Later this week negotiations for a Comprehensive Agreement on Investment, or CAI, between the EU and mainland China will be held in Brussels. This is an important early test for the EU’s new trade chief Phil Hogan, who prioritised the bilateral investment treaty during his recent visit to China, which he expects to conclude this year.
Others at the European Commission’s offices have expressed scepticism, citing China’s perceived restrictive market access policies. The commission’s director-general for trade said that mainland China and the EU talks need “more political commitment on the Chinese side”.
The success of the negotiations is important for Ireland, which has benefitted in recent years from Chinese foreign direct investment, which reached €128.2m in the first six months of last year. However, Chinese investment here is still at a relatively low level though the IDA expects to continue significant growth in the coming years.
Brussels has been pushing for the long-discussed comprehensive agreement to help give the sluggish EU economy a boost. Progress has been hindered over the past two years by the US-China trade war. However, the recent accord between the US and China on a “phase one” trade deal has freed up the China negotiating team and offers a real opportunity for progress this year.
Running second only to the US in terms of international buying power, Trade Commissioner Hogan believes the timing is ripe to win a bigger slice of China’s foreign direct investment for Europe. The aim of the agreement is to provide investors on both sides with predictable and long-term access to the EU and Chinese markets, as well as to protect investors and their investments.
The CAI, once its provisions are agreed, will not only signify a traditional investment protection agreement but will ensure that foreign investors have the same market access as domestic investors.
The commission wants to see an opening of key sectors, such as telecommunications, information and communication technology, health, financial services, and manufacturing. According to the commission, financial services, including aircraft leasing, sharply lacks reciprocity.
The IDA initially targeted Chinese investment in areas such as financial services, with a particular focus on the aircraft leasing sector, with great success. Eighteen groups from the Chinese mainland and Hong Kong are using Ireland as a strategic bridgehead in their push for a bigger share of the €227bn global aircraft leasing market.
HNA Group’s acquisition of aircraft leasing company Avolon in 2015 has led the way. Subsequently, a raft of Chinese banks and Chinese corporations took control of a significant slice of the global aircraft leasing market.
But the commission has pointed out for some time that whereas the EU market is open to Chinese companies to acquire air leasing firms in Europe, the Chinese market is not equally open for European corporations to acquire Chinese assets. Ireland will need to ensure it is not dubbed the Trojan Horse in which Chinese investors enter Europe.
The EU is China’s largest trading partner and the Investment agreement is seen as the first step towards a much wider free trade agreement. Brussels has been striving to secure the deal as part of its efforts to convince EU public opinion that Europe’s common trade policy defends domestic interests.
It also wants to demonstrate that the EU has the negotiating muscle to broker meaningful agreements with Beijing. European businesses have long complained about Beijing’s restrictions on foreign direct investment and policies that they say unfairly benefit Chinese companies.
If Mr Hogan is to succeed with the investment agreement, he will have to deliver notable progress in providing European companies with the same unrestricted access to Chinese markets that their Chinese counterparts have in the EU.
John Whelan is managing partner at Irish trade consultants, The Linkage-Partnership