U.S., China Aim to Separate Trade From Tensions
U.S. and Chinese officials appear to be working hard to prevent nationalistic sentiment on both sides of the Pacific from endangering their economic relations, particularly China’s pending membership in the World Trade Organization.
These efforts to mitigate the fallout from the tense diplomatic standoff over Sunday’s collision of a U.S. spy plane and Chinese jet fighter demonstrate the critical importance the rapidly expanding $100-billion U.S.-China trade relationship has for both sides, according to China experts.
On Thursday, President Bush stressed the need to maintain good trade relations with China and warned critics in Congress that the Asian nation’s WTO membership is in America’s “economic interest.” He was issuing a veiled warning to unhappy Republicans who have vowed to block China’s WTO bid and have proposed legislation to repeal China’s permanent normal trade status.
With the long-awaited WTO accession hanging in the balance, China’s leaders are demonstrating more sophisticated economic diplomacy, mindful of the impact that bilateral rifts can have on their economy. America is the top consumer of Chinese exports, and China is the world’s second-largest destination for foreign investment, behind the U.S.
Chinese officials have also avoided threats of economic retaliation and gone out of their way not to inflame nationalistic sentiments that could threaten U.S. interests in China. That includes offering police protection to firms fearful of a repeat of the violent anti-U.S. protests triggered by the accidental U.S. bombing of the Chinese embassy in Belgrade, Yugoslavia, in 1999.
The cloud looming over the U.S. and China “is economic cooperation and development,” said James Lilley, the former ambassador to China. “If this doesn’t get straightened out, and straightened out quickly, the whole thing gets thrown into jeopardy.”
A chief concern is not derailing China’s campaign to join the WTO, which was supposed to be completed this year. Talks were scheduled to resume next month in Geneva after getting bogged down by disputes over agricultural subsidies and other sensitive issues.
The slowdown in the global economy has raised the stakes for both countries. Export-dependent China needs access to the U.S. market and foreign investment to keep its huge economy growing fast enough to employ those displaced by painful economic reforms. And U.S. telecom firms, banks and farmers are particularly anxious to expand their presence in an economy still expected to grow by at least 7% this year.
“Most American companies feel that they have to be a player in the Chinese market because it is so big,” said Tom Duesterberg, president and chief executive of the Manufacturers Alliance, a trade group.
China’s leaders have shown restraint in recent days, a marked contrast to their behavior in previous periods of tension, according to U.S. executives in China.
After the U.S. bombing of the Chinese embassy, the government stood by while angry protesters attacked prominent U.S. icons such as Kentucky Fried Chicken and McDonald’s. And during earlier diplomatic face-offs, the Chinese have threatened to cancel contracts with prominent U.S. firms such as Boeing Co. and shift business to European competitors.
Following Sunday’s mid-air collision the two military planes, Tony Chen, a Shanghai-based official of Tricon Corp., operator of the Kentucky Fried Chicken and Pizza Hut franchises, prepared for the worst. During the embassy bombing fracas, angry Chinese beheaded statues of Colonel Sanders and vandalized two dozen KFC outlets.
But much to Chen’s surprise, on Monday the police in Beijing offered to patrol the area around the KFC outlets, and police in Changsha, a city in Hunan province where two KFC outlets were destroyed after the embassy bombing, advised KFC to close early as a precaution.
“So far, we see restraint as well as protective behavior from the Chinese government toward the American business establishment,” Chen said. “Last time when there was tension between the two countries, they all turned the other way.”
U.S. executives in Beijing remain wary, recognizing that such a volatile situation could change quickly.
If U.S.-China tensions escalate or the standoff drags on, U.S. firms are likely to start feeling “subtle retaliation” as they have in the past, warns James Zimmerman, a Beijing-based attorney with Coudert Brothers. For example, U.S. firms might find themselves disadvantaged in competing with Europeans for large Chinese government contracts.
* PRESIDENT’S GESTURE
Bush voices regret over China’s loss; Pentagon speculates on collision. A1
