This article is part of our special report EU-China: Mending differences.
EU companies’ investment opportunities in China will keep on growing but the EU should understand that the super-preferential treatment it received for years is over and should move beyond stereotypes, ChinaEU President Luigi Gambardella told EURACTIV.com.
Luigi Gambardella is the president of ChinaEU, a business-led international association in Brussels that promotes bilateral digital cooperation.
Gambardella spoke to EURACTIV’s Editor-in-Chief, Daniela Vincenti.
The EU and China are negotiating a comprehensive investment agreement but progress has been slow. What would it take to accelerate talks?
For the time being, Chinese investments in Europe and European investment in China are still governed by bilateral investment treaties between China and nearly all member states of the EU separately. However, since the entry into force of the Lisbon Treaty, the member states are no longer competent to conclude investment agreements.
China and the EU are therefore negotiating a comprehensive agreement that will replace the 25 bilateral agreements currently in force. But a number of issues need still to be addressed.
For example, dispute resolution mechanisms became a politically sensitive issue in the EU with the conclusion of the CETA agreement between the EU and Canada, where a Belgian regional government refused to support the treaty because dispute resolution was entrusted to arbitrators.
In addition, the EU has another philosophy than the Chinese negotiators: the EU wants precise, direct implementable wording, while the Chinese side is open to leaving a margin of manoeuvre for future implementation.
The speed of the talks will depend from both sides. China and EU should both put the conclusion of the agreement high in their agenda and launch negotiations on a free trade agreement, the comprehensive agreement on investment could be concluded very rapidly. Political will is necessary. I am sure that the Chinese government and EU will put its weight behind the file.
Xi promised $124 billion (€110 billion) for the One Belt, One Road plan (OBOR), which aims to bolster China’s global leadership ambitions by expanding infrastructure between Asia, Africa, Europe and beyond. Are you confident Europe will use this opportunity to its advantage?
Infrastructure investment within the OBOR framework – for example in harbours – is beneficial for all sides.
The investments do not only serve China’s interests as world’s leading exporting country. If you look into the Chinese supported investment projects in Africa, or in some European countries like Serbia, you can see how much benefits these projects bring to these partner countries.
The new infrastructures do not only create job opportunities for local people, and local partners, but also change the business ecosystem. Trade supports the emergence of domestic activities. New skills are developed which form the basis of local startups.
Europeans are demanding that China gives EU businesses access to its market in the same way that EU markets are open to Chinese investment. What will it take for China to practice what it preaches?
We should not only look at the restrictions which still exist in China, for example, limits on foreign ownership in certain business sectors. In fact, when China sought to attract foreign investment after the start of its economic reforms 40 years ago, Beijing granted international companies in China super-preferential treatment such as exemption from certain taxes.
Today, these super-preferential policies for foreign businesses have been removed, and thus the foreign businesses have to face the same fierce competition in China’s market as the Chinese businesses do. From this perspective, it is normal that some investors are complaining.
China is still a young market economy and the Chinese government continues reducing (the) red tape that foreign investors face. I believe that EU companies’ investment opportunities in China will continue growing.
Is China’s innovation strategy a threat?
Innovation is always threatening the market power of incumbent business. The Austrian economist Joseph Schumpeter described this threat as “creative destruction”.
However, the main difference between China’s innovation strategy and the EU is that in the latter the ‘strategy’ consists mainly of speeches and dispersed subsidies, whereas in China there is a genuine policy, inherited from the practice of central planning.
China has used its successive 5-year plans to move away from being the global economy’s source of low-cost labour for manufacturing to become a leading source of everything digital. Innovation is at the core of this strategy.
This could serve as a new model for governments elsewhere. The public sector could play a role in the future as a venture capitalist, incubating and funding companies and universities directly and developing innovation labs.
But this strategy can only be successful under a strong central leadership. Not by dispersing means over regions and countries without clear focus as it happens in the EU. The EU should reform in terms of political structures and processes if it wants to remain on par with China in the innovation race.
Do you feel that the calls for reciprocity might further hamper EU-China relations?
In February 2017, France, Germany and Italy submitted a common position on screening investment from abroad to the European Commission.
One of the aims is to be able to block foreign investment on the grounds that European firms enjoy limited market access in the country of origin. Telecommunications services are an example.
While Hong Kong-based Hutchison Whampoa has become a major mobile communications operator in the EU, there are restrictions on foreign shareholding in Chinese mobile operators.
I hope that this issue of reciprocity can be transformed into an opportunity to help those in China who want to further remove these now outdated foreign ownership restrictions in China.
Today, Chinese companies are investing more outside of China than foreign companies in China. On the other hand, the debate on reciprocity should be extended to less visible restrictions, for example, based on competition rules. The EU is indeed increasingly using merger control to restrict foreign takeovers by preventing market consolidation and economic efficiencies.
Do you think China is still seen as ruthless and rapacious, a trade bully, currency manipulator, and a threat to international security through its belligerent posturing in the South China Sea? Or are perceptions changing after the Paris Agreement and Davos when President Xi defended globalisation and championed free trade?
I do believe that China has been insisting on mutually benefiting policies. China has been advocating multilateral cooperation, free trade and supporting globalisation. All these positive attitudes in some way are on the page of the European policies. We need to change our stereotypes when looking at China-related issues.