In­vest­ment deal to boost bi­lat­eral and global trade

China Daily (Canada) - - TORONTO -

Ahigh-stan­dard Bi­lat­eral In­vest­ment Treaty is a tall or­der but es­sen­tial for China and the US to emerge eco­nom­i­cally stronger from the cur­rent global slow­down. No won­der, just hours af­ter reach­ing the US on Sept 22, Pres­i­dent Xi Jin­ping said the two coun­tries must con­clude such an agree­ment as soon as pos­si­ble. This sense of ur­gency is jus­ti­fied by not only the huge eco­nomic chal­lenges both coun­tries have to over­come, sep­a­rately or jointly, but also the huge ben­e­fits a boom in cross-bor­der in­vest­ment could bring about for the world’s two largest economies as well as the rest.

China’s en­try into theWorld Trade Or­ga­ni­za­tion at the turn of the cen­tury ex­pe­dited the coun­try’s rise as a global trad­ing power to cre­ate mil­lions of jobs for Chi­nese work­ers while low­er­ing com­mod­ity prices for bil­lions of con­sumers around the world.

And China-US trade, which soared from about $100 bil­lion in 2000 to al­most $600 bil­lion in 2014, speaks vol­umes of the vi­tal role trade has played in build­ing closer and sta­ble eco­nomic ties be­tween China and the US.

How­ever, with the Chi­nese econ­omy slow­ing down af­ter three decades of dou­ble-digit growth, it has be­come in­creas­ingly ob­vi­ous that a driv­ing force other than trade is badly needed to sus­tain eco­nomic growth at home and strengthen eco­nomic ties with other coun­tries.

Sit­ting on for­eign ex­change re­serves of more than $3 tril­lion, China has grad­u­ally de­vel­oped a keen in­ter­est in us­ing some of its fi­nan­cial and in­dus­trial re­sources in over­seas mar­kets. As a mat­ter of fact, a large part of China’s out­bound in­vest­ment, which ex­ceeded $100 bil­lion for the first time in 2014, has gone into re­sources or in­fra­struc­ture projects in de­vel­op­ing coun­tries. Yet as more and more Chi­nese en­ter­prises seek to “go global”, they are ea­ger to get equal in­vest­ment op­por­tu­ni­ties in de­vel­oped economies.

China’s for­eign di­rect in­vest­ment in the US, ac­cord­ing to re­ports, in­creased nine­fold in the past five years. By the end of 2014, Chi­nese en­ter­prises had in­vested $46 bil­lion in the US while em­ploy­ing more than 80,000 full-time Amer­i­can work­ers.

The growth mo­men­tum of Chi­nese in­vest­ment in the US is cer­tainly im­pres­sive, but the to­tal re­mains pal­try given the size of the two economies—$18 tril­lion and $10 tril­lion. Worse, the num­ber of Chi­nese com­pa­nies sub­ject to US na­tional se­cu­rity re­views is dis­pro­por­tion­ately high de­spite China’s rel­a­tively small in­vest­ment scale in the US.

Un­der such cir­cum­stances, Chi­nese pol­i­cy­mak­ers have re­al­ized one ob­vi­ous merit of a high-stan­dard Bi­lat­eral In­vest­ment Treaty: it will re­duce the un­cer­tain­ties and re­straints Chi­nese com­pa­nies face when in­vest­ing in the US.

China will adopt a “neg­a­tive list”, which will open the do­mes­tic mar­ket wider to over­seas in­vestors and fa­cil­i­tate the BIT talks, be­cause Chi­nese lead­ers are con­fi­dent that fur­ther open­ing-up is a nec­es­sary and help­ful means to pro­mote com­pre­hen­sive eco­nomic re­forms. The de­ci­sions to deepen re­forms in State-owned en­ter­prises and adopt a neg­a­tive list for in­vest­ment were made to ex­pe­dite the coun­try’s on­go­ing eco­nomic trans­for­ma­tion.

For the US, the ben­e­fits of a high-stan­dard BIT will in­clude more jobs that Chi­nese in­vest­ment will cre­ate for Amer­i­can work­ers and greater op­por­tu­ni­ties for Amer­i­can com­pa­nies to tap into the huge po­ten­tial of the “un­locked” ser­vice sec­tor in China.

China’s ser­vice sec­tor ac­counts for about half of its GDP while the US’ ac­counts for 80 per­cent. Since a boom­ing ser­vice sec­tor is crit­i­cal to China’s eco­nomic tran­si­tion to­ward con­sump­tion-led growth, US in­vestors can harvest ma­jor ben­e­fits by ap­ply­ing their ex­per­tise in pro­vid­ing world-class ser­vices in China.

De­spite the mu­tual ben­e­fit that a BIT will yield, there is no deny­ing the dif­fi­cul­ties of the give-and-take course of ne­go­ti­a­tions. And that is why the two coun­tries should make con­certed ef­forts to en­cour­age cross­bor­der in­vest­ment in or­der to make bi­lat­eral eco­nomic ties the most pow­er­ful en­gine of global eco­nomic re­cov­ery.

The au­thor is a se­nior writer with China Daily. zhuqi­wen@chi­

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