Li Keqiang Pushes for China-Europe Investment Treaty

China’s premier Li Keqiang has criticised investment flows between the EU and China as “hardly satisfactory” and made a strong appeal for the early conclusion of a bilateral treaty that would give Chinese companies a smoother path to acquiring European counterparts.

Mr Li, who was in Brussels on Monday to co-chair the 17th China-EU summit, also called for the two sides to start a feasibility study for a free trade area to resist protectionism and boost connectivity between Asia and Europe.

“The scale of two-way investment, a mere $20bn or less in 2014, is hardly satisfactory given the big size of the Chinese and EU economies and the huge volume of two-way trade,” Mr Li said in written answers to questions from the Financial Times and several other European newspapers.

“If a comprehensive, balanced and high standard investment treaty could be reached early, it will bring opportunity for both sides to combine their respective strengths and form a new pattern of co-operation,” Mr Li added, noting that EU-China trade now exceeds $1.7bn a day.

Chinese companies, beset by rising costs and eroding competitiveness in a slowing domestic market, are scouring Europe for acquisition targets to boost technology and brand values. An investment treaty, analysts said, would smooth the path to more EU acquisitions and other direct investments by Chinese companies.

But there is also a geopolitical dimension to Mr Li’s overture stemming from Beijing’s concerns that two large impending global trade deals threaten to sideline China.

Last week, US President Barack Obama won the legislative powers he needed to finalise the Trans-Pacific Partnership — the biggest trade deal in a generation — between the US, Japan and 10 other countries. Concluding the TPP is expected to build momentum for the Transatlantic Trade and Investment Partnership, the proposed EU-US trade and investment pact.

US and EU trade officials have been pushing the deals as one way for America and Europe to maintain their grip on the technical and regulatory standards that increasingly form the backbone of trade accords.

Keen not to be left out, Mr Li said China was “also open to the TPP”.

China and the EU had prickly relations under Karel De Gucht, the previous EU trade commissioner, who launched an investigation into alleged dumping of Chinese solar panels. He had also accused Huawei and ZTE, two Chinese makers of telecommunications equipment, of benefiting from illegal state subsidies.

But Brussels found the Chinese were highly effective at dividing EU countries with threats of trade retaliation, for example against European wine exports.

Under Mr De Gucht’s successor, the tone on China has been more conciliatory and most attention is focused on whether the EU will support China’s push to be accepted as a “market economy” in the World Trade Organisation.

Turning to the slowdown in China’s gross domestic product growth, Mr Li said he was confident that the “economy will maintain long-term growth” but ruled out “strong stimulus”.

“China still has a bunch of policy tools at its disposal. We will not opt for strong stimulus,” Mr Li said.

Beijing signalled its intent to reinforce demand in the economy at the weekend by cutting the one-year lending rate by 25 basis points to 4.85 per cent — its fourth cut since November — and lowering the amount of reserves certain banks are required to hold by 50 basis points.