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US, China to Seek Accords On Investment, Energy

U.S. and Chinese officials agreed Wednesday to launch negotations on a bilateral investment treaty and to expand their cooperation on energy and environmental issues, but differences remained on how quickly Beijing should liberalize its markets.

China, Chinese Flag
CNBC.com
China, Chinese Flag

At the conclusion of two days of high-level economic talks, U.S. Treasury Secretary Henry Paulson said an investment pact "would send a strong signal that our two nations welcome investment and will treat each other's investors in a fair and transparent manner."

He said the ten-year energy framework agreement would engage businesses, academics and leading research facilities to explore new ideas, share knowledge and commercialize new alternative energy and environmental technologies.

The energy pact will focus on electricity, air, water, transportation and conservation of forests and wetland ecosystems.

Specific action plans for the pact were not disclosed in Paulson's closing statement, but he said it would build upon an energy and environmental cooperation pact announced last December.

He said several meetings for investment pact negotiators would take place before the next round of the U.S.-China "strategic economic dialogue" would take place in December.

"The U.S. will pursue a comprehensive treaty ... which reflects high standards of investor protection andprovides legal protections for all economic sectors," Paulson said.

U.S. business groups see such an investment treaty as a way to pry open closely guarded Chinese markets for everything from financial services to industrial goods, likely will be the centerpiece of the talks headed by U.S. Treasury Secretary Henry Paulson and China's Vice Premier Wang Qishan.

The semi-annual SED talks were initiated with fanfare by the Bush administration two years ago, and this was round four for the forum that Paulson hopes will live on after Bush leaves office next January.

Whether it survives or not, China showed on Tuesday that it too has learned how to maneuver politically to protect its economic interests while still being willing to air differences with the stewards of its top consumer-goods market.

The governor of the People's Bank of China, Zhou Xiaochuan, deftly highlighted the part that lax regulation of subprime markets played in triggering U.S. financial market woes and said Beijing needed time to study how to avoid a similar bind.

Zhou said inadequate regulation had caused some of America's problems and said: "Now, apart from wanting to learn the U.S.'s experience in macroeconomic policy, we also want to learn some of the lessons they have learned as a result of the turbulence."

That led a U.S. official to warn China faces "significant costs...if they were to slow down with respect to their financial sector liberalization", a sign of the importance that U.S. firms pushing everything from credit cards to insurance attach to getting freer access to Chinese consumers.

U.S. complaints about China's foreign exchange policies took a back seat at this round of the SED talks, as Paulson applauded recent rises in the yuan's value.

"I told the Chinese I welcome recent increased pace of appreciation of the RMB and urge China to continue its move toward greater exchange rate flexibility, a crucial tool in controlling inflation and managing the domestic economy," Paulson said in a statement at the close of two days of "strategic economic dialogue" talks with high-level Chinese officials.

Zhou refused Wednesday to discuss in detail what was said about the U.S. dollar in the closed-door talks, but said inflation was Beijing's top concern and the dollar's impact on keeping stable growth on track was an inevitable topic.

"When talking about economic cycles, you'll use all kinds of words. You can't go without using the word 'dollar'. It'll definitely be there," Zhou told reporters.

Past SED sessions have put emphasis on U.S. calls for China to let its currency, the yuan, also called the renminbi, rise in value more rapidly.

But in the past two years, it has appreciated about 20 percent against the U.S. dollar, creating some room for more stress on investment and energy cooperation.

The Chinese visitors went to the White House to meet President Bush at midday on Wednesday, underlining the importance the Bush administration puts on trade with China after the United States racked up a record $256.2 billion deficit with China last year.

Some agreement to implement cooperation on energy and environmental issues, under a 10-year framework that was agreed last December, also was expected to be announced as part of a laundry list of accomplishments from the latest SED talks.