Europe seeks an open, rules-based trading system. So should China
Hans Dietmar Schweisgut says an EU proposal for investment screening is not motivated by protectionism, but is aimed at making Europe’s open markets more transparent. It is China that should show it is serious about its promises of market reform
There has been quite a lot of noise recently about EU-China trade relations, touching on frustration at the slow pace of market reforms and other issues. There have been accusations of protectionism, calls for reciprocity, and debate on industrial overcapacity, investment screening systems or cross-border acquisitions.
These discussions should come as no surprise, considering the depth and breadth of one of the world’s largest economic relationships. And it should also come as no surprise that some of the opinions expressed are inaccurate or misleading, given the complexity of this relationship. That is why it is important to rise above the noise and set out clearly how we see this relationship, and what exactly is at stake.
As major trading partners, engaging in almost 1.5 billion euros (HK$13.8 billion) worth of trade every day, it is vitally important that we tend to this relationship that creates growth and jobs for both our economies.
A key engine of jobs and growth, and one with vastly more potential than trade, is investment. European Union investment into China is only a fraction of EU investment into the United States. More worryingly, official figures from both the EU and China show that EU investment into China is decreasing. This should be of major concern to China, since European investors bring employment, tax revenue, innovation and technology.
The EU welcomes foreign investors with wide market access and an investment regime that treats EU and foreign companies equally. Chinese investors have been able to buy 100 per cent stakes in EU car companies, banks or other key industries, while this would be impossible for European companies to do in China due to market access restrictions and forced joint-venture requirements. There is clearly a lack of reciprocity here, which cannot go on indefinitely.
In a recent survey, 56 per cent of EU companies said they would be interested to invest more in China if wider market access were granted. EU businesses feel less and less welcome in China and continually indicate that the business environment is worsening.
Given all of the above, it seems somewhat unreasonable that the EU is being accused of protectionist tendencies when European Commission president Jean-Claude Juncker announced a new EU-wide investment screening system. Every major economy has such a system in place already, including the US and China. In fact. 12 EU member states already have their own investment screening systems.
Juncker’s proposal would merely seek to harmonise these across the EU and bring greater transparency and predictability. The aim is to protect EU security and public order, which is in line with international practice. But his speech was about much more than this; it was also about structural reform at home and abroad, and an ambitious agenda for open, rules-based and fair globalisation. The EU delivers in its many ambitious bilateral trade agreements; its World Trade Organisation credentials are widely recognised. The EU seeks partners, and the EU wishes for China to be such a partner in the spirit and practice of true openness.
Since China held its third party plenum all the way back in 2013, much has been promised in terms of wider market access and deeper market reforms. In January, President Xi Jinping himself made a stirring speech in Davos in favour of open markets and globalisation. Promising announcements have been made in State Council documents issued this year. Despite all this talk for many years, progress has been so slow that EU companies are now suffering from what they call “promise fatigue”.
We hope that China’s forthcoming 19th Communist Party congress will speed up implementation of market-oriented reforms, bringing China’s policies into line with its vision of an open, rules-based and fair global economy. One clear way for China to demonstrate its commitment would be to make concrete progress in negotiations on the EU-China comprehensive agreement on investment. An ambitious agreement would provide not only the necessary investor protection on both sides but also wide market access, thus harnessing the true potential of our economic relationship.
Hans Dietmar Schweisgut is ambassador of the European Union to China