomi

https://edition.cnn.com/2024/03/28/business/chinas-xiaomi-ev-launch-intl-hnk/index.html

.

(b) Production in China

(1144) According to the CAAM

http://en.caam.org.cn/Index/show/catid/65/id/2030.html

, the production of BEVs in China has been increasing significantly. Thus, as shown in Table 14, in the investigation period 5836000 BEVs were produced in China, an increase of 489% as compared to 2020 when 991000 BEVs were produced.

Table 14

Total production of BEVs in China

Source:

CAAM

units202020212022Investigation periodBEV production in China991000276100051320005836000Index100279518589

(c) Demand in China

(1145) In 2023 total sales of passenger cars in China were of 26,06 million units

http://en.caam.org.cn/Index/show/catid/64/id/2015.html

. For 2024, the passenger vehicles sales are projected to rise by 3,1% to 26,8 million units as compared to 2023

https://auto.economictimes.indiatimes.com/news/passenger-vehicle/china-car-sales-expected-to-rise-3-in-2024-industry-association/105951270?utm_source=top_news&utm_medium=tagListing

.

(1146) In 2023 the total sales of NEVs in China (BEVs and PHEV) for passengers was of 9,49 million

http://en.caam.org.cn/Index/show/catid/66/id/2039.html

. In 2024 the sales of NEVs are estimated to increase by 20% as compared to 2023

https://auto.economictimes.indiatimes.com/news/passenger-vehicle/china-car-sales-expected-to-rise-3-in-2024-industry-association/105951270?utm_source=top_news&utm_medium=tagListing

, thus reaching 11,4 million units.

(1147) The sales of BEVs (registrations) amounted to more than 5 million in the investigation period as explained in the table below. Furthermore, based on the CAAM around 87% of the BEVs produced were sold and registered in China.

Table 15

Total demand in China

https://insideevs.com/news/707264/china-plugin-car-sales-2023/#:~:text=Plug%2Din%20car%20​registrations%20in%202023%20(YOY%20change)%3A,%25)%20and%2037%25%20market%20share

Source:

https://www.iea.org/reports/global-ev-outlook-2022/trends-in-electric-light-duty-vehicles and InsideEVs, China Plug-In Car Sales Hit A New 8 Million Record In 2023

units202020212022Investigation periodBEV registrations in China931000273400043500005092500Index100294467547

(1148) A 20% increase in 2024 of the BEV market in China translated into 6.1 million BEVs, as compared to a capacity of more than 9 million BEVs. Therefore, the Commission provisionally concluded that the domestic market in China would not be able to absorb its large spare capacity.

(d) Exports of China and availability of other exports markets

(1149) Based on official customs statistics from the Chinese authorities, in the investigation period China exported 1471136 BEVs (which corresponds to an increase of 659% as compared to 2020), out of which 486550 BEVs were exported to the Union, an increase of 1343% as compared to 2020.

Table 16

BEVs exports of China

Source:

GTA

202020212022Investigation periodTotal Chinese exports1939164999939453371471136Index100258487759Chinese exports to the Union33731171822328391486550Index1005099741443% Chinese exports to the Union vs total exports17,4%34,5%34,7%33,1%

(1150) The table above shows that the Union market is the main export destination for the Chinese exporting producers, representing 33,1% of total Chinese exports of BEVs. Other destinations are the United Kingdom (10% of total Chinese exports) Thailand (9% of total Chinese exports), the Philippines (7% of total Chinese exports), and Australia (6% of total Chinese exports).

(1151) The proportion of the BEVs exported to the Union in the total Chinese exports increased from 17,4% in 2020 to 33,1% in the investigation period. Although total Chinese exports of BEVs increased more than 6 times during the period considered, the exports to the Union increased with much steeper pace, that is by more than 10 times during the same period.

(1152) Furthermore, as shown in recital (1120) and Table 11, the US and the Union markets are the largest markets for passenger cars after China while the US market is shielded from imports of Chinese BEVs by high import duties as explained in recital (1121). Other markets such as the UK, Japan, Korea are relatively small markets as compared to the Union market as shown in Table 11 and therefore the absorption capacity of these third countries market is limited. Finally, other third country markets, such as the US and Türkiye also have trade barriers in place against Chinese BEVs imports as explained in recital (1121).

(e) Conclusion

(1153) Based on the above, the Commission concluded that significant volumes of the existing excess production capacity of BEVs will continue to be directed to the Union market over the next months and years. The present overcapacities and the insufficient absorption capacity of third country markets or the domestic market in China indicate the likelihood of further substantial increase of subsidized Chinese exports to the Union.

5.5.

Price level of subsidised imports

(1154) The BEVs from China that arrived in the Union market during the investigation period were imported at substantially lower prices than the prices charged by the Union industry. As explained in recital (1029), the Commission established weighted average undercutting margins for the investigation period of 12,7% based on a type for type analysis at the same level of trade. Furthermore, as explained in recital (1033) the selling price of the sampled Chinese exporting producers was 30% lower than the weighted average cost of production of the Union industry.

(1155) Bearing in mind the nature of the Union market, being very transparent and price sensitive, the price level of the subsidised imports, at increasing volumes, is likely to further penetrate the Union market and continue to put considerable price pressure on the Union producers at a time when the Union industry is particularly vulnerable as the market is transitioning from the production of ICE vehicles to BEVs.

(1156) Furthermore, the Commission established the existence of price suppression. Indeed, the Union industry was selling below cost of production during the period considered. Due to the significant price pressure caused by the low-priced subsidised imports from the PRC, the Union industry was prevented from increasing its sales prices to achieve a profitable situation, resulting in a loss.

5.6.

Level of inventories

(1157) The level of inventories of the sampled Chinese exporting producers is described in detail in recital (1017), which shows that at the end of the investigation period the Chinese exporting producers had significant stocks of BEVs in the Union (4,3% of consumption on the Union market (registrations) in the investigation period or around 19% of the number of registrations following importation from China). Such large quantities of readily available BEVs are clearly mainly intended for sale on the Union market.

(1158) Furthermore, reports of congestion of BEVs imported from China and stocked in the Union ports, due to logistical difficulties in onward transportation

Alim, A. N., Wright, R., Campbell, P. and Li, G., European ports turned into car parks as vehicle imports pile up, Financial Times, 9 April 2024, https://on.ft.com/43OrRc7.

have been reported in the press. Moreover, significant stocks of Chinese BEVs from SAIC, BYD, Nio, XPeng, Lynk & Co, Omoda, and Hongqi (130000 BEVs) have been reported in May 2024 in the Belgian ports

https://www.euronews.com/business/2024/05/15/european-ports-turned-into-car-parks-as-ev-makers-hunt-buyers

.

(1159) The availability of these stocks underlines the imminent nature of the threat of injury to the Union producers.

5.7.

Foreseeability and imminence of the change in circumstances

(1160) Article 8(8) of the basic Regulation provides that […] the change in circumstances which would create a situation in which the subsidy would cause injury must have been clearly foreseen and must be imminent.

(1161) All the above-mentioned factors have been analysed and verified with respect to the investigation period.

(1162) During the period considered, the volume of Chinese imports increased exponentially, more than five times in comparison with the beginning of the period considered. Those imports exercised significant price pressure shown by the undercutting and the price suppression found. In the context of a booming consumption, the Union industry was consistently loosing market shares throughout the period considered at the expense of the subsidised imports from China, achieving the lowest point during the investigation period. As a result, the progressive transitioning from ICE to BEVs started to be impeded especially during the investigation period. Profitability, return on investment, and cash-flow deteriorated in the investigation period.

