EU, China seal long-awaited investment deal to open Chinese market

The deal aims primarily to expand access to the Chinese market for foreign investors.
The deal aims primarily to expand access to the Chinese market for foreign investors.PHOTO: AFP

BRUSSELS (BLOOMBERG) - The European Union and China on Wednesday (Dec 30) announced the political approval of a long-sought agreement to open the Chinese market further to EU investors, marking an economic victory for both sides. 

The breakthrough in negotiations on an EU-China investment accord signals the bloc’s determination to focus on economic opportunities in Asia even amid criticism of Beijing’s record on human rights. The accord could take effect in early 2022, according to EU officials. 

The deal, in the works since 2013, is also a salvo against the “America First” challenge to the multilateral order by US President Donald Trump. The EU has lambasted Mr Trump’s confrontational tactics toward China, urging engagement with Beijing in a bid to strengthen global rules. 

“We are open for business but we are attached to reciprocity, level playing field & values,” European Commission President Ursula von der Leyen tweeted on Wednesday. “Today, the EU & China concluded in principle negotiations on an investment agreement.” 

For the 27-nation EU, the pact expands access to the Chinese market for foreign investors in industries ranging from cars to telecommunications. It also tackles underlying Chinese policies deemed by Europe and the United States to be market-distorting: industrial subsidies, state control of enterprises and forced technology transfers. 

For China, the accord bolsters its claim to be a mainstream geopolitical force and may limit risks resulting from a tougher EU stance on Chinese investments in Europe. It also strengthens Beijing’s long-standing call for the start of talks on a free-trade pact with the EU, which has insisted on an investment deal first. 

China was the EU’s second-largest trade partner in 2019 (behind the US), with two-way goods commerce exceeding €1 billion (S$1.6 billion) a day. 

Wednesday's announcement represents a high-level political blessing to the accord, which also covers environmental sustainability. Both sides plan to put the finishing touches on it over the coming months. 

The accord will then need the approval of the European Parliament, where some voices have expressed objections as a result of alleged human-rights violations in China. The deal includes Chinese pledges on labour standards meant to address such concerns, including in relation to ratification of related United Nations-backed conventions, according to EU officials, who asked not to be identified because of the continuing preparations. 

“It’s not a given that the EU Parliament will give its consent,” Mr Reinhard Buetikofer, a German Green member of the assembly, said on Tuesday. “We’ll give it a tough scrutiny.” 

The incoming US administration has also signalled reservations, at least about the timing of the agreement. Mr Jake Sullivan, national security adviser to President-elect Joe Biden, on Dec 22 urged “early consultations with our European partners on our common concerns about China’s economic practices”. 

The developments highlight global cross-currents after Mr Trump shook the post-war system over the past four years by sidelining the World Trade Organisation, starting a tariff war against China and hitting or threatening US allies in Europe with controversial import duties.  

When the Trump administration in January 2020 struck a first-phase commercial accord with China that eased their economically damaging fight, the EU criticised the deal as a “managed-trade outcome” that might itself violate WTO rules and merit a legal challenge.

Following are some of the Chinese concessions to European investors in the agreement, according to an EU official:

Chinese market opening: improved access across industries including air-transport services, where joint-venture requirements for computer-reservation systems are being removed, and new opportunities in sectors including clean vehicles, cloud services, financial services and health;

Chinese state-owned enterprises: non-discrimination commitment when state owned enterprises are buyers of services;

Chinese subsidies: enhanced transparency, notably for services;

Chinese forced technology transfers: prohibited.

While the accord largely commits the EU to maintain its relative openness to Chinese investors, according to the European official, the deal offers greater access for them to the bloc's energy wholesale and retail markets (but excluding trading platforms), renewable-energy markets (with a 5 per cent cap at the level of EU countries and a reciprocity mechanism).