(Yicai) Jan. 12 -- The European Union’s Foreign Subsidies Regulation has had a big impact on Chinese enterprises since it came into force in July 2023, prompting efforts to find ways to deal with the hefty regulatory burden.

It is vital for Chinese firms to accurately identify investment opportunities that are feasible under the complex regulatory framework, Yin Ranran, a partner in the anti-monopoly and foreign investment review business at the joint venture office of Shanghai RuiMin Law Firm and UK-based Freshfields Bruckhaus Deringer, told Yicai in an interview.

The FSR’s merger and acquisition review tools have shown a jurisdiction breadth that has far exceeded expectations. More than 200 transactions had been filed with the European Commission by the middle of last October, much more than the estimate of 30 per year.

The FSR has seriously affected the investment and operations of Chinese companies in Europe, He Yadong, spokesperson for China’s Ministry of Commerce, stated recently. He urged the EU to cease its suppression of foreign-invested enterprises, including those from China, and to use the FSR to create a fair, just, and predictable business environment for companies operating in Europe.

Amid widespread complaints that the compliance burden is too heavy, the European Commission launched an assessment of the FSR last August. So far, the feedback from enterprises and trade organizations has been clear, saying that the current review system is cumbersome and involves huge amounts of paperwork, which slows the deals process.

Regarding the future development of the FSR, Yin said its enforcement is expected to be more targeted in two main ways: first, the review procedures are expected to be simplified; and second, the EC will exercise its discretion more proactively to initiate investigations into specific deals.

“We predict that the enforcement of the FSR will seek a balance,” she said. “For most regular low-risk deals, the review procedures may be simplified to enhance efficiency. However, for deals involving key industries or with specific backgrounds, regardless of their size, the European Commission may remain highly vigilant and intensify its proactive intervention."

Work on the draft Guidelines on the Application of the FSR started last July and is scheduled to be finalized early this year, aiming to clarify key areas such as assessment of distortion and the balancing test, as well as situations where pre-approval reviews are initiated or public procurement projects that do not meet the filing threshold.

The broad discretion used by the European Commission in launching investigations of deals that do not meet the threshold has caused market unease, Freshfields Bruckhaus Deringer said in a recent report. 

This, combined with subjective judgment criteria such as “impact on the EU” and “strategic importance,” creates concern among investors, it said. For enterprises planning to expand their business in the EU, “this uncertainty means that transactions that seem safe today may face review tomorrow, accompanied by high costs and time delays.”

Based on practical experience, if enterprises can promptly identify and systematically sort out relevant risks in a deal’s early stage, and at the same time formulate effective response plans in advance, the vast majority of deals can still achieve good results, Yin stated.

Editor: Tom Litting