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2011-01-10 | All chapters

Commission mulls investment deal with Beijing
Europolitics, 21st December 2010

The EU and China will explore the possibility of negotiating an ambitious bilateral investment deal during a high-level meeting to be held in Beijing, on 21 December, Europoliticshas learnt. Removing barriers for European companies investing in China will be a top priority for Karel De Gucht, who will lead a team of three commissioners for the third High-Level Economic and Trade Dialogue (HED). The EU trade commissioner will test the willingness of the Chinese leadership to move towards a bilateral investment agreement that would ensure better flows of capital between the two markets. The meeting with Chinese Vice-Premier Wang Qishan will give an indication about the chances of starting talks in the near future. The discussions will also touch upon macroeconomic issues, including the G20 and 'green' technology.

The HED is the most important annual meeting to address economic issues between the EU and China. European Commission President José Manuel Barroso and Chinese Premier Wen Jiabao set up the dialogue at the EU-China summit, in November 2007, at the request of the EU with the aim of addressing frictions over bilateral economic issues.

Joaquin Almunia, the commissioner in charge of competition, and his colleagues Olli Rehn (monetary affairs) and Algirdas S emeta (taxation) will accompany De Gucht in Beijing and hold bilateral talks with their Chinese counterparts. Their presence in Beijing confirms the Commission 's focus on the issue of investment. A task force on investment has been created and has been exploring the possibility of launching investment talks with Beijing. "We are still at an early stage," commented an EU source.

DG Trade and the EU Chamber of Commerce in China (EUCCC) are concerned that multiple non-tariff barriers, such as legislation, standards, lack of Intellectual property rights or untransparent public procurement procedures, are deterring European companies from investing further in the second largest economy in the world. European investments in China have been declining over past few years, from €7.1 billion in 2007 to €5.3 billion in 2009.

DG Trade wants to use this declining trend as a leverage to convince Chinese leaders to establish a friendlier environment for European companies investing in the country.

In Beijing, De Gucht and his colleagues will stress the need to address these issues rapidly and will argue that it is in China' s interest to see more European companies invest and bring technological knowledge to the country. EU investment stocks are among the largest in China, worth more than €32 billion in 2006. Half of that sum goes to the manufacturing sector.

Yet, the EU will face a challenging task at a time when the Chinese economy is enjoying a solid growth that attracts foreign capital fleeing from depressed economic areas like the US and Europe. Foreign investment in China reached it highest point in five months last November. Moreover, Beijing is trying to reduce its reliance on foreign capital and exports through the building of a strong domestic market and the development of national champions. European firms are wary that this new trend unveiled in the aftermath of the financial crisis will hamper their share of the Chinese market.

'Green' technology will be a key factor that could break the deadlock and pave the way for a EU-China deal. The Asian giant has set ambitious goals to curb its CO 2 emissions but it still lags behind in terms of 'green' technology. Chinese leaders and companies are interested in technology transfers in this field - and several European companies are leaders in wind and solar energy. This technological edge is one of the few assets in the hands of the EU negotiators, who are keen to convince their Chinese counterparts to improve the situation of European companies. Hence, the HED will hold a session on 'low carbon economy'. Günther Oettinger, the EU commissioner in charge of energy, was originally scheduled to travel to Beijing but will be represented by a senior official from DG Energy.

The EU and China will also discuss major global economic issues, including the state of the G20 talks in the aftermath of the Seoul summit, held in November. The controversial issue of the yuan, which is undervalued according to the EU, the US and the IMF, will be touched upon. However, the European side will take a low-key approach during the meeting, in order not to jeopardise progress on other issues. "They already know our position," said a Commission source. Last October, Barroso, Jean-Claude Trichet, the president of the ECB, and Jean-Claude Juncker, the president of the Eurogroup, had a heated discussion with Prime Minister Jiabao in Brussels. "The Chinese did not like it," commented a Commission official. The last G20 summit has shifted the focus from the issue of currency exchange rate towards limiting the trade surplus and the deficit. During the HED, the Commission will test Beijing' determination to make tangible progress on that issue during the French presidency of the G20.

Obstacle to investments

Only 3% of the EU's outbound investment goes to China due to restrictive certification and trade policies, warns the EU Chamber of Commerce in China. In comparison, some 9% of EU outbound investment goes to Switzerland alone. The sectors most affected by these discriminatory policies include: auto, banking, construction, health care equipment, insurance, IT, petrochemicals and telecoms equipment. China is the EU' s second largest trading partner. In 2009, the EU imported 214.7 billion euro worth of Chinese goods and exported 81.7 billion euro worth of products to China.