MNI EXCLUSIVE: China Has Strategic Edge With EU Pact: Advisors

The EU-China investment treaty forestalls the U.S. and Europe from joining forces to pressure Beijing on trade and is a stepping stone to more ambitious pacts, say policy advisors, who point to the inclusion of issues such as labor rights and subsidies as breakthroughs that can strengthen China's hand in future negotiations.

While many concessions in the Comprehensive Agreement on Investment pact, including changes to joint venture requirements, overlap those Beijing has made elsewhere, "it is the first time China is writing down its pledge to provide greater market access in a legally binding international treaty," said Tu Xinquan, the dean of China Institute for WTO Studies at the University of International Business and Economics.

The pact will prevent the government from backtracking on its commitments and could lower barriers for Chinese investments in Europe since Beijing has agreed to greater transparency on subsidies, said Tu.

Brussels tightened scrutiny of foreign investments late in 2018 citing national security risks that were ostensibly triggered by a shopping spree by Chinese state-owned entities. "Chinese companies would be especially interested in investing in European wineries, farms and high-end service companies, said Zhang Jianping, a director from the Chinese Academy of International Trade and Economic Cooperation.

INNOVATIVE

Concluded on Dec. 30 after seven years' of negotiations, the CAI also addresses other sensitive issues that proved hurdles to China joining the Barack Obama-led Trans Pacific Partnership, which collapsed when President Donald Trump withdrew the U.S. from it. The EU's concerns about forced labour were resolved at the last minute after China pledged to make efforts to ratify international conventions on workers' rights.

The clauses on sustainable development and labour protection are innovative in an investment deal, Zhang said.

According to advisors, Beijing is now in a better position to negotiate entry to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which replaced the TPP and no longer includes the U.S.

Beijing's determination to clinch the EU pact increased after Joe Biden's move aimed at pressuring China, said Wang Peng, Distinguished Research Fellow, Center for Hong Kong, Macao, Taiwan and World Affairs, Communication University of China. Late in December, Jake Sullivan, Biden's nominated national security adviser, made an unsuccessful plea for consultations before Brussels signed the agreement.

AUTOS, HOSPITALS

The pact still needs to be ratified by the European Parliament and the Chinese government, a process expected to take about a year. It replaces the bilateral deals that China has with most European countries, with the exception of the U.K. Advisors say a China-U.K. deal is not high on the agenda of either country.

Although Beijing played up the greater market access to its automobile and private healthcare sector, Tu said the impact would be limited. China lifted the shareholding cap for foreign carmakers in joint ventures in 2018 and German carmakers, including BMW, have already obtained controlling shareholding.

As for the European medical industry, it is not as strong as that in Japan or the U.S. and may not have the additional resources to enter the Chinese market, said Tu. "The U.S. is actually the strongest in these two sectors but China turned to the EU because Biden may continue with the hawkish policies," said Wang. China's private hospital sector doesn't offer much scope as it is linked to social welfare, said another advisor who requested anonymity.