8. Conclusion
8.1 Outlook
The European legislation is clearly in flux and will require more time to reach the stage of a comprehensive investment legislation covering all member states. In the meantime, there are several alleys open to the EU to reach an improved investment framework with China. Several steps have been taken since 2010, which indicate such an aim. First, in the abovementioned Communication on the EU future investment policy, China has been clearly identified as potential partner for a standalone investment agreement. Second, an EU-China Investment Joint Task Force was established in 2010 under Trade Commissioner de Gucht and President Barroso.
(Council of the European Union 2010) The EU has a vested interest in reaching an agreement, in order to gain better market access and to abolish barriers (such as protected strategic sectors, foreign ownership thresholds, Joint-Venture requirements, investment screening, discriminatory treatment of EU investors in licensing, subsidies, and authorization) in China. Overall, there is currently only limited comprehensive legal framework between China and the EU on these matters. Thus the EU and China may choose among three policy options to provide a solution:31
a. Reach a comprehensive investment agreement- which would include both regulation for better market access and investment protection.
b. Conclude a stand-alone investment protection agreement- which would replace all agreements held between individual member countries and China.
This agreement would only cover investment protection but not market access.
c. Conclude no separate agreement with China- continuation of dialogue and broader agreements, yet no specific investment protection- or market access agreement.
Over the next couple of years, we will see a variety of consultations between China and the EU institutions, as well as between the EU stakeholders themselves. The first public consultation of such kind was launched in 2011- likely many more will follow until one of the above options has been chosen.32 Ultimately a comprehensive
agreement is most desirable for the EU, as it strengthens its positions with regards to
31 As laid out a presentation held by Leopoldo Rubinacci (Head of Investment Unit at Directorate General for Trade, European Commission) at the DG Trade and Civil Society Dialogue on June 20th 2011.
32 Refer to: European Commission Public Consultations Database. EC Directorate General for Trade 2012
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the member states and given the economic importance of China for the European Union. However, such an agreement will take many more years to conclude, therefore a gradual process ultimately leading to such an agreement appears most likely.
While the EU has to choose between a comprehensive-, a partial- or no agreement- the federal German government and its federal states face a different spectrum of choices.
So long as there is no comprehensive European regulation in place, they can temporarily either increase or decrease regulation within the legal spectrum created for themselves. The federal government continuously underlines that they wish for an increase in FDI from China, but not out of pure goodwill. While Germany has large shares of its FDI invested in China, Chinese investment to Germany is still small- leading to unfavorable imbalances. The federal Ministry of Economics therefore concludes, that for the long-term assurance of German investment opportunities in China, it is desirable that Chinese companies also invest more capital in Germany.
(BMWI 2009, 13) An increasing regulation and active sanctioning can thus not be expected, given the aim of reaching a status of reciprocity and a balanced FDI flows.
This leads to the following possible conclusion for the federal side: Chinese Investment will be allowed to operate- in order to ultimately reach a reciprocal abolition of barriers on the Chinese side.
The sixteen federal German states in turn concur with this notion. As stated by the senior official from the Ministry of Economics in Hesse interviewed for this research, reciprocity is also a key goal for state administrations. However, their understanding of reciprocity points to a very different direction. While welcoming the Chinese engagement in Germany, the official stated that Chinese investments should not end up as a one-way street: in which Chinese investments can flow unhindered into Germany, while German investors face a variety of barriers. Therefore the promotion and support of German investment in China is most significant to them. It appears that they will not become involved in any form of regulation or substantially increase promotion in the future, given their sole focus on supporting German companies and their lack of financial resources.
There is however a worrying development at municipal level, which may change these
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approached by Chinese investors, who appeared to plan large-scale investments there (the latest involving an alleged investment of 100 million Euros). (FR 2012) As it turns out, these investors either did not follow through with their investments, only invested a minor share of the promised funds, or simply, at some stage, disappeared back to China. They left behind their debt, redundant construction sites and
outstanding accounts with local businesses. By now, many municipalities struggle with such “hollow” investments, in which the state or the municipality transferred property rights to the investors and investors received substantial public funding (either directly or through guarantees). A particularly striking example is the German city of Parchim (in Mecklenburg West-Pomerania), which sold its airport to the Chinese logistics company Link Global. (Siegmund 2008) The city transferred property rights to the Chinese investor, yet never received the purchasing price of 30 million Euros and none of the promised 100 million Euro investment was carried out.33 The transfer of property rights in turn has made it impossible for the city to agree to the lucrative offer to merge its regional airport Parchim with the international airport of Hamburg- leading to substantial financial damages to the local community and the state.
Many such hollow investments have occurred and still do occur- ultimately leading to a change in attitudes towards Chinese investors. While regulation cannot hinder such problems to occur, states and municipalities may develop a negative attitude towards investments from China. This will make it impossible for any Chinese investor, trustworthy or not, to carry out investments in Germany in the future- ultimately proving to become a much larger barrier to Chinese investment flows than any sanction or regulation ever could.
33 Refer to: Abendblatt (2010). Chinesischer Käufer bleibt Rate schuldig. Abendblatt online 02.15.2010
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