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China-EU investment pact on the right track

By Dan Steinbock: 0 Comment(s)Print E-mail China.org.cn, January 28, 2014

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Last week, China and the European Union had their first round of talks regarding an investment pact. While both parties hope to launch a new decade of broader and deeper economic ties, bilateral relations have been haunted by a series of trade disputes.

[Cartoon:China Daily]

The primary objective of Brussels is to ensure broad access to the Chinese marketplace, whereas the main goal of Beijing needs technology and know-how, and hopes to ensure a faster transition into the new growth model.

Furthermore, China-EU talks are taking place amidst an ongoing scramble for trade deals and blocs in the region.

Different goals, similar hopes

The start of the bilateral talks regarding an investment treaty reflects an important change, especially after both countries have been embroiled in a number of trade spats.

In early 2013, the European Union accused China of dumping solar panels onto the European market and getting illegal subsidies, while threatening to take action against Chinese telecoms equipment giants Huawei and ZTE. These moves were followed by a tit-for-tat accusation from China that the European Union had in fact dumped its wine onto the Chinese market.

Nonetheless, both sides have their individual incentives to move ahead in bilateral relations. As international multilateral trade talks continue to linger, the spotlight has shifted toward free trade agreements (FTAs). Since Washington is pushing for the Trans-Atlantic Pacific (TPP) agreement, in which Brussels plays no role and Beijing is following from the sidelines, it is hardly surprising that there is any renewed interest in forging a Sino-EU investment agreement.

These days any increase of trade-driven output in Europe feels like manna falling from heaven, yet European leaders do feel the pressing need to negotiate a deal.

From Brussels' standpoint, it is vital for Europe not to fall behind the United States in the scramble for Asia, as economic gravity is now shifting from the transatlantic axis to Asia.

To Beijing, this is even more important since the future growth of China, as well as the prosperity of the Chinese, depend on how quickly the mainland can catch-up with the competitiveness and innovation of the world's advanced nations, particularly the core European economies -- Germany, the U.K., France and Italy.

To Brussels, then, the proposed pact ensures its long-term position in the Chinese marketplace. To Beijing, it is a way to accelerate catch-up growth, improve human capital and support the nation's ongoing reforms.

From trade and goods to investment and services

Today, the European Union is China's largest trade partner. Last year, bilateral trade soared to US$559 billion, up 2.1 percent year-on-year. In turn, China is the European Union's largest source of import and has become one of its fastest-growing export markets.

The investment story is very different. China accounts for barely 2 to 3 percent of total European investment abroad, whereas Chinese investment in Europe is rising fairly swiftly, albeit from a very low starting-point.

Last year, EU non-financial investment in China climbed by more than 18 percent, up to US$7.2 billion, whereas Chinese investment in Europe declined by nearly 14 percent.

The massive trade and investment potential is hampered by the old obstacles in the bilateral relations. Consequently, Brussels is eager to broaden and deepen its access to the Chinese marketplace and overcome current sources of tension.

Conversely, Beijing wants to use the pact to broaden and deepen its access to the European marketplace and ensure the protection of Chinese investors by European governments.

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