Mercedes May Have Won U.S.-China Feud : Autos: Beijing reportedly picks German firm over Chrysler, Ford as a result of the diplomatic spat.

A U.S.-China diplomatic feud may have spilled over into the efforts of U.S auto makers to build cars in China, with German auto maker Mercedes-Benz emerging instead as the front-runner for the proposed $1-billion joint venture.

A Hong Kong newspaper reported Thursday that China has selected the European auto maker in retaliation for the recent U.S. visit of Taiwanese President Lee Teng-hui.

Richard Brecher, director of business services at the U.S.-China Business Council, a Washington group, said his members believed reports in Germany and Hong Kong saying Mercedes had beaten out Chrysler Corp, Ford Motor Co. and Japanese auto makers for the project.

While Mercedes, a unit of Daimler-Benz, and Chinese officials denied reports that a decision had been made, the auto maker said Chinese President Jiang Zemin would tour one of its factories near Stuttgart next week.

The emergence of Mercedes as the favorite comes amid growing strains in the economic and political relationships between the United States and China, spurred by a trade dispute, American concerns about human rights and the Clinton Administration’s terms for backing China’s entry into the World Trade Organization.

“China has a track record” of retaliating against business ventures to make a political point, Brecher said. “We have to address this downward spiral” of relations, he said.

China grew especially angry when the Clinton Administration allowed the Taiwanese president to attend a college reunion in the United States last month. In recent days, U.S. officials in Beijing have protested the government’s refusal to allow visits to a detained Chinese-American activist, Harry Wu.

Chrysler Chairman Robert Eaton said last September that the auto maker had a 50-50 chance of being tabbed for the joint venture, which calls for a factory in Guangdong province.

A Chrysler spokesman, Sjoerd Dykstra, said the company had heard nothing official to indicate Mercedes had been chosen instead. Chrysler already produces Jeep Cherokees in a joint venture with Beijing Auto Works.

“We remain interested in the project,” Dykstra said. “We are in the process of negotiating still.”

Chrysler and Chinese negotiators were trying to resolve seven issues regarding the project, he said, though he wouldn’t say what they were.

“We don’t see this coming to a conclusion any time soon,” he said.

Ford, which entered the negotiations earlier this year, also has not been told that Mercedes was awarded the contract, said David Caplan, a company spokesman.

Lu Guoqi, an official of the automobile department of China’s Ministry of Machine Building, denied that U.S. companies are being locked out of the Chinese market.

“We do not have this policy,” he said. “At least I am not aware of any such policy.”

But last weekend, Jiang told a visiting delegation that the U.S. side will have to “pay a price” for letting Lee visit his alma mater, Cornell University. Longtime antagonists Taiwan and China both claim to be the legitimate government for China.

“China has in the past been known to symbolically link business and politics, so there is that concern,” said Frank Martin, president of the American Chamber of Commerce in Hong Kong.