Commentary on Political Economy

Friday 16 February 2024


Brussels starts subsidy probe into Chinese train company

ANDY BOUNDS — BRUSSELS Additional reporting by James Kynge · Feb 17, 20

The European Commission has launched an unprecedented probe into a Chinese trainmaker for allegedly using subsidies to undercut European suppliers.

EU internal market commissioner Thierry Breton announced the investigation yesterday that could block the company from a contract in Bulgaria. It is the first case under rules that came into effect last year to prevent foreign subsidies distorting the single market.

The favoured bidder in an estimated €610mn contract for 20 electric trains is CRRC Qingdao Sifang Locomotive, a subsidiary of CRRC, the world’s largest train manufacturer. Its bid is around half that of Spain’s Talgo, with Brussels alleging that this was enabled by Beijing awarding €1.75bn in subsidies.

Bulgaria referred the contract to Brussels under the Foreign Subsidies Regulation, which came into effect last year. The commission has until July 2 to make a ruling.

“Ensuring that our EU single market is not distorted by foreign subsidies to the detriment of competitive firms that play fair is vital for our competitiveness and economic security,” Breton said yesterday.

He said the regulation allows Brussels to investigate financial contributions granted by non-EU governments to companies active in the EU, and strip them of contracts.

“The EU procurement market, accounting for over 14 per cent of our GDP, is a strong economic tool. It is also an important geopolitical lever,” he added.

The Chinese bid was 46.7 percent below the cost estimated by the Bulgarian railways and 47.5 per cent below the price offered by the nearest competitor.

The contract covers maintenance over 15 years as well as staff training.

Brussels has long policed subsidies provided by member states to businesses, but not those given to their overseas competitors. As companies owned by sovereign wealth funds in the Middle East or states such as China take market share in the EU, the commission has moved to close the loophole.

It can also use traditional trade defence measures, such as the antisubsidy investigation it launched last year into Chinese electric vehicles. However, those take longer; up to nine months compared to the 110 days for foreign subsidy cases, and can be blocked by EU capitals.

Beijing has retaliated against the French-led EV probe by opening its own investigation into alleged dumping of brandy and cognac.

Chinese officials, speaking before the announcement of the probe into CRRC Qingdao Sifang Locomotive, expressed worry that the EU was getting tougher on trade with China, particularly over the issue of subsidies.

“China is concerned that the EU will start to follow the US lead in discriminating against Chinese products and investments,” said one official, who declined to be identified.

“Discrimination will only end up harming the interests of EU companies [in China] and will penalise European consumers,” the official said. “The EU should provide a fair, just and non-discriminatory environment for trade cooperation with China.”

CRRC Qingdao Sifang did not immediately reply to requests for comment.

No comments:

Post a Comment