EU proposes new rules to tackle takeovers from state-backed firms like those in China

• The proposal kicks off a discussion period that lasts until September.
• State influence has often been discussed in the EU, but the ongoing pandemic has made the issue even more pressing as many businesses are struggling for cash.
• "There is a lot of money coming into the union," Vestager told reporters, adding that this is why her team needs new tools to oversee it.

Executive Vice President of the European Commission for a Europe Fit for the Digital Age Margrethe Vestager (L) and the EU Commissioner for Internal Market Thierry Breton (R) are talking to media in the Berlaymont, the EU Commission headquarter on February 19, 2020 in Brussels, Belgium.

Thierry Monasse

The EU is making it harder for Chinese and other foreign state-backed firms to buy stakes in European companies, as concerns grow over unfair competition.

The European Commission, the executive arm of the EU, proposed Wednesday to have a bigger say when foreign state-backed firms buy stakes in European companies to a point where it could prohibit the merger — if its deemed that it could create market distortions. 

The proposal kicks off a discussion period that lasts until September, but it comes after Germany and France pushed for changes at the top level. In a letter sent to the EU in February, both governments said it should revise its guidelines regarding mergers, as European firms were increasingly fighting against players that received "substantial state support."

State influence has often been discussed in the EU, but the ongoing pandemic has made the issue even more pressing as many businesses are struggling for cash.

"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 vice president for the European Commission, said Wednesday.

At the moment, when national governments look to buy stakes in European companies, the process needs to be approved by the European Commission under state aid rules. However, this legislation does not cover firms that receive support from foreign governments.

"There is a lot of money coming into the Union," Vestager told reporters, adding that this is why her team needs new tools to oversee it and make sure it contributes to a level playing field in the region.

Tweet 1

There's been widespread interest in European firms over the last years, including in the tech space.

In 2016, Chinese tech giant Tencent bought a majority stake in Finnish mobile games maker Supercell, and Midea, a Chinese electrical appliance manufacturer, bought German robotics firm Kuka. More recently, Ant Financial, the financial technology affiliate of Alibaba, bought U.K.-based currency exchange WorldFirst. 

The European Commission said Wednesday that in 2016, 3% of European companies were owned or controlled by non-EU investors, representing 35% of total assets.

"More recently, there has been an increase in investment also from third countries other than from traditional investors such as the United States and Canada. Investment by state-owned enterprises has grown rapidly over the last few years," the institution said. 

The Commission intends to press ahead with new legislation in 2021 based on the discussions that started Wednesday.