China and the EU can construct a new pattern of international investment with their long-anticipated bilateral agreement

China replaced the United States to become the largest trade partner of the European Union in the third quarter of 2020, with the total trade volume between the two economies reaching 425.5 billion euros ($517.3 billion) during the first nine months, an increase of 3 percent compared with the same period of 2019. However, there is still much room for improvement in terms of China-EU economic cooperation. The figure for investment exchanges between the two sides remains relatively low. In 2017, China's direct investment to the EU accounted for merely 1 percent of the latter's total amount, and the EU's direct investment to China was only 6.7 percent of China's actual foreign investment.

The negotiations between China and the EU on an investment agreement have drawn global attention, not only for their considerable economic scale and huge potential to engage more coordination, but also because the two sides are opposed to unilateralism and trade protectionism. If the largest developing country and the largest bloc for developed countries can implement a bilateral investment treaty, it may unleash much more energy and momentum than the Regional Comprehensive Economic Partnership.

The proposed China-EU investment agreement differs from bilateral deals between developed countries, such as those between the EU and the US or between the EU and Japan, in which it is easy to balance the interests with foreign investors, as they share identical political systems and similar rules. In contrast, with their divergent political systems and legal systems, China and the EU have large different interest that are difficult to balance. Therefore, it is necessary to build an innovative investment model that can satisfy the demands of the two sides.

Judging from the economic trade deal between the EU and the US and the one between the EU and Japan, it is hard even for developed countries to remain fair and just in terms of market access, reciprocal opening, competition neutrality and dispute settlement mechanism. The US and the EU differed most on tariffs in their trade talks in 2018. Washington intended to reach a comprehensive trade deal with the EU, including on agricultural products, while Brussels hoped to narrow the scope of the agreement to exclude agricultural goods. The competitive advantage of the US lies in fields such as the digital economy, intellectual property rights and agricultural products, while the strengths of the EU lie in automobile manufacturing, steel and aluminum products and the green economy. Both parties hoped to maintain their competitive advantages in the negotiations. Hence, they pointed fingers at each other and even launched a trade war. The Boeing-Airbus subsidy dispute is being one example.

As developed Western economies, the EU and the US have similar political and legal systems, as well as similar rules and regulations in terms of trade. Yet it is hard for them to remain on the same page or reach agreement on significant substantial items in their negotiations. Their escalated trade tensions indicate both sides are cautious when it involves their core national interests. There are still many contradictions and conflicts in the EU-US economic agreement.

Despite being two big economies and engaging in close economic cooperation, China and the EU have different political and legal systems, are at different development stages and have different interest appeals. This makes the negotiations challenging.

To construct a new model for China-EU investment, China and the EU should realize that they have adopted different economic development paths and they are at different development stages. Also, the investment access model they adopt should take into account the core interests of both sides. As long as China and the EU can take into account the other's core interests and try their best to accommodate each other on these issues, it is feasible for Beijing and Brussels to create a new model for investment. China and the EU are highly complementary in terms of their industries and some investment targets in the digital economy, green economy, agricultural goods and tackling global climate change. The China-EU agreement on geographical indications is an example of this.

Despite the above issues, leaders of both sides are positive about the deal. Against the backdrop of profound global changes and the deadly spread of the novel coronavirus, China and the EU should step up their cooperation in trade.

The author is a research fellow of the Institute of European Studies at the Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.