MILAN, Dec 27 (Class Editori) – Italian companies, which have invested in China in the last 30 years, are little more than 2,000, with a total stock of investments amounting at about €10 billion. Just a few, compared to 80 billion from Germany, and probably underestimated, because statistics have difficulty in tracking flows which pass through third countries; however, it still represents a starting point.
It is assessed that China will be accounting for 30% of the global growth in the following years and, in 2025, it will be the most important consumption market. Therefore, apart from an interesting market in terms of export, it is also an important one for direct investments, which, as Germany and France have showed, drive exports.
However, China remains a country which imposes restrictions to foreign investment flows in some fields, even if the list of these has been halved compared to only 3-4 years ago: they are only thirty now, and one third is focused on the military field. Once landed in the country, then, foreign companies may be hindered – for instance in the financial sector - from licences requirements or certifications, which are different from those applied to Chinese companies; moreover, they must deal with - as the Chinese private companies do - competitors such state-owned companies, which receive direct and indirect subsidies from the government.
On the other side, instead, Chinese companies have historically coped with few obstacles in Europe, which is still one of the most open countries to foreign investments, even if things have a bit changed in Italy and Spain in the last year.
Existing bilateral agreements on investment safeguard between China and many European countries do not solve these unbalances. Therefore, in order to guarantee the access to the market on a mutual basis and eliminate distortions due to the Chinese state companies’ role, the EU and China had started a negotiation upon a bilateral agreement on investments 7 years ago: The Comprehensive Agreement on Investment (CAI).
During the first 5 years, negotiations were slowed down; then, they have experienced an acceleration since 2018 onwards and especially in the last months, with China clearly determinate to conclude the agreement by the end of 2020 and the EU which, ruled by the German presidency until December 31, aims at reaching the same goal.
The announcement of an agreement in principle made by the EU ambassador in Beijing just before Christmas is certainly encouraging, but it was not followed by the transparency needed on the detailed contents. Therefore, it is only possible to evaluate this agreement by "hearsay" from sources close to the negotiations.
One thing seems certain: the Chinese openings are real and are going on in line with what had already started with the new Foreign Investment Law. The sectors on which the agreement mostly focuses on would be that of electric vehicles, renewables, telecommunications and healthcare; the latter is a sector in which China will need huge investments in the next 10 years and in which Italy has excellent players.
Strides have also been made on subsidies to state-owned companies, with a Chinese commitment to making them transparent and measured. In return, Europe would be more open to Chinese investments in the energy sector (Chinese companies are very interested in renewables). Reaching a final agreement on these sectoral openings - even in a few days - seems to be fully possible, as well as on the dispute resolution mechanism which has been another difficult topic in recent months.
At the same time, however, the European Parliament, also poorly informed of the negotiated contents, has taken position by asking for the inclusion in the agreement of a commitment for China to sign the two ILO conventions against forced labor, with a reference to the topic of some companies based in Xinjiang that the European press has repeatedly covered in recent months, denied by China.
Although the list of countries that have not ratified one or both ILO Conventions includes surprising names, the limit set by the European Parliament is understandable; however, it risks to derail a negotiation that is now winding down, at a stage in which China needs to demonstrate to be able to make agreements with the EU.
One day, perhaps, China will decide to open those sectors to everyone (and not just to European companies) and carry out reforms of the subsidy system, but it is difficult to predict this: the 2019 Phase 1 Agreement with the US did not include the EU. Any negotiation is always finalized at the last minute, as Brexit shows, but, in the future, there will be a need for clarity on what Europe is really expecting from its trading partners. If the line is the one suggested this time by the European Parliament, it will have to be strictly applied to any partner. (All rights reserved)
* Marco Marazzi is Easternational lawyer and president
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