(1163) If this trend continues, the Union industry will be unable to increase its production of BEVs as it is necessary under the transitioning of the Union market from ICE vehicles to BEVs, and its situation will be turned into a material injury immediately. Moreover, as explained in recitals (1126) and (1127) the Chinese spare capacity for BEV is at least 2,2 times the Union consumption which cannot be absorbed by domestic Chinese demand as explained in recital (1148) or by other major Chinese export markets given the high entry barriers and their size as explained in recitals (1120) and (1121). Moreover, evidence indicates that Chinese exporting producers intend to further increase their market presence in key EU countries in the very near future, including by placing new models on the market. Finally, the GOC’s policy encourages further imminent increase in exports.

(1164) The above facts and elements show that the subsidised imports will further increase and as a consequence that injury for the Union industry is highly likely to materialise imminently.

5.8.

Claims from parties

(1165) Company 24 claimed that several Union producers are expected to launch more affordable BEV models in the following years and therefore a stronger presence of the Union producers in the lower-priced segments will exert downward pressure on any potential market share increase of Chinese producers. Furthermore, Company 24 claimed that the Union producers will be aided in this process by the traditional competitive advantage that the industry has built over several decades of successful competition in the Union and the global passenger vehicle market. Company 24 also stated that the passenger vehicle industry was strongly influenced by factors such as brand and loyalty as well as resale value and that these factors have long been important barriers for Chinese entrants in the Union market and will continue to be so in the future. Company 24 also argued that in contrast to the Chinese exporting producers, the Union industry enjoyed a strong position in the Union market with respect to dealership networks and aftersales services which facilitates sales on the Union market.

(1166) While the Union industry intends to launch more models of BEVs for the Union market at different prices, the Chinese exporting producers are expected to adapt to these new BEV models and offer similar BEVs at even lower prices similarly to what occurred during the investigation period as explained in recital (1029). As explained in recital (1037), the Union industry had a traditional competitive advantage in the ICE vehicle market. In the past the Chinese producers of ICE vehicles were not successful on the Union market as the ICE vehicles manufactured by the Union producers were technologically more advanced and of a higher standard than the Chinese ICE vehicles, especially as concerns safety. However, the situation regarding the BEV industry is different as the Union producers are still in the early phases to build up BEV technology, while in China, the development of such technology started several years ago and is meanwhile well advanced. As concerns loyalty of the customers and brand, as explained in recital (1037) the rapid growth of Tesla is a clear example that the brand value built on ICE cars, or lack thereof, is of marginal relevance when it comes to success and pricing power in the BEV market. In particular, considering the EU target to replace ICE vehicles by BEVs by 2035 as explained in recital (1222), it is

very likely that consumers present in the middle and lower segment will switch to the lower priced Chinese BEVs. As concerns the dealership, the Chinese are in the process of building dealership networks as well as taking advantage of online sales which has already proven as a successful strategy for Tesla. Therefore, the claim was rejected.

5.9.

Conclusion

(1167) In view of the analysis of all facts and evidence listed above, the Commission concluded that there is a threat of material injury for the Union industry which is clearly foreseeable and imminent.

(1168) The current situation of the Union industry, where the necessary sales to recover the high investments needed in the transitioning market cannot take place, is likely to be further aggravated by the continuing subsidised imports of BEVs from the PRC, which have been steadily increasing at a significant rate and at undercut and suppressed prices, as well as by the specific targeting of the Union market by the GOC given that the Union market is the only major open world market. This imminent materialisation of the material injury will further jeopardise the increase in production and sales of BEVs of the Union industry in line with the transitioning of the Union market from ICE vehicles to BEVs.

(1169) Furthermore, the change in circumstances otherwise leading to such imminent materialisation of the injury for the Union industry are clear. As showed in recitals (1157) and (1158) the Chinese exporting producers have large quantities of stocks of readily available BEVs in the Union which are clearly intended for sale on the Union market. Furthermore, as explained in recital (1126) and (1127) a large number of Chinese exporting producers announced that they intend to launch several new models of BEVs on the Union market, as well as to expand their presence on the Union market by entering the market of more EU Member States in the short term. These announcements clearly indicate the interest of the Chinese exporting producers in the Union market. These elements are very likely to cause significant losses for the Union industry, absent the adoption of any countervailing measures. The imminence of such facts leading to material injury are clearly shown by the reversing trend in profitability which started to deteriorate for the Union industry at the end of the period considered, in addition to the constantly decreasing market shares through the period considered. All these elements support a provisional finding of threat of injury under Article 8(8) of the basic Regulation.

1. CAUSATION

6.1.

Effects of the subsidised imports

(1170) As shown in Tables 2a and 2b imports of Chinese BEVs and BEVs registrations following importation made large gains in Union market share over the period considered. Over that period the market share of imports increased from 3,9 % in 2020 to 25,0 % in the investigation period and the Chinese share of registrations increased from 3,5 % to 22,8 %.

(1171) At recitals (1023) to (1032) the Commission demonstrated that the Chinese imports were undercutting the Union industry prices by at least 12,7% during the investigation period. The Commission also established that the Chinese imports were suppressing the Union industry prices during the period considered.

(1172) Due to the substantial increase of the subsidised imports of Chinese BEVs, at prices below those of the Union industry, the Union industry lost market share in the investigation period and could not even sell at prices which would at least enable it to cover its costs. Therefore, the Commission concluded that those subsidised imports had a negative impact on the situation of the Union industry.

(1173) Moreover, as described in Section 5 there are many factors which demonstrate that the Chinese BEV producers are a growing threat of injury to the Union industry. The Chinese BEV producers have significant stocks of BEVs in the Union which are ready to be sold on the Union market. In addition, there is substantial and growing spare capacity in China, which is available for export. As shown in recital (1121) the USA, the only other major export market for China, imposed measures which will clearly deter increases in imports. Thus, the Union has become the most attractive destination for Chinese exports.

(1174) Furthermore, it is clear that the increase in exports to the Union will continue and increase further in the foreseeable future as explained in recitals (1111) to (1138). This imminent increase in exports to the Union will further damage the Union industry’s ability to increase its sales levels, maintain its market share and safeguard its investments by allowing a fair return on its investments.

(1175) Therefore, the Commission provisionally considered that the subsidised imports of Chinese BEVs are causing a threat of material injury to the Union industry.

6.2.

Other known factors

(1176) In accordance with Article 8(6) of the basic Regulation, the Commission also examined whether other known factors, individually or collectively, are capable of attenuating the causal link established between the subsidised imports and the threat of injury provisionally found to exist to the effect that such a link would no longer be genuine and substantial.

6.2.1.

