The central bank issued a policy statement on the RMB exchange rate, stating that China has neither the need nor the intention to gain trade competitiveness through currency depreciation. How should this be interpreted?

Trade officials from China and the EU are holding talks in Beijing these days. The list presented by Europe is as follows: 1. Reducing the EU’s trade deficit with China—the EU considers the current daily deficit of over €1 billion unsustainable. 2. Restricting exports of certain Chinese goods to Europe, especially automobiles. The most concrete demand at present is to impose an export cap on Chinese hybrid vehicles, aiming to limit their market share in the EU to approximately 15%. 3. Expanding market access for European enterprises in China—reducing Chinese restrictions on European companies’ entry and improving so-called reciprocity. 4. Relaxing China’s export controls on rare earths, rare-earth magnets, and critical minerals. 5. Addressing the so-called issue of excess Chinese industrial capacity—the EU demands that China restrict exports from sectors such as machinery, textiles, basic metals, and chemicals. 6. Exchange rates. China’s relatively clear demands are as follows: 1. The EU should abolish or relax anti-subsidy tariffs on Chinese electric vehicles. 2. The EU should ease export restrictions on Chinese enterprises—especially in high-tech fields. 3. Improving conditions for Chinese enterprises entering the European market. 4. China is willing to increase imports from Europe and expand investment in the EU. 5. The EU must abide by WTO rules. Hence, this statement was issued. The central bank’s message is: negotiations on trade are welcome, but trade imbalances are not caused by exchange rates—so China does not intend to use the exchange rate as a bargaining tool. There are several key points here: 1. In the context of wartime conditions, the European Commission has assumed increasingly broad cross-border coordination responsibilities—including sanctions, military aid, energy policy, industrial strategy, and financial arrangements. Its involvement in national defense industries, arms manufacturing, and Ukraine-related financing has deepened significantly. Ursula von der Leyen’s role as a “wartime president” and the European Commission’s role as a “wartime command center” have become increasingly pronounced. 2. The war has severely impacted European manufacturing. For example, by September 2026, natural gas and oil prices in Europe will be roughly double those in China and the U.S. Under such prohibitively high foundational energy costs, maintaining overall European manufacturing competitiveness is extremely difficult. 3. European countries’ fiscal space has been largely consumed by war expenditures and various subsidies. Since the outbreak of the war, Europe has financed Ukraine to the tune of approximately €230 billion (about $250 billion). Energy subsidies across EU member states—from the start of the Russia-Ukraine war through the end of 2025—will total around €1.4 trillion (approximately $1.6 trillion). Enterprise aid provided by EU countries amounts to roughly €200 billion.

Sales of Chinese hybrid vehicles in Europe have surged dramatically; the EU is seeking 'restrictive measures'.

Reporter Wang Shuaiguo On October 8, EU Trade Commissioner Maroš Šefčovič arrived in Beijing to attend the second meeting of the China-EU Trade and Investment Consultation Mechanism, where he held two days of talks with Chinese Commerce Minister Wang Wentao on issues including trade imbalances and market access. Reducing Chinese automakers’ hybrid vehicle exports to Europe was one of the core agenda items. According to foreign media citing informed sources, the EU side is seeking a commitment from China to reduce hybrid vehicle exports. Specifically, the EU hopes to lower the market share of Chinese-made hybrid vehicles in the EU—from over one-third currently—to about 15%. If an industry-wide arrangement can be reached in the automotive sector, such an approach may also serve as a precedent for how the EU handles similar issues in other industries. The EU’s demand is closely linked to a marked shift in China’s automobile export structure. In late October 2024, the EU imposed anti-subsidy duties of up to 35.3% on Chinese battery electric vehicles (BEVs), adding to the existing 10% base tariff—creating a combined tariff barrier of up to 45.3% for five years. In response, Chinese automakers swiftly adjusted their export product mix, shifting focus toward plug-in hybrid electric vehicles (PHEVs), which remain outside the scope of the additional tariff framework. Customs data show that China’s PHEV exports to the EU surged 155% year-on-year in 2025, while BEV export growth slowed to just 12%. This trend accelerated further in 2026. According to Eurostat, in July 2026 alone, the EU imported 50,408 Chinese PHEVs—a 163.2% increase year-on-year. In value terms, EU imports of Chinese hybrid vehicles totaled €3.176 billion in the first four months of 2026—exceeding imports of BEVs (€2.808 billion) for the first time. Data from European research firm Dataforce shows that, in the first half of 2026, the top three best-selling plug-in hybrid models in Europe were all Chinese-made: BYD Song PLUS DM-i (approx. 44,700 units sold), BYD Yuan UP DM-i (approx. 31,600 units), and Chery Explorer 6 C-DM (approx. 29,900 units). EU lawmakers interpret this situation as Chinese automakers “circumventing” the BEV tariffs—and it has become the direct impetus behind the EU’s demand for China to voluntarily restrict its hybrid vehicle exports. From a macro perspective, the automotive dispute is merely one facet of broader tensions in China-EU trade.

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