U.S., China to negotiate investment treaty

By Doug Palmer and Jason Subler

WASHINGTON (Reuters) - The United States and China agreed on Wednesday to initiate negotiations on a bilateral investment treaty that would make it easier to invest in one another's corporations and to cooperate more on energy issues.

The initiatives were announced by U.S. Treasury Secretary Henry Paulson after two days of talks with a Chinese delegation led by Vice Premier Wang Qishan, who said China was committed to free trade but was studying the causes of global financial turmoil that stemmed from a U.S. subprime mortgage meltdown.

A treaty would take at least a year to negotiate -- well past the Bush administration's tenure that ends in January -- and Democrats made clear that they had reservations about it.

"If the administration moves forward with these negotiations, it should make clear to China that all major decisions in the negotiations will necessarily be left to the next president," the chairman of the U.S. House of Representatives Ways and Means Committee, Charles Rangel, and Trade Subcommittee Chairman Sander Levin wrote in a letter to Paulson.

A treaty would also require a two-thirds majority vote of approval by the U.S. Senate, a potential hurdle if Democrats remain in a majority.

U.S. COMPANIES HAPPY

U.S. business interests were more supportive. The president of the Financial Services Forum, Rob Nichols, said a treaty would "improve U.S. access to China's market and provide greater security for U.S. investments" in its growing economy.

China also has a strong interest in a treaty, in part because of difficulties its companies have had in securing licenses to do business in the United States.

In particular, the screening process set out by regulations designed to protect U.S. security interests under the Committee on Foreign Investment in the United States, or CFIUS, have ensnared some Chinese firms in long waits for licenses.

Paulson said the energy agreement would engage businesses, academics and leading research facilities in both countries in sharing knowledge and helping bring to commercial use alternative energy and environmental technologies.

The agreements stemmed from talks under a so-called "strategic economic dialogue" begun two years ago with China. Paulson wants the next U.S. administration to continue the dialogue, and Chinese officials said they hoped it would continue. The next meeting, the last for the Bush administration, is scheduled for December in Beijing.

China committed itself to further open its financial services markets by letting foreign companies that meet its qualifications to list their stocks on Chinese stock markets and to permit foreign banks to issue bonds denominated in China's yuan currency, also called the renminbi.

This time around, U.S. calls for China's yuan to appreciate in value more rapidly were muted, perhaps because it has gone up some 20 percent against the dollar in the past two years.

In addition, China adroitly raised its concern over the plunging dollar's value, saying it was pushing commodity prices up and the Bush administration should take a "responsible" attitude toward the dollar's exchange rate.

"That's in the interest of the United States and is necessary for the stability of the global system of foreign exchange," China's Assistant Finance Minister Zhu Guangyao said in a neat turn of the tables on U.S. authorities who have in the past said China's cheap yuan was fueling imbalances.