When President Xi Jinping visits Washington next week, there is a fair chance the long-awaited bilateral investment treaty (BIT) between China and the US might get finalized. A win-win for both countries, writes financial analyst Sara Hsu in the Diplomat.
China’s sectors most closed to foreign direct investment include agriculture, fishing, transportation, media, telecommunications, and financial services. Opening some Chinese sectors would remove a major hurdle for American businesses. The BIT may also address merger proposals by foreign firms in China, which have incurred significant conditionality in proceeding with merger events, and competition policy, in order to ensure a more level playing field between Chinese and U.S. firms in China.
China’s perception of the investment process in the U.S. is that much of it is subject to the opaque approval process of the Committee on Foreign Investment in the U.S. Justification for the imposition of barriers to Chinese investment in the U.S. have been made on the grounds of national security. A BIT would hopefully provide more transparency in the investment process and reduce hurdles to investment.
The U.S.-China BIT represents two trends – one in the international arena toward increasing global trade and investment ties, and one in China of expanding outbound investment under its “Go Out” policy. Global trade and investment ties that are new or under negotiation include the Trans Pacific Partnership, the Asian Infrastructure Investment Bank, the BRICS or New Development Bank, the Australia-China Free Trade Agreement, and the Regional Comprehensive Economic Partnership, among others. As part of China’s “Go Out” policy started in 1999, Chinese investment abroad has expanded in recent years to outbound direct investment.
BITs are generally conducive to increasing direct investment abroad, since they protect firms going abroad against expropriation by a foreign government. Caveats may exist for developing countries that would otherwise benefit from the protection of nascent industries or more equal compensation for land expropriation between domestic and foreign firms. As China has more industries closed to foreign investment and is continuing to develop, the country has potentially more to lose from signing the treaty.
Still, if a balanced BIT can be concluded, both nations stand to gain. The U.S. would encounter more profit opportunities in China, while China would further its agenda to “Go Out” and promote maturation of its economy. Many analysts have anticipated that the treaty would be concluded this month; we will watch for signs of this during Xi’s Washington visit next week.
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