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A Thaw Doesn't Necessarily Mean Springtime


International Business: CHINA

A THAW DOESN'T NECESSARILY MEAN SPRINGTIME

After a frigid summer, Sino-U.S. relations are warming. China released U.S. human-rights activist Harry Wu, approved several deals with U.S. companies, and said it would send its ambassador back to Washington. For Washington's part, First Lady Hillary Rodham Clinton went ahead with plans to attend a U.N. conference on women, and the White House tentatively agreed to a presidential summit in October.

But the U.S. and China have anything but a smooth road ahead. On such issues as China's entry into the World Trade Organization, claims in the South China Sea, and overseas arms sales, the interests of Beijing and Washington clash sharply. The emotionally charged issue of Taiwan, which holds its first direct presidential elections in March, could be a flash point as Beijing worries about a possible drift toward independence.

For now, Beijing seems to have concluded that the downward spiral in relations has gone far enough. The immediate incentive: prospects of a summit between President Bill Clinton and Chinese President Jiang Zemin. That would greatly burnish Jiang's stature at a time when he's embroiled in a power struggle to succeed the ailing Deng Xiaoping. "A Jiang visit to the White House is a very important symbol in China," says a Beijing legal scholar.

Another reason for the apparent zig-zagging may be that China's leaders believe they've already accomplished some key goals with threatening military exercises near Taiwan. Beijing seems to have gotten its point across as Republicans such as U.S. House Speaker Newt Gingrich back away from pro-independence rhetoric. The Clinton Administration may make its policy clearer with a major address explaining that it is not trying to "contain" China. After months of delay, meanwhile, Beijing is considering approval for the Administration's nominee for ambassador to China, former Tennessee Senator Jim Sasser.

Chinese leaders also seem to agree that stable relations are important economically. America buys 30% of China's exports, and Beijing wants continued U.S. investment and technology. By making a show of throwing big-ticket deals to European companies, it risked alienating Corporate America, its most potent lobby in Washington.

Deals are, in fact, popping again. Ford Motor Co. announced plans to invest $40 million in a minivan joint venture, American International Group got approval to open the first foreign insurance office in the southern city of Guangzhou, and Lockheed Martin Corp. landed a $100 million contract to build a communications satellite for China. Prospects for Boeing Co.'s jumbo jets also have brightened.

There are limits, however, to how far each side can go in improving relations. With its trade deficit with China expected to approach $40 billion this year, Washington is determined not to let China into the WTO unless it opens its market more. Inside China, power brokers have clearly become more conservative in the year or so since Deng, 91, became too feeble to make key decisions. In the past, he would step in to break a foreign policy deadlock. But few other leaders can face down the military on national security issues.

The People's Liberation Army fears that Taiwan's native-born President Lee Teng-hui will promote independence. Western military analysts expect China to hold more maneuvers off the Taiwan coast. The military has reasons to keep the heat on. The PLA watched the U.S. and France sell military hardware to Taipei. And it grew angrier as Lee traveled throughout Southeast Asia and then to the U.S. To the generals, that proved the "soft" approach over Taiwan wasn't working. The issue gives them "a sense of mission, which they've been looking for since the end of the cold war," says military analyst Tai Ming Cheung of Kim Eng Securities in Hong Kong.

ISLAND CLAIMS. With Beijing claiming sovereignty over the disputed Spratly Islands in the South China Sea, the military also sees a good opportunity to modernize its naval and air force in the name of defending the area. China has backed down in the South China Sea, at least temporarily. But the long-term risk of confrontation with Taiwan remains high. That could sour the reconciliation with Washington.

No doubt, it's in everyone's interest for cooler heads to prevail. That could create a climate where the two sides can zero in on the tough issues that still confront them. But the diplomatic work ahead is daunting. Says Carl Walter, director of CS First Boston Corp.'s Beijing office: "The Taiwan issue isn't going away, and it will inevitably involve the U.S." That means relations between Washington and Beijing could still turn dangerously nasty at a moment's notice.By Joyce Barnathan in Hong Kong, with Dexter Roberts in Beijing and Amy Borrus in Washington


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