Chinese Investment in the EU: Managing FSR and FDI Screening Risk
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octubre 27, 2026
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As Europe expands its scrutiny of foreign investment, outbound capital and state-linked support, Chinese companies pursuing transactions in the region increasingly need to navigate two overlapping regulatory frameworks: the European Union’s (“EU”) Foreign Subsidies Regulation (“FSR”) and the EU’s revised foreign direct investment (“FDI”) screening regime.
Under the FSR, the European Commission must be notified when an acquired company, at least one of the parties to a merger or a joint venture is established in the EU and generates at least €500 million in EU turnover, and the relevant parties to the proposed transaction have received more than €50 million in aggregate financial contributions from non-EU public authorities during the preceding three years.1
The Commission may also require prior notification for a proposed transaction that falls below the mandatory notification thresholds if it suspects that the relevant parties received foreign subsidies during the preceding three years that might distort the internal market and believes the transaction warrants ex ante review. Guidance issued in January 2026 clarified the Commission’s analytical framework for assessing distortions, applying a balancing test and exercising this case-specific notification power.2
Meanwhile, the revised FDI framework is particularly significant because it extends scrutiny beyond acquisitions of control to certain investments in sensitive sectors where governance rights or other arrangements give a non-EU investor meaningful influence over the target.3
Together, these regimes reflect a broader shift in EU transaction review: Authorities are looking not only at competition effects and ownership structures, but also at the source of financial support, the sensitivity of target assets and the level of influence an investor may obtain. FSR risk is becoming a core deal execution issue for companies pursuing EU transactions, with the potential to influence diligence scope, timetable assumptions, negotiation strategy and the conditions required to secure regulatory clearance.
What the FSR Captures — and What It Does Not
A critical distinction is that a foreign financial contribution is not the same as a foreign subsidy. Foreign financial contributions are broadly defined and can include grants, loans, loan guarantees, tax advantages and certain transactions involving goods and services. Meeting the notification thresholds only means that a transaction is subject to an FSR filing obligation; it does not mean that the foreign financial contributions concerned constitute foreign subsidies, still less that they necessarily distort the EU internal market. The Commission must first assess whether a financial contribution confers a benefit and is limited, at law or in fact, to certain one or more companies or industries. When it determines that the foreign financial contribution constitutes a foreign subsidy, the Commission must then assess whether that subsidy distorts the internal market.4
From a transaction execution perspective, however, this creates significant additional preparatory work. For example, a company considering the acquisition of EU assets must assess not only the competitive relationship between the parties, but also map relevant foreign financial contributions received across the group during the preceding three years. For a large multinational group, this may involve multiple jurisdictions, subsidiaries and financing or commercial arrangements. The information-gathering exercise itself can therefore become an important variable in the transaction timetable.
Why the FSR Matters for Chinese Companies
As a matter of law, the FSR applies to relevant financial contributions from all non-EU countries and does not target any country in particular. For Chinese companies, however, recent enforcement developments merit particular attention.
In the public procurement context, the European Commission has already launched in-depth FSR investigations involving Chinese companies. In April 2024, the Commission opened separate in-depth investigations into two bidding consortia participating in a solar photovoltaic public procurement procedure in Romania.5 One consortium included the German subsidiary of LONGi Green Energy, while the other comprised subsidiaries of Shanghai Electric.6 The Commission made clear at the time that opening an in-depth investigation did not prejudge the outcome. In May 2024, the relevant bidders withdrew from the procurement procedure, after which the Commission closed the investigations.7 These cases therefore should not be described as instances in which the Commission ultimately found that subsidies received by the Chinese companies distorted the market. They do, however, demonstrate the procedural and commercial impact that an FSR investigation can have on companies participating in EU projects.
