What is the Comprehensive Agreement Act on Investment?
After nearly seven years in the making, China and the EU recently announced that they have agreed on a new deal that will, in principle, allow both EU countries and China to access each other’s markets more freely. The Comprehensive Agreement Act on Investment (CAI) still has to be signed, but no roadblocks are expected.
While Chinese investments into Europe have been steady in the past few years, it’s been more challenging for different parties from within the EU to invest in China, despite the country’s significant opportunities.
“From an investment perspective, China has been alluring for investors for some time. Both institutional and some retail investors know that there are significant opportunities in the country. European family offices are also looking to invest in Chinese companies, many of which offer exciting growth prospects and potential returns. CAI would make it easier to invest in Chinese companies. Anything that brings about easier investments into Chinese markets is likely to be welcome to European players,” says John Ashwood, Managing Director, ZEDRA Hong Kong.
What will CAI offer European investors?
Assuming CAI is signed and goes ahead as planned, some European investors with specific Chinese interests may find they can invest more efficiently in new sectors and that some previous restrictions are lifted. Joint venture requirements are set to be abolished in inbound investments in private hospitals in some of China’s leading cities, for example. European investors will no longer be barred from investing in telecommunications. Investors will also enjoy freer access to China’s financial services sector when CAI removes joint venture requirements and foreign equity caps in banking, insurance, security trading and asset management sectors.
With that said, how CAI practically paves the landscape for European investment into China remains to be seen. “These trade deals can be complex to understand, and they take some time to implement. We expect investors from China and Europe to be interested in seizing new opportunities in the relevant markets. Still, they may pause and look at how best to structure their cross-border investments in the long-term, whether that’s inbound or outbound. Hong Kong remains one of the most attractive jurisdictions as a stepping stone for investing in or out of China. Our office in Hong Kong has close ties with our global network of offices worldwide, including our offices in Europe. We are ideally placed to help set up and manage structures set up for cross-border and trade purposes, as and when they become necessary for our clients,” explains John.
Luxembourg as a hub for Chinese companies
For many Chinese investors and corporations, Luxembourg may be a more familiar jurisdiction than other European countries. Historically, Luxembourg has been something of a jurisdiction of choice for some Chinese firms with interests in Europe. Many have chosen to have a branch or presence in Luxembourg, particularly banks and financial institutions who have used Luxembourg as a base for alternative investment opportunities within the EU. Likewise, many Chinese firms looking to operate in Europe have also chosen Luxembourg as a base.
Much of today’s foreign investment into China is structured through Luxembourg funds, meaning the countries already have strong ties. Luxembourg is a particularly attractive European location for many reasons, including the country’s multi-lingual workforce, competitive tax and regulatory environment, central location in Europe, and stable government.
“Over the past 15 years of my career in the Luxembourg financial industry Chinese investors (be they governmental, institutional or entrepreneurs) have levelled up and successfully climbed the learning curve. Generally China has gained much expertise and experience with regard to Luxembourg and its opportunities. Obviously there still remain differences and gaps in regulations, processes and considerations. We’re here to fill in the gaps. We work closely with our clients to set up and manage structures quickly and efficiently. At the same time, we help our clients to understand and deal with the necessary administrational considerations to ensure they are compliant and operating properly. We handle the important but often burdensome aspects of their Luxembourg operations, so our clients can focus on growth, seeking new opportunities and the success of their business,” says Frank Walenta, Managing Director ZEDRA Luxembourg.