Former European Central Bank head believes problems can be overcome with talks
China’s ongoing efforts to reform and open up its domestic market will benefit the country and the rest of the world, according to former European Central Bank President Jean-Claude Trichet.
This month marks the 40th anniversary of the official launch of China’s reform efforts, a landmark program that has turned the once-poor country into an economic powerhouse.
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Jean-Claude Trichet, former European Central Bank president, says Beijing has sparked an economic miracle that’s remarkable in human history. Provided to China Daily |
On Dec 18, President Xi Jinping made a keynote speech proclaiming that the nation is determined to continue speeding up reform and freeing up its domestic market in the coming decades.
Trichet, the former head of the ECB and French central bank chief, was also a negotiator for the French government for the treaty of reciprocity on foreign direct investment with China in the 1980s. He says Beijing has sparked an economic miracle that’s remarkable in human history.
Over the past 40 years, China’s GDP share of the world’s total economy has jumped from 1.8 percent to 15 percent. The country has achieved self-sufficiency in food and successfully lifted more than 740 million people out of dire poverty. Meanwhile, China’s foreign exchange reserves, manufacturing capacity, and international trade volumes all rank at the top of the world.
“In my life, I had seen both – the Chinese mainland that I visited in 1982 or 1983 and China today. All this extraordinary progress that China has made is so visible and impressive. It is amazing and hard to believe it is not a dream. So I have full confidence that China will continue to make incredible progress.”
He speaks highly of China’s speedy domestic reforms since Xi’s speech at Davos, Switzerland, last year. He also expects the country to further open up its domestic market, cooperate and integrate with the rest of the world, the European Union in particular, is as balanced a way as possible.
Trichet highlights investment relations on the EU-China agenda and urges both sides to clinch a productive investment deal soon.
With the aim of unleashing underexploited opportunities and potential, ease access to each other’s markets and improve protection for investors from both Europe and China, the EU-China Comprehensive Agreement on Investment, or CAI, was launched in 2012.
At the latest 19th round of negotiations held in October, the two parties had exchanged feedback on market access. The next round of negotiations is scheduled for early next year in Brussels. Once concluded and ratified, the new agreement will replace the existing bilateral investment treaties that 26 out of 28 EU member states have with China.
“When I look at the stock of FDI, we are still at a level that is quite modest, obviously, taking the immense size of our economies into account, especially compared with other major economies,” he says.
Data from the European Statistical Office shows that China accounted for only a 0.6 percent share of inward FDI in the EU’s 28 member states. About 2.4 percent of the EU’s total outward investment stocks of FDI were held in China as of the end of 2014. Taking into consideration that China has emerged as the EU’s second-biggest trading partner, there is an evident mismatch between their trade and investment relations.
According to Eurostat, FDI from China in the EU’s 28 member states reached 45.1 billion euros ($51.3 billion; ￡41 billion) in 2016, by comparison with 177.7 billion euros of EU FDI flown into China in the same year. Regardless of China’s soaring investment in recent years, FDI from the country still occupied a marginal portion of the total investment received by the EU.
Trichet says the low figures show there is tremendous room to boost FDI between Europe and China in both directions in the coming decades.
However, in 2017, for the first time in more than a decade, China’s outbound FDI dropped sharply because of stricter controls on outbound flows as well as increasing foreign regulatory pushback against Chinese takeovers.
By contrast with China’s opening-up scheme, the EU is attempting to increase state intervention of investments through the first bloc-wide rules to coordinate scrutiny of foreign investments into Europe, notably from China.
EU national governments will still have the final say on whether to block foreign investments, but the European Commission is obliged to investigate foreign investments in “critical” technologies and infrastructure such as ports, energy networks and artificial intelligence, and member states are required to cooperate with EU institutions.
On Dec 10, the International Trade Committee of European Parliament endorsed the political agreement reached in November on the EU framework for screening FDI. Such new rules are likely to be passed by the European Parliament at its plenary session in February or March 2019.
Against this background, the focus in EU-China investment relations should go beyond discussing new barriers in the EU but rather focus on seizing opportunities to open the Chinese market, according to Trichet.
“These issue negotiations on an investment treaty and FDI screening are closely correlated. But I don’t think the EU-wide investment screening, which is pursued very seriously, will in the end prevent us from negotiations for a progressive investment deal,” he says.
“The main issue is that in certain domains, there is absolutely no problem, and all Chinese investments will be welcome. I hope all European investment will be welcome in China as well,” he says. “You might have some discussion about those Chinese investments in the high-tech sectors and when the investments are not made by real private corporate businesses but by State-owned enterprises or highly State-influenced enterprises,” he says, noting there are two criteria to trigger the investigation: high-tech fields or not, and SOEs or not.
Trichet also underlines that the risks facing Europe now also exist in all advanced and emerging economies.
“That is the problem we have within Europe, and it’s also a problem that we have with the United States. For instance, in response to the big four platforms (Amazon, Apple, Facebook and Google), there is a permanent screening and meditation about what is the best way to deal with these new digital platforms. The key is to ensure no unfair behavior,” he says.
“There is a will to embark on EU-China investment treaty on both sides. I am confident that it has to be done very seriously.”
As the chairman of the board of Brussels-based economic think tank Bruegel, Trichet has led work with three other think tanks from Europe and China, including the China Center for International Economic Exchanges and London-based Chatham House.
Their joint report titled “EU-China Economic Relations to 2025: Building a Common Future”, which was published last year, lays out that the EU and China are not security competitors. Instead, they are two of the most externally integrated economies in the world and can help ensure that global development is stable, strong, balanced and sustainable through deeper bilateral cooperation.
The report underlines that growing Chinese consumption, especially of services, has the potential to create new markets for European businesses, while rising Chinese investment in the EU, in addition to increasing the EU’s GDP and employment, also provides Chinese companies with a platform to improve their global competitiveness.
Trichet says sealing their investment pact will solve many issues between two parties, and eventually consumers, businesses and economies will all benefit from China’s move.
According to a policy paper issued by the Chinese Foreign Affairs Ministry on Dec 18, Beijing is committed to significantly ease market access and foster a stable, fair, transparent, law-based and predictable business environment for foreign investors. China’s white paper also urges the EU to ease export control and facilitate mutual investment with China.
(China Daily European Weekly 12/21/2018 page32)