The EU-China Comprehensive Agreement on Investment (CAI) was signed on December 30, 2020 under the energetic push of Berlin, determined to take advantage of Beijing’s sudden flexibility on the terms of the bilateral investment agreement.
Whether or not it is relevant to see it as part of Beijing’ efforts to pre-empt improving US-EU relations shall not be discussed here although we note that many US analysts fear that the actual implementation of the deal would likely complicate transatlantic rapprochement on China policy.
Essentially, the CAI would give European investors additional market access in China and rebalance the current asymmetry of EU markets already more open to China than the other way around.
Anyhow, the finalization and ratification phase involving Brussels and member capitals will last at least a year.
What is the CAI about?
The EU negotiators secured market-access commitments from China in areas ranging from financial services, telecommunications services, new energy vehicles, air and water transportation services, chemicals, private hospitals, and research and development.
The agreement is meant to lift the complex Chinese joint-venture requirements in sectors like automobiles and financial services and to increase legal protections for EU originated investments.
A non-negligeable part of the hype around the deal relates to the Chinese commitment to implement a fair investment environment in the presence of China State-Owned industries (SOE).
China also pledged to improve transparency in its regulatory environment.
There will be a monitoring body meant to check the CAI implementation and a robust State-to-State Dispute Resolution mechanism shall address any dispute.
Yet, it is still unclear to what extent China really made significant concessions. As a matter of fact, where the commitments are shadowy and without deadlines, involving for instance international labour standards (OIT conventions) and state-owned enterprises (whose subsidies would be excluded from the Dispute Resolution mechanism), the prospects might be questionable.
On a similar note, China promulgated in September 2020 the Unreliable Entity List (UEL) that aim at identifying which foreign individuals and entities listed on the UEL may be restricted or prohibited from investing in China, based on the identification of such entities/individuals’ potential harm to state sovereignty, national security, national interests and Chinese entities/individuals.
This may be combined to January 1st 2020 PRC Foreign Investment Law (FIL), which establishes a security review system for foreign investment for any foreign investment that affects or may affect national security.
Beijing is said to have circulated an unofficial list of sensitive industries and sectors. These industries would be mainly military or military-related products or services, national defence-related products or services, agricultural products, energy, resources, infrastructure, significant transportation services, key technology and heavy equipment manufacturing.
Such precautions are not entirely one-sided: the EU assures that sensitive areas such as public services, critical infrastructure and technologies remain fully preserved. Yet, it is obvious that the boundaries are much better delineated on the Chinese side.
Whether EU enthusiasts may want to slightly tone down the cheering looks like a sensible option (many key details have been left for future negotiation), but the move also has a clear and strong political flavour in uncertain times that gave the EU the opportunity to show some autonomy from Washington.
For Beijing, the agreement appears to be a highly symbolic political win, further demonstrating that China is in the business of globalization with major partners, securing the continued interest of European investors and access to interesting technology.
Contact AGM Abogados if you have any questions or you need further information.
Partner Asian Desk