2016 S&ED Wraps, Future Uncertain

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The final U.S.-China Strategic & Economic Dialogue (S&ED) of the Obama Administration ended in Beijing on June 8. The S&ED, which takes place every spring/summer, is one of the key high-level bilateral engagements between the U.S. and Chinese governments. The 2016 dialogue also served as a prelude to the final scheduled bilateral meeting between Presidents Obama and Xi on the sidelines of the G20 Summit in September.

President Obama and then-President Hu Jintao announced the formation of the S&ED in April 2009, with the first summit held in Washington, D.C., in July the same year. The S&ED was born of previous dialogues focusing on security and the economy started under U.S. President George W. Bush and President Hu, and was envisaged as a mechanism to increase and improve communication between the world’s two largest economies.

2016 marked the eighth round of the S&ED, with the U.S. delegation led by Secretary of State John Kerry and Treasury Secretary Jacob Lew, and the Chinese delegation headed by Vice Premier Wang Yang and State Councilor Yang Jiechi. According to reports, the two-day dialogue brought together some 400 government officials from dozens of ministries and departments on both sides. A number of announcements and policy outcomes were released at the conclusion of the dialogue, chief among them that China would submit a revised negative list as part of the ongoing U.S.-China Bilateral Investment Treaty (BIT) negotiations when its negotiators visited Washington, D.C., in mid-June.

Key takeaways

The U.S. and China jointly reaffirmed numerous previous commitments and set out new commitments to both better facilitate trade between the two countries and increase regional stability. Among the key economic takeaways, both countries agreed not to use “nationality-based conditions” on procurement or sale of information and communications technology (ICT) products. China’s use of “secure and controllable” technology, typically regarded as the favoring of domestically-produced technology products, has been consistently highlighted by foreign businesses in China as a key impediment.

China also committed to expanding access to its financial services sector for American companies, including designating banks in the U.S. as RMB clearing banks, expanding the RMB Qualified Institutional Investor (RQFII) quota, and gradually raising the permitted equity cap for foreign financial services firms in the securities and mutual fund sectors. China also noted that “there is no basis for a sustained depreciation of the RMB” and said that it plans to continue to address industrial overcapacity.

On security, the U.S. and China both committed to fully implement sanctions imposed on North Korea by the UN Security Council earlier this year. They also agreed to expand and enhance cooperation, particularly on food security and sustainable development in Afghanistan, Timor Liste and Africa. Notably absent, however, was any mention of developments regarding the South China Sea. This topic, which has dominated headlines and the bilateral relationship over the past year, was not listed in the U.S. State Department’s S&ED outcomes document. The U.S. also announced that it will host the 2017 U.S.-China Climate Leaders Summit in the summer of 2017. A number of environmental commitments were also announced as part of the strategic track.

There were no breakthroughs announced during this year’s dialogue, nor were any expected in light of the upcoming bilateral meeting between the two presidents in September on the sidelines of the G20 summit in Hangzhou. Any significant announcements will likely be made then.

Bilateral investment treaty progress

As promised by the Chinese during the S&ED, a revised negative list, which outlines what industries a country considers off-limits to foreign investment, was delivered by Chinese BIT negotiators during their visit to Washington, D.C., in mid-June. According to a statement given to Reuters, the U.S. Trade Representative said the BIT negotiations “continue to be productive.” Reports have also indicated that China’s revised negative list was “encouraging,” though details about what changes have been made and what sectors may be opened under the new list were not released to the public.

Most analysts believe that any substantial progress towards passing the BIT is unlikely during the last months of the Obama Administration, with resolution likely years, not months, away. This is especially true given the slow progress the Trans-Pacific Partnership (TPP) — a twelve-country trade agreement agreed to earlier in 2016 — has made towards approval by Congress. Many observers expect the Obama Administration to make the passage of TPP a key priority during the final months of the President’s term. The TPP is unlikely to pass before the November presidential and congressional elections, and will likely occupy a large portion of Congress’ time during its lame-duck session in November and December.

The last hurrah?

With the upcoming presidential election in November, and a new U.S. President taking office in January 2017, there is uncertainty about the direction, or even the likelihood, of a ninth S&ED. Some commentators have questioned the usefulness of the S&ED in the bilateral relationship. Others suggest that the new administration should modify the S&ED to make it more effective. Regardless, the necessity for high-level engagement remains. Given the rhetoric on China from both sides, however, questions about the tenor of the conversation under the next administration will remain

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