China and the European Union are expected to start negotiations on a landmark bilateral investment treaty during the upcoming China-EU summit, the top EU envoy in China said.
The agreement will help China upgrade its economy and better integrate with the world economy, analysts said.
Markus Ederer, head of the EU delegation to China, told China Daily in an interview ahead of the summit on Nov 21 that the EU will make a number of proposals for new initiatives, including launching negotiations on a bilateral investment agreement.
"That will enhance the potential for mutual investment. It will also give (China), looked at from the Chinese side, more certainty and predictability to the legal environment, because it will cover all member states," Ederer said.
"Investment conditions in member states differ and sometimes the laws differ, but it will set a few basic rules that will apply to all member states, so that will also improve the investment climate for Chinese companies."
A new agreement will streamline existing bilateral investment protection agreements between China and EU member states into a single, coherent text to improve the protection of bilateral investments and increase investment flows.
With goods and services worth more than $1.34 billion traded between both sides every day, trade flows between China and the EU are impressive. However, the flow of bilateral investment remains relatively low.
Statistics from the EU show that China's direct investment to the EU comprises only 2.2 percent of the whole, while bilateral foreign direct investment represents less than 3 percent of both sides' total outflows in 2012.
"We will establish across the board a simpler and more predictable legal and political environment for mutual investments. The uniformity and certainty on investment conditions will grow on both sides," Ederer said.
"In terms of regulating the investment practices, it will be more comprehensive than the bilateral agreements from the member states, because it will also be broader in substance matter. It will be about investment protection, but it will also be about market access and national treatment."
Analysts said the treaty has strategic meaning for both.
"The treaty will offer a good opportunity for China to attain international standards on trading and investment," said Zhao Junjie, a researcher on European studies with the Chinese Academy of Social Sciences.
European countries are good at setting rules to regulate trading and investment practices, and therefore play a more dominating role in global economic practices, he said.
European investment to China, with advanced technologies and expertise, will help China transform to a more sustainable economy and upgrade its economy in the world industry chain, Zhao said.
Chen Mingming, former Chinese ambassador to Sweden said, "To further implement the reform and opening-up policy, China needs a better investment environment overseas."
China is taking measures to boost foreign trade, including reaching new free trade agreements and tapping the potential of existing free trade agreements with foreign countries.
In April, Iceland became the first European country to reach a free trade agreement with China, followed by Switzerland in July.
Zhang Haiyan, a professor at the Antwerp Management School, said the EU may put non-commercial items such as sustainable development, social responsibility and human rights on the negotiating agenda while trying to gain more market access in China.
Beijing will ask Brussels to accept equal investment status for its State-owned enterprises, Zhang said.
Analysts said it will take time to finally conclude an investment treaty, because China and the EU have different understanding on the degree of market openness and different expectations on the treaty.
Former European Parliament member Glyn Ford said the process will be protracted, with demands on market access coming from the European Commission and the European Parliament.
Future ties
This year marks the 10th anniversary of the China-EU comprehensive partnership. Ederer said he is optimistic about the future for both sides, seeing huge opportunities for Europe in China.
With China's goal of becoming a moderately prosperous society by 2020, and the EU's 2020 agenda of becoming more competitive and striking a balance between social protection and economic performance, the two sides have many similarities, Ederer said.
"There are a lot of big challenges in China that can partially be addressed technologically, such as water scarcity or environmental pollution. I think European companies are uniquely positioned to help on that," he said.
