Sat. Jan 16th, 2021
European Union, China approve ‘in principle’ major major investment deal after seven years of painstaking negotiations.

BEIJING: The European Union (EU) and China on Wednesday approved “in principle” a major investment deal after seven years of painstaking negotiations.

The pact is seen as a boost for investment flows for both sides in a pandemic-hit global economy and a key political win for China ahead of US president-elect Joe Biden’s arrival in the White House.

What is it?

The agreement aims to open China’s market and eliminate discriminatory laws and practices preventing European companies from competing on an equal footing, according to the European Commission.

The sums at stake are considerable: EU foreign direct investment in China since 2000 – excluding Britain – amounted to US$181 billion (RM731 billion). The corresponding sum from China is US$138 billion (RM557.5 billion).

The EU was long China’s largest trading partner, although it was recently overtaken by Asean.

In the third quarter of this year, China nosed ahead of the US to become the EU’s largest partner as well.

What’s in it for Beijing?

China is fighting diplomatic battles on several fronts, the most pernicious with superpower rival the US, over trade, security, tech and human rights. The Biden presidency is likely to see the US try to pull allies – including the EU – into a tighter coalition to box-in China, especially over its rights record.

The deal gives China a diplomatic win and potentially draws the Europeans into its camp before Biden takes office.

“For Beijing, the agreement would provide it with a highly symbolic political win, demonstrating that China is in the business of globalisation with major international partners,” said Mikko Huotari, director of Mercator Institute for China Studies think tank.

In a sign of looming disquiet over the EU pact, Biden’s incoming national security advisor Jake Sullivan issued a cryptic tweet last week urging “early consultations with our European partners on our common concerns about China’s economic practices.”

For Beijing, Chinese tech giant Huawei has been shut out of the 5G equipment market in many EU countries, and Beijing has demanded guarantees of access to public markets in the bloc and to sectors such as telecommunications and energy infrastructure.

Why is the EU signing?

Brussels says the pact will “help rebalance the trade and investment relationship between the EU and China” and provide an “unprecedented level of market access” for European investors.

The deal aims to protect European companies’ intellectual property, ban forced technology transfers and enhance transparency on subsidies paid to Chinese public companies. It also eliminates in some sectors the obligation for European firms to have a Chinese partner when entering the country’s vast market.

All offer a bonus to EU firms at a time of economic distress caused by the coronavirus.

China has also committed to work towards ratifying the International Labor Organization (ILO) conventions on forced labour.

Problems

Allegations of forced labour in Chinese supply chains, a limited deal open to Beijing’s phlegmatic regulators and losing leverage over a bullying superpower – three big reasons critics say the EU should not be penning a pact at this time.

Europe risks losing trust with like-minded partners including the US, Australia and Britain, by concluding the agreement before a wider strategy can be formed to check China’s ambitions.

Moreover, without substantial improvements on labour standards, Europe will also lose credibility as a “normative and principled power”, Huotari said.

China is accused of using forced labour of the Uighur Muslim minority in the northwest Xinjiang region throughout its textile supply chains – an allegation Beijing roundly refutes.

What about the small print?

Rules surrounding strategic sectors remain in place – China maintains a “negative” list of around 30 key sectors in which it excludes or limits foreign investment, particularly in mining, energy, media or culture.

In December, Beijing announced new rules subjecting foreign investments in defence-related industries to scrutiny.

Foreign investment in key areas such as agricultural production, energy and resources, and financial services will come under new regulations, if they involve stakes of more than 50 percent.

Since October, Europe has had a framework for handling foreign investments in strategic sectors, based on the exchange of information between member states, some of which are better equipped than others to deal with them.

And what next?

After the agreement in principle announced on Wednesday, experts from both sides will get down to drafting the final agreement, which will have to be ratified by the European Council and the European Parliament.

Many MEPs take a dim view of a rapprochement with Beijing, with concerns over the erosion of Hong Kong’s autonomy and the crackdown on the Uighurs in northwest China. – AFP

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