Trade Group Says Opening More Chinese Sectors to Foreign Competition Critical to U.S. Investment Treaty

The United States and China have the two largest economies in the world, making an investment treaty an obvious course of action in the opinion of many financial analysts. Yet, such a treaty has been sorely lacking for some time. After seven years of talks, it looks like it could finally come about in the relatively near future. However, the negotiations will soon enter the most contentious phase of talks: discussing formal market access.

The United States and China have the two largest economies in the world, making an investment treaty an obvious course of action in the opinion of many financial analysts. Yet, such a treaty has been sorely lacking for some time. After seven years of talks, it looks like it could finally come about in the relatively near future. However, the negotiations will soon enter the most contentious phase of talks: discussing formal market access.

As reported by the South China Morning Post, the US-China Business Council has noted that opening more sectors in China’s economy to foreign competition is the critical element to successfully negotiating an investment treaty between the two nations. It also believes such a treaty will strengthen financial links between the world’s biggest economies. China is already the United States’ second largest trading partner (after Canada). Trade with China totaled US$590 billion in 2014.

If the treaty negotiations succeed, the resulting agreement will be known as the Bilateral Investment Treaty. It will likely take center stage during the US-China Strategic and Economic Dialogue in Washington next week.

China and the US recently swapped “negative lists;” lists of sectors each nation wishes to keep closed to the other’s investors. US officials are still assessing the initial offer from China, but initial reports indicate that they believe the offer could be better. Nevertheless, sources close to the negotiations indicated that expectations for the offer were low, and that the offer did not exceed these expectations.

China has long had a much more restrictive economy than the United States. US investors would like to take advantage of a treaty arrangement to give them increased access to the largely untapped markets in this enormous economy. In many cases, these markets remain dominated by state-run organizations, including financial services companies, agriculture, and health care providers.

The US-China Business Council reports that the US commands a mere five percent of total foreign direct investments in China, while China’s direct investments in the US are even lower. The US State Department indicated that while it has few limits on foreign investment, it hopes China will adopt this approach in the future.

“We continue to emphasize to China that to successfully conclude the negotiations of this agreement, it will be critical for China’s negative list to be very limited and narrow and to represent substantial liberalization,” said Kerry Humphrey, a representative of the US State Department’s Economic and Business Affairs Bureau.

China, on the other hand, felt that the US negative list was too restrictive, as well. In particular, China objected to limitations on key infrastructure, technology, and national security investments.