China Determines EU Foreign Subsidies Regulation Investigation Practices Constitute Improper Extraterritorial Jurisdiction
Published 19 May 2026
Xia Yu
On 15 May 2026, China’s Ministry of Justice (“MOJ”) issued the Public Announcement on the Determination that Practices under the EU Foreign Subsidies Regulation Investigation Constitute Improper Extraterritorial Jurisdiction (“Announcement”), pursuant to the Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States (“Regulations”). The Announcement determines that cross-border investigation practices conducted by the European Commission under the Foreign Subsidies Regulation (“FSR”) against NUCTECH COMPANY LIMITED (“NUCTECH”) constitute “improper extraterritorial jurisdiction”. Effective from the date of the Announcement, no organization or individual may execute or assist in the execution of the relevant EU investigation measures. This marks a shift by China from passive defense to active blocking and may trigger an institutional escalation of trade frictions between China and the EU.
What Does the Announcement Say?
The core content of the Announcement issued by the MOJ is as follows:
1. Pursuant to Articles 3 and 6 of the Regulations, the MOJ, in conjunction with the Ministry of Commerce (“MOFCOM”) and other relevant departments, has determined that the EU, through its cross-border investigation practices targeting Chinese entities in the FSR investigation against NUCTECH (including compulsory access to data stored on servers within China and requiring the cooperation of Chinese banks), constitutes an improper extraterritorial jurisdiction measure.
2. Effective from 15 May 2026, no organization or individual may execute or assist in the execution of such improper extraterritorial jurisdiction measure.
Why Have Matters Reached This Point?
1. Chronology of Events
In April 2024, the European Commission conducted unannounced inspections of NUCTECH’s offices in Poland and the Netherlands under the FSR, demanding access to data stored on servers within China (including employee emails). NUCTECH refused this request, citing the Data Security Law of the People’s Republic of China and other relevant regulations.
In August 2024, NUCTECH challenged the European Commission’s inspections before the General Court of the European Union.
In January 2025, MOFCOM determined that the European Commission’s inspection practices constituted a trade and investment barrier, explicitly identifying issues such as “insufficient grounds for initiating the case, excessive enforcement, reversal of the burden of proof, and lack of procedural transparency”. MOFCOM called for the practices to be rectified and advocated for proper management of differences through dialogue.
In March 2025, NUCTECH filed an appeal with the Court of Justice of the European Union seeking a suspension of the relevant investigation. NUCTECH’s objections were subsequently dismissed by the General Court; its appeal was dismissed by the Court of Justice, which upheld the decisions permitting the European Commission’s inspections.
In December 2025, the European Commission upgraded the case to an “in-depth investigation” under the FSR, alleging that NUCTECH might have received subsidies from the Chinese government, thereby distorting competition in the EU market. The Commission also compelled Chinese banking institutions to cooperate with the investigation, including demanding information located within China.
On 7 April 2026, the State Council of China promulgated the Regulations. Article 3 specifies the preconditions for applying foreign improper extraterritorial jurisdiction measures; Article 6 establishes the identification system for such measures.
On 15 May 2026, the MOJ issued the Announcement.
2. Points of Legal Controversy
China considers that the EU’s cross-border access to data located within China and its compulsion of Chinese entities to cooperate violate the territoriality principle and the principle of non-intervention in internal affairs under international law. The EU, however, relies on the effects principle under international law – namely, that the EU has the authority to investigate, including through cross-border evidence gathering, where foreign subsidies produce a material effect on competition in the EU market. This controversy currently lacks a clear adjudicative precedent at the WTO level and may evolve into a dispute between China and the EU over the interpretation of international law.
What May Happen Next?
On the same day as the Announcement, MOFCOM and the MOJ issued clear signals:
1. A MOFCOM spokesperson stated: “We will closely monitor the relevant moves of the EU side and will take necessary measures to resolutely safeguard national security and the legitimate rights and interests of enterprises”.
