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Wednesday, April 14, 1999 Published at 19:55 GMT 20:55 UK

Business: The Economy

China's trade block

The two sides were close..but not close enough

China's Prime Minister Zhu Rongji left the United States deeply disappointed that he did not reach a trade deal with the United States.

Rob Gifford in Boston: Mr Zhu stressed that China is not an enemy of the US
Mr Zhu took a considerable political risk in coming to the US at a time when China was under fire for its human rights abuses, alleged stealing of nuclear secrets, and opposition to Nato's actions in Kosovo.

He did so in order to secure agreement with the United States on China's terms of entry in the World Trade Organisation (WTO) - a goal that China has sought for 13 years.

Mr Zhu Rongji left the US on Wednesday at the end of a nine-day tour of six cities.

Almost there

[ image: China is one of the world's biggest exporters]
China is one of the world's biggest exporters
In the Chinese view, the Clinton Administration was not prepared to take the same risk to back the trade deal that in the view of many negotiators was "99% complete."

China had offered more concessions than ever before in opening its markets to foreign competition in order to secure agreement, and in the words of one official, "we had a deal."

But President Clinton, fearing that Congress would block any agreement, failed to finalise the details at his summit meeting with the Chinese leader in Washington last week.

Mr Zhu said it had been a 'terrible day' and has spent the rest of his US trip canvassing business support for an opening to China.

Face-saving gestures

In a face-saving gesture, President Clinton telephoned Mr Zhu on the last day of his visit to emphasise his support for the trade pact.

[ image: Charlene Barshefsky: deal is close]
Charlene Barshefsky: deal is close
"I feel very confident that in the near future we will see the successful conclusion of negotiations that are favourable to both sides -- but especially to the US," Mr Zhu said after the call.

Both sides agreed to 'move intensively' to resolve outstanding issues by the end of April, and the Chinese Prime Minister said he hoped that the deal would now be concluded in two or three months - before the next round of world trade talks begins in November.

The United States' top trade negotiator, Charlene Barshefky, meanwhile told Congress that a deal was close.

"We will re-engage with the Chinese shortly ... and work on each of the issues that are open to bring this full agreement to closure," she told members of the Senate Finance Committee.

Big Chinese concessions

During the negotiations that preceded the visit the Chinese came prepared to make major concessions in order to open their markets to foreigners, a pre-condition for WTO membership.

They offered to allow foreign firms access to the huge Chinese telecoms market, including mobile phones; they agreed to allow imports of US agricultural products that had been blocked for years on health grounds; and they made major concessions on allowing foreign firms to enter the domestic banking and insurance sectors.

The concessions were not without their critics in China.

"In the short-term, our agricultural, financial and insurance, electronics and telecommunications and automobile sectors which are opened up to competition will be pounded," said a Pingan Securities analysis in the China Securities newspaper.

The Chinese government has also maintained the value of the currency, the yuan, despite pressure to devalue during last year's Asian financial crisis, thus protecting the value of existing investments.

But they underestimated the strength of the political opposition to any deal, which had been fed by the growing size of the Chinese trade deficit with the United States, which now exceeds that with Japan.

US political deadlock

[ image:  ]

In a series of high-level meetings with business executives across the United States, Mr Zhu managed to rally the corporate sector to his side in supporting the trade deal.

He ended his trip by meeting with banking and finance leaders in New York, after wooing other company bosses in Denver, Chicago, and Boston, urging them to put pressure on the government.

Over 100 business leaders went to Washington for a briefing from the government on Monday.

"They were happy with the progress we made but were worried that the deal would not come to fruition," one administration source said.

But the Clinton administration, still weakened from the President's near-impeachment, believed that the congressional obstacles to a deal outweighed big business support.

As in most trade matters, the President was likely to be opposed by many in his own party, especially those who fear that Chinese imports will hurt US manufacturing jobs.

The President, who owed his survival to the support of his own party, may have been more reluctant to risk splitting it down the middle so soon after impeachment.

And the Republicans, who normally support the big business agenda, had also indicated their reluctance to do a deal with China.

Trent Lott, the Republican leader in the Senate, strongly opposed any deal and said he did not believe Chinese commitments to open markets.

The Republicans are particularly incensed by the alleged Chinese acquisition of US nuclear secrets, and many of them also are strong supporters of Taiwan, which China says is a rebellious province.

The President also appeared to have been distracted by the crisis in Kosovo.

US newspapers reported that he had not given his trade negotiators clear instructions and priorities, and may have been inadequately briefed for the summit.

High stakes for China

The inattention to the strategic relationship with China this time is in stark contrast to President Clinton's visit to China last July, when both sides reaffirmed their support for a "constructive strategic partnership" as a lynchpin of international affairs.

The failure to reach agreement on economic issues, where there were strong mutual interests only highlights the growing tensions in other areas like nuclear weapons and the future of Taiwan.

"If the trip can provide a floor underneath the rapidly downward spiral (of US-China relations), then it can be judged a success," said David Shambaugh, a China scholar at George Washington University.

The failure of the trip may also increase the difficulties of economic reformers like Zhu Rongji, who are facing growing opposition to their plans to modernise the Chinese economy.

While he believes that the opening up of China to foreign investment will stimulate the process of reform, others fear that it could unleash social unrest and political instability.

With economic reform now entering a crucial phase, state-run industries would face devastating competition from foreign imports.

Nevertheless many experts believe it is the only way forward for China.

"The speed of the market-opening to foreign competition puts everybody on notice. For China to become globalised, this is the only way out," said Andy Xie, economist at Morgan Stanley Dean Witter in Hong Kong.

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