China’s long list of opt-outs hindering talks with EU over investment deal

The negotiations for an investment treaty between China and the European Union are being hampered because China wants so many sectors to be exempt from the treaty, sources have said.

A source familiar with the discussion said the EU was unsatisfied with China’s offer of market access because of the number of opt-outs it was seeking as well as the other restrictions it wanted to place on European investors.

Another source who is familiar with the talks said the EU was disappointed at the slow pace that the financial services sector was being opened up, but expected that China would speed up the process to push forward the talks.

Brussels is also worried about the possibility of more setbacks to the reform process.

Beijing and Brussels started talks on the Comprehensive Agreement on Investment in January 2014. The two sides will hold the 16th round of talks next month.

The European Chamber of Commerce in China wants a simplified regulatory environment, freedom to enter into new business areas or product segments and fewer barriers to acquisitions in China.

The French ambassador to China Jean-Maurice Ripert told a financial forum on Wednesday that he hoped EU partners including China “can offer the same level of openness [as the EU] and a level playing field”.

Foreign companies have frequently complained about the lack of market access in China, and the issue has affected China’s relations with the United States and EU.

Hours after US President Donald Trump wrapped up his China’s visit last week, Beijing announced it would loosen the ceiling on foreign investment in financial sector – a move foreign companies welcomed but they also demanded more details.

Germany’s ambassador Michael Clauss said that while the announcement was “welcome news”, he warned: “There has been no shortage of such kind of announcements in recent years. What we rather see is that the implementation very often leaves much to be desired.”

“In many cases the alleged opening up of the market is being foiled by bureaucratic barriers and red tape.

“That might be one of the reasons why the share of foreign banks in the Chinese finance sector over the last 10 years decreased to less than a meagre 2per cent.”

Huo Jianguo, a former research head with China’s Ministry of Commerce, said China and the EU had struggled to address the question of intellectual property rights during the initial stage of the talks, but the focus has now shifted to reciprocal investment rules.

The EU is increasingly discontented about the lack of investment access and is drawing up investment screening regulations owing to concerns about China’s strong appetite for European technology.

China’s investment in the EU rose by 77 per cent last year to 35 billion euros (US$41 billion) while EU investment into China fell for the fourth year in a row to 8 billion euros, down 23 per cent on the previous year, the European Chamber said in the report.

During the first half of this year, China’s investment in the bloc remained stable at US$10.4 billion, while the EU’s investment in China fell to US$3.7 billion from US$4.8 billion compared with the previous year, the chamber said.

Chinese diplomatic observers said the package of commercial deals worth more than US$250 billion reached between Chinese and US companies during Donald Trump’s visit last week may give momentum to EU efforts to speed up interaction with China.

Reaching a speedy conclusion to the investment treaty talks would open the way for the two sides to discuss a free-trade agreement.

“Both sides are testing each other’s bottom lines,” Zhao Junjie, a European affairs specialist with the Chinese Academy of Social Sciences, said, adding that EU wanted more “surprises” on market restrictions and intellectual property, while China hoped the EU would loosen limits on hi-tech industries.

He said China needed to consider the impact of various populist and far-right movements in a number of EU member states, arguing that their increasing political clout could influence the EU’s strategy.

“This may lead to additional difficulties to bilateral investment and trade talks. China may have to make some compromises, such as those that help narrow its trade surplus with the EU and help create jobs in the bloc,” said Zhao.

But he added that the party congress in October had sent a political signal that the country would further open up in coming years, which would prove helpful for the investment and trade talks.

Wang Yiwei, a professor of international relations at Renmin University said that EU is worried that it is being squeezed by Chinese competition in Asian and African markets and it has started to treat China as a developed country that requires equal treatment.

“Another big conflict is about China’s state-owned enterprises (SOEs) which account for a large share of the economy and are supported by government subsidies.

“It is a big concern in Brussels that this has put EU companies in an unfavourable position when competing with Chinese SOEs,” he said.

The EU embassy in China declined to comment on the negotiations on the Comprehensive Agreement on Investment.