2. An MOJ spokesperson further noted: “Should the EU side insist on overstepping the line, China will resolutely exercise legal countermeasures”.
The MOJ has conditioned the triggering of follow-up actions on whether the EU side “insists on overstepping the line”. In other words, if the European Commission imposes additional penalties or expands the scope of its investigation on the grounds of NUCTECH’s non-cooperation with the FSR investigation, that will directly trigger risk assessment and countermeasure mechanisms under Article 7 of the Regulations. Such mechanisms include diplomatic and foreign affairs, exit and entry, trade, investment, international cooperation, and foreign aid-related countermeasures and restrictive measures, as well as the “Malicious Entities List” system under Article 8 of the Regulations – the competent departments of the State Council may include foreign organizations or individuals that “promote or participate in the implementation of improper extraterritorial jurisdiction measures by foreign states” on a Malicious Entities List, subjecting them to nine categories of countermeasures and restrictive measures, including denial of visa issuance, seizure, freezing of assets, prohibition or restriction of transactions and cooperation, and the imposition of fines. Such measures may also extend to organizations controlled by, or established or operated with the participation of, the listed entities.
In addition to the Regulations, pursuant to Articles 14 and 15 of the State Council Provisions on the Security of Industrial and Supply Chains (promulgated by the State Council on 31 March 2026) (“Provisions”), where a foreign state engages in discriminatory prohibitions, restrictions, or similar measures against China in respect of industrial and supply chains, in violation of international law and the basic norms of international relations, the competent departments of the State Council are authorized to initiate industrial and supply chain security investigations. Such authorities may, following proper procedures, take corresponding measures, including but not limited to: prohibiting or restricting the import and export of goods and technology, or international trade in services; levying special charges; and, in accordance with the Anti-Foreign Sanctions Law of the People’s Republic of China and the Provisions on the Implementation of the Anti-Foreign Sanctions Law of the People’s Republic of China, deciding to include relevant organizations or individuals on a countermeasures list and adopt countermeasures.
The coordinated application of the Provisions and the Regulations enables MOFCOM, in the face of sustained pressure from the EU, to choose from a range of measures, including imposing additional tariffs or special charges on goods imported from the EU; restricting exports of critical raw materials and components to specific EU entities; imposing entry restrictions and asset freezes on EU officials and entities driving the FSR investigation; and even scaling back infrastructure cooperation projects and foreign aid arrangements with EU member states. It is noteworthy that MOFCOM had already determined in January 2025, based on its own investigation, that the European Commission’s inspection practices constituted a trade and investment barrier. That trade barrier determination constitutes a key factual basis for subsequent countermeasures.
The degree to which countermeasures escalate will depend heavily on the EU’s response to the Announcement – if the EU chooses to yield and limit the scope of its FSR investigations targeting China, there may be room for both sides to manage differences through consultation. If the EU escalates its investigative measures or imposes sanctions on Chinese entities, China’s countermeasures will be intensified accordingly.
Practical Risks for Enterprises
Although the Announcement blocks the execution of EU investigative measures within China, the following practical risks remain:
1. The EU may still directly impose sanctions on the affected enterprises’ assets, bank accounts, or subsidiaries within the EU.
2. If an affected enterprise refuses to cooperate within China, its senior executives in EU member states may face entry detention or individual investigation.
3. Affected enterprises face a “China-EU dual jurisdiction compliance conflict” – complying with the Announcement may trigger EU sanctions, and vice versa.
Accordingly, it is recommended that affected enterprises immediately verify whether their EU-based entities have received FSR information requests from the EU, establish a compliance mechanism for the dual China-EU jurisdiction, monitor the application process for exemptions (Article 6 of the Regulations permits applications for “execution exemption in specified circumstances”), and conduct compliance stress tests simulating worst-case scenarios of “EU sanctions versus compliance with the Announcement”.
