Key facts
- China's Ministry of Justice has directed Chinese companies to withhold information from EU officials.
- The directive is in response to the EU's Foreign Subsidies Regulation (FSR) investigations.
- The EU is probing JD.com's potential acquisition of Ceconomy for unfair state backing.
- China criticizes the FSR as discriminatory and demands its correction.
- The EU asserts the FSR is WTO-compliant and ensures fair competition.
China has escalated its trade dispute with the European Union by instructing its companies not to cooperate with EU investigations under the Foreign Subsidies Regulation (FSR). The move comes as the two sides are engaged in critical trade negotiations aimed at reducing the EU's substantial trade deficit with China.
Beijing's Ministry of Justice issued a notice directing Chinese firms to withhold information requested by EU officials, specifically mentioning the European Commission's probe into JD.com's potential €2 billion acquisition of Ceconomy, the parent company of consumer electronics retailer MediaMarkt. China argues that the FSR is an abusive unilateral tool used to suppress its companies and demands its correction, emphasizing the established Trade and Investment Consultation mechanism for managing differences.
The European Commission, however, maintains that the FSR is fully compliant with World Trade Organization rules and applies to all companies regardless of nationality, ensuring a level playing field. The Commission is concerned that JD.com may be benefiting from unfair advantages, such as preferential financing and grants from the Chinese government, which could distort competition in the EU market upon finalization of the deal.
JD.com has reportedly offered remedies to address the Commission's concerns, indicating advanced stages of negotiation. However, a Dutch Member of the European Parliament, Dirk Gotink, warned that Beijing's intervention could jeopardize the acquisition, characterizing it as a "unilateral escalation" and suggesting the companies are being "taken hostage by a political process."
The EU is expected to hold a videoconference with China's Ministry of Commerce in September, potentially paving the way for an early October visit by EU trade chief Maroš Šefčovič to Beijing. EU leaders will be briefed on the progress at a summit shortly thereafter, which could determine whether diplomatic engagement is sufficient or if Brussels needs to adopt more forceful measures to protect its trade interests.