China blocks cooperation with EU foreign subsidies probes as trade talks intensify

China has escalated its confrontation with the European Union over the bloc's Foreign Subsidies Regulation, ordering domestic companies to refuse cooperation with Commission investigators just as the two sides enter a decisive phase of renewed trade talks. The directive from Beijing's Ministry of Justice, delivered this week, names the Commission's in-depth probe into JD.com's proposed €2 billion acquisition of Ceconomy, the German parent of MediaMarkt, as a specific target. It is a calculated intervention designed to raise the political cost for Brussels at a moment when negotiators are meeting behind closed doors to address a goods trade deficit that now runs at roughly €1 billion every day.

The JD.com investigation becomes a flashpoint

The Commission opened its in-depth investigation into the JD.com, Ceconomy deal earlier this year, concerned that the Chinese e-commerce giant may benefit from preferential financing, tax incentives and direct grants from the Chinese state. Such advantages, if proven, would fall squarely within the scope of the Foreign Subsidies Regulation (FSR), which entered into force in 2023 and gives the Commission the power to unwind concentrations or impose remedies when a foreign subsidy distorts the single market. This week JD.com submitted a package of remedies, typically a sign that the procedural clock is advancing toward a final decision, but Beijing's order to withhold information from Chinese banks and other third parties could stall or derail the process.

According to the Chinese Ministry of Commerce, the Commission has "arbitrarily and unreasonably demanded a wide range of information from relevant Chinese banks that is irrelevant to the investigation." The Commission counters that its requests are proportionate and necessary to establish whether the transaction would be underwritten by state support that gives JD.com an unfair edge in European consumer electronics retail. Ricardo Cardoso, a Commission spokesperson, told reporters in Brussels on Thursday that the regulation "applies to all companies irrespective of their nationality, and its objective is to ensure that all companies doing business in the EU, including Chinese ones, are treated equally and compete on an equal footing." He added that the instrument is "completely, fully compliant with WTO rules."

A trade dialogue under strain

The timing is not accidental. After a prolonged freeze, the EU and China relaunched their Trade and Investment Consultation mechanism this summer, committing to "manage differences through dialogue and consultation," in the words of the Chinese Ministry of Commerce. Negotiators have been engaged in what officials describe as intense closed-door discussions, with the EU pressing for market access commitments, intellectual property protections and a rebalancing of the massive goods deficit. A videoconference between the Commission and China's Ministry of Commerce is expected in September, intended to prepare the ground for a visit by Maroš Šefčovič, the EU's trade chief, to Beijing in early October.

That visit, if it proceeds, will be followed within days by a European Council summit where leaders will receive a debrief. Diplomats in Brussels describe the summit as a potential make-or-break moment: the point at which the Twenty-Seven decide whether the current framework of constructive engagement is yielding results, or whether the bloc must adopt a more assertive posture, including wider use of trade defence instruments, stricter investment screening, and coordinated action on economic security.

Competing legal narratives

The legal argument cuts both ways. The Commission insists the FSR is a neutral, non-discriminatory tool designed to plug a gap in international trade rules: the World Trade Organization's subsidies agreement covers goods but not services or investment, and it does not address distortions caused by foreign state support in merger situations. The regulation mirrors the EU's long-standing state aid control regime, applied internally for decades. Beijing, however, characterises the FSR as a "unilateral tool" that circumvents multilateral disciplines and singles out Chinese firms. The Ministry of Commerce spokesperson said China "will take necessary measures to resolutely safeguard national security and the legitimate rights and interests of enterprises", language that leaves the door open for retaliatory measures against European companies operating in China.

Legal scholars in Europe are divided on the WTO compatibility question. Some argue the FSR's broad definition of "financial contribution" and its extraterritorial reach, it captures subsidies granted outside the EU that benefit a company active in the single market, would face a steep challenge in a WTO dispute settlement proceeding, assuming the appellate body were functional. Others contend the regulation's transparency, procedural safeguards and non-discriminatory drafting make it defensible. The Commission has not yet been forced to test the argument in Geneva, but the JD.com case could become the first real stress test.

Political pressure on the acquisition

Dirk Gotink, a centre-right Dutch MEP who sits on the European Parliament's International Trade Committee and has tracked the file closely, was blunt in his assessment. "They're being taken hostage by a political process," he said of JD.com and Ceconomy. "It's a unilateral escalation." Gotink's concern is that Beijing's instruction to withhold data makes it impossible for the Commission to complete its assessment within the statutory deadlines, potentially forcing the regulator to either block the deal on procedural grounds or clear it without a full evidentiary basis, either outcome serving Beijing's narrative that the FSR is a political weapon rather than a regulatory tool.

Ceconomy, which operates MediaMarkt and Saturn stores across a dozen European countries, has been seeking a strategic anchor investor for years. The JD.com offer, valued at roughly €2 billion including debt, would give the Chinese group a physical retail footprint to complement its online logistics network. For JD.com, the acquisition is a rare opportunity to establish a meaningful European presence. For Ceconomy, it is a lifeline after years of declining margins and shareholder turbulence. Both companies declined to comment on Beijing's intervention.

The broader economic stakes

Beyond the single transaction, the episode illustrates how trade policy has become inseparable from industrial policy and strategic autonomy debates in Brussels. The €1 billion-a-day goods deficit with China, a figure that has widened steadily since the pandemic, concentrates minds across the Commission, the Council and the Parliament. European manufacturers in sectors from solar panels to electric vehicles argue that Chinese overcapacity, underwritten by state-directed credit and implicit guarantees, is hollowing out domestic production. The Commission's anti-subsidy probe into Chinese battery electric vehicles, which resulted in provisional duties this summer, runs on a parallel track. The FSR is the newest instrument in a growing toolkit that also includes the International Procurement Instrument and the forthcoming anti-coercion instrument.

China, for its part, has signalled that it views these tools as a package of containment measures. Its own legal arsenal has expanded: the Anti-Foreign Sanctions Law, the Export Control Law, and the Unreliable Entity List give Beijing reciprocal leverage over European firms. The Ministry of Commerce's reference to "national security" in Thursday's statement is a deliberate echo of the language the EU uses to justify its own investment screening and export controls. Both sides are building legal architectures that can be weaponised quickly if the political decision is taken.