* China drops preconditions for talks, U.S. says
* U.S. business groups welcome announcement
* Testy exchange over Snowden amid productive talks
By Paul Eckert and Anna Yukhananov
WASHINGTON, July 11 The United States and China
agreed on Thursday to restart stalled negotiations on an
investment treaty, with Beijing dropping previous efforts to
protect certain sectors of its economy from the start.
The agreement to resume negotiations was welcomed by the
U.S. business community as a major advance during annual
Strategic and Economic Dialogue talks in Washington, which have
often produced few agreements of substance.
Top officials from both sides strived to project a friendly,
businesslike tone as they tried to build what China calls a "new
model of major country relations" between the world's two
biggest economies in the first year of Chinese President Xi
But talks struck a sour note over China's handling of former
spy agency contractor Edward Snowden, who hid out in the Chinese
territory of Hong Kong last month as he revealed a secret U.S.
surveillance program before fleeing to Russia.
Disputes over cyber security topped the agenda going into
this year's talks, which were launched in 2008 to manage a
relationship that was growing more complex and tense with
China's emergence as major economic and military power.
U.S. Treasury Secretary Jack Lew hailed the investment
treaty commitment as a sign of positive change in Beijing as
China retools its economic growth model away from heavy
investment and exports toward growth driven by consumption.
"China announced its intention to negotiate a high standard
bilateral investment treaty with us that will include all stages
of investment and all sectors - a significant breakthrough, and
the first time China has agreed to do so with another country,"
he said as the talks concluded.
China and the United States began negotiations on a pact to
govern bilateral investment in 2008 under then-U.S. President
George W. Bush, but discussions were put on hold after President
Barack Obama took office the following year.
Previously, Beijing had agreed to talks only if certain
Chinese industries, especially in its service sector, were
exempt. But it agreed to drop blanket restrictions for the
current talks, a U.S. Treasury official said.
The official, briefing reporters at the U.S.-China economic
talks, said the move was an encouraging sign the world's
second-largest economy was willing to open up more sectors to
Chinese Commerce Minister Gao Hucheng told reporters China
and the United States shared "a common purpose, which is to try
to find ways to reduce and mitigate differences and barriers
that both sides place in our trade and investment relations."
Explaining China's motives for reopening the investment
talks, Chinese Vice Finance Minister Zhu Guangyao said China had
about $20 billion of direct investment in the United States and
$1.2 trillion in U.S. treasury bills.
"With such an extensive investment relationship, it is
necessary for the two sides to have an institutional environment
for the protection of these investments," he told reporters.
In addition, Zhu said, "Business leaders from China and the
United States have a strong desire to invest in the market of
the other. They both want an open and more transparent market."
Analysts and U.S. officials said another factor was a
relative reversal of fortunes from previous years, with the
United States enjoying economic recovery while China grappled
with a slowing economy that showed the limits of its model.
"This set of meetings, as many of the meetings that I've had
in recent months have had this character to them, that there's a
renewed recognition and respect for the resilience of the
American economy," said Lew.
U.S. business groups welcomed the agreement to resume
negotiations, but warned that both sides still faced many other
tough issues and that negotiations on a treaty could be lengthy.
Any pact would need to be ratified by the U.S. Senate.
"The U.S. Chamber called for this last year as a
pre-condition, and we are very pleased that both governments
rose to the challenge," said Myron Brilliant, head of
international affairs at the U.S. Chamber of Commerce.
BARRIERS TO BUSINESS
U.S. investors face barriers or ownership limits in about 90
Chinese sectors, while Chinese companies seeking to invest in
the United States often fear a political backlash in Congress or
rejection on national security grounds.
"If China negotiates a treaty that not only protects
investments after they are made but also improves U.S.
investors' access to the Chinese market, this would be a real
breakthrough," said Michael Smart of consultants Rock Creek
Global Advisors, who worked on investment issues in the Bush
The talks opened just weeks after Snowden' disclosure of
extensive U.S. electronic surveillance of American citizens and
foreign countries, including China, which undercut years of
complaints from Washington about Chinese hacking.
In remarks at the end of the talks, the United States said
it had made clear its displeasure that Chinese authorities
allowed Snowden, on the run in Hong Kong, to leave for Moscow
rather than send him back to face U.S. justice.
"We were disappointed with how the authorities in Beijing
and Hong Kong handled the Snowden case, which undermined our
effort to build the trust needed to manage difficult issues,"
U.S. Deputy Secretary of State William Burns said.
Chinese State Councilor Yang Jiechi swiftly brushed off
Burns' criticism of Hong Kong, the former British colony that h
is a special administrative region of China. Hong Kong answers
to Beijing on matters of foreign policy, but unlike China, it
has an extradition treaty with the United States.
"The central government has always respected the Hong Kong
SAR government's handling of cases in accordance with law," he
"The Hong Kong government handled the Snowden case in
accordance with law, and its approach is beyond reproach," Yang
said about the decision to not detain Snowden.
Douglas Paal, of the Carnegie Endowment for International
Peace, said Snowden's case "makes it impossible for any
countries to make concessions to the United States for the time
being, because we look like big cyber offenders."
Burns said the two powers "need to reach a shared
understanding of the rules of the road" in cyber space and
repeated U.S. complaints about the cyber theft of intellectual
property that most American experts blame on China.
"The cyber-enabled theft of trade secrets, intellectual
property, and confidential business information is
unacceptable," he said.
Chinese leaders did not publicly address the cyber-theft
issue during the Washington talks, although Gao said China was
determined to improve protection of intellectual property.
A U.S. official said that Washington's lobbying on the issue
had made some headway - in part because China was generating
more of its own intellectual property.
"What we're seeing is an acknowledgment that this realm of
activity is distinct, is important and needs to be addressed,"
said the official, speaking on condition of anonymity.
Both countries' officials said they were clear-eyed about
the differences in political system, wealth and values that
divided them, saying the key was to manage relations.
"Of course, because of differences, there's a need for us to
make rules. And to formulate those rules, we need to have
dialogue," Chinese Vice Premier Wang Yang said in a dinner
speech late on Thursday.