China and the United States exchanged initial demands of an investment treaty as soon as Monday, sources said, but US investors are already worried that an emerging China raft of regulations could jeopardize the future of the talks.
In the exchange of lawsuits, two largest economies in the world outline industry sectors that each party considers to be closed to investors of the other party. Such "negative lists" the scope of the Treaty are defined and late months now.
China has more restrictions on foreign investment in the United States, and US investors hope that a treaty that will give them greater access to tightly controlled many industries in China, in financial services to healthcare.
But three sources familiar with the negotiations of the treaty say Beijing US negotiators hope to reach a broad "negative list", noting that it has carried out in recent months the new rules that could further restrict foreign access to sensitive sectors.
"After 35 years of reform and opening up in China, there are enough data points out there to suggest that we are now seeing a shift," said a source.
Ministry of Commerce in Beijing could not be reached for comment, but has said that foreign investors enjoy ample opportunity in China. Beijing has also complained of restrictions on Chinese investment in infrastructure and technology in the United States, and said that their companies are listed in US national security reviews.
However, China is carrying out the law, including the rules on national security and non-governmental organizations (NGOs), which are considered aggressive and overreaching by some within the foreign business community.
For example, the project of China National Security Law and the Anti-Terrorism Act, which could be adopted this year, call for the use of "safe and controllable" technology developed in China or using the source code released Chinese checkers.
Another pending bill on foreign NGOs, including many business groups, would give the police broad powers of supervision over their budgets, agendas and personnel decisions.
These movements, along with the fear that Chinese regulators are targeting foreign companies in competition probes have led to decades of high levels of pessimism among foreign investors.
The American Chamber of Commerce in China wrote to the Chinese government last week to complain about the security law.
"Fundamental questions about whether future commitments from China to open its markets to foreign investment will produce the expected results arises," the chamber said in a letter seen by Reuters.
He said the bill risked "undermining the ongoing BIT (Bilateral Investment Treaty) negotiations."
Trade relations have also deteriorated by Washington's accusations that Chinese hackers have been behind the recent attacks on government agencies in the US and American companies.
Last week, US officials accused Chinese hackers breach of government databases to steal files on four million federal employees, the latest in a series of charges of espionage directed against China. Beijing officials said the claims were unscientific and irresponsible.
All this will hang on high level US-China strategic and economic talks in Washington in late June.
"This is the hardest time I've seen in China for multinationals - and I've been here about 30 years," said James McGregor, president of the American public affairs consultancy APCO Worldwide in China.
"I have clients who ask me if they will be welcome here much longer," he said.
http://www.reuters.com/ (Reporting by Michael Martina and Matthew Miller, edited by Mark Bendeich)