EU and China move closer to completing new investment deal

Agreement would increase access to Chinese market in industries ranging from cars to biotechnology

Shoppers walk under festivelights at an open air mall in Shanghai, China on Saturday, Dec. 18, 2020. China pulled further ahead of other major economies in November as industrial output and retail sales strengthened, reinforcing expectations of healthy growth in 2021. Photographer: Qilai Shen/Bloomberg

European Union governments signalled support on Monday for completing work on a long-sought agreement with China to open the Chinese market further to EU investors, bringing closer a major economic and political victory for both sides.

EU member-country envoys urged the European Commission, the bloc’s executive arm, to complete negotiations with the Chinese government within days, according to a European official who spoke on condition of anonymity. Another official said the commission could announce a draft deal imminently.

A successful conclusion of talks that began in 2013 on an EU-China investment accord would be a salvo against the “America First” challenge to the multilateral order by outgoing US President Donald Trump.

For the EU, the deal would expand access to the Chinese market for foreign investors in industries ranging from cars to biotechnology. Furthermore, the pact would tackle underlying Chinese policies deemed by Europe and the US to be market-distorting: industrial subsidies, state control of enterprises and forced technology transfers.

For China, the agreement promises to bolster the country’s claim to be a mainstream geopolitical force and may limit risks resulting from a tougher EU stance on Chinese investments in Europe. It also would strengthen Beijing’s longstanding call for the start of negotiations on a free-trade accord with the EU, which has insisted such a move depended on an investment deal being reached first.

China’s Foreign Ministry didn’t immediately comment on the latest developments. The Commerce Ministry said last week it was proceeding with negotiations at its own pace and seeks a comprehensive, balanced and high-level investment agreement with the EU bloc.

The expected achievement highlights global cross currents after Trump shook the post-war system over the past four years by sidelining the World Trade Organisation, starting a tariff war against China and hitting or threatening US allies in Europe with controversial import duties.

EU-China relations themselves have been strained this year. A recent Chinese law curbing Hong Kong’s autonomy has sparked sharp criticism across Europe, while the EU has accused Beijing of spreading disinformation about the coronavirus and targetted China-based operators with the bloc’s first-ever sanctions over cyber attacks.

And while the EU and China pledged in April 2019 to strike an investment accord by the end of 2020, the European side spent recent months downplaying the prospect of a deal this year on the grounds the Chinese government needed to make more concessions.

Through all the ups and downs, the EU has criticised Mr Trump’s confrontational tactics toward China and urged western engagement with Beijing on everything from fighting climate change to overcoming the pandemic.

The bloc helped prod the Chinese government three months ago to commit to a more ambitious climate-protection goal and, when it came to the investment pact talks, the EU ended up saying significant progress was made across the board.

The planned deal also signals the EU’s determination to assert itself and focus on economic opportunities in Asia even while reaching out to US President-elect Joe Biden to revive transatlantic cooperation. China ranked as the EU’s second-largest trading partner last year (behind the US), with two-way goods commerce valued at more than €1 billion ($1.2bn) a day.

The new US administration may not view the EU-China accord favourably, according to Frank Lavin, a former US undersecretary of commerce for international trade, who urged Brussels to consult with Mr Biden’s team in order to better coordinate interactions with China.

“There might be some in Washington who view this as a bit of a gratuitous snub,” Mr Lavin said on Tuesday in an interview on Bloomberg. “I don’t think it’s helpful in the transatlantic relationship and I don’t think it’s helpful in trying to craft some kind of interaction with China that’s a win-win. I think we want to be in a position where both Washington and Brussels are looking to coordinate their approach to China.”

The final parts of the investment accord have been put into place in recent weeks in the shadow of higher-profile EU negotiations with the UK on a post-Brexit trade agreement and of a hard-fought deal among member countries on a new European budget and pandemic recovery fund.

While the Brussels-based commission has negotiated the investment pact for the EU, the imminent breakthrough marks another result for Germany during the country’s six-month presidency of the bloc ending on December 31. Berlin has long championed the goal, stressing the importance of more balanced and deeper European economic ties to China.

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