Free Trade Agreement Between China and Cyprus

China and Cyprus maintain a robust economic relationship characterized by trade, investment, and diplomatic cooperation. While there is no formal Free Trade Agreement (FTA) between the two countries, both nations engage in significant economic activities that contribute to their bilateral trade. Cyprus serves as a gateway to the European Union (EU) for China, while China provides a valuable market and source of investment for Cyprus. Their economic relationship is also influenced by Cyprus’ EU membership, which impacts the terms of trade and cooperation.

As of 2022, China and Cyprus reported an increasing volume of bilateral trade, with China being one of Cyprus’ top trading partners outside the EU. In 2021, trade between the two nations was valued at approximately $500 million, with China exporting mainly machinery, electronics, and textiles to Cyprus. Cyprus, on the other hand, exports products like pharmaceuticals, agricultural products, and services to China. While Cyprus’ largest trading partners remain within the EU, notably Greece, Italy, and Germany, China has grown in importance as a partner for trade and investment. Conversely, Cyprus is a minor but strategically significant trading partner for China, especially in terms of access to the broader European market.

Bilateral Trade Agreements Between China and Cyprus

Memorandum of Understanding on Economic Cooperation

Signed Date

The Memorandum of Understanding (MoU) on Economic Cooperation between China and Cyprus was signed in 1990, establishing the framework for bilateral trade and economic relations.

Effective Date

The MoU came into effect immediately upon signing, laying the groundwork for future economic engagements between the two countries.

Scope

The MoU encompasses a wide range of sectors, including:

• Trade in goods and services
• Investment facilitation
• Tourism development
• Technology and knowledge exchange
• Shipping and maritime cooperation

Key Provisions

• Trade Promotion: The MoU promotes trade by reducing bureaucratic barriers, facilitating smoother customs processes, and encouraging the exchange of commercial delegations between China and Cyprus.
• Investment Cooperation: It provides a framework for encouraging mutual investment in sectors such as real estate, shipping, and tourism, with a focus on infrastructure development in Cyprus.
• Technology Exchange: The agreement fosters collaboration in technological research and development, particularly in fields like information technology and renewable energy.
• Maritime Collaboration: Given Cyprus’ strategic position as a maritime hub, the MoU places significant emphasis on maritime cooperation, encouraging the development of Cypriot ports and shipping routes that benefit Chinese companies.

Agreement on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion

Signed Date

This agreement was signed in 1995 and is critical in promoting investment and business activities between China and Cyprus by preventing the issue of double taxation.

Effective Date

The agreement became effective in 1996, shortly after its signing.

Scope

The agreement addresses issues related to:

• Taxation of income and capital gains
• Tax residency of individuals and corporations
• Prevention of tax evasion

Key Provisions

• Tax Exemptions: The agreement ensures that individuals and companies are not taxed twice for income earned in one country while residing in the other. This provision greatly facilitates cross-border investments and trade.
• Exchange of Information: Both countries agree to exchange tax-related information, enhancing transparency and preventing tax evasion.
• Reduction of Withholding Taxes: The agreement reduces the withholding taxes on dividends, interest, and royalties, making it easier and more attractive for businesses from both countries to operate across borders.

Bilateral Investment Protection Agreement (BIPA)

Signed Date

The Bilateral Investment Protection Agreement between China and Cyprus was signed in 2001 as a way to secure mutual protection of investments.

Effective Date

The agreement took effect in 2002, providing a legal framework for safeguarding Chinese and Cypriot investments in each other’s countries.

Scope

The BIPA focuses on:

• Investment protection
• Dispute resolution mechanisms
• Expropriation safeguards
• Repatriation of profits

Key Provisions

• Investment Security: The agreement guarantees that investments made by Chinese companies in Cyprus and Cypriot companies in China are protected against nationalization and expropriation.
• Fair Treatment: It ensures fair and equitable treatment for investors from both countries, including protection against discriminatory regulations.
• Dispute Resolution: The agreement provides a mechanism for resolving investment-related disputes through international arbitration, enhancing the security of investments.
• Profit Repatriation: Investors are assured that they can repatriate their profits and dividends back to their home countries without excessive restrictions.

Agreement on Economic, Trade, and Technical Cooperation

Signed Date

The Agreement on Economic, Trade, and Technical Cooperation was signed in 2014 during a high-level meeting between Chinese and Cypriot officials.

Effective Date

This agreement became effective immediately upon signing, further cementing the economic relationship between the two countries.

Scope

The agreement covers areas such as:

• Trade facilitation
• Investment in infrastructure and tourism
• Collaboration in technology and research
• Shipping and maritime services

Key Provisions

• Infrastructure Development: China has expressed strong interest in investing in Cypriot infrastructure projects, including port development and telecommunications infrastructure.
• Tourism Promotion: Cyprus has been actively promoting itself as a destination for Chinese tourists, with the agreement including provisions for boosting tourism through marketing efforts and direct air connections.
• Trade Facilitation: Both countries commit to removing trade barriers and enhancing trade in goods such as electronics, machinery, agricultural products, and pharmaceuticals.
• Technical Cooperation: The agreement promotes technical exchange and capacity building, with a focus on information technology, renewable energy, and maritime services.

