Chinese leader greases wheels of US politics to push a deal

The visit of Chinese Prime Minister Zhu Rongji to the United States this month put President Clinton politically between a rock and a hard place.

One of Mr. Clinton's goals has been to stay on the good side of the AFL-CIO. The Democrats need the money and get-out-the-vote skills of organized labor to win the presidency for Vice President Al Gore and a majority in the House in the 2000 election. That labor support is especially crucial in the industrial cities of the mid-West where large chunks of the electoral vote need plucking.

But AFL-CIO President John Sweeney is totally opposed to a deal with China - or, for that matter, any trade liberalization.

So White House political strategists were hoping to put off a deal involving China's accession to the World Trade Organization (WTO) until after the election. Nor is the White House pushing hard for fast-track authority to conduct negotiations for new trade treaties.

"It is a labor question," notes a veteran Washington trade expert, Harald Malmgren. "It is not Congress being difficult."

But along comes Mr. Zhu with his own political agenda and spoils that strategy.

Zhu, a genuine economic reformer, wants to weld China into the world trade system represented by the WTO, with its rules for conducting trade.

WTO membership would give Beijing more clout in dealing with industry and regional governments in a China that is becoming more and more decentralized, more and more difficult to control from the center.

Moreover, with modernization in mind, Zhu wants business in China to face greater international competition.

So Zhu, whose authority is primarily over the economy, offers major trade concessions to win the American OK for entry into WTO that astound the US business community.

China will reduce average tariffs on industry products to 9.44 percent from 24.6 percent. Foreigners will be allowed to own up to 49 percent of China's telecommunications firms. Foreign insurance companies can compete in most of China. Foreign banks will be able to conduct business in local currency within two years. And more.

A separate deal from the WTO package will aid American farmers, lifting bans on citrus and wheat imports.

Then, when no WTO deal emerges from Zhu's meeting in Washington with Clinton, the prime minister continues a campaign in his travels around the country to change American views in China's favor.

He warns business leaders that some WTO concessions could disappear.

Remarkably, his campaign succeeds. "It changes the dynamics," says Mr. Malmgren.

Under extreme pressure from US business and a shifting mood in Congress, Clinton phones Zhu in New York and revives the WTO talks. Zhu says the negotiations are 99 percent complete.

There are a few sticking points left. One key one would allow the US to continue limiting Chinese exports of textiles for an extra five years.

American textile companies and unions fear an additional flood of Chinese goods- probably with good reason.

Speaking at the Massachusetts Institute of Technology in Cambridge, last Wednesday, Zhu advised Americans not to "make such a deal" of China's trade surplus with the US. By US measure, it was $56.9 billion in 1998. By China's statistics, it was $21.1 billion.

Zhu cited a Stanford University professor's analysis indicating that when shipping and insurance costs, smuggling in China, and US exports of services are taken into account, it is actually about $36 billion.

About 70 percent of China's exports are processed rather than manufactured from scratch, he says. Such labor-intensive products could no longer be made economically in the US.

Several years from now, China could face a large trade deficit with the US, Zhu says. But he welcomes that competition as good for China in the long run.

Malmgren says the deficits could come sooner. China's imports grow at a 12 to 14 percent rate; its exports slip at 9 percent.

China, Malmgren says, is in a race against time to modernize its state enterprises, deal with shaky banks, and provide jobs.

Zhu likely understands that.