Imports from third countries

(1177) Other than imports from China, imports from the South Korea, the United Kingdom, Mexico, Japan and the United States of America had a market share of over 1% in the investigation period. The quantity of imports and market shares, as well as average import prices from these third countries developed over the period considered as follows:

Table 17

Imports from third countries

Source:

Member States customs data

Country202020212022Investigation periodSouth KoreaQuantity (pieces)56330712526276590011Index100126111160Market share10,2%7,9%5,5%5,5%Index100785353Average price (EUR/piece)28135303983297636037Index100108117128United KingdomQuantity (pieces)19555384424768677325Index100197244395Market share3,6%4,3%4,2%4,7%Index100121117132Average price (EUR/piece)27307264172642326275Index100979796

MexicoQuantity (pieces)291290902548431310Index1009997875710759Market share0,1%3,2%2,2%1,9%Index100613241963591Average price (EUR/piece)44111402124068544259Index1009192100JapanQuantity (pieces)52554240986425361Index10081188483Market share1,0%0,5%0,9%1,5%Index1004990161Average price (EUR/piece)20176239373164331385Index100119157156USAQuantity (pieces)6779934084503123904Index10050735Market share12,3%3,8%0,4%1,4%Index10031412Average price (EUR/piece)31130289156811459791Index10093219192Other countriesQuantity (pieces)849133223071564Index100157272184Market share0,2%0,1%0,2%0,1%Index1009613061Average price (EUR/piece)30417206782653739820Index1006887131Total of all countries except the PRCQuantity (pieces)150079178440153137249475Index100119102166Market share27,3%19,9%13,3%15,1%Index100734955Average price (EUR/piece)29146306313319035870Index100105114123

(1178) Imports from South Korea increased from around 56000 to around 90000 over the period considered, but their market share fell from 10,2% in 2020 to 5,5% in the investigation period. In addition, the average import prices increased and were on average above the Chinese import price.

(1179) Imports from the United Kingdom increased from around 20000 to around 77000 over the period considered. Although their average price fell slightly over this period, their market share remained relatively stable and did not rise above 5% over the period considered. Although the average import price from the United Kingdom was slightly below the imports price from China in 2020 and 2022 (3,0% and 0,1% respectively) it was above Chinese import prices in 2021 and the investigation period (7,8% and 4,0% respectively).

(1180) Imports from Mexico, Japan and the USA were each less than 2% of the market share in the investigation period. In addition, except for Japan in 2020 and 2021, average import prices were largely above the average import price of the Chinese imports throughout the period considered.

(1181) Imports from all other countries were negligible.

(1182) Based on the above analysis, the Commission provisionally concluded that the imports from other third countries did not attenuate the causal link between the subsidised imports and the threat of injury to the Union industry during the investigation period.

6.2.2.

Export performance of the Union industry

(1183) The export performance of the Union industry developed as follows:

Table 18

Export performance of the Union industry

Source:

Eurostat (CN code 87038010)

202020212022Investigation periodExport volume (pieces)190101291766454555632256Index100153239333Prices of exports42374400824772347482Index10095113112

(1184) The level of exports of BEVs of the Union industry increased by 233% over the period considered. This was a higher rate of increase in comparison to the sales of the Union industry on the Union market as shown at Table 5.

(1185) The average export price of the Union industry was above the cost of production as shown in Table 7.

(1186) Therefore, it was provisionally concluded that the export performance of the Union industry did not attenuate the causal link between the subsidised imports and the threat of injury established.

6.2.3.

Demand related factors

(1187) Key factors affecting demand of BEVs include charging time, availability of charging infrastructure, the related issue of range anxiety and the regulation on carbon emissions of vehicles stated in recital (1223).

(1188) The BEVs sales and the BEV charging capacity are positively correlated, and the BEV charging capacity is a crucial element supporting the increase in BEV sales on the Union market.

(1189) Company 24 claimed that the lack of sufficient public charging infrastructure remained a key impediment for increased consumer uptake of BEVs in the Union, and acted as an important constraint for consumer demand, causing adverse effect to the Union industry. Company 24 also claimed that the Union BEV market was expected to grow significantly in the coming years.

(1190) The Commission noted that Company 24 provided contradicting arguments, on the one hand claiming that there were factors which acted as a significant constraint on demand for BEVs in the Union, such as the charging infrastructure, and on the other hand that demand was rapidly increasing, and the BEV Union market was expected to grow significantly. The Commission agreed that, in view of the ambitious targets set by the Union and the relevant EU regulations, it can be anticipated that the BEV Union market is going to grow rapidly in the next years. Taking into account the lack of other mature technologies for zero-emissions propulsion, by 2035 the BEV market can be expected to reach the levels of today’s overall car passenger market.

(1191) In addition, the Commission noted that there was rapid progress in addressing any bottlenecks related to charging, whether at home, in a private charging area (such as in a company or parking lot) or via access to a public charging point. In the Union, the amount of charging infrastructure, both publicly accessible and private, is surging whether analysed by installed capacity or number of charging points. By the end of 2022, there were 475000 public charging points with an installed capacity of 5,1 kW per each BEV in the Union. The installed capacity for private charging infrastructure was of 8,0 kW per each BEV in the Union. The total stock of the charging infrastructure in the Union will increase to 35 million charging points by 2030

https://www.chargeupeurope.eu/

.

(1192) Furthermore, the EU has adopted the Alternative Fuels Infrastructure Regulation

Regulation (EU) 2023/1804 of the European Parliament and of the Council of 13 September 2023 on the deployment of alternative fuels infrastructure, and repealing Directive 2014/94/EU, OJ L 234, 22.9.2023, p. 1.

that will require all national roads and motorways across the Union to be fitted with public chargers by 2025 in line with the number of electric cars on the road by that time. According to this regulation, charging points should be available every 60 km along major EU highways (i) by 31 December 2025, each recharging pool offers a power output of at least 400 kW and includes at least one recharging point with an individual power output of at least 150 kW; (ii) by 31 December 2027, each recharging pool offers a power output of at least 600 kW and includes at least two recharging points with an individual power output of at least 150 kW. The regulation also stipulates mandatory national fleet-based targets, such as the requirement to provide through publicly accessible recharging stations a total power output of at least 1 kW for every battery electric light duty vehicle.

(1193) Demand for BEVs on the Union market increased rapidly over the period considered. Table 1 demonstrates that both apparent and actual consumption increased by over 180% in that period. It is expected that advances in battery technologies will further increase range and reduce charging time, and that the availability of public and private charging infrastructure will continue to improve, gradually removing any related constraints on demand. Bearing in mind the mandatory targets for the emissions of new sales on the Union market (and substantial penalties for non-compliance) set by EU Regulations as explained in recitals (1222) and (1223), it is therefore expected that demand will continue to increase in the future.

(1194) In the ongoing transition from ICE vehicles to BEVs it is essential that the Union industry is able to maintain its economies of scale by maintaining sufficient sales volumes and market shares. This will enable the Union industry to recover its cost and generate enough profitability for necessary investments. This is even more important in the current phase where the Union BEVs market is still developing and not mature yet.

(1195) However, Tables 2a and 2b demonstrate that the Union BEV industry is losing market share at an unsustainable rate. The assessment made in section 5 further indicates that these market share losses will continue over the period up to the end of 2026. Therefore, although the factors limiting demand may have had an impact in the past, it is the recent and imminent market penetration of the Chinese subsidised imports as shown in section 6.1 which presents the greatest threat to the Union industry in the near future to the successful transition of the Union market to BEVs.

(1196) In view of the above, the Commission provisionally considered that any constraints on demand, related in particular to the availability of charging infrastructure, would not attenuate the causal link between the subsidised imports and the threat of injury provisionally found. Therefore, the claim was rejected.

6.2.4.

Competitiveness of the Union BEV industry

(1197) The CCCME claimed that the reliance of the Union BEV producers on the supply of batteries and other components on third countries affected their competitiveness in general. The CCCME and Company 24 claimed that the lack of vertical integration of the Union producers and their reliance on third country sources for batteries result in higher battery and other production costs. Furthermore, the CCCME and Company 24 stated that the negative effects, stemming from the lack of vertical integration, were exacerbated by other factors that are not related to the imports of BEVs from China such as (i) supply chain disruptions due to Covid-19 pandemic and the Russian-Ukraine war, (ii) increased raw material costs, (iii) shortages of critical components such as semi-conductors and (iv) high energy prices. Company 24 also claimed that the Union industry did not invest in time in the electric battery supply chain, and it focused on ICE cars where they had a competitive edge and only started to invest recently in the BEV market.

