China, US to strengthen economic ties, bilateral relations
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E-mail Xinhua, June 23, 2015
The upcoming annual China-U.S. Strategic and Economic Dialogue (S&ED) in Washington, D.C., is expected to expand economic and trade cooperation between the world's two largest economies, seek coordination in the international financial system and enhance overall bilateral relations more steadily, U.S. experts said.
Global economy & macro-economic policy
Concerns about the global economy and each other's macro- economic policy will continue to be the key issues on the economic agenda of the high-level China-U.S. dialogue that will start on Tuesday, said Yukon Huang, a former World Bank's country director for China and a senior associate with the Asia Program of the Carnegie Endowment for International Peace.
More than six years after the global financial crisis, the world economy remains moderate and uneven. "China's economy is slowing down. The American economy appears to be getting back on a sound footing but not entirely clear", while the Federal Reserve " looks like going to actually start increasing interest rates" this year, Huang told Xinhua in an interview, noting that all these factors will have implications for the fragile global recovery.
"The big question would be how is the U.S. economy doing? Is China being able to stabilize its economy? Is it going to be able to put in place the reforms so that it can continue growing rapidly? " Huang said of questions likely to be raised by China and U.S. officials at the dialogue.
As the world's two largest economies, the U.S. and China are increasingly economically interdependent, with their trade volume hitting 550 billion U.S. dollars last year and their combined economies accounting for about 40 percent of recent global GDP growth. Both sides have an enormous stake in each other's economic performance, and also a joint possibility to pursue policies that support the global economy.
Paul Gruenwald, Standard & Poor's chief economist for the Asia- Pacific region, said the U.S. and China economic conditions are the two most important issues by far during his talks with securities issuers, investors, other stakeholders, and the media in the region.
"We think the risks of a downside in China have actually fallen over the last couple of months," Gruenwald told reporters in New York last week. "That's because the authorities are being more aggressive in trying to make sure that the local government financing is more solid."
Adam Posen, president of Peterson Institute for International Economics (PIIE), also held positive views of China's economy after leading a group of U.S. economists to visit China last month.
It's "a good thing" for China's economy to slow down as Chinese leadership pushes forward economic reforms and wants to "go for a sustainable rate of growth", Posen said in a separate interview with Xinhua ."We both believe they're doing a good job overall. The economy is on a path that isn't going to be too bad. I think it bodes well for the future."
David Dollar, a senior fellow at the Brookings Institution, believed the most important part of the economic dialogue will be "a strategic discussion of issues in the global economy," including the risk of a Greek default and exit from the euro zone as well as the implications of the Fed's exit from quantitative easing.
"For the technocrats from the two biggest economies to have a common understanding of and approach to global economic problems is the most important outcome of the exercise," Dollar wrote on the Brookings website last week.
Investment treaty talks
Talks on a bilateral investment treaty (BIT) certainly will be high on the agenda during the upcoming two-day S&ED meetings as BIT negotiations have been considered the most important issue in the two nation's economic relationship.
The investment treaty talks began in 2008 as China and the U.S. sought to increase mutual investment, which only accounted for a tiny share of their respective overseas investment.
But it was not until the 2013 S&ED meetings that the talks entered a substantial phase after the two countries agreed to conduct negotiations on the basis of pre-establishment national treatment with a negative list approach.
"Such an agreement could be a game changer in terms of unlocking new opportunities and leveling the playing field for U.S. firms and investors," Nathan Sheets, undersecretary for international affairs at the U.S. Treasury, said in April. "The S& ED will continue to support the BIT negotiations and investment liberalization."
The two countries agreed at last year's S&ED meetings to resolve core issues and major provisions of the BIT by the end of 2014 and to initiate negotiations on the negative list, sectors and items barred to each other's investment, in early 2015.
During the latest round of talks in Beijing earlier this month, the two sides exchanged initial negative list offers, ushering in a new phase of bilateral negotiations.
While China's initial negative list offer "may be longer than the U.S. wants," the fact there's a negative list is already "a huge progress," said Posen, who expected the two countries to move forward the investment treaty talks at the S&ED meetings.
"The important question is would there be any what we call ' early harvest'," said Dollar, referring to China's willingness to open some sectors for foreign investment soon before a treaty is agreed upon.
If China opens up some sectors soon and improves market access for U.S. and other foreign investment, that will "create a much stronger foundation in the United States for moving ahead with the bilateral investment treaty," he added.
Experts are optimistic that the U.S. and China could finish the BIT talks under the Obama administration, but the ratification might have to wait until after the 2016 U.S. presidential election.
Huang said it is necessary to realize that "both sides want to have a BIT," as it will help address a number of investment concerns between the U.S. and China, and investors from both countries will get better access to each other's markets.
The BIT is also very important for moving forward China-U.S. economic relations as "it is only the documentary agreement dealing with international economic issues between the U.S. and China in the foreseeable future," Huang noted.
Clean energy collaboration
Huang believed climate change and clean energy are also on the agenda of the upcoming S&ED meetings as both countries could gain a lot by collaboration in these areas, but they haven't done enough to tap that great potential.
The whole world needs green technology products to help address global environmental issues, but these products currently are too expensive, Huang said.
As China has a massive production capacity, while the U.S. has sophisticated green technologies, the two countries can collaborate to provide clean energy products at much lower costs so that everybody can afford to buy, Huang said, adding that both U.S. and Chinese producers could also make a lot of profits.
Huang said this collaboration between China and the U.S. is " essential" because "it cannot be solved by pure markets and business practices" and it needs government support.
But right now the two sides are "constantly assuming each other for unfair competition" on subsidizing green technology differently, Huang argued, noting that China puts "a lot of financing and subsidies" to directly support clean energy producers, while the U.S. supports clean energy indirectly by subsidizing consumers "purchasing of these goods for tax benefits. "
"They need to solve these problems by saying: Look, we both have the same objectives. We're both pouring a lot of money into this. We do it in different ways. Let's try to work with each other not to assume each other," Huang said.
"We have to look for these areas where in fact both sides have similar interests, but they approach differently rather than have conflicts, making it a source of collaboration," Huang added.
Daniel Russel, U.S. assistant secretary of state for East Asian and Pacific affairs, said last week the two sides will chair a joint session at this year's S&ED "focusing on how the U.S. and China can work to reduce emissions, how we can make energy cleaner. "
"We don't always see eye to eye. But the fact is that global challenges require that we cooperate. They require collaborative solutions," Russel said at a press briefing to preview the S&ED meetings.
International financial cooperation
China's Vice Finance minister Zhu Guangyao told reporters last week at a news briefing that the two sides will have "a strategic discussion" of important issues concerning China and the U.S. economies at this year's S&ED as an innovation of the dialogue mechanism.
China-proposed Asian Infrastructure Investment Bank (AIIB), the Belt and Road initiatives, the Silk Road Fund, as well as Chinese currency renminbi (RMB)'s admission to the special drawing rights (SDR) basket of the International Monetary Fund (IMF), are likely to be such kind of issues during the S&ED meetings, according to U. S. experts.
Citing the example of AIIB, a new international financial institution to fund infrastructure projects in Asia, Sheet said in April that a central goal of the S&ED "has always been to support China's emerging role in the global economic and financial architecture, and to strengthen its sense of ownership of and responsibility for the international system."
While the U.S. is not likely to join the AIIB at present, U.S. President Barack Obama said in April that the U.S. looks forward to collaborating with the new development bank, "just like we do with the Asia Development Bank and with the World Bank."
China has said the AIIB will uphold high standards and be complementary to existing development banks, and China always welcomes the United States to join the bank.
Posen believed it's in China's "enlightened self-interest" to have a high-standard, transparent, and well-functioning institution with good lending practices to support infrastructure investment in the region.
China has also showed great interest to add the RMB into the SDR basket, as the IMF was scheduled this fall to review the composition of the basket, currently including U.S. dollar, Japanese yen, British pound and the euro.
The IMF said in May that it welcomed and shared China's objective to include the RMB in the SDR basket and would work on this regard with Chinese authorities.
"I think the U.S. should support it but doesn't mean they need to say right now yes," Posen said, adding that the U.S. should " come up with a sensible list of what changes China might need to make" to get the IMF's largest shareholder's backing.
Zhou Xiaochuan, governor of the People's Bank of China (PBOC), said in April that China will take a series of reforms to further increase the capital account convertibility of RMB, and make the currency more "freely usable", an important criterion for admission into the SDR.
At the last SDR review in 2010, the RMB met the export criterion, but was assessed as not meeting the "freely usable" criterion. Since then there have been a number of developments in the RMB's international use, the upcoming review will take stock of these developments, the IMF said.
Huang said all these China's international initiatives are " good things", but also "raise concerns" in the U.S. about the power structure changes between the world's two largest economies, which need to be carefully managed.
As the world's two largest economies and two largest trading partners, China and the U.S. have tremendous amount of interests in improving investment climate, which indicates a "very strong win-win" between China-U.S. relations, Huang said, hoping that the win-win atmosphere on the economic side could be translated into the political and foreign policy side.
Despite tensions over issues such as the South China Sea dispute and cyber security, economic cooperation between China and the U.S. goes well so far. "There are security issues between the U.S. and China", but "I don't believe they need spill over into these (economic) areas," Posen said. "In fact I'd rather see these areas succeed."
Huang believed the upcoming S&ED meetings will provide an important opportunity for both sides to expand economic cooperation, manage their differences, and create "a more productive and collaborative environment" for Chinese President Xi Jinping's planned first state visit to the U.S. in September.
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