EU, China Give Political Approval to Comprehensive Agreement on Investments

Posted by Written by Melissa Cyrill Reading Time: 2 minutes

The EU and China announced their political approval of the Comprehensive Agreement on Investments (CAI) on Wednesday, December 30, and the accord could reportedly come into effect as soon as early 2021. Political consensus around the market-opening agreement was reached seven years after negotiations began in 2013.

After a video conference with Chinese President Xi Jinping – Charles Michel, President of the European Council, and Ursula von der Leyen, President of the European Commission, said in a statement: “This agreement is of major economic significance… China has committed to an unprecedented level of market access for EU investors, giving European businesses certainty and predictability for their operations.”

Meanwhile, Chinese state media reported Xi’s affirmative position on the agreement and its importance to China: [The CAI] “demonstrates China’s determination and confidence in advancing a high level of opening to the outside world and will provide greater market access for China-EU mutual investment, a higher quality business environment, stronger institutional guarantees and brighter cooperation prospects.”

What to make of the announcement and its timing?

Looking forward into 2021, the relevance of the CAI is clear. Despite several doubts, the EU and China still managed to positively conclude negotiations to the agreement before the end of this year. This, in of itself, is a clear testament to their commitment to wanting to do business with each other and increasing mutual trust, at least on the economic front.

It is also interesting to note that the agreement was not delayed by the incoming administration of US President-elect Joe Biden, which indicates that perhaps the EU may no longer be as considerate of Washington in determining the scope of its future ties with Beijing.

Further, the EU has reportedly secured important concessions on major sticky points: forced technology transfers and the need for transparency on China’s state subsidies for the services sector – the latter, in particular, has prevented a level playing field between private foreign invested enterprises and China’s state-owned entities, according to EU negotiators.

Now Beijing will be obliged to publish a list of the subsidies it will provide to specific sectors every year, such as real estate, telecom, banking, and construction. In return, the EU will ensure relatively free access to its market, a major win for Chinese investors and businesses and not easy to secure as can be attested by anyone embarking on market access negotiations with Brussels.

Details are awaited on the text of the final agreement, but announcement of the political consensus is a landmark achievement on its own merit.

And, while Beijing still appears unwilling to completely remove restrictions in select sectors (automotive, health, and aviation), industry analysts are clear that EU businesses in the manufacturing, engineering, new energy vehicles, financial services, real estate, telecom, cloud-computing services, health, and consulting industries will stand to benefit the most from the market-access agreement.

Finally, in 2021, European investors will be expected to make more inroads into Asia, tapping into emerging economic opportunities and taking advantage of large markets and other operational considerations.

Given the experience of the pandemic and the US-China trade war, the shift to localize supply chains and geographically de-risk investment will continue, complimented by a doubling down in focus on important markets like China.

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