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The fourth round of the Sino-U.S. Strategic& Economic Dialogue (S&ED) was started on May 3 in Beijing.
The S&ED was held when President Obama is preparing for the election next year and the Communist Party of China is waiting for new leaders’ appointment in the 18th CPC representative meeting in 2012. Therefore the S&ED went uneventfully. However, it is necessary to mention that China and the United States had ceaseless conflicts in trade in the past year, and the Sino-U.S. trade problem is always a hot political theme when it comes to the U.S. president election.
This S&ED was the senior communication platform for China and the United States to increase trade and investment opportunities. The two countries are very likely to re-launch the bilateral investment treaty (BIT) and seek compromise in loosening the limit for U.S. companies in exporting hi-tech products. Meanwhile, the stability and reform of financial market are always a topic between the two countries. As the “exchange rate” problem generally fades out from the main communication platform, the United States shifts its focus to China’s policy of controlling interest rate and the investment and trade subsidies for the Chinese state-owned enterprises which the U.S. attributed to the interest control.
Re-launching of the BIT
The Sino-U.S. bilateral investment treaty started during the tenure of former U.S. Treasurer Henry Paulson with the hope of reaching a high-standard bilateral investment treaty for the good of two countries.
The BIT is the bilateral treaty signed by two countries to encourage, promote and protect the investment of each country’s citizens in the other one. The contents mainly involve the scope of investment protection, investment treatment, collection and compensation, currency exchange and settlement and dispute solution. Among them, the investment access and the investment protection scope are the most sensitive issues. The U.S.-style treaty is largely featured with free investment and the free access is a clear obligation in the contact law. This is different from the strict examination and careful guide China applies to the foreign investment into this country’s industries and sections. If the treaty is signed, the direct investment between China and the United States will become easy and convenient. But the compromise is not so easy to be gained. Therefore it can be expected that the negotiation will last a long while.
In the press conference before this S&ED Zhu Guangyao, Vice Minister of Finance, said that the schedule for the negotiation of Sino-U.S. bilateral investment treaty had already been fixed, which also included the advent technological consultancy.
Both countries attach great importance to this negotiation. Driven by the economic dialogue within the frame of the Sino-U.S. S&ED, the two countries already made six rounds of technological negotiations in the past. The negotiation was cut off as the U.S. party needs to make internal review about the treaty texts.
“Now the U.S. party already informed us that they had finished the internal negotiation and discussion about the treaty,”Zhu Guangyao said. The Chinese revealed a definite attitude of welcoming the two economies of China and the United States to continue the negotiation about the bilateral investment treaty with the principle of respecting each other and creating winwin situation.
Limit for Exporting Hi-tech Products to Be Eased
As for the limit in exporting hi-tech products, Gary Locke, U.S. ambassador in China, wrote a long article to talk about this problem. “We recently saw the progress in the field of exports regulation and control. We are trying our best to make a reform to this field,” he said.
“In fact, China listed 141 projects longing for importation and wishing for buying equipment or technologies from the United States,” Gary Locke said. “As a result of our coopera- tion, the United States has already permitted exporting 46 items of technologies to China. Some of them can even be exported without the said license of exportation.”
“We need to get more details from China for the remaining projects so that we can make sure under what conditions these programs can be exported,” Locke said. “But for the 46 programs, the United States has actually given advices to related U.S. companies to introduce these technologies into China and build a bridge between them and Chinese companies willing to buy these hi-tech products.”
The information from the Sino-U.S. Chamber of Commerce revealed that the U.S. government started to change its exports regulation and control system in three phases from 2010. By now it has already fixed a norm for single regulation list, single implementation and coordination center and single information technology system, which laid the foundation for the next-phase reform. Presently they are revising the regulation list.
The 2012 White Paper of the Sino-U.S. Chamber of Commerce said that though many modifications did not work directly for China, they were still good for exporting high technologies to the Chinese business circle, because the U.S. government now has more resources to examine and approve the license of exportation more efficiently.
Exchange Rate No Longer a Popular Theme
On April 14, the People’s Bank of China, or the central bank announced that the fluctuation rate of the trading price between the RMB and U.S. dollar in the inter-bank spot foreign exchange rate increased 5‰ to 1%. From then on, the U.S. presentations on exchange rate were only a blank expression.
When the exchange rate no longer plays the leading role, the credit policy and interest rate control of China, which were added to the negotiation, gradually moved to the central part of the negotiation. The U.S. party thought the Chinese companies were put at an advantageous place by getting the credit loans with a low cost. This somewhat intensified the trade conflicts between China and the United States.
“Bring resources into the big state-owned enterprises in China but neglect the fact that the most dynamic private enterprises are facing the credit shortage. This will finally damage the Chinese economy,” said Timothy Geithner, Secretary of the U.S. Department of Treasury, before he came to China for the S&ED. “This also damaged the U.S. companies competing with these firms and their workers.”
Meanwhile, Geithner said that the state-owned banks took the dominant place in the current financial system of China. They are more inclined to lend loans to state-owned enterprises. In addition, these banks control the interest rate for personal deposits at the level below the inflation rate. Such a system forces people to save too much and too often, which not only limits the consumption but also stops enterprises in need of capital from getting loans. He also said that the interest rate should correspond with the market well. This is good for the United States to increase its export to China.
The latest White Paper of the Sino-U.S. Chamber of Commerce also included the collective call of U.S. enterprises in China for letting go of the interest rate. They think that the capital cost in China greatly twisted the economy.
“For years, the interest rate control policy generates subsidies for investment all along. This policy made banks and loan borrowers (largely state-owned enterprises) enjoyed low capital. This ensures that banks could get a 2% net interest balance, but led to the negative profit margin of depositors who saved money into these banks,” the aforementioned White Paper said. This actually equaled the taxation imposed upon families for the benefits of banks and state-owned enterprises. In addition, the subsidies for energy favor manufacturing and infrastructure rather than service.