Few bright spots in China-US dialogue

Mr Kerry attempting to head a ball when he and Chinese Vice-Premier Liu Yandong (in green jacket) met the Beijing Normal University women's football team at the National Museum in Beijing yesterday - the closing day of the two-day Strategic and Econo
Mr Kerry attempting to head a ball when he and Chinese Vice-Premier Liu Yandong (in green jacket) met the Beijing Normal University women's football team at the National Museum in Beijing yesterday - the closing day of the two-day Strategic and Economic Dialogue.PHOTO: AGENCE FRANCE-PRESSE

High-level meeting deepens financial ties but fails to bridge differences over South China Sea

China has, for the first time, included the United States in a government scheme allowing American banks to clear renminbi-denominated transactions - in one of the few positive outcomes of the two sides' high-level dialogue that failed to narrow their differences over the South China Sea disputes.

China will grant the United States a 250 billion yuan (S$52 billion) quota under its Renminbi Qualified Foreign Institutional Investment (RQFII), significantly expanding the programme that stood at 501.77 billion yuan last month.

The move makes the US the second-largest quota holder, behind Hong Kong with 270 billion yuan.

The other countries involved in the scheme include Singapore, which joined the programme in 2013 and got its original 50 billion yuan quota doubled last November. Britain and France each has an 80 billion yuan quota.

The RQFII scheme, launched in 2011, allows financial institutions to buy securities such as stocks and bonds in mainland China and is part of Beijing's efforts to internationalise the yuan.

"The ability to do renminbi transactions will be a real advantage to small firms in particular. It opens an important door to the renminbi market," said US Treasury Secretary Jacob Lew at a media briefing last evening.

Another positive outcome of the two-day Strategic and Economic Dialogue, an annual meeting, was in the proposed Bilateral Investment Treaty (BIT), with China promising to provide a new negative list to the US next week.

The BIT, which has gone through 24 rounds of talks since 2008, has missed its 2014 deadline of reaching agreement on the core text of their "negative lists", reportedly due to China's refusal to relent over the level of market access. A negative list spells out the domestic sectors barred to foreign investors.

"I don't want to prejudge what would be in the negative list. I look forward to China's progress, but there needs to be an ambitious response and to show real movement so that there's a basis for serious discussions," said Mr Lew.

Other positive outcomes include Beijing agreeing to cut its excess steel production that has hurt American industries and jobs. But the two sides were not able to agree on how to deal with excess global aluminium capacity.

Both sides also failed to make headway on their differences over the South China Sea, where China has overlapping territorial claims with several South-east Asian countries.

Tensions have risen in the region after China's massive land reclamation on contested reefs prompted the US to launch military patrols near these artificial islands to challenge what the US perceives as excessive maritime claims by China.

US Secretary of State John Kerry, speaking alongside Mr Lew and their Chinese counterparts at the close of the dialogue yesterday, indirectly accused China of taking unilateral actions to augment its sovereignty claims and control over the disputed areas.

"We reiterated America's fundamental support for negotiations and a peaceful resolution based on the rule of law, as well as our concern about any unilateral steps by any party... to alter the status quo," he added.

But State Councillor Yang Jiechi, who oversees foreign policy and co-chaired the dialogue with Vice-Premier Wang Yang, urged Washington not to interfere in the disputes.

"China hopes the US will scrupulously abide by its promise to not take sides in relevant territorial disputes and play a constructive role in safeguarding peace and stability in the South China Sea," he added.

A version of this article appeared in the print edition of The Straits Times on June 08, 2016, with the headline 'Few bright spots in China-US dialogue'. Print Edition | Subscribe