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Getting Tough With China Could Be Tough On The U.S.


International Business

GETTING TOUGH WITH CHINA COULD BE TOUGH ON THE U.S.

Just three months after renewing China's most-favored-nation trading status with only modest conditions attached, the Clinton Administration is getting tough. The U.S. has for months been collecting evidence that China transferred M-11 missile parts to Pakistan in violation of pledges not to traffic in such technology. Now, the data add up, and sanctions have a green light.

But punishing China is no simple matter. State Dept. officials say the sanctions, largely affecting U.S. satellite parts and technology, could cut into an estimated $400 million to $500 million of future U.S. exports. For some U.S. companies, such moves could jeopardize a promising new market. And in the end, they may not do much to crimp Beijing's exports of sensitive weapons.

Arms sales are but one of the thorny issues in U.S. relations with Asia's new economic superpower. Washington is also unhappy about China's dismal human rights record. And Beijing has failed to act to cut its trade surplus with the U.S.--which could reach $25 billion this year, vs. $18.3 billion in 1992. But the Administration's focus on Asia--the booming China market in particular--as a prime growth area for American exports limits U.S. leverage with Beijing. That's why President Clinton opted for the narrowly targeted sanctions.

A ZINGER. Even limited sanctions will sting, though. One possible casualty: a long-pending $7 million-plus order for a Cray Research Inc. supercomputer. China wants the high-speed computer for weather forecasting, but it is powerful enough to design nuclear weapons. Instead, China could turn to Japanese suppliers, such as Fujitsu Ltd. or NEC Corp. If that happens, a Cray official says, "we'll effectively have opened up [the China market] only to see it be captured by a non-U.S. company."

Other American companies could get zinged if China retaliates. Now that the U.S. has imposed targeted sanctions, "the Chinese [will] probably react in a targeted way themselves," says Richard A. Brecher, head of business advisory services at the U.S.-China Business Council in Washington. One potential victim is American Telephone & Telegraph Co., which has a crack at $1 billion worth of business in China.

Making matters worse, the sanctions may not have their intended effect. With nothing to lose, China may hawk even more missiles. To head that off, the U.S. may signal that it would waive sanctions if Beijing signed on to arms-control pacts. "If China were interested in becoming a more active participant in existing nonproliferation regimes, it could influence U.S. views" on the sanctions, says a senior Administration official.

For example, Washington wants Beijing to rejoin Big Five talks on limiting conventional-weapons sales to the Middle East. China dropped out of the group--which includes the U.S., Britain, France, and Russia--after the U.S. announced the sale of 150 F-16 fighter jets to Taiwan last fall. The U.S. might also press China to join the nuclear suppliers group, which would oblige Beijing to accept international inspection of nuclear power equipment shipments.

But given China's broken promise on missile transfers, arms-control experts are skeptical that Beijing would honor new pledges. It likes the hard-currency earnings from selling arms, and besides, armaments factories operate increasingly beyond the Foreign Ministry's control. "We have tried constructive engagement with China," says Jon Wolfstahl, senior research analyst at the Arms Control Assn. "It's time to brandish the stick rather than offer a carrot." Trouble is, whacking China hurts the U.S., too.Amy Borrus in Washington, with Pete Engardio in Hong Kong and Russell Mitchell in San Francisco


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