Conclusion
The issuance of the Announcement marks an evolution in China’s response to foreign extraterritorial jurisdiction – from case-specific defense and diplomatic representations to an active legal model of “identification – blocking – countermeasures”. The China-EU FSR dispute, on its surface a procedural legal conflict, is essentially, against a backdrop of deglobalization, a struggle among jurisdictions over “who has the authority to regulate global commercial activities”. For legal and international trade practitioners, this is no longer a distant compliance issue but a variable that must be incorporated into strategic decision-making in the immediate term.
What Does the Announcement Say?
The core content of the Announcement issued by the MOJ is as follows:
1. Pursuant to Articles 3 and 6 of the Regulations, the MOJ, in conjunction with the Ministry of Commerce (“MOFCOM”) and other relevant departments, has determined that the EU, through its cross-border investigation practices targeting Chinese entities in the FSR investigation against NUCTECH (including compulsory access to data stored on servers within China and requiring the cooperation of Chinese banks), constitutes an improper extraterritorial jurisdiction measure.
2. Effective from 15 May 2026, no organization or individual may execute or assist in the execution of such improper extraterritorial jurisdiction measure.
Why Have Matters Reached This Point?
1. Chronology of Events
In April 2024, the European Commission conducted unannounced inspections of NUCTECH’s offices in Poland and the Netherlands under the FSR, demanding access to data stored on servers within China (including employee emails). NUCTECH refused this request, citing the Data Security Law of the People’s Republic of China and other relevant regulations.
In August 2024, NUCTECH challenged the European Commission’s inspections before the General Court of the European Union.
In January 2025, MOFCOM determined that the European Commission’s inspection practices constituted a trade and investment barrier, explicitly identifying issues such as “insufficient grounds for initiating the case, excessive enforcement, reversal of the burden of proof, and lack of procedural transparency”. MOFCOM called for the practices to be rectified and advocated for proper management of differences through dialogue.
In March 2025, NUCTECH filed an appeal with the Court of Justice of the European Union seeking a suspension of the relevant investigation. NUCTECH’s objections were subsequently dismissed by the General Court; its appeal was dismissed by the Court of Justice, which upheld the decisions permitting the European Commission’s inspections.
In December 2025, the European Commission upgraded the case to an “in-depth investigation” under the FSR, alleging that NUCTECH might have received subsidies from the Chinese government, thereby distorting competition in the EU market. The Commission also compelled Chinese banking institutions to cooperate with the investigation, including demanding information located within China.
On 7 April 2026, the State Council of China promulgated the Regulations. Article 3 specifies the preconditions for applying foreign improper extraterritorial jurisdiction measures; Article 6 establishes the identification system for such measures.
On 15 May 2026, the MOJ issued the Announcement.
2. Points of Legal Controversy
China considers that the EU’s cross-border access to data located within China and its compulsion of Chinese entities to cooperate violate the territoriality principle and the principle of non-intervention in internal affairs under international law. The EU, however, relies on the effects principle under international law – namely, that the EU has the authority to investigate, including through cross-border evidence gathering, where foreign subsidies produce a material effect on competition in the EU market. This controversy currently lacks a clear adjudicative precedent at the WTO level and may evolve into a dispute between China and the EU over the interpretation of international law.
What May Happen Next?
On the same day as the Announcement, MOFCOM and the MOJ issued clear signals:
1. A MOFCOM spokesperson stated: “We will closely monitor the relevant moves of the EU side and will take necessary measures to resolutely safeguard national security and the legitimate rights and interests of enterprises”.
2. An MOJ spokesperson further noted: “Should the EU side insist on overstepping the line, China will resolutely exercise legal countermeasures”.
