I have prepared this short note at the invitation of our chairman, Ken Duggan. Its focus is on the EU-China Comprehensive Agreement on Investment (CAI). The note is written to inform. It is not academically rigorous and caution is advised in interpreting FDI flows into Ireland between what one might categorise as real flows and phantom flows of a purely financial nature. 

  1. What is the scale of this investment?

The level of Foreign Direct Investment (FDI) in both directions has grown considerably in the past two decades with European FDI spread across the entire period while Chinese FDI has grown in the past ten years from a very low base in the first decade of this century.

From 2000 to 2020 the EU 27 and the UK accounted for $204 billion cumulative investments in China, $173 billion from the EU and $31 billion from the UK. Over the same period Chinese investment in the EU was $141 billion and in the UK $59 billion.

There is a broad balance in cumulative FDI in both directions.

The top five European investors in China are Germany, the UK, France, Netherlands and Belgium. These accounted for almost 80% of all European FDI in China. Germany alone accounts for 33% of theses investments. In sectoral terms automotive investment was the largest sector at 25%.

In reverse, the top five recipients of Chinese FDI in Europe were the UK, Germany, Italy, France and Finland, accounting for nearly 70% of the total, with the UK alone, as the biggest recipient, making up almost 30% of the total at $59 billion.

Chinese FDI in Ireland in recent years has picked up both in manufacturing and services. In 2019 it was $145 million.

This remains modest having regard to the size and potential of the Chinese economy. English speaking, a common law jurisdiction, a member of the EU and of the Eurozone all suggest exploitable future potential through FDI for Chinese access to and penetration of the EU single market from within from an Irish base. This was one of the drivers of some of the substantial US FDI into Ireland over the years.

  1. How does this compare with Transatlantic European-USA FDI?

The European-China two way investment flow pales in comparison to the more mature and established bilateral Transatlantic flows of FDI between the EU and the USA. The U.S. and Europe are each other’s primary source and destination for foreign direct investment.

64% of global investment into the US comes from Europe while 60% of US global investment goes to Europe.

Measured on a historic cost basis, the total stock of U.S. FDI in Europe was $3.6 trillion in 2019 almost four times U.S. investment in the entire Asia-Pacific region.

As regards Ireland – a recent CSO publication estimated accumulated FDI at over €1 trillion for the first time ever. The US remains the biggest source of FDI into Ireland. In 2019, this cumulative figure stood at just over €700 billion or 71.6% of the total.

Total US FDI in China between 2000-2019 is reported be $116 billion on an historical cost basis – a modest percentage of the Irish equivalent.

  1. Geopolitical positioning

This brief transatlantic digression serves to illustrate not just an FDI reality but also speaks to an underlying geopolitical reality. In a world of great power tensions especially between the USA and China carving out an autonomous EU space is a strategic and geopolitical aspiration of the EU, especially after the years of rupture under Donald Trump.

The complexity and the reality of the EU’s positioning on China can be captured in a single EU foreign policy sentence that describes the essence of the current relationship. For the EU, China is simultaneously (in different policy areas) a cooperation partner, a negotiation partner, an economic competitor and a systemic rival.

  1. A drawn out process

Negotiations on the CAI began in January 2014 and went through 35 rounds of negotiation culminating in an agreement on 30 December 2020. There was considerable frustration at the slow pace of progress. Finally, agreement was reached at the end of a German Presidency of the EU, Angela Merkel’s last such role before she retires from active politics. As the FDI statistics reveal Germany was especially interested in concluding the negotiations. For China, by the end of 2020 the outcome of the US Presidential elections was known. Trump was defeated. Biden was awaited. He was determined to reassert a US leadership role among western democracies. This presented China and the EU with an opportunity to differentiate and consolidate China EU relations. Geopolitically it suited both leadership elites to do so.

  1. The deal

The agreement addresses three key elements – improved market access; a level playing field; and commitments in areas of sustainable development and dispute resolution.

a) Improved Market access commitments by China


More than half of EU investment in China is in the manufacturing sector. This is the first time China has committed to market access in this sector with a trade partner.

