China's market access commitments to the EU

In addition, new restrictions are already envisaged, or new uncertainties are created. For example, China reserves the right to political leeway in deciding whether the senior management of non-profit organisations must be Chinese citizens in the future (Annex II, Entry 9). Among others, the part of the representative offices of the German business community in China that are registered there as non-governmental organisations could fall under this regulation. The BDI calls for clarification here. New restrictions on the representation of the interests of German and European trade associations in the world's second largest market must be ruled out.

Overall, it must be noted that the demands of the industry, which were raised by BusinessEurope and the BDI in the initial phase of the negotiations, have only been met to a small extent. CAI is not an agreement with far-reaching market opening, the opening of the Chinese market for public contracts has not taken place and comprehensive investment protection could not be achieved between the EU and China. These unfinished tasks must remain a priority on the EU Commission's China agenda.

It can be assumed that possible positive effects in the areas with improved market access will become apparent rather in the medium to long term for the companies that have already invested in China. The importance of China as an investment location remains high, most of the German companies that have already invested in China are planning further investments and assume a positive development of the Chinese market in their industry. However, it is not expected that new investments from Europe in China or, vice versa, Chinese investments in Europe will increase significantly due to the CAI.

The commitments for China set out in the agreement concern only a small part of the manufacturing sector. To a much greater extent, access for European companies in the services sector was part of the negotiations for the first part of the agreement, which is now available.

China's market access commitments to the EU

Automotive industry:

In the automotive manufacturing sector, the abolition or phasing out of the joint venture requirement for all foreign manufacturers announced by China in 2018 is reaffirmed. This will be done in three steps: since 2018, vehicles with novel powertrains; since 2020, commercial vehicles with conventional powertrains; from 2022, passenger cars with conventional powertrains. With the CAI, China confirms increased market access in the area of new energy vehicles (NEVs, primarily e-cars), with the restriction that the investment must be more than USD 1 billion.

The negative list, which has been further reduced in the meantime, has lifted the joint venture requirement for foreign companies in many sectors, 100 percent subsidiaries are increasingly possible, thanks to the 2018 announcement, now also in car manufacturing. However, the amount of investment to be made is high, so investments in this area will be limited to individual large-scale investments. For the automotive suppliers, which are also important from the perspective of German industry, the establishment of a WFOE (Wholly Foreign Owned Enterprise) has always been possible, and there were no restrictions on market access in China.

Mechanical engineering:

In the area of mechanical engineering, there have been no hurdles to greenfield investments in the past. In the case of takeovers of mechanical engineering companies, there is an approval requirement both in China and in Germany within the framework of the investment review for critical infrastructure. The German Engineering Federation (VDMA) criticises that although the agreement opens up a number of markets for EU companies in China, a true level playing field for European companies in the Chinese market is unlikely to be achieved. In addition, important topics for mechanical and plant engineering are missing, such as public procurement, access to local subsidies and questions of competition and state aid law.

Services

Due to the Most Favoured Nation (MFN) clause, the agreed openings in the services sector benefit not only the EU member states, but all WTO members (GATS). This means that the agreement is much more closely oriented to WTO rules or complies with them compared to the Phase One Deal between the USA and China.

Financial services: Joint venture requirements and caps on foreign ownership have already been abolished for banking, insurance and securities trading, and asset management. China has pledged to continue this process of liberalisation and opening. This means that advantages that have applied to US investment funds since the conclusion of the "Phase One Deal" will now also be granted to EU investors and all WTO members.

Healthcare: Joint venture requirements for the operation of private hospitals in eight central Chinese cities (including Beijing, Shanghai and Hainan) are to be lifted entirely, which is generally welcomed. Again, this is a development that has already started in 2019, but still does not allow nationwide access for European companies in this sector. The opening promise is further restricted by the clause that such investments may only be made taking into account "China's needs". The majority of staff in the hospitals must be Chinese.

In order to enable and strengthen a deeper, long-term partnership with China in the health sector, a nationwide, comprehensive exemption from the joint venture obligation would be desirable. To this end, an extension beyond the eight central Chinese cities to all provincial capitals and their immediate surroundings should be sought from the outset. In addition, a timetable and mechanism for the gradual lifting of joint venture requirements in other Tier 1, Tier 2 and Tier 3 cities would be necessary in order to be able to continue to act appropriately in the interests of European companies and Chinese health systems (provincial level) and to continue to support the local health system in the long term.

Telecommunications/cloud services: China has agreed to partially lift the investment ban for foreign investors. A corresponding participation in the area of cloud services is to be limited to a maximum of 50 percent. For other telecommunication services such as communication infrastructure, satellite communication and mobile phones, a maximum share of 49 percent is stipulated. This effectively establishes a new joint venture obligation. In the area of cloud services, Chinese and American companies are clearly leading. The relevance for German industry as a provider of cloud services is currently rather low there. For Industry 4.0 applications, however, they play a major role and companies need data sovereignty here. Complete liberalisation would have been important here.