Challenges, Issues in China-EU Investment Agreement and the Implication on China's Domestic Reform

By Yin, Wei | Asia Pacific Law Review, July 1, 2018 | Go to article overview

Challenges, Issues in China-EU Investment Agreement and the Implication on China's Domestic Reform


Yin, Wei, Asia Pacific Law Review


(ProQuest: ... denotes non-US-ASCII text omitted.)

I.Introduction

A.Current China-EU investment relation

The international investment regime is undergoing complicated and profound changes. New practices and emerging issues need to be reflected in this regime, to balance the conflicting interests between investment protection and the state's 'right to regulate',1 and between investment liberalisation and national security.2 The South is actively participating in promoting trade and investment cooperation and embracing economic globalisation, while the North is getting stuck and facing frictions. Protectionist stances on trade and immigration have resulted in a more restrictive view towards inbound foreign investment in the North. The South sees China becoming an important capital exporter. The dual role of China, as capital importer and exporter, affects the view of China towards foreign investment and investment protection, that is shifting from a conservative position to a more liberal and open mind. Moreover, in line with the view of other emerging economies, China intends to raise its voice in the international rule-making process and seeks appropriate approaches and/or mechanisms to ensure its interests, that is to be a trend-setter rather than a trend-taker.

Despite the globalisation and trade cooperation being challenged in the times of uncertainty, China and the European Union (EU) can play important roles in promoting economic and investment cooperation. The European market is a major destination of Chinese investment, while the EU concerns European companies' access to the Chinese market. The ChinaEU Comprehensive Agreement on Investment (CAI) can be regarded as an important part of the regional investment cooperation. Chinese investments reached a record high in Europe in 2016,3 despite experiencing a fall in 2017 due to the tightened outbound investment regulations in China.4 China is currently an important capital exporter where approaches to facilitate investment liberalisation are underway.

On the side of the EU, however, the direct investments of European companies in China have not seen an increase during recent years, but continue to decline.5 The EU attributed this to the limited access to the Chinese market and unequal regulatory treatment the European companies received in China. Moreover, the growth of Chinese acquisitions in sensitive industries (e.g. critical infrastructure and energy) and the involvement of Chinese sovereign investors (e.g. stated-owned enterprises (SOEs) and sovereign wealth funds (SWFs)) triggered a growing fear of the national security threats in the EU in recent years. The European Commission (EC) therefore proposed a regulation to establish an investment screening framework, which will provide EU member states and the Commission a tool to intervene in foreign direct investment (FDI) in strategic assets, especially if carried out by state-owned, -controlled or -financed enterprises, on the ground of security or public order. It is regarded as a response to tackle Chinese investment in Europe.6 Some EU member countries (e.g. Germany, France and Italy) are becoming very discriminative towards Chinese investment.

For China, a plausible way to protect its overseas investment and reduce the increasing political backlash in Europe is imperative. There are a lot of problems that need to be addressed not only via its domestic reforms but also via external efforts. Therefore, the CAI negotiation might be a tool to solve issues that China and the EU are facing. A breakthrough in this negotiation will be a crucial cornerstone of China's external reform.

The current Sino-EU two-way investment does not reflect the actual demands and potential capacity. Plenty of opportunities and spaces that are already available can be used to enhance the Sino-EU investment relation, since they have policies/initiatives that are mutually compatible.7 China's 'Belt and Road' initiative (BRI) covers the area of Eurasia to develop trade and investment cooperation and connectivity. …

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