EU's FSR Abuse Investigations Escalate: EU-China Regulatory Contest Enters Critical Phase

EU’s Foreign Subsidies Regulation Investigation Escalates: From Procedural Review to Aggressive Data Extraction—EU-China Regulatory Contest Enters Deep Waters

Since Q2 2024, the European Commission’s investigations of Chinese enterprises under the Foreign Subsidies Regulation (FSR) have undergone a marked escalation: the scope has expanded beyond initial merger-and-acquisition transactions to include public procurement projects; investigative intensity has surged from requiring voluntary self-reporting by companies to directly demanding core operational data—including financing transaction records and credit facility agreements—from banks within mainland China; and the target pool has broadened beyond traditional manufacturing firms to encompass strategic-sector leaders such as Nuctech—a flagship enterprise in security and intelligent sensing with clear implications for technological sovereignty. These developments far exceed the FSR’s stated legislative purpose of “safeguarding fair competition,” instead evolving into an extraterritorial jurisdictional expansion cloaked in industrial policy rhetoric but substantively enforcing unilateral regulation. China has explicitly stated that such compulsory extraction of data from financial institutions operating within China’s territory constitutes a serious violation of the People’s Republic of China Data Security Law, the Personal Information Protection Law, and the principle of territorial jurisdiction enshrined in international law—amounting to improper extraterritorial application.

Compulsory Data Demands Expose Regulatory Overreach—Strategic Sectors Targeted with Surgical Precision

Although Article 23 of the FSR authorizes the Commission to obtain third-party information “where necessary,” its application is strictly conditioned upon two prerequisites: (i) the information cannot reasonably be obtained through other means, and (ii) it must bear a direct and material relevance to assessing the impact of foreign subsidies. Yet, in its investigation of Nuctech, the Commission not only required the company to submit financial statements of its overseas subsidiaries but also directly issued formal requests to the head offices of major Chinese banks—including the Industrial and Commercial Bank of China (ICBC) and Bank of China—for all credit approval records, guarantee contracts, and detailed fund-flow statements related to Nuctech and its affiliates over the past three years. Such demands lack support from any bilateral judicial assistance treaty and were not submitted through legally authorized channels under Chinese regulatory frameworks—clearly exceeding even the FSR’s own procedural boundaries. More alarmingly, the enterprises singled out for priority scrutiny are overwhelmingly concentrated in strategic sectors possessing triple attributes of “technology–security–critical infrastructure”: new-energy equipment (e.g., leading photovoltaic inverter manufacturers), high-end industrial software (e.g., EDA tool providers), and intelligent security systems—as exemplified above. This signals a systemic instrumentalization of the FSR—not merely to assess economic distortion, but to deploy the politically charged label of “non-market behavior” as a broad-brush metric for identifying “systemic competitors.”

Emerging “US-EU Dual-Track” Compliance Burden Accelerates Global Regulatory Fragmentation

As the United States erects industrial subsidy firewalls via the CHIPS and Science Act and the Inflation Reduction Act, the EU leverages the FSR to construct a novel barrier to foreign investment—effectively establishing a de facto “dual-track regulatory regime.” According to an internal memorandum from the EU Bar Association, a Chinese battery manufacturer with significant procurement volume in Germany incurred over €6 million in single-instance compliance costs solely to satisfy FSR filing requirements—covering cross-border legal due diligence, deployment of localized data mirroring servers, and annual ongoing audits. When layered atop U.S. CFIUS reviews, export control compliance (including dynamic monitoring of EAR/BIS entity lists), and divergent GDPR enforcement practices across EU Member States, the annual compliance burden for Chinese enterprises operating in Europe has risen 3.2-fold compared to three years ago. This exponential growth in institutional friction is eroding the foundational certainty of cross-border operations: recent research reports from multiple European investment banks have downgraded revenue forecasts for Chinese ICT and high-end manufacturing sectors abroad—and explicitly flagged a persistent “regulatory uncertainty premium” that will continue depressing valuations. Investors now assess not only technological competitiveness but also must assign risk discounts for potential “compliance circuit-breakers.”

Countermeasure Mechanisms Accelerate: From List-Based Management to Upgraded Autonomous Regulatory Architecture

In response to this regulatory encirclement, China’s counter-strategy is undergoing a structural shift—from reactive, case-by-case measures (e.g., ad hoc additions to the Unreliable Entities List) toward systematic capacity-building. In April 2024, the draft revision of the Administrative Measures for the Record-filing of Outbound Investment explicitly introduced a “dynamic risk rating system for outbound investment” applicable to enterprises subjected to intensive FSR scrutiny, integrating EU regulatory actions as a core indicator in evaluating the compliance posture of Chinese enterprises’ overseas investments. Concurrently, the draft Guidelines for Security Assessment of Cross-Border Data Flows establishes, for the first time, a formal “response mechanism for extraterritorial regulatory data requests,” empowering China’s Cyberspace Administration to conduct tripartite reviews—assessing the legality, necessity, and proportionality—of data demands issued by bodies such as the European Commission. Of even broader significance, the National Data Administration is spearheading the development of a “Digital Platform for Cross-Border Regulatory Cooperation,” piloting initiatives with ASEAN members and the UAE to achieve mutual recognition of subsidy policy transparency and limited exchange of review outcomes—aiming to dismantle the narrative hegemony of “Western standards = global standards” and offering an alternative, multilateral technical pathway for regulatory coordination.

At Its Core, the Regulatory Contest Is a Struggle for Development Rights—Cooperation Remains Possible, But Only on Terms of Reciprocal Sovereignty

It is imperative to recognize clearly that the intensification of FSR enforcement is no isolated incident—it is a microcosm of the broader contest for discursive authority over development models amid global industrial chain restructuring. Rational voices also exist within the EU: German Economy Minister Robert Habeck recently stated publicly that “labeling all Chinese subsidies as market-distorting is a dangerous oversimplification,” urging differentiation between subsidies supporting green transition and those exacerbating overcapacity. Crucially, the China-EU economic relationship retains substantial ballast: bilateral trade reached RMB 5.7 trillion in 2023; German automakers remain deeply embedded in China’s electric vehicle supply chain; and Franco-Chinese cooperation in nuclear energy technology continues to deepen. The pivotal condition for any renewed dialogue, however, must be mutual respect for regulatory sovereignty: the EU must cease compulsory data extractions from entities operating within China’s territory, while China may advance reciprocal transparency commitments—aligning the FSR with Article 39 of the People’s Republic of China Foreign Trade Law (authorizing foreign trade investigations). Only when this rules-based contest moves beyond zero-sum confrontation toward institutionalized consultation grounded in factual rigor and procedural justice can China and the EU jointly mitigate the systemic risks posed by accelerating global regulatory fragmentation.