What are the EU regulations on foreign subsidies? The main one is the Foreign Subsidies Regulation, which since 2023 has let the European Commission review acquisitions of EU businesses by companies that have received money from non-EU states, and block or condition them if those subsidies distort the internal market. Its highest-profile test is now under way: on 28 May 2026 the Commission opened an in-depth investigation into JD.com's proposed acquisition of CECONOMY, the German owner of MediaMarkt and Saturn, and it has until 2 October 2026 to decide. On 19 August 2026 Beijing escalated the case into a jurisdictional clash, with China's Ministry of Justice ordering that no organisation or individual may execute or assist what it called the Commission's improper extraterritorial measures. This analysis explains how the regime works for deals, what the Commission is examining in JD.com's bid, what China's order does, and what it means for anyone advising on inbound M&A into Europe.
What the Foreign Subsidies Regulation is
The Foreign Subsidies Regulation (FSR) is an EU regulation that closes a gap in the bloc's competition toolkit: it applies state-aid-style scrutiny to subsidies granted by governments outside the EU. EU state aid rules have always controlled what member states give their own companies, but until the FSR there was no equivalent check on, say, a state-backed loan from a third country that helped a buyer outbid European rivals for an EU target.
Regulation (EU) 2022/2560 started to apply on 12 July 2023. It gives the Commission three tools:
- A merger tool. Mandatory, suspensory notification of acquisitions, mergers and joint ventures that meet two thresholds, one about the EU business and one about foreign financial contributions.
- A public procurement tool. Notification of foreign financial contributions by bidders in large EU tenders, with a jurisdictional threshold of €250 million in contract value.
- An ex officio tool. A general power to investigate any economic activity in the EU on the Commission's own initiative, including through inspections, which it has used against Nuctech in threat detection systems and Goldwind in wind turbines.
The concept at the heart of all three is the "foreign financial contribution", which is broad: capital injections, grants, loans, loan guarantees, fiscal incentives, tax exemptions and even the provision or purchase of goods or services, whether by a non-EU government or by a public or private entity whose actions can be attributed to it. Under Article 3, a contribution becomes a foreign subsidy if it confers a benefit on a company active in the internal market and is limited, in law or in fact, to one or more companies or industries. The Commission then asks whether that subsidy distorts the internal market, and it can weigh any positive effects of the subsidy against the distortion in a so-called balancing test under Article 6. For competition and antitrust advisers, the FSR now sits alongside merger control and foreign investment screening as a third regime that has to be mapped at the start of any deal with a state-connected buyer.
When a deal must be notified: the FSR notification thresholds
A deal must be notified under the FSR when it is a "concentration" that crosses both the EU turnover and the foreign financial contribution thresholds set out in Article 20 of the regulation. The concept of a concentration mirrors EU merger control: a lasting change of control through a merger, an acquisition of sole or joint control, or the creation of a full-function joint venture.
The two thresholds, as the Commission summarised them when opening the JD.com case, are:
| Test | What must be met | Practical point |
|---|---|---|
| EU business test | At least one merging undertaking, the target or the joint venture is established in the EU and generates EU turnover of at least €500 million | Measured on the target (or JV), not the buyer, in an acquisition |
| Foreign financial contribution test | The parties together were granted more than €50 million in combined aggregate foreign financial contributions from third countries in the three years before signing, announcement of the bid or acquisition of the controlling interest | Counts contributions to the buyer and the target in an acquisition; not limited to subsidies |
| Call-in for below-threshold deals | The Commission may request prior notification of any non-notifiable concentration before it is implemented if it suspects foreign subsidies were granted in the previous three years | Guidelines of January 2026 add safe harbours, including subsidies below €4 million |
| Standstill | A notifiable deal cannot close before clearance, subject to limited exceptions for public bids | Fines of up to 10% of aggregate turnover for failing to notify or for closing early |
Two features catch deal teams out. First, the €50 million test is about all foreign financial contributions, not just subsidies, so ordinary dealings with state-owned banks, sovereign wealth funds or state customers outside the EU can count towards it. Second, the test aggregates contributions over three years across the whole buyer group, which is why private equity sponsors and other acquisitive groups whose investors include sovereign funds file far more often than the regulation's name suggests. Corporate and M&A lawyers advising on private funds now routinely build FSR data collection into the signing timetable.