(1198) The Commission noted that the advantages of vertical integration related mainly to BYD, rather than to all Chinese exporting producers. The Union industry is composed of companies which purchase batteries on the world market and others, which are investing in battery production. In fact, the Union industry is continuously increasing its battery production capacity.

(1199) In addition, although the Chinese exporting producers have developed advantages in the supply of batteries and key raw materials for batteries, these advantages have been obtained largely through subsidisation as shown in section 3.7.2. Therefore, the alleged competitive advantages do not attenuate the causal link between the subsidies imports and the threat of injury.

(1200) Supply chain disruptions and other factors increasing the prices of raw materials and energy were worldwide issues, not solely applicable to the Union industry and there is therefore no specific competitive disadvantage for the Union industry overall. Furthermore, these were issues mainly relating to the period considered and the CCCME and Company 24 did not claim or substantiate to what extent such factors would have an impact on the Union industry’s situation in the coming years.

(1201) Therefore, given the Commission’s findings in the previous recitals, these claims were rejected.

6.2.5.

Competition between ICE cars and BEVs

(1202) Company 24 and the CCCME claimed that the competition between ICE vehicles and BEVs should be examined as a causation factor. Neither the CCCME or Company 24 did, however, further explain or elaborate on this claim.

(1203) The Union emissions legislation targets will ensure that the Union industry rapidly transitions to BEVs as explained in recital (1223). Therefore, although there is currently competition between ICE and BEV vehicles in the Union market, production and sales of ICEs will gradually reduce, in parallel to the increase of the production and sales of BEVs in line with the EU emission targets. Therefore, the competition between ICEs and BEVs will also gradually reduce in favour of BEVs sales.

(1204) In view of the above, the Commission provisionally considered that the impact of competition with the ICE sales, would not attenuate the causal link between the subsidised imports and the threat of injury provisionally found. Therefore, the claim was rejected.

6.2.6.

Lack of economies of scale and start-ups

(1205) The CCCME claimed that the lack of economies of scale of Union BEV producers results in likely higher costs. It was further claimed that certain Union producers such as e.Go relies on the micro factory concept and cannot achieve economies of scale as achieved with gigafactories and large production set-ups. Furthermore, the CCCME argued that certain Union producers such as Fisker and e.Go have just started BEV production and therefore the Commission should also consider the start-up situation of certain Union producers in its analysis.

(1206) The Commission followed the methodology of considering causation factors in relation to their impact on the entire Union industry. The mere existence of factors relating to a small part of the Union industry, was not considered to be representative for the Union industry as a whole and it was therefore provisionally concluded that it did not attenuate the causal link between the subsidised imports and the threat of injury provisionally found. As regards the broader Union industry, the Commission considered that it is precisely the imports from China which are threatening the prospects of the Union industry to reach the necessary scale and become profitable in the near future. Those subsidised imports prevent the Union industry for achieving the necessary sales targets to increase production accordingly and achieve economies of scale. This claim was therefore rejected.

6.2.7.

Supply issues

(1207) Company 24 also claimed that the Union industry did not have the capacity to meet the rapidly increasing demand, which was linked to the green transition.

(1208) Contrary to Company 24’s claim, the investigation revealed that the Union industry has enough capacity to manufacture BEVs and meet the demand on the Union market. As explained in recital (1060) as the capacity utilisation was below 40% in the investigation period, it was provisionally concluded that the Union industry has enough production capacity to satisfy the future increases in the demand for BEVs and in addition, more capacity can be allocated from ICE vehicle production to BEVs production. Therefore, the claim was rejected.

6.2.8.

EU policy on Biofuels

(1209) The CCCME claimed that the EU has historically favoured biodiesel production over the production of BEVs which has led to low priority being given to BEV production.

(1210) This claim was a very vague statement and did not contain any detail to explain the significance of the point being made. It is recalled that as explained in recital (1223) the Commission has introduced specific emission targets for all new passenger cars and light commercial vehicle fleets for brands and groups for 2020 and subsequent years. Therefore, the Commission did not agree that it gave low priority to the BEV production.

(1211) Furthermore, the Commission concluded at section 5 above that the Union industry is imminently threatened with material injury from subsidised imports originating in China. The CCCME did not substantiate how EU biofuel policy would negatively impact the situation of the Union BEVs producer in the coming years. This claim was therefore rejected.

6.2.9.

Imports from China by the Union industry

(1212) The CCCME claimed that the imports from China of the Union industry could be a factor causing a threat of injury to the Union BEV industry.

(1213) The Commission commented on the imports from China of the Union industry companies in recital (998). It was not clear what Union industry companies the CCCME was referring to in its assessment or how such imports would cause a threat of injury in the near future. Recitals (1130) to (1138) clearly explains the expected import quantity and price development from China in general, and imports from Chinese owned groups such as BYD, Geely and SAIC. As explained in table 12a the imports of Chinese brands increased their market share from 1,9 % in 2020 to 7,3% in the investigation period. It concluded that, the main threat of injury is from Chinese owned groups in the coming years.

(1214) Bearing in mind the above assessment and the lack of clarity over the relevance of this claim, it was considered that this claim had not been substantiated and was therefore rejected.

6.3.

Conclusion

(1215) The Commission identified a link between the increasing imports of subsidised imports from the PRC and the threat of material injury.

(1216) The Commission distinguished and separated the effects of all other known factors on the situation of the Union industry from the injurious effects of the subsidised imports from the PRC.

(1217) The Commission found that the other identified factors such as imports from third countries, export performance of the Union industry, demand related factors, competitiveness of the Union industry, competition between ICE cars and BEVs, lack of economies of scales and start-ups, supply issues, EU policy on biofuels, and imports from China of the Union industry, did not attenuate the causal link, either individually or collectively. The Chinese exporting producers benefitted from certain advantages during the period considered, such as a secure supply of batteries and raw materials. However, the Commission did not conclude that material injury had been suffered during that period. In fact, for none of the other factors, was a convincing case made to demonstrate how such factors are an imminent threat to the Union industry or that they weaken the clear threat of the subsidised Chinese imports in the coming years.

(1218) Therefore, the Commission provisionally concluded that the increasing imports of subsidised imports from the PRC were a threat of material injury to the Union BEV industry in the absence of measures.

1. UNION INTEREST

(1219) In accordance with Article 31 of the basic Regulation, the Commission examined whether it could clearly conclude that it was not in the Union interest to adopt countervailing measures corresponding to the total amount of countervailable subsidies in this case, despite the determination of injurious subsidisation. The Commission based the determination of the Union interest on an analysis of all the various interests involved, including those of the Union industry, importers, user, suppliers and consumers.

(1220) Comments on Union interest were received from the GOC, the CCCME, the European Association of Automotive suppliers (CLEPA), the German Association of the Automotive Industry (VDA), the European Steel Association ('EUROFER’), Company 31, and Company 29.

7.1.

Interest of the Union industry

(1221) The automotive industry plays an important role in the Union’s economy, providing direct and indirect jobs to 12,9 million people, representing 7% of total EU employment. Out of that, around 24% or 3,1 million are manufacturing jobs

https://www.acea.auto/files/ACEA-Pocket-Guide-2023-2024.pdf

. The automotive industry is a driver of Europe’s economic value creation, competitive sovereignty, and societal wellbeing.

