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| 4 minutes read

EU – Chinese companies targeted as Commission flexes its muscles under the Foreign Subsidies Regulation

In recent months, the European Commission (“Commission”) has enforced the new EU Foreign Subsidies Regulation (“FSR”), with a particular focus on Chinese companies. As explained below, a watershed moment occurred on 23 April 2024, when the Commission launched the first surprise investigation of a company under the FSR. 

On 16 February, the Commission opened its first in-depth investigation under the public procurement procedure of the FSR. The investigation follows a notification submitted to the Commission by CRRC Qingdao Sifang Locomotive Ltd., a Chinese state-owned train manufacturer. 

Under the FSR, companies are obliged to notify their participation in public procurement procedures in the EU when the estimated value of the contract exceeds €250 million, and when the company was granted at least €4 million in foreign financial contributions from at least one third country in the three years prior to notification. In this case, the Bulgarian Ministry of Transport had launched a public procurement tender for the provision and maintenance of electric “push-pull” trains, with an estimated value of €610 million. 

The Commission published a summary notice in the EU Official Journal (OJ C, 29.2.2024) announcing its in-depth investigation and requesting, within ten days, the views of third parties, notably competitors, as well as the views of EU Member States and China.

Moreover, the Commission used its powers under the FSR to send a request for information to CRRC Qingdao Sifang Locomotive Ltd. It is worth noting that the Commission gave only two days to the company to respond to this request. This is a very tight deadline, especially considering that the Commission was requesting information on the ownership structure, information on all foreign financial contributions received by the company, and the annual reports of the last three years. 

The Commission concluded that the Chinese company had received foreign financial contributions, in the form of public procurement contracts and government grants, for a total amount of €1.745 billion. 

In light of this, and the fact that the offer of the Chinese company was substantially lower than the estimated costs of the Bulgarian authority and the offer of the competitor, the Commission’s preliminary view was that CRRC Qingdao Sifang Locomotive Ltd. had received foreign subsidies that could distort the EU internal market and therefore an in-depth investigation was merited. 

Ultimately, CRRC Qingdao Sifang Locomotive Ltd. announced on 26 March that it abandoned the public procurement procedure. 

More recently, the Commission announced other investigations under the FSR into Chinese companies. 

On 3 April, the Commission opened two in-depth investigations in the solar photovoltaic sector following the notifications submitted by the companies subject of the investigations. The public procurement procedure was launched by the Romanian authorities for the construction and operation of a photovoltaic park in Romania. 

The first investigation concerns the consortium composed of Romanian-based ENEVO Group, and LONGi Solar Tech GmbH, a German subsidiary of LONGi Green Energy Tech Ltd, which is listed in the Hong Kong Stock Exchange. 

The second investigated consortium is Shanghai Electric UK Ltd. and Shanghai Electric Hong Kong International Engineering Ltd. Both companies are 100% owned by Shanghai Electric Group, a Chinese state-owned company. 

Ultimately, both LONGi Solar Tech GmbH and Shanghai Electric UK Ltd. announced on 13 May that they abandoned the public procurement procedure.

In addition, on 9 April, Commission Executive Vice-President, Margrethe Vestager, announced during a speech that the Commission was launching an ex officio inquiry into Chinese suppliers of wind turbines. The investigation focuses on the conditions for the development of wind parks in Spain, Greece, France, Romania and Bulgaria. To date, no more details have been disclosed on this investigation, although it should be noted that the FSR does not set a time limit for ex officio investigations. 

This marks the first time that the Commission has initiated a FSR investigation on its own initiative, independent of a notification. According to the FSR, ex officio investigations into public procurement are limited to awarded contracts, and they do not lead to the cancellation of the decision awarding the contract. 

Furthermore, it was reported that, on 23 April, the Commission conducted a surprise investigation (so-called “dawn raids”) at the Dutch and Polish offices of Nuctech, a Chinese manufacturer of security equipment, namely baggage scanners typically used at airports. This is the first time that the Commission has used this investigation power under the FSR, which allow EU authorities to enter and seal any business premises, examine books and business records, and question any representative of the dawn raided company. 

Nuctech, which is partially state-owned, confirmed the inspection and assured that it was cooperating with the Commission. The FSR explicitly states that decisions by the Commission to undertake an inspection under the FSR are reviewable by the Court of Justice pursuant to Article 263 TFEU. Nuctech is therefore entitled to challenge the inspection decision of the Commission by alleging, for example, lack of proportionality of the inspection. 

So far, the Commission has not made any public statements on this issue, despite the fact that the Chinese Chamber of Commerce expressed its “serious concerns over the EU’s unjustified dawn raids”. 

All the above cases show that the Commission will not hesitate to enforce the entire range of powers under the FSR against what it considers distortive foreign subsidies. This is part of an all-out offensive by the Commission against China over subsidies. “We like fair competition. What we don't like is when China floods the market with massively subsidised e-cars. That is what we are fighting against. Competition yes, dumping no. That must be our motto,” Commission President Ursula Von der Leyen recently said during a speech. 

Thus, it is expected that the Commission will keep scrutinising subsidies coming from China and other third countries. It is therefore essential for companies to understand the meaning of a “foreign subsidy” under the FSR, the notification obligations for companies, and the scope of powers available to the Commission to enforce this new law.

For more information, please contact Jose Rivas or Álvaro López de Ochoa García



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