How an FSR in-depth investigation runs: timings and outcomes
An FSR merger review has two phases with fixed clocks, and the second phase is where the JD.com case now sits. Under Articles 24 and 25 of the regulation, once a complete notification is received the Commission has 25 working days to decide whether to open an in-depth investigation. If it does, it has 90 working days from the opening to adopt a final decision, extended by 15 working days if the parties offer commitments. The deal cannot be implemented while those periods run, and if the Commission misses its deadline the parties may close.
At the end of an in-depth review the Commission has three options, which it set out in its JD.com announcement:
- accept commitments offered by the company if they fully and effectively remedy the distortion;
- prohibit the concentration; or
- issue a no-objection decision.
Before a final decision, the Commission sets out its objections in writing in a Statement of Grounds, to which the company can respond. It did so in JD.com's case in July 2026, marking a further formal stage in the probe.
The investigative powers matter as much as the timetable. The Commission can send requests for information to the company under investigation, to other undertakings and, under Article 13(6), to the third country itself. It can inspect premises inside the EU. It can inspect outside the EU only under Article 15, and only if the government of that country has been officially notified and raises no objection. And under Article 16, if a company or the granting state fails to supply requested information, supplies incomplete or misleading information, or otherwise impedes the investigation, the Commission may decide on the basis of the facts available, with a result that may be less favourable than if the company had cooperated.
Fines for supplying incorrect information in response to requests can reach 1% of aggregate turnover under Article 17. That combination of tools is exactly what China's order now targets.
FSR and EU merger control: two parallel tracks
The FSR runs alongside EU merger control rather than replacing it, so a single acquisition can face an FSR review in Brussels, a competition review in Brussels or national capitals, and several foreign investment screens at once. What is the EU merger regulation? It is the EU Merger Regulation, which asks a different question: whether a deal significantly impedes effective competition, typically through market power. The FSR does not look at market shares; it asks whether state money from outside the EU distorted the bidding process or will distort how the combined business competes afterwards.
The JD.com deal shows how far the two can diverge. The competition question was easy. The Bundeskartellamt cleared JD.com's acquisition of control of CECONOMY on 18 September 2025, with its president, Andreas Mundt, noting that JD.com had so far been active in Germany only to a very limited extent and that the parties' competitive overlap was insignificant. The foreign subsidies question, by contrast, has taken the deal into a second-phase review nearly a year later.
Merger control itself is also being rewritten. The Commission published draft new Merger Guidelines on 30 April 2026 to replace the 2004 horizontal and 2008 non-horizontal guidelines, with the public consultation closing on 26 June 2026 and the review due to be finalised in the fourth quarter of 2026. Taken with the FSR and national screening, the result for a large cross-border deal is a multi-regime process in which the slowest track sets the closing date, a dynamic familiar from the Paramount Skydance and Warner Bros. Discovery review across several jurisdictions.
| Regime | Question asked | Who decides | JD.com / Ceconomy status at 1 September 2026 |
|---|---|---|---|
| Merger control | Does the deal significantly impede competition? | Commission or national authorities, depending on thresholds | Cleared by the Bundeskartellamt, 18 September 2025 |
| Foreign investment screening | Does the buyer's control threaten security or public order? | Member states | Germany approved with conditions, 30 June 2026; Italy conditional golden power clearance, November 2025 |
| Foreign Subsidies Regulation | Do non-EU subsidies distort the bid or the post-deal market? | Commission only | In-depth review, Statement of Grounds sent in July 2026, deadline 2 October 2026 |
The JD.com and Ceconomy deal and its approvals so far
JD.com's bid is a €4.60 a share voluntary public cash offer for all shares in CECONOMY, announced in July 2025 and valuing the German retailer at about €2.2 billion. CECONOMY entered into an investment agreement with JD.com alongside the offer. CECONOMY describes itself as Europe's leading omnichannel platform for consumer electronics, and its main brands, MediaMarkt, MediaWorld and Saturn, run online and brick-and-mortar stores in several member states. JD.com, according to the Commission, is a Cayman Islands holding company listed on Nasdaq and the Hong Kong Stock Exchange, heading a group that runs a retail business and e-commerce marketplace in China and provides logistics and technology services.
