China • CAI • News

What is the CAI investment agreement?    

The abbreviation CAI stands for EU-China Comprehensive Agreement on Investment. It is an investment agreement between the EU and the People’s Republic of China. So far, 26 EU states and China have concluded so-called bilateral investment promotion and protection agreements (BITs). The CAI investment agreement is intended to replace and standardize them.   

Negotiations between China and the EU have been ongoing since 2013. The biggest point of contention is the joint venture obligation of European companies. This is to be abolished with the CAI. China has also promised major concessions with regard to market opening. While the People’s Republic has already signed the agreement, ratification by the European Parliament is still pending. This is expected to take place in 2022.   

What are the advantages of the CAI EU-China Comprehensive Agreement on Investment?    

The CAI investment agreement is intended to solve key problems that European companies face when doing business in China. Above all, it is about the People’s Republic opening up previously closed markets and allowing European competition. This applies above all to the manufacturing industry (transportation, telecommunications equipment, chemicals) and the financial services sector. In the automotive sector, the joint venture obligation is to be dropped.    

An overview of all the advantages of the CAI EU-China Comprehensive Agreement on Investment:  

Manufacturing: half of EU investment is in this sector (including transportation equipment, telecommunications equipment, chemicals). Restrictions will only apply to sectors with overproduction.  

Automotive sector: abolition of joint venture obligation and market access for alternatively powered vehicles.   

Financial services sector: joint venture obligation and caps on shareholdings will be abolished.  

Healthcare: Joint venture requirement for private hospitals in Beijing, Shanghai, Tianjin, Guangzhou and Shenzen eliminated.  

Telecommunications/cloud services: China lifts the investment ban on European companies, but the cap on shareholdings remains at fifty percent.   

IT services: China will allow European companies to enter in the future.   

Maritime transport: European companies will be able to invest in cargo handling, container depots, and staging areas in the future. This will make end-to-end transport services possible. Previously, these failed due to the ban on investment in “land-based ancillary activities.”  

Air transport: China is opening up the market for computerized booking systems, ground handling, and sales and marketing services.  

Business services: Here, China will remove the joint venture requirement. This includes transportation repair and maintenance, advertising, real estate services, market research, management consulting, and leasing services, among others  

Environmental services: Areas such as noise abatement, solid waste management, wastewater, landscape protection and sanitation will no longer be subject to the joint venture requirement.  

Construction industry: removal of project restrictions.  

Employees of EU investors: Managers and specialists from EU companies may work in China for up to three years without restrictions.   

What are the main benefits of the CAI EU-China Comprehensive Agreement on Investment?    

The CAI Eu-China investment agreement aims to resolve three key points of contention. The forced technology transfer will be ended, the joint venture obligation abolished and more transparency created. The German automotive industry in particular would very much welcome such an agreement.  

Until now, European companies have only been allowed to make direct investments in China if they pass on their previous research results to the Chinese partner. Foreign companies see their intellectual property at risk in China. This technology transfer is part of the joint venture obligation. Anyone who wants to operate in the Chinese market needs a domestic partner. Greater transparency should also prevent foreign companies from being discriminated against by excessive government subsidies to Chinese firms.  

What’s the criticism of the CAI EU-China Comprehensive Agreement on Investment? 

Despite the alleged advantages, there is also plenty of criticism of the CAI iEU-China Comprehensive Agreement on Investment. Also and especially from the European Union. On the one hand, some politicians believe that it is not a suitable time for such an agreement at the moment. After all, there are still some EU sanctions against China and sanctions of the People’s Republic against politicians from Europe.  

Moreover, many European politicians doubt that the CAI EU-China Comprehensive Agreement on Investment will really ensure transparency, mutual market access and reciprocity. The discrimination of European companies through the appropriation of technical knowledge and the excessive subsidization of domestic companies will also continue with the CAI.  

How does Europe criticize the CAI investment agreement?   

Recent experiences in trade with China reinforce criticism of the CAI EU-China Comprehensive Agreement on Investment. Despite intensive negotiations and record trade volumes, the European Union has not been able to extract any concessions from the Chinese government. Neither on the issue of human rights violations nor on the action against the democracy movement in Hong Kong.   

The EU Commission explains that the CAI investment agreement is only one building block in the complex relationship with China. It is an economic agreement with political influence and is part of a broader strategy in dealing with China. A policy of containment and ignoring is not a viable path, he said.  

How does the CAI EU-China Comprehensive Agreement on Investment criticize China’s policy? 

The political rifts between China and Europe are deep and wide. Especially when it comes to the issue of human rights. International human rights organizations regularly document that the Chinese government violates the civil liberties of its own population. Freedom of assembly, expression, communication and the press are severely restricted. Political opponents are even threatened with imprisonment and torture. It is estimated that the death penalty is carried out about 8,000 times a year in China.   

President Xi Jinping enacted a law on national security. It allows the Communist Party to monitor and censor organizations and individuals who advocate free expression and to punish activists and critics. Dissidents and opposition groups face harsh penalties. 

Are there Human Rights Violations in China? 

The political problems behind the CAI EU-China Comprehensive Agreement on Investment are particularly evident in the persecution of Uyghur minorities in Xinjiang. They have to perform forced labor, also for suppliers of German companies. In addition, they are under constant surveillance on the streets. The Communist Party also promotes the resettlement of Han Chinese to Xinjian. This is intended to make it easier to monitor Uyghurs.   

Two other points of contention that weigh heavily on the CAI EU-China Comprehensive Agreement on Investment are China’s brutal actions against the democracy movement in Hong Kong and its military threats against Taiwan. China, on the other hand, accuses the German government of restricting Huawei‘s market access for 5G expansion with the “Second Law for Enhancing the Security of Information Technology Systems.”   

Why is the CAI EU-China Comprehensive Agreement on Investment necessary?  

The volume of trade between China and the European Union has been growing steadily for years. If you exclude services, the People’s Republic of China is the EU’s most important trading partner. In 2020, the trade volume between Europe and China was around 586 billion euros. From a European perspective, exports accounted for 202.5 billion euros and imports for 383.5 billion euros.    

Germany plays a special role here, as its share of these sums was particularly high. In 2020, the Federal Republic imported goods worth 116.3 billion euros from China and exported goods for 95.9 billion euros. The total trade volume of 212.1 billion euros accounts for more than a third of the European volume.  

Despite investment agreement CAI: why is there rivalry between Germany and China? 

The enormous volume of trade between Europe or Germany on the one hand and China on the other cannot hide the fact that there is enormous rivalry between the two economic areas. The CAI EU-China Comprehensive Agreement on Investment will do little to change this.   

As recently as March 2019, the EU Commission pointed out that the People’s Republic of China would be a “systemic rival.” The EU sanctions against China are a case in point. What is clear is that whether or not the CAI investment agreement is fully ratified, it will shape relations between Europe, Germany and China for years to come. The Table.Media editorial team provides all the news on the CAI EU-China Comprehensive Agreement on Investment.