An investment pact between the European Union and China is still possible, but both sides may wait until 2023 at the earliest to ratify the deal, said an analyst from risk consultancy Eurasia Group.
The EU and China agreed on the deal in December after seven years of negotiations. But tensions between the two — which saw both sides imposing sanctions on each other — led the European Parliament to freeze the deal until Beijing lifts sanctions on EU politicians.
Despite the hiccup, Neil Thomas, China analyst at Eurasia Group, said it’s “more probable than not” that the EU and China will in the longer term ratify the deal called the Comprehensive Agreement on Investment.
“That’s because the deal really has lopsided benefits for Europe, and that’s going to keep the deal alive in terms of it enjoying a fair amount of approval and popularity amongst EU officials and majority of the bloc’s members,” Thomas told CNBC’s “Squawk Box Asia” on Tuesday.
Economies including the EU and the U.S. have long raised concerns about Beijing’s industrial practices that hinder foreign companies from competing fairly in China. Their complaints include Chinese state subsidies for state-owned enterprises and forced technology transfer from an overseas firm to its Chinese partner.
Thomas explained that the benefits of the EU-China investment deal include improved market access for European firms in China, as well as better rules on subsidies, state-owned enterprises and technology transfer.
But any ratification of the Comprehensive Agreement on Investment may not happen until 2023 at the earliest, said Thomas.
That’s partly because events such as Germany’s federal election in September and French President Emmanuel Macron’s reelection campaign in spring 2022 could affect sentiment toward the deal, said the analyst.
In addition, Chinese President Xi Jinping wouldn’t want to appear weak by giving in to the EU before the National Congress of the Chinese Communist Party in fall 2022, said Thomas. He explained that Xi is expected to secure his third term as general secretary of the CCP, so he’s unlikely to back down on Chinese sanctions on the EU.
China’s geopolitical footing
Beyond the economic benefits of the investment pact, China could lose some geopolitical footing if the deal isn’t eventually ratified, said Thomas.
The analyst added that China’s assertiveness on the global stage has “created space for closer EU-U.S. cooperation and has created more political will in the EU to get closer to the U.S.”
One of the first displays of such cooperation was seen in March when the U.S., EU, U.K. and Canada imposed sanctions on Chinese officials for alleged human rights abuses in China’s northwestern Xinjiang region. Beijing retaliated with its own sanctions against the four economies.
China also featured prominently on the agenda of the G-7 leaders’ summit and a meeting among NATO members.
Thomas pointed out that “China has not reacted well” to the statements coming out of those meetings. He said that from Beijing’s point of view, Biden’s approach to prioritizing alliances and forming coalitions against China could affect China’s economic development and ability to access high technology.