The bid has collected national approvals in stages. After the competition clearance in September 2025, Italy granted conditional clearance under its golden power regime in November 2025 and added data protection requirements the following month. On 30 June 2026 Germany's Federal Ministry for Economic Affairs and Energy approved the deal after its foreign investment review, with conditions on the protection of German customers' personal data and strong monitoring and control rights, including the ability to revoke the approval if the conditions are breached. JD.com called that decision an important milestone and said it expected closing in the second half of 2026. Foreign investment reviews in other member states were still reported as ongoing at that point. Advisers in Germany will recognise the pattern of conditional, data-focused clearances that has become common for Chinese acquirers of consumer-facing businesses.
What the Commission is examining in the JD.com case
The Commission's preliminary concern is that JD.com may have received foreign subsidies, in the form of preferential financing, tax incentives and grants from entities possibly attributable to China, that distorted both the takeover and the market after it. The deal was notified on 17 April 2026, and the decision opening the in-depth investigation (case FS.100253) identified two lines of inquiry:
- The acquisition process. Whether the potential subsidies distorted the outcome of the sale, notably by enabling JD.com to offer a high price and to support CECONOMY's activities and growth plan through JD.com's own technological and logistics capabilities.
- The post-transaction market. Whether the subsidies may improve the competitive position of the merged entity and harm competition in the internal market once the deal closes.
Both limbs track the regulation's structure. Article 5 lists "a foreign subsidy directly facilitating a concentration" among the categories most likely to distort the internal market, which is why the price and terms of a subsidised bid attract such attention. The second limb reflects the broader risk the Commission has identified in earlier cases: that subsidised groups can finance expansion in Europe with an indifference to risk that unsubsidised rivals cannot match. The Commission stressed that opening the investigation does not prejudge the outcome, and its January 2026 FSR Guidelines say it will count only positive effects specific to the subsidy under assessment when it balances them against any distortion.
China's blocking order of 19 August 2026
China's order declares the Commission's cross-border investigative measures in the JD.com case to be improper extraterritorial jurisdiction and prohibits anyone from carrying them out or helping to carry them out. It was issued on 19 August 2026 by the Ministry of Justice, jointly with the Ministry of Commerce and other departments, and was recorded by the Global Trade Alert monitor as Announcement 2026/8.
The ministry said the Commission had demanded "extensive and unnecessary" information from a Chinese entity about matters in China, describing the probe as a serious violation of the international rule of law, according to RTHK. Chinese state media reported that the objection covered requests for information on bank accounts, ownership structures and financing records within China, and demands that Chinese entities and banks cooperate and provide large amounts of information the ministry considered unrelated, and quoted a warning that China would take countermeasures in accordance with the law if the EU persisted. A ministry spokesperson also called on the EU to stop "abusing" the foreign subsidies tool, Retail Insight Network reported.
This is the second time Beijing has used the tool against an FSR case. On 15 May 2026 the Ministry of Justice, with the Ministry of Commerce, made the first ever designation under the new regulation against the Commission's measures in its ex officio investigation of Nuctech, the security scanner supplier controlled by the Tsinghua Tongfang group, as Cleary Gottlieb recorded. The Nuctech investigation began with inspections at Nuctech's EU premises in Poland and the Netherlands in April 2024 and moved to an in-depth review in December 2025. The JD.com order extends the same approach from an ex officio case to a merger review, and it lands in a wider pattern of China-EU friction over corporate control, visible in the Wingtech and Nexperia dispute.
The regulation behind the order
The legal basis is China's regulation on countering improper extraterritorial jurisdiction by foreign states, promulgated by the State Council as Decree No. 835 and in force immediately on 13 April 2026. According to the Chinese government's summary, its 20 articles target foreign actions that violate international law and harm China's sovereignty, security or the rights of Chinese citizens and organisations, and they provide that no organisation or individual shall enforce or assist in enforcing such measures. It follows China's 2021 Anti-Foreign Sanctions Law.
The main mechanisms, as summarised by the government and by Morgan Lewis, are:
- Designation by the Ministry of Justice. The legal affairs arm of the State Council identifies foreign measures as improper extraterritorial jurisdiction, coordinating with other agencies.
- Prohibition orders. Once a measure is designated, organisations and individuals must not implement or assist it; exemptions may be granted in special circumstances, though the criteria are not defined.
