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A Thaw Doesn't Necessarily Mean Springtime (Int'l Edition)


International -- Intl' Business: CHINA

A THAW DOESN'T NECESSARILY MEAN SPRINGTIME (int'l edition)

After a frigid summer, there are signs that Sino-U.S. relations are warming. China released U.S. human-rights activist Harry Wu, approved several high-profile deals with American 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. "We have too much at stake, both in China and the U.S., to neglect the relationship," said Under Secretary of State for Political Affairs Peter Tarnoff after late-August meetings in Beijing.

Despite the building momentum, however, the U.S. and China have anything but a smooth road ahead (table). On such issues as China's entry into the World Trade Organization, territorial 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 for years as Beijing worries about a possible drift toward independence. Domestic politics in both Washington and Beijing are making it increasingly difficult to craft an enduring, post-cold-war relationship that can keep differences from blowing up into crises.

SUMMIT SPOTLIGHT. For now, Beijing seems to have concluded that the downward spiral in relations has gone far enough. How much of China's shift is long-term and how much reflects short-term tactical goals remains to be seen. 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. "The U.S. is seen as the No.1 power in the world, and maybe China sees itself as No.2."

Another reason for the apparent zig-zagging in China's tactics may be that its leaders believe they've already accomplished some key goals. Beijing's threatening military exercises seem to have gotten the point across on Taiwan, for example. Republicans such as U.S. House Speaker Newt Gingrich have backed away from pro-independence rhetoric. And Clinton has offered assurances that Washington still recognizes Beijing's sovereignty over Taiwan. The Clinton Administration is considering making its policy clearer with a major address, perhaps by Defense Secretary William J. Perry, explaining that America 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.

MINIVANS AND JUMBOS. Chinese leaders also seem to agree that there are compelling economic reasons for stable relations. Aside from selling more than 30% of its exports to the U.S., Beijing wants continued U.S. investment and technology. By making a show of throwing big-ticket deals to European companies such as Daimler-Benz, it risked alienating Corporate America, its most potent lobby in Washington.

Deals are, in fact, popping up again. Ford Motor Co. announced plans to invest $40 million in a joint venture to make minivans in a Chinese factory, American International Group got the go-ahead to be the first foreign insurer to operate in the southern city of Guangzhou, and Lockheed Martin Corp. landed a $100 million contract to build a communications satellite for China. Negotiations have also picked up between Air China and Boeing Co. over a possible order for up to 15 jumbo jets--a prize that also is being chased by Airbus Industrie. "Obviously, when China's relationship with our government sours, as it did recently, it makes our job harder and Airbus' job easier," says Lawrence W. Clarkson, Boeing's vice-president for planning and international development.

There are limits, however, to how far each side can go toward improving relations. With the trade deficit with China expected to approach $40 billion this year, Washington is determined not to let the export powerhouse enter the WTO unless it opens its market more widely to imported goods and services. And Clinton's White House sees little gain politically by appearing to be Beijing's friend.

In China, power brokers have clearly become more conservative in the past year or so. That's the time when Deng, 91, became too feeble to make crucial decisions. In the past, Deng would step in to break a foreign policy deadlock, often overruling hard-liners in the military. But in his absence, few other leaders, including Jiang, have the clout to face down the military on national security issues.

The People's Liberation Army fears that Taiwan-born President Lee Teng-hui aims to promote Taiwanese independence. To intimidate voters there, Western military analysts say, China may hold more naval and ground maneuvers in the Nanjing Military Region off the coast of Taiwan.

The military has reasons to keep the heat on. The PLA watched with alarm as the U.S. and France sold military hardware to Taipei. And it grew angrier at the diplomatic efforts of President Lee, who traveled throughout Southeast Asia and then to the U.S. To the generals, that proved the "soft" approach over Taiwan just wasn't working. The issue gives the PLA brass "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.

ADVENTURES AT SEA? That's not the only area in foreign policy where the military's more aggressive stance is evident. With Beijing claiming sovereignty over the disputed Spratly Islands, located far out in the South China Sea, the military sees an excellent opportunity to modernize its naval and air force capability so that its units can guard that distant area. In the name of defending the Spratlys, "the military can go to the National People's Congress and say they need more ships, more aircraft, early warning stations, and refueling capability," says a Western military specialist.

China has backed down on its ambitions in the South China Sea, at least temporarily. Ronald N. Montaperto, senior fellow at the Institute for National Strategic Studies at the National Defense University in Washington, thinks that Beijing will make a similar comedown over Taiwan as it realizes that Lee's popularity is only rising. "They are on the verge of putting an unbridgeable gulf between them and Taiwan," he says.

But the long-term risk of confrontation with Taiwan remains high, especially if Beijing keeps up its hard-nosed military maneuvers. That could sour the reconciliation with Washington. The Pentagon has quietly had contingency plans in place for years should China seize all or part of Taiwan. That doesn't mean there's the political will in Washington to jump into the fray, however, for a country the U.S. has not formally pledged to defend.

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.

BEIJING AND WASHINGTON

SOME PROGRESS IS MADE...

-- Human-rights advocate Harry Wu is released from China

-- First Lady Hillary Clinton attends a U.N. women's conference in Beijing

-- Series of big deals announced for U.S. companies

-- President Jiang may hold a summit with President Clinton in October

...BUT FLASHPOINTS LOOM

-- China continues nuclear tests and selling weapons technology

-- The military is pressing China's claim to the South China Sea

-- Beijing gears up economic and military pressure on Taiwan

-- With a soaring trade deficit, U.S. demands China opens its markets

DATA: BUSINESS WEEKBy Joyce Barnathan in Hong Kong, with Dexter Roberts in Beijing, John Winzenburg in Taipei, and Amy Borrus in Washington


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