NUCTECH RAIDS LEAVE CHINESE FIRMS ON EDGE

Dramatic search for evidence of subsidies from Beijing stuns businesses and lawyers in Europe, with experts urging companies to learn about law

At 9.30am on Tuesday, authorities descended on the Warsaw and Rotterdam offices of Nuctech, a Chinese manufacturer of airport scanning machines.

In the sort of raids usually reserved for cartels, officers seized IT equipment and mobile phones.

They also “scrutinised office documents and demanded access to pertinent data”, according to the China Chamber of Commerce to the EU, which lobbies for Chinese businesses in the bloc.

The “competition officers” – from Brussels, Poland and the Netherlands – were looking for evidence of financial help that Nuctech may have received from the Chinese government.

In Brussels policy circles, Tuesday’s raids were about as dramatic as it gets, and the revelations – first reported by the Post – sent shock waves through the EU. They suggest that the European Commission has moved to a new stage in cracking down on what it views as one of the biggest risk to the Eurozone economy: foreign subsidies from Beijing, which it believes are causing industrial overcapacity that could see Europe flooded with cheap Chinese imports.

Chinese businesses in Europe are still reeling from the raids, which stunned even the competition lawyers advising these firms.

“This action surprised even me – a dawn raid in Europe to find out more information about subsidies granted in China makes no sense,” said Andreas Reindl, managing partner at Brussels law firm Van Bael & Bellis, which specialises in competition law.

Reindl, who published a book in January about the new foreign subsidies regulation (FSR) under which the inspections occurred, described the raids as “political gamesmanship”, adding that the target – Nuctech – was probably “also perplexed and doesn’t know anything about the FSR”.

But if Chinese businesses want to continue working in Europe, they had better learn about it fast. Since January, the EU has wielded the weapon four times. On each occasion, it has targeted Chinese companies.

The FSR is designed to root out “market-distorting” handouts, by forcing non-European entities to be as transparent about what they receive from their governments.

It can be triggered during procurement processes, as well as merger and acquisition activity. Or – as with Nuctech – the commission can decide to investigate any business operating in the EU that it suspects has received state subsidies and is disadvantaging local competitors.

While the commission did not name Nuctech in its statement about “unannounced inspections”, it said officials had “indications that the company may have received foreign subsidies that could distort the internal market”.

Nuctech – a partially stateowned offshoot of Tsinghua University that was previously run by Hu Haifeng, son of former president Hu Jintao – has been frozen out of some Western markets over security concerns.

The company said it was “cooperating with the European Commission and is committed to defending its reputation as a fully independent and self-supporting economic operator”.

Michel Struys, a Brusselsbased partner at the law firm Hogan Lovells, said every Chinese firm in the EU should be prepared to receive a knock on the door.

“Chinese companies have been put on the back foot, but the best form of defence is attack, and that is to be prepared. A lack of preparation is the real problem here,” Struys said.

Even before Tuesday’s events, businesses were worried.

Previously, regulators went after European subsidiaries of solar giants Longi and Shanghai Electric, as well as CRRC Corporation, the state-owned rolling stock company.

The rapid-fire nature of the tool flies in the face of conventional wisdom that Brussels is a slow and lumbering bureaucracy. Trade investigations typically take years to conclude. But the FSR comes from the world of competition, where things move fast.

In the case of procurement or takeover cases investigated under the law, investigators have just 110 days to complete their work.

They also demand levels of openness that many Chinese businesses are not ready for. EU authorities can command firms operating in the bloc to hand over their books for forensic scrutiny.

The local subsidiary of CRRC withdrew from a bidding process in Bulgaria after balking at the requirements of complying with a procurement investigation. EU industry boss Thierry Breton responded on X, formerly Twitter, that the inquiry had “already yielded results”, suggesting this was what he had intended to happen.

According to Struys, “the reaction time is slow” for Chinese companies. “They need to talk to x, y and z, sometimes even the party. Many of them are not ready for this,” he said.

In an interview with the Post, Fang Dongkui, secretary general of the China Chamber of Commerce to the EU, laid out a litany of grievances with the tool.

The commission’s definition of “foreign financial contributions” was “overly broad and non-exhaustive”, he said.

According to Fang, Brussels is “scrutinising subsidies received by Chinese parent companies that were passed through on to their European entities”, which the chamber thinks should be treated as separate entities.

Perhaps most concerning for Chinese businesses is the danger that adhering to this law could set them up to contravene other laws in China.

A dawn raid in Europe to find out … about subsidies granted in China makes no sense ANDREAS REINDL, LAWYER