Negotiations on a long-awaited investment treaty 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 that of China remains among the most restricted. For the EU, an investment agreement that improves access for European companies, reduces discriminatory treatment and offers more protection for investments is its main way to rebalance the economic relationship. For China, this is a chance to lock down access to the EU as European opinion hardens against Chinese takeovers and the country’s deteriorating human rights record.
The talks lasted seven years as Beijing dragged its feet to offer meaningful concessions. Hopes had risen enough earlier this year that German Chancellor Angela Merkel would look to an EU-China summit in September to seal a deal. But President Xi Jinping gave him a cold shoulder as he awaited the outcome of the US election.
Now, all of a sudden, Beijing is in a rush to strike a deal – and get one on a new Biden administration seeking transatlantic cooperation on China. EU officials want to capitalize on the Beijing emergency. Ms Merkel would undoubtedly see a deal as a historic achievement of the German EU presidency and a justification for her belief in change through engagement with Beijing. For Europe, however, it should be a time for more speed, less rush.
It is difficult to assess the concessions that China would have offered because the conditions 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 bans – in manufacturing, financial services, real estate, construction and air and maritime services. But Beijing has yet to accept other important sectors like IT, telecommunications, automobiles and education.
Beijing has agreed to restrictions on its state-owned enterprises, greater transparency on subsidies, and rules against forced technology transfer and other discriminatory treatment. But the issue of dispute settlement will be dealt with in a separate negotiation. This will inevitably raise concerns that European companies in China will continue to face discrimination with limited recourse rights.
Regardless of the opening for foreign companies, Xi’s overriding goal is to use state-led investment to achieve Chinese technological supremacy. It is all the more important that an investment treaty does not prevent the EU from taking tougher measures in the future, if necessary, against subsidized Chinese companies operating in its single market or Chinese acquisitions of sensitive technologies.
With this limited deal, the EU would in some ways keep pace with the United States, which has secured some investment guarantees in Donald Trump’s “phase 1” trade deal this year. Given its aspirations for “strategic autonomy”, the EU wishes to conclude an agreement with China to serve its own economic interests. However, he also offered to work with the Biden administration on “the strategic challenge posed by China’s growing international assertiveness.” So, making a deal on deeper economic ties a few days before a new US president takes office will send a clumsy signal that Beijing will be only too happy to exploit.
An investment deal should make life easier for European companies in China, but it will take much more than that to create a level playing field. Brussels should not be rushed into a deal. It could last longer. As former Supreme Leader Deng Xiaoping once said: Hide your strength, bide your time.