China-U.S. BIT Matters to the Global Economy

Chinese and U.S. representatives expressed optimism for the future of the China-U.S. Bilateral Investment Treaty (BIT) negotiations during a session at this year’s Boao Forum for Asia annual conference.

Against the backdrop of a global economy facing risks of derailment and investment and trade rules becoming increasingly fragmented, it is necessary for China and the United States–the two most important economies in the world–to collaborate as much as possible with each other in order to maintain global economic and financial stability, boost world economic growth and create new investment and trade rules.

Chen Deming, China’s former Minister of Commerce, said that China-U.S. BIT talks are nearing the final stages of completion, with most of the core issues resolved. The only remaining issue is the negative list, a management model that defines areas restricted for foreign investment. We can therefore expect that the two economies are likely to announce the achievement of a high-level investment treaty at some point in the future.

China and the United States started the BIT negotiations in 2008, which are considered one of the most important and complicated economic negotiations following China’s entry to the World Trade Organization (WTO) in 2001. In July 2013, the two sides made a major breakthrough when they began discussing each other’s negative lists. They were still negotiating those terms during the 24th round of BIT talks in January.

Over the past eight years of BIT negotiations, both China and the United States have consulted their respective economic partners in rebuilding trade rules. Both countries have had breakthroughs in establishing bilateral or multilateral free trade areas.

The United States, for example, has spearheaded the Trans-Pacific Partnership (TPP) with 12 member nations along the Pacific Rim, and signed the trade agreement into place in New Zealand on February 4. In addition, negotiations on the Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States are gaining traction. Both parties have demonstrated that they are willing to reach an accord on the high-level trade agreement.

On the other side of the Pacific, China is working on three main projects: upgrading the China-ASEAN Free Trade Area, actively pushing forward the negotiation on Regional Comprehensive Economic Partnership (RCEP) and gradually realizing the Beijing Roadmap for APEC’s Contribution to the Realization of the Free Trade Area of Asia-Pacific by signing free trade agreements with South Korea and Australia.

Nonetheless, as the investment and trade territories respectively built by China and the United States expand, economic ties between the two countries are becoming closer. This is another reason for both countries to push forward the signing of the BIT.

Media reports frequently mention the TPP, TTIP, RCEP and the spillover effect of China’s Belt and Road Initiative, especially the influence of potential clashes in interests between the two powerful economies. Still, there is reason to believe that China will not pursue economic antagonism.

In today’s world, where trade and finance in major economies are highly interdependent and mutual investment is growing, major powers cannot be expected to build a wall to isolate their investment and trade rules from their partners.

This is also true for China and the United States. As one of the biggest beneficiaries of the existing global trade system, China has been carrying out global investment and industrial transfer since joining the WTO in 2001, and it has been branching out its value chain around the world. China became a net capital exporter in 2014 and is now one of the world’s top investors. China’s investment in the United States is also rapidly growing.

Even so, the growth in trade that China has achieved doesn’t change the existing global trade structure. China’s investment in countries along the land-based and maritime Silk Road, as well as in developed economies, is expanding, but it is far from changing global investment and trade rules.

The United States still enjoys the most benefits from the global value chain. In this respect, China is no match for the United States, particularly in the trade of services and high value-added manufacturing products. The strategies China has adopted to actively expand its role in the global economic trade network have never aimed to ostracize the United States.

China knows very well that if it were to alienate the United States, it would end up losing more than what it stands to gain. On the other hand, it will never be easy for the United States to take away China’s influence in the Asia-Pacific region’s trade network. China has stated that it is willing to consider joining the TPP–a rational step forward–just as it welcomes the United States to join the Asian Infrastructure Investment Bank. If both countries can finally reach an accord through the BIT talks, they will precipitate the rebuilding of global investment and trade rules.

The complex and tight economic ties between the world’s top two economies form the cornerstone for the creation of a new type of partnership between major countries.

Once the BIT is signed, it will be conducive to changing the current economic pattern, wherein China is a producer while the United States is a consumer. Moreover, the BIT will provide a model for effective partnership between super economies representing different governance systems. Ultimately, it will escalate world economic cooperation to higher levels and boost steady growth.

To Chinese and U.S. political and business leaders with far-reaching vision, regardless of how complicated the conflicts between China and the United States are, the development of mutual interests and the establishment of the economic cooperation take precedence.

China and the United States must, based on a search for common ground, establish their partnership as the aegis of the global system. This will ensure global economic growth and rebalance, financial stability, reconstruction of trade and investment rules, as well as effective settlement of their respective economic issues and stable growth of their respective economies.

This is an edited excerpt of an article written by Zhang Yugui, Dean of the School of Economics and Finance at the Shanghai International Studies University, and published in Securities Times 

Copyedited by Bryan Michael Galvan

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