HONG
KONG - China called them "fruitful" and "a
complete success". The United States, led by a
more muted Treasury Secretary Henry Paulson, saw
the progress as merely "moderate". In either case,
the two sides concluded the third round of the
Sino-US Strategic Economic Dialogue (SED) in
Beijing on Thursday by wrapping up 31 agreements
covering topics from financial services to food
safety. They now have six months to lay the
groundwork for the next round.
On possibly
the two most contentious issues facing the
countries, they agreed to resolve the issue of
their lop-sided trade
balance through negotiations,
but China refused to yield to US pressure to
increase the speed of appreciation of the yuan.
On other topics, China promised to allow
qualified foreign-invested companies in the
country, including banks, to issue
yuan-denominated A shares and yuan bonds, pending
feasibility studies. Analysts say this is a
reiteration of China's position to honor its
commitment on entry to the World Trade
Organization to gradually open its financial
sector and give foreign investors "national
treatment".
The Chinese stock market
plunged on Thursday partly on investors' fears
that the move could sharply increase the supply of
shares, although analysts said a more immediate
cause of the fall was growing concern that the
central bank would soon increase interest rates,
after the People's Bank of China (PBoC) governor
said the central bank was studying the
possibility. The Shanghai Composite Index shed
144.5, or 2.7%, to close at 4,985.
China
has yet to set a timetable for opening its stock
market to overseas companies. Analysts say it will
take time for the government to make the necessary
clarifications and revisions to regulations.
According to existing laws, only joint-stock
companies incorporated in China can go public on
the Shanghai or Shenzhen bourses. Foreign
enterprises in China may also need to undertake
restructuring to meet the requirements for going
public or issuing bonds.
To join the WTO,
China committed itself to gradually giving
foreign-invested firms "national treatment", that
is, treating them in the same manner as domestic
companies. To do this, Beijing will revoke
privileges such as lower income tax at present
enjoyed by overseas companies.
Over past
several years, China Securities Regulatory
Commission (CSRC) officials have repeatedly said
they are considering allowing foreign-invested
firms in the country to go public, pending
feasibility studies. Most recently, Li Zheying, a
senior official with the Ministry of Commerce,
said at a public function that his ministry
supported having foreign firms list on the
domestic stock market and that several ministries
were revising relevant regulations.
CSRC
officials have also repeatedly said they were
studying the possibility of letting Hong
Kong-listed "red chip" firms make A-share initial
public offerings. Red chips are Chinese, mostly
state-owned, enterprises incorporated and listed
overseas but whose business operations are in
China. They include China Mobile, the country's
largest mobile-phone operator, and CNOOC, China's
biggest offshore oil producer, which have both
publicly said they are preparing for A-share
initial public offerings.
China will need
to revise its Securities Law and Corporate Law to
make it possible for domestic listings by red
chips, but the "return" of these companies could
also mean the opening of the market to all
enterprises incorporated outside the country,
which would be a major advance for its securities
industry.
The Chinese government, led in
the SED talks by Chinese Vice Premier Wu Yi, was
making an apparent response to US calls that China
should open its financial markets further to
overseas entities. The move, however, could also
ease pressure on the yuan to appreciate, as
foreign companies that sold shares and bonds in
the country would thereby cut their their need to
exchange funds from overseas into the local
currency.
During the SED dialogue, the
countries agreed on specific steps for foreign
companies to enter China's financial service
industry, according to Xinhua News Agency.
Foreign-invested companies including banks
will be allowed to issue yuan-denominated stocks
and bonds, while mutual funds administered by
Chinese banks will be allowed to invest in the US
stock market, according to a statement from the US
government. This creates new opportunities for US
firms in a variety of securities business, said
the statement.
China will resume licensing
of new joint-venture securities companies and
allow foreign securities firms to expand their
operations in the country to include brokerage,
proprietary trading and fund management. Several
foreign firms, including some US firms, are
already in advanced stages of establishing new
joint ventures, the statement said, without
elaborating.
Shortly before the dialogue,
China raised to US$30 billion from $10 billion the
quotas in its qualified foreign institutional
investor (QFII) scheme, which allows foreign
mutual funds to invest in the country's stock
market.
A statement from the Chinese side
said the policies should be carried out in
accordance with relevant prudential regulations,
according to Xinhua. China said it would complete
a feasibility study of foreign equity
participation in the banking sector by the end of
2008 and make relevant policy recommendations.
Paulson called the progress "moderate".
"We have made modest progress in the
financial services area, expanding opportunities
for global financial services companies to do
business in China," he said in Thursday's closing
speech. "Opening China's financial markets to
foreign competition strengthens the financial
backbone of the Chinese economy."
In
return, the US government pledged to remain
committed to applying national treatment to
Chinese banks, broker-dealers and investment
advisers, according to the joint fact sheet.
Paulson, who failed to persuade China to
speed up the appreciation of the Chinese currency,
said both sides agreed in principle on
strengthening the yuan but "we have agreed we do
not talk about how fast is fast". He had sought to
convince Beijing that appreciation of the yuan was
in China's own interest given the risks, such as
overheating of the economy and inflation, the
country faced with an undervalued currency.
Chinese Vice Minister of Commerce Chen
Deming on Wednesday said bluntly that allowing the
yuan to appreciate rapidly would cause
fluctuations in the economy that would not be
positive to the world.
The yuan climbed
0.85% last month, the biggest gain since the end
of the dollar peg in June 2005. China widened the
yuan's daily trading range on May 18 to 0.5% from
0.3%. It has gained about 12% since the peg ended.
Premier Wen Jiabao, during a meeting in
the Great Hall of the People after the SED talks,
which also covered product quality, environment
and energy, described the latest dialogue as
"fruitful". His country attached importance to the
trade imbalances with the US, he said, adding it
had taken a series of positive measures to reduce
China's trade surplus.
"We also hope the
US side will attach importance to our concerns,
formulate open policies of trade and investment,
lift limitations on China's exports and provide a
fair environment for Chinese companies to invest
in the United States," the premier said.
China's trade surplus rose 15% in November
to $26.3 billion, the nation's third-highest
monthly total, with a record $149.2 billion
surplus with the US for the 11 months through last
month.
During the dialogue, which Vice
Premier Wu hailed as a "complete success", China
and the United States also agreed to conduct
extensive cooperation over a 10-year period to
focus on technological innovation, adoption of
clean technology and sustainable natural
resources.
The fourth SED is scheduled to
convene in Washington of the United States in June
next year, according to Wu.
John
Ng is a Hong Kong-based freelance
journalist.
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