By Ron Chepesiuk
The recent spy plane standoff had many people speculating on the future of U.S.-China relations. Some worried about the political implications, while others feared repercussions in the business sector.
Among them were clients of the Washington, D.C.-based Gibson, Dunn and Crutcher. According to Judith Lee, an attorney with the law firm and an expert on China trade, several clients spent sleepless nights, fretting over the situation and its impact on their business interests in China.
“When our clients called us, we told them to stay calm and to take a long-term view of the U.S.-China relationship,” Lee said. “There are going to be more of these types of incidents in the future.”
Kent Kedl, executive director of Technomic Asia, which has been doing business in China for 18 years, also received calls from jittery clients.
“Our company was planning a trip to China this coming May for one of our clients, and its executives wanted to know if they should still make the trip,” Kedl recalled. “I told them that the United States and China were very early into their post-Cold War relationship, and that there’s a big difference in the two country’s cultural communication systems. More problems will arise in the future because each side still has a lot to learn about the other.”
Fortunately, cool heads prevailed. In the end, the 24 U.S. service personnel were released and returned home safely. After a tortuous round of negotiations, the United States issued what it described as a “statement of regret.” It was revised six times before both sides approved.
Though the standoff was tense, some analysts predicted the two countries would find middle ground, given the economic ties that have developed between them since the mid-1990s. Bilateral trade has jumped from $66.4 billion in 1996 to $123.9 billion in 2000, making China the United State’s fourth largest trading partner. Future trade is expected to skyrocket, with U.S. exports projected to double from $13 billion in 1999 to $27 billion in 2005, according to an Agente France Press (AFP) report released April 5.
Each year, China buys $16 billion in American aircrafts, machinery, medical instruments and other goods, while American consumers purchase $100 billion worth of Chinese-made products, such as clothes, shoes, toys and sporting goods.
Looking Ahead
Nevertheless, other China watchers worry that the incident may cause a ripple effect in the coming months. And they wonder if the United States and China can keep their economic relationship from unraveling.
“A lot is at stake and there will be both short- and long-term consequences if the relationship is mishandled,” said Gary Hufbauer, a senior fellow at the Institute for International Economics, a leading Washington, D.C.-based think tank.
Arguably, China has more to lose. In the coming weeks and months, the United States will decide whether to sell an arms package to Taiwan, and the World Trade Organization is expected to make a decision on China’s application for membership. Moreover, China’s trade status with the United States will be determined, as will its bid to be the host of the 2008 Olympic Games.
Diplomatic nerves are being tested, as U.S. representatives to the U.N. Commission on Human Rights protest China’s crackdown on religion, and the Bush administration and the U.S. Congress continue to protest the detention of two Chinese-born academics based in the United States.
“The standoff will certainly heat the debate over the economic issues, and it will now make it tougher for China to get what it wants,” Lee predicted.
At the Lead
The upcoming series of events will also test the political skills of President Bush. Already, he has been given high grades for his handling of the spy plane standoff.
“The president was thoughtful and cautious and he kept inflammatory rhetoric out of the crisis,” explained John Holden, president of the New York City-based National Committee on U.S.-China relations, a not-for-profit, private educational organization.
Said Lee: “I think Bush stayed cool in the crisis. He experienced a lot of pressure from the wing of the Republican Party that’s hawkish on China.”
Ironically, it was Bush’s tough talk soon after he took office that, in part, may have precipitated the standoff. Last January, Bush and Secretary of State Colin Powell told the press that they would revise former President Clinton’s China policy. The new administration would view China as a key strategic competitor, not a strategic partner. The message: China is important to the United States but not as important as it once was.
“It was a very foolish thing to say,” Kedl said. “Americans like to stand up and talk about their principles, and their actions follow from there. The Chinese, on the other hand, talk about their actions and their principals follow. China found Bush’s statement of policy disturbing, and so the President’s actions got the United State’s relationship with China off on the wrong foot.”
Some hope Bush and his cabinet will be more judicious in their comments about China.
