China is pressuring its automakers to pause expansion in the European Union (EU) due to the escalating trade conflict over electric vehicles, people familiar with the matter said.

Beijing is telling manufacturers to put on hold active searches for production sites in the region and signing of new deals, and generally keep a low profile while negotiations over EU tariffs on Chinese EVs are ongoing, the people said, declining to be identified because the talks are private. State-owned Dongfeng Motor Group has already halted plans to potentially manufacture cars in Italy in response to the warnings, the people said.

China's directive-which isn't a mandatory order-may fuel tensions as both powers vie for dominance of the automobile industry. The EU earlier this month voted to boost tariffs on made-in-China electric cars to as high as 45%, arguing that Beijing provides unfair subsidies to its automakers. China denies that claim and has threatened its own duties on European dairy, brandy, pork and automobile sectors.

While Dongfeng Motor told Italian officials that Rome's support for the EU tariffs was the reason for its pivot, Beijing is also concerned about potential overcapacity due to Europe's bumpy EV shift and poor demand for Chinese cars in the market, one of the people said.