(1222) In the European Green Deal

https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en

, the Commission defined the goal of achieving climate neutrality by 2050. This goal was put into law in 2021 with the publication of Regulation 2021/1119 (European Climate Law)

Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999, OJ L 243, 9.7.2021, p. 1.

. All sectors of the economy are expected to contribute to achieving those emissions reductions, including the road transport sector where emissions have been on the rise since 1990. Therefore, BEVs are an important product for the Union to reach its climate goals.

(1223) The EU has also introduced specific emission targets for all new passenger cars and light commercial vehicle fleets for manufacturers for 2020 and subsequent years in Regulation (EU) No 2019/631, which was later amended by Regulation (EU) 2023/851

Regulation (EU) 2023/851 of the European Parliament and of the Council of 19 April 2023 amending Regulation (EU) 2019/631 as regards strengthening the CO2 emission performance standards for new passenger cars and new light commercial vehicles in line with the Union’s increased climate ambition, OJ L 110, 25.4.2023, p. 5.

. This regulation is a key component of the European climate protection policy. The regulation states that, from 2021 onwards, the average emissions of new passenger cars registered in the Union must be no higher than 95g CO2/km EU fleet wide. The targets will be tightened as from 2025: for new passengers car fleets registered in the Union, a reduction of 15% in CO2 emissions will therefore be required from 2025 and a reduction of 55% from 2030. For 2035, a CO2 reduction target of 100% will apply to passenger car and light commercial vehicle fleets. If the respective fleet-wide target is not fulfilled, the Commission imposes an excess emissions premium, amounting to EUR 95 per excess gram of CO2 per newly registered vehicle.

(1224) These targets can in particular be achieved through a growing proportion of electric vehicles in the fleet. However, the targeted reduction in CO2 in the Union represents a major challenge for the entire transport sector because the electrification goes far beyond the mere conversion of thermal to electric powertrains and covers the entire value chain of the electric vehicles. It is a complex transition which involves the entire chain of the automotive industry from mining, chemicals, to electric powertrain and battery pack manufacturing, energy, battery waste collection and recycling. It follows that the auto industry is undergoing a fundamental transformation process.

(1225) Furthermore, electric batteries have a strategic importance for the development of BEVs. The location of the production of electric batteries is very important for the BEV manufacturers. While the electric cells can be transported and shipped with relative ease, once these are fitted in modules and then into battery packs those operations become significantly more difficult and costly. BEV producers thus benefit from being located near to battery suppliers for that stage of the process, or even carrying it out in-house. Proximity and close contact with battery suppliers is also important considering that batteries are not off-the-shelf products but are rather built according to the specifications of vehicle producers. For instance, size and functionalities of a BEV will dictate the type of battery it requires, which in turn affects the composition of the raw materials mix at the start of the process (again creating potential efficiencies for vertically integrated market players). While in the period considered the Union BEV producers were depending on imports of batteries, mainly from China, the car makers committed to invest heavily in their own battery production capacities, most of them through partnerships with specialised players. These investments amount to several billions of euros that will be made by 2030

https://www.reuters.com/graphics/AUTOS-INVESTMENT/ELECTRIC/akpeqgzqypr/

.

(1226) In the transition to electrification, it is highly risky for the Union car producers to lose profitability and market share to subsidised imports from China because it would mean that they would not be able to carry out the necessary investments in new battery technologies that will increase driving range, reduce charging time, cut costs and improve safety and thus to successfully achieve such transition. On the other hand, the Chinese companies were able to achieve economies of scale due to the large amounts of subsidies granted by the GOC and are exporting BEVs at unfair prices to the Union, taking over market share of the Union industry that is faced with substantial losses and the consequent inability for the required investments. If the Union industry is irrevocably injured by subsidised Chinese imports, the target of electrification will therefore not be met, and the European Union’s climate goals could be compromised.

(1227) The imposition of the countervailing measures would enable the Union industry to fairly compete on the market and manufacture and sell enough BEVs on the Union market that would allow it to become profitable in the future. As explained in recital (1078), the Union BEV industry is a capital-intensive industry and therefore it needs time to achieve economies of scale in order to cover its fixed costs and be profitable. Therefore, the imposition of measure would shield the Union industry from an intensive and unfair price pressure which would otherwise be exerted by the Chinese imports.

(1228) If countervailing measures are not imposed, the investments committed by the Union BEV industry for the transition to electrification and the jobs in the auto sector mentioned in recital (1221) would be at risk because of the unfair trade. The Union industry would not be able to follow the transition of the Union market from the production of ICE cars to BEVs because of the subsidised Chinese imports prices undercutting the prices of the Union BEVs producers. Furthermore, the Union risks losing one of its most important manufacturing sectors and the Union as a region could fall behind in technology and innovation versus China and the USA and could risk missing its climate goals.

(1229) VDA observed that the business activities of Chinese companies in China and abroad support achieving economies of scale and contribute to profitability in areas such as manufacturing, logistics and R&D world-wide. According to VDA, in the existing global world order and business model, these effects also support the development of the European automotive industry.

(1230) Company 24 claimed that although in the past there were concerns about the entry and increasing market shares in the Union of the Japanese and the Korean car manufacturers from the 1980s onwards, the introduction of Japanese and Korean products spurred efforts in adaptation, innovation, and efficiency on the part of Union producers. Furthermore, the Japanese and Korean producers set up production in the Union, became part of the Union industry and thus contributed directly to its development and progress. Company 24 further argued that the same can be expected from the Chinese BEV producers.

(1231) The Commission disagreed with this claim as there are fundamental differences between the rise of the Korean and Japanese car producers over the past years and the current Chinese OEMs. In particular, the Korean and Japanese OEMs were competing with ICE cars against Union OEMs which had a long-standing experience and supply chains. In contrast, China’s dominance in the production of electrical batteries is a key factor in the competition between Chinese and Union BEV producers. The Union producers are currently building their battery clusters for the Union market with significant investments and cost and are therefore in a very different position in comparison to the time of increased imports of cars from Japan and Korea. Furthermore, in the past the Korean and Japanese producers had to access the Union market mainly via dealership presence which came at a high cost and took time to build. However, at present it is easier for the Chinese exporting producers to get in touch with the consumer directly without any intermediate dealer via online car purchasing and direct sales models which are increasing. Finally, in the past the Union producers had to compete with only a small number of Korean and Japanese producers, while during the investigation period, as explained in recital (1125) there are more than 14 Chinese BEV producers present on the Union market. Therefore, the claim was rejected.

(1232) The GOC claimed that it was not in the Union interest to impose countervailing measures as the Union BEV industry did not have enough capacity to manufacture BEVs for the entire demand of BEVs in the Union.

(1233) The investigation revealed that the Union industry has enough capacity to manufacture BEVs and satisfy the Union demand as explained in recital (1060). Therefore, the claim was rejected.

(1234) The Commission found that the transitioning from production of ICE to BEVs would be jeopardised by the exponential increase of subsidise imports, thereby causing a threat of material injury to the Union industry. Exposure of the Union industry to a massive increase of unfairly priced Chinese imports undercutting the Union industry sales prices and their rapidly increasing market shares will have a significant negative effect on the Union industry situation in terms of loss of sales volume and market share as well as rapidly decreasing profitability leading to substantial losses and therefore also loss of investments. This will inevitably lead to closure of production sites in the Union and massive loss of employment. The Commission therefore provisionally concluded that the imposition of measures would be in the interest of the Union industry.

7.2.