Agreement on Belt and Road Initiative Cooperation

Signed Date

Cyprus officially joined China’s Belt and Road Initiative (BRI) in 2019, signing a cooperation agreement aimed at enhancing infrastructure connectivity and trade facilitation between the two countries.

Effective Date

The agreement took effect shortly after signing in 2019.

Scope

The BRI agreement primarily focuses on:

• Infrastructure development, including port and road construction
• Trade facilitation and logistics
• Enhancing maritime routes and shipping services
• Cultural and tourism exchange

Key Provisions

• Infrastructure Investments: China committed to supporting Cyprus’ infrastructure development, particularly in expanding the island’s ports and enhancing its role as a key maritime hub in the Mediterranean.
• Maritime Silk Road: Cyprus’ strategic location makes it a vital link in China’s Maritime Silk Road, and the agreement promotes enhanced shipping and trade routes between Asia and Europe via Cyprus.
• Trade and Investment Cooperation: The BRI agreement encourages Chinese companies to invest in Cyprus, particularly in tourism, real estate, and energy sectors.

Other Members Involved

Cyprus’ participation in these agreements is largely bilateral, though its membership in the EU plays a significant role in shaping its trade and investment policies. While Cyprus engages with China independently, its economic ties with the EU create a framework that influences trade policies, regulations, and market access. China’s broader Belt and Road Initiative also involves numerous countries in Europe, Asia, and Africa, making Cyprus part of a global network of economic cooperation through BRI.

Other Forms of Economic Cooperation

Shipping and Maritime Services

Cyprus, as a key player in global shipping, has fostered close cooperation with China in maritime services. China, with its growing global shipping industry, views Cyprus as a strategically located partner in the Mediterranean. Cypriot ports serve as key points for Chinese shipping routes, and Chinese shipping companies use Cyprus as a base for their operations in Europe.

Real Estate and Infrastructure Investments

Chinese investors have shown a growing interest in Cyprus’ real estate market, particularly after the financial crisis in 2013. Cyprus’ “Golden Visa” program, which offers residency to foreign investors, has attracted significant interest from Chinese buyers, particularly in the real estate sector. In addition, Chinese firms have invested in infrastructure development, including tourism-related projects such as hotels and resorts.

Renewable Energy Projects

There is growing collaboration in renewable energy projects between China and Cyprus. China, with its advanced solar and wind technologies, has been exploring opportunities to invest in Cyprus’ renewable energy sector. This cooperation is part of a broader effort to reduce Cyprus’ reliance on fossil fuels and promote sustainable energy solutions.

Tourism

Tourism is another area of growing cooperation. Cyprus has positioned itself as a desirable destination for Chinese tourists, and efforts to promote cultural exchanges and tourism development have been included in recent agreements. Direct flights between China and Cyprus are being explored to facilitate tourism, which is expected to contribute significantly to the Cypriot economy.

Financial Services

Cyprus is a regional hub for financial services, and there has been increased interest from Chinese investors in utilizing Cyprus’ financial services sector as a gateway to Europe. Chinese businesses and financial institutions are using Cyprus as a base for their European operations, taking advantage of the island’s favorable tax regime and regulatory environment.

Economic Impact of These Agreements

Impact on Cyprus’ Economy

Increased Foreign Investment

• The agreements, particularly in the context of the Belt and Road Initiative, have significantly increased foreign direct investment (FDI) from China into Cyprus, particularly in real estate, infrastructure, and tourism.
• The “Golden Visa” program has led to a surge in Chinese investment in Cypriot real estate, contributing to the recovery of the sector after the 2013 financial crisis.

Strengthening of the Shipping Industry

• Cyprus’ strategic location in the Mediterranean has made it an attractive partner for Chinese shipping companies, and the agreements have enhanced Cyprus’ role as a hub for maritime services in the region.

Boost in Tourism

• Cyprus has seen a steady increase in the number of Chinese tourists, thanks to joint efforts to promote the island as a tourist destination. This has provided a boost to Cyprus’ tourism sector, which is a key contributor to the national economy.

Development of Infrastructure

• Chinese investments in Cyprus’ infrastructure, particularly in ports and energy, have strengthened the island’s economic capabilities and positioned it as a critical player in regional trade routes.

Impact on China’s Economy

Access to European Markets

• Cyprus serves as a gateway for China to access European markets, particularly for Chinese companies looking to establish a presence in the EU. The island’s strategic location and favorable business environment have made it an attractive destination for Chinese firms seeking to expand into Europe.

Strategic Maritime Position

• Cyprus’ position along key Mediterranean shipping routes is of significant strategic value to China, particularly in the context of the Maritime Silk Road. The enhanced cooperation in maritime services has allowed China to strengthen its global shipping network.

Long-Term Prospects

• The long-term impact of these agreements will depend on the continued development of Cyprus’ infrastructure and its ability to attract and retain Chinese investment. As Cyprus deepens its participation in the Belt and Road Initiative, the economic relationship with China is expected to continue growing.
• For China, Cyprus represents a key partner in its broader strategy to expand influence in Europe, and the ongoing cooperation in shipping, tourism, and infrastructure development will contribute to China’s global economic ambitions.