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EU Leaders Finalize Investment Deal With China

The European Union and China on Wednesday reached a major business investment deal that lets European firms into lucrative Chinese markets and calls for China to ban forced labor and ramp up efforts to protect the environment.

(CN) — The European Union and China on Wednesday reached a major business investment deal that lets European firms into lucrative Chinese markets and calls for China to ban forced labor and ramp up efforts to protect the environment.   

The strengthening of economic ties between the EU and China is a setback for President-elect Joe Biden and American efforts to build an alliance against China.

Following a video conference, EU leaders announced that they had agreed “in principle” on the investment deal with China. Both sides set the end of 2020 as a deadline for reaching the landmark agreement.

Ursula von der Leyen, the European Commission president, called the deal “an important landmark in our relationship with China and for our values-based trade agenda.”

“It will provide unprecedented access to the Chinese market for European investors, enabling our businesses to grow and create jobs,” she said in a statement. “It will also commit China to ambitious principles on sustainability, transparency and non-discrimination. The agreement will rebalance our economic relationship with China.”

Chinese President Xi Jinping called it a “balanced, high-standard and mutually beneficial” deal that will open up markets on both sides and help the world recover economically from the coronavirus pandemic.

The deal, known as the EU-China Comprehensive Agreement on Investment, had been stalled by sparring between China and the EU over human rights abuses by the repressive Chinese regime and Chinese demands for access to Europe’s energy markets. In recent days, though, EU diplomats said China conceded to demands to uphold workers’ rights, do more to fight climate change and protect the environment.

Since 2013, the EU and China have held talks on giving European companies more access to Chinese markets and its 1.4 billion consumers. The EU, like the U.S., has long complained that China unfairly bars foreign companies from competing in its markets.

The EU said the deal opens up many new markets in China, including manufacturing, cloud services, financial services, private health care, environmental services, international maritime transport and air transport-related services.

EU officials also say the deal includes provisions against forced technology transfers and limits competition from Chinese state-owned enterprises. European and American companies have long complained that doing business in China involves forcing them to give up technology secrets to China and unfairly having to compete against Chinese companies that are heavily subsidized by the state.

The geopolitical dimensions and optics to the accord are seen as highly significant because such a deal, if approved by EU leaders and the European Parliament, would engender a deepening of ties between China and the EU at a time when the U.S. is seeking to build an alliance against China, which is now projected to overtake the U.S. economy by 2028.

Thus, the EU-China deal could be a setback for Biden, who is expected to continue the Trump administration’s tough stance on China. In recent days, the incoming Biden administration said it wanted to work with the EU on coordinating policy toward Beijing. But it appears the EU is pushing ahead regardless of Biden’s overtures.

“Not sure if the EU realizes how much damage it is doing to its interests in the U.S. with the investment pact with China,” Tom Wright, an expert with the Brookings Institution, a U.S. think tank, said on Twitter. “Overall this just makes EU offers of a renewed partnership sound insincere. I'm sure Biden will work to revitalize transatlantic relations but this episode is unquestionably damaging.”

For China, the EU deal may open up European markets even more to Chinese enterprises, though many analysts believe China sees the deal as more of a political victory than an economic one because it drives a wedge between the U.S. and EU. Still, the deal is expected to open up the EU’s renewable energy sector to Chinese investors.

A man wearing a protective face mask walks by the investment icon bull statue on display outside an office building in Beijing, Wednesday, March 11, 2020. Stocks were mostly lower in Asia on Wednesday despite gains on Wall Street on hopes the Trump administration will act to cushion the economic pain of the virus outbreak. (AP Photo/Andy Wong)

The EU’s move to get closer to China in defiance of U.S. opposition also reflects a growing determination in Europe to steer a geopolitical course that is more independent from American interests. Also, European businesses are eager to get a bigger slice of the lucrative and growing Chinese economy. For example, German companies want to get into China’s markets for electric cars and batteries.

“This deal will give European businesses a major boost in one of the world's biggest and fastest growing markets, helping them to operate and compete in China,” said Valdis Dombrovskis, the EU's commissioner for trade. “It also anchors our values-based trade agenda with one of our largest trading partners. We have secured binding commitments on the environment, climate change and combating forced labour. We will engage closely with China to ensure that all commitments are honoured fully.”

Supporters of the deal also say it can become a blueprint for a similar agreement between the U.S. and China. China has long sought to conclude a similar investment deal with the U.S., but that aim was crushed by President Donald Trump’s trade war with China.

There are many critics in Europe who see the EU’s deal with China as a hypocritical profits-over-principles approach. Despite any commitments it makes in the investment deal, critics argue that China will pay only lip service to human rights and continue suppressing opposition voices, cracking down on human rights activists in Hong Kong and in mainland China, and continue to use forced labor, most notably among Uighur Muslims. Hundreds of thousands of Uighur Muslims have reportedly been forced to work in cotton fields.

Earlier this month, a group of China scholars in Europe urged the EU to not rush into a deal, arguing that it was a “modest step in promoting reciprocity, competitive neutrality and a level playing field.”

“Concluding it now, is a symbolical victory for China and makes it harder for Europe to engage it on critical matters in the future,” the scholars wrote.

They also argued that once it has secured “a public diplomacy success over Europe, China will turn further its attention to its one tough customer – the U.S., with the added benefit to have divided allies during an all-important transition in Washington.”

The China experts said the deal will not open up China’s massive public markets and that European companies will not be treated fairly in public tenders.

The difficulties and contradictions inherent with the EU’s China deal were apparent on Tuesday when the EU issued statements condemning human rights violations in China.

The bloc demanded the release of Zhang Zhan, a Chinese citizen journalist sentenced Monday to four years in prison for reporting on the coronavirus outbreak in Wuhan. The EU also called for the release of imprisoned human rights activists and lawyers.

Separately, the EU issued a statement condemning the opening of a trial on Monday against 10 of 12 jailed Hong Kong activists. It blasted China for conducting a closed trial and not allowing the activists to appoint lawyers of their own choosing. The EU called on China to release the 12 activists and allow them to return to Hong Kong.

But EU diplomats argue that the investment deal will push China in the right direction. European Commission officials told reporters that China was committing to ratifying international conventions on banning forced labor and agreeing to upholding its commitments under the Paris climate agreement to reduce greenhouse gases.

Eurostat, an EU statistics agency, reports that the EU exported about $242 billion in goods to China in 2019 and imported about $442 billion in goods from China.

The deal is expected to make it easier and safer for EU investors seeking to do business in China by eliminating equity caps and scrapping requirements that EU companies must form joint ventures with Chinese companies. Also, the deal could give EU investors access to more information affecting their businesses and protect both Chinese and EU investors against unfair treatment and discrimination.

Courthouse News reporter Cain Burdeau is based in the European Union. 

Follow @cainburdeau
Categories / Business, Government, International

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