China and US see progress on investment treaty | Asia| An in-depth look at news from across the continent | DW | 12.07.2013
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China and US see progress on investment treaty

The US and China have agreed to restart stalled negotiations on an investment treaty, with Beijing dropping efforts to protect some economic sectors. But talks struck a sour note over China's handling of Edward Snowden.

For a while it seemed that the project was doomed, but it was revived during this year's two-day Strategic and Economic Dialogue talks in Washington. The meeting has "paved the way for substantial negotiations" on a bilateral investment treaty, Chinese Commerce Minister Gao Hucheng told reporters.

The move was praised by both nations as a breakthrough. According to US Treasury Secretary Jack Lew, Beijing agreed for the first time to put all areas on the table on a treaty to govern investments. He said the step would "level the playing field" for US businesses seeking to enter the billion-plus market.

The United States and China first started talks on the treaty in 2008, but no progress had been made since because the Chinese had refused to stop protecting certain economic sector, including the service branch, a very important sector for US companies.

Readiness to talk

China's readiness to talk is part of Beijing's effort to reduce tensions with Washington. The unconventional meeting held by US President Barack Obama and his Chinese counterpart Xi Jinping earlier this month at the Sunnylands resort in California is seen as a demonstration of the new approach.

U.S. President Barack Obama and Chinese President Xi Jinping walk the grounds at The Annenberg Retreat at Sunnylands in Rancho Mirage, California June 8, 2013. (Photo: Reuters)

Manning says China wanted to follow up on the meeting between Xi and Obama

"China wanted to follow up on the meeting between Xi and Obama," said Robert A. Manning, a senior fellow at the Washington-based Atlantic Council. He told DW that Beijing couldn't afford a confrontation with the US in a time where the country had been struggling with slower growth rates.

But the Chinese move could have also been driven by fear. This week began the first round of US-EU trade talks which could create the world's largest free-trade zone. In Asia the negotiations are linked to the US-led Trans-Pacific Partnership (TPP) trade pact which incorporates an array of Asian and Latin American countries, excluding China.

Initially, Chinese leaders had condemned their country's exclusion. But experts have recently noticed that Beijing has struck a more conciliatory tone. Commentaries made in state media ask whether China should make an effort to join the TPP. But Nicholas Borst, research associate and China expert at the Peterson Institute for International Economics, believes this might be a long way ahead. "However, the fact that China is not a member of the TPP doesn't mean it is not looking for other ways of cooperating with the US," Borst told DW.

Chinese investment

Chinese investment abroad has grown significantly over the past years, alongside Beijing's effort to protect its companies. In a guest commentary published in the "Wall Street Journal" Chinese Vice Premier Wang Yang, who led the economic part of the dialogue alongside Treasury Secretary Lew, called for the lifting of US restrictions on high-tech exports to China, as well as a simpler approval process for Chinese investments in the US.

While US companies in China complain about obstacles when trying to gain access to the Chinese market, Chinese investors in the US are afraid of being rejected due to national security concerns.

'Cyber-enabling theft'

The Obama administration believes that the ongoing discussion on technology transfer – through exports or investment - is inextricably linked to the fear of intellectual property theft. This has led the US to accuse elements within the Chinese state of conducting cyber-espionage. "Outright cyber-enabling theft that US companies are experiencing now must be viewed as out of bounds and needs to stop," US Vice President Joe Biden said as the talks opened in Washington.

But while stressing the cyber issue, the US government has been put on the defensive by the revelations about US surveillance by fugitive NSA leaker Edward Snowden, whom the US had wanted extradited from the semiautonomous Chinese territory of Hong Kong before he flew to Russia. State-run newspaper "China Daily", wrote before the talks: "For many Chinese, it is bizarre how Washington can continue to pose as the biggest cyber-espionage victim and demand others behave well."

Clashing over Snowden

During a meeting with members of the Chinese delegation President Obama expressed his "disappointment and concern" with China's handling of the Snowden case.

NSA whistleblower Edward Snowden, an analyst with a U.S. defence contractor, is seen in this still image taken from video during an interview by The Guardian in his hotel room in Hong Kong June 6, 2013. (Photo: Reuters)

The US has been put on the defensive due to the revelations by fugitive NSA leaker Edward Snowden

US Deputy Secretary of State William Burns added: "We have made clear that China's handling of this case was not consistent with the spirit of Sunnylands or with the type of relationship - the new model - that we both seek to build."

The actual talks on cyber-espionage took place in separate meetings that began on Monday. However, Manning regards this as a mistake. He believes that such an important issue must the dealt with at the highest level. Otherwise "the new model simply won't work."