As trade growth slides, China and the EU should tap the potential for investment cooperation

Zhang Monan says trust and non-state actors can play key roles as the two sides seek to fast-track investment links and open up their services trade

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Published: 5:03pm, 13 Oct 2016Updated: 8:43pm, 13 Oct 2016

China and the EU need to dismantle cultural and conceptual barriers to investment. Both sides must work to increase mutual understanding and trust. Illustration: Craig Stephens

Global economic growth, says the International Monetary Fund, has been “too slow for too long”.

A major reason has been sharply decelerating growth in global trade, which the World Trade Organisation expects to grow by 1.7 per cent this year – far below the 6.7 per cent average in the decade preceding the 2008 crisis.

With trade alone no longer capable of underpinning global cooperation, it is time to add more investment linkages to the mix.

There is plenty of work ahead to conclude a treaty. But that is no reason to delay the expansion of investment cooperation

As it stands, there is no real global-level investment framework. But the G20 recently approved the world’s first programmatic document on multilateral investment, the G20 Guiding Principles for Global Investment Policymaking. The general framework it provides could be particularly valuable for China and the European Union, as they attempt to negotiate a bilateral investment treaty.

So far, there have been several rounds of talks, focusing on increased investment protection and market access. Many more rounds are on the way, as some significant issues – including guarantees of regulatory transparency and the creation of an effective dispute-settlement mechanism – have yet to be fully agreed.

The Sino-European agreement is to be based on 26 existing investment treaties involving China and 28 individual EU members – treaties that are far from consistent, in terms of requirements for and restrictions on market access. This lack of uniformity is a major motivation for China to negotiate a single treaty: it wants to ensure that its enterprises have equal market access in all EU member countries and avoid the costs and complications associated with adhering to different regimes. Gaining access to the advanced technologies and management expertise of European firms is another major enticement.

A woman walks past containers at the port of Shanghai. With trade alone no longer capable of underpinning global cooperation, it is time to add more investment linkages to the mix. Photo: Reuters

The EU, for its part, hopes that money flowing in from China will help to boost its struggling economy and lead to increased trade. Among its demands is that access to China’s market be governed by a negative list (a list of exceptions to what would otherwise be open market access), rather than by a lengthy government-approval process.

Here, China has already taken some steps forward. Last December, the State Council decided to introduce a negative list for market access that applies to all investment activities in China, by both domestic and foreign investors. A pilot version of this list has proved itself in Shanghai, Guangdong, Tianjin (天津), Fujian ( 福建 ), and other free-trade trial areas.