In recent times, Beijing has made efforts to conclude many trade agreements to attract investment, especially notably the Comprehensive Investment Agreement (CAI/AGI) with the European Union (EU). However, the CAI Agreement was suspended by the European Parliament on May 20, 2021. The direct reason is that China has imposed sanctions on many high-ranking EU officials, in retaliation for EU sanctions for serious human rights abuses in China.
The fact that the above-mentioned important Sino-European Investment Agreement reached a deadlock opened up opportunities for Vietnam to attract investment. Why is Vietnam a beneficiary country, and under what conditions can Vietnam attract European investment?
1/ What is the meaning of the Comprehensive Investment Agreement (CAI) with China?
EU foreign direct investments in China have been more than $140 billion over the past 20 years. Investment from China in the EU is about 120 billion euros. For the EU, European investments in China are “relatively small compared to the size and potential of the Chinese economy.” According to the European Commission, the CAI agreement is an “unprecedentedly ambitious” agreement signed by Beijing with a territory. The agreement allows EU investors to enjoy “fairer competitive conditions” in this rapidly growing market, with a population of 1.4 billion. The EU and China hope to cooperate for mutual development in the context that China overtakes the US as the EU’s number one trading partner from the beginning of 2021.
The important Sino-European Investment Agreement promises to create a more level and transparent playing field for Chinese and European investors in these two giant markets. The CAI Agreement will help EU investors access a wide range of potential sectors of the Chinese market, such as transport (especially electric vehicles), air traffic, maritime, telecommunications, information technology, research, and development of biological resources (the area that China opened to foreign investment for the first time), construction, financial services, private hospitals in major cities, environmental services, etc. The CAI Agreement also promotes enterprises in China to raise standards in terms of sustainable development, environmental protection, climate, and corporate social responsibility.
In short, CAI is a huge opportunity for the Chinese economy, amid the growing confrontation between Beijing and Washington. However, sharp disagreements in the field of human rights between Europe and China, especially over serious human rights abuses in Xinjiang, were condemned by human rights defenders and a part of European political circles, causing this Agreement to be suspended for ratification.
2/ Why is it said that Vietnam is a country that can benefit from European investment in the context of the EU-China Comprehensive Investment Agreement deadlocked?
German radio station Deutsche Welle (DW) has a remarkable compilation on the subject titled “Vietnam to gain as EU-China investment pact stalls” on July 9, 2021, highlighting a number of main reasons why Vietnam can become a destination for European investments. Firstly, Vietnam’s economy has grown strongly in recent years, in the context of the US-China trade war. Second, the trade relationship between Vietnam and the EU is on the way to improving significantly. The third is that the current European investment in Vietnam is not commensurate with the potentials of the EU countries, and the fourth is that the investment environment in Vietnam tends to become “safer” for investors.
According to DW, Vietnam is considered one of the fastest-growing economies in Asia over the past decade, and also a major beneficiary, in the context of the US-China trade war since 2018 with many American and Japanese companies moving their facilities from China to Vietnam. According to Mr. Le Anh Tuan, in charge of the research department of the economic consulting firm Dragon Capital, similar to the many US and Japanese businesses, European businesses can look to Vietnam as a safe place. leading position in the context of many risks of “trade war” between the US and China.
In trade relations with the EU, Vietnam has the advantage of being the EU’s 15th largest partner, with a total bilateral goods exchange of 43.2 billion euros in 2020, the EU becomes the largest export market for Vietnamese goods after the US. In the first quarter of 2021 alone, Vietnam’s exports to the European market were worth $10 billion, up 18% over the same period last year.
EU countries still have a lot of potentials to invest in Vietnam. According to EU data, in 2019, the total investment capital of EU countries into Vietnam at that time was 6.1 billion euros. The number is too small compared to more than $60 billion in a total investment of Korea and Japan. According to Dragon Capital, in the first six months of this year, Singapore, Japan, and South Korea accounted for two-thirds of the total $15.3 billion invested in Vietnam. France, Germany, and Luxembourg are currently the 16th, 17th, and 18th largest investors in Vietnam, respectively.
The business environment in Vietnam seems to be becoming “safer” in the eyes of European investors. A report by the European Chamber of Commerce in Vietnam published in February showed that European businesses have a high degree of confidence in this market, with 48% describing their business performance as “excellent” or “good,” a significant improvement compared to 2020.
A team of experts from VCI Legal, which specializes in international business law, based in Vietnam, on the Lexology website, also noted two main reasons why Vietnam has become one of the top investment destinations (the article EU’s Suspension of the Comprehensive Agreement on Investment with China – Vietnam as an alternative investment destination): a safe destination in the context of the US-China trade war and Vietnam’s participation in a series of trade agreements (such as the agreements with Europe EVFTA/EVIPA, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership Agreement (RCEP).
3/ How can Vietnam take advantage of this?
According to researcher Le Hong Hiep, a scholar of the Vietnam research program, at the ISEAS–Yusof Ishak Institute, Singapore, as quoted by German radio DW, although the potential is great, for Vietnam to attract Investments from Europe, Vietnam still has to make a lot of efforts, because “there are many challenges.”
The EU-Vietnam Investment Protection Agreement (EVIPA), was approved at the EU level, along with the EU-Vietnam Free Trade Agreement. However, under European law, the Agreement still has to be ratified by all 27 EU member states before it can take effect. Researcher Le Hong Hiep emphasized that “If the ratification is carried out quickly and the agreement takes effect soon, then Vietnam has the opportunity to attract a lot of investment from the EU, on the contrary, if the agreement is a bottleneck like the Central-European Comprehensive Investment Agreement, Vietnam will also lose this valuable opportunity.”
Immediately after the European Parliament suspended the ratification process of the Comprehensive Investment Agreement with China, the Vietnamese government continued to urge many European member states (such as Italy, Germany, Romania, etc.) to ratify the EVIPA Investment Protection Agreement. According to the Franco-Vietnamese Chamber of Commerce and Industry, so far, only four European countries have ratified the EVIPA (Hungary, Lithuania, Romania, and Sweden). However, to be able to benefit from investment from the EU, according to Mr. Le Hong Hiep, it is also very important that the new Vietnamese government, under Prime Minister Pham Minh Chinh, who was elected by the Communist Party to this position from March 2021, must promote business-friendly reforms.