EU raids Temu over Chinese state subsidy investigation

EU regulators conducted an unannounced inspection last week at Temu's European headquarters in Dublin, targeting the online retailer over potential Chinese state subsidies. The raid on the subsidiary of China's e-commerce giant PDD Holdings comes as European concerns mount regarding the influx of cheap imports from China and the resulting market disruption.

The inspection was carried out under the European Commission's Foreign Subsidies Regulation (FSR), a new tool designed to address distortions in the EU market caused by non-EU companies benefiting from government subsidies. The FSR aims to level the playing field by allowing the Commission to impose significant fines, potentially reaching up to 10% of a company's annual aggregated turnover, for noncompliance or breaches of the rules. The European Commission confirmed an inspection took place in the e-commerce sector but did not specifically name Temu or the location of the raid, as is customary procedure for ongoing investigations.

This regulatory action coincides with increasing scrutiny of customs waivers that benefit low-value e-commerce shipments. European retailers argue that a specific customs exemption for parcels valued at less than 150 euros gives platforms like Temu and Shein an unfair competitive advantage, allowing them to flood the bloc with low-cost goods. The EU executive has responded to these concerns and plans to scrap this duty exemption by the end of next year, further tightening regulations on cross-border e-commerce.

Despite only launching in the European market in April 2023, Temu has achieved rapid expansion, attracting tens of millions of shoppers globally with its rock-bottom prices on products ranging from electronics to clothing. According to Temu's latest transparency report, the platform currently boasts approximately 116 million average monthly users in the EU. Its tagline, "shop like a billionaire," highlights its strategy of offering low-cost goods that have prompted established players like Amazon to launch rival services such as "Amazon Haul."

This is not Temu's first interaction with European authorities. Last year, the European Commission initiated an investigation into Temu under the Digital Services Act (DSA), the regulation governing online platforms. Preliminary findings from that investigation announced in July indicated that Temu was failing to adequately prevent the sale of illegal products through its platform. Foreign subsidies that fall under FSR scrutiny often include various forms of state aid, such as zero-interest loans, below-cost financing, or preferential tax treatments.

Raids are usually initiated when EU regulators possess evidence of violations, often derived from whistleblowers or internal investigations. Such actions can lead to companies offering concessions or cooperating with authorities in exchange for reduced fines. The broader context of these regulatory actions includes China's trade surplus, which topped $1 trillion in November for the first time, driven partly by manufacturers redirecting exports away from tariff-heavy U.S. markets towards Europe, Australia, and Southeast Asia.