Investment Treaty with US Offers Risks and Rewards

With China and the United States having made progress on the Bilateral Investment Treaty negotiations, investors from both sides are taking a second look at the risks and opportunities that the pact will bring in.

"After nine rounds of BIT negotiations, the two sides have reached some agreements, such as offering most-favored-nation treatment, eliminating market barriers and settling investment disputes," said Cai Congyan, professor of international law at the Xiamen University School of Law, during the second US-China Business and Legal Forum on Wednesday.

Once the BIT is signed, US companies and investors will enjoy a broader market with fair competition in China, while Chinese companies — especially State-owned ones — will be forced to compete openly without protection from the government.

In recent years, China's State-owned giants have conducted many acquisitions around the globe. But their achievements in overseas markets are always regarded as the result of government support.

"As for Chinese companies, whether they're doing business in China or the US, it will take a long time for them to adjust to the new environment," said Cai.

However, the BIT will help drive China's reform and opening-up, according to Cai.

"Of course, on the US side, as more Chinese investors move into the market, local US companies are also being confronted with a more crowded marketplace," said Cai.

Trade between the world's two biggest economies hit US$484.7 billion in 2012, 200 times as much as in 1979, when diplomatic relations were established.

In Cai's opinion, it will take at least three years to wrap up the BIT negotiations, and it's very important for the Chinese government to pay more attention to a negative list approach in the pact.

China shouldn't just expand the requirements for Chinese companies, Cai added.

China and the US agreed to start substantive discussions on the China-US BIT, without giving a specific timetable for negotiations, during the fifth round of the China-US Strategic and Economic Dialogue, which was held in July.