Bush Orders a Cut in China Contacts, Will Oppose Loans

President Bush cut off most high-level contacts between the United States and the Chinese government Tuesday and ordered action to block China’s access to loans from international financial institutions.

The new measures, a break from the Administration’s strategy of using diplomatic pressure rather than sanctions against the Chinese, were imposed to protest the death sentences given to 11 protesters for attacking soldiers or vehicles during pro-democracy demonstrations in Beijing and Shanghai.

Administration officials hope that the tactic will prompt Chinese leaders to pull back from widespread arrests and prosecutions of protesters and perhaps head off executions.

“The President felt it was necessary to send a strong signal of unhappiness with the arrests and death sentences,” said a White House official, speaking on condition of anonymity.

The White House chose the punitive actions from a series of possible responses, pulling up well short of tough economic sanctions or a break in diplomatic relations.

A White House official said that, within the next six months, China is expected to apply for $1.4 billion in loans from the World Bank and international development banks. In addition, China has applied for $230 million in loans for a power plant and for agricultural development.

If the United States succeeds in stalling consideration of the loan applications, the move could block China’s access to crucial international financing needed for its struggling economy. Already, the World Bank has begun to freeze loans that were pending for China totaling roughly $800 million.

Announcing the halt in high-level contacts, White House Press Secretary Marlin Fitzwater said: “This action is being taken in response to the wave of violence and reprisals by the Chinese authorities against those who have called for democracy.”

Hopeful Tone Retained

Echoing the hopeful tone of previous statements, he emphasized that the United States recognizes the importance of China and hopes “to continue productive relations.” The suspension of top-level diplomatic exchanges does not include recalling U.S. Ambassador James R. Lilley from Beijing. Bush has argued that such a step would be counterproductive because it would block U.S. access to information about developments in China.

The immediate impact of the decision would be to cancel a trip to China scheduled for next month by Commerce Secretary Robert A. Mosbacher. Over time, a halt in contacts between Cabinet and sub-Cabinet officials and their Chinese counterparts would impede progress in U.S.-Chinese relations and would be likely to curb Chinese access to U.S. goods and financing.

A White House official said that, while no specific terms were set for lifting the suspension, it would require “a lessening of tensions and a return to more normal standards” in China.

With the United States expressing growing concern about the death sentences, Chinese Ambassador Han Xu was summoned to the State Department on Monday evening to hear the U.S. protest about the sentences and to receive a plea for clemency from William Clarke, acting assistant secretary of state for Asia. The ambassador said that he would relay the Administration’s concerns to Beijing, an Administration official said.

“Sentences of death in Shanghai and Beijing could only deepen the wounds of the past few weeks,” Fitzwater said before the President’s decision was announced.

Defending Bush’s efforts thus far in trying to pressure the Chinese leadership to relax its repression of the pro-democracy movement, the White House spokesman said that “the President has spoken out faster and stronger than any other world leader. His position has been unequivocal.”

No Break in Trade Sought

He said that the President would refrain from seeking to interrupt U.S. trade with Beijing because such commercial activity is “in the best interests of the United States’ relationship with China.”

“Ultimately, the economic development in China, at least the President seems to believe, is for the benefit of the Chinese people and will promote the movement toward political liberalization,” said one government official familiar with the formulation of the Administration’s China policy.

Administration officials are uncertain whether executions of those sentenced to death can be averted, and whether China’s paramount leader, Deng Xiaoping, and Premier Li Peng will continue to pursue hard-line policies indefinitely.

“It may depend on how solidly Deng, Li and company feel they are in control,” said one American observer of China. “If they feel they have terrorized people enough, then clemency is possible. If they feel they need to terrorize people more, then executions are possible.”

As Deng has overseen the liberalization of Chinese economic and political life over the last 10 years, trade between the United States and China has increased, with the Chinese gaining access to much sought-after Western technology for their modernization efforts. Any interruption of international financing likely would slow the economic progress on which Deng has focused.

$14 Billion in Trade

In 1988, two-way trade between the United States and China totaled $14 billion, and it had been expected to reach as much as $16 billion this year.

In addition to seeking the World Bank loans, the Chinese are seeking membership in the General Agreement on Tariffs and Trade, the Geneva-based organization of 96 nations that administers world trade rules. Until the government used military force to quell demonstrations in and around Tian An Man Square 2 1/2 weeks ago, China was expected to gain entry to the organization. The United States now could lobby against such a step.

In a further move, the United States could withdraw the “most favored nation” trade status awarded to China, a status granted to favored trading partners to ease access to U.S. markets. However, Bush is believed to be reluctant to take any measures that would be difficult to reverse and that would hurt the Chinese people economically.

Times staff writers Art Pine and Robert C. Toth also contributed to this article.

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