China, Investment, Latest news

EU, China announce investment deal

The European Union and China concluded ‘in principle’ a ‘Comprehensive Agreement on Investment’ one day before New Year’s Eve 2020.

“China has committed to a greater level of market access for EU investors than ever before, including some new important market openings,” stated the European Commission following an online meeting between five EU leaders and China’s president Xi Jinping.

The Commission said that China offered commitments on market openings for electric cars, chemicals, telecommunications equipment and healthcare equipment. This includes the removal of joint venture requirements, for example in the auto sector.

Cloud services, financial services, private healthcare, environmental services, international maritime transport and services linked to air transport are covered.

The type of openings and commitments mainly involve non discrimination – ‘national treatment’ – and removal of joint venture requirements in many sectors.

“Joint venture requirements and foreign equity caps have been removed for banking, trading in securities and insurance (including reinsurance), as well as asset management,” the Commission explains.

China agreed to lift joint venture requirements for private hospitals in cities such as Beijing, Shanghai, Tianjian, Guangzhou and Shenzhen.

“China has agreed to lift the investment ban for cloud services. They will now be open to EU investors subject to a 50% equity cap,” said the European Commission.

Rules, transparency, sustainability

The EU obtained from China to agree to disciplines for state-owned enterprises and to greater transparency of subsidies. This indicates China has signed up to paragraphs that are now standard in EU, US and other Asia Pacific countries – a step it has never made so far.

The EU also obtained promises from Beijing on curbing forced technology transfers – a concession already made to the United States in the US-China Phase One agreement.

“The agreement also included guarantees that will make it easier for European companies to obtain authorisations and complete administrative procedures,” the Commission writes.

The EU and China also tackled technical standardisation. “China will provide equal access to standard setting bodies for our companies. China will also enhance transparency, predictability and fairness in authorisations.”

The agreement includes environment and labour provisions, including a promise by China to make “sustained efforts to ratify the ILO fundamental conventions on forced labour”, the Commission announced.

Beijing’s labour commitment echoes those made by fellow Asian countries in FTAs with the EU such as Korea, Japan and Vietnam.

Enforcement at high political level

The agreement will be underpinned by a state-to-state dispute resolution mechanism involving the vice president of the European Commission directly and a Chinese Vice Premier.

There will be a dedicated working group on the implementation of sustainable development matters.

The two sides agreed to negotiate an investor-to-state dispute mechanism modelled on the EU’s preferred investment court system in future – a process comparable to that agreed with Japan in the EPA that came into force in 2019.

What the EU has conceded in return for China’s politically very meaningful concessions is not clear.

The EU will be bound by the same non discrimination rules and transparency rules as China – which in itself will be reassuring to Beijing at a time when the EU is rolling out investment screening and other measures to control foreign direct investment in the EU.

Our understanding is that China has also informally asked EU firms to actually commit to invest in China in some high tech sectors.

The deal is sealed ‘politically’ – it means there is agreement in principle. A full-fledged legal text will only emerge in 2021 and might not be submitted for ratification before many months.

 

While many media outlets discovered the China deal this month, we have been writing extensively about this agreement throughout 2020. More here.

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