BIT a success for US and China

In early 2010, the Carnegie Council in New York released a report titled, “Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It,” to highlight the close interdependent relationship between China and the US.  Some keen observers of the Sino-American relationship even coined a word, Chimerica, to symbolize the interdependence between the two largest national economies in the world as well as the weighty status of “G2” in handling world affairs. Unfortunately, the reality is that the relationship has not been nearly as amicable and smooth as the term implies.

China’s President Xi Jinping made his first state visit to America last week amid profound uncertainty created by a number of challenging economic and geopolitical disputes plaguing the bilateral relationship – the dispute on China’s exchange rate policy, the alleged hacking and cyber thefts, China’s treatment of US firms in China, and China’s island-building in the South China Sea, to name a few.  

Considering such on-going disputes, it appears that the four-day state visit was concluded without a hitch and can be considered a quiet success.  In addition to an extended three-hour private dinner ahead of their formal talks and a state dinner, the American President Barack Obama and China’s counterpart, President Xi seem to have spent time in building personal ties.

Among notable, practical and substantive achievements during the state visit were US officials’ declaration of a truce in their campaign over the new Asian Infrastructure Investment Bank initiated by China, the Obama administration’s reiteration of its pledge to support China’s bid for the inclusion of the renminbi in an elite basket of the International Monetary Fund’s Special Drawing Right, and agreement for the two countries to work together on deportation and asset seizures related to corruption and international crime.  It is gratifying to note that the two most important political leaders of the world seem to have agreed to overcome many challenges while continuing to strengthen relations between the two countries.

Although President Xi’s visit was concluded without any fanfare, the way both the US and China handled the state visit augurs well for a successful conclusion of the bilateral investment treaty (BIT) currently being negotiated between China and the US.  

A BIT is an agreement between two countries that establishes “rules of the road” for foreign direct investment in each other’s country.  China and the US currently have BITs (in force) with 105 and 49 countries, respectively.  Under a China-US BIT, both governments would treat the companies of the counterparty country the same as domestic companies.  BITs bar foreign governments from using such investment restrictions as ownership caps, unfair licensing requirements and onerous local-content requirements, in order to prevent foreign companies from investing in their domestic markets.  According to the US-China Business Council data, China currently restricts investment in over 100 industry sectors while the US restricts foreign investment outright in five sectors.

The strengthened relationship established between President Obama and President Xi through the latter’s state visit would serve as a major stepping stone toward a speedier negotiation and conclusion of a strong BIT, which is close to the hearts and minds of the leaders of multinational firms of both countries.   The writer is professor of finance and international business of Seton Hall University, New Jersey, and recently served as visiting professor at the University of International Business and Economics, Beijing.

The writer is a professor of finance and international business of Seton Hall University, New Jersey, and recently served as visiting professor at the University of International Business and Economics, Beijing.