China’s commitments in this sector include cars (traditional and new energy vehicles), production of transport and health equipment, and production of chemicals among others.


There are significant, binding commitments in financial services, international maritime services, environmental, construction and computer services. Further openings are made in services related to auxiliary transport services, cloud services, and private health services.

b) Level playing field

State owned enterprises:

China is committed to ensure that SOEs active in the market take decisions solely based on commercial considerations, that SOEs do not discriminate against European companies when they buy goods or services from them or sell goods or services to them. China is to share information and consult if the behaviour of SOEs affects EU investors.

Transparency in subsidies:

There are obligations on transparency as regards subsidies provided in the services sector and a commitment to share information and to consult on specific subsidies that could have a negative effect on the investment interests of the EU.

Forced technology transfers:

There will be a clear prohibition of investment requirements that compel transfer of technology, no interference in contractual freedom in technology licensing and protection of confidential business information.

Standard setting, authorisations, transparency:

Equal access to standard setting bodies is to be provided for EU companies together with  enhanced predictability in authorisations and stronger legal certainty through transparency rules for regulatory and administrative measures.

c) Sustainable development and effective implementation and dispute settlement:

There are commitments to respect core ILO principles and to effectively implement the ratified ILO Conventions. There is a specific commitment on the ratification of ILO fundamental Conventions on forced labour, a commitment to effectively implement the Paris Climate Agreement and a transparent resolution of disagreements by an independent Panel of experts and with the involvement of civil society. All these are first in their class as regards agreements with China.

  1. The Analysts

The Centre for European Policy Studies has published a considered paper on the CAI arguing, contrary to some critics of the deal, that it delivers on the EU’s negotiation mandate. It notes that much criticism of the CAI surfaced before the provisional agreement was actually published. CEPS observes that the CAI locks in the European Union’s values under international commitments on sustainable development, acknowledging that reducing coal dependency will be a challenging undertaking for China in view of the country’s economic growth plans. Also, ratifying the ILO Forced Labour Conventions will be a long process due to the legislative changes involved. Both of these commitments on ‘non-trade issues’ are legally-binding, which is a victory for the EU since such an approach to trade negotiations was inadmissible to China in the past.

  1. Ratification

Under EU treaties no internationally binding agreement made by and on behalf of the EU can enter into force without first being ratified by the European Parliament. Traditionally, the parliament has been more critical and outspoken on human rights issues in China than the other EU institutions; however, its vote on ratification was not a foregone conclusion.

In March a Council decision led to the imposition of sanctions on four Chinese officials involved in Beijing’s policy on Xinjiang. This was part of a concerted action among the US and its allies, led in effect by the new Biden administration. This action provoked a swift Chinese reaction through the imposition of counter sanctions that targeted several high-profile members of the European Parliament, three members of national parliaments, two EU committees, and a number of China-focused European researchers.

When the matter came before the European Parliament for a vote last month it voted overwhelmingly to “freeze” any consideration of the CAI with China, following the tit-for-tat sanctions over Beijing’s treatment of its Uyghur population in Xinjiang province. The Parliament demanded that China lift the sanctions before it can deal with the Comprehensive Agreement on Investment (CAI).

The vote on the motion was passed by a landslide, with 599 votes for, 30 votes against and with 58 abstentions.

  1. Tentative conclusion

Each action begets a reaction. In responding by targeting elected parliamentarians China’s response is perceived in the European Parliament as disproportionate and unwarranted. For its part China insists that matters of internal affairs are not the business of others, although the CAI reference to the ratification of ILO conventions on forced labour suggests that this may not be the whole story. Both sides for the moment are locked in a stalemate. Politically and geopolitically it is hard to see how the current impasse can be resolved. Neither side will wish to appear to have given in to the other. Neither side for the moment appears willing to jointly step back from the brink in a concerted action. Seven years after negotiations started the CAI is all dressed up but currently has nowhere to go. In the end its ratification would make sense for both sides.

Pat Cox

Ireland China Institute

23 June 2021