Chinese officials have accused the US of harbouring “hostility” to investments by foreign government-controlled entities and of drifting towards “investment protectionism” in proposed regulations that set out how cross-border deals ought to be vetted.

The Chinese Securities Regulatory Commission said in a letter to the US Treasury that the proposed regulations left “too much room for interpretation” by the Committee on Foreign Investment in the US, or Cfius, an inter-agency panel chaired by the Treasury, and left the body with “excessive authority”.

The proposals were also criticised by the Chinese Ministry of Commerce. “This discriminating provision apparently tilts toward investment protectionism and is tinged with the colour of politicising economic issues. It therefore stands as a grave impediment for the normal course of investment in the US,” it said.

The letters, sent during a public comment period on the proposed rules, come one week before US and Chinese authorities prepare to meet for a fresh round of their strategic economic dialogue in Annapolis, Maryland. Hank Paulson, Treasury secretary, said on Tuesday the talks would include discussions about bilateral investment and how to “counter protectionist pressures”.

Paulson in new appeal for renminbi to strengthen Hank Paulson, US Treasury secretary, on Tuesday made his latest appeal for China to allow its currency to appreciate, ahead of next week’s bilateral meeting on economic issues in Maryland, writes James Politi in Washington. At a speech at the Carnegie Endowment for International Peace, a think-tank, Mr Paulson said China needed to “move more quickly to accelerate the appreciation of the yuan so it reflects underlying economic values”. He defended the so-called strategic economic dialogue with China, initiated during his office, saying it was bringing “progress faster and more broadly ... than would have been possible otherwise”. He added that “robust engagement” with China was more productive than “protectionist policies or legislation”. As well as currency, trade and investment, next week’s meeting will also feature discussions on energy and environmental policy.

In a sign that the US had its own gripes about Chinese regulations, Mr Paulson added: “We will also discuss the concerns of American companies that China’s investment regulations are opaque and seem in many ways to be designed to favour China’s ‘national champions’.”

If adopted, the proposed US regulations would clarify a grey area of existing law by making it clear that Cfius could open national security investigations of foreign investments in sensitive US assets, even if they fell below a threshold of 10 per cent, if the investments constituted a “change in control”.

The proposed rules, in effect, encourage foreign minority investors to forgo certain rights that might appear to give them control of a company – such as acquiring seats on a board or the right to fire and hire management – in order to avoid a national security review.

The proposed rules were also criticised by the Association of British Insurers, which said they sent a signal that the US “is not genuinely open to inward investment”.

The ABI focused on two issues: that Cfius could raise concerns about deals that were “wider than genuine national security concerns” and that the regulations would lead to bona fide investors disclaiming rights they would otherwise be entitled to.

The US Treasury said on Tuesday that it would consider all submissions. It has previously argued that, if adopted, the rules would clarify Cfius procedures and safeguard national security while reinforcing an open investment policy.

The China Investment Corporation, which holds minority investments in Blackstone and Morgan Stanley, agreed with that assessment, saying the proposed rules helped “clarify issues” that were previously ambiguous and served as a “useful roadmap” for potential investors.

But at the heart of criticism by both Chinese regulators and the Chinese ministry of commerce were accusations that the proposed rules discriminated against companies with state ownership, a big source of China’s outbound investment.

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Foreign investors face political backlash

The danger that deals involving foreign investors may become politicised was highlighted last week when six US senators asked Hank Paulson, the Treasury secretary, to initiate a Cfius investigation into the alleged acquisition of a controlling stake in rail operator CSX by a “dominant minority” of foreign investors, write Stephanie Kirchgaessner and Robert Wright.

The senators, headed by Democrat Evan Bayh, believe The Children’s Investment Fund (TCI) is behind the share buying. Mr Bayh, a potential running mate to Barack Obama, described the Cayman Island hedge fund as “aggressive” and “invisible to government regulators”.

“The investment funds being used lack transparency, leaving the ownership and control of critical US infrastructure in the hands of unknown investors,” the senators said.

Snehal Amin, a partner at TCI, denied the fund was seeking to take over CSX.

The rail operator, which had lobbied the senators, was criticised by the head of the Organization for International Investment, which represents foreign companies in the US.

“CSX is using a serious national security process as a public relations prop in a run-of-the-mill proxy fight. TCI doesn’t have any control of CSX,” said Todd Malan.