EU raids offices of Chinese security equipment maker in subsidy probe

London (CNN) — European Union officials have raided the offices of Chinese security equipment maker Nuctech as part of a probe into subsidies, exposing rising tensions between the bloc and one of its biggest trading partners.

The European Commission said Tuesday that it carried out “unannounced inspections” at the premises of a company making and selling security equipment in Europe, which it suspects may have benefited unduly from state subsidies. It did not name the company.

“The commission has indications that the inspected company may have received foreign subsidies that could distort the (EU’s) internal market,” the EU’s executive body said in a statement on its website.

Late Wednesday, Nuctech confirmed to CNN that its offices in Poland and the Netherlands were being inspected. The firm makes baggage security scanners for airports and other equipment. In 2020, the US government added Nuctech to a list of entities subject to stricter license requirements “for its involvement in activities that are contrary to the national security interests of the United States.”

Nuctech said in a statement: “Nuctech is cooperating with the European Commission and is committed to defending its reputation of a fully independent and self-supporting economic operator.”

The China Chamber of Commerce to the EU, whose members include Chinese state-owned and private firms, expressed its “strong dissatisfaction” about the raids, which it said had been conducted “without prior notice and without solid evidence.”

“The European side manifested its intention to weaponize the Foreign Subsidies Regulation as a tool to suppress lawfully operating Chinese companies in Europe,” the lobby group said in a statement.

In response, a spokesperson for the European Commission told CNN that officials carry out unannounced inspections on the basis of “substantiated indications” that the company in question may have been granted “distortive foreign subsidies benefitting its activities in the EU.”

“An inspection is an investigative step which never pre-judges the outcome of the commission’s investigation,” the spokesperson added.

The raids — the first under the EU’s new powers against excessive foreign subsidies — follow investigations launched recently by the bloc into China’s state support for its wind turbine firms and for Chinese companies bidding for a solar farm contract in Romania.

The Foreign Subsidies Regulation, which came into force last July, is aimed at addressing market distortions caused by subsidies from foreign governments and ensuring that EU companies are competing on a level playing field.

Tuesday’s raids also came on the same day the president of the European Commission said the Group of Seven developed economies was starting work to tackle imports resulting from “structural overproduction” elsewhere, “an overproduction that is achieved to a large extent by subsidies, massive subsidies.”

“We have to be very vigilant that our producers are not at risk to be forced out of the market,” Ursula von der Leyen said in a speech.

Although she did not mention China, there is growing evidence of tensions between the world’s biggest manufacturer and its major trading partners, including the EU and the United States, relating to an oversupply of cheap Chinese goods in foreign markets.

“We are engaging with our G7 partners on this topic, given that it is a shared concern,” an EU official told CNN Wednesday, adding that the issue would be discussed at the G7 leaders summit in Puglia, Italy, in June.

China’s global trade surplus in goods has soared in recent years and is now approaching $1 trillion.

On a visit to China earlier this month, US Treasury Secretary Janet Yellen warned of the risk to jobs and businesses in the United States and elsewhere posed by overproduction of certain goods in the world’s second-largest economy. Her message was clear: China’s surging exports of electric vehicles, solar panels and batteries must be reined in.

US Secretary of State Antony Blinken, who is currently visiting the country, raised concerns Thursday about China’s trade policies and “non-market economic practices” in a meeting with Shanghai’s Party Secretary Chen Jining, according to a US government spokesperson.

Those worries were echoed by G7 foreign ministers at a meeting in Italy last week. “We are concerned that China’s non-market policies and practices are leading to harmful overcapacity that undermines our workers, industries, and economic resilience,” they said in a statement.

Beijing, for its part, sees exports as a key measure to revive China’s slowing economy. It is increasingly focusing on higher-value exports in industries that Europe and the United States see as strategically important as they seek to green their economies.

Jennifer Hansler in Beijing contributed reporting.

This article has been updated with additional information.

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