Between a Rock and a Hard Place? EU-China Investment Strategies and the Investment Agreement

Maria Garcia

In 2015, China's foreign direct investment (FDI) outflows exceeded inward flows for the first time, consolidating China's position amongst the top ten sources of FDI in the world, with outflows growing over the past decade as part of the second phase of its 'going out' strategy, focused on using FDI to gain access to developed markets, to technology, brands and design capacity. Chinese investment in the EU has also been rising, partly due to EU funding needs resulting from the financial crisis and synergies with Chinese interests, although it remains a relatively small part of total FDI inflows into the EU. In 2014, the European Commission launched the 'Investment Plan for Europe, and during the 10th EU-China Business Summit, China became the first non-EU country to announce a contribution to such Plan. With clear synergies in the investment strategies of both parties, the EU and China are in the process of negotiating a bilateral investment agreement. Launched in 2013, in late 2015, the parties announced agreement on the matters to be included in the negotiations. This paper process-traces negotiations (until now) and compares objectives and progress in these negotiations against other developments taking place in the investment strategies of the parties (Investment Plan for Europe, China's Guiding Principles for Foreign Investment), and economic developments (Chinese slowdown in late 2015 early 2016 and tightening of market regulations) to assess room for manoeuvre in the negotiations and analyse the potential areas of conflict and of agreement in the negotiations. Set against the backdrop of economic instability in 2016, the paper traces progress and positions to test whether instability is leading the parties to more protectionist positions in their negotiations or whether the path dependent momentum of the negotiations is assisting in pushing towards a resolution of disagreements and an eventual agreement.

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