Interest of unrelated importers

(1235) As referred to in recital (47), no unrelated importer cooperated in the investigation. Therefore, the Commission provisionally concluded that in view of the lack of cooperation of the unrelated importers, the imposition of countervailing measures would not have a disproportionate effect on the unrelated importers.

7.3.

Interest of users

(1236) The product under investigation is used by several types of users, notably car leasing companies, car rental companies, car sharing companies, taxi companies and end-users.

(1237) Seven users belonging to two groups of companies came forward and submitted replies to the users’ questionnaire, namely Company 32 and six companies belonging to the Leasys Group. These companies used the product under investigation to lease it to their customers.

(1238) Company 32 submitted an incomplete questionnaire reply. The Commission sent a deficiency letter requesting additional information. The company did not reply to the deficiency letter claiming that it was too burdensome. Therefore, the Commission did not verify Company’s 32 questionnaire reply. However, in the completed part of the questionnaire reply, Company 32 stated that if it was proven that Chinese subsidies caused artificially low pricing of BEVs in the Union, this could be harmful for the entire European supply chain. It considered that if unfair pricing practices via government support of Chinese produced vehicles harmed the viability of Union BEV suppliers, the reciprocal measures to protect European production would be fair and required to ensure supply certainty.

(1239) The Leasys Group companies submitted complete questionnaire replies and the Commission verified two of them, as explained in recital (80), that also purchased BEVs from China.

(1240) The Commission found that the cooperating users together purchased less than 0,1% of total imports from China as well as of the imports from other countries and 1% of total Union industry sales (based on registration). During the investigation period, they purchased less than 5% of the product under investigation from China, more than 95% from Union producers and the rest from other countries.

(1241) The turnover and costs of the two verified users generated from BEVs originating in China accounted for less than 2% of their total turnover and total costs during the investigation period. The profitability margins of the verified users for the investigation period ranged between single digit to low double digits figures.

(1242) The Commission found that the imposition of countervailing measures would have some impact on certain cost items related to the BEVs originating in China, notably depreciation, interest expenses and insurance. However, given the limited share of these cost items in the verified users’ total costs (less than 2%) and the very small proportion of BEVs from China in their total fleets, the impact of countervailing duties on their total costs was found to be negligible. The analysis performed by the Commission based on data provided by the two verified users for the investigation period showed that possible cost increases caused by the imposition of countervailing measures would lead to only a marginal decrease of their profit margins and that both companies would remain profitable. This small effect on profitability would be further mitigated by the possibility for the users to pass on at least part of the cost increase to customers or to switch to alternative sources of supply. The two verified users also considered that the imposition of countervailing measures would not have a significant impact on their financial performance.

(1243) Therefore, based on the information in the file and taking into account the views of interested parties, the Commission provisionally concluded that users would not be disproportionally affected by the imposition of the measures.

7.4.

Interest of suppliers

(1244) VDA and CLEPA observed that the Chinese market, as the largest automotive market worldwide, was crucial for automotive suppliers and manufacturers to compete and strengthen innovative capabilities. They claimed that any steps that could result in less market access for Union automotive suppliers and manufacturers in China could, in the long term, harm innovative capabilities and competitiveness of the respective industries.

(1245) As explained in recital (1253), the purpose of the investigation is to restore the level playing field on the Union market. The investigation does not cover the access of the Union companies to the Chinese market and may not result, in itself, in less favourable market access for Union suppliers and producers in China. Therefore, the claim was rejected. In any case, if, by this claim, VDA and CLEPA referred to the possibility that China would engage in retaliatory actions in the form of reduced access to its market for Union companies, this is addressed in section 7.6 below.

(1246) EUROFER supported the investigation. It pointed out that the automotive sector was a major steel-consuming sector, hence future health of Union BEV manufacturers was also crucial for the Union steel sector. EUROFER argued that the injurious imports of subsidised BEVs from China would have a negative impact on the Union steel industry. According to EUROFER there was a strategic interest in maintaining a healthy Union automotive sector, to preserve the Union steel sector and millions of related jobs. EUROFER claimed that the Commission should take swift measures to preserve the continued good health of the Union automotive sector and to prevent the threat of injury from materialising.

(1247) Company 29 also expressed its support for the investigation claiming that countervailing measures would help to restore the level playing field and fair competition among the car producers and other interested parties. It argued that due to subsidised imports from China the market share of the Union BEV industry was expected to decline which would negatively affect sales and profits of companies producing input components and their ability to invest in the Union.

(1248) Company 31 also expressed its support for the investigation hoping that it would lead to levelling of the automotive playing field in the Union. According to Company 31, the Union’s green transition efforts and the associated investment and innovation undertaken by the automotive industry would be undermined and the Union companies would be unfairly disadvantaged.

(1249) Based on the above, the Commission provisionally concluded that the imposition of countervailing measures was in the interest of the suppliers in the Union.

7.5.

Impact on consumers and effects on climate objectives

(1250) VDA argued that in order to achieve the EU CO2-free mobility target by 2035, there must be sufficient supply of electric vehicles on the Union market. In its opinion the rise of prices of BEVs from China could make it more difficult to achieve this target. VDA, as well as the GOC, claimed that the Commission should consider the relevance that China has for the transformation of the whole European industry and the automotive industry, in particular, towards carbon neutrality. Company 24 claimed that the Union industry’s production capacity, which was limited largely due to bottlenecks in the domestic and foreign battery supply, was insufficient to allow the EU to meet its climate objectives for the road transport sector, and therefore the EU depends on imports of BEVs to reach its goals while China will remain an important partner of the EU in this regard. Furthermore, Company 24 claimed that countervailing duties would threaten the supply of BEVs affordable for low- and middle-income Union consumers on the Union market, ultimately jeopardising the pursuit of the EU action to tackle the existential threat posed by climate change.

(1251) The current investigation aims at ensuring that the Union and the Chinese BEV producers compete on a level playing field and allows to prevent the injury to the Union producers that subsidised imports are threatening to cause. Countervailing duties will therefore only compensate the distorting subsidisation; trade will, however, continue to flow. The potential price increase for consumers in the Union has to be balanced with the disastrous effect of the low-priced imports on the Union industry that will provide millions of jobs in the EU once the market has fully transitioned from ICE vehicles to BEVs. The disappearance of the Union car industry would have

an enormous negative impact on the Union market, having spillover effects to the supplier industry with the potential loss of millions of jobs in the Union. The investigation revealed that given the limited price increase, i.e. reflecting merely the unfair subsidisation established during this investigation, is not as such as to increase prices for consumer in an unproportionate manner, even if fully passed on to the final customer. However, it is expected that at least part of the price increase will be absorbed by the importers. Furthermore, the Commission noted that bilateral efforts to combat climate changes cannot be built upon unfair competition by low-priced subsidised BEVs but should be based upon a level-playing field where fair competition and innovation will drive the green transition. The Union BEV industry is indispensable in the EU’s ambition to reduce net greenhouse gas emissions, for which the Union supply chain for zero-emission vehicles has to be secured to ensure that all new cars registered in Europe will be zero-emission by 2035.

(1252) The CCCME submitted an economic analysis carried out by two professors from the Katholieke Universiteit Leuven and the Centre of Economic Policy Research (CEPR). The report concluded that the Chinese BEV imports are indispensable for the Union BEV market, the Union BEV producers and consumers, and the Union as a whole because these imports are necessary to maintain competition and innovation in the Union and accelerate the availability of affordable BEVs for average consumers and to ensure that the Union’s climate goals are met.

