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China-EU Investment Deal a major step towards a more level playing field

During a video meeting on 30 December 2020 the leaders of the EU and China announced that there is an agreement in principle on an investment treaty. The negotiations for this Comprehensive Agreement on Investment (CAI) dragged on for 7 years and demonstrate an important innovation: the EU is finally speaking in one voice and is trying to conduct its own business with China, despite the pressure from the US. The EU unquestionably takes a different path from the US, which opts for confrontation with and disconnection from China.

It is a mere fact that one day China will become the world's number one economic operator. It is better for the EU to jump on the train than to lie down in front of it. In any case, an investment treaty with China is more favourable for both parties than a situation without treaty cooperation.

In the new world order a new balance had to be sought between the interests of two strongly tied economic parties and two different political systems. The fact that an agreement was ultimately reached and that the material interests of both parties were met while at the same time respecting the individuality of the two systems, can be considered a huge success.

To avoid a transatlantic alliance between the US and the EU, all commentators agree that China has made concessions. New economic sectors (including finance) have recently been opened up to foreign investors. Forced technology transfer and market-disrupting practices will be banned. New sectors are being opened up to European capital. In some sectors there is no requirement to have a domestic partner, and foreign capital can be up to 100%. This is especially interesting for the automotive sector, telecom equipment, cloud computing, healthcare and air transport.

The final texts of the agreement will only be completed in the months ahead, but, despite the fact that government control of economic development remains the basis of the Chinese system, it can be said that this deal is a major step towards a more “level playing field” in trade and investment ties with China, with stipulations that demand greater transparency on the subsidies and cheap loans that support many of China’s state-owned enterprises.

To conclude: in light of this new treaty and additionally taking into account China’s successful fight against covid-19, EU companies should urgently reassess their China strategy and consider new opportunities and market openings in China. In this respect, see also our recent article about this on the following link.

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