27 Sep 2016

The EU–China Bilateral Investment Agreement: Between High Hopes and Real Challenges

By Insa Ewert, Visiting Fellow at the Egmont Institute from December 2015 to January 2016
 
The need for investments in Europe and China alike is driving the negotiations. From this outset it is likely that the different objectives in the negotiations can be consolidated. In addition, as OBOR on the Chinese side and the EFSI on the EU side are already under way, they can serve as tools to increase bilateral investments in the short-term and bridge the period of time until the BIA comes into effect. In contrast, even though negotiations on the BIA may be – by optimistic calculations – concluded within one year, the agreement would only come into effect after several years, depending on the possibly extended ratification process. The BIA therefore serves as a long-term tool to enhance investment between the EU and China, rather than promising short-term benefits.
 
Another factor to be kept in mind are the economic developments in China and worries about a significant slowdown of the Chinese economy. As undecided as economists are in predicting what might happen in China in the next year and to what extent the Chinese Communist Party has the tools to mitigate a possible hard landing, the long-term effects on European economies also remain to be seen. However, due to the overall slow-down of the Chinese economy, China’s interest in increasing its investments abroad, and its ambition to progress towards an FTA with the EU are all strong indications of China’s willingness to finalize the negotiations in the near future. 6 To conclude, successful negotiations have the potential to not only increase investment flows and contribute to economic growth, but also to strengthen the EU’s overall relationship with China. They can further serve to demonstrate the effective implementation of the EU’s trade and investment strategy internally and strengthen the EU’s economic relevance in global trade and investment regimes. However, policy-makers on both sides of the negotiations need to remain aware of the potential obstacles. In order to obtain the best outcome, the EU needs to follow a coordinated approach and ensure that the implementation of the agreement actually significantly improves the situation for European companies in China. As the example of the Shanghai Free Trade Zone has shown, all that glitters is not gold.
 
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