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The U.S. and China This Week

Week of July 25, 2003

The U.S. and China This Week

Politics Takes a Backseat for Blair in China

British Prime Minister Tony Blair was in China this week, the fourth leg of a whirlwind tour that included stops in the U.S., Japan, South Korea, Mainland China and Hong Kong. Blair's trip to China, his first in five years, took place amidst domestic scandal at home, a worsening situation on the Korean peninsula, and political crisis in Hong Kong.

Blair held talks with Chinese leaders on North Korea, in which he praised Chinese diplomatic efforts and growing Chinese participation in world affairs. Blair also gently raised the democracy issue with regard to Hong Kong. Blair was quoted by the BBC as saying, "There are proposals to move toward greater democracy in Hong Kong…obviously we support that. I hope we can get that process of change back on track." Talks also touched on reconstruction in Iraq and Indo-Pakistani relations. Yet, politics largely took a back seat to trade and investment, as evidenced in the consortium of Britain's business elite that accompanied the Prime Minister to China. The group of executives represented London financial firms, oil giants and engineering firms, and drug maker GlaxoSmithKline. The primacy of trade and investment was further evidenced in a high-profile signing of an agreement between P&O, Denmark's Maersk, and China Ocean Shipping Company (COSCO), which was attended by Blair and Chinese Premier Wen Jiabao. P&O, a British ports firm, announced an $800m investment in conjunction with its Chinese and Danish partners to build a container terminal in the China's northern port of Qingdao.

Among EU countries, Great Britain is China's second biggest trading partner, with a trade volume of 7bn pounds in 2002. The Daily Telegraph (London) quoted the Chinese Premier as telling Blair and a delegation of executives from British Petroleum, Shell, and leading banks that he "hopes that in three to five years we can expand this trade figure to pounds 9 billion…Probably this is a modest target." Britain currently runs a trade deficit with China, but it is also the biggest investor in China among EU countries.

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Symbolism in Domestic Politics

CNN's senior China Analyst, Willy Wo-Lap Lam, has pointed out that last week's move by Hu Jintao and his political allies, such as Chinese Premier Wen Jiabao, to abolish the annual top-level meetings at the summer resort of Beidaihe constitute "a brilliant move to underscore their determination to break with the past." Since the early 1950's, esoteric groups of top Chinese Communist Party (CCP) and military leaders, as well as retired party elders, have met at annually at Beidaihe in July to discuss "affairs of the state." In reality, the "informal discussion sessions" held in the luxurious beach bungalows amounted to "behind the scenes skullduggery and back-stabbing..." says Lam.

While reporting on the incident has focused on the money-saving aspects of the policy change, many analysts and commentators see the move as testament to Hu's determination to "curtail the rule of personality" and "run the party and country according to law and institutions" (anonymous Beijing academic). Others hail the policy as indicative of a "new style" of doing things, also reflected, for example, in Chinese Premier Wen Jiabao's decision to eschew the presidential suite and travel around with aids in a minivan during his recent visit to Hong Kong.

Domestic advocates for reform as well as China watchers abroad are interpreting these largely symbolic actions as a sign of Hu's willingness to steer the country toward long-overdue political reforms. They assert that Hu is testing the waters, moving ever so delicately toward announcing "democracy within the party," widely believed to be the next, safe step toward greater transparency and leeway to choose leaders within the CCP.




 

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U.S.-China Relations: On-Going Debate Over Outsourcing High-tech R&D to China

In June, Senator Joe Lieberman's office weighed in on what is becoming an increasingly front-page-worthy issue: the national security implications of outsourcing high-tech R&D to the PRC. The white paper his office published, entitled National Security Aspects of the Global Migration of the U.S. Semiconductor Industry, explains that "East Asian countries are leveraging market forces through their national trade and industrial policies to drive a migration of semiconductor manufacturing to that region, particularly China." The implication is that China is leveraging access to its market to obtain sensitive high-tech know-how so it can improve its defense capability vis-à-vis the United States. The paper also asserts that "relying on integrated circuits fabricated outside the U.S. is not an acceptable national security option."

For major IT firms the debate centers much less on matters of national security and more on matters of national prosperity. From their perspective, whoever wins the Chinese market wins the world. This is why throughout the 1990's U.S. companies were willing to accept the risks involved in entering into joint ventures with Chinese partners in exchange for market access. They had no choice, as the joint venture requirement was codified in Chinese law. So imperative was it to gain market access, multinationals were willing to expose themselves to the rampant corruption, overstaffing, management headaches, and other risks inherent in Chinese business culture. They were even willing to accept technology transfer requirements, i.e. less control over their intellectual property.

Today, this debate is taking on new life following China's accession to the WTO. Under WTO rules and regulations, China must discontinue requiring technology transfer as a prerequisite for market access. Under the new system, multinationals can opt to set up wholly foreign owned enterprises that will allow them to covet their intellectual property and minimize their investment risks while still gaining market share. By implication, China's ability to leverage market share for dual-use technological know-how will be reduced.

 

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