Geopolitical Risk in Cross-Border Tech M&A: The EU’s Regulatory Clampdown on Chinese E-Commerce Giants

The European Union’s escalating regulatory scrutiny of Chinese e-commerce companies has become a defining feature of cross-border tech M&A in 2024–2025. Driven by concerns over market distortions, product safety, and data security, the EU has deployed a dual strategy: tightening customs enforcement and leveraging the Foreign Subsidies Regulation (FSR) to investigate Chinese firms. These measures have created significant friction for Chinese e-commerce giants seeking to expand into Europe, reshaping the risk landscape for investors.

The FSR: A New Weapon in the EU’s Arsenal

The FSR, enacted in October 2023, grants the European Commission sweeping powers to probe foreign financial contributions that distort competition. Chinese companies have been its primary targets. For instance, in February 2024, the Commission launched an in-depth investigation into CRRC’s bid for a Bulgarian transport tender. The probe alleged that CRRC’s abnormally low bid—significantly undercutting competitors—was enabled by state-linked subsidies. CRRC withdrew its bid, and the tender was canceled, illustrating how the FSR can disrupt M&A activity before deals even materialize [1].

Similarly, in April 2024, the Commission scrutinized bids for a Romanian solar energy park by Chinese firms LONGi Solar and Shanghai Electric. Both withdrew under pressure, avoiding a formal decision but signaling the FSR’s chilling effect on cross-border deals [1]. The first formal FSR enforcement action, the e&/PPF Telecom merger, required the UAE-backed acquirer to remove state guarantees and restrict future acquisitions to mitigate market distortions [3]. While not a Chinese case, it set a precedent for how the EU might handle similar transactions involving Chinese firms.

China’s Ministry of Commerce (MOFCOM) has condemned the FSR as a trade barrier, citing selective enforcement and opaque procedures. MOFCOM estimates that the FSR has caused over EUR 20.88 billion in economic losses for Chinese companies through abandoned bids and compliance costs [4]. This tension underscores the geopolitical risks embedded in EU regulatory actions.

Customs Reforms: Targeting Low-Value E-Commerce Imports

Parallel to the FSR, the EU has overhauled customs rules to address the surge in low-value e-commerce imports from China. In July 2025, the European Parliament voted to eliminate the €150 customs duty exemption for low-value shipments and impose a €2 handling fee per consignment [1]. This reform, aimed at enforcing product safety standards under the General Product Safety Regulation and Digital Services Act, disproportionately affects Chinese platforms like Temu and Shein, which account for 91% of such imports [1].

The reforms are expected to increase compliance costs for e-commerce firms, potentially deterring cross-border M&A activity. For example, the €2 fee could reduce profit margins for direct-to-consumer models, while stricter product safety checks may delay supply chains. These measures align with the EU’s broader goal of protecting domestic businesses from unfair competition, but they also create operational hurdles for Chinese e-commerce players.

Case Studies: Blocked and Delayed Deals

The FSR and customs reforms have already disrupted several high-profile transactions. In March 2025, the EU launched an investigation into BYD’s Hungarian electric vehicle plant, questioning whether Chinese state subsidies distorted competition [2]. While no formal decision has been issued, the probe has forced BYD to delay expansion plans. Separately, Nuctech, a Chinese security equipment supplier, faced dawn raids in the Netherlands and Poland under the FSR, with the European Court of Justice ruling that the company must comply with data disclosure demands [2].

These cases highlight the EU’s willingness to use regulatory tools to challenge Chinese investments. As of 2025, over 50% of surveyed Chinese companies have reconsidered their EU investment strategies to avoid FSR-related risks [4]. This shift toward greenfield investments over M&A reflects a broader recalibration of Chinese outbound strategies.

Implications for Investors

For investors, the EU’s regulatory environment presents three key risks:
1. Strategic Uncertainty: The FSR’s broad definitions and selective enforcement create unpredictability, deterring long-term commitments.
2. Compliance Costs: Customs reforms and data localization requirements (e.g., under the China-EU Cross-Border Data Flow Mechanism) increase operational complexity [5].
3. Geopolitical Escalation: China’s retaliatory measures, including bilateral negotiations and potential trade barriers, could further strain EU-China relations.

Investors should prioritize due diligence on regulatory compliance and consider structuring deals to minimize FSR exposure—such as forming consortia with non-Chinese partners or opting for minority stakes [1].

Conclusion

The EU’s regulatory crackdown on Chinese e-commerce companies marks a pivotal shift in cross-border tech M&A dynamics. While these measures aim to protect the single market, they also heighten geopolitical risks and complicate investment strategies. For investors, navigating this landscape requires a nuanced understanding of both regulatory trends and the broader EU-China trade rivalry. As the EU continues to refine its tools—from the FSR to customs reforms—the stakes for Chinese e-commerce giants will only rise.

**Source:[1] EU targets low-value imports via e-commerce platforms | Topics, [https://www.europarl.europa.eu/topics/en/article/20250709STO29516/eu-targets-low-value-imports-via-e-commerce-platforms][2] The EU Sees Early Successes in Using Foreign Subsidy Regulation Against Chinese Companies, [https://chinaobservers.eu/the-eu-sees-early-successes-in-using-foreign-subsidy-regulation-against-chinese-companies/][3] EU's First M&A Investigation: A Step Forward in Foreign Subsidies Oversight, [https://www.tradepractitioner.com/2024/06/eus-first-ma-investigation-a-step-forward-in-foreign-subsidies-oversight/][4] MOFCOM Issues Final Determination on Trade and Investment Barrier Investigation into the EU’s Foreign Subsidies Regulation, [https://www.clearytradewatch.com/2025/02/mofcom-issues-final-determination-on-trade-and-investment-barrier-investigation-into-the-eus-foreign-subsidies-regulation/]