S&ED to Prioritize Investment, Transparency, Economic Restructuring

By Zoe Sophos

Vice President Joseph Biden delivers remarks at the U.S.-China
Strategic and Economic Dialogue Joint Opening Session
at the U.S. Department of State in Washington, D.C., on July 10, 2013.

US and Chinese government officials are gearing up for the eighth annual Strategic and Economic Dialogue (S&ED) next week in Beijing. Priority issues for negotiators regarding US industry include industrial overcapacity, investment liberalizations, intellectual property rights, and transparency. The talks coincide this year with Beijing’s role as G20 host, the final year of the Obama administration, and worries that the pace of China’s reforms is slowing—a setting that may provide as many opportunities as challenges for negotiators.

The dialogue will be co-chaired by US Treasury Secretary Jack Lew, US Secretary of State John Kerry, Chinese Vice Premier Wang Yang, and State Councilor Yang Jiechi. Although the specific dates of the S&ED and details about sideline events have yet to be publicly announced, a small side meeting of CEOs and the seventh annual US-China Innovation Dialogue are expected on the margins.

Transparency, investment openings top priorities

USCBC has learned from discussions with US government officials that the economic track of this year’s S&ED will highlight investment openings and transparency—two of USCBC’s top priorities. US negotiators are pushing for broad investment liberalizations for foreign firms, particularly across services, manufacturing, agricultural, and extractive industries. Negotiators want to ensure that investment openings are not negated by China’s increasing use of national security as the justification for a variety of restrictive measures.

A high-standard US-China Bilateral Investment Treaty (BIT) is a top priority for USCBC and the Obama administration as the best way to eliminate market access restrictions that US companies face in China. Previous S&EDs have been important forums for progress on the BIT, including China’s agreement at the 2013 S&ED to use a negative list for foreign investment for the first time. China missed a self-declared deadline to propose a revised negative list offer in March, and high-level US government leadership continues to press China for a high-quality negative list offer.

US negotiators are expected to discuss China’s need for greater policy transparency, particularly related to comment periods, guidelines known as “normative documents,” and online publication measures. In addition to the regulatory aspects of the transparency discussion, this year’s S&ED will focus on the broader, systemic availability of data, including data on China’s overall economic policy and on policy developments as they arise.

Tech, security issues still front and center

As was the case during last year’s S&ED, US negotiators are expected to raise concerns about China’s link between national security concerns and restrictive policies on foreign technology products. Administration officials have indicated that the ability of companies operating in China to access the technology of their choice is undermined by policies that differentiate foreign and domestic products and prioritize indigenous product development, such as the Made in China 2025 plan. Other Chinese policies require the use of “secure and controllable” technology in various sectors without a clear definition of the requirements to meet that standard. In the absence of clear information on those requirements, many foreign products are assumed by Chinese customers to not be in compliance, leading to de facto prioritization of domestic products.

USCBC has advocated for progress on these and other technology-related issues as an essential component of S&ED. Chinese policies restricting the free-flow of data, for example, impact companies in the healthcare, banking, insurance, credit rating, and other industries, whether through formal policymaking or informally via lack of clarity within regulations.

Economic restructuring poses challenges, opportunities

China’s treatment of industrial overcapacity and state-owned enterprise (SOE) restructuring will also be discussed. At issue is how China will implement its supply-side reforms—that is, whether China will adopt fiscal policy measures that support household consumption and develop social safety nets, both critical for supporting the country’s transition from investment-led growth. The US is expected to encourage China to halt export promotions, to set and adhere to capacity reductions, and to refrain from encouraging production abroad, particularly in the steel and aluminum industries.

China’s economy is weaker than in recent years, causing distractions for policymakers in Beijing as they prioritize domestic economic issues. Capital outflows and exchange rate pressures are among new considerations affecting the negotiating environment; the US will likely seek confirmation from China that its exchange rate is not manipulated to competitive advantage. At the same time, China’s immediate need to for domestic reforms may provide the opportunity to discuss the United States’ priority issues, in particular where those interests coincide with China’s goals for stronger, higher-quality growth.  

Aviation, Agriculture, Intellectual Property also on the Agenda

Intellectual property licensing and protection for trade secrets are also expected to receive attention at this year’s dialogue, along with greater access to distributors for large revenue-sharing firms and the importance of timely, science-based approvals for biotech products. The US is also expected to raise concerns about China’s recently passed Non-governmental Organization (NGO) Law.

The strategic side of the dialogue is expected to cover topics including mil-mil relations, human rights, and what the US and China are doing together in regard to North Korea and the Middle East. The discussions are projected to cover other areas of US-China cooperation as well, such as efforts to combat climate change and wildlife trafficking.

The aviation sector is expected to be a focus of specific discussions this year, in particular the systemic management of aviation in China and the potential positive effects of efficient, secure air traffic management on the economy. As a cross-cutting issue, discussions of aviation will be held independently of either the strategic or economic tracks.

About the author: Zoe Sophos is a Business Advisory Services manager at the US-China Business Council, a private, nonpartisan, nonprofit organization of roughly 220 American companies that do business with China. Contact her at [email protected].