How the Foreign Subsidies Regulation affects Chinese companies investing in the European Union
Can European legislation influence the operations of a company based in China? In today’s global economy, the answer is clearly yes. A company does not need to be established in Europe to fall within the scope of EU rules; seeking access to the European market may be sufficient.
For many years, financial support granted by EU Member States to European companies was subject to strict State aid control. By contrast, there was no equivalent framework governing subsidies granted by non-EU countries to businesses acquiring European companies, participating in public procurement procedures or operating within the Single Market.
The EU Foreign Subsidies Regulation, commonly known as the FSR, was introduced to close this regulatory gap.
The Regulation empowers the European Commission to investigate whether financial support provided by a non-EU government or public authority artificially strengthens a company’s competitive position in Europe. Such support may include grants, preferential loans, tax exemptions, State guarantees, capital injections or financing provided on terms that would not normally be available under market conditions.
This represents an important change in EU competition policy. The Commission may now examine not only how a company behaves in the European market, but also how it obtained the financial strength that enables it to compete there.
The source of a company’s financing can significantly affect competition. State-backed businesses may be able to offer a higher price for a European company, submit an unusually low bid in a public procurement procedure or sustain loss-making activities for longer than competitors relying exclusively on market financing.
Many of the first major FSR investigations have involved Chinese companies. This reflects the significant role played by the State, public authorities and State-owned banks within the Chinese economic model. However, State involvement does not automatically constitute an infringement, and not every form of financial support necessarily distorts competition.
The central question is whether the particular support artificially improves a company’s position and changes the conditions under which competition takes place in Europe.
The Commission’s early interventions demonstrate the practical importance of the FSR. Investigations have concerned transactions and activities involving companies such as JD.com, Goldwind and Nuctech. In addition, Chinese-linked consortia withdrew from a Romanian solar-energy procurement procedure after the Commission opened investigations.
These cases show that the influence of the FSR does not depend solely on the adoption of final infringement decisions. Disclosure obligations, the uncertainty associated with an investigation and the possibility of corrective measures may affect the structure of a transaction, the value of a bid or even a company’s decision to participate in a procurement procedure.
For Chinese companies, compliance with the FSR is therefore more than a legal formality. It has become an important element of investment and transaction planning. The financing of transactions, relationships with public authorities and the terms of loans or guarantees must now be capable of being clearly explained and properly documented.
Through the FSR, the European Union is using the economic importance of its market to influence business practices developed far beyond its borders. The Regulation is changing not only the scrutiny of foreign investment, but also the way international companies prepare to invest and compete in Europe.
This article was prepared by Eleana Polydorou during her summer 2026 internship at Trojan Economics.
