It was Corporate America's fondest hope that 1999 would be the Year of the Cuddly Panda. China under Jiang Zemin would relax its trade barriers, join the World Trade Organization, and finally win permanent status as a normal U.S. trading partner. Now, those hopes are dashed, and the new year is shaping up as the worst for U.S.-China relations since the 1989 massacre in Tiananmen Square.
Fueling the fire: a still-classified congressional report detailing charges of 20 years of theft of sensitive U.S. technology by China. In addition, Beijing is in the midst of one of its periodic crackdowns on dissidents. New protectionist measures and currency controls by the Middle Kingdom are making it tougher for U.S. businesses to operate in China. And a trade imbalance in China's favor is expected to surpass $60 billion in 1999.
The first casualty may be cancellation or postponement of the planned April summit visit of Prime Minister Zhu Rongji, whose trek across the U.S. would likely be strewn with orders for generators and tractors. A Bei- jing spokesman has already expressed "outrage" at the "groundless" espionage charges in the 700-page report of a special House panel headed by Representative Christopher Cox (R-Calif.).
CHARGES. Tensions will get worse come spring when unlikely anti-China allies such as AFL-CIO President John J. Sweeney and Christian conservative Gary Bauer mount protests to mark the 10-year anniversary of Tiananmen Square. With the annual congressional debate over extending most-favored-nation trading status set to begin in May, Beijing's critics on Capitol Hill will step up to decry the techno-treachery detailed in Cox's report.
Is MFN for China in jeopardy? Not really. But behind the rising rhetoric lies a political strategy. Some conservatives hope to portray China as a security threat, especially because of its weapons sales to Pakistan and Iraq. At the same time, they want to cast President Clinton--and Presidential contender Al Gore--as pushovers for promoting stronger trade while turning a blind eye to Beijing's ulterior motives.
Even though both GOP and Democratic Administrations were cited for lax oversight in the bipartisan Cox report, Clinton's critics will use it to press for tighter export controls. Their hand has been strengthened by disclosures that the Commerce Dept. failed to police satellite makers Loral Corp. and Hughes Electronics Corp. Although both companies strongly deny any wrongdoing, the Cox report charges that they supplied missile technology to the Chinese. "Engagement will no longer be a synonym for zero criticism of Communist Party offenses," Cox told BUSINESS WEEK.
Sources who have seen the report say it contains grave charges that China stole U.S. government secrets and raises questions about the level of cooperation between Beijing and U.S. companies. American business will suffer from the fallout. Says Jay Hu of the U.S. Information Technology Office, a Washington-based industry group: "Further controls will just encourage China to shift to Japanese and European companies."
Already, new restrictions on converting Chinese currency are hampering U.S. multinationals' efforts to invest and turn a profit. The result: A recent U.S.-China Business Council survey of over 50 U.S. companies in China found 80% facing sales cutbacks and 50% reconsidering, delaying, or canceling investments. "If the political environment is degraded, commercial rela- tions can't escape harm," says Council President Robert A. Kapp.
The two countries have weathered rhetorical storms before, without damage to their trade relations. But as details of the Cox report leak out, China's critics will become more determined. And instead of the Year of the Panda, 1999 could well turn out to be the Year of the Wounded Dragon.