The probe was formally announced Wednesday morning Beijing time and will seek to address concerns that China unfairly favors domestic suppliers. The EU already has an inquiry into Chinese government backing for electric-car manufacturers that could lead to new tariffs, and it’s scrutinizing other industries like wind energy, solar and railways. 

EU relations with Beijing have been deteriorating over the past year and more, as Europe becomes more assertive in responding to China’s trade policies. European leaders have pushed back against China’s surge in manufacturing capacity, its massive trade surplus and its support for Russia’s invasion of Ukraine. 

The probe is the first use of the bloc’s so-called International Procurement Instrument, a 2022 law that’s meant to promote reciprocity in access to public procurement markets.

The investigation was first reported by Bloomberg last week and will initially focus on information gathering from companies and member states before authorities start talks with Beijing on fair and open markets. The probe will need to be concluded within nine months. 

If the EU finds a lack of reciprocity in procurement markets then it could restrict Chinese access to the bloc’s tenders. Should a dialog with Beijing lead to tangible corrective actions, the probe can be suspended at any time.

The EU argues that Beijing has been pushing market-distorting measures and practices to implement its “Made in China” policy and its target of achieving 85% domestic market share for Chinese companies producing “core medical device components” by 2025. The target is 70% for higher-end devices. 

The bloc also claims the Chinese government discriminates against imported products and has, at times, imposed stringent requirements on foreign firms, including investment obligations or technology transfers to Chinese entities. 

Beijing’s focus on local and state-oriented procurement in medical technologies has increased in recent years, as authorities across the country included strict domestic product requirements for many categories of devices. The shift turned a €1.3 billion ($1.4 billion) trade deficit in these goods for China in 2019 into a €5.2 billion ($5.5 billion) surplus just one year later, according to data cited in an EU report published earlier this month. 

Anti-Subsidy Raid

In another move this week, EU watchdogs raided the European premises of a security equipment company Tuesday under new anti-subsidy laws. While the firm’s nationality wasn’t specified, China’s chamber of commerce in the EU said it was “shocked.” 

Nuctech, a state-owned company best known for manufacturing baggage inspection devices used in airports across the world, confirmed to Bloomberg that it was “fully cooperating” with the EU but declined to confirm if it was inspected.

In 2020, the U.S. government European governments against the use of Nuctech’s devices, accusing them of being a security risk.

Market Access

The EU’s access to China’s procurement market has long been a grievance, with the issue raised by both European Commission President Ursula von der Leyen and the bloc’s trade chief Valdis Dombrovskis during trips to the country last year. Other issues include opaquely defined market-access terms, the transfer of industrial data out of China and invasive requirements imposed on cosmetic firms.

“Regrettably, our repeated discussions with China on this trade irritant have been fruitless,” Dombrovskis said Wednesday in a statement. “We trust that this IPI investigation will galvanize our dialog and help us find mutually agreeable solutions.”

Talks over the past 12 months have seen little movement, Bloomberg previously reported.

China’s medical technology market was valued at €135 billion ($145 billion) in 2022, according to Merics, a research institute focusing on China. Major European manufacturers operating in the industry include Siemens and Philips.  

In Beijing last week, German Chancellor Olaf Scholz warned that Europe will erect more trade defenses if Beijing doesn’t heed the concerns about unfair competition, dumping and overcapacity. China argues that the US and Europe are using such critiques as an excuse for protectionist policies that shield their own less-competitive firms.

All these issues, along with Europe’s calls for China to stop aiding Russia, are likely to be high on the agenda when Xi travels to Europe in early May. He’s due to visit EU members France and Hungary, as well as Serbia. 

China is one of Europe’s biggest trading partners, but the top EU diplomat in charge of Asia relations was critical this week of the huge export surplus China runs with the bloc. 

“Chinese over-capacities and trade imbalances, they are a major factor of course influencing our relationship,” Niclas Kvarnstrom, managing director for Asia at the European External Action Service, said in an interview. “We certainly think it requires action on their side.”

Spying Arrests

On top of the economic disagreements, the arrest this week of four people in Germany on accusations of spying for China will add to the tension. Three were detained Monday on suspicion of working for Chinese state security to acquire industrial secrets, while another person was arrested Tuesday in connection with spying on the European parliament and Chinese opposition figures. 

China’s foreign ministry hit back at the spying arrests. 

“I hope that relevant people in Germany will ditch the Cold War mentality and stop manipulating political narratives against China by raising this so-called spy risk,” spokesman Wang Wenbin said Tuesday. “We firmly oppose this hyping up and also urge relevant sides to stop spreading misinformation.”  

Europe last year launched an anti-subsidy investigation into electric vehicles made in China that could see new tariffs introduced by July. It reflects growing concern about Beijing’s financial support for critical industries, which threatens to swamp would-be competitors in Europe, and a broader EU security strategy that seeks to toughen export controls and investment screenings.

Chinese leaders have pushed back against European and U.S. criticism that Beijing has skewed China’s market in favor of its companies.

“Industrial subsidies are a common practice in the world,” Chinese Premier Li Qiang said in his talks with Scholz last week, according to a German government transcript. “Many countries have much more subsidies than China.” 

The EU’s approach aligns with a firmer U.S. stance against China. 

U.S. Treasury Secretary Janet Yellen told Chinese leaders during her visit last month that the country’s ramped-up factory output has become a global problem. The U.S. won’t take “anything off the table,” including the possibility of additional tariffs, to stem the flood of Chinese goods, she told CNN earlier this month.