By Joe Cash
BEIJING, Oct 9 (Reuters) - China and the European Union have reached a deal that could cut Chinese exports of hybrid cars to the bloc by more than half, European Trade Commissioner Maros Sefcovic said on Friday after talks in Beijing aimed at reducing the EU's ballooning trade deficit with China.
The "shared understanding" would "moderate" China's export of hybrids and plug-in hybrids to the EU, and would cut the imports of several million cars over four years, Sefcovic said after the two-day
talks, without offering details on how the agreement will be implemented.
Shares of European carmakers, which have slid steadily over the past two years due to US tariffs and soaring Chinese exports, broadly gained on the news.
The understanding came after discussions between Sefcovic and Chinese officials including Commerce Minister Wang Wentao over three months, and comes after years of disputes between Beijing and Brussels over soaring Chinese exports, such as cars.
EU leaders will discuss the outcome at the start of their summit in Brussels next Thursday to determine whether the agreement marks the start of a rebalancing of the bloc's trade deficit with China that has swelled to more than €1 billion ($1.12 billion) a day.
Sefcovic said he believed the two sides had achieved a very good result.
"Having said that, this is far from the end. It is a crucial first step – but only a first step – in the process of rebalancing," he told reporters in Beijing.
Bernd Lange, chair of the European Parliament's trade committee, said the hybrid deal needed to extend to other sectors as well and that the EU should also deploy trade defence measures more effectively.
Chinese Commerce Minister Wang told Sefcovic that China was not the root cause of the EU's problems, but a partner in solving them, according to the Chinese ministry.
The two sides also reached understandings on reducing Chinese import duties on some €4 billion of EU exports, including car parts, olive oil and footwear, and on smoothing China's granting of export licences for rare earths and permanent magnets, Sefcovic said.
CHINESE CAR IMPORTS TO EU SURGE
EU governments are alarmed by the sharp rise in car imports from China as their own carmakers lay off workers, notably at Volkswagen where 100,000 job are going. Imports of plug-in hybrids into the EU increased 86% in the year to September, with a 20% decline in prices. More than half of these vehicles are now from China, while for 2025, China's share of plug-in hybrid electric vehicle imports was 30% in value terms.
China and the EU's dispute over cheap Chinese EV exports, resulting in EU tariffs in 2024, has clouded bilateral ties, and has since broadened to include Chinese measures against EU brandy, pork and dairy, as well as Chinese restrictions on exports of rare earths and critical minerals.
Paris and Berlin are among the hardest hit by Beijing's measures, with France accounting for 90% of EU brandy exports to China and Germany heavily exposed in dairy.
China and the EU said in their joint statement they would continue discussions on price undertakings as an alternative to tariffs. However, even with the tariffs, Chinese EV exports have started to increase again this year.
German auto industry group VDA cautiously welcomed the agreement, but said it was too early to determine if it would address unfair competition. Mercedes-Benz said the deal showed constructive dialogue was the right way to address challenges and it should provide greater predictability.
Matthias Schmidt, European autos research analyst, said countries like Germany had thought themselves immune to the threat from Chinese car companies, but were waking up and asking Brussels to step in.
"The result is this statement from Sefcovic today," he said. "Now Berlin is asking London to join them, and Brussels, given the UK accounts for 30% of Western Europe’s Chinese new car sales."
As part of Friday's agreement, China's commerce ministry said it also would continue facilitating the approval of export licenses for rare earths and permanent magnets through a "green channel" mechanism.
TRADE IMBALANCE AT HEART OF DISPUTE
Chinese exports to the EU totalled $560 billion last year, according to UN Comtrade data, up from $517 billion in 2024, as exports to major economies including Germany, Italy, Spain and Poland each rose about 10% from a year earlier, while shipments to Hungary jumped 43%.
Meanwhile, China took $268.3 billion worth of European goods last year, down from $269.4 billion a year prior, led by purchases from Denmark, Ireland and France.
China needs foreign buyers for the flood of relatively cheap state-subsidised goods its own shoppers can't absorb, and the EU is torn between welcoming those imports to ease living costs and keeping them out to rebuild its own factories.
European Commission President Ursula von der Leyen warned the European Parliament last month that the trade gap had reached a tipping point and that the 27-member bloc would use all the tools at its disposal to rebalance the relationship.
China and the EU will keep exploring the possibility of lowering tariffs on certain goods and continue dialogue on market access for medical devices, the Chinese ministry said. Sefcovic and Wang are set to meet again in March 2027, with a video conference call in January.
($1 = 0.8920 euros)
(Reporting by Joe Cash, Yukun Zhang and Qiaoyi Li in Beijing; additional reporting by Philip Blenkinsop in Brussels and Rachel More in Berlin; editing by Philippa Fletcher and Susan Fenton)
