CAI market access annexes + Vaccine passports + Indo-Pacific

The European Commission published the outstanding market access annexes of the Comprehensive Agreement on Investment (CAI) last week.

What you need to know

• Key market openings in China:

1. Automobile manufacturing – After 2022 foreign investors can increase their shareholding to above 50 percent in the production of cars with internal combustion engines. Carmakers will also be allowed to establish more than two equity joint ventures at the same time from 2023. There continues to be no limitations on new investments in electric vehicles projects valued at over USD 1 billion.
2. Medical services– China will allow establishment of fully foreign-owned private hospitals and clinics in eight selected cities, including Beijing, Shanghai, Shenzhen, and on Hainan island. The hospitals and clinics must employ a majority of Chinese nationals.
3. Telecommunication services – Foreign investment of up to 50 percent will be allowed in online data processing and transaction processing services (e-commerce not included) as well as code and protocol conversion services. Investments of up to 49 percent will be permitted within a range of services including international communication facility, satellite communication and cellular mobile communication.

• The EU has confirmed its existing market openness, at the same time important provisions have been put in place for its growing solar and wind renewable energy sector. Within this sector, Chinese investments in each member state are to be capped at five percent of controlled or operated solar and wind energy production.

Quick take

Assessment of the CAI requires looking beyond the provisions of the document. Some of the openings in China amount to repacked pre-existing commitments. For example, the opening of China’s automotive market by 2022 was already announced by the National Development and Reform Commission in 2018. Locking such commitments in an international deal does bring value, but it also poses the question of how much of a breakthrough CAI is in terms of opening the Chinese market.

Read more

•    European Commission: EU – China Comprehensive Agreement on Investment (CAI): list of sections

EU member states’ ambassadors in Brussels agreed on a package of sanctions on March 17, targeting four Chinese officials and one entity under the EU’s global human rights sanctions.

What you need to know

• The targeted individuals and entity are to be subject to travel bans and asset freezes over their involvement in prosecution of Uighurs in Xinjiang. There are no indications that the package includes punitive measures against officials involved in the Hong Kong crackdowns. Hungarian representatives threatened to veto the move in a previous meeting, but ultimately the Ambassadors reached a consensus.
• China’s Ambassador to the EU, Zhang Ming, strongly opposed the move asking the EU to “think twice” and criticized “China haters”. The package will be published after formal approval by EU foreign ministers on March 22.

Quick take

The move is an important litmus test on a couple of fronts. First, it is a stress-test for the EU’s fragmented approach to China policy – also in the face of likely retaliation from Beijing. Second, the process of officially publishing the sanctions will require EU capitals to settle on a specific classification of the human rights abuses taking place in Xinjiang. The sanctions regime regulations can be applied to cases of genocide, crimes against humanity and other human rights abuses that are “widespread, systematic or are otherwise of serious concern.”

Read more

• Reuters:  EU envoys agree first China sanctions in three decades, diplomats say
• Mission of the People's Republic of China to the EU: Excerpts from EPC’s Sixty-minute Briefing with Chinese Ambassador Zhang Ming
• European Council: EU adopts a global human rights sanctions regime

Following the National People’s Congress’ approval of controversial changes in the Hong Kong electoral system, the EU and Hong Kong authorities exchanged a quick sequence of statements.
 
What you need to know

• The EU:

1. released a declaration on the electoral system changes, on March 11, calling them “yet another breach” of the One Country, Two Systems principle and “another violation” of China’s international commitments.
2. joined the G7 statement, on March 12, that declares the measures as undermining Hong Kong’s autonomy, political pluralism and freedom of speech.
3. released an annual report, on March 12, on political and economic developments in Hong Kong in which the bloc highlighted “an alarming political deterioration” and documented an “erosion of autonomy, democracy and fundamental freedoms”.

• Hong Kong:

1. democracy activists sent a letter to Ursula von der Leyen on March 11. The 24 activists, including Nathan Law and Ted Hui, called for the EU to withhold its approval of the CAI before the National Security Law and the restrictions in electoral system are lifted.
2. authorities opposed the EU’s report in a statement on March 12. The statement referenced “biased and ungrounded political smearing against” the National Security Law and criticized the EU for alleged “double standards” against Hong Kong authorities.

Quick take

New punitive measures towards Hong Kong may be on the horizon. The issue has already been discussed by EU foreign ministers and the adoption of a previous package in July 2020 was preceded by a similar combination of a critical declaration and participation in a G7 statement.

Read more

• European Commission: Hong Kong: EU report highlights alarming political deterioration
• HKSAR: HKSAR Government responds to the European Commission Report
• The Guardian: Hong Kong activists urge EU not to ratify new deal with China

Both the EU and China are set to ease travel restrictions depending on the origin of Covid-19 vaccinations and travelers’ destinations.
 
What you need to know

• The EU Commission proposed, on March 17, the introduction of temporary “vaccine passports” called “Digital Green Certificates” (DGC). The document would allow those inoculated with vaccines approved by the European Medicines Agency (EMA) to move freely between member states without quarantining or testing. Member states would remain free to deploy other vaccines and to accept them to permit crossing their own borders.

• China launched a visa program on March 15, that allows foreigners inoculated with Chinese jabs to apply for visa with limited paperwork and to skip the required Covid-19 test. China has extended the program to only a selected number of countries, but it should be adding more to that list soon. Currently, Hungary is the only EU member state rolling out Chinese vaccines. One million doses of the Sinopharm vaccine have arrived in the country, out of five million ordered.

Quick take

The appeal of Chinese vaccine diplomacy in Europe is likely to decrease. With the introduction of travel benefits for European citizens who are vaccinated with specific jabs, the origin of the vaccination will have greater importance for many. The divergence in vaccination requirements between the EU and China could further complicate efforts to limit the disruptions to businesses caused by travel restrictions.

Read more

• Politico: EU’s COVID travel pass will let countries choose Russia, China vaccines
• Bloomberg: China Eases Visa Rules for Foreigners Who Get Chinese Vaccines
• [HUN] 444.hu: The government is disclosing vaccine contracts

Following the European Council’s Working Party meeting, Josep Borrell, the High Representative, offered insights into the EU’s plan towards the Indo-Pacific region and what it could mean for relations with China. The EU will publish an official document outlining its “common vision” for future Indo-Pacific engagement in the coming months.
 
What you need to know

• The EU plans to rebalance its relations in Asia. This involves taking a step back from China and developing closer ties with like-minded Asian partners. In the process the bloc hopes to support an open and rules-based order and engage partners in sustainable connectivity. That means seeking synergy with Japan’s “Free and Open Indo-Pacific”, ASEAN’s “Masterplan on Connectivity” and launching an EU-India Connectivity Partnership during the EU27-India summit in May.
• The Global Times, a Chinese party-state media outlet, criticized Borrell’s blog post in an opinion piece that cast doubt on the EU’s ability to develop substantive strategic presence in the Indo-Pacific. It highlighted the bloc’s limited military capabilities in the region and its supposed unwillingness to jeopardize ties with China.

Quick take

If the EU and member states move from rhetoric to action, connectivity may become a key arena for EU-China competition. The upcoming Indo-Pacific strategy, echoing the EU Strategy for Connecting Europe and Asia, proposes sustainable connectivity and a multilateral, rules-based approach. It is a thinly veiled challenge to Chinese connectivity initiatives and in Borrell’s words part of “battle of standards.”

Read more

• EEAS: The EU needs a strategic approach for the Indo-Pacific
• Global Times: EU won’t harm China ties in Indo-Pacific moves