Investment pact eludes China, US
Updated: 2013-07-09 11:15
By Joseph Boris in Washington (China Daily)
China and the United States have been negotiating toward a potential treaty on cross-border investment since their first Strategic and Economic Dialogue in 2009, and the tough slog continues with this week's high-level talks.
Each side says a bilateral investment treaty, or BIT, would be good for itself and the other nation, but their goals differ. Some Chinese economists and officials see a BIT as a tool of financial diplomacy that could quell US complaints about trade imbalances. Wall Street firms, among others, regard a treaty as a chance to break into a hugely lucrative market for financial and other services in China.
"A high-standard bilateral investment treaty between China and the United States would be of mutual benefit and would also help to encourage the open, stable and transparent market conditions for investors from both our countries," a senior official in US President Barack Obama's administration told reporters in a conference call on Monday. "We've had some very positive negotiations and discussions, and those will be ongoing and we look forward to having a robust conversation during the S&ED."
China's vice-minister of finance, Zhu Guangyao, said in Beijing last week that he hoped the fifth S&ED on Wednesday and Thursday will yield "fundamental progress" toward a BIT.
"We hope the US takes active measures and recognizes China's market-economy status as soon as possible," Zhu said. "Meanwhile, we expect the US to loosen its restrictions on exports of high-tech goods for civil use in China, which would also benefit the US."
For China, relaxation of US rules that limit exports of high-tech is often paired in government statements with talk of revised investment rules with Washington. Chinese officials routinely call for their American counterparts to end such restrictions, which are in place due to concerns over dual-use items that have commercial applications but that the US says could also be used by China's military.
Top US officials, including Ambassador to China Gary Locke, who in his previous post as commerce secretary oversaw the export-control system, have pointed to reforms in China and expressed hope for lifting at least some of the limits.
"The priority on both sides is to work to enhance our bilateral investment relationship," the administration official on Monday's call said. "China's direct investment in the United States has been growing quickly, whereas I think we continue to face challenges in terms of our companies having access to China's market. As we continue to discuss China's reforms to further open up and liberalize its economy, including to services and other sectors, the BIT is an interesting area for us to continue to look at."
China, since its accession to the World Trade Organization in 2001, has urged the US and other developed countries to recognize it as a market economy. The US has prioritized the goal of increasing American companies' access to the Chinese market for services, where strict controls include limits on foreign ownership. It's unlikely to surrender the leverage of "market economy" designation until the services sector opens up.
"More robust investment flows facilitated by the BIT would not only benefit the United States and China individually but also bring their long-term economic interests into better alignment," wrote Daniel Price and Michael Smart, who respectively are managing director and vice-president of Rock Creek Global Advisors, a consulting firm in Washington. (Price was an economics aide to Obama's predecessor George W. Bush.)
Their report, issued on Monday by the University of Chicago's Paulson Institute, said it's in the US interest to diversify Chinese investments beyond the purchase of low-yield Treasury bonds, "the accumulation of which has the perverse effect of exacerbating economic imbalances, leading to currency misalignment and potentially to measures that restrict bilateral trade".
Nicholas Lardy, an expert on the Chinese economy at the Peterson Institute for International Economics, said he's "skeptical" about near-term prospects for a BIT.
"I think the US will want to turn this BIT into a market-access question, and I think it will be difficult for China to give up all the restrictions that it currently has," Lardy said.
It was only after years of painstaking talks, he said, that Beijing decided, at the end of the fourth S&ED in May 2012, to raise by 16 percentage points the limit on foreign stakes in joint ventures that do securities underwriting.
"If it takes all that time to go from 33 to 49, how much longer is it going to take to eliminate other caps that exist?" Lardy said.
(China Daily USA 07/09/2013 page15)