The Foreign Subsidies Regulation's Initial Focus On China

Although the text of the Foreign Subsidies Regulation (FSR) is not aimed at specific countries, the European Commission's initial enforcement actions appear to be targeting Chinese subsidies. Companies with Chinese parent companies should take note and expect significant scrutiny of their tender and M&A activities. Similarly, companies selling assets or businesses to China-backed buyers need to amend deal timing estimates if an FSR notification is required.

The FSR allows the Commission to scrutinise financial contributions granted by non-EU governments to companies active in the EU internal market (see ourJuly 2023newsletter). Although the FSR grants the European Commission powers to investigate foreign subsidies from any non-EU country, the Commission's initial enforcement actions appear to target China:

1. The FSR regime yielded its first results at the end of March 2024, when a Chinese state-owned train manufacturer dropped out of a public tender for a Bulgarian train contract following Commission scrutiny under the FSR. We refer to ourMarch 2024newsletter for details.
2. Second, on 3 April 2024, the Commission launched two in-depthinvestigationsinto public procurement bids made by economic operators from China for a solar photovoltaic park in Romania. The in-depth probes were launched on the grounds that there were indications that both bidders had received foreign subsidies in the form of governmental grants, tax refunds, and fiscal incentives, allowing them to submit unduly advantageous bids, which distorted the internal market and disrupted fair competition.
3. Third, on 9 April 2024, the Commissionlaunchedits inauguralex officioinvestigation under the FSR, targeting Chinese suppliers of wind turbines, reportedly offering much lower prices than their European counterparts and generous financing terms. The investigation focused on the expansion of wind farms in Bulgaria, France, Greece, Spain, and Romania, where Chinese wind turbine manufacturers had allegedly been winning orders on account of an uneven level playing field.
4. Last but not least, on 23 April 2024, the Commissioninitiatedunannounced inspections in the security equipment sector. Dawn raids were conducted in various Member States after the Commission received tipoffs that the companies inspected may have benefited from distortive foreign subsidies from China.

The Commission's enforcement actions have targeted various strategic sectors: transport, energy production, and security equipment. The common denominator, however, is China. Companies with Chinese parent companies or significant activities in China should therefore take note and expect significant scrutiny of their tender and M&A activities, including potential prohibition decisions. Similarly, companies selling assets or businesses to China-backed buyers need to amend deal timing estimates if an FSR notification is required. Finally, complaints by EU-owned companies against Chinese companies in the context of tender proceedings are likely to be taken seriously by the European Commission.

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