Europe is building defenses against Chinese takeovers of key industries

The European Union is drawing up new rules to prevent companies subsidized by countries such as China and the United States from taking over its industrial champions or winning public contracts.

In a proposal unveiled on Wednesday, the European Commission argues that it needs new powers to prevent unfair competition in its massive unified market and to preserve the bloc’s “strategic autonomy.”

“We need the right tools to ensure that foreign subsidies do not distort our market, just as we do with national subsidies,” Margrethe Vestager, the Commission official in charge of competition and digital policy, said in a statement.

European Commission President Ursula von der Leyen wears a face mask during a plenary session of the European Parliament in Brussels on May 13, 2020, as Europe begins easing lockdown measures amid the COVID-19 pandemic, caused by the novel coronavirus. - Due to the outbreak of the novel coronavirus, attendance to the plenary session is reduced and mainly video conferenced. (Photo by Aris Oikonomou / AFP) (Photo by ARIS OIKONOMOU/AFP via Getty Images)

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The EU executive branch is seeking the authority to scrutinize companies that may be using subsidies from foreign governments to undercut competitors in the bloc. It would also review acquisitions of EU companies by foreign rivals.

If a foreign buyer is found to unfairly benefit from subsidies, it could be forced to pay back the money or sell assets to satisfy European authorities. In some cases, the European Union could block the purchase entirely.

The Commission also plans to prevent public contracts from being awarded to foreign companies that take government subsidies and then bid on public procurement contracts at below market rates.

“The EU is amongst the most open economies in the world, attracting high levels of investment from our trading partners. However, our openness is increasingly being challenged through foreign trade practices, including subsidies that distort the level playing field for companies in the EU,” said EU trade commissioner Phil Hogan.

Trucks make their way through the Port of Dover Ltd. in Dover, U.K., on Wednesday, May 27, 2020. The U.K. announced its post-Brexit tariffs regime, cutting import duties on many products while protecting industries such as automotive and agriculture, as the country turns its focus toward global trade beyond Europe. Photographer: Jason Alden/Bloomberg/Getty Images

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The new rules would apply to all foreign firms, including US companies that may be bargain hunting during the economic crisis caused by the coronavirus pandemic. But observers say the proposal’s main target is China.

Chinese state-owned companies have come under increased scrutiny in Europe following efforts by Beijing to extend its influence deep into the continent through infrastructure projects such as the massive Belt and Road Initiative.

The pandemic has meanwhile led to new worries about protecting Europe’s health care, medical supply and pharmaceutical sectors from foreign takeovers, in order to ensure adequate capacity to confront future outbreaks of the novel coronavirus or other diseases. Collapsing stock prices has made companies in other sectors vulnerable, too.

The Commission’s proposal will enter a public consultation period until September 23, with the goal of introducing new legislation in 2021.