European Union seeks comprehensive investment agreement with China

The emergence of China as a major global player over the last two decades has forced the international community to forge a response to the rising power.

But while much of the attention has focused on the deepening ties between the US and China as part of President Barack Obama's "pivot to Asia", the European Union has also been stepping-up its engagement with China.

As the world’s largest economic bloc, the EU is an important strategic partner for China. It is China’s largest trading partner, while China is the EU’s second-largest trading partner after the US. Trade between the two regions equates to more than €1 billion a day, with China the main source of imports for the EU, mainly comprising Chinese industrial and consumer goods.

Last spring President Xi Jinping visited Brussels, the first official visit of a Chinese leader to the EU institutions. To many, it was an important sign of the Chinese leadership's prioritisation of Europe.

At an official level, Chinese-EU trade relations stretch back to 1985 when the first EU-China trade and co-operation agreement was signed.

Over the next decade or so, trade between the two blocs increased dramatically, with the relationship structured around regular bilateral summits and within the forum of the EU-Asean meetings, which celebrated its 20th anniversary this year.

Investment agreement

Today, the focus is securing a comprehensive EU-China investment agreement. Despite negotiations beginning last year, a bilateral agreement remains some way off.

On the European side, the aim is to gain better access to Chinese markets for EU investors. As EU trade negotiators have pointed out, despite the strong trade in goods, trade in services between the two blocs remains low, with China accounting for just 2 to 3 per cent of overall European investments abroad.

Among the EU's main concerns are the high level of government involvement in enterprise, protection rights for intellectual property and a lack of transparency, though recent indications from Beijing that it is to open up the market to foreign direct investment have been warmly welcomed by Brussels.

Despite the willingness on both sides to consolidate trade ties, the EU-Sino relationship faces significant challenges.

As always with EU foreign policy, the EU’s 28 members have differing views on China. Concerns about human rights abuses and the status of Tibet have consistently defined the EU’s diplomatic relationship with the country.

Ukraine crisis

China’s relationship with

Russia

is also a source of unease in Brussels. The signing of a major deal between Russian energy giant

Gazprom

and Beijing in May prompted many to claim that China was emerging as the big winner of the Ukraine crisis.

Beijing has taken a cautious approach to the Ukraine issue, refusing to publicly take sides, though it abstained from a UN Security Council vote earlier this year condemning Crimea’s referendum in March.

As well as geopolitical matters, climate change is another sensitive issue for Europe. A proposal to incorporate the aviation sector – including flights that originate outside the EU – into the EU’s emissions trading scheme provoked a furious reaction from China earlier this year, with Beijing freezing orders of aircraft from French company Airbus in retaliation.

Similarly, a trade dispute between Germany and China last year over tariffs on Chinese solar panels into Europe strained relations. Ultimately, a compromise was reached, which allowed solar panels within a certain quota and below a set price to escape duties, though the episode sparked fears of a trade war.

More recently the EU has considered taking action against Chinese mobile phone makers Huawei and ZTE over state subsidies.

With the EU concentrating on trade relations with the US as part of the ongoing negotiations on the Transatlantic Trade and Investment Partnership, there is concern that the EU’s relationship with China could be sidelined in the coming years, though talks on a bilateral agreement will continue.

Educational links

Similarly, strengthening cultural and educational links is likely to remain a priority. Encouraging Chinese tourism and educational links is a key focus of the EU’s bilateral relationship with China.

The number of Chinese students studying at European universities during the decade between 2000 and 2010 increased six-fold to more than 120,000. Increasing this number – and attracting big-spending Chinese consumers to Europe – is likely to be a central plank of the EU’s strategy on China in the coming years.