The European Union's use of its so-called Foreign Subsidies Regulation vis-a-vis Chinese firms breaches WTO rules and risks chilling the foreign investment climate, said industry experts.

The move came as Brussels announced last week an in-depth investigation into Chinese security equipment maker Nuctech under its FSR, a 2023 law that China's Ministry of Commerce concluded was a trade and investment barrier.

In a statement, Nuctech said it operated independently on a market-oriented basis and fully complied with EU and international laws. The company supplies security inspection systems used at airports, ports and border crossings across Europe and globally.

"We will continue cooperating with the European Commission to ensure the facts are assessed accurately and impartially," Nuctech said, adding that it reserved the right to take all necessary legal measures to protect its legitimate interests.

Jiang Jiaxi, a partner at Beijing law firm Jingtian & Gongcheng, said: "The WTO already has a clear rulebook for dealing with subsidies. The EU has chosen to bypass that framework and build a parallel system, without a solid factual or legal foundation."

Jiang said the EU's claim that foreign subsidies inherently create unfair competition is odd, given the extensive national support within the bloc itself for industries such as renewable energy, climate technologies and strategic sectors.

"Foreign companies that produce in Europe contribute directly to jobs and growth. If the concern is imported products, the EU already has antisubsidy, antidumping and safeguard instruments. The FSR goes beyond necessity. The practical effect of the regulation is to screen out foreign capital, foreign products and foreign services. That raises questions about whether it truly serves the EU's long-term economic interests," Jiang said.

The Brussels-based China Chamber of Commerce to the European Union echoed this criticism, emphasizing that the "foreign subsidies" definition under the FSR remains ill-defined and ambiguous, and significantly exceeds reasonable boundaries under existing international trade and antisubsidy rules.

Since the FSR came into effect, most investigations have targeted Chinese companies, the chamber said, arguing that enforcement has lacked transparency and departed from the EU's stated commitment to equal treatment.

"Chinese enterprises have become the primary targets of FSR enforcement, in a clearly disproportionate and abusive manner," the chamber said.

A survey of 205 Chinese companies and institutions operating in Europe found that 63 percent said their business had been disrupted by FSR-related probes or compliance risks, while more than half reported damage to their market reputation, the chamber said.

Citing an assessment by China's Ministry of Commerce, the chamber said enforcement of the regulation had created de facto barriers to trade and investment, with direct and indirect losses to Chinese companies estimated at about 15.6 billion yuan ($2.2 billion).