(1253) Regardless of the authoritative and objective value of this report, the Commission noted that the purpose of the countervailing duties is not to stop the imports of BEVs from China, but to restore the level playing field on the Union market distorted by the subsidized imports from China at low prices. The competition on the Union market must be fair competition. The efforts to combat climate changes cannot be built upon unfair competition by low-priced subsidised BEVs but should be based upon a level-playing field where fair competition and innovation will drive the green transition.

(1254) Therefore, on balance, it is provisionally concluded that the climate objectives are not endangered by the imposition of countervailing measures, but to the contrary, they will contribute to reach such goals.

7.6.

Risk of retaliation

(1255) CLEPA, VDA and Company 24 claimed that the imposition of countervailing duties could lead to retaliation by China. CLEPA and VDA argued that the Commission should consider the retaliation risk and the impact that potential retaliation by China could have on the current trade with and investment in China.

(1256) The current anti-subsidy investigation is a fact-based investigation in full compliance with the applicable WTO and EU rules. It is based on evidence on the existence of a large range of countervailable Chinese subsidies, as well as a threat of injury to the Union industry due to a massive increase in Chinese overcapacities, and rapidly growing low priced and subsidised imports of BEVs into the Union as explained in this regulation. The investigation is not meant to and cannot compensate for any competitive advantage that the Chinese industry would enjoy. Rather, it aims at ensuring that the Union and the Chinese exporting producers compete on a level playing field on the Union market.

(1257) China and the Chinese exporting producers enjoyed extensive rights of defence and to participate in the investigation and to an impartial judicial review of the final decision, without the need to resort to retaliation.

(1258) Therefore, the Commission provisionally concluded that the claimed risk of retaliation does not constitute an element that would speak against the imposition of countervailing measures.

7.7.

Interdependency

(1259) The GOC argued that, since the Union and the Chinese BEV supply chains are interdependent and deeply integrated throughout the value chain, any measures would undermine their stability and continuity, as well as the growth of the BEV industry in the Union, in China and across the globe.

(1260) As explained in recital (1253), the purpose of the investigation is to restore the level playing field on the Union market. The GOC did not further explain to what extent countervailing measures would have an impact on the supply chains and how such measures could undermine the stability and continuity. Therefore, the claim was rejected.

7.8.

Government incentives in the Union

(1261) The GOC submitted that the Union itself grants subsidies to the Union producers and provided some examples of such subsidies. The GOC therefore implied that any subsidies granted to the Chinese BEVs producers should not be countervailed.

(1262) The Commission noted that the GOC did not substantiate why the fact that the Union allegedly provides subsidies to Union producers would have an impact of the current investigation. Indeed, in accordance with the basic anti-subsidy Regulation, countervailing duties should be imposed in case subsidised imports from countries not members of the European Union cause material injury or in the present investigation threaten to cause material injury to the Union producers. In this context, it is irrelevant whether the Union producers receive financial support from the Member States or EU authorities for the manufacturing or sales of the product which is in any event not subject to this investigation. The investigation focuses on the threat of injury caused by subsidised Chinese imports into the Union. Furthermore, the GOC did not substantiate why such subsidies would be actionable or would cause adverse effects to the interest of China, which is not, in any case, the subject of this investigation. Furthermore, the fact that the EU itself has been providing subsidies to the Union BEV industry does not affect the Commission’s provisional findings that the GOC has provided subsidies to the exporting producers of BEVs, which are countervailable according to the WTO SCM Agreement and the basic Regulation and cause a threat of injury to the Union industry. Contrary to the claim of the GOC, the Chinese countervailable subsidies create unfair competition on the Union market that would only hamper the development of Union BEV industry. Therefore, the claim was rejected.

7.9.

Trade-distorting effects of subsidies

(1263) Under Article 31(1) of the basic Regulation, special consideration shall be given to the need to eliminate the trade-distorting effects of injurious subsidisation and to restore effective competition.

(1264) The investigation has established that the Chinese exporting producers sell significant volume of subsidised BEVs at artificially low prices to the Union market. If this situation continues, the Chinese exporting producers will maintain their unfair competitive advantage, further weakening the already vulnerable situation of the Union industry.

(1265) As a result, the Commission provisionally concluded that the subsidised Chinese imports would increase their trade-distorting effects over time and continue to deny a level playing field to the Union industry.

7.10.

Other claims

(1266) Company 24 claimed that the imposition of countervailing measures was not in the Union interest as (i) the use of a trade defence measure was not an appropriate response to tackle a systemic supply issue faced by the Union industry deriving from insufficient battery production capacity in the Union, limited availability of semiconductors and lack of access to raw materials, factors which limit the development of the Union industry and which are unrelated to imports from China; (ii) the Union interest in this context calls for the pursuit of a world-leading industrial policy based on ensuring the market access that is vital to supporting the development of the Union industry, while the imposition of the countervailing measures would serve only to constrict this development; (iii) the Chinese producers will ultimately move their production of BEVs for the Union market in the Union; and (iv) the imposition of countervailing duties risks setting off a chain reaction that ultimately will harm the Union industry, as third country governments will react to increased (diverted) flows of BEVs by imposing their own trade restrictive measures targeting BEVs, which would not necessarily discern between Union and Chinese BEV imports.

(1267) It is recalled that the purpose of the current investigation is only to restore the level playing field on the Union market. Countervailing measures are warranted if the conditions for the imposition of the countervailing measures stipulated in the basic Regulation are met. The imposition of countervailing measures does not exclude that the Union may take other policy initiatives to tackle different issues that the Union industry is confronted with. Thus, this claim as such does not imply that countervailing measures on BEVs are not in the Union interest. With respect to the access to the Union market, this investigation does not intend to stop the imports of BEVs from China. Furthermore, whether the Chinese exporting producers will start manufacturing BEVs in the Union is not relevant for the current investigation, which only looks into the injury or threat of injury to the Union BEVs industry caused by subsidized imports from China. Moreover, the claim regarding possible initiation of trade defence investigation resulting into trade restrictive measures against Chinese BEVs imports by other third countries is purely speculative. Finally, the Commission highlighted that such investigations, if any, have to be initiated based on their own merits and prima facie evidence necessary for the initiation of such investigations. Thus Company 24’s claim that such investigations would not differentiate between imports from China and from the Union is without merit. Therefore, these claims were rejected.

7.11.

Conclusion on Union interest

(1268) On the basis of the above, the Commission provisionally concluded that there were no compelling reasons that it was not in the Union interest to impose countervailing measures corresponding to the total amount of countervailable subsidies on imports of BEV originating in the PRC.

1. REGISTRATION

(1269) As mentioned in recital (8), the Commission, on its own initiative, made imports of BEVs, subject to registration by the registration Regulation. This was in view of the possible retroactive application of the countervailing measures under Article 16(4) of the basic Regulation. The registration of imports should cease. No decision on a possible retroactive application of countervailing measures can be taken at this stage of the proceeding.

8.1.

Comments on registration

(1270) Following the publication of the registration Regulation, comments on registration were received from Company 22, Company 24, CCCME, Asia Euro Automobile Manufacture (Taizhou) Company Limited (Asia Euro Taizhou) and Tesla. The Commission does not consider it necessary at this stage to address those comments. According to Article 14(5) of the basic Regulation, registration is a tool available to the Commission to direct the customs authorities to take the appropriate steps to register imports, so that measures may subsequently be applied against those imports from the date of such registration. Article 14(5) also provides the Commission with discretion as to when such registration should take place, allowing registration on the Commission’s own initiative. The Commission exercised such discretion in the registration Regulation.

