China looms as top trade creditor It may have ended Japan's reign

November 04, 1996|By CHICAGO TRIBUNE

NEW YORK -- China may have ended Japan's decade-and-a-half reign as America's leading trade creditor.

Not only has the nominally Communist colossus racked up larger surpluses in two of the past three months than our longtime trade nemesis, but it has done it in unexpected ways.

China's export surge is no longer limited to cheap toys, shoes and textiles. Now, consumer electronics, machinery and a host of metal products are flooding U.S. markets as Chinese firms make their government-encouraged move up the industrial ladder.

While China's trade surplus for the first nine months of the year surged 15 percent to $24.25 billion and exceeded Japan's in two of the past three months, Japan's surplus was plummeting 30 percent from a year ago to $30.36 billion.

Next year, according to many trade experts, China's trade surplus with the United States will be the largest in the world.

The arrival of China as a major world exporting power should come as no surprise. For several years, trade specialists who track Asian business trends have argued that Beijing was following a targeted and increasingly aggressive export strategy to boost its economic development.

The model? Japan.

"You'd expect a rapidly developing country to draw in a large amount of imports, which they are not," said Greg Mastel, a China expert at the Economic Strategy Institute in Washington. "There's definitely a mercantilist tack to what they're doing."

While Chinese exporters luxuriate in the openness of the U.S. market, American exporters confront a host of barriers in China. Those range from high tariffs and intellectual property theft to outright quotas on imported goods, which are set at annual planning sessions by government bureaucrats.

Moreover, investment in China is carefully regulated. Its currency isn't convertible, making repatriation of profits almost impossible. And its adherence to the rule of law is still honored mostly in the breach.

The growing list of trade complaints against China has triggered an acrimonious debate within the United States over how best to deal with the awakening giant.

These differences will come to the fore next month, when China renews its drive to become a member of the World Trading Organization, the 130-member fraternity based in Geneva that sets common rules for global trade.

On the one side are those who argue that China should be given concessions and allowed into the WTO, where negotiations can take place to reduce its myriad trade barriers.

The U.S.-China Business Council, which represents large exporters who have gained a toehold on the mainland, skittish State Department officials wary of antagonizing an increasingly nationalistic China and some trade specialists back this route.

The idea is to create specific time lines for liberalization as the price of China's accession to the WTO.

"We need to get the clock ticking," said Nicholas Lardy, a senior fellow at the Brookings Institution in Washington. "If they stay outside the WTO, they can introduce new barriers whenever they want to."

On the other side are U.S. domestic industries being hammered by Chinese competitors, exporters frustrated by its roadblocks and a range of industries hurt by intellectual property theft, from computer and software mak- ers to some auto and auto parts manufacturers.

Acting U.S. Trade Representative Charlene Barshefsky said the United States still wants China to agree to play by the same set of international rules as the other members of WTO before it can become a member.

"This is not a political issue; it's a dollar-and-cents issue," she said in an interview.

"All 124 nations in the WTO have agreed to abide by its rules-based trading requirements. That happens in advance of accession, not after."

In the early years of China's economic liberalization, which began in 1978 after Deng Xiaoping became its maximum leader, modernization was driven mostly by Hong Kong, Taiwanese and Singaporean businesses investing in southern China to take advantage of its cheap labor. Low-value-added goods that the United States used to import from those regions began coming from the mainland.

In recent years, this haphazard development has been joined by a more coordinated push by central planners to foster strategic industries. Central planners still have enormous power over an economy where the sickly state sector is still two-thirds of total output and the policies governing the other third can be changed on a whim.

But the plans of the nationalistic bureaucrats in the Chinese planning agencies have hardly been whimsical. In fact, they FTC mimic the Japanese industrial policies of the 1950s and '60s.

"China often conditions investment on forced technology transfer, local content requirements and a requirement that output must be exported," Barshefsky said.

"That often leads to unneeded increases in world supply."

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