Czech Business Today

The European Union and China have made an important step to tighten the relationship between these two important economies. 

On October 18, the Foreign Affairs Council approved the mandate to start negotiations on investment agreement with China that should mainly improve the protection of EU investments and reduce barriers to investment. According to the investment flows between the two markets, there certainly is a space for improvement. While the amount of trade flows accounted to more than 430 billion EUR in 2012, making the daily trading volume more than 1 billion EUR, the investment flows are very low. Only 2.1 percent of EU foreign direct investment goes to China and the same situation is on the Chinese side. 

Although these numbers are changing every year, there certainly is a large untapped potential for increasing. Almost all EU member states have a certain kind of bilateral investment agreement with China; however, the new agreement would replace all of them while securing even higher level of EU investors’ protection. The business community greeted the start of the negotiations with mixed feelings. While it approves the potential such a large investment agreement could have, it stresses that only transparent and equal deal is acceptable. One of the main challenges will be ensuring non-discriminatory market access, which is a key element of a successful agreement, especially for the EU side. Currently, European companies are sometimes struggling to enter Chinese market, especially in the sectors as transport, telecommunications or energy, and so the very open EU market sometimes reacts with protectionist measures. Another important part of the deal for the businesses will be the dispute settlement system, where the EU should aim for a transparent and effective framework that will protect their financial interests and improve legal certainty. Furthermore, EU companies demand clear rules on transfer of technology and high level of Intellectual Property Rights protection. 

The growing interest in investment cooperation of China and EU Member States, especially from Central and Eastern Europe (CEE) is stressed by the so-called Warsaw initiative, signed between China and CEE countries in April last year. In the framework of this initiative, China Investment Forum will be held between 12th and 14th November in Prague. Tens of top Chinese companies willing to invest in this region will participate in the event and the Chinese delegation will inform also about the interest to attract more investment in China, which has so far reached 500 billion USD. The new Chinese government seems to be more open to dialogue with the EU than the previous one, which could be the beginning of a new strategic partnership. 

Some say that successful conclusion of the investment agreement could be the beginning of Free Trade Agreement negotiations, but there is still a long path ahead to this goal.