China and the EU: Where next in bilateral trade and investment relations?

Trade and investment relations between China and the European Union (EU) have reached a momentous significance. China is the EU’s No. 1 supplier of goods and its second-largest export market. In turn, the EU is China’s largest trading partner. Not only goods but also services trade has large potential to grow, even as China undergoes a structural transition and the EU’s single market faces headwinds from a surge in state-centric political forces within Europe. Transport and trade-related services are bound to expand significantly as China’s integration into the world economy continues. Moreover, Chinese tourists have been flocking to Europe in ever greater numbers, giving a boost to related business. Foreign direct investment (FDI) is becoming the next engine of the China–EU partnership. While the EU is a long-standing investor in China, Chinese direct investment accounts for <1 % of the EU’s total inbound FDI stock. Investment relations have seen tremendous dynamism in line with Chinese companies’ outward expansion and Chinese M&A deals vis-à-vis the EU have grown rapidly in magnitude, scope and sophistication. Finally, plenty of headroom exists for greater adoption of the use of the Chinese Renminbi (RMB) in Europe, supporting financing of both investment and trade. The Bilateral Investment Treaty (BIT) currently in negotiation between China and the EU as well as growing rather than declining interdependence of trade and investment highlight the future potential for a comprehensive free trade agreement between the EU and China.