On July 28th the Chinese vice-premier, Liu He, and the executive vice-president of the European Commission (the EU’s executive branch), Valdis Dombrovskis, remotely chaired the eighth High-Level Trade and Economic Dialogue (HED).
The two governments reaffirmed their interest in working together on their response to the coronavirus (Covid‑19) pandemic, as well as trade, investment and support for the World Trade Organisation (WTO).
Mr Dombrovskis stated the need to address the unequal treatment of companies; European firms investing in China encounter more restrictions than their Chinese counterparts in Europe. He called for China to remove market access barriers, noting interest in the biotechnology, health, telecommunications and new-energy vehicle (NEV) sectors. The EU also has concerns about Chinese industrial policy, especially the market-distorting effects of government subsidies for domestic firms.
We believe that China will maintain its position on industrial policy despite pressure from the EU (and the US), and that state subsidies will feature in the 14th five-year plan (2021‑25), which will be published later this year. Concerns about over-reliance on international supply chains, which have been exacerbated by both tensions with the US and the pandemic, have driven China’s desire to strengthen national production. In addition to intensifying issues related to overcapacity in the long term, these policies—as well as the inevitable protectionism borne out of industrial self-reliance—will continue to impede any strengthening of EU‑China ties in 2020‑24.
Although the Chinese government published few details of the meeting, it released a statement saying that China would aim by end-2020 to sign the Comprehensive Agreement on Investment, an EU-China deal that has been under negotiation since 2013. However, given that China’s uncompromising stance on the industrial policy has been the main barrier to the EU’s acquiescence, we do not expect this to occur.
However, the two sides may ink future (if potentially non-binding) agreements on sector-specific trade and investment barriers. Mr Dombrovskis called upon China to authorise beef and poultry exports from the EU—a request to which China may concede, given its need to make up for its pork shortages. China will continue the incremental relaxation of ownership caps for foreign firms in non-sensitive industries, such as financial services.
Given that we do not expect the EU and Chinese authorities to sign an investment agreement in 2020‑24, we do not anticipate any major improvement in EU-China trade and investment in that period.
We monitor the world to help you prepare for what’s ahead. Find out more about The EIU’s Country Analysis service.
Understand a country’s political, policy and economic outlook with the world’s best forward-looking analysis and data. Our Country Analysis service looks at global dynamics that impact your organisation, helping you to operate effectively and plan for the future.We monitor the world to prepare you for what’s ahead