EU seeks to rebalance China ties with investment agreement

EUROPEAN UNION - BRUSSELS. The European Union and China agreed on Wednesday to an investment deal that will give European companies greater access to Chinese markets and help redress what Europe sees as unbalanced economic ties.

The agreement has been nearly seven years in the making and is likely to take at least another year to enter into force. It forms part of a new relationship with China, which the EU views as both a partner and a systemic rival.

European firms will gain permission to operate in China in sectors including electric cars, private hospitals, real estate, advertising, the maritime industry, telecom cloud services, airline reservation systems and ground handling. Some requirements that companies operate as part of joint ventures with Chinese partners will be lifted.

China will ban the forced transfer of technology from foreign companies, and has pledged to be more transparent on subsidies and bar state-owned enterprises from discriminating against foreign investors.

The deal brings Europe a degree of parity with the United States, which has struck a “Phase I” trade deal with China. Jake Sullivan, President-elect Joe Biden’s pick as national security adviser, tweeted last week that the new U.S. administration would welcome early consultations with Europe on China’s economic practices.

The deal includes commitments on climate change and labour rights. Commitments are reciprocal, but the EU market is already far more open. Brussels has given some ground in energy, but says its offer to China consists chiefly of guaranteeing the existing openness.

Hosuk Lee-Makiyama, director of trade think tank ECIPE, said that although there was little obvious benefit for Beijing in the text, China wouldn’t have signed up without some promise of advantage.

“No major power, not least China, gives anything for free, so there will be a trade-off. It’s just not in the agreement,” he said.

Compared with a trade deal, which might include retaliatory tariffs, such an investment deal is also more difficult to enforce, Lee-Makiyama said, noting that the EU would be unlikely, for example, to seize Chinese assets.

The EU has been keen to portray the agreement as a step towards forging multilateral rules. It still does not cover issues including trade flows or public procurement for the likes of telecoms equipment maker Huawei.

The bloc intends to push through laws securing greater reciprocity in public procurement and tighter control of foreign subsidies.