Trade tensions between the European Union and China reach a new high. Indeed, for several months, Brussels has been targeting Chinese companies which it accuses of benefiting from public subsidies, which distorts competition. Under the Foreign Subsidies Regulation (FSR), the EU has launched several investigations, notably against CRRC, a Chinese railway equipment giant, and solar panel manufacturers involved in European projects. Faced with these investigations, Beijing reacted strongly and denounced discriminatory practices. This standoff, which reflects deep differences over the rules of international trade, could redefine the balance of power between the two economic powers. While the EU seeks to protect its market, China is worried about regulatory tightening which would hamper the expansion of its industrial champions. In this context, investors and businesses are preparing for a climate of significant uncertainty, where each political decision can influence the dynamics of trade between Europe and the world's second largest economy.
Europe tightens its regulations on Chinese subsidies
The European Union is tightening its control over companies that benefit from foreign public aid, which it suspects of distorting competition in its market. As part of the European Foreign Subsidies Regulation (FSR), Brussels has opened several investigations targeting Chinese companies, including CRRC, a major player in the railway sector, as well as solar panel manufacturers involved in a photovoltaic project in Romania. The authorities responsible for the issue within the European Union believe that these companies benefit from state support which gives them an unfair advantage within the single market.
These investigations trigger a strong reaction from Beijing. In an official report, the Chinese Ministry of Commerce criticizes the procedures which he considers “excessive” and “discriminatory”. He denounces “surprise inspections” and criticizes European investigators for “subjective and arbitrary” behavior. According to the Chinese authorities, these measures impose a “heavy administrative burden” on the companies concerned, which generates legal uncertainty which has already forced several companies to review or cancel their projects in Europe. The economic impact would be significant. Beijing estimates these losses at nearly 2 billion euros, an amount which reflects, according to it, the growing pressure exerted by Brussels on Chinese players in the European market.
A Chinese response in preparation?
Faced with European restrictions, China plans to intensify its retaliatory measures against European companies. Among the first actions taken, an anti-dumping investigation into imports of European brandies and cognacs was extended. Since October, Beijing has required European importers of these products to post bank guarantees with Chinese customs, a constraint seen as a response to the surcharges imposed by Brussels on Chinese electric vehicles. This increase in pressure illustrates a strategic escalation in trade tensions between the two economic powers.
Beyond these targeted retaliations, China must deal with a slowdown in its domestic consumption, which is weakening its economic growth. Faced with this situation, Beijing is seeking to secure its international outlets, in order to defend its businesses against what it considers to be unjustified restrictions. However, excessively tightening its trade policy could harm its own interests. Thanks to the increased pressure on European exports, China takes the risk of further deteriorating its relations with the EU and chilling certain foreign investors, who could prefer more stable markets less exposed to geopolitical tensions.
This confrontation sheds light on Brussels' desire to more strictly regulate foreign competition in its market, even if it means provoking tensions with Beijing. The European Union intends to apply its new rules without concessions, while China, determined to protect its companies, could increase retaliatory measures through targeting strategic sectors such as the agri-food or technological industries. Thus, the outcome of this standoff remains uncertain. A compromise could emerge to avoid an escalation, but if no constructive dialogue takes place, the risk of a prolonged trade war cannot be ruled out. This scenario would threaten not only bilateral trade, but also global supply chains, already weakened by recent crises. For businesses and investors, it is time to exercise caution in the face of an increasingly unpredictable climate.
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