Enforcement Uncertain for Phase One Deal

It remains to be seen whether the enforcement mechanism will work in practice. The problem is that the mechanism might not be activated even if China fails to deliver on its promises. 

"The failure by China to implement such commitments with respect to particular [U.S.] companies or investors will require that such entities make their concerns known to either or both governments," said Lester Ross, Partner-in-Charge in Beijing for WilmerHale and Chair of the Policy Committee at the American Chamber of Commerce in China. "With the exception of IP (intellectual property) litigation, companies and investors have generally been very reluctant to do so for fear of retribution by Chinese authorities."

Although the agreement establishes a dedicated "dispute resolution office" to handle complaints regarding China, something U.S. firms in China have pushed for, Ross does not believe that it will change U.S. firms' fear of retribution in the short-run. 

However, the deal might increase the likelihood of complaints being lodged now, he says, as there seems to be increased impetus in the U.S. administration to hold China to account. Enforcing the agreement will be "critically important", said Craig Allen, President of the U.S.-China Business Council, which has also said that its member companies will help to implement the agreement.

"Some provisions are directly enforceable by the U.S. government, like the commitments to make regulatory changes by a specific date," Ross said. Many of China's concrete commitments in the agreement relate to the opening up of its financial industry, which China's Vice-Premier Liu He has said also applies to foreign investors from other countries too. 

Article 4.7 stipulates that "China shall eliminate foreign equity limits and allow wholly US-owned services suppliers to participate in the securities, fund management, and futures sectors" no later than Apr. 1, 2020. This brings forward the full opening up of the securities sector to foreign players from December to April, a significant boon for major international banks such as JPMorgan and Goldman Sachs who have already taken steps to bolster their securities ventures in China. 

In the insurance sector, China has promised to remove foreign equity limits in the pension and health insurance sectors also before Apr. 1, marking the full opening up of the pension insurance market to foreign investors just a year after the first foreign-invested Chinese pension insurance company was approved.

In the payments sector, China has agreed to respond within 90 days to applications from electronic-payment services companies such as American Express and MasterCard to handle domestic transactions in the country.