EU cybersecurity law revision seen as loss-making move

Excluding Chinese suppliers under the European Union's proposed revision of the Cybersecurity Act will not deliver the security gains Brussels desires, but could instead weaken the bloc's digital competitiveness and crowd out innovation investment, experts have warned.

The warning comes as the EU reviews its draft legislation, which would identify "countries posing cybersecurity concerns" and "high-risk suppliers" and exclude them from 18 sectors, including energy, transport, and information and communications technology.

Earlier this month, the bloc restricted funding for renewable energy projects using inverters from suppliers in its list of "high-risk countries" such as China, in an attempt to tackle its so-called cybersecurity threats.

According to a joint report released last week by the China Chamber of Commerce to the EU (CCCEU) and global advisory firm KPMG, the EU could face an estimated loss of as much as 367.8 billion euros ($430.54 billion) over the next five years if Brussels excludes Chinese suppliers.

The cumulative economic losses for EU member states would be "equivalent to nearly two full years of the EU's annual budget", the report said, noting that Germany would bear the largest burden, with estimated losses of 170.8 billion euros, followed by France and Italy.

"The criteria for identifying so-called 'high-risk suppliers' appear to be politically targeted," said CCCEU Chairman Liu Jiandong. "This approach politicizes commercial decision-making and runs counter to the EU's own principles of equality and non-discrimination."

According to the report, there has been no substantiated evidence so far of "technical backdoors" or violations of EU cybersecurity rules by Chinese companies operating in the bloc, and the origin-based screening measures could violate WTO rules, breach bilateral investment treaties and trigger compensation claims.

He Yongqian, a spokeswoman for the Ministry of Commerce, said in late April that formal comments were submitted to the European Commission, the EU's executive arm, voicing serious concerns over relevant provisions in the draft.

"We hope the EU will attach great importance to and seriously consider the comments and proposed revisions submitted by the Chinese side," said He.

The spokeswoman stressed that should Chinese companies face discriminatory treatment as a result of the revision, China may take measures to safeguard its legitimate rights and interests.

China believes that dialogue and cooperation are the right approach to resolving issues facing both sides, and is willing to work with the EU to properly handle differences through consultations and jointly safeguard the stability and smooth operation of global industrial and supply chains, added He.

The report stresses that mandatory replacement of Chinese suppliers is "unlikely to achieve meaningful security gains". Instead, it warns of systemic negative effects: innovation budgets could be crowded out, fiscal burdens on member states increased and household incomes eroded.

Losing the European market would be a blow to Chinese companies, but many of them have already pivoted their focus toward the domestic market and the Global South, where demand for digital infrastructure remains strong, said Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation.

"Worse still, the EU could lose its strategic autonomy in the ongoing restructuring of global industrial chains," Zhou said, adding that such efforts will only bring limited benefits to the EU.