Slow pace of Chinese economic reform could push EU into taking tougher stance
- The two sides are still committed to reaching an investment agreement by the end of the year but concerns about market access and the state sector remain
- China’s ambassador to the EU has said the two sides are looking for a ‘potential landing zone’
China’s slow progress in opening its markets to foreign firms and reforming state companies may force the European Union to adopt a tougher competition policy to address market distortions, diplomatic sources and observers have warned.
Beijing and Brussels held the 32nd round of negotiations on a China-EU investment deal last week, after a video summit earlier this month in which both sides reaffirmed their willingness to conclude the talks by the end of the year.
Zhang Ming, China’s envoy to the EU, said earlier this week that the two sides have made significant progress on issues such as technology transfer, subsidies and state-owned enterprises, adding that they were trying “to find a potential landing zone” on market access and sustainable development.
China’s commerce ministry said in a brief statement on Friday that positive progress had been made on the remaining problems and the issue of market access without elaborating.
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But a European diplomatic source said China could do more to open up and lower barriers in areas such as in transport, telecoms, energy, water treatment, tourism, postal services and other service sectors.
If China fails to make changes, the EU will “have to look at competition in a different way” via the state aid policy and reciprocity requirements on investment and market access, the diplomatic source said.
The Covid-19 pandemic and US decoupling have given greater urgency to Beijing’s efforts to secure an investment deal.
But observers said concerns about the Chinese state sector remain.
“The public health crisis has not altered China’s state-driven industrial and technology policymaking,” the Berlin-based Mercator Institute for China Studies said in a report issued this month.
China reaffirmed its plan to reinforce the role of the state economy in a three-year action plan announced in July.
Foreign companies have long complained about market access restrictions in strategic industries where Beijing intends to nurture new national champions.
A Chinese government adviser said that a stronger state economy would deepen the suspicion of China’s foreign partners and risked isolating the country further.
“We should take fair competition seriously,” the adviser said, speaking on condition of anonymity. “Any major progress wouldn’t be possible without China’s cooperation with international communities.”
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The EU issued a white paper in June dealing with the distortion caused by foreign subsidies, proposing new tool kits to further tighten scrutiny of acquisitions and public procurement by foreign investors.
China’s lobbying group, the China Chamber of Commerce to the EU, said on Thursday that the plan lacked a clear legal basis and may also be incompatible with the EU’s WTO obligations.
Since the negotiations with China began in 2013, the EU has completed trade and investment agreements with several other markets.
But a report by the EU Chamber of Commerce this month warned that “the China of 2020 seems to buy into a different way of thinking: market access is not seen as a right, but instead a privilege that is either extended to or removed from certain areas, depending on whichever part of the economy China’s leaders want foreign investment to flow to at any given time”.
In addition to the investment treaty talks, China also hopes to complete talks on the China-EU 2025 Strategic Agenda for Cooperation, which will detail cooperation projects in security, politics and economy over the next five years, as quickly as possible. However, the EU says it will on focus on that once the investment agreement has been finalised.
The diplomatic source also warned that the EU “is unwilling to move forward into the 2025 agenda if it is just a repeat of what we had for the previous one”.
