EU Builds Barriers Against Foreign Subsidies Targeting China... Huawei Exclusions Continue

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The European Union (EU) is reportedly considering measures to block the inflow of companies receiving subsidies from foreign governments into the region. This reflects concerns that overseas capital backed by subsidies could distort the European single market if it acquires European companies. The move is widely interpreted as being aimed at China. Germany and Canada, among others, are placing emphasis on excluding the Chinese telecommunications equipment company Huawei from 5G network equipment providers.

According to major foreign media on the 2nd (local time), the European Commission will publish a policy proposal white paper outlining these measures on the 17th. The white paper will include a new system that allows for close scrutiny of foreign state-owned enterprises and government-supported companies operating in Europe or seeking to enter the single market.

The European Commission is expected to approach this on two tracks: examining how foreign companies’ subsidies affect the market and potential acquisitions of EU assets. The white paper summary states, "Cases where foreign government subsidies encourage acquisitions of businesses within the EU or distort pricing policies are increasing. However, current EU measures do not address all distortions caused by foreign subsidies. To resolve these challenges, new tools are needed to ensure fair competition within the internal market."

Foreign media analyzed that this move is effectively targeting China. Given the sensitive timing of EU-China relations amid the Hong Kong National Security Law issue, the white paper’s release later this month is expected to heighten tensions between the two sides. Charles Michel, President of the European Council, and Ursula von der Leyen, President of the European Commission, are expected to hold talks with Chinese Premier Li Keqiang later this month.

The EU’s proactive stance comes as the possibility of companies receiving subsidies from non-EU countries making acquisitions has increased amid the economic downturn. European governments have expressed concerns that their domestic companies are in a vulnerable state. Margrethe Vestager, EU Executive Vice-President in charge of competition, recently urged member states to secure stakes to block foreign capital, including from China and the United States, from acquiring domestic companies.

Meanwhile, scrutiny of Huawei continues in relation to 5G network equipment. Foreign media report that Telef?nica, one of Germany’s three major mobile carriers, is likely to change its 5G core equipment supplier from Huawei to Sweden’s Ericsson. Canada’s major carriers Bell Canada and Telus have also selected Ericsson and Ericsson-Finland’s Nokia, respectively, for their 5G network equipment contracts. The UK government has been investigating additional risks associated with using Huawei equipment since last month, increasing the likelihood of exclusion.