The Ministry of Commerce Photo: VCG

China's Ministry of Commerce (MOFCOM) announced on Thursday that it has determined that the practices adopted by the EU in its investigations of Chinese enterprises based on the Foreign Subsidies Regulation (FSR) and its implementing rules constituted trade and investment barriers.

He Yadong, spokesperson from the MOFCOM, told a press conference on Thursday that the EU's FSR probes have many unreasonable practices, and that the ministry will ask the EU to adjust or change relevant practices through bilateral consultations and other measures as appropriate. 

He noted that at the request of China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME), the ministry initiated an investigation into trade and investment barriers in relation to the EU's FSR-related practices on July 10, 2024.

After filing the case, the MOFCOM verified the relevant situation with various stakeholders through questionnaires and field investigations in accordance with the law, gathered extensive opinions, and ensured that the investigation was fair, impartial, and open and transparent, He said.

In the course of the investigation, the European Commission (EC) did not submit the answer sheet and related comments.

He noted that the investigation showed that there were many unreasonable practices in the EC's FSR investigations of China, which have caused restrictions and obstacles to the entry of Chinese enterprises' products, services and investments into the EU market, and have harmed the competitiveness of relevant Chinese enterprises and their products in the EU market.

Therefore, the MOFCOM has determined in accordance with the law that the relevant practices of the EU FSR investigations constitute trade and investment barriers. In accordance with the provisions of the Investigation Rules on Foreign Trade Barriers, the MOFCOM will, where appropriate, request the European side to adjust or change the relevant practices through bilateral consultations and other measures. The goal is to ensure an open, fair, just, non-discriminatory, and predictable environment for Chinese enterprises investing and operating in Europe, the spokesperson noted.

In a statement sent to the Global Times on Thursday, the China Chamber of Commerce to the EU expresses growing concern over the developments surrounding the EU's FSR and is deeply disappointed by the EC's lack of cooperation and failure to respond to the Chinese side's questionnaires during the trade barrier investigation. 

The Chamber calls on the European side to promptly rectify the measures imposed on Chinese enterprises under the FSR. "We urge the EU to address the business community's concerns with concrete actions and to take immediate steps to restore a fair and competitive environment within the EU market," it noted.

"MOFCOM's investigation is fair, open and transparent, and it is in line with WTO rules," Cui Hongjian, a professor at the Academy of Regional and Global Governance at Beijing Foreign Studies University, told the Global Times on Thursday. 

Since the so-called regulations of the European side deviate from the principle of free trade of the WTO, and the FSR investigations are de facto discriminatory, the MOFCOM's move is reasonable and is a legitimate act to protect the legitimate rights and interests of Chinese enterprises, Cui noted.

Unreasonable practices in FSR probes

According to the website of the EC, as of October 12, 2023, under the FSR, companies will have to notify concentrations and participation in public procurement procedures involving foreign financial contributions over the past three years and meeting the relevant notification thresholds. The regulation establishes a procedure involving two stages - a preliminary review and an in-depth investigation, according to an announcement released by the MOFCOM on Thursday.

In the announcement, the CCCME said that since the entry into force of the FSR, the EC's first five investigations have all targeted Chinese enterprises and their affiliates, with clear targets and vague criteria for filing cases, and the specific procedures for filing cases have not been disclosed to relevant stakeholders.

In order to verify the relevant information, the Chinese investigating authorities issued a questionnaire to the EC requesting it to provide a list of all cases in which FSR investigations had been conducted. The Chinese authorities also asked the EC to highlight the specific reasons for launching preliminary examinations and in-depth investigations against the Chinese enterprises concerned, in particular the reasons for not launching investigations against bidding enterprises other than the Chinese enterprises in certain investigations involving public procurement projects. However, the EC did not submit a reply to clarify the situation.

The Chinese investigative authorities also distributed questionnaires to relevant Chinese enterprises to verify the case. The investigation revealed that the EC had engaged in selective enforcement behavior in the FSR investigations, which was de facto discriminatory.

For instance, in terms of public procurement, the available evidence showed that the EC has never initiated in-depth investigations against firms other than Chinese ones. Moreover, the EC has only used strong enforcement tools such as surprise inspections against affiliates of Chinese companies in the EU.

More unreasonable practices, as perceived by the various stakeholders, included the reversal of the burden of proof, imposition of inappropriate penalties, non-transparency of the investigation process, unreasonable time frames, and a lack of procedural due diligence, read the ministry's announcement.

The announcement showed that the main companies affected by the EU FSR investigations are manufacturers in sectors including railroad locomotives, photovoltaics, wind power, and security inspection equipment.

"The FSR seems to be universal, but in fact it is an abnormal and discriminatory interference in the operation of Chinese enterprises in Europe. This increased the uncertainty of China-EU economic and trade cooperation, causing a great deal of trouble to normal China-EU economic and trade relations," Jian Junbo, a deputy director of the Center for China-Europe Relations at Fudan University's Institute of International Studies, said on Thursday.

Jian noted that some Chinese enterprises and products have to leave the European market due to the FSR investigations, although they can bring quality products and services to EU consumers. Therefore, the FSR probes will also backfire, harming the EU, its member states and its consumers, Jian said.

"In the face of trade frictions between China and the EU, including negotiations on China-made electric vehicles, the Chinese side has been adopting a pragmatic and cooperative attitude and measures to address problems. Hopefully Europe will abandon its unilateralist approach and utilize bilateral or multilateralism with China to solve disputes," Jian noted.

With China's technological progress and the upgrading of its industrial chain, competition between China and Europe in various fields will become the norm. However, the two sides have already formed a deep and interdependent economic and trade relation, and it is impossible for the European business community to completely "decouple" from China, Jian said.

Cui noted that in fact, China and Europe can promote cooperation in more areas in the future, especially in emerging industries. "Hopefully the European side will realize that cooperation with China will bring it far more benefits than the adoption of unilateral measures. After all, protectionism doesn't really solve the EU's economic problems," he said.