China-Spain Relations: Trade, Investment, and Industry Opportunities

Spain is China’s fifth-largest trading partner within the EU, while China is Spain’s largest trading partner outside the EU. Additionally, the two countries have extensive and in-depth cooperation in the field of investment.

From September 8 to 11, 2024, Spanish Prime Minister Sánchez made an official visit to China. This marked Sánchez’s second visit to China since March 2023.

The year 2024 is pivotal for Sino-Spanish relations. In 2023, China and Spain celebrated the 50th anniversary of their diplomatic relations. Looking ahead, 2025 will mark the 20th anniversary of their comprehensive strategic partnership. Amidst geopolitical tensions and uncertainties in China-EU trade relations, high-level diplomacy between China and Spain underscores the pragmatic, cooperative, and mutually beneficial nature of China-EU relations.

In this article, we review the investment and trade relationship between China and Spain, recent developments, and potential opportunities for future collaborations between the two countries.

China-Spain relations at a glance

China and Spain established diplomatic relations in March 1973 and formed a comprehensive strategic partnership in November 2005.

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Since Sánchez became Prime Minister of Spain, high-level communication between China and Spain has remained close. In November 2018, President Xi Jinping made a state visit to Spain. In March 2023, on the occasion of the 50th anniversary of diplomatic relations between China and Spain, Sánchez attended the opening ceremony of the Boao Forum for Asia Annual Conference as Prime Minister of Spain and made a state visit to China. During his visit, Sánchez expressed his desire to deepen cooperation and strengthen bilateral relations with China. Both sides achieved a series of cooperative outcomes in areas such as trade, tourism, agriculture, culture, and education. In the second half of 2023, Spain, as the rotating presidency of the European Union, actively promoted China-EU exchanges and cooperation.

Spain is China’s fifth-largest trading partner within the EU, while China is Spain’s largest trading partner outside the EU. Additionally, the two countries have extensive and in-depth cooperation in the field of investment.

Key outcomes of Sánchez’s China visit 2024

“Reconsider position on EU’s proposed tariffs on Chinese EVs”

In recent years, China-EU relations, especially in trade, have experienced fluctuations. In 2023, the European Commission launched an anti-subsidy investigation into Chinese electric vehicles (EVs) and proposed punitive tariffs on them in July. In response, China initiated anti-dumping investigations on EU pork, brandy, and dairy products. The EU’s High Representative for Foreign Affairs and Security Policy, Josep Borrell, warned that a trade war between the EU and China might be inevitable.

Spain, which initially supported the tariffs in a preliminary EU vote in July, has significant trade ties with China, being the largest EU exporter of pork to China. Given these ties, Spain is wary of escalating trade tensions and the potential impact of a trade war.

During his visit to China, Sanchez emphasized the need to reconsider the EU’s stance on the proposed tariffs. He stressed that another trade war is unnecessary and advocated for a constructive role in fostering EU-China relations. Sanchez reiterated Spain’s support for free trade and market openness, opposing trade wars, and expressed a desire to promote healthy EU-China relations.

Cross-border e-commerce

On September 9, Chinese Premier Li Qiang met with Sanchez at the Great Hall of the People in Beijing. Premier Li expressed China’s willingness to expand mutual openness with Spain, encourage the development of cross-border e-commerce and efficient logistics, and ensure the smooth operation of the Yiwu-Madrid China-Europe freight train, aiming to enhance trade and investment cooperation between the two countries.

In recent years, cross-border e-commerce between China and Spain has shown a positive upward trend, with increasing cooperation in this field driving the prosperity of digital trade. In 2023, China’s cross-border e-commerce transaction volume reached 17.1 trillion yuan, reflecting rapid market growth. This trend has significantly supported the entry of Chinese goods into the Spanish market. Spain, as a promising e-commerce market in Europe, has seen continuous growth in e-commerce revenue. It is projected that Spain’s e-commerce market will grow at an average annual rate of 7.6 percent, indicating strong market vitality. This provides ample opportunities for Chinese cross-border e-commerce enterprises to enter the Spanish market.

Cooperation in new energy

On September 10, following meetings with several Chinese leaders in Beijing, Sanchez attended the China-Spain Business Forum in Shanghai. That afternoon, Sanchez led a delegation of Spanish entrepreneurs to visit Envision Group, where they discussed green hydrogen technology and industry development. During this visit, the Spanish government and Envision Energy signed a cooperation agreement to establish a zero-carbon hydrogen industrial park in Spain.

