As boldly stated by the president of the European Commission – Ursula von der Leyen, the European Union should undertake more concrete actions to counter the massive subsidy packages currently being offered by the Chinese government to companies in the clean-tech sector and beyond. In addition, the US has also recently implemented a new bill supporting green businesses(1). European leaders see these handouts as a serious threat to the Unions competitiveness. Ultimately, a ‘War for Businesses’ is on the rise in the incentives playing field, offering interesting global opportunities.
Chinese hidden subsidies to their industry
A few weeks after von der Leyen’s reaction to the US ‘Inflation Reduction Act (IRA)’(2), she has also made a statement regarding Europe’s reaction to Beijing’s opaque aid. According to von der Leyen, the Chinese government has been granting a ‘massive’ amount of hidden subsidies for its domestic industry, targeting not only the clean-tech sector but also a much wider range of sectors that are of value to the national and international economy(3). These Chinese subsidies are much harder to follow and counter as they are not as clearly defined, transparent and targeted as with the IRA, as stated by von der Leyen.
Challenging playing field for Europe’s competitive position on two fronts
This flood of both Chinese and US subsidies has been deemed a significant threat to the EU’s competitiveness on multiple fronts. On the one hand, EU businesses could be persuaded by the financial benefits handed out by these foreign governments and decide to relocate their activities to China or the US. Not only would these relocations strengthen the Chinese or US economy, it would also severely weaken the EU’s long-term competitive position, global role and overall prosperity. On the other hand, the closed-off nature of the Chinese economy and their lack of respecting intellectual property rights as stated by von der Leyen(3), results in an additional competition which is not the case with US-based competition. China already dominates the manufacturing and trade of most clean energy technologies(4) so the European Union has every interest in protecting the existing industry and keeping it within the Union’s borders.
The EU’s reaction
It becomes clear that the European Union is now facing two major industrial ‘threats’ in the form of the US IRA and China’s Opaque aid. The latter threat is much wider because of its undefined target sectors and closed-off nature. Von der Leyen has stated that the Commission is developing a much broader strategy to deal with this situation as it has wider consequences than solely the US’s IRA. In a joint statement of the EU leaders, it was formulated that the Union would “act decisively” in the face of the new geopolitical reality. Also French president Emmanuel Macron stated that more European state aid is necessary to support the EU’s strategic sectors and counter the risk of relocation(3). On the other hand, other European leaders like Dutch prime minister Mark Rutte are rather opposed to more European funding as he sees a bigger issue in cutting red tape to get funding to EU businesses.
As a result, the EU leaders have jointly agreed to simplify state aid procedures, however no details and clear actions have been given yet. This would include “simplified and fast-tracked” regulations for climate friendly investments in green technologies and a greater usage of tax credits and EU funds. The EU also recently approved new regulations allowing the investigation of foreign companies that have been granted government aid. The loosening of the state aid regime is soon expected to be bundled under a package currently named the ‘The Green Deal Industrial Plan’(5). Further details are still unknown at this time, however, the PwC Incentives Hub is closely monitoring for any relevant updates.
If you want to find out more on this topic or about relevant grants and incentives for your investment projects and on how we can assist you, please reach out to Tom Wallyn (email@example.com) or Bart Wyns (firstname.lastname@example.org) from the PwC Incentives Hub. We are happy to support you every step of the way!
(2) The new climate bill that financially supports large investments from green businesses in the US