China Set to Remove Barriers to Greater EU Investment Cooperation

© REUTERS / Aly SongContainers are seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China, February 13, 2017
Containers are seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China, February 13, 2017 - Sputnik International
China says it will accelerate negotiations on the EU-China Comprehensive Agreement on Investment following talks between Chinese Vice-Premier Liu and European Commission Executive Vice President Valdis Dombrovskis.

The EU-China Comprehensive Agreement on Investment (CAI) is designed to become the single mechanism regulating China's investment cooperation with the EU, replacing all existing bilateral agreements on China's investment with the bloc. 

The document, which has been discussed since 2014, should facilitate access to the Chinese market for EU investors and, to European markets for Chinese companies. It is intended to eliminate discriminatory practices against foreign investors, create mechanisms to protect investments and ensure equal rules for foreign and local companies, as well as to stimulate sustainable development, including promoting investors' compliance with basic environmental and labour standards.

The deal is of strategic importance to the EU, not only in an economic but also in a political context. Brussels is not very pleased that China is actively developing bilateral relations with European countries, often bypassing EU supranational mechanisms. Beijing has also initiated a cooperation format with Central and Eastern European countries within the framework of the 17+1 summit, proposing to CEE countries to establish a joint secretariat, which already looks like the establishment of a full-fledged international organisation.

So far, China has limited itself to establishing a 17+1 infrastructure investment fund. Developed countries in Western Europe fear that China's economic and political influence in the region will grow rapidly. Brussels is therefore eager to establish supranational mechanisms with China to regulate trade, economic and investment cooperation between China and EU countries.

Talks on the EU-China CAI have been slow. First, the parties faced some headwinds when they started discussing the specific text of the agreement. Brussels negatively perceived the fact that several industries in China are closed to foreign investment. China’s rules on capital controls also caused certain difficulties. Mechanisms for the protection of intellectual property rights and technology transfer remained unsettled, and this issue has now become particularly sensitive for Europeans as the EU's main ally, the US, has started a trade war with China.

Due to the US actions, the EU-China Investment Agreement has been put on the backburner. During 2018-2019, Beijing's main concern was to resolve trade disputes with the United States. Negotiations with the EU were slow until the end of 2019, as China concentrated all its efforts on the conclusion of a "first phase agreement" with the US. Further work on the EU-China agreement was difficult without certainty on the Sino-US front, Chen Fengying, an expert at the China Institutes of Contemporary International Relations, told Sputnik.

“I don't think there's any sort of priority between China-US or China-EU negotiations. But with the first phase agreement with the US already signed, it is easier for China to negotiate with the EU. Besides, the agreement on the protection of investments already has a certain base. Last year, several China-EU negotiations were held, including on the protection of geographical indications. So, I think that with a certain base and conditions, investment negotiations are now in an active phase”, Chen Fengying says.

High hopes for a breakthrough are riding on the EU-China summit, scheduled to be held in Leipzig in September this year. Germany has already declared relations with China a priority issue within its presidency of the EU, during which time the summit is taking place. And German Chancellor Angela Merkel has invited Chinese President Xi Jinping to the summit. The higher level delegation (in previous years, the Chinese delegation was headed by Premier Li Keqiang) suggests that the summit in Leipzig, could be a breakthrough in terms of developing relations between the EU and China.

However, the coronavirus epidemic threatens the summit. as it is already difficult to predict whether it will be possible to cope with the spread of the epidemic in Europe by that time, Chen Fengying says.

“The biggest challenge at the moment is the spread of the coronavirus epidemic in Europe. Firstly, it is still at its peak, and secondly, the capacity of the EU countries to cope with the epidemic is very uneven. There are not many other obstacles to reaching the agreement. Very important issues concerning the protection of geographical indications, the protection of intellectual property were already discussed last year. Furthermore, China is constantly increasing the openness of its economy to the outside world, strengthening the role of market mechanisms. So, I think that there are very few barriers left at least on the Chinese side”.

China has taken steps of its own to attract foreign investors. Last year, the list of industries in which foreign investment is prohibited was significantly reduced. China is easing restrictions on access to foreign capital in the banking, insurance and brokerage sectors. Finally, last year a new law on foreign investment was adopted, which should ensure equal rights for foreign and local companies in the Chinese market.

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Therefore, if the epidemiological situation can be controlled, there is every reason to believe that the EU-China Comprehensive Agreement on Investment will be signed by the end of the year. And the summit in Leipzig should stimulate this process. And Germany could gain more political points in the eyes of its allies as the country that consolidated the EU's position in relation to China.

China is Germany's most important trading partner, and amid the crisis, Germany's export-oriented economy needs to expand its market. Given that the IMF predicts that China will emerge from the current crisis with the least economic losses and again become a global growth driver, Germany will probably not want to miss this opportunity to cling to the dragon's tail.

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