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Latest High-Level U.S.-China Meetings Yield Additional Progress

Senior officials from the United States and mainland China gathered in Beijing on 6-7 June for the eighth meeting  of the economic track of the U.S.-China Strategic and Economic Dialogue. Led by U.S. Treasury Secretary Jacob Lew and Chinese Vice Premier Wang Yang, the two sides made progress on matters related to exchange rate reform, excess industrial capacity, non-discriminatory trade and investment measures and economic transparency.

Secretary Lew indicated at the closing ceremony that the “constructive and candid discussions” reflected the full range of issues in the bi-lateral relationship and made clear that mainland Chinese leaders “recognise the need to reform China’s economy and its growth model.” He added that implementation of Beijing’s ambitious reform agenda “is essential if China is to successfully rebalance its economy toward domestic household consumption as the key driver of sustainable economic growth.”

The main accomplishments of the most recent round of discussions are summarised below.

Steel Overcapacity
The United States acknowledged mainland Chinese plans to close 100-150 million metric tonnes of steel capacity and to strictly prohibit the expansion of crude steel-making capacity over the next five years. Beijing committed to adopt measures to strictly contain steel capacity expansion, reduce net steel capacity, eliminate outdated steel capacity, and urge the exit of steel production capacity that falls short of environmental, energy, quality or safety standards. Mainland China will also strive to better align central government fiscal incentives for local governments with the objective of reducing excess capacity; actively and appropriately wind down consistently loss-making “zombie enterprises” through a range of efforts, including bankruptcy and liquidation; and ensure that its central policies, guidance, lending and support do not target the net expansion of steel capacity.

In addition, mainland China firmly committed to support international efforts to address excess capacity at the Organisation for Economic Co-operation and Development and to engage with the United States and others on a potential global steel forum. Further discussions on aluminium overcapacity will be held at a later date, however.

Exchange Rate Reform
Since June 2010 the Chinese yuan has appreciated 24 percent on an inflation-adjusted, trade-weighted basis. Mainland China has committed to continue market-oriented exchange rate reform, allowing for two-way flexibility of the yuan, and reaffirmed its commitments to avoid competitive devaluation and not target the exchange rate for competitive purposes. Treasury indicated that the Obama administration will continue to push for exchange rate reform and transparency as priorities in its bi-lateral engagement with Beijing, building on the significant progress made to date.
Agricultural Biotechnology Products
Mainland China committed to revise its biotech regulations to be consistent with the outcomes on the administration of biotechnology from President Xi’s September 2015 state visit to Washington, D.C. In addition, mainland Chinese authorities committed to review applications of agricultural biotech products in a timely, on-going and science-based manner and to complete biotech approvals following the completion of assessments by the National Biosafety Committee. The United States committed to prepare a study on the global impact of asynchronous approvals on sustainability, trade and innovation. The two sides are to meet by the end of 2016 to discuss the full range of agricultural biotech policy matters.

Economic Transparency
Mainland China committed to clearly communicate its economic policies and improve the transparency and scope of economic and financial data. To aid in assessing the extent of rebalancing toward consumption and services, Beijing will publish in the near future a more inclusive monthly indicator of service sector activity and will work to improve its quarterly GDP accounting by expenditure. Mainland Chinese officials also committed to work toward G20 data standards for fiscal and financial data and report comprehensive international banking statistics data to the Bank for International Settlements, making available important information on the world's largest banking system.
Beijing also committed to enhance the coverage, accuracy and timeliness of its submissions to the International Energy Forum’s Joint Organisations Data Initiative and make available more complete, reliable and detailed publications of energy statistics on a more frequent basis, including for its strategic petroleum reserve. The United States and mainland China also recognised the importance of the availability of comprehensive and reliable information and transparent regulatory processes in promoting sound and efficient financial markets. Mainland Chinese financial regulatory authorities reaffirmed a commitment to publish rules and regulations impacting foreign financial institutions for 30-day comment periods.

Consumption-led Growth
Mainland China committed to step up its efforts to rebalance its economy toward household consumption and services while ensuring that investment is driven by the private sector. In the short-term, Beijing stands ready to complement these reforms and adopt more proactive fiscal policies to expand domestic demand. Among other things, mainland Chinese authorities will better align the incentives of all levels of government to support household consumption by improving local taxation so that local governments have the revenue to support their growing social welfare spending responsibilities. They also committed to strengthen medical and pension benefits for all residents, build more sustainable social security funds and lower insurance contribution rates.
Beijing further committed to liberalise prices in the electricity, petroleum, natural gas, transport, post and telecommunications, and municipal public utilities sectors. Moreover, the United States obtained Beijing's commitment to increase the number of state-owned enterprises paying a portion of profits to the government and to report on how funds collected from SOEs are spent at every level of government. Treasury noted that increasing dividend payments from SOEs helps level the playing field for private and foreign firms and reduces excessive SOE investment.

Aviation Co-operation
Recognising the importance of an efficient aviation system to the safe and secure transport of people and goods and the strategic role that air transport plays in overall economic development, the United States and mainland China committed to enhance bi-lateral aviation co-operation through a strategic, whole-of-government, inter-agency approach, including through existing bi-lateral mechanisms such as the U.S.-China Aviation Cooperation Program.

Bi-lateral Investment Treaty
Both sides committed to exchange revised and improved negative list offers by mid-June.

Industrial Policy
Building upon previous commitments on semiconductor and strategic emerging industries development plans, mainland China indicated that all of its industry development plans will treat foreign and domestic enterprises equally. Mainland Chinese authorities also vowed to publish measures implementing the China Manufacturing 2025 Plan for public comment and to publish draft plans for industrial development funds. According to Treasury, Beijing will ensure that industrial development funds operate in a market-based manner.  

Open Trade in Information and Communications Technology
Mainland China affirmed that access to a full range of global technology solutions ordinarily strengthens the cybersecurity of commercial enterprises, building on prior commitments to not impose nationality-based conditions on the purchase, sale or use of information communications technology products.

Financial Services
Following a 2015 S&ED commitment, mainland China will soon issue regulatory and qualification requirements to allow wholly-foreign owned firms to engage in private securities fund management. Among other things, it committed to gradually raise the permitted equity holding for foreign financial services firms in the securities and mutual fund sectors, recognising the benefits of foreign participation in promoting competition in these sectors. Mainland Chinese authorities have also decided to issue licences to U.S. banks to underwrite corporate bonds and serve as bond settlement agents and will amend regulatory measures to allow foreign futures exchanges to establish representative offices in the mainland. Beijing has also committed to further simplify administrative and approval procedures in its securities markets.

Export Financing
Mainland China and the United States committed to enhancing the effectiveness of the International Working Group on Export Credits by seeking reforms to the IWG structure as well as other steps that will help to advance progress on developing new international export credit guidelines.

Corporate Information
Beijing committed to enhance the availability of enterprise information through public databases operated by the provincial administrations for industry and commerce.

Content provided by Picture: HKTDC Research
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