Mumbai: The United States and China have agreed to start negotiations on a bilateral investment treaty that would make investments in either country easier.

The two countries also pledged to increase cooperation in the energy sector.

Announcing these initiatives after two days of talks with a Chinese delegation led by vice premier Wang Qishan, US treasury secretary Henry Paulson said while China was committed to free trade it was still grappling with the causes and effects of the US subprime mortgage crisis.

US business welcomed the initiative saying, such a treaty would "improve US access to China's market and provide greater security for US investments."

China also will benefit as a mutual treaty would help its companies secure licences to do business in the US.

At the end of two days of high-level talks, the two countries also signed a 10-year energy and environment cooperation framework to achieve energy security.

Under the energy pact, both governments will engage businesses, academics and research institutes in joint projects, including commercialisation of new technology.

China has committed itself to further open its financial services markets, allowing eligible foreign companies to list on Chinese stock markets and permitting foreign banks to issue yuan-denominated bonds.

Negotiations on the bilateral investment treaty, expected to  begin soon, would aim at promoting open markets, fair treatment for businesses, transparency and the rule of law, sources said.

"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," Paulson said.

He said the US would push for a "comprehensive" investment treaty, providing legal protection for all economic sectors.

The two sides are likely to conduct several rounds of negotiations before the next twice-yearly dialogue due in December.

A bilateral investment treaty would take at least a year to negotiate and may extend to a new post-Bush administration.

A Democrat-led government may well scuttle the negotiations. A treaty would also require a two-thirds majority vote of approval by the US Senate, where Democrats have a majority.

Democratic presidential hopeful Barack Obama has vowed to review free trade policies if he wins the presidential elections. He has also vowed to review free-trade agreements with all countries.