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The Limits of the EU-China Investment Agreement

The new EU-China Comprehensive Agreement on Investment will eventually be judged by its implementation and the concrete steps China takes to fulfill its promises. If European firms do not perceive any improvement, and China makes no progress on labor standards, the pact might come to represent an empty gesture.

BRUSSELS – During the last days of 2020, the European Union and China finalized a Comprehensive Agreement on Investment that they had been negotiating for seven years. In the weeks since, the CAI has attracted a lot of Western commentary – much of it damning. But now that the full text of the agreement is available, it seems that critics may be overstating its importance.

For starters, some argue that the EU is relying too much on the Chinese market to keep its economy growing. But trade and investment data do not bear this out. In 2019, China was only the third-largest market for EU goods exports. The United States remains the EU-27’s most important trading partner by far, followed by the United Kingdom.

EU exports to China are actually somewhat lower than one would expect, given that China’s GDP (even at market exchange rates) is now close to 80% of that of the US, whereas EU exports to China are only about 50% of those to the US. Moreover, the relative importance of the US and China as export markets for the EU has not changed much over the past decade. This means that the EU’s transatlantic exports have increased almost as quickly as its trade with China – despite China’s much higher GDP growth rate.

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