The European Union and China announced the political approval of an agreement to open the Chinese market further to EU investors, marking a major step in talks that began in 2013.

The breakthrough in negotiations on an EU-China investment deal signals the bloc’s determination to focus on economic opportunities in Asia even amid criticism of Beijing’s record on human rights. The accord could enter into force in early 2022.

For the EU, the deal risks irking the incoming US administration, which has urged the Europeans to consult with them over China’s economic practices. Failure by the US and EU to forge a common position would give Beijing an advantage as western leaders reassess geopolitical relations in the wake of Donald Trump’s presidency.

“This agreement is of major economic significance,” the leaders of the bloc’s two main institutions, Charles Michel and Ursula von der Leyen, said in a statement on Wednesday after a video conference with Chinese President Xi Jinping. “China has committed to an unprecedented level of market access for EU investors, giving European businesses certainty and predictability for their operations.”

Market Access

For the 27-nation EU, the pact expands access to the Chinese market for foreign investors in industries ranging from cars to telecommunications. Furthermore, the agreement tackles underlying Chinese policies deemed by Europe and the U.S. to be market-distorting: industrial subsidies, state control of enterprises and forced technology transfers.

For China, the accord bolsters the country’s claim to be a mainstream geopolitical force and may limit risks resulting from a tougher EU stance on Chinese investments in Europe. It also strengthens Beijing’s longstanding call for the start of negotiations on a free-trade pact with the EU, which has insisted on an investment deal first.

China ranked as the EU’s second-largest trade partner in 2019 (behind the US), with two-way goods commerce valued at more than 1 billion euros ($1.2 billion) a day.

The investment deal “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,” Xi said, according to state media.

The announcement on Wednesday represents a high-level political blessing to the investment pact, which will also cover environmental sustainability. Both sides plan to put the finishing touches on it over the coming months.

“A strong agreement would be a powerful statement to show that constructive engagement can produce results,” Joerg Wuttke, president of the EU Chamber of Commerce in China, said in an emailed statement.

Human Rights

Once finalised, the accord will need the approval of the European Parliament, where some voices have expressed objections as a result of alleged human-rights violations in China. The deal includes Chinese pledges on labor standards meant to address such concerns, including in relation to ratification of related United Nations-backed conventions, according to EU officials, who asked not to be identified because of the continuing preparations.

“It’s not a given that the EU Parliament will give its consent,” Reinhard Buetikofer, a German Green member of the assembly, told Bloomberg Television on Tuesday. “We’ll give it a tough scrutiny.”

The incoming US administration has also signaled reservations, at least about the timing of the agreement. Jake Sullivan, national security adviser to President-elect Joe Biden, on Dec. 22 urged “early consultations with our European partners on our common concerns about China’s economic practices.”

The developments highlight global cross-currents after Trump shook the post-war system over the past four years by sidelining the World Trade Organization, starting a tariff war against China and hitting or threatening US allies in Europe with controversial import duties.

When the Trump administration in January 2020 struck a first-phase commercial accord with China that eased their economically damaging fight, the EU criticised the deal as a “managed-trade outcome” that might itself violate WTO rules and merit a legal challenge.

Deal Highlights

Following are some of the Chinese concessions to European investors in the agreement, according to an EU official who spoke on the condition of anonymity:

• Chinese market opening: improved access across industries including air-transport services, where joint-venture requirements for computer-reservation systems are being removed, and new opportunities in sectors including clean vehicles, cloud services, financial services and health
• Chinese state-owned enterprises: non-discrimination commitment when SOEs are buyers of services
• Chinese subsidies: enhanced transparency, notably for services
• Chinese forced technology transfers: prohibited

While the accord largely commits the EU to maintain its relative openness to Chinese investors, according to the European official, the deal offers greater access for them to the bloc’s:

• energy wholesale and retail markets (but excluding trading platforms)
• renewable-energy markets (with a 5% cap at the level of EU countries and a reciprocity mechanism)

By Jonathan Stearns