- A Malicious Entity List. Foreign organisations or individuals that promote or participate in implementing designated measures can be listed and face countermeasures, including restrictions on China-related trade and investment and the seizure or freezing of assets.
- Private lawsuits. Chinese citizens and organisations harmed by such measures may sue in Chinese courts, with government support.
- Escalating penalties. Morgan Lewis notes that the regulation refers to potential criminal liability for individuals, alongside administrative sanctions.
For the Nuctech designation, Cleary Gottlieb listed possible consequences of breach including orders to rectify, trade or procurement restrictions, limits on cross-border data transfers, entry or exit restrictions and administrative fines. Advisers in China and Hong Kong will be asked, in every FSR case involving Chinese funding, which requests can be answered without falling foul of these rules.
Caught in the middle: what the blocking order means for the parties
The immediate effect of the order is to put JD.com, its Chinese lenders and counterparties, and potentially their advisers, between two legal systems that point in opposite directions. The FSR expects the company under investigation to answer requests for information in full and on time. The Chinese order forbids anyone from helping to execute the Commission's cross-border measures in the case.
The FSR has a built-in answer to non-cooperation. Under Article 16, where a company or the third country that granted the subsidy fails to provide requested information or impedes the investigation, the Commission may decide on the facts available. Article 16(3) goes further: where a company, including a state-controlled one, fails to provide the information needed to determine whether a financial contribution confers a benefit, it may be deemed to have received that benefit. The regulation says in terms that a decision on the facts available may be less favourable to the company than if it had cooperated.
So a blocking order does not stop the clock; it may simply change the evidential basis on which the Commission decides, and not in the company's favour.
The Commission has also shown it will pursue procedural failures in their own right. On 31 July 2026 it sent a Statement of Grounds to Temu's owner PDD Holdings over alleged obstruction of an unannounced FSR inspection at its Dublin premises in December 2025, with fines of up to 1% of turnover possible. That case concerns conduct during an inspection inside the EU, which Chinese rules cannot reach in the same way; the harder question in JD.com is information physically held in China.
For cross-border specialists, the practical tension is familiar from sanctions and discovery disputes: how to satisfy one regulator without committing an offence in another jurisdiction. Teams handling internal and government investigations will need to check what data sits where, whether it can lawfully leave China, and whether an exemption from the Chinese order can be sought.
How earlier FSR in-depth merger investigations ended
Only three concentrations have reached an in-depth FSR review, and the first two both ended in conditional approvals built around similar remedies. According to the Commission's July 2026 review Q&A, two were conditionally approved after commitments and one, JD.com, was ongoing.
| Case | Decision | Subsidies identified | Commitments |
|---|---|---|---|
| e& / PPF Telecom | Conditional approval, 24 September 2024 | Unlimited UAE state guarantee to e&; grants, loans and other debt instruments to its controlling sovereign fund | Remove the unlimited guarantee; no financing from e& or the fund to PPF's EU activities, with exceptions; inform the Commission of future deals |
| ADNOC / Covestro | Conditional approval, 14 November 2025 | Unlimited state guarantee, committed capital increase into Covestro, advantageous tax measures | Remove the unlimited guarantee; share Covestro's sustainability patents with market participants on terms set in advance; 10-year duration |
| JD.com / CECONOMY | In-depth review opened 28 May 2026; deadline 2 October 2026 | Preliminary: preferential financing, tax incentives and grants possibly attributable to China | None announced as at 1 September 2026 |
Two lessons stand out. In e& / PPF, the Commission found no distortion of the acquisition process because e& was the sole bidder, had sufficient own resources and paid a price reflecting market value, but still found a risk of distortion after closing. In ADNOC / Covestro, by contrast, it found that ADNOC's unduly favourable conditions, including the capital increase, may have deterred other investors from bidding. JD.com's case raises both questions at once. The earlier remedies also show the Commission prefers behavioural fixes that neutralise the subsidy, such as removing an unlimited guarantee or ring-fencing financing, rather than prohibition.
The first FSR review: simplification, not retreat
The Commission's first three-year review, published on 14 July 2026, concluded that the FSR is fit for purpose and needs no structural change, but promised targeted procedural simplification. The review announcement and accompanying Q&A report that, by 31 May 2026, the Commission had received 272 formal concentration notifications, around 100 a year, and closed 99% of preliminary reviews without opening an in-depth investigation. In public procurement it handled 5,150 submissions across 863 procedures.
