China, EU 'should open investment treaty talks'

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China and the European Union should quickly open talks on an investment treaty to provide a legal framework for investors from both markets, policy experts said.

They said a treaty could facilitate mergers and acquisitions by Chinese multinationals in Europe, while helping investors from Europe, where the domestic market is sluggish, to gain a larger market share in China.

The comments came after a bilateral summit last week reached a consensus to start negotiations on investment agreements this year. Neither side gave a timetable.

Experts said that the announcement reflected a long period of preparation and was intended to boost confidence and predictability for investors amid prolonged economic weakness and debt crisis.

"I think negotiations will open soon, since the announcement ... is the consequence of a long preparatory process by two sides since last year," Zhang Haiyan, academic director of the Euro-China Center of the Antwerp Management School, told China Daily.

China has been signing bilateral investment treaties with EU member countries since the 1980s, and some of these pacts are set to expire. But in December 2009, the Lisbon Treaty brought foreign direct investment under the umbrella of Europe's common commercial policy. This change made it possible for the European Commission to take the initiative and negotiate a new agreement with China on behalf of the EU member states.

Experts said that an EU-China investment treaty would play a "crucial role" in stimulating investment flows between Europe and China.

Although EU-China trade is booming, investment flows are still small.

"Such a treaty would provide a legal framework for bilateral investment, giving confidence to potential investors," said Shada Islam, a policy expert at the Brussels-based think tank Friends of Europe.

"It will help clarify some issues, including intellectual property rights protection, government procurement and state subsidies," she said.

Duncan Freeman, research fellow at Brussels Institute of Contemporary China Studies, said the treaty will be important for both sides.

"While an investment treaty would give the EU greater access to a rapidly growing economy with positive prospects of strong growth, China would have access to a market that for the foreseeable future will have very poor growth and high investment risk."

According to the Ministry of Commerce, investment inflows from China into the EU rose 94 percent last year to $4.28 billion. Foreign direct investment in China from the 27 European nations fell 3.7 percent to $6.35 billion.

Chinese State-owned enterprises or multinationals in particular could benefit from an agreement, which would facilitate M&A activity, said experts.

Chinese companies have sought to invest in Europe through M&As in recent years, but some have faced restrictions by European nations on their investment proposals, though the situation has improved in the past year as the region's debt crisis worsened, said experts.

Some in Europe have expressed concern that China might "buy" the region amid its debt woes.

Premier Wen Jiabao said recently that China had neither the intention nor the ability to "buy" Europe.

Islam agreed. "China, like other investors, will only invest in businesses and sectors which are solid and which provide good financial returns," she said.