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Brookings Institution on US -China S&ED

The
Brookings Institution

Preview
of the 8th U.S.-China Strategic and Economic Dialogue

Tuesday,
May 24, 2016

Key
Topics & Takeaways

    Priority S&ED
    Issues:     The Treasury’s Nathan Sheets highlighted economic rebalancing
    and improving the business climate as the two headline priorities for the U.S.
    Treasury in the upcoming Strategic and Economic Dialogue with China. 
    Sheets stated that a “fair amount of work” remains to be done in order to
    improve the business climate for foreign firms investing in China, in
    particular by making progress in transparency, the rule of law, national
    security reviews, and increased openness to investment. Sheets explained that
    U.S. firms in certain sectors – particularly finance – bring expertise and
    capacity to increase employment and economic growth in China.

  • Bilateral Investment
    Treaty:     Sheets maintained that the U.S.-China Bilateral Investment
    Treaty (BIT) needs to be a “high quality, ambitious” agreement so that it can
    gain the political credibility necessary to be ratified. He added that the two
    sides have engaged in “vigorous” negotiations but still have more work to do,
    and that the Administration is “enthusiastic” about dedicating resources to
    complete the agreement by the end of President Obama’s term.

Speakers

Opening Remarks

Nathan Sheets, Under Secretary for International Affairs,
U.S. Treasury

Sheets
recalled that China has made progress in recent years in strengthening the rule
of law and undertaking financial reforms, but underscored the importance of
these trends continuing.  Sheets articulated the Treasury’s goals for the
upcoming U.S.-China Strategic and Economic Dialogue (S&ED), which include
encouraging Chinese policymakers to: address excess industrial capacity,
undertake macroeconomic rebalancing, support domestic demand, improve
transparency in the provision of economic data and regulations, liberalize
investment rules, improve market access immediately in certain sectors, address
trade barriers, join the Paris Club as a member, establish export credit
disciplines to create a level playing field between U.S. and Chinese firms, and
develop renminbi (RMB) clearing in the U.S.  Sheets indicated that these
priority issues would help advance China’s reform agenda, which spans reducing
industrial overcapacity, strengthening the social safety net, moving to a
market-based financial system, and addressing unsustainable debt levels. Sheets
claimed that a successful S&ED would build momentum for the Group of 20
(G20) Leaders’ Summit later this fall, and expressed optimism that China would
join the U.S. in promoting global rebalancing through the G20 agenda,
contributing more to multilateral development banks and the Paris Club, and
embracing high quality environmental and governance standards (such as in the
Asia Infrastructure Investment Bank).

Question and Answer

Priority Issues

In
response to a question by David Dollar, Senior Fellow,
Brookings Institution, Sheets highlighted economic rebalancing and improving
the business climate as the two headline priorities for the U.S. Treasury in
the upcoming S&ED.  Sheets explained that economic rebalancing will
enable China to achieve sustainable growth, while it undergoes four core
rebalancings, from: 1) an export-oriented to a domestic demand-driven economy;
2) investment to consumption-led growth; 3) a competitive advantage in
manufacturing to services; and 4) public to private control over key factors of
the economy.  Sheets stated that a “fair amount of work” remains to be
done in order to improve the business climate for foreign firms investing in
China, in particular by making progress in transparency, the rule of law,
national security reviews, and increased openness to investment. Sheets
explained that U.S. firms in certain sectors – particularly finance – bring
expertise and capacity to increase employment and economic growth in
China.  However, on inbound investment, he maintained that the Committee
on Foreign Investment in the U.S. (CFIUS) is focused narrowly on national
security issues and should remain so to avoid creating ambiguity and
uncertainty in the U.S. investment climate.

Fiscal Policies

Sheets
explained that fiscal policies can be an effective tool to: 1) help ease the
transition when implementing necessary structural reforms to minimize market
disruptions; and 2) support ongoing efforts to rebalance and modernize the
Chinese economy. For instance, reducing tax rates such as the value added tax
(VAT) and expanding the social safety net may help China move to a more
consumer-driven economy.

Exchange
Rate Policies

Sheets
maintained that China is in the midst of a gradual transition to a
market-oriented exchange rate, and that Chinese authorities have shown their
desire to manage the transition in an orderly fashion.  He added that the
exchange rate regime should be clearly articulated by Chinese authorities to
market participants, which he recognized has improved recently due to efforts
by the People’s Bank of China (PBOC) Governor Zhou and resulted in relative
stability in the foreign exchange markets.  

Bilateral Investment Treaty

Sheets
maintained that the U.S.-China Bilateral Investment Treaty (BIT) needs to be a
“high quality, ambitious” agreement so that it can gain the political
credibility necessary to be ratified. He added that the two sides have engaged
in “vigorous” negotiations but still have more work to do, and that the
Administration is “enthusiastic” about dedicating resources to complete the
agreement by the end of President Obama’s term.

Additional
information about this event can be accessed here.