China and US reap economic rewards

For Motorola, China is becoming more than just a market

By BBC News Online's Mary Hennock

US President George W Bush's plane will touch down in China 30 years to the day from the start of an epoch-making state visit to Beijing by his predecessor Richard Nixon.

Mr Nixon's trip began an extraordinary thaw in relations between the world's biggest capitalist economy and its most populous communist one.

I think we can feel very positive about the new generation of leaders

Robert Hormat, Goldman Sachs Asia

US officials have denied - to disbelieving smiles among China-watchers - that there is any significance to the date which comes about as part of an Asian tour delayed by the 11 September attacks.

But there can be no doubt that China's adoption of market reforms in 1978, and its subsequent economic dynamism, has been a major comfort to US administrations during all the political ups and downs of the relationship.

Mutual congratulations

And commercial consensus has never been higher, as the two nations rejoice in new, closer trade relations at the end of China's 15-year march to membership of the World Trade Organisation (WTO).

US auto makers hope to gain from tariff cuts

US investors will expect their president to question his hosts about China's commitment to implement WTO entry agreements, but they are in no hurry to pick a fight.

"There's a general view in the business community that we don't want to rush" to launch WTO disputes, said Christian Murck, chairman of the American Chamber of Commerce in China.

Number two slot

The US is not China's biggest trading partner; Japan is, with $87.8bn of commerce last year.

The US ranked second behind Japan last year, but ahead of the European Union, according to official Chinese figures.

US trade with China was worth $80.5bn last year and grew 8% on the previous year while the EU had $77bn of trade but the fastest growth rate, up 11%.

However, the US trade deficit with China has occasionally been politically controversial for US presidents grappling with angry labour unions and struggling farmers.

China's economy

GDP per head
$871

Average wage
44 cents per hour

GDP growth 7.3%

Figures from late last year showed the deficit shrinking, but this was largely because of the slowdown in the US economy.

Exports of US goods to China were static at $1.7bn in November, while the value of goods flowing the other way fell by $1.9bn to $8.9bn.

The overall trade deficit was $7.2bn compared with $9.2bn the previous month.

Glitches and hopes

The first holes in the post-WTO relationship have appeared over agricultural trade, with China publishing new rules on genetically modified crops. Both governments have big farming interests to protect.

But benefits are on the way for US business, in autos for instance, where a price war is breaking out among Chinese auto makers alarmed at cuts of up to 75% in tariffs on imported vehicles by 2006.

Struggling US auto makers are hopeful of gaining big sales in China.

Meanwhile, Enron's bankruptcy amid scandal over its accounting practices has incensed Chinese financial firms, bridling at new state regulations that China-listed companies employ foreign auditors for a safety net double check.

Foreign investment surges

China has become a major destination for foreign direct investment and, as its economy becomes more sophisticated, it has begun to suck hi-tech foreign investment away from the US itself.

The principal destination for Korean foreign direct investment (FDI) in 2001 "was no longer the US but China," according to the United Nations Conference on Trade and Development (Unctad).

China's economy is slowing down

Its forecast, published last September, envisaged that China, with average wages of 44 cents an hour, would be the biggest recipient of FDI among Asian developing countries in 2001, betting on an inflow of $46.1bn.

What's more, China was snatching back top billing from Hong Kong, which had inflows of $64bn in 2000, much of it probably destined for the mainland anyway. Jointly, they got $105bn.

China is also attracting more diverse types of investment, with an increasing emphasis on hi-tech research and development, said Unctad.

Motorola, for instance, has spent $200m on setting up electronics research centres, while Microsoft has invested $80m and plans an extra $50m to develop an Asian Technology Centre in Shanghai.

No leadership worries

In a relatively uncontroversial visit given over to international security concerns, China's role as an emerging economic powerhouse is likely to be quietly held up by the US as proof of the success of American models.

We've run out of easy things to reform

Chinese official

The leadership change later this year "isn't something that should worry us," according to Robert Hormats, vice-chairman of Goldman Sachs Asia.

China's reformist direction has been firmly established. "I think we can feel very positive about the new generation of leaders, both in terms of their abilities, and the sorts of policies they can pursue," he told a US TV channel.

Perhaps the biggest concern for both sides should be that China's miracle economy is slowing down.

"We've run out of easy things to reform," as one senior Chinese official told The Economist.