On 30 December 2020 the EU and China confirmed that they have agreed in principle the provisions of an investment agreement. The agreement aims to resolve some of the difficulties that have been encountered by European companies trading in China. The investment agreement with China is not as wide in its scope as the similar agreements the EU has concluded with Japan or the UK, and the coverage is generally limited to certain non-tariff barriers to business and investment. The agreement does not cover the issues between the EU and China in relation to steel production; access to government procurement contracts; or sales of fake goods, which are all issues that have created problems for trading relations between the EU and China.
The investment agreement will improve the level playing field for EU investors in China in a number of ways including the prohibition of forced technology transfers and similar practices that can distort trade. The agreement also covers specific sector-by-sector market access rights, taking away barriers such as the requirements for companies to work with local Chinese firms in joint ventures and removing ceilings on levels of investment.
Ambitious opening and level playing field for European investments
China will permit greater market access for EU companies in manufacturing, which is the most important sector for EU investment in China. Manufacturing represents more than half of the total EU investment in China, including 28% in the automobile sector and 22% in basic materials. The commitments cover chemicals, telecoms, health equipment and other sectors. The EU will be granted similar rights to the US in relation to operating in the Chinese financial services market.
China has also made commitments in the investment agreement in relation to EU investments in various services sectors. EU businesses may therefore gain greater access to the Chinese market in areas such as cloud computing services, environmental services, healthcare and international maritime and air transport.
Broader issues
In the case of wider issues that are not covered by the investment agreement with China, the EU is aiming for reform of the World Trade Organisation (WTO). The WTO is a suitable forum for raising objections to issues such as the use by China of subsidies to assist its own industries. The EU is emphasising that there are many issues not covered by the investment agreement and the agreement is only one element in its trading and investment relationship with China.
Chinese companies investing in the EU
The agreement confirms the existing rights for Chinese companies trading and investing in the EU market and opens up new opportunities for Chinese companies in the manufacturing and renewable energy sectors. The opening of the EU market to Chinese companies on renewables is however subject to a 5% cap for the market in each EU member state market and the concession is contingent on reciprocal market openings being permitted for EU business in China.
