US officials lay out priorities in US-China relations; Confirmation hearing held for key Treasury post

Stephanie Henry

Assistant Secretary of State tells Senate US priorities for upcoming dialogue
A “new model” of US-China relations should not be"defined by strategic rivalry, but by fair and healthy competition…practical cooperation on priority issues, and by constructive management of our differences and disagreements,” Assistant Secretary for East Asian and Pacific Affairs Danny Russel said yesterday at a hearing before the Senate Foreign Relations Committee.  The hearing focused on regional security issues, such as conflict in the South and East China Seas, and commercial issues, including US priorities for the upcoming Strategic & Economic Dialogue (S&ED), cybersecurity, innovation, and intellectual property rights (IPR) protection in China.
Russel said S&ED discussions would cover topics including climate change, cybersecurity, human rights, people-to-people exchanges, the global economic recovery, and regional challenges, such as those brought by Ukraine, Iraq, North Korea, Iran, and the South and East China Seas. Russel noted that the US would continue to raise its concerns on commercial issues in the bilateral relationship, citing market access barriers, discriminatory innovation programs, subsidies and export credits given to Chinese entities, and IPR protection and enforcement. He added that the US would continue to encourage China to make progress on its exchange rate and efforts to address US cybersecurity concerns.
Russel said China has made progress in two areas of IPR protection and enforcement – films and pharmaceuticals – but still has significant work ahead. Russel noted that the US considers IPR a top priority, and added that China sees the issue increasingly important as well. As Chinese industry becomes more advanced and develops more technology, China has more to lose, Russel said. Ambassador Stapleton Roy, who also testified at the hearing, echoed this sentiment, adding that he was optimistic about China’s IP protection in the long term.  
Russel was also asked about the “new model” relationship between the United States and China, and how both countries perceived the term. Russel said that some officials in China view the term as a recognition of China’s sphere of influence in the region. By contrast, Russel said the United States views the model as one marked by practical cooperation on “real issues” and the ability to manage differences in a way that strengthens the international system.  He added that Chinese leaders often talk about the new model as one that focuses on “core” issues and “win-win” outcomes, but said the United States views human rights and South and East China Sea disputes as part of the issues that must be discussed.
On currency issues, Roy said China would likely move faster toward achieving a more market-driven exchange rate than many in the United States expect. He added that China is seeking to make the renminbi a reserve currency, but it cannot do that until it opens its capital account.   
Baucus targets investment barriers in speech to business community
US Ambassador to China Max Baucus said that completion of a US-China Bilateral Investment Treaty (BIT) is one of his top priorities in a speech co-hosted by the US-China Business Council (USCBC) in Beijing yesterday. Baucus linked the BIT to removing investment barriers in China, consistent with USCBC’s advocacy on this important issue. He said the BIT is an opportunity to drive China’s reforms further and called it China’s “new WTO moment,” referring to changes in China’s commercial regime triggered by its WTO entry in 2001.
Baucus’ remarks were his first policy address to the American business community in China.  In addition to highlighting the importance of removing investment ownership restrictions, Baucus said that improving IPR protection, increasing regulatory transparency, and creating a level playing field for all companies in China were also important. Baucus also said that cooperation to address China’s environmental challenges would be another priority during his tenure as ambassador.
The event was attended by 250 executives from USCBC member companies, the American Chamber of Commerce, and the US Information Technology Office. USCBC President John Frisbie participated in the event.
Senate holds hearing on Treasury nominee
The Senate Finance Committee yesterday held a hearing to consider Nathan Sheets’ nomination to be Under Secretary of International Affairs at the Treasury Department. Sheets, who previously served as an economist with the Federal Reserve and Citigroup, was asked how he would manage countries’ practice of undervaluing exchange rates to benefit their domestic economies. Sheets said that Treasury would continue its approach seeking “vigorous engagement” with countries, and that the issue remains a key priority for the administration. He added that China’s renminbi had strengthened notably against the dollar in recent years, but that significant work remained.
Sheets would replace former Under Secretary Lael Brainard, who was recently confirmed as a member of the Federal Reserve’s Board of Governors. The Treasury position has been vacant since November 2013.