The investigators accessed the ICT system and staff phones in a dramatic use of an economic tool that has struck fear into the hearts of Chinese businesses operating in Europe.

The European Commission released a statement saying it was “carrying out unannounced inspections at the premises of a company active in the production and sale of security equipment in the EU”.

However, it did not provide details of the company name, nationality or details on the sector in which it was involved.

“The commission has indications that the inspected company may have received foreign subsidies that could distort the internal market pursuant to the foreign subsidies regulation,” the statement read.

It added that they were “accompanied by their counterparts from the national competition authorities of the member states where the inspections were carried out”.

“Unannounced inspections are a preliminary investigative step into suspected distortive foreign subsidies,” it said, noting an in-depth investigation would be the next step.

Foreign firms play waiting game as China’s pro-investment campaign falters

The China Chamber of Commerce to the EU said the authorities seized the company’s IT equipment and employees’ mobile phones, scrutinised office documents and demanded access to pertinent data.

The chamber voiced “serious concern” over the “unjustifiable dawn raids” being carried out.

The EU has already used the foreign-subsidies regulation to investigate state handouts in the solar, wind-turbine and rolling-stock industries. The tool entered law last year.

CRRC Qingdao Sifang Locomotive Co, a division of state-owned rolling-stock manufacturer CRRC Corporation, had hoped to provide 20 electric push-pull trains and their maintenance.

Its bid was reported to be about half that of a Spanish competitor, with the European Commission announcing that the Chinese company had withdrawn its bid. Brussels had alleged that CRRC had received almost US$2 billion in state subsidies.

Subsequent investigations were launched into whether two Chinese-linked companies used state subsidies to undercut rival bids in a Romanian solar project, while Brussels is also looking into subsidies in China’s wind-turbine sector.

The Chinese government and lobbyists for Chinese businesses in Europe have railed against the foreign-subsidies regulation, which has fast become the commission’s tool of choice as it attempts to crack down on economic grievances with Beijing.

Its quick-fire deployment has marked a ratcheting up in Brussels’ use of the economic weapons at its disposal.

On Wednesday, the commission was expected to announce the first-ever use of its public procurement instrument (IPI) – an investigation into European firms’ access to public tenders in China’s medical-devices sector.

EU to launch first procurement probe over China’s medical devices sector: sources

The IPI was adopted in June 2022 but has yet to be used. Its aim is to prise open lucrative procurement markets that are closed to EU firms. Firms from countries whose tendering markets are closed to European companies will be penalised.

The new regulation will enable the EU to prohibit the sale, import and export of goods made using forced labour, once it is given final approval by the European Council, made up of the bloc’s 27 member states.

In a landslide vote, 555 lawmakers voted in favour of the ban, with just six voting against and 45 abstaining.

China has been accused of operating a sophisticated system of forced labour in the Xinjiang Uygur autonomous region. Beijing has repeatedly denied the allegations.