Business Standard

Souring China business climate risks US investment treaty talks

- REUTERS

China and the United States will swap initial demands for an investment treaty as early as Monday, sources said, but US investors are already worried that an emerging raft of Chinese regulation­s could threaten the future of talks.

In exchanging demands, the world's two largest economies will outline industry sectors that each side deems to be closed to the other side's investors. Such “negative lists” will define the scope of the treaty and are already months overdue.

China has more restrictio­ns on foreign investment than the US, and US investors hope that a treaty will give them increased access to China's many tightly controlled industries, from financial services to health care.

But three sources familiar with the treaty talks say US negotiator­s expect Beijing to come up with an expansive “negative list”, noting that it has pursued in recent months new rules that could further restrict foreign access to sensi- tive sectors.

“After 35 years of reform and opening in China, there are enough data points out there to suggest we are now seeing a reversal,” one source said.

Beijing's commerce ministry could not be reached for comment but it has said foreign investors enjoy ample opportunit­y in China. Beijing has also complained of restrictio­ns on Chinese investment in US infrastruc­ture and technology, and says its firms are singled out in US national security reviews.

However, China is pursuing legislatio­n, including rules on national security and non-government­al organisati­ons (NGOs), which are seen as aggressive and overreachi­ng by some within the foreign business community.

For example, China's draft National Security Law and Anti-terrorism Law, which could be adopted this year, call for the use of “secure and controllab­le” technology developed in China or which uses source code released to Chinese inspectors.

Another pending law on foreign NGOs, which includes myriad busi- ness groups, would give police broad supervisor­y power over their budgets, agendas and personnel decisions.

Those moves, along with fears that Chinese regulators are targeting foreign firms in competitio­n probes, have led to decades-high levels of pessimism among foreign investors.

The American Chamber of Commerce in China wrote to the Chinese government last week to complain about the security law.

“It raises fundamenta­l questions about whether future commitment­s by China to open its markets to foreign investment will produce the intended results,” the chamber said in a letter seen by Reuters.

It said the draft law risked “underminin­g the ongoing BIT (Bilateral Investment Treaty) negotiatio­ns”.

Commercial relations have also been soured by allegation­s from Washington that Chinese hackers have been behind recent attacks on US government agencies and American companies.

Last week, US officials accused Chinese hackers of a breach of government databases to steal files on four million federal employees, the latest in a string of espionage charges levelled at China. Officials in Beijing said the claims were unscientif­ic and irresponsi­ble.

All of this will hang over highlevel US-China strategic and economic talks in Washington in late June.

“This is the most difficult time I've seen in China for multinatio­nals — and I've been here close to 30 years,” said James McGregor, the chairman for US public affairs consultanc­y APCO Worldwide in China.

 ?? PHOTO: REUTERS ?? China has more restrictio­ns on foreign investment than the US, and US investors hope that a treaty will give them increased access to China's many tightly controlled industries
PHOTO: REUTERS China has more restrictio­ns on foreign investment than the US, and US investors hope that a treaty will give them increased access to China's many tightly controlled industries

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