EV Photo:VCG

Chinese industry groups and experts said on Friday that the EU’s imposition of additional tariffs on Chinese electric vehicles (EVs) and its relentless probes into Chinese businesses within the bloc under the so-called Foreign Subsidies Regulation (FSR) -- a regulation known for its role in primarily deterring foreign companies especially Chinese investors -- have led to unprecedented disruptions to normal business activities, undermined the fair market environment, and raised significant concerns among Chinese companies doing business in or with the bloc.

The FSR, which grants European regulators broad powers to initiate investigations and even raid investment projects involving Chinese companies, needs to be reviewed and restrained, industry analysts warned. Otherwise, the bloc risks losing investment from Chinese companies once and for all rather than attracting more Chinese capital, experts said.

Warnings from industry group 

The China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME) warned on Friday that the EU members’ backing of anti-subsidy measures targeting Chinese electric vehicle (EV) companies will lead to a loss of investment, responding to the EU's FSR.

Many EU countries have long hoped that Chinese EV companies would invest and set up factories in Europe. Analysts suggest that the European Commission (EC)'s imposition of anti-subsidy duties on Chinese EVs, which will suppress the export of the corresponding Chinese products to Europe, is intended to push Chinese companies to invest in Europe, thus boosting the EU automotive industry, creating local jobs, and achieving green and sustainable development goals. However, the CCCME warned that “the reaction from Chinese companies indicates that the EU's approach has had the opposite effect.”

Before the EU initiated its anti-subsidy investigation into electric vehicles, many Chinese car manufacturers had already begun or planned to invest in or establish operations in Europe. “Since the EC decided to impose temporary anti-subsidy duties on Chinese EVs, the Chinese EV industry has expressed strong opposition to the EU's actions… Many Chinese companies have voiced significant concerns to our chamber regarding the investigation's results and the potential risks of facing scrutiny under the EU's FSR in their European investments,” the CCCME said.

Since the beginning of this year, the EU has launched five investigations under the FSR into Chinese companies. To date, there have been three in-depth investigations, one proactive investigation, and one unannounced raid, with all three in-depth investigations forcing Chinese companies to withdraw from bidding projects.

The EU's multiple investigations targeting Chinese companies are clearly discriminatory,  severely distorting an environment of fair competition, and bringing significant risks and uncertainties to Chinese companies operating in or investing in Europe, the CCCME stressed on Friday.

The CCCME warned that the "subsidy label" identified in the EU's anti-subsidy probes over Chinese EVs is likely to become an excuse for future investigations under the FSR into Chinese investors in Europe, raising deep concerns among enterprises.

After the European Commission (EC), the executive branch of the EU, announced provisional duties of up to 37.6 percent on EVs imported from China, some major EU member countries voted in support for the move, despite widespread opposition from other member countries and EU industries. Notably, among those voted in favor include France, Italy and Spain, according to Reuters. 

Strikingly, those countries have been actively courting Chinese EV companies to set up plants on the continent. In May, Finance Minister Bruno Le Maire said that France would welcome Chinese EV company BYD to open a factory in the country, according to Reuters. Spain has also launched an ambitious plan to attract EV and battery production in the country, and some foreign media outlets have suggested that Chinese EV maker Chery will start producing EVs in Barcelona, its first car plant in Europe. Italy is also reportedly in talks with Chinese carmaker Dongfeng over an auto plant in the country. 

Chinese investors’ concerns

However, Chinese companies are increasingly worried about the business environment in the EU following the EC’s announcement of additional provisional tariffs on Chinese EVs as well as the enactment of the FSR, which has created significant uncertainty for Chinese companies, according to Chinese industry groups. 

Illustrating the profound uncertainty for Chinese investments in the EU, after foreign media reports suggested that Italy has demanded Dongfeng agree to safeguards on cybersecurity and data protection as the price of support for a new plant in the country, the Chinese company told the Global Times this week that the two sides only held initial talks and have not made any substantive contact. 

"Dongfeng has not held discussions on issues cited in foreign media reports, including cybersecurity, data protection and a 45 percent localization rate for all components," the company said in a statement sent to the Global Times. 

Recent moves by EU authorities under the FSR, including in-depth investigations and raids, against Chinese companies’ involvement in projects in EU member countries have sent a chill through Chinese companies, not just EV makers, industry insiders said.

In total, EU authorities have launched at least five major FSR investigations into projects involving Chinese companies. In March, Chinese train maker CRRC withdrew from a 610 million euro ($660 million) public tender for a Bulgarian railway project, after the EU launched an investigation into the bid under the FSR framework. 

On April 3 alone, the EU launched two probes under the FSR concerning its so-called "potentially market distortive role of foreign subsidies given to bidders in a public procurement procedure." The investigation focused on a joint venture comprising ENEVO from Romania and a branch of LONGi from China, as well as subsidiaries of Shanghai Electric Group. This consortium submitted a bid for a solar energy project tender in Romania.

On April 9, the EU announced the probe into Chinese wind turbine suppliers to the bloc under the FSR. Two weeks later, on April 23, the EU regulatory authorities suddenly conducted an unexpected raid on the offices of a Chinese company in Poland and the Netherlands over the so-called subsidies issue.

While the EU’s FSR, which took effect in January 2023 and was claimed to be new regime aimed at combating distortions of competition within the EU's internal market caused by foreign subsidies, did not single out China in its content, it has been overwhelmingly targeting Chinese companies, making clear the EU’s intention to crack down on Chinese investments for its stated goal of “de-risking” from China, industry insiders said. 

Apart from the arbitrary investigations and raids, Chinese companies are also increasingly concerned about the EU’s attempts to obtain their commercial secretes through the investigations, industry groups added. 

The China Chamber of Commerce to the EU (CCCEU) told the Global Times that Chinese companies recently reported that the European side had exceeded the scope of the FSR investigation. Despite the opposition of Chinese enterprises, the EU side copied documents containing information about the companies’ key technology components, which are classified as commercial secrets, the CCCEU said in a statement sent to the Global Times. 

Fighting back  

Chinese officials and industry groups have repeatedly criticized the EU’s FSR, saying the regulation is just another protectionist tool created by the EU to target Chinese businesses. 

On July 10, China's Ministry of Commerce announced that at the request of the CCCME, it launched a trade and investment barrier investigation into EU's related practices in its investigations of Chinese enterprises based on the FSR. 

Measures investigated involve relevant practices adopted by the EU in investigations such as preliminary examinations, in-depth investigations and unannounced raid carried out targeting Chinese enterprises under the EU's FSR and the implementing rules.

EU member countries that aim to attract investment from Chinese car companies need to recognize the fact that supporting additional tariffs on Chinese EVs could result in losing investment opportunities, while an open and fair EU market would be far more attractive for Chinese investors, the CCCME said.

"Chinese EV companies are closely monitoring the progress and outcomes of the EU's anti-subsidy investigations and will use this information - the member countries' stance on FSR - to assess the risks of investing in Europe and make informed investment decisions," the CCCME further noted.

The EU’s logic targeting Chinese companies in the bloc is to avoid "any perceived influence" on its rules from foreign investments, as it has now linked the construction of a single internal market with the regulation and management of foreign investments, Cui Hongjian, a professor at Beijing Foreign Studies University's Academy of Regional and Global Governance, told the Global Times on Friday.

Such approach by the EU is significantly impacting the overall market confidence and investment environment within the bloc, as it artificially raises trade and investment barriers. "This, in turn, not only affects international market confidence in investing in the EU, but also causes concerns among many EU companies that such practices could lead to reciprocal treatment abroad, which could create substantial problems for European capital seeking to invest overseas," Cui noted.