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In the end it happened very quickly: China and the EU had been negotiating an investment agreement since 2014.

The talks between Brussels and Beijing were tough, for months nothing went ahead, sometimes there were even setbacks.

Suddenly, in the summer, the conversation began to move again;

then, in early December, the leadership in Beijing made decisive concessions.

The negotiators had already resolved all technical questions before Christmas;

During a conversation last Sunday, China's Vice Prime Minister Liu He and Valdis Dombrovskis, the responsible Vice President of the EU Commission, had to clarify the most politically sensitive issues: how to deal with employee rights and forced labor.

What is the agreement about?

The agreement, which has been negotiated since 2014, is intended to ensure that European companies invest more in China and vice versa.

Decisive for this are common rules on who can invest where, but also agreements on the basic rules of the game that apply in the respective markets, such as how state-owned companies are treated.

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The new treaty is intended to replace the bilateral investment agreements that all EU countries except Ireland have already concluded with China.

However, it does not contain any provisions to protect investments.

An EU official said that the ideas about dispute settlement were still too far apart.

What do German companies get from the agreement?

From a German and European point of view, the main issue is a fair balance: While the EU market is largely open to foreign companies and investors, the Chinese market remained closed despite all the liberalization.

Many sectors remained completely closed to foreign investors, in others companies were forced to form joint ventures with local partners or to pass on technological know-how.

That should change with the agreement, for example in the financial sector, but also in cloud services, e-cars, hybrid vehicles and in the health sector.

European companies that want to operate private hospitals in China, for example, no longer need joint venture partners in cities with more than ten million inhabitants.

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The Europeans also insisted that foreign and domestic companies in China should be treated more equally than before.

So far, different rules have applied in China for foreign and domestic private and domestic state companies.

For example, foreign firms have more administrative regulations and their intellectual property has historically been less well protected.

The EU also wants subsidies to be exposed and restricted and that state-owned companies that still dominate China's economy do not enjoy preferential treatment, such as antitrust guards not paying close attention to them or banks giving them cheaper loans.

Ideally, foreign-owned companies would be treated in the same way as state-owned corporations.

The agreements reached are far from that, but they provide, for example, that subsidies for service companies are disclosed;

the rules of the World Trade Organization (WTO) do not yet provide for this.

"The outcome of the negotiations is more ambitious than any other agreement that China has ever concluded," says an EU official who is familiar with the negotiations.

Is the Chinese market now as open as the European?

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No.

The negotiated text is not yet public, but people familiar with the latest state of the negotiation report that Beijing has limited concessions.

The extensive opening of the Chinese market failed to materialize.

This also applies to the equal treatment of foreign and domestic companies, the so-called level playing field.

"This agreement will not change the structure of the Chinese system, and it will not solve all the problems that European companies have in the Chinese market," says Maurice Fermont, China expert at Business Europe, the European employers' association.

"But it will make competition with Chinese companies in China fairer."

Other business representatives and economists also praise what has been achieved.

“With a difficult negotiating partner like China, you couldn't expect miracles,” says Daniel Caspary, chairman of the CDU / CSU group in the European Parliament.

"The agreement is a first step towards uniform rules that are accepted by both sides in an increasingly competitive environment."

What is the difference to a free trade agreement?

This year, China signed a free trade agreement with 14 Pacific residents, in which the participating countries agreed to create the world's largest free trade area, RCEP.

The agreement with the EU is far from such deep integration.

The negotiations between Brussels and Beijing were not about removing tariffs or other trade barriers and thereby stimulating trade between the two economic areas.

China has long wanted a free trade agreement with the EU, but Brussels had always made it clear that this investment agreement was a prerequisite for even starting negotiations with China on a far more complex free trade agreement.

What does China get from the agreement?

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China is thus securing the status quo of an EU market that is largely open to Chinese companies and investors.

That is not a matter of course.

The US has already made it harder for Chinese companies to invest there, other countries are tightening their rules on foreign investors too, and Europe is moving in the same direction.

For example, the EU Commission wants to prevent European companies from being taken over by investors from China who are heavily supported by the state or even belong to the state.

In this situation, the agreement means legal certainty for China and seals the market access that the country already enjoys in the EU.

In addition, it should become easier for Chinese companies to invest in renewable energies in Europe - but only to a limited extent.

Only when China opens up its market for renewables will Europe catch up and allow more Chinese investments.

In view of the European energy transition, this is a rapidly growing market that has so far only been accessible to foreign investors to a limited extent in order to guarantee the security of the energy infrastructure.

Why did it go so quickly in the end?

In 2013, China and the EU announced that they wanted to conclude the negotiations in 2020.

Nevertheless, observers were surprised when, after years of talks in which hardly anything had changed for months, the negotiations picked up speed at the end of the year.

They were pushed forward by the European Commission as well as the responsible Vice President Valdis Dombrovskis and the German government, which had made the agreement one of its priorities for the EU Council Presidency, which will end on December 31st.

The negotiators had already resolved all technical questions before Christmas;

after the holidays, only a handful of issues remained to be resolved at the highest political level.

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China, too, has had an interest in finalizing negotiations before Joe Biden, the winner of the US presidential election, comes into office next year.

Biden has announced that he will work with the Europeans to take stronger action against China.

His employees had intervened against the deal in Brussels in order to be able to put more pressure on China in future negotiations.

Why was there so much criticism of the agreement?

On the one hand, the criticism was substantive: observers fear that the German government and the EU Commission will be satisfied with inadequate concessions from the Chinese side just to be able to present an agreement before the end of the year, as promised.

"The negotiators have made progress in terms of market access, but this progress does not go far enough," says Mikko Huotari, director of the Merics research institute.

“When negotiations began seven years ago, the aim was to largely open up the Chinese market.

What we now have are limited concessions, but no profound equality in the Chinese market. "

Since the beginning of the negotiations, however, China has also changed under Xi Jinping: The state is now more authoritarian internally and more aggressive externally than in 2012, the year in which Brussels and Beijing agreed the negotiations.

The EU now describes China as a systemic rival, similar to the Soviet Union in the Cold War, because of the different understandings of civil rights, democracy and social coexistence.

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Delivering a foreign policy success to China this year of all times with the agreement is also considered a serious mistake: In 2020, China dramatically intensified the repression in Hong Kong with a new security law, suppressed the democracy movement there and spread fake news about Corona in a targeted campaign in Europe.

What happens next?

The EU member states have to formally approve the agreement, but have already given an informal signal in a video conference on Wednesday that they will approve the outcome of the negotiations.

However, the approval of the European Parliament is also necessary.

The parliamentarians demand that China undertake to comply with environmental standards, allow independent trade unions and recognize the international convention against forced labor.

The background to the last demand is, among other things, reports that Beijing is barracking Muslim Uyghurs in forced camps and forcing them to work in their home region of Xinjiang and elsewhere.

In the agreement, however, China only undertakes to continuously and sustainably strive for ratification of the conventions against forced labor.

"When it comes to forced labor in China, the EU Commission wants to be satisfied with superficial lip service," criticizes the Green politician Reinhard Bütikofer, chairman of the European Parliament's China delegation.

The Commission could at least have insisted on a timetable.

For independent unions, the obligation is even looser.

"In terms of sustainability and workers' rights, China has moved a little, but not far enough from the perspective of parliament," says Bernd Lange (SPD), chairman of the trade committee in parliament.

“China has to act on the approval of independent trade unions and the renunciation of forced labor, otherwise the parliament will not approve the agreement.

We expect at least the abolition of forced labor. ”He expects that the parliamentarians can still bring this position before the agreement comes to parliament at the end of the year.