Renewed Patriotism May Thwart China in Its WTO Quest

Around this time each year, as the U.S. Congress debates extending trading privileges for China, Beijing habitually warns against letting politics intrude on economic issues.

This year more than ever, that looks like wishful thinking, thanks to NATO’s bombing of the Chinese Embassy in Belgrade, Yugoslavia.

Though China has unofficially signaled its desire to resume talks on joining the World Trade Organization, the bombing has sparked a domestic firestorm of nationalism that threatens to rob China of flexibility at the negotiating table.

“It will be hard for the Chinese government to make any further concessions,” said economist Yang Fan of the Chinese Academy of Social Sciences. “Previous concessions were very large and have triggered serious domestic opposition, so this time, America has got to make concessions.”

Or, as the official Securities Market Weekly put it: “China is now in a nationalistic mood which holds that WTO is controlled by U.S.-led, big Western countries, and that too many concessions in negotiations would be harmful to China’s interests.”

Accordingly, several top Chinese officials have warned trading partners in the last week to lower their expectations.

“We will not sacrifice our basic advantages for entry into the WTO,” trade negotiator Wu Yi said. “Therefore, we hope that governments of other countries and business circles will not demand too much.”

The head of China’s legislature, Li Peng, dismissed speculation that Beijing would cynically cash in on the bombing to wrest concessions from Western countries, saying that such conjecture “looked down on the Chinese government and the Chinese people.”

But this week China canceled the scheduled visit to Beijing of U.S. trade negotiator Robert Cassidy, and some analysts say talks could be on hold until Washington offers a more detailed explanation for the embassy bombing, or until the war in Yugoslavia abates.

To be sure, Chinese concerns about the trade negotiations predate the bombing. Indeed, China’s senior trade official, Shi Guangsheng, publicly disputed that China had made all the concessions claimed by U.S. trade officials, though his remarks may have been negotiating strategy.

For their part, U.S. officials hope China perceives a self-interest in reaching a trade accord, and they have been encouraged by the fact that trade talks were not included in the list of activities China said it would boycott after the bombing.

“I do think negotiations will resume,” U.S. Trade Representative Charlene Barshefsky said this week. “We are in contact with the Chinese and will soon be setting a date for resumption.”

When talks resume, U.S. negotiators will try to confirm that pledges made during Premier Zhu Rongji’s trip to Washington in April remain on the table. Chinese trade officials had faulted Washington for publishing some agreements before they were signed.

Then bargaining will resume on unresolved issues, including banking, antidumping safeguards and audiovisual products. China is likely to take a hard line against U.S. proposals to maintain quotas on Chinese textile imports--a demand of U.S. labor unions--after similar quotas on other WTO members have been phased out. China is also resisting U.S. demands to let American brokerages into its fledgling securities market.

In the meantime, China has been making progress in its WTO talks with some countries. This week, France and Germany issued a statement backing China’s accession bid. Australia just completed a successful round of talks in Beijing, and Japan is working to seal bilateral agreements when its prime minister visits China in July.

There is mounting pressure to wrap up negotiations with Washington this year, enabling China to participate fully in WTO talks set for November, and before America becomes consumed by election-year politics that could make it vastly harder for Congress to approve a permanent normalizing of trade ties. Even without the complexities of an election year, Congress is in an uproar over allegations of Chinese espionage and illicit campaign contributions.

At the moment, the concerns driving Beijing to join the WTO on schedule, analysts say, are primarily domestic--namely, the country’s recession-plagued economy and Zhu Rongji’s embattled program of reforms.

“The country’s economy is facing difficulties now, and one of the original aims of joining WTO was to attract foreign investment” and boost exports, says economist Yang. With investment and corporate profits sagging, the government has resorted to financing economic growth through massive debt issues, a strategy that officials admit cannot work beyond a year or two.

Since the mid-1980s, some markets have opened before economic reforms had made the Chinese competitive, and WTO provides an opportunity for reforms to catch up, Zhu’s top economic advisor, Wu Jinglian, said recently.

Wu argued that during the phase-in periods established under WTO, the state’s inefficient enterprises and insolvent banks must restructure according to international norms; otherwise, they will lose out to foreign competitors.

Some industries that will be affected by China’s WTO concessions are already intensely competitive, such as electronics, where China has pledged to eliminate tariffs on semiconductors, computers and other high-tech products by 2003.

Times staff writer Jonathan Peterson in Washington contributed to this report.