| BUSINESSWEEK ONLINE : APRIL 26, 1999 ISSUE | ||||||||
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| INTERNATIONAL BUSINESS
Zhu's Lone Crusade He took big risks in Washington. But does he have backing at home? China's savvy Premier Zhu Rongji knows the value of a photo op. On his historic Apr. 6-13 trip to the U.S., he donned a cowboy hat with the appropriate swagger in Denver and swapped hand signals with traders at the Chicago Mercantile Exchange. But it didn't do him much good. China's main TV network gave top billing to Li Peng's uneventful swing through South Asia, where the former Premier criticized U.S. actions in the Balkans and Iraq as ''a new manifestation of hegemonism,'' and made dry proclamations about the risks of globalization. Zhu's inability to make a big splash back home is an ominous sign. His failure to nail down an agreement with the U.S. on China's entry into the World Trade Organization has left the blunt- speaking Premier vulnerable to attack from Communist Party conservatives such as Li Peng and economists who believe he is going too far too fast with his aggressive free-market agenda. These shifting political winds highlight just how big a risk Zhu, 70, took when he made an all-out push in Washington to resolve remaining U.S. concerns that had blocked China's WTO entry. They also raise questions of how much real backing he has from China's leadership to fulfill promises made to the U.S. OUT ON A LIMB. President Bill Clinton has assured Zhu that he still wants to cut a deal by yearend. That would allow enough time to win over China's detractors in Congress. But by then, the momentum could dissipate as Chinese bureaucracies and industries with the most to lose from foreign competition swing into action and counterattack. ''Zhu's position has been weakened, and this could undermine the reform process,'' says a Western diplomat in Beijing. The trouble is that Zhu is way out in front of most of China's government and industry leaders on the issue of whether WTO membership is worth the economic upheaval that may result. As is his style, the maverick Premier kept few Beijing bureaucrats in the loop on his far-reaching talks with the U.S. when they began in earnest earlier this year, Chinese sources say. When Zhu unveiled his final offer on Apr. 9, many Chinese analysts were as surprised as U.S. negotiators. But Zhu was willing to make sweeping concessions to win WTO membership as a way to pick up the now-sluggish pace of reform in China. The terms he offered would need a massive overhaul of China's economic system--from slashing tariffs to opening insurance, banking, and telecom markets to foreign investment. He was even willing to let foreign companies sell directly into the Chinese market, thus avoiding state-owned intermediaries that often impede imports. Clinton's last-minute reluctance to clinch a deal put Zhu on the ropes. But even if Clinton had agreed, Zhu still would have faced a daunting sales job back home. And despite his can-do reputation, not all of his grand initiatives, such as the promised fast privatization of state-owned housing, work out. Some Chinese economists are relieved that China's WTO bid stalled. With unemployment rising, exports falling, and banks and state-owned factories in perilous financial shape, they warn that this is no time to open the floodgates to foreign competition. What's more, retail prices fell 3.2% in March from a year ago--further proof of a serious glut in everything from color TVs to cars. ''We have an oversupply of autos now,'' says a First Auto Works official in the northeast industrial city of Changchun. ''If we open [our market], foreign manufacturers will grab a portion of the market and hurt us.'' To the Communist Party, worries about worker unrest matter greatly. So does the plight of the country's 800 million farmers. And Zhu's offer to lift the ban on U.S. wheat and slash farm tariffs would surely have increased pressure on rural areas. China's grain farmers already have trouble selling all they produce, and they aren't nearly as efficient as American wheat growers. ''If we get a rush of imports, it will raise issues of poverty and unemployment for China,'' cautions Fan Gang, director of the National Economic Research Institute in Beijing. There's also reason to question whether Zhu could have made his deal stick in a country with multiple layers of bureaucracy and a multitude of hidden barriers to foreign products. Even if duties fall, many nontariff barriers are likely to remain. Regardless of the published rules, Chinese ministries often send secret directives telling state companies to buy local. And while Zhu's offer would allow foreign companies to own large stakes in cellular phone systems, there could be resistance. So far, Wu Jichuan, head of the powerful Information Industry Ministry that oversees telecom, has shown no sign of favoring liberalization. THINK LOCALLY. Cautious Finance Ministry and central bank officials also could throw up roadblocks to Zhu's promise to let foreign financial services companies operate domestic businesses. Firms such as General Motors Acceptance Corp. would love to finance purchases by Chinese consumers, foreign banks want to provide local-currency services to Chinese companies, and Wall Street brokerages lust after the country's $643 billion in savings. But China's big state-owned banks--already insolvent on paper--would be in even worse shape if they had to compete for those funds. It's the same in other financial sectors. Asked if the China Insurance Regulatory Commission supported opening the insurance market, an official replied: ''Right now that is really sensitive. We can't answer any questions now.'' The go-slow faction finds solace in increasingly vocal conservatives such as Li Peng. In today's competitive environment, developing countries are facing ''attacks and pressures,'' Li warned on Apr. 10. But there is no doubt about Zhu's resolve. ''He wants to take the Chinese economy to a higher level,'' says Andy Xie, Morgan Stanley Dean Witter's Greater China economist. But as he heads back to Beijing empty-handed, Zhu must muster support for even more concessions--such as controls on sudden surges of Chinese exports like steel and apparel--than the ones he already made in Washington. That will be a big test of Zhu's political strength--and of the Chinese elite's commitment to the rough road of reform. By Dexter Roberts in Beijing and Joyce Barnathan in Hong Kong, with Paul Magnusson in Washington _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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