President Xi Jinping will embark Saturday on his first visit to Europe since taking office a year ago, aiming to enhance economic ties between China and the European Union.
Foreign Minister Wang Yi, at a press conference earlier this month during the annual session of the National People’s Congress, said Xi hopes to “speed up the negotiation toward a China-EU investment agreement, with a view to future trade arrangements between China and Europe.”
Initial discussions about a bilateral investment treaty were held in September 2012 and the first formal session was held this January. From all accounts, it appears that the talks are making progress.
In fact, according to an article in The Wall Street Journal last Friday, the two sides are closing in on a landmark deal, which may be announced as soon as the Chinese president concludes a visit to EU headquarters in Brussels from March 31 to April 1.
The European Union is China’s biggest trading partner while China is the EU’s second most important, after the United States. Bilateral trade in 2013 reached US$559 billion, according to China’s General Administration of Customs.
Despite the large volume of trade, investment is still relatively low, with just over 2 percent of EU foreign direct investment being in China. While China historically had a low level of outward investment, the depressed state of the European economy in recent years has provided China with buying opportunities, including a 10 percent stake in Heathrow Airport.
As a result, Europe is turning into a major destination for Chinese investment at a time when China’s overall direct investment is growing rapidly from US$311 billion in 2010 to an expected US$1 trillion in 2020.
Both sides feel a need for an investment treaty, with China wanting to lock in the free access that it has in Europe and with the EU wanting better protection for its investments in China while also seeking greater market access, since currently China bars foreigners from investing in certain areas, including finance, strategic industrial sectors and key infrastructure.
Protection of intellectual property rights is also a longstanding issue, which the EU shares with the United States. Now that China is transforming into a developer as well as a user of intellectual property, there is hope that it increasingly shares western concerns.
China’s agreement to negotiate bilateral investment treaties simultaneously with the EU and the US suggests that it may be willing to provide greater access to its market and accept the need for a level playing field.
Last year, China and the EU were locked in a major row over solar panels. The EU complained to the World Trade Organization that China was selling them at below cost and giving illegal subsidies to domestic manufacturers. The heated dispute was eventually settled through bilateral discussions at the highest level between European Commission President José Manuel Barroso and Chinese Premier Li Keqiang.
However, there are still outstanding issues, such as a complaint China brought up in the WTO, in the wake of the EU’s allegations about Chinese solar panels, charging that the EU was selling wine in China at unfairly low prices.
The Chinese move was widely seen as retaliation for the EU’s solar panels complaint and France, the world’s biggest wine producer, called Beijing’s plan to impose duties on French wine “reprehensible”.The EU would like China to formally drop that issue. Resolution of the wine dispute may be part of an overall package agreement on trade and investment. Last month, a French official indicated that China was willing to compromise.
Resolution of the solar panels issue, which took place against the background of disarray among European states, dramatically improved the political atmosphere and the 2013 summit meeting, which was held in November, proved a success. Both sides declared a willingness to strengthen their “strategic partnership”, which was first proclaimed in 2003.
Speaking about China’s relations with Europe, Premier Li said last week that “as long as the two sides respect each other and engage in proper consultations, problems can be solved.” He made the remarks at a news conference after the conclusion of the annual session of the National People’s Congress.
President Xi will pay state visits to the Netherlands, France, Germany and Belgium as well as take part in the third Nuclear Security Summit at The Hague. His 11-day journey will end with a visit to EU headquarters in Brussels. Foreign Minister Wang has said that the visit will “open a new chapter in the history of China-Europe relations.” He may well turn out to be right.