Second to the U.S., China is Europe’s largest export partner and the biggest in imports, where on average, over €1 billion ($1.2 billion) is traded every day. Though the EU-China Comprehensive Investment Agreement (CAI) is tentatively approved, the agreement is expected to uphold major economic significance as it binds both parties into a value-based investment, grounded by sustainable development principles.
The treaty will correct the market imbalance by giving Europe the same level of market access and facilitating stronger foreign investments in China, creating a non-discriminatory environment for investors.
Just last month, China had also signed up to the ASEAN trade deal with 15 countries in building the Regional Comprehensive Economic Partnership (RCEP). Covering a market of over two billion people and a output of $26.2 trillion (roughly 30% of the world’s GDP) from the blocs combined, China will also leverage from this treaty in further exerting its influence across the Indo-Pacific region.
Open Market Access and Level Playing Field
One of the core benefits coming from this trade deal is the alignment and opening up market access, thus granting European companies to receive fairer treatment when competing in the Chinese market. Restrictions will be removed for European investors and China will open up its financial services, cloud services, and logistics to the other party – all the while committing to Europe’s manufacturing, R&D, and the likes. The agreement will also help level the playing field for European investors by enlisting clear rules on the transparency of subsidies and Chinese state-owned enterprises.
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Initially, the agreement had come with resistance and objections over a slew of China’s violations in human rights, restrictions in freedom of expression with regards to Hong Kong, and other concerns with surveillance and detention practices by the Communist Party. However, the deal will now uphold China to commit to high standards of conduct by eliminating forced technology transfers and distortive practices.
While negotiations are still confidential and awaiting approval in writing, the investment agreement will assert businesses with greater certainty and predictability, especially for those looking to expand to the Mainland whether through direct operations or in equity thus reducing regulatory obstacles and sensitive data sharing. Meanwhile, the treaty may also open up opportunities for Chinese corporations in outbound acquisitions over ‘bargain deals’ from vulnerable businesses in the effect of the pandemic – of which European governments had initially blocked foreign business takeovers earlier this year.
The trade deal also benefits China greatly especially during pandemic times owing to greater market access and cooperation prospects, strengthening ties between the two trading blocs. Case in point, Alibaba BABA has been investing heavily into Europe in recent years, reinforcing its logistics route between China and the West in preparation for its European expansion.
The treaty further holding China accountable for human rights abuses is expected to improve supply chain controversies as it has been brought to light of Xinjiang’s Uyghur cotton mills, in which many global fashion brands from Louis Vuitton to Nike NKE have been allegedly (now denied) sourced their cotton from forced labor camps.
Lastly, arguments have also been raised whether Europe would be at the risk of losing leverage and encouraging Chinese assertiveness when the U.S. and Australia are currently engaged in tariff wars with China, thus challenging geopolitical relations and seen as a diplomatic coup as such.