China, US explore new treaty

China and the United States are likely to start formal talks on a bilateral investment treaty (BIT), as Chinese foreign direct investment continues to increase dramatically in both the US and other parts of the world.

The prospect of a BIT has been a key topic as senior economic and trade officials from the world's two largest economies sat down in Washington over the past two days for the 5th round of the annual China-US Strategic and Economic Dialogue.

"The two sides agreed to enter a more substantive stage of negotiation as soon as possible," Chinese Minister of Commerce Gao Hucheng told reporters Thursday morning in Washington.

The nine rounds of preliminary talks on a BIT between the two countries have drawn a lot of attention from the business community in both countries. Gao described previous talks on a BIT as "technical negotiations" that laid a foundation for more substantive talks.

China was the world's third largest outbound investor last year, as its foreign direct investment, or FDI, in the US reached $20 billion, compared to a total of $70 billion US FDI in China. But Chinese outbound investment has shown rapid growth in recent years.

"This requires us to establish a better legal framework with our partners that will better protect the interests of Chinese investors," Gao said.

He predicted that in the next three to five years, the amount of Chinese outbound investment will exceed the amount of FDI coming into China.

"So naturally it was a topic of discussion at the S&ED," he said.

Gao said such a move as reflecting the consensus reached by Presidents Xi Jinping and Barack Obama in Sunnylands, California, a month ago.

He said investment is an important part of the China-US economic and trade relationship and both sides have been giving it close attention. "It requires creative thinking to build a cooperative and mutually beneficial environment," he said.

A senior official from the US Treasury Department also hailed the discussion on BIT at the S&ED, applauding some of the concessions China never agreed to make in the past, such as the service sector.

"A high-standard US-China Bilateral Investment Treaty is a priority for the United States and would work to level the playing field for American workers and businesses by opening markets for fair competition," US Treasury Secretary Jack Lew said in a statement Thursday afternoon.

"The commitment made today stands to be a significant breakthrough and marks the first time China has agreed to negotiate a Bilateral Investment Treaty, to include all sectors and stages of investment, with another country," he said.

"The announcement about the negotiations over a Bilateral Investment Treaty, which is one of the potentially most important economic issues as we look to the future of US-China relations, highlights the value of the S&ED discussions," said Kenneth Lieberthal, a senior fellow at the John L Thornton China Center of the Brookings Institution.

Orville Schell, director of the Center on US-China Relations at Asia Society, said if the two countries are serious about cementing better relations, it is essential that Chinese FDI into America be explicitly welcomed.

"By helping the US to capture more of the significant new investment capital now starting to seek exit from China, a US-China Bilateral Investment Treaty would serve a critical purpose.

One can only hope the treaty will find early agreement, but lead to a more cooperative atmosphere enabling other more intractable, but even more important bi-lateral, issues to also find resolution," Schell said.

While the US claims it offers the most open environment for foreign investors, many Chinese feel that Chinese FDI in the US has been discriminated against.

On Wednesday, the US Senate held hearings on the possible purchase of Virginia-based Smithfield Foods, the largest pork processor in the US, by China's Shuanghui International.

Some observers claim the questioning, especially when issues of national security were raised, smacked of protectionism.

Besides a possible BIT, a wide range of other economic and trade issues were also discussed at the S&ED over the past two days. China raised its concerns over US restrictions on high-tech exports to China, as well as the review process of Chinese FDI into the US and trade protectionism.

The US side has expressed its concerns over the role of State-owned enterprises, the protection of intellectual property rights, market access and the opening up of China's service sector.

Gao stressed the importance of further enriching bilateral economic and trade relationship, saying the two countries should expand cooperation to properly handle any differences arising in the fields of economic, trade and investment, and global governance.

He reiterated his strong opposition to protectionism and the politicizing of trade and investment issues.

"I am fully of confident about the prospects for the China-US economic, trade and investment relationship," Gao said.