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EU to start China probe on medical device procurement, Bloomberg News reports

The European Union is poised to commence an inquiry into China’s acquisition of medical equipment, potentially igniting fresh tensions with Beijing following an earlier investigation into the country’s subsidies for electric vehicles.

The EU’s investigation, aimed at addressing concerns about Beijing’s preferential treatment of domestic suppliers, may be disclosed as early as this week and could result in the bloc restricting Chinese participation in its procurement processes, according to individuals familiar with the situation.

Initially, the probe will concentrate on gathering information from companies and member states before engaging in discussions with Beijing on ensuring fair and open markets, said the individuals, who requested anonymity as the investigation has not been made public yet.

Shares in Siemens Healthineers rose by up to 1.2%, and Philips surged by as much as 2.1% following Bloomberg’s report on the probe.

This move risks escalating tensions in EU-China relations, particularly after the EU initiated an anti-subsidy investigation into Chinese-made electric vehicles last year, potentially leading to the imposition of new tariffs by July. The investigation comes amid doubts about Beijing’s extensive public support for crucial sectors and a broader European economic security strategy aiming to strengthen the bloc’s export controls and investment screening mechanisms.

This investigation marks the first application of the EU’s International Procurement Instrument (IPI), a 2022 law designed to promote reciprocity in access to public procurement markets.

Beijing’s drive to increase the use of local equipment in domestic hospitals traces back to a 2015 decision by the state council. Over the past two to three years, provinces like Anhui have implemented further measures to bolster the chances of Chinese firms supplying hospitals, as part of the broader “Made in China” initiative to enhance domestic industries by 2025.

In recent years, Beijing has intensified its focus on local and state-oriented procurement in medical technologies, introducing stringent domestic product requirements across various device categories. This shift led to a €1.3 billion ($1.4 billion) trade deficit for China in 2019 transforming into a €5.2 billion ($5.5 billion) surplus just a year later, according to EU report data released earlier this month.

The EU has long been concerned about its access to China’s procurement market, an issue highlighted by European Commission President Ursula von der Leyen and the bloc’s trade chief Valdis Dombrovskis during their visits to China last year. Other concerns include ambiguously defined market access terms, the transfer of industrial data out of China, and onerous requirements imposed on cosmetic firms.

German Chancellor Olaf Scholz recently visited China, urging officials there to promote free trade and equitable business opportunities, echoing sentiments expressed by US Treasury Secretary Janet Yellen a week earlier.

Dialogue over the past year has seen little progress, according to insiders. In light of worsening distortions in the Chinese market and increasing discrimination against foreign firms, the EU feels compelled to respond, they added.

China’s medical technology market was valued at €135 billion ($145 billion) in 2022, with major European players including Siemens and Philips.

The EU contends that Beijing has implemented market-distorting measures to fulfill its “Made in China” policy objectives, including targeting an 85% domestic market share for Chinese companies producing “core medical device components” by 2025. It also alleges discrimination against imported products and, at times, stringent requirements imposed on foreign firms, such as investment obligations or technology transfers.

A senior official from China’s Ministry of Commerce recently visited Brussels, expressing strong dissatisfaction with a separate set of EU anti-subsidy investigations into the country’s wind turbine suppliers, stating that these probes undermine fair competition. The official also raised concerns about an EU report highlighting “significant state-induced distortions” in China’s economy.

If the investigation, which must be completed within nine months, confirms the EU’s concerns regarding medical devices, the bloc could take measures to limit China’s access to public tenders. Under the IPI provisions, these measures could include adjusting scores or excluding non-EU bidders altogether. Bidders may also face restrictions on subcontracting from entities subject to IPI measures or incur charges. Contracting authorities may choose not to apply some IPI measures in exceptional circumstances, such as when there are no alternative bids.

The probe can be suspended at any time if dialogue with Beijing leads to concrete corrective actions, according to the sources.

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