News Report

EU should bide its time on China investment deal

Negotiations on a long-awaited treaty on investment between the EU and China appear to be reaching a conclusion. The EU market is one of the most open in the world to foreign investment while China’s remains among the most restricted. For the EU, an investment deal that improves access for European companies, reduces discriminatory treatment and offers more protection for investments is its main route to rebalancing the economic relationship. For China, it is a chance to lock in access to the EU just as European opinion hardens against Chinese takeovers and the country’s deteriorating human rights record.

Talks have taken seven years as Beijing dragged its feet on offering meaningful concessions. Hopes rose sufficiently earlier this year for German chancellor Angela Merkel to pencil in an EU-China summit for September to seal an agreement. But President Xi Jinping gave her the cold shoulder as he awaited the outcome of the US election.

Now, all of a sudden, Beijing is in a hurry to strike a deal — and get one over an incoming Biden administration looking for transatlantic co-operation on China. EU officials want to capitalise on Beijing’s urgency. Ms Merkel would no doubt regard a deal as a landmark achievement of Germany’s EU presidency and a vindication of her belief in change through engagement with Beijing. For Europe, though, this should be a moment for more speed, less haste.

It is hard to assess the concessions China is said to have offered because the terms remain confidential. People close to the talks say they include commitments to remove barriers to investment — such as joint venture and licensing requirements as well as outright prohibitions — in manufacturing, financial services, real estate, construction and air and shipping services. But Beijing has yet to agree to other important sectors like IT, telecoms, automotive and education.

Beijing has agreed to restraints on its state-owned enterprises, greater transparency on subsidies and rules against forced technology transfer and other discriminatory treatment. But the question of dispute resolution will be dealt with in a separate negotiation. That will inevitably raise concerns that European businesses in China will continue to face discrimination with limited rights of redress.

Whatever opening for foreign firms, Mr Xi’s overriding goal is to use state-directed investment to achieve Chinese technological supremacy. That makes it all the more important that any investment treaty does not prevent the EU from taking tougher action in the future, if necessary, against subsidised Chinese companies operating in its single market or Chinese acquisitions of sensitive technology.

With this limited deal, the EU would in some ways just be keeping pace with the US, which gained some investment safeguards in Donald Trump’s “phase 1” trade deal this year. Given its aspirations for “strategic autonomy” the EU wants to strike a deal with China to serve its own economic interests. It has, though, also offered to work with the Biden administration on “the strategic challenge presented by China’s growing international assertiveness”. So striking a deal on deeper economic ties days before a new US president takes office will send an awkward signal that Beijing will be only too happy to exploit.

An investment agreement should make life easier for European businesses in China, but it will require much more than this to create a level playing field. Brussels should not be rushed into a deal. It could hold out for more. As Deng Xiaoping, former paramount leader, once said: hide your strength, bide your time.


Your email address will not be published. Required fields are marked *