New Life for an Ancient Dream

By John Greenwald

The U.S. and China open the door to more trade

Visions of riches have drawn Americans to China ever since the first U.S. ship arrived in Canton precisely 200 years ago this summer. Last week that ancient quest continued. Led by Treasury Secretary Donald Regan, a 34-member delegation journeyed to Peking in hopes of boosting commerce with the world's most populous country. Said William Clarke, the Peking-based representative of the privately run National Council for U.S.-China Trade: "The mood is good. This should be the crunch year in China trade."

Although American products ranging from corn to computers are now being sold in China, that country's vast market potential remains barely tapped. Total trade between the U.S. and China dipped to $4.4 billion last year, down 20% from the $5.5 billion peak reached in 1981. By contrast, American transactions with Taiwan, which is only one fifty-fourth as populous, came to $15.8 billion in 1983.

Regan's mission, which followed Chinese Premier Zhao Ziyang's U.S. tour in January, was meant to help heal wounds that had opened in U.S.-Chinese economic relations and to prepare the way for President Reagan's arrival in Peking at the end of April. Prodded by American manufacturers, Washington set off a 1983 trade skirmish by freezing imports of Chinese textiles at the previous year's levels after talks on a new accord broke down. The People's Republic, which did not begin welcoming U.S. business on a large scale until 1979, responded by halting purchases of U.S. soybeans, cotton and synthetic fibers. Peking also refused to buy previously agreed upon quantities of U.S. grain. The cutbacks slashed American farm sales to China 73% below their 1981 level, to $544 million, and raised serious doubts in some business circles about China's reliability as a trading partner.

Both sides, however, have been putting that bitterness behind them and continued to do so during last week's talks. The key agreement of the three-day session was a tax treaty, to be signed during the President's visit, which encourages U.S. firms to participate in joint ventures in China. The terms call for elimination of double taxation on the American companies. Said Finance Minister Wang Bingqian, who initialed the agreement: "I am confident that we can push forward the economic and technical cooperation between the two sides."

The treaty was the latest in a series of economic understandings between the U.S. and China. They have included Washington's decision last July to ease its stand against Chinese textiles, which led to a new accord allowing the imports to grow by up to 3% a year. Reagan also greatly increased Peking's access to U.S. high technology by declaring China to be a "friendly, nonallied country." Lionel Olmer, Under Secretary of Commerce for International Trade, expects that action to help bring U.S. firms $2 billion worth of contracts within a year.

He cautions, however, that "China will go through many difficult years in the process of modernization. It is simply a problem of staggering proportions to develop a country with a billion people." Peking's current five-year plan calls for construction of 890 projects through 1985. Ranging from energy to transportation ventures, they require hefty imports of machinery and equipment. Also under way is the renovation of some 3,000 facilities in industries across the country. The U.S. hopes to get a good share of the market in those development projects.

China is already bustling with American businessmen. Some 110 U.S. firms, among them such giants as Exxon and General Motors, have offices in Peking. Their major customers include the Chinese national airline, which flies Boeing and McDonnell Douglas aircraft, and the government corporation that buys grain. In all, Americans are pumping some $685 million into Chinese ventures, the largest investment made by any nation.

Many eager U.S. businessmen, however, have rushed to Peking only to find that the tempo of dealing with the Chinese is agonizingly slow. Says J. Ray Pace, a Texan who runs a trading company that brings American and Chinese firms together: "I've had corporate executives climbing the walls in two weeks. They are used to going to a place and signing a contract in three days." But in China, well-known U.S. firms like 3M, which has an electrical-tape plant in Shanghai, typically have had to negotiate for three years before striking a deal. It took American Motors four years to set up a joint venture to build Jeeps in Peking.

Much of such extended stretches may be spent haggling over prices with the bargain-minded Chinese or simply waiting for government bureaucrats to act. Letters and telexes often go unanswered, and phone calls frequently are not returned. Months can roll by while squabbling ministries decide which one has the responsibility for a transaction. So fragmented is the Chinese bureaucracy that American executives often find themselves acting as go-betweens for agencies that do not communicate directly with each other.

Such problems notwithstanding, experts look for American trade with China to grow steadily through the remainder of the century. Transactions between the two countries could reach nearly $6 billion this year, and climb to between $15 billion and $20 billion by 2000.

Private observers applauded last week's Peking agreement. "What we are seeing now is the final stage of the normalization of our economic relationship with China," says Harry Harding, a senior fellow at the Brookings Institution. "Both sides have deliberately pulled back from the collision course that they seemed to be on. They have decided that the relationship is too important to be destroyed, and that is a very important signal to send."

--By John Greenwald. Reported by David Aikman/Peking and Gisela Bolte/Washington

With reporting by DAVID AIKMAN, Gisela Bolte