MNI EXCLUSIVE: EU Investment Screening A Barrier To China Deal

by Iris Ouyang

     BEIJING (MNI) - European Union moves to screen foreign investment to

protect key technology and infrastructure could complicate an investment

agreement with China, despite a commitment by the two sides to clinch the deal

by 2020, a Chinese government advisor told MNI.

     Cui Hongjian, director of the department of EU studies at the China

Institute of International Studies (CIIS), a government think tank managed by

the Ministry of Foreign Affairs, hailed Tuesday's China-EU joint statement as

showcasing both sides' determination to defend multilateralism and free trade.

     But the EU's new foreign investment screening framework could be a problem,

Cui said: "China wants to be more and more open, issuing the new foreign

investment law and prioritising the investment treaty negotiations, but the EU

is tightening up, and weakening the impact of the moves from China."

     He also noted that the EU's drive for equality of treatment for investors

across jurisdictions will be tough for China to accept.

     "The EU assumes China is already a developed economy, so its market access

should be the same as that in Europe. So far it's hard for China to accept this

assumption," Cui said, adding that China's GDP per capita remains low and the

country is still dealing with imbalances in the speed and quality of

development.

     "Europe needs to give up its idea of absolute 1:1 equality with China; that

it will open a certain sector to China if China opens it to the EU, otherwise

not," he said. "If this continues, it will be hard for both sides to reach an

effective investment agreement."

     European officials have briefed reporters that the post-summit statement

came after concessions from China, but Cui said the moves towards freeing

investment were in line with the Asian nation's own objectives: "It's not

because of pressure from the EU. It's more that China's domestic reform and

opening up requires policies and measures which are in line with the EU's needs

and interests."

     --NEGATIVE LIST

     Both Cui Hongjian and Cui Fan, an expert advisor for the Advisory Committee

for Economic and Trade Policy at the Ministry of Commerce, said there's room for

China to trim its negative list, which currently restricts foreign investment in

48 industries. The government will announce a new list by the end of June.

     A future comprehensive investment agreement between the EU and China would

be the first time Beijing would have agreed to give foreign companies equal

treatment as Chinese firms at all stages of the investment process, in areas not

covered by the negative list, Cui Fan said.

     "It would not only enhance bilateral investment between China and the EU,

but also improve the development of the global investment system," Cui Fan, also

a professor at University of International Business and Economics, told MNI.

     China's existing bilateral investment treaties contain provisions to

protect foreign companies but not to expand their access to new areas in which

to invest, Cui Fan noted. A deal with the EU would automatically extend the same

conditions to other countries enjoying China's most-favoured nation treatment.

     South Korea, Australia and ASEAN countries will enjoy the same treatment as

the EU due to China's most-favoured nation obligations, Cui Fan said, noting

that this would incentivise other countries to seek most-favoured status:

"Countries such as those in the Regional Comprehensive Economic Partnership will

be more active in finalising negotiations... and it's likely to lower overall

investment barriers in China."

     A China-EU investment treaty would also enshrine guarantees for investors

under international law, whereas China's existing tools for managing foreign

investment, such as the negative list, are governed by local legislation, Cui

Fan noted.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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