The China-EU Comprehensive Agreement on Investment (CAI) signed at the end of 2020 signifies China’s commitment to further opening up to foreign investment. CAI aims to create a more level playing field for European companies investing in China by improving market access, eliminating forced technology transfers, and increasing transparency on subsidies and state-owned enterprises. Key sectors addressed in CAI include manufacturing, financial services, healthcare, telecommunications, and environmental services. However, challenges remain in implementation and enforcement. CAI represents an important milestone, but continued reform is needed to fully realize its potential benefits. There are both opportunities and risks for foreign investors as the impacts of CAI unfold.
CAI opens up China’s market access across sectors
The CAI includes significant market access openings for European companies investing in China. Restrictions such as joint venture requirements, foreign equity caps, and other barriers to investment will be reduced or eliminated in manufacturing, financial services, private hospitals, R&D, telecoms, transportation, business services, environmental services, and more. The negative list approach provides wider access for investment not explicitly prohibited.
CAI aims to create a more level playing field
In addition to market access, the CAI contains important provisions to improve the fairness of China’s investment environment. Rules against forced technology transfer provide more protection of foreign firms’ IP rights. Commitments on SOE behavior and subsidy transparency aim to limit distortions from state involvement in the economy. Overall, the CAI seeks to address some of the major concerns voiced by foreign investors in China.
Implementation and enforcement remain uncertain
While the CAI’s commitments are significant on paper, effective implementation and enforcement will determine its real-world impact. China does not have a strong track record of following through on economic reform pledges. Monitoring mechanisms in the deal provide channels to raise concerns, but dispute resolution relies on consultations rather than a binding enforcement mechanism.
CAI signals China’s continued opening up
Despite uncertainties, the CAI represents an important milestone in China’s economic transition. After China’s WTO accession, further integration was stalled amid frictions with trading partners. Concluding the CAI shows China’s intention to move forward with reforms. While the pace may be gradual, the direction appears to be toward greater openness and market-orientation over the long run.
The CAI opens the door wider for European investment in China across many sectors and aims to improve fairness for foreign firms. But continued reform and effective enforcement will be crucial to realizing its potential benefits. CAI represents an important step, but only one step, in China’s opening up.