Home / World Economy / World Economy News / Sino-EU investment pact inked at just the right time

Sino-EU investment pact inked at just the right time

The EU-China Comprehensive Agreement on Investment, which had been negotiated for seven years and was officially signed on Dec 30, will help accelerate China’s “dual circulation” development paradigm.

The agreement comes just when the world is undergoing momentous changes not seen in a century amid the COVID-19 pandemic, when countries have locked down and the global economy is sluggish.

In addition, the rise of anti-globalization, unilateralism, trade protectionism and Sino-US trade friction has increased the instability of the international environment.

Against this complex international background, adhering to the concept of a community with a shared future for mankind and actively seeking mutually beneficial and win-win cooperation is the only right path for national development.

As far as the domestic environment is concerned, the Chinese economy has grown rapidly in recent years and has become the world’s second largest. It has proposed the new economic pattern of dual circulation-in which the domestic market is the mainstay and the domestic and international markets support each other-and has gained a competitive advantage in a dynamic and complex international environment and taken the lead to restore economic and social development.

On the other hand, China has not fully recovered from the impacts of the pandemic.

The intensification of China-United States relations may well increase economic risks in the future. Actively seeking economic partners outside the US has become an inevitable choice for China. Based on the aforementioned new changes, the EU-China Comprehensive Agreement on Investment emerges at the right time.

When it comes to the agreement, it is also worth mentioning the Regional Comprehensive Economic Partnership, which was signed by 15 countries including Japan, South Korea and Australia. The core of the RCEP is tariff exemption, and the key is to promote multilateral trade. The Comprehensive Agreement on Investment focuses on investment and establishes a unified legal framework for China-EU investment relations to replace the original bilateral investment treaties with 26 member states.

The aims of the investment agreement and the RCEP are not the same, but both use negative lists to deal with cross-border investment issues. A strong linkage effect formed between them can therefore promote healthy development of China’s international circulation.

In terms of spatial layout, the investment agreement and the RCEP correspond to the two routes of the Belt and Road Initiative-onshore and sea, connecting the strategic achievements of the BRI and conducive to domestic circulation.

In the field of international economics, the signing members of the investment agreement and the RCEP cover three of the top four economies, which is conducive to strengthening China’s voice in the formulation of international economic and trade rules, and also conducive to jointly building a future global investment framework. With regard to the impact on domestic circulation, the Comprehensive Agreement on Investment will help China be introduced to advanced European management experience and capital. At the same time, the RCEP will help the transfer or upgrade of traditional domestic backward industries. These two agreements and domestic circulation build a bridge for China’s capacity upgrade.

The emergence of the Comprehensive Agreement on Investment is needed at this time, as current bilateral investment flows between China and the EU do not match the highly developed trade relations. From 2004 to 2019, the EU was China’s largest trading partner, and China was the EU’s second-largest trading partner. However, in terms of investment, EU investment in China only accounts for about 5 percent of China’s total foreign investment, while China’s investment in the EU accounts for merely 3.4 percent, which is inconsistent with the increasingly close investment exchanges and highly developed trade relations between China and the EU.

China-EU bilateral investment also needs a better and unified legal framework. Since 1982, China has signed bilateral investment agreements with EU members such as Germany, France, and Italy. However, the Lisbon Treaty, which came into force in 2009, gave the EU powers in foreign direct investment and, to some extent, weakened the legal effect of these agreements. In addition, bilateral investment agreements signed between China and different members of the EU are quite different in arbitration matters and compensation issues, resulting in an incoherence of policies and inconsistencies in standards.

China and the EU have the same needs in promoting economic and trade development. The signing of the Comprehensive Agreement on Investment is not only an important part of China’s creation of an investment cycle that spans the east and west ends of Eurasia, but also meets the development needs of Europe. During the COVID-19 pandemic, China became the EU’s largest trading partner for the first time last year. Moreover, both China and the EU attach importance to innovation to lead economic development, which means there is plenty of space for cooperation in high-tech industries such as biomedicine and cloud services.

The investment agreement will exert a profound impact on China’s development, especially in terms of accelerating the construction of the new dual circulation development paradigm.

In terms of China’s domestic circulation, increasing investment cooperation between China and Europe can provide more investment opportunities to stimulate China’s investment demand. Additionally, the employment level can be increased and may lead to the growth of residents’ income levels and consumption capacities, expand consumption demand and activate China’s domestic circulation. At the same time, the introduction of high-quality foreign talent and technologies will also help inject more fresh blood into the development of China’s domestic circulation, enhance China’s technological innovation capabilities and promote the rapid flow of production factors.

The signing of the investment agreement also facilitates China’s international circulation. Although the COVID-19 pandemic has slowed down the world economy, the agreement and the RCEP have created a sound institutional environment for both China and Europe and the recovery of the world economy.

The investment agreement also will have a crucial impact on China’s domestic development. For example, China can promote further development in Europe of high-speed rail and photovoltaics-areas in which the country has advantages. At the same time, it is possible to better stimulate China’s economy and employment, release the potential of the domestic market, and improve social development.

This will enable China to better invest in Europe, learn from Europe’s advanced experience and technology, further develop various technologies in China, upgrade China’s manufacturing level, and improve foreign trade capabilities.
Source: China Daily

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping