Powerful US House Democrats have expressed their scepticism with the latest round of the US-China Strategic Economic Dialogue, which ended last week. Congressional critics of US-China economic policy complain that little progress has been made on substantive issues such as 'currency manipulation' since the dialogue began, in 2006. Some would even go so far as to end the dialogue altogether.
That would be a mistake. As the head of China's delegation, Vice-Premier Wang Qishan noted, in his opening remarks in Annapolis, that the dialogue is worthwhile as a means of preventing the politicisation of trade and investment decisions. By taking a long-term view, the dialogue helps circumvent the China-bashing frequently seen in US congressional hearings.
The latest round of talks did open the door for a bilateral investment treaty that could help end discriminatory treatment of foreign direct investment in both countries. There's little chance, however, that the Bush administration could successfully reach a conclusion with China before the end of the year, and with animus towards China increasing on Capitol Hill, the US Senate is unlikely to ratify it this year, and even less likely to do so next year. That's a shame, because a well-crafted treaty would help China move more quickly towards financial liberalisation.
A bilateral investment treaty would allow US firms investing in China to settle disputes via international arbitration rather than subject themselves to the arbitrary rule of law that currently exists in domestic Chinese courts. In turn, China would have an incentive to improve its legal system and to better protect private property rights.
Meanwhile, the US could expect greater inflows of Chinese investment funds if the rules of the game were clear.
Treasury Secretary Henry Paulson and others do not want to lose the opportunity to attract massive amounts of new foreign direct investment from China, and they'd like to provide greater access to Chinese markets for US firms. So the Bush administration has good reason to want to negotiate a bilateral investment treaty with Beijing.