Shanghai-based corporate law expert Bernd-Uwe Stucken of Pinsent Masons, the law firm behind Out-Law.com, said that if the officials can finalise a new Bilateral Investment Agreement it would "increase comfort levels for foreign investors in China".
The first round of negotiations is taking place in Beijing this week.
"Bilateral Investment Agreements (BITs) are an important instrument to protect foreign investments," Stucken said. "Any breach of an agreement like expropriation without fair compensation or regulatory obstacle to a free re-transfer of capital and profits opens the path to international arbitration."
"Often BITs provide for arbitration at the International Centre for Settlement of Investment Disputes (ICSID). Initial experience with China related matters demonstrates that China’s government and authorities strictly adhere to the dispute mechanisms provided in a BIT and usually seek a discrete solution. Having such a mechanism in place for the whole European Union will increase comfort levels for foreign investors in China," he added.
Stucken said that China is an attractive market across almost every industry. The country's economy is growing at an annual rate of 7.7%, according to recent figures.
Stucken said that the Chinese advanced manufacturing sector is often particularly "capital intensive". He added that foreign investors may be encouraged to invest in the automotive or chemical industries, life sciences or machine building if they stand to benefit from "BIT protection" as a result of the prospective EU-China deal.
In a statement the European Commission, which is handling negotiations with China on behalf of the EU, said that it wants to agree a deal so as to open up markets for investment "in both directions". The deal would also "provide a simpler, secure and predictable legal framework to investors in the long term", it said.
“The current level of bilateral investment between the EU and China is way below what could be expected from two of the most important economic blocks on the planet," John Clancy, EU trade spokesman, said. "Whereas goods and services traded between the EU and China are worth well over €1 billion every day, just 2.1% of overall EU foreign direct investment (FDI) is in China."
"The main purpose for these negotiations is the progressive abolition of restrictions on trade and foreign direct investment and to improve access to the Chinese market for EU investors," he added.
The Chinese Government recently launched a pilot initiative in Shanghai to open up certain industries to foreign investment where the foreign companies set up business within a dedicated new Free Trade Zone (FTZ) in the city.
Within the zone foreign businesses operating in a range of sectors, including financial services and technology, media and telecoms, face fewer regulatory restrictions than currently apply elsewhere in the country. Certain activities within the zone remain blacklisted, including investment in stem cell technology development and application or in news agencies, books or newspapers.
Earlier this month China's Ministry of Industry and Information Technology (MIIT) and the People’s Government of Shanghai Municipality set out guidelines for foreign investment in telecom value-added services (VATS) in the country where those investors are based within the FTZ.