EU agrees investment deal with China to rebalance ties

BRUSSELS (Reuters) -The European Union and China agreed on Wednesday to an investment deal that will give European companies greater access to Chinese markets and help redress what Europe sees as unbalanced economic ties.

The agreement was negotiated for nearly seven years and is likely to take at least another year to enter into force. It forms part of a new relationship with China, which the EU views as both a partner and a systemic rival.

European firms will gain permission to operate in China in electric cars, telecom cloud services and certain activities linked to air and maritime transport, such as ground handling.

Joint venture requirements will fall away for the automotive sector, many financial services, private hospitals, advertising, real estate and environmental services, such as sewage.

Companies that could benefit include Daimler, BMW, Peugeot, Allianz and Siemens, all with a large presence in China.

China will pass laws to ban forced transfer of technology from foreign companies, and has pledged to be more transparent on subsidies and bar state-owned enterprises from discriminating against foreign investors.

In Paris, French President Emmanuel Macron said relations between the EU and China had strengthened in recent years and would continue to do so.

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Macron offered to visit China in the coming months along with German Chancellor Angela Merkel to discuss other areas of cooperation.

The deal brings Europe a degree of parity with the United States, which has struck a “Phase I” trade deal with China, and will undoubtedly be a key issue in future transatlantic talks. The EU has been keen to portray the agreement as a step towards forging multilateral rules.

“The Biden-Harris administration looks forward to consulting with the EU on a coordinated approach to China’s unfair economic practices and other important challenges,” an official from U.S. president-elect Joe Biden’s transition team said.

The deal includes commitments on climate change and labour rights, including forced labour, a first for China.

Commitments are reciprocal, but the EU market is already far more open. Brussels has given some ground in energy, but says its offer to China consists chiefly of guaranteeing the existing openness.

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The agreement comes just a day after the EU criticised China for jailing a citizen journalist who reported on the early outbreak of the coronavirus pandemic and follows previous calls respect minorities and step back from a crackdown in Hong Kong.

These issues could make it a hard sell to EU lawmakers, who will need to approve the agreement.

The deal was struck after an online meeting between the heads of EU institutions and Chinese President Xi Jinping. The agreement, he said, showed China’s determination and confidence to open up.

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It would stimulate the global economy as it recovers from the coronavirus pandemic and increase mutual trust, he added.

A Chinese government official said China and the EU would push for an early signing of the pact.

European Commission President Ursula von der Leyen called the agreement an important landmark in the EU’s relationship with China.

Hosuk Lee-Makiyama, director of trade think tank ECIPE, said that although there was little obvious benefit for Beijing in the text, China would not have signed up without some promise of advantage.

“No major power, not least China, gives anything for free, so there will be a trade-off. It’s just not in the agreement,” he said.

Compared with a trade deal, which might include retaliatory tariffs, such an investment deal is also more difficult to enforce, Lee-Makiyama said, saying that the EU would be unlikely, for example, to seize Chinese assets.

It still does not cover issues including trade flows or public procurement for the likes of telecoms equipment maker Huawei.

The bloc intends to push through laws securing greater reciprocity in public procurement and tighter control of foreign subsidies.

Reporting by Philip Blenkinsop; additional reporting by Trevor Hunnicutt in Wilmington, Ryan Woo, Tom Daly and Gabriel Crossley; Editing by Peter Graff, Nick Macfie and Angus MacSwan