Washington  - The United States and China have agreed to launch negotiations that could ease restrictions on foreign investments and significantly open up China's markets to US companies, US trade officials said Wednesday.

The US said talks on a bilateral investment treaty were designed to "level the playing field" for US companies operating in China, given that many of the guarantees being sought are already afforded to Chinese investors operating in the United States.

The deal would eliminate discrimination and give both sides recourse to take any complaints of unfair treatment to international courts. But officials said President George W Bush's administration was under no illusions that getting an agreement would be "extremely difficult" given the restrictions currently in place in China.

Chinese companies have investments totalling about 500 million dollars in the United States - still far less than most Western countries - while US companies seeking access to China have been burdened by a series of regulatory hurdles.

The investment treaty would help further liberalize China's economy and "provide a much greater deal of clarity and predictability to US investors about where the restrictions are and what's to be expected of them," a Bush administration officials told reporters.

Exploratory discussions had already been going on for about 18 months, but an agreement is unlikely before a new president takes office in January 2009, the official said.

The announcement comes as US and Chinese economic officials hold semi-annual talks on expanding ties in Annapolis, Maryland. The so- called Strategic Economic Dialogue was first launched in December 2006.

US Treasury Secretary Henry Paulson Tuesday said the United States and China's economic relationship was headed in a "positive direction." The two countries were also set to sign a 10-year energy cooperation deal on Wednesday.

Paulson and China's Vice Premier Wang Qishan were to discuss the results of the two-day talks in a joint appearance later Wednesday in Washington. (dpa)