A medium-term challenge is to see how China responds to the efforts by some developed countries to discipline, for example in the context of the Trans-Pacific Partnership negotiations, the support such as financial and fiscal incentives that governments give to their State-owned enterprises investing abroad. This issue is particularly important for China, given its elaborate set of home country measures that support Chinese firms going abroad.

However, China is not alone in rendering such support. Most developed countries and a few emerging markets do the same, including for companies in the private sector.

One way to deal with this challenge is to extend the discussions and negotiations of this subject to all measures available to companies investing abroad, regardless of whether they are government-owned, in the interest of full competitive neutrality. However, since home country measures in some sense mirror incentives to attract FDI, and efforts in the past to discipline the latter have come to naught, disciplining OFDI incentives will be a challenging endeavor.

Finally, a long-term challenge is for China to determine what role it wants to play in constructing a multilateral framework for investment. The direct investments of Chinese enterprises often face resistance in the host country, which may well intensify as China's OFDI grows, so it is in China's interest to put in place multilateral rules that embody a proper balance between protecting FDI and leaving sufficient policy space for governments to pursue legitimate public policy objectives.

With China's rise as an investor, its interests as a host country to protect its policy space have increasingly been complemented by its interests as a home country to protect the investments of its companies abroad, reflected in the evolution of its international investment agreements.

In fact, if one wanted to pinpoint the precise date at which China's home country interests became equal to, or more important than, its host country interests, one might point to July 11, 2013, when China agreed, in the context of the US-China Strategic and Economic Dialogue, to continue negotiations on an investment treaty with the US on the basis of pre-establishment national treatment and the negative list approach to exceptions to such treatment. This conceptual and policy breakthrough could lay the foundations not only for an agreement between the two countries, but also for a broader investment framework.

China did not participate in the creation of the world's financial and trade frameworks. If and when this issue reaches the international agenda again, it has the opportunity to participate actively in the process of creating a multilateral investment framework, perhaps even taking the lead in this process.

The author is resident senior fellow at the Vale Columbia Center on Sustainable International Investment, a joint center between Columbia Law School and the Earth Institute at Columbia University.

(China Daily 10/31/2013 page8)