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January 16, 2017

Responding To: Tangible Cooperation in 2017

Resolve the U.S.-China Bilateral Investment Treaty: A Win-Win for U.S.-China Economic Relations

Clay Garner

The year 2016 perhaps challenged many core assumptions about the forces of globalization and interstate economic integration.  For U.S.-China economic relations, this election year and its reverberations will have significant bilateral consequences.  In the United States, a tide of nationalist populism carried Republican candidate Donald Trump all the way to the White House on an America-first platform; Trump proposed to make America “great again” by bringing back manufacturing jobs and re-negotiating “unfair” trade deals with other nations.  Trump harshly criticized China on the campaign trail, citing the bilateral trade deficit and Beijing’s currency manipulation as critical economic threats to the United States.  On the other side of the Pacific, President Xi Jinping dedicated a considerable portion of 2016 trying to soften the decline of Chinese economic growth.  Uncertainty surrounding the Chinese economic “New Normal” growth trajectory and tightening anti-corruption controls seem to have caused significant capital flight, resulting in massive growth of Chinese foreign direct investment in the United States and other countries.  On the surface, the economic outlook for U.S.-China relations appears rather bleak.     

Yet, although many of President-elect Trump’s statements on China strongly resonated on Twitter with the American electorate, they do not fully reflect the recent trends of U.S.-China economic relations and the opportunities presented.  According to the U.S.-China Economic and Security Review Commission, American exports to China in October 2016 exhibited 11.3% year-on-year growth, suggesting a decreasing trade deficit.  Moreover, Chinese foreign direct investment (FDI) inflows to the United States have skyrocketed in recent years; in 2016 alone, Chinese firms surpassed $32 billion in M&A deals in the United States.  Chinese companies like Dalian Wanda and its 2016 acquisition of Legendary Entertainment have steadily increased their visibility and influence on American consumers.  Similarly, American companies like Disney with its opening of a Shanghai theme park have aggressively courted the growing Chinese middle class. Thus, the facts behind the U.S.-China economic relationship actually portray a deepening of bilateral trade and investment linkages.  But as the relationship deepens, how can both countries ensure the establishment of a more fair and transparent process?         

In 2017, the United States and China must seek to resolve and implement the U.S.-China Bilateral Investment Treaty (B.I.T). With the hyper growth of Chinese FDI in the United States, a B.I.T. will allow the United States and China to fully capitalize on the momentum of continued economic integration.  A B.I.T. will help equalize the playing field for American and Chinese corporations.  At present, Chinese law restricts market access for foreign investors in numerous sectors, including banking, telecommunications, and broadcast media production.  As a result, American companies are unable to participate in the growth of these sectors while their Chinese counterparts can dually invest domestically and in the less-restricted United States.  This is simply unfair for American investors looking to compete globally.          

American corporations are not alone in their frustrations with the U.S.-China B.I.T. investment process.  Corporate executives and government officials from China have voiced strong concerns over a perceived lack of transparency and fairness for Chinese investment deals in the United States. The primary complaint targets an American inter-agency institution known as CFIUS, or Committee on Foreign Investment in the United States. CFIUS responsibilities include vetting foreign investments in the United States for potential national security threats; given the close relationship between the People’s Liberation Army and some Chinese companies like Huawei, the growth of Chinese FDI has inspired intense “national security” scrutiny over prominent Chinese deals. A B.I.T. would more clearly standardize the criteria for FDI screening and reduce the effect of partisan politics on the definition of a “national security threat”, particularly given the frequent political portrayal of China as an economic adversary.

In conclusion, a B.I.T. between the United States and China will be an economic win-win for both countries. If President-elect Trump is determined to get “fairer” deals with China, then he should prioritize the implementation of the U.S.-China Bilateral Investment Treaty during his presidency. For President Xi, a BIT will help mitigate the public and political skepticism that Chinese companies face when investing in the United States. Furthermore, a B.I.T. will allow China to reduce the economic criticism it faces for heavily restricting market sector access. By standardizing the rules and regulations for bilateral investment, the United States and China can continue to deepen economic integration and build greater transparency.

Clay Garner is a senior at Stanford University majoring in East Asian Studies with a focus on media and politics. 

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