The move to pursue the accord, aimed at promoting open markets, fair treatment, transparency and the rule of law, was agreed at the senior level US-China Strategic Economic Dialogue in Annapolis, Maryland, east of Washington.

"The conclusion of a bilateral investment treaty (BIT) would send a strong signal that our two nations welcome investment and will treat each other's investors in a fair and transparent manner," US Treasury chief Henry Paulson said at a ceremony marking the end of talks in Washington.

Paulson, who led the US side to the talks, and Chinese Vice-Premier Wang Qishan also signed a 10-year energy and environment cooperation framework, in which both governments will engage businesses, academics and leading research facilities to participate in joint projects, including commercialization of new technology.

"Our interests in this area are very aligned. We seek energy security, which is so vital to our economic security," he said.

Wang described the Annapolis talks as "highly productive."

The US Treasury chief said the two governments would begin negotiations for the "comprehensive" investment treaty soon and expect to have several rounds of negotiations before the next dialogue in December

The United States negotiates such investment treaties on the basis of a model text "which contain very high standards of investor protection and we are going to take the same approach in this case," a US administration official said.

The treaty is to cover all economic sectors and "include the right to non-discriminatory treatment for investors, due process rights, transparency, right to free capital transfers and compensation in the event of expropriation," the official said.

American officials acknowledge that negotiations beginning soon are going to be difficult and may not be completed before US President George W. Bush leaves office in January 2009.

"It will be remarkable to conclude one of these negotiations in less than a year but in terms of our experience, a lot depends on the degree of progress that we are making in the negotiations," said another US administration official.

"This is not going to be something that is driven by the political calendar but by substance. ... We would anticipate that if it were to go into the next administration, we would continue just as hard and the momentum will continue into 2009," the official said.

White House aspirant Barack Obama, a Democrat, has vowed to review free trade policies if he wins the November presidential elections.

Bilateral investment treaties are typically less controversial than free trade agreements and easier to pass since they only need US Senate approval, business leaders said.

"A bilateral investment treaty would provide additional protections to investors from each country and the other country and goes beyond what was in the World Trade Organization entry agreement, for example," US-China Business Council President John Frisbie told AFP.

"It can provide additional protection to the Chinese investors in the US and at the same time could also deal with some of the issues facing US companies that invest in China as well," he said.

American companies fear that China's interest in foreign investment is no longer as robust as before, that foreign investment regulations are opaque and seem to be designed to favor Chinese "national champions," US officials said.

These concerns include Beijing's implementation of the new anti-monopoly law, protection of specific Chinese competitors rather than competition in general and treatment of foreign firms more harshly than Chinese firms, they said.

Chinese investors are reportedly concerned about a US investment review process that Washington says is targeted to address acquisitions that raise real national security concerns.

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