The EU's Escalating Foreign Subsidies Crackdown and Its Impact on Chinese Tech and E-commerce Firms

The European Union's regulatory offensive against foreign subsidies-particularly those from China-is intensifying, reshaping the competitive landscape for Chinese tech and e-commerce firms operating in Europe. This shift, driven by the EU's Foreign Subsidies Regulation (FSR) and complementary trade reforms, signals a broader strategic pivot to protect European industrial interests amid rising geopolitical tensions. For investors, the implications are twofold: heightened compliance and market access risks for Chinese firms, and a recalibration of EU-China trade dynamics that could redefine cross-border investment flows.

Regulatory Tightening: From Subsidy Scrutiny to Customs Reforms

The FSR, enforceable since July 2023, has become a cornerstone of the EU's strategy to counter perceived distortions from state-backed foreign competition. By enabling investigations into non-EU companies suspected of receiving subsidies, the regulation targets sectors critical to the EU's economic security, including clean energy, electric vehicles, and industrial equipment. In 2025, this scrutiny escalated dramatically. EU regulators raided Temu's European headquarters in Dublin, citing concerns that the PDD Holdings subsidiary might benefit from Chinese state subsidies. Similarly, investigations were launched against firms like BYD and CRRC Qingdao Sifang, underscoring the EU's willingness to act preemptively.

Parallel reforms are amplifying these pressures. The EU's decision to accelerate the removal of the "de minimis" customs threshold-exempting low-value parcels under €150 from duties-targets the influx of cheap Chinese e-commerce goods. Finance ministers agreed to implement this change by early 2026, two years ahead of schedule. Platforms like Shein and Temu, which rely on high-volume, low-margin sales, now face a dual challenge: navigating the FSR's subsidy probes while absorbing the financial impact of newly imposed customs fees.

Market Reactions: Uncertainty and Resilience

Chinese firms in the EU are grappling with a volatile environment. A 2024/2025 report by the China Chamber of Commerce to the EU (CCCEU) reveals that 81% of Chinese companies operating in Europe perceive "rising uncertainty," with 67% citing strong anti-China sentiment as a key business challenge. These firms also report prolonged approval processes, differential treatment, and reputational damage from FSR investigations. Reassessing the EU business environment provides insights from Chinese direct investors.

Yet, resilience persists. Over 80% of Chinese firms reported stable or improved performance in 2024, with many pivoting to high-value sectors like green technology and digital innovation. Chinese firms in the EU report stable or better performance despite mounting uncertainties. This strategic shift-emphasizing "localisation" and "in the EU, for the EU" principles-reflects an effort to align with EU priorities such as the Green Deal Industrial Plan. However, compliance burdens remain steep: 68% of Chinese companies say the FSR and Corporate Sustainability Due Diligence Directive (CSDDD) have directly or indirectly affected their operations.

Investor Risks: Compliance, Market Access, and Geopolitical Tensions

For investors, the regulatory crackdown introduces three critical risks. First, compliance costs are rising. Chinese firms must now navigate complex reporting requirements under the FSR, which demands transparency on foreign subsidies-a challenge given China's opaque state support mechanisms. Second, market access is under threat. The removal of the de minimis threshold and proposed customs fees could erode the price competitiveness of Chinese e-commerce platforms, which rely on low-cost logistics to dominate European markets. Third, geopolitical tensions are politicizing business operations. Chinese companies increasingly view the EU's actions as a barrier to fair competition, with 63% of surveyed firms reporting direct or indirect impacts from subsidy investigations.
These risks are compounded by the EU's broader industrial strategy. Initiatives like the Green Deal Industrial Plan aim to bolster domestic clean tech and strategic sectors, reducing reliance on foreign suppliers. While this could create long-term opportunities for Chinese firms that adapt to EU standards, it also signals a structural shift toward protectionism-a trend mirrored in the U.S. and other advanced economies.

The Path Forward: Adaptation or Retreat?

Chinese firms face a pivotal choice: adapt to the EU's regulatory and industrial priorities or retreat from the European market. Those investing in localisation-such as establishing R&D hubs and sourcing components from EU suppliers-may mitigate some risks while aligning with the bloc's green and digital agendas. However, success hinges on navigating a regulatory environment that increasingly conflates economic competition with geopolitical rivalry.

For investors, the lesson is clear: cross-border investments in Chinese tech and e-commerce firms must account for not just market dynamics but also the political economy of the EU. The FSR and its successors are not merely trade tools; they are instruments of industrial policy in a world where economic interdependence is giving way to strategic decoupling.