Chinese companies, and state-owned enterprises in particular, have emerged as the Commission’s current key focus of enforcement under the FSR with several notable actions taken.

• CRRC investigation in Bulgaria. On February 16, 2024, the Commission launched its first in-depth investigation in relation to a bid by CRRC, a Chinese state-owned train manufacturer, in a procurement procedure led by Bulgaria’s Ministry of Transport and Communications for the provision of several electric push-pull trains. Before the Commission could conclude its investigation, CRRC abandoned the bid.
• Photovoltaic park projects in Romania. Subsequently, on April 3, 2024, the Commission announced two in-depth investigations involving Chinese companies, this time in relation to bids for the design, construction and operation of a photovoltaic park in Romania. The companies under scrutiny include Shanghai Electric, a Chinese state-owned enterprise and a consortium composed of Romania’s Enevo Group and a German subsidiary of LONGi Green Energy Technology, a publicly listed Chinese photovoltaic company. Similar to the investigation into CRRC’s bid, both Shanghai Electric and the German subsidiary of LONGi Green Energy Technology withdrew their bids before the Commission could conclude its investigation.
• Ex officio investigation into Chinese wind turbines. On April 9, 2024, the Commission initiated its first ex officio investigation under the FSR, targeting Chinese wind turbines in Spain, Greece, France, Romania and Bulgaria. It does not come as a surprise that the Commission initiated its first ex officio investigation in the wind turbines sector, as the Commission has pledged to closely monitor possible unfair trade practices that benefit non-EU wind turbine manufacturers in its European Wind Energy Action Plan published in October 2023. Notably, ex officio investigations can be launched independently of any public procurement or M&A activities.
• Dawn raid on security equipment company. Additionally, on April 24, 2024, the Commission confirmed reports of the first dawn raid under its FSR powers. The unnamed company, operating in the security equipment sector, is suspected of benefitting from distortive foreign subsidies.

These investigations reflect a broader strategy articulated by EU Commissioner Vestager in April 2024, emphasizing the Commission’s pursuit of a “systemic approach” to address perceived unfair Chinese subsidization. Shortly after the initiation of the investigations described above, the Commission published an updated report on state-induced distortions in China’s economy under EU Trade Defense rules. This comprehensive 712-page document identified, from the Commission’s perspective, “significant” distortions in sectors including telecom equipment, semiconductors, rail, renewable energy and electric vehicles, supplementing previous findings of “state-induced distortions” in the steel, aluminum, chemical and ceramic sectors. While primarily intended to aid trade remedies investigations, this report also signals the Commission’s assessment of areas of risk for Chinese firms within the FSR framework.

Chinese companies operating within these perceived “distorted” sectors in the EU should be proactive in gathering FSR-related information and developing defense strategies in anticipation of potential investigations, particularly given broad scope of questions posed and the stringent timeframes for responding to requests for information (RFIs) in FSR investigations. Chinese companies will also need to consider data transfer issues when disclosing information to overseas regulators. 

Following the initial 100 days of FSR M&A notifications, the Commission shared an update of case numbers and practical insights in their “FSR brief.” Our observations closely align with the Commission’s update, yet we offer nuanced perspectives from the vantage point of clients navigating the new FSR notification regime.

In our experience, the Commission acknowledges the novelty of the regime, with limited guidance available, and recognizes the administrative challenges businesses face in gathering information on foreign financial contributions (FFCs). While pre-notification RFIs to M&A parties may entail extensive information requests beyond the notification form’s requirements, Commission case teams have, in some cases, demonstrated flexibility in accommodating modifications to streamline the scope of responses. We anticipate smoother processes as case teams accumulate more experience in handling FSR matters.

Below are our five key observations from FSR M&A procedures.

First, pre-notification timelines depend on case complexity. In straightforward cases without disclosable FFCs, pre-notification typically concludes within four weeks or even faster after draft notification submission, with a maximum of one or two pre-notification RFIs. Conversely, cases of low to medium complexity (involving some reportable FFCs but no “most likely distortive” FFCs) require at least two to three months for pre-notification, often with several RFIs. Timely responses to RFIs significantly influence the overall timing. Cases with FFCs potentially falling into the “most likely distortive” category, especially when related to the financing of the transaction, typically result in intense scrutiny by the Commission, leading to lengthy pre-notification discussions of several months.

Second, the Commission usually issues its first RFI approximately one week after parties submit the initial draft notification. This suggests the use of template RFIs, evidenced by consistent questioning across multiple RFIs and cases. Following formal notification submission (provided no pre-notification issues arise), the Commission typically refrains from further inquiries. The suspension obligation lapses after a 25-working-day waiting period without the Commission initiating an in-depth review. Unlike EUMR proceedings, parties only receive an administrative letter confirming the Commission’s decision not to launch an in-depth investigation but not a formal decision.

Third, initial hopes for a lighter touch approach in unproblematic cases to minimize administrative burdens have largely not materialized. Case teams often pose highly detailed questions, particularly regarding transaction financing, reportable FFCs and the M&A auction process. Notably, the Commission frequently requests information beyond notification form obligations, such as details on FFCs below the €1m reporting threshold, which may seem disproportionate, especially in cases lacking “most likely distortive” FFCs. However, in some instances, a general summary of FFCs received is sufficient, representing a welcome approach for uncontroversial cases from an FSR perspective.

Fourth, private equity deals are in the Commission’s spotlight. A significant number of notifications involve private equity funds or financial sponsors, prompting detailed inquiries from the Commission, including into limited partners (LPs). This includes requests for comprehensive breakdowns of all LP commitments, regardless of any state links, and an assessment of whether any LPs possess special rights capable of influencing the fund’s investment decisions. The underlying rationale for these inquiries lies in the Commission’s consideration that in fund deals, LP commitments by state-linked entities inherently facilitate transactions and thus fall within the ambit of “most likely distortive” FFCs. Should parties rely on the fund exemption, which limits reporting obligations to the involved funds, the Commission typically poses detailed questions to ascertain compliance with exemption requirements. This includes scrutiny of inter-fund transactions and arrangements between funds and, in certain cases, even between portfolio companies of funds. Such intense scrutiny of financial sponsor-type investments may appear disproportionate given the nature of these investments, necessitating careful management to streamline the process.

Fifth, the involvement of state-owned investors or co-investors heightens notification complexity, often leading to extended pre-notification periods and more granular questioning. While the Commission has not yet opened an in-depth investigation in the M&A context, indications suggest this is imminent. Commission officials have indicated close consideration of opening in-depth investigations in several cases.

We recommend businesses take the following steps to prepare for compliance with the FSR.

• Preliminary assessments. Evaluate whether FSR notifications will be necessary for upcoming deals or public procurement procedures in the pipeline.
• Internal screening. Conduct an internal screening to identify financial contributions received, recognizing the potential difficulty in identifying these in some cases.
• Establishing internal registers. Set up internal registers to track future, reportable financial contributions, ensuring comprehensive and timely compliance.
• FSR risk assessment. Perform FSR risk assessments for specific transactions or public procurement procedures to identify potential compliance risks and mitigation strategies.
• Transactional terms. For M&A deals, consider incorporating additional terms into transaction documents to address FSR compliance requirements effectively.

By proactively addressing these steps, businesses can navigate the complexities of the FSR landscape and ensure compliance with regulatory obligations.