Investment deal to boost bilateral and global trade
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. firstname.lastname@example.org