Li Lanqing: Does `Engagement' Mean Fight Or Marry?

Vice Premier Li Lanqing, 64, has a reputation as an enlightened technocrat. Educated at Fudan University in Shanghai, he made a name for himself in the auto industry, then climbed the political ranks to specialize in foreign trade. Conversant in English, he was named to the ruling Politburo in 1992.

But reflecting Beijing's newly assertive policies, Li adopted a tough tone in a rare hour-long interview with BUSINESS WEEK's Editor-in-Chief Stephen B. Shepard, Assistant Managing Editor Robert J. Dowling, Asia Regional Editor Joyce Barnathan, and BUSINESS WEEK reporters. The session took place in the Purple Light Pavilion inside the Zhongnanhai ruling compound. Here are highlights:

Q: Why has China been slow to crack down on piracy of American products?

A: I don't think the progress has been slow.... China's intellectual-property protection has been established only for a short period of time, but we have cracked down on 4,000 individual cases. Seven factories producing compact disks have been shut down. More than 2 million CDs and 40,000 software items have been destroyed. The Chinese customs house has confiscated more than 10 million pirated products. One thousand people have been punished.

We have to achieve what developed countries have achieved over hundreds of years. We have done our best.

There is no such thing as the Chinese government covering up for piracy. It is regrettable to see some people using this as a means of political assault. I hope we can strengthen our cooperation rather than use this issue to create disputes or make attacks.

Q: Is the $34 billion U.S. trade deficit with China a problem?

A: We are in surplus, but the amount of surplus is not as big as the U.S. claims. According to our statistics, the surplus was a little bit more than $8 billion. The differences in trade statistics are mainly the result of irrational methods of calculation....

You think you are in large deficit because you ignore the goods that gain much added value through entrepot trade. For example, we sell sportswear to Hong Kong at $20 a piece, and when the sportswear is sold to the U.S. at $120 a piece you count the additional $100 on our account. We must work out new methods of calculation.

[The trade surplus is also] a result of the actions of the U.S. government. We would be able to buy even more U.S. products had there not been restrictions by the American government.

Once, the U.S. conducted an investigation for four years before we were able to buy a computer for meteorological use. If we were to buy the computer from Europe or Japan, it would be much easier.

Q: How is the debate over renewing China's most-favored-nation (MFN) trading status affecting the business climate?

A: Businessmen lack confidence because China's MFN trading status is subject to annual dispute, debate, and renewal. People think trade with the U.S. is not reliable, and maybe one day it may impose sanctions or cancel China's MFN status. Why shouldn't we instead do business with Europe or Japan?

Q: Do you believe that the U.S. is blocking your country's entry into the World Trade Organization?

A: [The U.S.] argues that China should enter the World Trade Organization only when we meet the requirements for a developed country, not a developing country. This requirement is baseless. I don't want to use any harsh words, but this is absurd.

In spite of our significant development, the per capita income in China remains very low. We still have 70 million people living under the poverty line. How can we say that China is a developed country?

We have seen very clearly that whenever the negotiation reaches a key point, the U.S. steps in to oppose us. This issue can only be solved by President Clinton. He has promised to solve it, but we are waiting to see his action.

Q: What happens if it takes a long time?

A: We are patient, but our patience will not last forever. We can think of other ways to protect our interests, for example, by joining regional trade organizations...[which] is not in the interests of the U.S.

If we are forced into a corner where we have no other choice, we cannot help but start thinking about other ways.

Some people have suggested the establishment of a trade organization in East Asia. Since all other organizations are protective, we may end up [that way]. But we don't want this outcome.

Q: How do you react to complaints that some companies must transfer too much technology to China?

A: I think this problem is more or less imaginary. We have many joint ventures producing autos in China. One of them is Volkswagen. They are not concerned about being asked to transfer too much technology. They have thought all along that their joint venture has gone very smoothly and successfully. Another example is one of the most successful joint ventures in China, Motorola Inc. They are very interested in developing new technologies with Chinese personnel because they are usually of high quality but have very low salaries.

Q: But Chrysler Corp., which lost out on a $1 billion minivan project to Mercedes-Benz, says that demands for technology transfers were too great.

A: The technology transfer was not from Chrysler to China, but from me to the company. When I visited their plant three years ago, "I pointed out that their jeeps were four-wheel drive and for that they needed extra equipment and more employees, pushing the cost higher. Because the roads are very good in China, a two-wheel-drive jeep is sufficient. So I suggested they change, and they accepted my advice. We shared information with them instead of keeping it a secret, and now Chrysler is doing well.

Q: Did they say "thank you?"

A: They didn't pay me. I hope they can replace our jeeps produced on a small scale in China with their own jeeps because small-scale production is not very good for China.

Q: Where did they fail, then?

A: Many areas. Price, technology-transfer conditions, on many different commercial aspects. They failed after we made a comprehensive comparison and decided that [Mercedes-] Benz was better. It was a commercial matter.

Q: Another American corporation, Boeing Co., feels it is being punished for political reasons. Foreign Trade Minister Wu Yi canceled her buying trip to America, and China signed a contract with Airbus Industrie.

A: I suggested to Minister Wu Yi that she go to the U.S. on a purchasing trip, and later I agreed to the cancellation. Why? Because at the time the U.S. was threatening China with sanctions. How could our minister go to a country that was threatening to punish us?

Boeing does not have to be unhappy about this, because the company already has 75% of China's airplane market. Does it want a monopoly?

Q: So the order to Airbus was not in retaliation over Taiwan?

A: It wasn't. The cancellation of Wu Yi's trip to the U.S. has nothing to do with the Airbus order either. We ordered Airbus to meet our own needs and did it according to the quality they offered us.

Q: Do you think that the U.S. Administration is deliberately trying to retard your country's economic growth?

A: The basic American policy toward China is not clear. We often hear that the U.S. wants engagement with China. But I'm not sure whether engagement fight or to marry.

The U.S. often goes in for sanctions or containment. If you want to fight with us then you had better let us know. But if you want to engage with us, we'll also welcome that, because American girls are beautiful, and we won't refuse. Now, however, you are giving us an unclear message.

Q: Do China's leaders really feel the U.S. is trying to contain China?

A: I must say I am unsure. First, the Chinese and American people do not have conflicts over fundamental interests....We do share common interests in the maintenance of world peace, development, and stability. Economically speaking, China's development can provide a big market for other developed countries. So that's where we have another common interest. Should China be reduced to a state like that of present-day Bosnia, no statesman in the world would be able to sleep.