EU makes it more difficult to sell companies and award contracts to state-funded companies from third countries such as China

After a series of controversial investment projects, the EU has now passed a law that is intended to protect the European economy from the indirect access of third countries by setting higher hurdles for investments by companies supported by third countries in the future. There was still a regulatory gap at European level with regard to such matters.

 

Regulation on subsidy control for investment projects

Under the Czech EU Council Presidency, the EU has now approved a regulation that will make it more difficult for state-subsidized companies from third countries to take over European firms.

Specifically, companies will in future have to disclose before major takeovers or mergers whether they have received subsidies from third countries in recent years, provided that these subsidies exceed EUR 50 million and the acquired EU company has sales of at least EUR 500 million.

In addition, financial contributions by third-country governments must also be disclosed when bidding for public contracts with a volume of 250 million euros or more.

Furthermore, in all other market situations, the EU Commission has the right to act on its own initiative and initiate ex officio investigations or request ad hoc notifications, even if the turnover thresholds are not exceeded.

 

Proceedings

The European legislative process started on 17.06.2020 with the White Paper on subsidies from third countries. After numerous consultations and discussions, the Commission adopted the proposal for a regulation on 05.05.2021. With the approval of the EU Parliament, the way is now finally open for the regulation. It will enter into force 20 days after its publication in the EU Official Journal.

 

Comment

Investments by foreign groups, such as the entry of the Chinese shipping company Cosco into the Port of Hamburg or the attempted takeover of German chip manufacturer Elmos by a Chinese investor, have recently made waves. What is explosive about these and comparable transactions is that the investors are often state-controlled and subsidized. This is true for many Chinese companies. Because of this state component, the entry of Cosco was politically highly controversial and could only be pushed through by the German Chancellor Olaf Scholz against massive resistance from within his own ranks.
 

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If you have any questions regarding investment control, please do not hesitate to contact Raoul Schätzler or the Fieldfisher Team.

 

Links

N-TV: Hurdles for foreign investment: EU prohibits group sales to China (German version only)
European Commission: Proposed Regulation to address distortions caused by foreign subsidies in the Single Market
Fieldfisher: Federal Cabinet prohibits sale of Elmos chip factory to Chinese investor 
 

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