Chinese Cars and Arab Markets: Economic Opportunities or Industrial Challenges?

On 8 and 9 October 2026, Chinese Commerce Minister Wang Wentao and EU Trade Commissioner Maroš Šefčovič sat down in Beijing and emerged with a sixteen-point list, one item of which recorded an "understanding" on trade in hybrid cars. Three days later, Der Spiegel published a figure that appears in no official text: a cap of 350,000 Chinese hybrid cars a year. The question soon travelled from Brussels to the markets of the region. If the European door narrows, where will China's surplus cars go? Will the Gulf, Egypt and Morocco become their next destination, with all that this implies for lower prices and stiffer competition for local manufacturing plans? The question looks simple, but answering it requires separating what was officially agreed from what the press reported, and what trade data actually show from what scenarios assume. It also requires an understanding of the rules of origin that determine when a car assembled in Egypt or Morocco remains Chinese in the eyes of European customs.

This analysis therefore aims to read what was agreed in Beijing against both the official text and the press account, to test whether trade data reveal a diversion of Chinese exports towards Arab markets, and then to assess the likely effects on prices, local assembly, rules of origin and rare-earth supplies in the Gulf, Egypt and Morocco, arriving at quantitative estimates of what could happen if the understanding becomes an enforceable instrument.

On 9 October 2026, China’s Ministry of Commerce (MOFCOM) published a joint statement with an attached list of 16 points. Point 3, in its matching European version, states that “following intensive consultations” the two sides reached “an understanding on trade in hybrid vehicles in a WTO compliant manner”. The point mentions no quantity, base year, start date, tariff lines or legal instrument, and the claim of consistency with World Trade Organization (WTO) rules is the parties’ own description, not an independent legal finding. Point 4, quite separately, deals with price undertakings in the anti-subsidy case on battery-electric vehicles (BEVs).

In his written remarks, Šefčovič said the understanding “opens the prospect of cutting China’s exports by more than a half”, without specifying the baseline against which that half is measured or the time frame. He also spoke of Chinese tariff cuts on European goods “from car parts to olive oil and footwear”, whose current exports are worth almost EUR 4 billion, bringing duty savings of at least EUR 225 million. That is a conditional estimate, since point 1 of the list goes no further than to “explore” tariff reductions. He described the package as “only a first step”, leaving the decision to EU leaders, who, according to Bloomberg, are due to meet on 15 October 2026. The joint statement schedules a ministerial videoconference in January 2027 and a third meeting in March 2027.

The figure that has dominated the debate, however, comes from the press alone. On 12 October, Der Spiegel reported that the European Commission is preparing a rule that would admit 350,000 Chinese hybrids and plug-in hybrids (PHEVs) “from next year”, initially for four years, with annual growth of 6%. It added that Brussels expects about 800,000 Chinese hybrids to enter in 2026, and that China’s share of the European hybrid market, about 12%, would fall by roughly half. A Bloomberg newsletter, by contrast, attributed the cap to plug-in cars only, and Bloomberg had reported on 7 October that the EU was preparing “safeguard measures”. Claims circulating about a start date and about in-quota and above-quota duties have not been confirmed by any credible source.

The legal form, which has yet to be published, will determine who falls under the restriction. Under the Agreement on Safeguards, a safeguard measure applies to a product “irrespective of its source” (Article 2.2), except for developing countries that each supply no more than 3% of imports and together no more than 9% (Article 9.1), while Article 11.1(b) prohibits “voluntary” export restraints. Why hybrids are the target is explained by the European Commission’s decision of 29 October 2024 to impose five-year countervailing duties on Chinese electric cars: 17.0% on BYD, 18.8% on Geely, 35.3% on SAIC, 20.7% on other cooperating companies, 7.8% on Tesla and 35.3% on non-cooperating companies. Hybrids were left outside these duties.

Figure (1): EU imports of Chinese cars by powertrain, 2023 – July 2026

Eurostat data show that hybrids’ share of the value of EU imports from China rose from 10.2% in 2023 to 20.1% in 2024, then to 46.0% in 2025 and 57.3% in the first seven months of 2026. Compared with the same period of 2025, imports of plug-in hybrids rose by 154.3% and those of conventional hybrids (HEVs) by 204.1%, against 40.0% for BEVs. The monthly series makes the timing plain. BEV imports jumped from EUR 579.3 million in September 2024 to EUR 1,576.9 million in October, just before the duties, then fell to EUR 372.5 million in November, while plug-in hybrid imports climbed from EUR 86.6 million in October 2024 to EUR 946.1 million in July 2026. This is the imbalance the understanding was meant to address: a shift inside the European market from one powertrain to another.

