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MNI (London)
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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MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com