The Price China Has Paid

PRESIDENT BUSH'S decision to encourage postponement of additional international bank loans to China is a measured response to Beijing's latest actions. It is consistent with the President's policy of preserving the structure of the US-China relationship while denying the Chinese leadership some of its benefit. But pressure for stronger sanctions that could sever ties is building.

In the halls of the US Congress and on editorial pages across the country calls to dismantle the relationship are being heard: Eliminate international credits, government insurance of business operations, tariff breaks, import and export advantages, and high technology exports to China. These actions are proposed as fitting responses to the indiscriminate killing of demonstrators in and around Tiananmen Square, the continuing arrests, and the executions in China.

Under current circumstances, these proposals are ill-advised for several reasons. Most fundamentally, they fail to recognize that the world community already has applied the most effective sanctions of all - a range of freely made decisions to reduce economic activity with China.

Unlike reformers in the Soviet Union, China's modernizers have counted on infusions of external investment and development assistance; access to outside markets, technology, and knowledge; and tourism. The global system already is imposing its own powerful sanctions through individual decisions. Some examples:

The rate of direct foreign investment in China will drop precipitously in the near term, because the perceived risk of putting money there has increased. One employee of an investment firm commented, ``Not for 20 years will I be able to go to our investment review committee and say there is no significant risk attached to investment in China.''

There will be a significant decline in two-way, US-China trade for many reasons, including changes in buyer preferences in reaction to the crackdown and because China's capacity to produce for export will be affected by both a sullen work force and a disrupted economy. Moreover, recent events will further strain China's budget and its foreign exchange holdings, making imports from the West more difficult for Beijing to afford.

China will face increasingly intense scrutiny from international trade and financial institutions, whether the issue be joining the General Agreement on Trade and Tariffs or securing new loans amid domestic uncertainty, setbacks to reform, and a growing debt burden. It is perhaps a straw in the wind that reports are surfacing of foreign suppliers demanding payment before delivery and some banks abroad seeking early repayment of loans.

Tourist hotels are now running at 30 percent occupancy (instead of the usual 90 percent) and wide bodies flying to China are often nearly empty. This represents a loss of desperately needed foreign exchange.

Many Chinese scholars among the approximately 40,000 now in the United States (not to mention the thousands in Europe and Japan) will choose to remain abroad for extended periods. This will take a toll on China's future capacities.

The exchange of Chinese scientific, managerial, and other personnel with Western countries already has slowed to a trickle. One of the biggest assets China's leaders had was the good will of millions in the Western world who gave freely of their time and talent. Although that reservoir stands ready to be tapped again, for the moment it is closed.

These facts are recounted neither to threaten China nor exaggerate their short-term effect on Beijing's councils of power. Instead, these items stand as testimony that much of the world already has responded.

Further punitive moves by Washington are unwise because the symbolic attempts to impose unilateral sanctions would provide China's leaders an opportunity to blame the adverse consequences of their own decisions on the US.

US government policy needs to reflect the fact that economic change and global interdependence have powered demands for political and social progress in China. It simply does not make sense to turn off these engines of change and then call for increasing movement toward political change.

A wise approach to dealing with the current situation would embody the following features:

First, recognize and bring home to the Chinese leaders the great damage they've already inflicted upon themselves and their people. Second, work with allies and others to develop a response that makes our concerns, moral and otherwise, clear. Recent history gives many examples of how acting alone is both ineffective and self-defeating. In the process, we will avoid making the US a lightning rod for a nationalistic backlash. Third, resist the temptation to act without thinking through the likely damage to our long-term interests and to organizations and agreements that have taken us 18 years to build. Finally, look for positive actions, such as raising funds for a Sino-American education development trust in anticipation of future opportunities and present needs.

In short, sometimes a policy of doing less is doing more.

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