Talk of “trade diversion” requires two conditions: shipments of the targeted product to Europe must fall after the restriction, and shipments to other markets must rise faster than their previous trend in the same powertrain. The available data end in 2025 for destinations and in July 2026 for the EU, so no effect of the October understanding can yet be observed. Chinese figures published in UN Comtrade show that China’s exports of electric and hybrid cars to the EU rose from 566,239 vehicles in 2024 to 819,347 in 2025, of which 356,158 were hybrids. In other words, the reported cap is close to the 2025 level, falling short of it by only 6,158 vehicles, and the “half” holds only when measured against Brussels’ estimate for 2026, which the cap undercuts by about 56%.

Over the same period, China’s exports to the six Gulf Cooperation Council (GCC) states rose from 44,720 vehicles in 2023 to 318,194 in 2025, of which the UAE took 283,289, or 89.0%. Exports to Saudi Arabia rose from 798 to 16,242 vehicles, to Egypt from 1,548 to 13,281, and to Morocco from 857 to 16,413, bringing the total for the eight Arab markets to 347,888 vehicles in 2025, equivalent to 42.5% of what China exported to the EU.

Figure (2): China’s exports of electric and hybrid cars by destination, 2023–2025

Yet this surge was not confined to the region. In 2025, Chinese exports grew by 151,896 vehicles to Mexico, 69,353 to Brazil, 52,644 to Türkiye and 27,806 to Russia, compared with increases of 152,351 to the UAE, 13,863 to Morocco, 9,644 to Saudi Arabia and 9,346 to Egypt. Arab growth rates look high, at 543.6% in Morocco, 237.5% in Egypt and 146.2% in Saudi Arabia, but they start from a small base.

The breakdown by powertrain settles the picture. The value of BEV exports to the EU, the only category subject to European duties, fell from USD 13.47 billion in 2023 to USD 9.79 billion in 2025, yet their number stayed almost flat at 463,189 vehicles. BEV exports to the UAE fell from 69,446 vehicles in 2024 to 51,141 in 2025, while those to Mexico jumped from 39,988 to 111,392 and those to Türkiye from 28,459 to 68,023. In plug-in hybrids, exports to the UAE rose from 6,548 to 138,875 vehicles, but exports to the EU rose at the same time from 51,069 to 203,957. The common driver is China’s global expansion of hybrid exports, not a retreat from a closed European market.

Important caveats surround these figures. Exports recorded as going “to the UAE” include goods later re-exported, and partner data diverge: Saudi Arabia recorded its 2025 imports from China at USD 50.5 million, against USD 356.6 million in the Chinese data. Nor is the conclusion altered by the widely cited Kiel Institute figure of “almost USD 4 billion” (USD 3.8 billion, to be precise). That figure is an ex-ante simulation, published on 31 May 2024, of a hypothetical 20% tariff that would cut European imports of Chinese electric cars by about 25%, or roughly 125,000 vehicles, and it measures no actual diversion towards the Gulf or North Africa. The regional effect is therefore a forward-looking scenario: if a 350,000 cap were applied against the roughly 800,000 vehicles expected in 2026, hundreds of thousands of cars a year would need other outlets, or output would have to be cut.

The understanding imposes no new measure on Chinese cars in the region’s markets, so any price effect can only come through a larger Chinese supply, and no such effect has yet appeared. Official distributors’ price lists show a clear price advantage for hybrids: in Al-Futtaim’s BYD catalogue in the UAE, the SEALION 5 plug-in hybrid starts at AED 89,900, against AED 149,900 for the cheapest version of the all-electric SEAL. These lists are undated, however, so they cannot be used to test for any price cut.

Figure (3): Listed retail prices of BYD models in the UAE by powertrain, October 2026

The picture is murkier outside the UAE. In Saudi Arabia, the figures on a single model’s page contradict one another, so no single price can be relied on. In Egypt, the website of MG, the SAIC-owned brand, lists the MG5 at EGP 874,990 and the MG7 at EGP 1,625,000 without specifying the powertrain, and no price was available for Morocco. According to Egypt’s Automotive Marketing Information Council (AMIC), as reported by Arab Finance, the country’s car sales rose to 74,490 vehicles in the first half of 2025 from 37,830 a year earlier, and the share of Chinese brands climbed to 37.1% from 31.9%, although a brand does not denote origin. On tariffs, the China–GCC free trade agreement is still under negotiation, the latest published round being the ninth, held in Riyadh in December 2016, whereas cars of European origin enter Egypt duty-free under the Association Agreement in force since 2004, provided their origin is proven.

