On Dec. 30, 2020, the European Union and China concluded a new landmark investment deal called the Comprehensive Agreement on Investment (CAI). The pact marks a historic level of investment, cooperation, and intermingling of the 27-member bloc’s economy with China’s. The CAI will replace 26 separate investment agreements previously signed between China and individual member states of the European Union.
The new investment deal is almost seven years in the making. The EU first proposed the possibility of such an agreement in 2012 and began negotiations with China in January 2014. Chinese President Xi Jinping was joined by German Chancellor Angela Merkel, French President Emmanuel Macron, and other EU officials via video conference call to finalize the deal and celebrate the CAI’s finalization just before year’s end.
“For China, this is the most significant economic agreement, geo-economically, geopolitically as well as from a broad economic perspective, since the signing of its World Trade Organization Accession Protocol in 2001,” said Sourabh Gupta, a senior fellow with the Institute for China-American Studies in Washington, D.C.
China hopes that the CAI will spur EU investors to further their investment into China, accelerating growth, and further developing the Chinese economy.
Chinese industries that will be opening up to EU investment include manufacturing, research and development, the automotive sector, health services, telecommunications, computer services, international maritime transport, environmental sectors, and construction services.
The EU gained some considerable concessions in the process of negotiations, but China refused to simply throw open the doors of its industries to foreign investment completely. China did agree that its public firms, the state-owned enterprises (SOEs), would not discriminate against EU corporations in favor of Chinese companies in procurement and sale of their goods. The EU is also allowed to request transparency as to which firms are receiving subsidies from the Chinese state in the service sector and allows recourse if said subsidies go against EU investment prospects. The CAI includes rules against Chinese firms demanding forced technology transfers from EU firms.
Director of the European Studies Centre at Fudan University Ding Chun stated, “This will give a comparative advantage for European investment and technology. The CAI will give [European firms] a better chance to enter the Chinese market and increase competition between Chinese and European investors. … It’s a comprehensive agreement, restricted not only to the field of investment but also covering sustainable development, the environment, and labor rights. It will give China a push to upgrade and improve its institutional arrangements, and will push it towards more high level, high standard agreements for future FTAs and other deals.”
The CAI has further implications beyond merely trade relations and investment between the EU and China. The CAI has large implications for geopolitics and the global balance of power in an increasingly multipolar world.
By concluding an investment agreement in the final weeks of the Trump administration, the EU ensured that the U.S. had little time to protest its signing while insulating the EU from recourse by the incoming Biden administration. President-elect Joe Biden has been posturing with proposals to develop a global alliance of countries to act as a bulwark against the rising Chinese economy. The CAI suggests, however, that the EU is further projecting itself as an independent and sovereign world power determined to not be controlled by Washington—further cementing the geopolitical reality of a new multipolar global system.
German interest in achieving a deal seemed specifically relevant, given that Germany’s presidency of the EU ended on Dec. 31, 2020—the day immediately following the signing of the CAI. The emerging relationship between China and Germany (generally regarded as the most important player in the EU) could see them move forward as allies, allowing both parties to insulate themselves from U.S. global hegemony.
Wu Xinbo, Director of the Centre for American Studies at Fudan University in Shanghai, said ,“The deal will deepen the economic ties between China and the EU, with negotiating a free-trade agreement being the expected next step,” he said. “And it will also thwart the U.S.’ plan to join hands with Europe and isolate China from the future of globalization.”
China and the EU’s ability to successfully complete the CAI signals the possible opening of a new era in Sino-European relations. Increases in living standards, reductions in poverty, and a deepening of international cooperation represent positive advancements both politically and economically. Further attention should be directed towards future developments in cooperation between the two economies.
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