China Trade: Anger and Appeasement

A NEW point of friction is emerging between the US and China: trade. Last year, the US trade deficit with China reached $6.2 billion. This year's figures, Commerce Department official Jon Huntsman says, are likely to reach ten to eleven billion dollars - the second largest trade deficit the US has. (The largest deficit is with Japan - $49 billion in 1989.)

Congress, preoccupied with mid-term elections, is bound to take notice when it comes back in January. The arguments over China's human rights record since Tiananmen, which dominated Congressional debate this year and sparked attempts to cut off most-favored-nation (MFN) treatment for Chinese exports to the US, are likely to intensify as trade itself becomes an issue.

In an effort to avoid losing its most profitable overseas market, Beijing sent its largest-ever purchasing mission to the US, with representatives from China's biggest foreign-trade companies, both at the central and regional level. Its purpose, said deputy mission chief Sun Zhenyu, ``is simply to try to buy American goods. And we would like to buy as many American goods as possible during our stay here in the United States.''

The delegation has been to Washington, New York, Chicago and Houston and will include Los Angeles and Seattle. Mr. Huntsman expects the delegation to spend two to three hundred million dollars here, adding that many of the contracts were close to signature weeks ago. To make a major impact on the US deficit, Huntsman continued, many more import missions will be required.

The reason for the recent jump in Chinese exports to the US, Huntsman says, is that ``their economic policy is run by administrative control at this point. They are promoting exports and they are not allowing many of our imports into their market.''

Administrative control is a polite way of describing change in Chinese economic policy since Tiananmen. Instead of gradually relaxing controls so that the market itself could keep supply and demand in balance, Beijing has reasserted its domination over all aspects of the economy, reinserted the Communist Party into the decisionmaking process at factory and enterprise level, and curbed the private business it once encouraged.

These changes make investment in China a much more risky undertaking than during the days of a more open economy, says Roger Sullivan, who heads the US-China Business Council, the umbrella organization for US companies doing business with China:

``Anybody who was planning to invest in China with the idea that well, things may not be just the way I want them, but five years from now they'll be better, has to rethink that. That would have been perhaps a valid way to look at it a couple of years ago.

``Now companies all say that probably the major change for them is that they will look at an investment opportunity there, but will analyze it in terms of, is this a real opportunity that I can make money on in some foreseeable time frame?'' If so, they'll do it; if not ``they will go elsewhere.''

These companies will have to consider the near-certainty that the recent debate in Congress over MFN for China will become even more acrimonious next year. In China's case, MFN is a privilege that Congress must renew year by year. Without it, US duties on Chinese imports would skyrocket, and since Chinese retaliation would almost certainly follow, such large-ticket US exports to China as wheat and cotton ($1.5 billion last year), or aircraft and parts (half a billion last year) would suffer.

Representative Don Pease, who sponsored a bill continuing MFN for China, on condition China improves its human rights performance, recognizes that traditionally, trade has not been tied to political considerations or human rights. But Americans, he says, ``don't particularly want their government or their business corporations to be doing business with people who flagrantly violate human rights.'' His bill, amended to include much more stringent conditions than he himself wanted, passed by a lopsided margin of 384 to 30.

President Bush has said he will veto the bill, but the feelings behind it remain the political reality in the United States. And now, the prospect of Congressional anger over trade itself seems likely to add a new, more turbulent chapter to the saga of US-China relations.