BRUSSELS (NYTIMES) – The European Union’s administrative arm said Wednesday (May 6) that it would take action against foreign companies that received financial support from their governments, a move clearly aimed at China amid signs of deteriorating ties.

The tougher line against China comes only four months after Brussels and Beijing seemed to be moving closer, working out an agreement in December intended to make it easier for European companies to invest in what has become the bloc’s most important trading partner for goods.

But since then, relations have gone downhill because of tension over Chinese policy toward minority groups in the Xinjiang region.

Legislation proposed by the European Commission on Wednesday would give it power to investigate and take measures against foreign companies that used government subsidies to get an unfair advantage over domestic competitors, an accusation often levelled at China.

A separate proposal, also announced Wednesday, is intended to make Europe less dependent on China for crucial goods like semiconductors, drugs and batteries.

A day earlier, Mr Valdis Dombrovskis, the European commissioner for trade, said work on making the December investment agreement with Beijing final was on hold because of repressive Chinese policies.

In March, the European Commission issued sanctions against four Communist Party officials after accusing them of being responsible for human rights violations against members of the Muslim Uyghurs and other minority groups in Xinjiang.

China retaliated with sanctions against numerous members of the European Parliament, several scholars and employees of human rights organisations and think tanks that have been critical of China.

In light of the sanctions war, Mr Dombrovskis told Agence France-Presse on Tuesday that “it’s clear the environment is not conducive for ratification of the agreement”.

Europe’s tougher line toward China brings it closer to the stance adopted by the Biden administration, which objected to the investment agreement. But Europe remains divided over how to approach an important trading partner that is also a geopolitical rival.

Mr Markus J Beyrer, director general of BusinessEurope, a leading business lobby, said in a statement Wednesday that the proposal on subsidies was “a step in the right direction in addressing existing legal loopholes and preventing market distortions”.

But a prominent business group in Germany, which is highly dependent on exports to China, was critical.

“The proposed regulation is very complex, and there is a risk that its implementation will lead to considerable additional bureaucracy and legal uncertainty for our member companies,” said Mr Ulrich Ackermann, managing director of foreign trade at VDMA, which represents German makers of industrial equipment.

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