Story of the month: CAI – looking beyond market openings
The Comprehensive Agreement on Investment (CAI), agreed in the final hours of 2020, is now fully out of the woods since the details of market opening were published in mid-March. However, the complexity of this document both reflects the murky business environment foreign firms navigate in China, and the limits of what is on offer in terms of market opening. In a long-term perspective, the agreement’s real advances may lie in the enforcement and the level-playing-field pillars if they are properly implemented.
Meaningful openings limited to new energy vehicles (NEV), renewable energies and some services
With the details of the market-opening pillar now out, it is possible to see a few improvements the agreement would bring to the current trend in China for targeted opening up. First, the CAI’s ratchet clause means that any further opening up China offers will be automatically extended to EU firms. And for new energy vehicles (NEV), investments are only restricted by the utilization rate of the sector in the province and the completion of previous projects, although both restrictions are removed for investments over USD 1 billion. The value of that last commitment seems limited, considering that Tesla and its giant factory in Shanghai received similar treatment back in 2019.
In wind and solar renewables, on the top of a non-discriminatory commitment, the EU has obtained a new strong form of reciprocity that gives the possibility of capping Chinese firms’ involvement in each EU member state at the level of the market share of EU firms in China. In services, hospitals (which were already opened in 2014, on paper at least) and clinics are now open for foreign investors in eight of the largest Chinese cities, plus Hainan province. Besides, the “technological neutrality” commitment enables companies to provide services online that they offer unconstrained offline.