The European Union has reached an understanding with China that could reduce Chinese hybrid and plug-in hybrid car exports to the bloc by more than half, in a move aimed at tackling the growing trade imbalance between the two economic powers.

European Trade Commissioner Maros Sefcovic announced the agreement following two days of talks in Beijing, describing it as an important first step towards rebalancing trade.

The deal could reduce imports by several million vehicles over four years, although details of its implementation remain unclear.

The agreement comes as European manufacturers face mounting pressure from Chinese competition, US tariffs and declining profitability.

Imports of plug-in hybrids into the EU rose by 86% in the year to September, while prices fell by 20%. More than half of these vehicles now come from China.

European carmakers broadly welcomed the announcement, with shares rising following the news. However, industry groups cautioned that it was too early to determine whether the agreement would address concerns about unfair competition.

The discussions also covered reducing Chinese import duties on around €4 billion of European exports, including car parts, olive oil and footwear.

China additionally agreed to continue facilitating export licences for rare earths and permanent magnets, materials crucial to automotive manufacturing.

Despite the progress, the wider trade dispute remains unresolved. The EU and China will continue discussions on alternative measures to tariffs, while European leaders are expected to assess the agreement at their upcoming summit.

Further talks are scheduled for January and March 2027.