The adjustments the Commission is considering for deals include raising the EU turnover notification threshold through a delegated act, introducing a simplified notification for specific cases or contributions, moderately raising the reporting thresholds for foreign financial contributions, and exempting more contributions that do not fall into the "most likely to distort" categories from reporting. Draft adjustments are due in the autumn, with adoption planned for 2027. None of the listed adjustments touches the Commission's ex officio or call-in powers; the review recorded uncertainty over call-in for below-threshold deals as a stakeholder concern while describing the power's aim as legitimate.
In our view, the direction of travel matches the Commission's wider enforcement posture, in which procedural burden is trimmed while headline powers are used assertively, as the AliExpress Digital Services Act fine and the General Court's Apple DMA gatekeeper ruling illustrate in adjacent regimes.
What deal teams should do now
For any acquirer with state-linked funding, the JD.com case is a reason to plan for the FSR as a potential critical path item rather than a filing formality. The steps that follow from the rules and the cases so far are:
- Map foreign financial contributions early. Build a three-year inventory of contributions from non-EU states and state-linked entities across the buyer group and the target, including loans from state-owned banks and tax measures, before signing.
- Test the price. Expect the Commission to ask whether the offer price and terms were enabled by subsidies, as in ADNOC and JD.com. Keep contemporaneous evidence of how the bid was financed and valued.
- Stress-test data access. Where evidence sits in China, establish before filing what can lawfully be produced, whether an exemption from any Chinese prohibition order is realistic, and how incomplete answers will be explained to Brussels.
- Prepare remedies in advance. Removing unlimited guarantees, ring-fencing group financing of EU operations and licensing technology are the precedents. Commitments add 15 working days to the in-depth clock.
- Align the parallel tracks. Sequence merger control, foreign investment screening and the FSR so the long-stop date in the offer or purchase agreement reflects the slowest regime.
This work sits at the join between regulatory and public law advisers, banking and finance advisers who can trace the funding chain, and counsel in Brussels, where advisers in Belgium deal directly with the Commission's case teams during pre-notification. Sponsors backed by sovereign capital, such as those behind infrastructure deals like the MSIP Greenlight investment, face the same contribution-counting exercise even when no subsidy concern arises.
The answer to what the EU regulations on foreign subsidies are is, therefore, no longer just a description of a 2022 regulation. It is a live test of how far Brussels can reach into the financing of non-EU acquirers, and of how far Beijing will go to stop it. The Commission's decision on JD.com and CECONOMY, due by 2 October 2026 unless the clock is extended, will show whether an FSR case can be completed on the facts available when the granting state forbids cooperation.
Frequently asked questions
What are the EU regulations on foreign subsidies?
The main instrument is the Foreign Subsidies Regulation, Regulation (EU) 2022/2560, applying since July 2023. It lets the European Commission review acquisitions, large public tenders and other activity in the EU by companies receiving money from non-EU states, and impose commitments, redressive measures or, for deals, a prohibition where those subsidies distort the internal market.
When does an acquisition have to be notified under the FSR?
A concentration must be notified when the target, a merging party or the joint venture is established in the EU with EU turnover of at least €500 million, and the parties received more than €50 million in combined foreign financial contributions from third countries in the three preceding years. The Commission can also call in smaller deals.
Why is the Commission investigating JD.com's bid for Ceconomy?
The Commission has preliminary concerns that JD.com received preferential financing, tax incentives and grants possibly attributable to China that let it offer a high price and back Ceconomy's growth with its own logistics and technology, distorting the sale, and that the subsidies could strengthen the merged group's position in the EU after closing.
When will the Commission decide on JD.com and Ceconomy?
The deal was notified on 17 April 2026 and the in-depth investigation opened on 28 May 2026. The Commission has 90 working days, to 2 October 2026, to decide. That period is extended by 15 working days if JD.com offers commitments, and can be suspended if requested information is not supplied.
What did China's order of 19 August 2026 do?
China's Ministry of Justice, with the Ministry of Commerce, designated the Commission's cross-border investigative measures in the JD.com case as improper extraterritorial jurisdiction and ordered that no organisation or individual may execute or assist them. It objected to requests for information in China, including bank account, ownership and financing records.