According to the agreement, Envision will build a hydrogen equipment factory in Spain and develop a green hydrogen supply chain. They will collaborate with Spanish companies to create a zero-carbon hydrogen industrial park, achieving 100 percent green electricity for hydrogen production. Envision will also work with Spain in areas such as synthetic biology, green methanol, and sustainable bio-aviation fuel, aiming to create a new green hydrogen industrial ecosystem. This initiative will provide cost-competitive products to support Spain’s zero-carbon transition in industries such as manufacturing, aviation, and maritime.

The EU has been prioritizing hydrogen development, viewing green hydrogen as the ultimate solution for low-carbon transitions in sectors like transportation, chemicals, and metallurgy. Influenced by this strategy, Spain has also been developing its green hydrogen sector, aspiring to become a leader in Europe.

In 2023, Europe had 1,085 low-carbon hydrogen projects across 31 countries, with Spain ranking second only to Germany. Spain has set an ambitious hydrogen roadmap and has been implementing various policies and funding measures.

China-Spain trade dynamics

Spain is China’s fifth-largest trading partner within the EU, while China is Spain’s largest trading partner outside the EU. In 2023, the bilateral trade volume reached US$48.58 billion.

However, in recent years, the broader economic environment has posed challenges to Sino-Spanish economic and trade relations. In 2023, the bilateral trade volume decreased by 5.4 percent year-on-year. Specifically, China’s exports to Spain fell by 4.5 percent, and imports from Spain dropped by 9.1 percent, indicating a less optimistic situation. Therefore, stabilizing and increasing economic and trade ties and expanding cooperation are key objectives of Prime Minister Sanchez’s visit and one of the primary tasks currently facing Sino-Spanish relations.

Spain exports to China

In 2023, China imported EUR 8.87 billion (US$8.87 billion) worth of goods from Spain, mainly pork, machinery, transportation equipment, plastic products, minerals, and pharmaceuticals.

Spain is the EU country that exports the most pork to China. In 2023, Spain exported over 560,000 tons of pork products to China, accounting for 20.3 percent of its total exports, with a total value of EUR 1.2 billion (US$1.2 billion), far surpassing agricultural giants like the Netherlands and Denmark.

Additionally, although the main export destinations for Spanish olive oil are the United States, France, and Portugal, China has become one of the fastest-growing markets for Spanish olive oil exports in recent years, increasing more than 400-fold over the past 20 years. Statistics show that as the world’s largest olive oil producer, Spain’s olive oil exports to China increased by 43 percent in value and 10 percent in quantity in the first nine months of 2022 compared to the same period in the previous year. In 2021, China imported nearly 43,000 tons of olive oil from Spain.

Source: ITC Trade Map

China exports to Spain

In 2023, China exported US$39.71 billion worth of goods, primarily textiles, electromechanical products, chemicals, and light industrial products. Of this, Spain imported US$9.2 billion of electromechanical products from China, accounting for 22 percent of its total electromechanical product imports and with an annual growth of 19 percent since 2019. Spain also imported US$4.4 billion of vehicles and parts (other than railway) from China in 2023, with an annual growth of 69 percent since 2019.

Source: ITC Trade Map

China-Spain investment

China’s investments in Spain

According to data from the Foreign Investment Register of the Ministry of Industry, Trade, and Tourism of Spain, Chinese investment inflows in Spain remained at very low levels until 2010. From that point onwards, there was a significant increase in Chinese investment, driven by large investment groups joining other Chinese companies with a long history in Spain. Spain became an attractive gateway to European and Latin American markets.

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According to the Ministry of Commerce (MOFCOM) of China, in 2022, China’s direct investment in all sectors in Spain amounted to EUR 71.88 million (US$71.88 million). By the end of 2022, China’s direct investment stock in Spain reached EUR 1.186 billion (US$1.186 billion), covering multiple fields such as finance, trade, shipping, quality inspection, telecommunications, construction, food, energy, environmental protection, media, and aviation. Chinese companies have emerged as major players in many sectors of the Spanish economy, including transport and logistics, energy, information technology, manufacturing, life sciences, and infrastructure and engineering, among others.

