EU warns China that investment talks are entering ‘critical stage’

Brussels has said that negotiations with Beijing on an investment treaty are entering a “critical stage”, warning that it is readying new instruments to restrict Chinese investment into Europe unless China agrees to level the playing field on trade. 

Valdis Dombrovskis, the European Commission’s executive vice-president in charge of economic policy, told the Financial Times that the EU was determined to address “a great asymmetry in market access”.

EU trade officials have said that the prospects for an agreement should become clearer by the end of July, following signals from Beijing that it would come forward with proposals to advance the most difficult sticking points in the talks. A “high-level economic and trade dialogue” meeting is in the works for that month.

Mr Dombrovskis said the key issue was that movement and impetus was needed from the Chinese side, noting that “discussions have entered a critical stage”.

“We need to address the issues related to state-owned enterprises, we need to address issues related to subsidies, to forced technology transfer,” Mr Dombrovskis said. He added that one of the EU’s aims would be to secure the same protections that were outlined for the US in its “phase-one” deal with China, unveiled in January.

Brussels sees the investment treaty, which has been under negotiation for six years, as the most direct solution for addressing key irritants in the two sides’ trading relationship. The EU has argued that the current unbalanced situation is untenable.

The EU’s goals in the talks include eliminating equity caps, joint venture requirements and other limits on EU investment into China. Brussels is also seeking to secure non-discriminatory regulatory treatment relative to China’s state-owned enterprises, and more transparency on state aid

Valdis Dombrovskis, EU commissioner for economic policy, says the bloc wants to address ‘asymmetry’ in market access © Francois Lenoir/Reuters

Mr Dombrovskis said that Brussels would not settle for a sub-standard deal, despite previously wanting to have an agreement ready by a now-postponed EU-China summit planned for September.

“We were asked to conclude negotiations this year — this may be difficult, because there are a number of systemic issues that still need to be addressed,” he added. “The emphasis here is not so much the specific deadline . . . The main objective from our side is to ensure equal conditions for companies in China.”

Sabine Weyand, the commission’s director-general for trade policy, said on Thursday that “we will have a bit of clarity by the summer break” on the investment treaty talks. She said China had recently “committed to trying to advance the essential level playing-field elements of the agreement” by then.

“So I think at that moment we will see whether we will get enough of a rebalancing here to make the agreement worthwhile,” Ms Weyand said. 

The comments follow a frosty videoconference last week between EU institutional chiefs, China’s president Xi Jinping and premier Li Keqiang. The meeting did not produce a joint communiqué.

“We expect the same access to the Chinese market as the Chinese have in Europe,” commission president Ursula von der Leyen told France Inter radio on Friday.

Brussels has complained in the past that Beijing’s interest in the investment treaty, which would also lock down rights for Chinese firms in the European market, has waxed and waned in line with the state of China’s economic relations with the US — an escalation of tensions with the Trump administration has previously led to increased efforts to strengthen ties with the EU.

China’s goals in the talks include guaranteeing rights to invest in the EU electricity industry and wider energy sector, given Europe’s increasing sensitivity about foreign ownership, according to people close to the negotiations.

The commission in recent months has been publicly shifting to a tougher, twin-track approach of continuing to negotiate while moving to design new tools to shield the bloc’s companies from unfair competition, saying that this is another way to level the playing field with China.

An EU screening system for foreign direct investment is set to become operational in October, while Brussels this month unveiled preliminary plans for blocking takeovers by companies active on the European market but subsidised by non-EU governments.