China-EU investment pact is signed but not yet a done deal, analysts warn

Laura Zhou
·4-min read

A deal may have been struck but there are still big uncertainties ahead for China’s newly minted investment agreement with the European Union, from security reviews to power shifts in the EU, a prominent Chinese academic cautioned on Monday.

Liu Luxin, an international relations expert at Renmin University in Beijing, said that amid the celebrations there was reason for concern about the comprehensive agreement on investment signed by Beijing and the bloc last week.

“Rather than being an endpoint, the China-EU Comprehensive Investment Agreement is a new beginning for China’s economic diplomacy,” she wrote in China Economic Diplomacy Watch, an online magazine on WeChat, a social media platform.

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“While cheering the completion of the investment agreement negotiations, we also have reasons to be sober and calm about the future development of China-EU economic and trade relations.”

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Beijing has touted the deal as a strategic breakthrough in its bitter geopolitical competition with Washington, a rivalry that has ramped up on various fronts, from trade and technology to the military and ideology.

But Liu said various factors, including the prospect of a renewed transatlantic alliance and the retirement of German Chancellor Angela Merkel, would add uncertainty to the fate of the investment pact.

Merkel, a major driver of the deal, was expected to step down after elections this year and her departure would “certainly affect the political ecology of the EU”, Liu wrote.

The United States has also signalled that it could try to work with the bloc to put pressure on China, with Jake Sullivan, national security adviser to US president-elect Joe Biden, saying the US would “welcome early consultations with our European partners on our common concerns about China’s economic practices”.

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In addition, the deal needs to be ratified by EU governments and the European Parliament as a replacement for 26 bilateral investment agreements between China and EU members, a process that is unlikely to be completed until 2022.

Under the new umbrella, European companies would be given unprecedented access to the manufacturing, shipping, aviation, computing, telecommunications, health and finance industries.

Beijing committed to ensure that EU companies could compete on a more even playing field in China, with rules against forced technology transfer – one of the biggest sticking points in the seven years of talks.

For the first time, the parties also agreed on ambitious provisions on sustainable development, including commitments on forced labour and the ratification of the relevant International Labour Organization conventions.

In return, Chinese companies will have the same access as their European counterparts when investing in the EU, with the removal of special restrictions on Chinese state firms and political barriers created by security review systems for foreign investment.

But Liu warned that Chinese investment would still face barriers in Europe, largely because of “security exceptions” throughout the pact.

“Even after the agreement is reached, China will still need to pay attention to the changes in the EU’s foreign investment security review regime,” she wrote.

“There is therefore considerable uncertainty about the China-EU investment agreement.”

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There are also reasons for wariness in Europe, according to Mikko Huotari, executive director of the Mercator Institute for China Studies, a Berlin-based think tank.

In the German newspaper Handelsblatt on Thursday, Huotari said there was still a question mark over how Beijing would ensure the promised market access for European companies.

“From Beijing‘s point of view, the wider opening up of China is subordinate to other political goals that are at the heart of European competitiveness,” Huotari wrote.

“The toothless enforcement mechanisms and China’s track record of compliance with international commitments cast doubts about the viability of the entire agreement.”

Additional reporting by Kinling Lo

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