1. PROVISIONAL COUNTERVAILING MEASURES

(1271) Based on the conclusions reached by the Commission on subsidisation, injury, causation and Union interest, and in accordance with Article 15(1) of the basic Regulation, a provisional countervailing duty should be imposed on imports of battery electric vehicles originating in the People’s Republic of China.

9.1.

Provisional measures

(1272) Provisional countervailing measures should be imposed on imports of battery electric vehicles originating in the People’s Republic of China, in accordance with the rules in Article 12(1) of the basic Regulation which states that the provisional duty shall correspond to the total amount of countervailable subsidies as provisionally established.

(1273) On the basis of the above, the provisional countervailing duty rates, expressed on the CIF Union border price, customs duty unpaid, should be as follows:

CompanyProvisional countervailing duty

BYD Group:

BYD Auto Company Limited

BYD Auto Industry Company Limited

Changsha BYD Auto Company Limited

Changsha Xingchao Auto Company Limited

Changzhou BYD Auto Company Limited

Fuzhou BYD Industrial Company Limited

Hefei BYD Auto Company Limited

Jinan BYD Auto Company Limited

17,4 %

Geely Group:

Asia Euro Automobile Manufacture (Taizhou) Company Limited

Chongqing Lifan Passenger Vehicle Co., Ltd.

Fengsheng Automobile (Jiangsu) Co., Ltd.

Shanxi New Energy Automobile Industry Co., Ltd.

Zhejiang Geely Automobile Company Limited

Zhejiang Haoqing Automobile Manufacturing Company Limited

19,9 %

SAIC Group:

SAIC MAXUS Automotive Company Limited

SAIC Motor Corporation Limited

Nanjing Automobile (Group) Corporation

SAIC Volkswagen Automotive Co., Ltd.

SAIC GM Wuling Automobile Co., Ltd.

SAIC General Motors Co., Ltd.

37,6 %Other cooperating companies (Annex)20,8 %All other companies37,6 %

(1274) The individual company countervailing duty rates specified in this Regulation were established on the basis of the findings of this investigation. Therefore, they reflected the situation found during this investigation with respect to these companies. These duty rates are exclusively applicable to imports of the product concerned originating in the country concerned and produced by the named legal entities. Imports of the product concerned produced by any other company not specifically mentioned in the operative part of this Regulation, including entities related to those specifically mentioned, should be subject to the duty rate applicable to all other companies. They should not be subject to any of the individual countervailing duty rates.

1. INFORMATION AT PROVISIONAL STAGE

(1275) In accordance with Article 29a of the basic Regulation, the Commission informed interested parties about the planned imposition of provisional duties. This information was also made available to the general public via DG TRADE's website. Interested parties were given three working days to provide comments on the accuracy of the calculations specifically disclosed to them.

(1276) The three sampled exporting producing groups commented on the accuracy of the calculation of the subsidy margins. Where justified, the Commission corrected the calculation and the relevant subsidy margins.

(1277) Furthermore, the exporting producer Great Wall Motor commented on the inclusion of its name and the names of its related parties within the list of cooperating non-sampled parties in the Annex. This has been corrected.

(1278) Also, several parties, related to the sampled groups or to producers whose name is mentioned in the Annex listing the non-sampled cooperating companies, requested the Commission to include their names in the Annex on the grounds that they were related to these companies and that they had started production and or export of BEV to the EU. As these related company did not produce nor export the product under investigation during the investigation period, these requests were rejected.

(1279) All other comments received following the pre-disclosure will be addressed in the definitive stage.

1. FINAL PROVISIONS

(1280) In the interests of sound administration, the Commission will invite the interested parties to submit written comments and/or to request a hearing with the Commission in trade proceedings within a fixed deadline.

(1281) The findings concerning the imposition of provisional duties are provisional and may be amended at the definitive stage of the investigation,

HAS ADOPTED THIS REGULATION:

Article 1

1. A provisional countervailing duty is imposed on imports of new battery electric vehicles, principally designed for the transport of nine or less persons, including the driver, excluding L6 and L7 categories vehicles according to Regulation (EU) No 168/2013

Regulation (EU) No 168/2013 of the European Parliament and of the Council of 15 January 2013 on the approval and market surveillance of two- or three-wheel vehicles and quadricycles, OJ L 60, 2.3.2013, p. 52.

and motorcycles, propelled (regardless of the number of wheels set in motion) solely by one or more electric motors, including those with an internal combustion range extender (an auxiliary power unit), currently falling under CN code ex87038010 (TARIC code 8703801010) and originating in the People’s Republic of China.

1. The rates of the provisional countervailing duty applicable to the net, free-at-Union-frontier price, before duty, of the product described in paragraph 1 and produced by the companies listed below shall be as follows:

CompanyProvisional countervailing dutyTARIC additional code

BYD Group:

BYD Auto Company Limited

BYD Auto Industry Company Limited

Changsha BYD Auto Company Limited

Changsha Xingchao Auto Company Limited

Changzhou BYD Auto Company Limited

Fuzhou BYD Industrial Company Limited

Hefei BYD Auto Company Limited

Jinan BYD Auto Company Limited

17,4 %89BL

Geely Group:

Asia Euro Automobile Manufacture (Taizhou) Company Limited

Chongqing Lifan Passenger Vehicle Co., Ltd.

Fengsheng Automobile (Jiangsu) Co., Ltd.

Shanxi New Energy Automobile Industry Co., Ltd.

Zhejiang Geely Automobile Company Limited

Zhejiang Haoqing Automobile Manufacturing Company Limited

19,9 %89BM

SAIC Group:

SAIC MAXUS Automotive Company Limited

SAIC Motor Corporation Limited

Nanjing Automobile (Group) Corporation

SAIC Volkswagen Automotive Co., Ltd.

SAIC GM Wuling Automobile Co., Ltd.

SAIC General Motors Co., Ltd.

37,6 %89BNOther cooperating companies (Annex)20,8 %All other companies37,6 %8999

1. The application of the individual duty rates specified for the companies mentioned in paragraph 2 shall be conditional upon presentation to the Member States’ customs authorities of a valid commercial invoice, on which shall appear a declaration dated and signed by an official of the entity issuing such invoice, identified by his/her name and function, drafted as follows: I, the undersigned, certify that the (volume) of new battery electric vehicles sold for export to the European Union covered by this invoice was manufactured by (company name and address) (TARIC additional code) in the People’s Republic of China. I declare that the information provided in this invoice is complete and correct. If no such invoice is presented, the duty applicable to all other companies shall apply.

1. The release for free circulation in the Union of the product referred to in paragraph 1 shall be subject to the provision of a security deposit equivalent to the amount of the provisional duty.

1. Unless otherwise specified, the provisions in force concerning customs duties shall apply.

Article 2

1. Interested parties shall submit their written comments on this regulation to the Commission within 15 calendar days of the date of entry into force of this Regulation.

1. Interested parties wishing to request a hearing with the Commission shall do so within 5 calendar days of the date of entry into force of this Regulation.

1. Interested parties wishing to request a hearing with the Hearing Officer in trade proceedings are invited do so within 5 calendar days of the date of entry into force of this Regulation. The Hearing Officer shall examine requests submitted outside this time limit and may decide whether to accept such requests if appropriate.

Article 3

1. Customs authorities are hereby directed to discontinue the registration of imports established in accordance with Article 1 of Commission Implementing Regulation (EU) 2024/785.

1. Data collected regarding products which entered the Union for consumption not more than 90 days prior to the date of entry into force of this Regulation shall be kept until the entry into force of possible definitive measures, or the termination of this proceeding.

Article 4

This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union.