The European Commission has escalated scrutiny of JD.com’s proposed $2.5 billion offer for German electronics retailer Ceconomy by opening a full investigation under the bloc’s Foreign Subsidies Regulation. The commission said on Thursday that its preliminary work indicates JD.com may have benefited from foreign subsidies that could distort competition in the EU internal market.
The acquisition in question would give one of China’s largest online retailers control of MediaMarkt and Saturn, the consumer electronics chains owned by Ceconomy, and represents an expansion of JD.com’s footprint beyond its home market.
In setting out the reasons for the probe, the EU executive listed types of financial support that the preliminary investigation has identified as potentially relevant. These include preferential financing arrangements, tax incentives and grants made available by entities that may be attributable to the People’s Republic of China.
The commission also flagged concerns that the combined company, if the takeover proceeds, may pursue investment or business strategies that could have an impact on competition in Europe. The full investigation will seek to assess whether any foreign subsidies linked to JD.com have materially distorted conditions of competition and whether behavioural or structural remedies would be required if distortions are found.
The decision marks the commission’s first in-depth probe of a Chinese transaction under the Foreign Subsidies Regulation, the instrument designed to identify and redress unfair advantages arising from foreign state support in the EU market.
At this stage, the commission’s comments reflect the outcome of a preliminary review. The full investigation will examine the available evidence in greater detail to determine if the preliminary indications are borne out and whether any intervention is warranted to preserve competition within the EU internal market.