EU-China Investment Agreement: Positive But No Breakthrough

The EU-China Comprehensive Agreement on Investments (CAI), which was signed Dec. 31 after seven years of negotia tion, is overall beneficial for both sides. It is seen as a success of the German rotating chairmanship of the EU, and contains several concessions on European investments in the automo tive, private health, environment, services, and finance sectors.

Although all details are not yet known, various constraints on European companies are to be lifted, such as the compulsory joint-venture form or technology transfers.

Such companies will benefit from the expanding Chinese domestic market, in particular in the manufacturing sector. Although China’s GDP still lags behind that of the U.S. in aggregate figures, China is by far the world’s largest industrial producer with a 28.4% share of the manufacturing output globally. In contrast, the U.S. accounts for only 16.6% of the total, and that includes a heavy portion of military production.

The deal is also seen as a political success for Xi Jinping, who managed to get a bilateral deal with the EU despite heavy pressure from Washington. And contrary to the widespread propaganda line, the deal will also be beneficial for the U.S., as it establishes a benchmark for the rest of the world concerning foreign investments in China. As Italian economist and China expert Michele Geraci commented: “Even if we do not know all details, it must be said that the main merit of this agreement is that it will help bring China up to western standards, especially regarding their policies of access to the market and respect for intellectual property.”

As for the United States, he added that “Washington needs to understand that the agreement offers a support base for new agreements with China on a silver plate, because it brings China closer to western levels. Any agreement made between the EU and China, or the U.S. and China, is beneficial both for Europe and America.”

One critical aspect of the CAI is the increased access to financial services for EU financial institutions, with the caveat that it will be closely monitored by Chinese regulators in order to prevent the creation of speculative bubbles. Another highly commented aspect is the formal commitment to achieve the goals of the Paris Climate Agreement, which, in western interpretations, means deindustrialization. However, there is a major difference in the way the two sides define “clean” energy sources. Modern coal plants, for example, are considered as “clean” by Bejing, whose energy mix includes not only so-called “renewables” but also a major nuclear power component.