Source: National Statistic Bureau, PRC

Spain’s investment in China

According to the MOFCOM of China, in 2022, Spain established 101 new enterprises in China, with an actual investment amount of EUR 120 million (US$120 million). By the end of 2022, Spain had cumulatively established 2,998 enterprises in China, with a total actual investment amount of EUR 4.27 billion (US$4.27 billion), primarily in the finance, energy, telecommunications, and transportation sectors.

Major Spanish investment projects in China include Santander’s investment in Shanghai Bank, Antolin, Inditex, ALSA’s investment in Chinese passenger transport services, Gamesa, Roca Sanitario (Suzhou) Co., Ltd., Mondragon Corporation, Gestamp, and others.

Source: National Statistic Bureau, PRC

China-Spain agreement

China and Spain have a series of treaties and agreements in the economic and trade fields, including a Bilateral Investment Treaty (BIT), a Double Tax Avoidance Agreement (DTA), and a Social Insurance Agreement. Additionally, in recent years, China and Spain have signed the following important agreements:

• Joint Statement on Strengthening the Comprehensive Strategic Partnership in the New Era between the People’s Republic of China and the Kingdom of Spain; signed in November 2018.
• Memorandum of Understanding on Strengthening Third-Party Market Cooperation between the Ministry of Commerce of the People’s Republic of China and the Ministry of Industry, Trade, and Tourism of the Kingdom of Spain; signed in November 2018.

China-Spain BIT

The China-Spain BIT, signed in 2005 and in force since 2008, aims to promote and protect investments between the two countries. Key points provided in the BIT include:

• Scope and definitions: The treaty covers investments made by investors from both countries, including assets such as property, shares, and intellectual property.
• Standards of treatment: It ensures fair and equitable treatment, protection from unreasonable or discriminatory measures, and guarantees compensation in cases of expropriation.
• Dispute settlement: The BIT provides mechanisms for resolving disputes between investors and the host state, including state-to-state and investor-to-state dispute settlement procedures.
• Entry and sojourn of personnel: It allows for the entry and stay of personnel related to the investment, subject to local laws.
• Other clauses: The treaty includes provisions on transparency, environmental and labor standards, and corporate social responsibility.

This treaty is part of a broader effort to enhance economic cooperation and investment flows between China and Spain

China-Spain DTA

The China-Spain Double Tax Avoidance Agreement (DTA), signed in 2018 and effective in 2021, aims to eliminate double taxation on income and prevent tax evasion. Key tax rates listed in the DTA include:

• Dividends: Dividends may be taxed at a rate not exceeding 10 percent. This rate is reduced to 5 percent if the beneficial owner is a company holding at least 25 percent of the capital of the company paying the dividends.
• Interest: Interest may be taxed at a rate not exceeding 10 percent, with exemptions for interest paid to public or government-owned entities.
• Royalties: Royalties may be taxed at a rate not exceeding 10 percent.

This agreement is designed to foster economic cooperation and investment between China and Spain by providing clear tax rules and reducing the tax burden on cross-border transactions.

China-Spain prospects

The prospects for China-Spain cooperation in trade and investment are highly promising, with several key areas poised for significant growth and collaboration. Both nations are expected to expand their cooperation in the digital economy, leveraging technological advancements to enhance trade and investment. This includes sectors such as e-commerce, digital infrastructure, and cybersecurity. Additionally, there is a strong emphasis on green development, with opportunities for collaboration in renewable energy, electric vehicles, and sustainable agriculture, aligning with global trends towards sustainability and reducing carbon footprints.

Spain’s expertise in agriculture and food production can complement China’s growing demand for high-quality agricultural products. This cooperation encompasses food safety standards, agricultural technology, and the trade of agricultural goods.

The automotive sector, particularly in electric vehicles and auto-related manufacturing, presents substantial opportunities for collaboration, with both countries benefiting from shared technological advancements and market expansion.

The establishment of a permanent Cooperation and Dialogue Mechanism in trade and investment matters will help address opportunities and resolve barriers faced by companies from both countries. This mechanism aims to foster a more favorable business environment and promote mutual investments. Furthermore, strengthening cultural and educational ties can enhance mutual understanding and create a more conducive environment for economic cooperation, including student exchanges, joint research projects, and cultural programs.

Overall, while challenges such as geopolitical tensions and regulatory differences exist, the commitment from both governments to deepen economic ties and the complementary strengths of their economies provide a solid foundation for future growth in trade and investment.

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