The MOJ has conditioned the triggering of follow-up actions on whether the EU side “insists on overstepping the line”. In other words, if the European Commission imposes additional penalties or expands the scope of its investigation on the grounds of NUCTECH’s non-cooperation with the FSR investigation, that will directly trigger risk assessment and countermeasure mechanisms under Article 7 of the Regulations. Such mechanisms include diplomatic and foreign affairs, exit and entry, trade, investment, international cooperation, and foreign aid-related countermeasures and restrictive measures, as well as the “Malicious Entities List” system under Article 8 of the Regulations – the competent departments of the State Council may include foreign organizations or individuals that “promote or participate in the implementation of improper extraterritorial jurisdiction measures by foreign states” on a Malicious Entities List, subjecting them to nine categories of countermeasures and restrictive measures, including denial of visa issuance, seizure, freezing of assets, prohibition or restriction of transactions and cooperation, and the imposition of fines. Such measures may also extend to organizations controlled by, or established or operated with the participation of, the listed entities.
In addition to the Regulations, pursuant to Articles 14 and 15 of the State Council Provisions on the Security of Industrial and Supply Chains (promulgated by the State Council on 31 March 2026) (“Provisions”), where a foreign state engages in discriminatory prohibitions, restrictions, or similar measures against China in respect of industrial and supply chains, in violation of international law and the basic norms of international relations, the competent departments of the State Council are authorized to initiate industrial and supply chain security investigations. Such authorities may, following proper procedures, take corresponding measures, including but not limited to: prohibiting or restricting the import and export of goods and technology, or international trade in services; levying special charges; and, in accordance with the Anti-Foreign Sanctions Law of the People’s Republic of China and the Provisions on the Implementation of the Anti-Foreign Sanctions Law of the People’s Republic of China, deciding to include relevant organizations or individuals on a countermeasures list and adopt countermeasures.
The coordinated application of the Provisions and the Regulations enables MOFCOM, in the face of sustained pressure from the EU, to choose from a range of measures, including imposing additional tariffs or special charges on goods imported from the EU; restricting exports of critical raw materials and components to specific EU entities; imposing entry restrictions and asset freezes on EU officials and entities driving the FSR investigation; and even scaling back infrastructure cooperation projects and foreign aid arrangements with EU member states. It is noteworthy that MOFCOM had already determined in January 2025, based on its own investigation, that the European Commission’s inspection practices constituted a trade and investment barrier. That trade barrier determination constitutes a key factual basis for subsequent countermeasures.
The degree to which countermeasures escalate will depend heavily on the EU’s response to the Announcement – if the EU chooses to yield and limit the scope of its FSR investigations targeting China, there may be room for both sides to manage differences through consultation. If the EU escalates its investigative measures or imposes sanctions on Chinese entities, China’s countermeasures will be intensified accordingly.
Practical Risks for Enterprises
Although the Announcement blocks the execution of EU investigative measures within China, the following practical risks remain:
1. The EU may still directly impose sanctions on the affected enterprises’ assets, bank accounts, or subsidiaries within the EU.
2. If an affected enterprise refuses to cooperate within China, its senior executives in EU member states may face entry detention or individual investigation.
3. Affected enterprises face a “China-EU dual jurisdiction compliance conflict” – complying with the Announcement may trigger EU sanctions, and vice versa.
Accordingly, it is recommended that affected enterprises immediately verify whether their EU-based entities have received FSR information requests from the EU, establish a compliance mechanism for the dual China-EU jurisdiction, monitor the application process for exemptions (Article 6 of the Regulations permits applications for “execution exemption in specified circumstances”), and conduct compliance stress tests simulating worst-case scenarios of “EU sanctions versus compliance with the Announcement”.
Conclusion
The issuance of the Announcement marks an evolution in China’s response to foreign extraterritorial jurisdiction – from case-specific defense and diplomatic representations to an active legal model of “identification – blocking – countermeasures”. The China-EU FSR dispute, on its surface a procedural legal conflict, is essentially, against a backdrop of deglobalization, a struggle among jurisdictions over “who has the authority to regulate global commercial activities”. For legal and international trade practitioners, this is no longer a distant compliance issue but a variable that must be incorporated into strategic decision-making in the immediate term.