On a Chinese state-owned train company the first EU investigation into distorting foreign subsidies

Brussels – China is the first non-EU country to come under the European Commission’s lens for the possible use of subsidies that allowed foreign companies to benefit from unfair advantages, disrupting the integrity of the internal market. After the warnings arrived in several rounds last year, the EU Antitrust has announced today (Feb. 16) to have launched its first in-depth investigation under the Regulation on Foreign Subsidies into the case of a public tender launched in Bulgaria for the supply of 20 “push-pull” electric trains, related maintenance and staff training services for 15 years (with a contract value of €610 million).

The investigation launched today follows a notification submitted to the European Commission by Crrc Qingdao Sifang Locomotive (a subsidiary of China’s state-owned train manufacturer Crrc Corporation), which, according to the preliminary examination already conducted by the EU executive’s services, presents “sufficient indications that this company has received a foreign subsidy distorting the Union’s internal market.” According to the Foreign Subsidies Regulation, companies are obliged to notify their public tenders on the territory of the Union when the estimated value of the contract exceeds €250 million and when the company has received at least €4 million in foreign financial contributions from at least one non-EU country in the three years preceding the notification. Crrc Qingdao Sifang Locomotive submitted a complete notification last Jan. 22, and since then, the commission has 110 working days to make a final decision (until July 2).

But the willingness to look further into the matter already represents for the Berlaymont “a determination to preserve the integrity of the internal market by ensuring that recipients of foreign subsidies cannot enjoy an unfair advantage to win public contracts in the EU.” In this particular case, the EU Commission must assess “whether the foreign financial contribution constitutes a subsidy that directly or indirectly confers a selective advantage on the company” and whether this allows the company itself to “submit an unduly advantageous offer” compared to other companies that participated in the tender in Bulgaria. As a result of the investigation, three scenarios can be outlined: a green light to the company’s proposed undertakings “if they fully and effectively remedy the distortion,” a ban on the contract award, or a no-objection decision.

In the same note, the EU Commission warns that “in recent years, foreign subsidies appear to have distorted the EU internal market, including by providing their beneficiaries with an unfair advantage in acquiring companies or obtaining public procurement contracts.” The first case established under the Regulation that came into force in July 2023 could be precisely that concerning Crrc Corporation Limited, China’s state-owned rolling stock manufacturer and the world’s largest in terms of turnover.