At the same time, the Chinese government has raised explicit objections to certain aspects of EU FSR enforcement. In January 2025, China’s Ministry of Commerce completed a trade and investment barrier investigation and deemed that certain practices adopted by the EU in investigations of Chinese companies under the FSR and its implementing rules constituted trade and investment barriers.8 In May 2026, China’s Ministry of Justice further determined that certain cross-border investigative measures taken against relevant Chinese entities in the EU’s FSR investigation involving Nuctech constituted unlawful extraterritorial jurisdiction.9 In August 2026, the Ministry of Justice made a similar determination in relation to the EU’s FSR investigation involving JD.com.10 The Ministry of Commerce has also reiterated its hope that the EU will manage differences through dialogue and consultation and provide a fair, impartial, and predictable business environment for Chinese companies investing and operating in Europe.11
This also raises a practical issue for Chinese companies: When responding to overseas regulatory investigations, they need to also assess relevant legal obligations in China at the same time. The Provisions of the State Council on Outbound Investment, which took effect on 1 July 2026, provide that outbound investment involving technology import and export, cross-border data flows, export controls and other relevant matters must comply with applicable laws, regulations and state rules.12, 13 They also provide that where Chinese organizations or individuals involved in arbitration, litigation or investigations by overseas judicial or enforcement authorities in connection with outbound investment are compelled to provide evidence or materials overseas, those organizations or individuals must also comply with Chinese requirements concerning state secrets, data security, personal information protection, technology export controls, export controls, judicial assistance and other relevant topics.14, 15
FDI Screening: Scrutiny of Control, Influence and Sensitive Assets
The FSR is only one part of Europe’s expanding transaction review landscape. In June 2026, the EU formally adopted its revised FDI screening regulation, which will further harmonize minimum requirements for Member State screening mechanisms and require the screening of sensitive investments falling within a common minimum scope.16 The new framework will also bring certain investments made through EU subsidiaries controlled by non-EU investors within scope. Although the legislative process has been completed, the principal new rules will apply as of January 17, 2028.17
The common minimum screening scope covers dual-use and military-related items, semiconductors, quantum technologies, certain artificial intelligence technologies, strategic raw materials and critical infrastructure.18
Importantly, the trigger for FDI screening is different from traditional merger control. A minority investment that does not amount to an acquisition of control will not automatically fall outside the scope of FDI review. Under the revised regulation, an investment may fall within scope if it effectively enables an investor to participate in the management or control of the target, including through voting rights, contractual agreements, supply relationships or significant board representation.19 Purely financial investments without an intention to influence management or control are, in principle, outside this scope.
Deal structure now matters as much as deal size. When Chinese companies assess minority investments, strategic partnerships or joint ventures in Europe, they should look beyond the percentage of equity acquired. They must also consider whether governance rights, voting arrangements or board representation could influence major commercial decisions, particularly where the target controls sensitive assets, critical technologies or critical infrastructure. A minority investment that does not require notification under traditional merger control rules may nevertheless fall within the scope of FDI screening because of the influence obtained by the investor and the sensitivity of the target assets.
Why an Integrated Regulatory Strategy Matters
The practical challenge for Chinese investors is that FSR and FDI screening ask different questions but may affect the same transaction timetable. The FSR focuses on whether foreign financial contributions may constitute subsidies that distort the EU internal market, while FDI screening focuses on whether foreign ownership, influence or access may create security or public order concerns. A transaction can therefore require parallel analysis of funding history, group-level financial contributions, ownership and control, governance rights, target-sector sensitivity and the information that may need to be provided to regulators.
Taken together, the FSR and revised FDI screening framework show that EU transaction review is moving beyond traditional merger control. The final article in “Chinese Investment in the EU” will build on these themes by considering how Chinese companies can develop a more resilient EU deal strategy that integrates antitrust, FSR, FDI screening and broader economic security risks from the outset.
Footnotes:
1: European Commission, “The Foreign Subsidies Regulation in a nutshell,” Competition Policy (n.d.).
2: European Commission, Press Release, “Commission publishes Foreign Subsidies Regulation Guidelines” (9 Jan. 2026).
3: European Union, “Regulation (EU) 2026/1386 of the European Parliament and of the Council of 17 June 2026 on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452,” Official Journal of the European Union (26 June 2026).
4: European Union, “Foreign subsidies regulation,” EUR-Lex (n.d.).
5: European Commission, Press Release, “Commission opens two in-depth investigations under the Foreign Subsidies Regulation in the solar photovoltaic sector” (3 Apr. 2024).
6: Ibid.
7: European Commission, Statement, “Statement by Commissioner Breton on withdrawal of LONGi Solar Technologie GmbH and Shanghai Electric from public procurement following the Commission’s opening of an investigation under the Foreign Subsidies Regulation” (13 May 2024).
8: The State Council Information Office, The People’s Republic of China, Release, “China says EU’s foreign subsidy investigations constitute trade, investment barriers” (9 Jan. 2025).
9: Ministry of Justice of the People’s Republic of China, “China urges EU to stop abusing foreign subsidies probe tools,” News (18 May 2026).
10: Ministry of Justice of the People’s Republic of China, “China says EU’s probe into e-commerce giant JD.com unlawful,” News (20 Aug. 2026).
11: Ministry of Justice of the People’s Republic of China, supra note ix.
12: The State Council, The People’s Republic of China, “China unveils regulation on outbound investment,” Latest Releases (1 June 2026).
13: Zhou, Ting, “China’s New Outbound Investment Rules: A New Era of National Security Reviews and Maybe China’s Answer to ‘Reverse CFIUS’,” Lexology (23 June 2026).
14: The State Council, The People’s Republic of China, “Regulations of the State Council on Outward Investment,” (1 June 2026).
15: “China’s 2026 Outbound Investment Regulations: State Council Order No. 837 and the Evolving Geopolitics of Chinese Capital,” Charltons (16 June 2026).
16: Council of the European Union, Press Release, “Foreign investment screening: Council signs off on updated framework” (8 June 2026).
17: Ibid.
18: Ibid.
19: European Union, supra note iii.
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