What happens if a company cannot supply information to the Commission?
Under Article 16 of the FSR, the Commission may decide on the basis of the facts available if information is not supplied or the investigation is impeded, and a company that fails to show whether a contribution conferred a benefit may be deemed to have received it. The outcome may be less favourable than with cooperation.
How is the FSR different from EU merger control?
EU merger control asks whether a deal significantly impedes competition, usually through market power, and can be run by the Commission or national authorities. The FSR asks only whether non-EU state subsidies distort the bid or the market, is run solely by the Commission, and applies in parallel, so one deal can face both reviews.
Has the Commission ever blocked a deal under the FSR?
No prohibition had been adopted as at 1 September 2026. Of three in-depth merger investigations, e& / PPF Telecom in September 2024 and ADNOC / Covestro in November 2025 were approved with commitments, mainly removing unlimited state guarantees, and JD.com / Ceconomy remained under review.
Is the EU changing the FSR notification thresholds?
Possibly. The Commission's first review, published on 14 July 2026, found the FSR fit for purpose but proposed targeted changes, including a higher EU turnover threshold for deal notifications through a delegated act and higher reporting thresholds for foreign financial contributions. Draft changes are expected in the autumn, with adoption planned for 2027.
Sources
- European Commission: Commission opens in-depth foreign subsidies investigation into JD.com's proposed acquisition of CECONOMY (28 May 2026)
- Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market, EUR-Lex
- European Commission: Review finds Foreign Subsidies Regulation fit for purpose, Commission considers targeted changes (14 July 2026)
- European Commission: Questions and answers on the first FSR review (14 July 2026)
- European Commission: Commission publishes Foreign Subsidies Regulation Guidelines (9 January 2026)
- European Commission: Statement of Grounds to Temu over possible obstruction of inspection under the FSR (31 July 2026)
- European Commission: Commission conditionally approves ADNOC's acquisition of Covestro under the FSR (14 November 2025)
- European Commission: Commission conditionally approves the acquisition of parts of PPF Telecom by e& under the FSR (24 September 2024)
- European Commission: Commission opens in-depth foreign subsidies investigation into Nuctech (11 December 2025)
- European Commission: Review of the Merger Guidelines
- Bundeskartellamt: JD.com can acquire control of CECONOMY (18 September 2025)
- Kirkland & Ellis: Kirkland advises CECONOMY on public takeover offer by JD.com (31 July 2025)
- South China Morning Post: JD.com's bid for Europe's Ceconomy clears German hurdle but EU subsidy probe looms (30 June 2026)
- Retail Insight Network: EU objects to JD.com over Ceconomy deal subsidies (23 July 2026)
- RTHK: China labels EU probe into JD.com unlawful (19 August 2026)
- China Daily Hong Kong: China: EU cross-border probe unfair (19 August 2026)
- Retail Insight Network via Yahoo Finance: China blocks cooperation with EU probe into JD.com's Ceconomy bid (20 August 2026)
- South China Morning Post: China blocks firms from aiding EU's JD.com probe as regulatory clash deepens (19 August 2026)
- The State Council of the People's Republic of China: China issues rules on countermeasures against foreign states' unlawful extraterritorial jurisdiction (13 April 2026)
- Morgan Lewis: China issues new regulations on countering foreign extraterritorial jurisdiction (April 2026)
- Global Trade Alert: China: Government issues blocking order against European Union investigation of Chinese company JD.com (19 August 2026)
- Cleary Gottlieb: China designates EC FSR measures during EC investigation of Nuctech as "unjustified" (22 May 2026)
About this article
This analysis was researched and written by The Corporate INTL Newsroom, which covers cross-border legal, regulatory and business developments for lawyers, professional advisers and financiers in over 150 jurisdictions. It has been checked against the text of the Foreign Subsidies Regulation, the European Commission's case announcements and review documents, the Chinese government's published summary of its April 2026 regulation, national authority decisions and primary reporting. The Commission's Statement of Grounds to JD.com and the full text of China's 19 August 2026 order had not been published in English at the time of writing. This article is general information, not legal advice; for advice on a specific matter, consult a qualified adviser. Last reviewed 1 September 2026. For more analysis like this, visit the Corporate INTL newsroom or subscribe to Corporate INTL.
