Highlight 40/2022 – Is China-EU Comprehensive Agreement on Investment a great opportunity?
Jiaxu Mi, 28 June 2022
The EU and China are the world’s largest foreign capital outflow and inflow countries. On 30 December 2020, after 35 rounds of talks over a seven-year period, China and the European Union (EU) held a virtual summit during which they announced that they have concluded the negotiations for the conclusion of a Comprehensive Agreement on Investment (CAI).
One of the major characteristics of the CAI is the opening-up access to markets. China has made unprecedented commitments in the manufacturing sector as more than half of EU investment in China concerns this sector. In addition, the EU-China CAI will further accelerate opening-up in the automotive sector. China has already agreed to remove joint venture requirements for all types of automakers and to open the market for new energy vehicles. Therefore, after the EU China investment agreement takes effect, foreign-funded automobile enterprises from EU countries will be able to directly establish wholly foreign-owned enterprises in China, without the need to establish joint ventures with Chinese enterprises.
Regarding the medical industry, the Chinese government has been conservative in its attitude towards foreign-invested medical institutions, imposing a considerable number of regulations and restrictions. Foreign investors were allowed to participate in the investment of medical institutions only in the form of joint ventures. Another major breakthrough of the CAI is the commitment of the Chinese government to lift the joint ventures requirements in the establishment of private hospitals and allow EU entities to invest in sole proprietorship. At present, China has not accepted such far-reaching market access commitments with any other partners. As we can see, China’s opening up in manufacturing will greatly facilitate EU manufacturing enterprises’ investment in China.
Nevertheless, the trade and economic negotiations between the two partners are now facing political deadlock. In March 2021, the European Union sanctioned officials from the People’s Republic of China, in response to alleged human rights violations in the Xinjiang Uyghur Autonomous Region. The targeted officials are subjected to an asset freeze in the EU, a ban on receiving any EU funds and a travel ban to the EU. At the same day, China stated that the <accusations of genocide> are lies and disinformation and imposed retaliatory sanctions against EU persons and entities. This had a negative impact on the negotiations of the China-EU Comprehensive Agreement on Investment (CAI). After two months, the European Parliament froze the legislative process for ratifying the EU’s investment pact with China until China cancels sanctions against EU members.
CAI aims to increase cross-border investment between two world’s largest economies. However, it is difficult to resolve the current political differences between the two partners in a short time. This situation affects inevitably the progress of China-EU economic and trade relations. Nevertheless, the two great powers could, first and foremost, strengthen cooperation in non-politically sensitive areas. Secondly, the two economic giants should bridge their differences through dialogue and resolve their disputes through negotiation.
The China-EU comprehensive investment agreement is just the beginning of China- EU cooperation. It not only serves the fundamental interests of China and the EU (by enabling investment in both territories and by strengthening the Euro and CNY in the actual international competitive environment), but also promotes the process of world multi-polarization and play an important role in the overall recovery of the world economy.
Due to COVID-19 pandemic, the Russia-Ukraine war and trade protectionism, the future of globalization has darkened. Global growth, along with international trade, has slowed. Despite the setbacks that the China-EU investment agreement has encountered, the trend of globalization is still on. From author’s perspective, EU and China shall adopt and steadily implement the provisions of the China- EU Comprehensive Agreement on Investment. Only through the concession of reciprocal advantages and joint cooperation can China and the EU achieve a « win-win » outcome. In this respect, the CAI represents a huge economic and development opportunity for the two largest traders in the world.
Jiaxu Mi, Highlight 40/2022 – Is China-EU Comprehensive Agreement on Investment a great opportunity?, 28 June 2022, available at www.meig.ch
The views expressed in the MEIG Highlights are personal to the author and neither reflect the positions of the MEIG Programme nor those of the University of Geneva.