On the manufacturing side, every existing project predates the understanding. In Egypt, the strategy for localising the car industry was updated in May 2025 and took effect in July 2025, according to Arab Finance, citing the cabinet. Geely announces two completely knocked-down (CKD) assembly lines with a capacity of “up to 10,000 cars” a year and local content of “up to 45%”; this is stated capacity, not actual output. In Morocco, COBCO has begun operating its first lines at Jorf Lasfar, with an investment of MAD 20 billion and targets of 120,000 tonnes a year of cathode precursors, while Gotion signed an agreement on 6 June 2024 for a battery plant in Kenitra worth MAD 12.8 billion. No Chinese manufacturing project in Saudi Arabia or the UAE has been verified.

Here lies the legal knot. Egypt’s and Morocco’s duty-free access to the European market derives from their Association Agreements, under the Pan-Euro-Mediterranean (PEM) rules of origin, applied in their revised form with Egypt since 11 March 2025 and with Morocco under transitional rules since 2 October 2025. It does not derive from the Agadir Agreement, which has linked Egypt, Jordan, Morocco and Tunisia since 27 March 2007. The rule for cars requires that the value of non-originating materials not exceed 45% of the car’s ex-works price, whereas 45% local content means that about 55% of inputs are non-local, so the car would breach the ceiling unless the gap were closed with European or Mediterranean inputs through cumulation. Even if origin were secured, a safeguard covers imports whatever their source unless the developing-country exemption applies, and preferential origin does not remove countervailing duties. There is no evidence that Chinese-brand cars assembled in either country are being exported to the EU.

The rare-earth file is the most pressing in time. On 9 October 2025, MOFCOM and China’s General Administration of Customs issued Announcements 55 to 58, among them No. 58 on lithium batteries and cathode materials, alongside Announcement 61, which extended controls to foreign products containing 0.1% or more of listed Chinese materials, and Announcement 62. Announcement 70 then suspended them on 7 November 2025 “until 10 November 2026”. Point 12 of the Beijing list changes no control and does not extend the suspension; China merely “continue[s]” to facilitate licences for Europe through the “green channel”. There is no evidence that this reduces supplies to the Gulf, but the date deserves watching, because Announcement 58 covers battery materials, precisely the field on which Morocco’s projects are betting.

In sum, what was officially agreed in Beijing is an understanding without numbers, the circulating cap is press-reported, and trade data so far show a shift inside Europe from electric cars to hybrids, not a diversion towards Arab markets. Even so, the available figures allow two analytical estimates, both conditional on the instrument being issued in the reported form.

The first estimate concerns volume. If a cap of 350,000 vehicles were applied in 2027 and Chinese supply aimed at Europe remained at about 800,000, some 450,000 hybrid cars would, in the first year, have to find other outlets or see their production cut. The gap would narrow to about 429,000 in the second year as the cap rises by 6% to 371,000. The first-year surplus is equivalent to about 1.3 times China’s total exports to the Gulf, Egypt and Morocco in 2025.

The second estimate concerns the region’s capacity to absorb. The largest recorded annual increase for the eight Arab markets in the years available was 200,062 vehicles, between 2024 and 2025, of which 152,351 went to the UAE. If an increase of that size were repeated and consisted entirely of hybrids, the region would absorb only 34% of the surplus if the increase were confined to the UAE, and 44% if it extended to all eight markets, with the rest heading to Mexico, Brazil and Türkiye or being cut from production. That makes it likely that any price pressure would surface first in the UAE, given its role as a re-export hub.

Assembly in Egypt and Morocco, for its part, will not be a fast lane into Europe. Even if Geely’s entire stated capacity were exported, it would not exceed 2.9% of the reported cap, and the origin requirement and the safeguard would still stand in the way. Arab decision-makers should therefore watch four decisive dates: the meeting of EU leaders on 15 October 2026, the expiry of the suspension of rare-earth controls on 10 November 2026, and the two ministerial meetings in January and March 2027.

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