“I think that if Bush had a chance to go back to January, he would have handled what he said about China differently,” said Nicholas Lardy, Senior Fellow at the Brookings Institution, a Washington, D.C.-based think tank. “Needless to say, damage can be done to U.S.-China relations when a president tells the world over and over again that Japan is more important than China.”
Since the crewmen were released, Bush has toughened his rhetoric, however. He has been quoted as saying that the United States has no reason to apologize and that the United States was not to blame for the incident. The President also indicated that the United States would ask the Chinese tough questions in the follow-up meetings that began this week.
In China
Meanwhile, China’s slow reaction to the incident may indicate infighting within China’s leadership. President Jiang Zemin and Premier Zhu Ronjii are viewed as economic reformers, but the incident may have given China’s military a more influential role in the country’s affairs. Some powerful military generals and their allies oppose economic liberalization, and observers believe they urged their government to take a hard-line over the incident.
“The standoff was just gold for the hard-liners, a perfect opportunity to throw a wrench into liberalization,” Hufbauer said. “ I believe the hard-liners wanted the incident to escalate.”
Military spending in China’s latest budget increased by 19 percent, and this figure, while well below what the United States spends, could increase as a result of the incident.
The military suffered a setback in 1998 when the Chinese government ordered it to give up its lucrative private business interests and to stop participating in the economy.
“I think the military will cash in its chips for what it lost in ’98 and demand a bigger share of the country’s resources,” Kedl said.
Not all experts, however, believe the incident strengthened the military’s hand.
“I know it’s not a fashionable thing to say, but I remain totally unconvinced that the military played a major role in the standoff,” Lardy said. “It may turn out to be true, but the evidence is not there right now. I believe the Chinese military is a more cautious and conservative institution.”
In Asia
During the crisis, Japan and South Korea, the United State’s two main Asian allies, remained silent. But there were indications that the two countries were working behind the scenes to help defuse the situation. Continuing U.S.-China tension could complicate diplomacy with Japan and South Korea.
Should economic trade with the United States decline, China is likely to look to its Asian neighbors to help pick up the slack, and Japan and Korea could be the big beneficiaries.
In another scenario, though, Asia would come out behind. As Peter Beck, Director of Research at the Washington, D.C.-based Korean Economic Institute of America, pointed out: “If tensions continue to build, trade and investment in Asia could chill, as investors search for safer havens. Short-term gains for individual investors would be washed out, and the region would experience medium and long-term [economic] losses.”
Balbina Hwang, policy analyst at the Asian Studies Center of the Heritage Foundation, a Washington, D.C.-based think tank, agreed.
“The spillover effect for Japan and South Korea, both important trading partners of China, from increasing tensions could be enormous and detrimental, especially at a time when neither country’s economy is doing very well,” she said.
Back in the U.S.A.
The big question remains: What will the U.S. Congress’s response to the crisis be in the months ahead?
Congress sent mixed messages about how it would deal with China in the future. Senator Richard Lugar, R-Ind., warned that “a fairly long list of consequences was already being developed to punish China if the crisis dragged on.” Duncan Hunter, R-Calif., introduced a bill in the House on April 5 to revoke Permanent Normal Trade Relations status to China as a way of protesting the incident.
Moreover, several members of Congress dropped China from their spring travel itineraries. Don Nickles, the Republican Senate assistant majority leader from California, said he would postpone his trip to China with business and government leaders from his state unless the standoff was resolved. Other members of Congress talked about blocking China’s efforts to host the 2008 Olympic Games.
At the other end, several lawmakers, urged Congress to show caution in responding to the spy plane incident. Senator Pat Roberts, R-Ind., a supporter of PNTR for China, said it would be “premature” to block an extension of China’s trade privileges.
“I think it could be counterproductive,” Roberts said.
That feeling was shared by many U.S. business leaders, especially those who trade with China or have business interests in the country.
“A lot of big business leaders in the United States were scratching their heads and worrying why the standoff went on as long as it did,” Lee said. “Remember that big business bankrolled George Bush’s bid for the presidency, and he couldn’t have won without its support.”
Next week (April 26): Part II: Should the United States sell arms to Taiwan?
Business reporter Ron Chepesiuk is a Rock Hill SC-based journalist. He can be reached at 110423.2656@compuserve.com. |
