The European Union's ambitious Foreign Subsidies Regulation (FSR) has rapidly become a central instrument in the EU's competition policy toolbox, aimed at safeguarding the level playing field in the Single Market. However, its vigorous application, particularly against Chinese companies, has triggered a formidable legal and political counter-reaction from Beijing. A pivotal moment arrived on 15 May 2026, when the Chinese Ministry of Justice, jointly with the Ministry of Commerce, issued an official announcement (Announcement No. 5) declaring the EU's FSR cross-border investigation practices against the Chinese security scanner company Nuctech as an instance of "improper extraterritorial jurisdiction" according to Articles 3 and 6 of the Regulations on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Measures (the "Blocking Regulations"). These Blocking Regulations explicitly order all organisations and individuals not to comply with or assist the EU's investigation. This move marks the first operational use of China's newly enacted legal framework, which entered into force on 7 April 2026 (our related blog articleChina's New Counter-Sanctions Rules: Growing Risks for Global Companies | ADVANT Beiten) against foreign extraterritorial jurisdiction, transforming trade tensions into a direct clash of legal systems and sovereignty claims.
The FSR, which entered into force in 2023, empowers the European Commission to investigate financial contributions from non-EU governments to companies active in the EU that are deemed to distort competition. While not country-specific, enforcement has prominently focused on Chinese entities. The Commission has initiated several in-depth and ex officio investigations, with cases involving CRRC, Nuctech, Temu, Goldwind and, more recently, JD.com.
The Nuctech case is particularly emblematic. The company, a global leader in security scanning equipment, faced a "dawn raid" by Commission officials at its European offices in April 2024. This escalated into a formal in-depth investigation launched in December 2025. The Commission's probe seeks to determine whether Nuctech's success in EU public procurement procedures was facilitated by distortive Chinese state subsidies. From the EU's perspective, this is a legitimate exercise to protect fair competition within its market against foreign subsidies that undermine it.
Similarly, the scrutiny of the proposed acquisition of CECONOMY by JD.com highlights the expanding regulatory landscape. The transaction, announced in July 2025, requires clearance not only from the German Federal Cartel Office (which was granted) but also under the German investment screening and the EU FSR screening mechanism. Under FSR, the Commission is examining whether JD.com received subsidies from the Chinese government that could have given JD.com an unfair advantage in the acquisition process, potentially distorting competition in the European market. This adds a significant regulatory hurdle, with the deal's completion now contingent on these clearances.
China's reaction to the FSR, culminating in the May 2026 blocking order, is rooted in a narrative that frames the FSR as a unilateral, protectionist tool. Beijing's objections are not new. In January 2025, the Chinese Ministry of Commerce (MOFCOM) concluded a six-month investigation, branding the FSR a "trade and investment barrier" that selectively targets Chinese companies, uses vague definitions, and creates undue burdens.
The 15 May 2026 Announcement represents a qualitative leap from diplomatic complaint to legal countermeasure. The core Chinese arguments are threefold:
1. Extraterritorial Overreach: The EU is accused of grossly overstepping jurisdictional boundaries by demanding data and documents located within China, including sensitive corporate and policy information, thereby violating Chinese sovereignty.
2. Conceptual Overreach: China argues the FSR illegitimately classifies standard industrial policy tools—such as tax incentives and R&D support available to all high-tech firms—as "distortive subsidies".
3. Placing Companies in an Impossible Bind: Chinese firms like Nuctech are described as being caught in a "protracted" process, compelled to choose between violating Chinese data and state secrets laws by complying with EU demands, or facing severe EU penalties for non-compliance.
The standoff represents a fundamental conflict of principles. From the EU's perspective, this is about defending the integrity of its internal market. The Commission sees itself as enforcing rules against economic distortions that originate abroad, a logical extension of its competition policy in a globalised economy. The FSR is portrayed as a necessary defence mechanism.
From China's perspective, this is about resisting "long-arm jurisdiction" and defending national sovereignty and the legitimate rights of its companies abroad. Beijing views the FSR's investigatory reach into its domestic sphere as an unacceptable infringement. The blocking order is thus framed not as protectionism, but as a lawful defence against what it deems extraterritorial overreach, providing a "legal shield" for Chinese enterprises.
This evolving conflict creates a highly complex and risky compliance environment for companies operating across these jurisdictions.
For Chinese Companies in the EU: Firms face heightened legal uncertainty. They must navigate the stringent demands of the FSR while being legally prohibited by their home government from fully complying if those demands are deemed extraterritorial. The risk of being caught between conflicting legal orders and facing penalties from both sides is real and acute.
For EU Companies and Transactions Involving Chinese Parties: Deals like the JD.com/CECONOMY acquisition face prolonged uncertainty and potential derailment due to FSR reviews. More broadly, any commercial partnership, merger, or public procurement bid involving Chinese state-linked investment or subsidies is now under a brighter spotlight.
For Legal Advisors: The role of legal counsel has never been more critical. Advising clients requires a delicate, dual-track understanding. On one hand, expertise in EU competition law and FSR procedure is essential to navigate the European regulatory landscape. On the other, a deep grasp of China's evolving counter-sanction and blocking statutes is necessary to assess and mitigate the risks of non-compliance from the Chinese perspective. This complex situation demands strategic advice that anticipates regulatory clashes.
The EU's FSR enforcement and China's blocking response have moved bilateral trade frictions into the realm of legal and systemic rivalry. This is no longer just about tariffs or market access, but about conflicting views on jurisdiction, sovereignty, and the very rules governing globalisation.
In the short term, this escalation increases compliance costs and legal risks for businesses, potentially chilling investment and cooperation. The pending FSR investigation into JD.com's acquisition plans underscores how this tool can impact major corporate strategies.
The long-term trajectory depends on whether Brussels and Beijing can find a modus vivendi. The EU insists on its right to protect its market, while China insists on its sovereign right to reject external legal intrusion. A path of escalating tit-for-tat measures risks fragmenting the regulatory landscape. A more sustainable path, though challenging, would require renewed dialogue to define clearer boundaries, improve transparency, and establish mutual recognition of certain regulatory processes. For now, companies must brace for continued turbulence, navigating a world where the laws of one major economic actor are met with direct legal countermeasures from another.
