At the fourth annual U.S.-China Strategic and Economic Dialogue (“S&ED”), the United States made some headway on several Chinese commitments that would give U.S. companies increased market access to the Chinese market. The S&ED, which took place in early May in Beijing, was established in 2009 by President Obama and Chinese President Hu to provide an ongoing forum for high-level U.S. and Chinese officials to discuss issues of mutual economic and strategic interest.

At the talks, Chinese officials voiced their concern regarding the United States’ restrictions on high tech exports to China and urged the United States to lift the restrictions. China views the United States’ export restrictions as one of the primary causes of the United States’ trade deficit with China.

Continued progress was made on behalf of U.S. companies and their ability to participate in the Chinese market and to lessen the preferential treatment accorded to China’s state-owned enterprises (“SOEs”).

Foreign Investment

China announced its commitment to allow foreign investors to take up to 49 percent equity stakes in domestic securities joint ventures and to shorten the waiting period to two years for securities joint ventures to expand the scope of their business to include brokerage, fund management, and trading activities. In addition, China committed to allow foreign investors to enter into a joint venture and to hold up to a 49 percent share in a trade commodity and financial futures brokerage company.

China pledged to accelerate implementation of its prior commitments to allow U.S. insurance companies to sell mandatory auto liability insurance and auto financing companies to issue local bonds to finance their operations.

State-Owned Enterprises

Treasury Secretary Geitner urged China to reduce government support for major SOEs. China committed to apply its laws and regulations in a nondiscriminatory manner across enterprises of all types in order to curb favoritism for SOEs. China also announced that it will require SOEs to pay a higher percentage of their earnings as dividends, similar to publicly listed companies, and will increase the number of companies that have to pay dividends. Currently, many SOEs are required to turn over less than 15 percent of their profits. Some enterprises have no obligation to hand over any of their profits.

The parties also announced the resumption of negotiations on the U.S. - China bilateral investment treaty (“BIT”). The United States recently revised its model BIT to include updated language regarding SOEs, financial services, transparency and public participation, and environmental and labor rights.