EU-China Investment Deal: Commencement of Forthcoming Golden Decade

Peng Yunqiang, Head of Global Markets at Shewutrade Group Ltd.


I don't need a friend who changes when I change and who nods when I nod; my shadow does that much better. PLUTARCH, Historian of the 1st century BC.



On December 30, the leaders of China and the EU jointly announced the completion of The negotiations of EU-China Comprehensive Agreement on Investment (CAI) as scheduled.


The CAI will help rebalance the trade and investment relations between the EU and China. Beijing promises to provide Brussels investors with unprecedented market access, and to provide certainty and predictability for the operations of European companies. The agreement will also greatly improve the level playing field for EU investors by imposing clear obligations on Chinese state-owned enterprises, prohibiting forced technology transfer and other distortions, and increasing the transparency of subsidies. From now on, EU companies will get fairer treatment in the Chinese market competition.


With the CAI, the EU seeks to create new investment opportunities for European companies by opening China’s market and eliminating discriminatory laws and practices that prevent them from competing in the Chinese market on an equal basis with Chinese companies and companies from other third countries.


Background


According to the EU commission, the trade and investment links between the EU and China are very important. The EU and China are strategic markets for each other, trading on average over a billion euro a day. China’s growing domestic market and economic weight represent significant business opportunities for European companies. However, China's market is considerably less open than the EU’s. Foreign investors’ access to a number of sectors is restricted or prohibited. European companies operating in China do not benefit from the same levels of transparency and fair competition as those enjoyed by Chinese companies in the EU market. The CAI is a key tool to address this lack of balance.


The EU and China launched negotiations on the CAI in 2014. The European Commission conducted an impact assessment in 2013. A Sustainability Impact Assessment was carried out between 2015 and 2018 to assess the potential economic, social and environmental impacts of the agreement.


In 2016, the two sides agreed on the scope of the future agreement. They agreed that it would go beyond a traditional investment protection agreement to cover market access for investment and a number of important disciplines. It would also include provisions on sustainable development and dispute resolution.


Open sectors

The most noteworthy is that China may agree to open markets in multiple areas to EU companies, including manufacturing, financial services, real estate, construction, and ancillary services that support maritime and air transportation. In return, China won the EU's agreement to open up investment in renewable energy to China.


During the negotiation process, the European Commission issued an assessment report on the sustainability impact of the CAI in 2018. The report believes that the six industries of transportation equipment, mining & energy extraction, chemicals, food & beverage manufacturing, finance & insurance, communications & electronic equipment will benefit from the signing of the CAI. Because China may reduce restrictions and investment barriers on foreign products and services in these six industries, EU companies will increase investment in these industries. In addition, SMEs in the EU and China will also benefit from the agreement, because they usually face high costs due to investment barriers. Local SMEs in the EU and China are expected to benefit from improved market access mechanisms.


Beneficiaries


According to a coverage released by BBC News Chinese, German Chancellor Merkel has always been the main promoter of this agreement. Despite criticism and opposition from related parties, she played a key role in pushing EU countries to finalize the long-delayed EU-China CAI.



It is expected to benefit companies such as large German car companies. Germany is currently the presidency of the Council of the European Union.


Negotiations on this investment agreement began in 2014, but due to some differences, the negotiations have been deadlocked for many years. The increasingly tense trade relations between the United States and China may have helped China change its position.


Both parties are committed to promoting investment liberalization and facilitation, achieving high-level negotiation results in terms of market access and fair competition rules, which will benefit Chinese and European companies and even global companies.


In terms of market access, the agreement adopts a pre-access national treatment plus the negative list model. For the first time, China has made a commitment in the form of a negative list in all industries, including service and non-service industries, to achieve full integration with the foreign investment negative list management system established by the Foreign Investment Law.


At the same time, in response to market access restrictions that do not discriminate against foreign investment but have a significant impact on the establishment and operation of enterprises, China and the EU also promised to eliminate restrictions based on the number of enterprises, output, turnover, directors and senior management, local R&D, export performance, and headquarter location in most sectors. The CAI reiterated that uphold the freedom of foreign exchange transfers related to investment and the amenity of entry and resident of personnel.


The Outlook


The EU's key objective is to significantly improve EU investors’ access to the Chinese market, in particular by eliminating quantitative restrictions, equity caps or joint venture requirements.

The leaders of the two sides held a video meeting at 1 p.m. Brussels time on Wednesday. After the meeting, the European Union issued an introduction statement entitled "EU-China Leaders' meeting: Delivering results by standing firm on EU interests and values".



The statement stated, "Looking beyond the CAI negotiations, the EU reiterated its expectation that China will engage in negotiations on industrial subsidies in the WTO. The EU Leaders also emphasized the need to improve market access for EU traders in sectors such as agri-food and digital, and to address overcapacity in traditional sectors such as steel and aluminium as well as in high tech.”


The statement said, “The EU referred to the agenda of the June Summit and the September Leaders' meeting and reiterated the need to continue to address all issues discussed. On climate, the EU welcomed the announcement by China to achieve carbon neutrality by 2060 and reiterated its readiness to cooperate on climate and biodiversity issues. On Covid-19, EU leaders emphasized the need to continue supporting the Covax facility and to reinforce international cooperation to better anticipate and manage potential future pandemics. EU leaders also called on China to participate fully in multilateral debt relief efforts within the framework agreed by the G20 and the Paris Club.”


The best way to predict your future is to create it. We are now at the threshold of next golden decade in terms of both Sino-EU cooperation and global economic recovery.


20 views0 comments

A leading day trading platform, specializing in U.S. equity markets with operations worldwide.

CONTACT US:

 

Mon - Fri 9:00 - 17:30 HK

‭+852 55745397

marketing@shewutrade.com

RM06,13A/F, South Tower, World Finance Centre, 17 Canton Road, Tsim Sha Tsui, HK.

Options involve risk and are not suitable for all investors. All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice. Any reference to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit. Margin borrowing is only for experienced investors with high risk tolerance. You may lose more than your initial investment. Lower investment costs will increase your overall return on investment, but lower costs do not guarantee that your investment will be profitable. Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations. Past performance is not necessarily indicative of future results.

  • Facebook
  • LinkedIn
  • Twitter
  • Instagram
  • TikTok
  • YouTube