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25 April 2004

• Bush Rejects Labor's Call to Punish China
• Asian Stocks Dip as China Halts Bank Loans
• Kim Jong Il Reaches "Understanding" With Chinese Government



Bush Rejects Labor's Call to Punish China

At a joint conference that included four cabinet members - Commerce Secretary Donald L. Evans, Treasury Secretary John W. Snow, Labor Secretary Elaine L. Chad and Robert B. Zoellick, the United States trade representative – the Bush administration firmly rejected a recent petition to sanction China for workers’ rights violations. The A.F.L.-C.I.O. petition claimed that China violates the rights of its workers by suppressing strikes, banning independent trade unions and not enforcing minimum wage laws.

Business leaders were pleased with the administration's decision. Tom Donahue, the president of the Chamber of Commerce, supported the administration’s decision. According to Donahue, "had the administration accepted the petition, there would have been a number of negative consequences… We would have married forever human rights and trade, and that would have been a huge mistake."

But union leaders expressed dismay. "President Bush proves himself to be, once again, the servant of his corporate donors," said John J. Sweeney, president of the A.F.L.-C.I.O. "It is the multinational corporations who benefit from the artificially low wages and repressed rights of Chinese workers."

Labor Secretary Elaine Chao defended their decision and stated that rather than condoning China's labor policies, the United States is initiating a new effort with China to ensure that it met its international labor commitments. The four cabinet members said that if China cooperated in this effort to improve labor rights and moved toward a more flexible currency exchange, the United States would consider designating China a market economy - an elevation in its trade status that would include measures like protecting it from the current high penalties it faces in antidumping trade cases.

Many people are extremely skeptical of the administration’s new policy, noting that China is extremely unlikely to give their workers the freedom of association and the right to collective bargaining in exchange for being eligible to be called a market economy.

The administration officials also said they would reject a proposed trade petition by a coalition of American manufacturers making a similar complaint about China's currency rates. The manufacturers argue that by pegging its currency to the dollar, China is keeping the prices of its exports artificially low, to the disadvantage of American companies.



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Asian Stocks Dip after China Halts Bank Loans

When China announced a freeze on new bank loans between April 28 and May 1, Asian stock markets and currencies immediately dropped in response. The lending halt comes after lending climbed 20.7 percent in the first quarter and investment in apartment buildings, factories and other fixed assets soared by 43 percent. This is only the most recent attempt by Beijing to slow rapid economic growth that is beginning to produce inflation.

Stock markets in Hong Kong, Singapore, Thailand and Australia each fell by 1.2 to 1.5 percent, while the Hang Seng China Enterprises Index, which tracks 37 mainland companies, plunged 4.5 percent.

Many are concerned because Chinese demand has sharply pushed up prices for many commodities, raising worries that these prices may fall again if Chinese officials are successful in slowing growth. China passed Japan last year as the world's second-largest oil importer, after the United States. In response to China’s decision, global prices for commodities such as steel and oil also began to decline.

In currency markets, investors worried that a slower-growing China would buy fewer goods from its neighbors. The South Korean won dropped 1.3 percent against the American dollar, while the Thai baht tumbled nine-tenths of a percent. The New Taiwan dollar fell seven-tenths of a percent and the Japanese yen, Philippines peso, the Indonesian rupiah and the Indian rupee each decreased by five-tenths of a percent.

After years of encouraging provinces to compete to see which could post the highest double-digit rate of economic growth, Beijing announced earlier this year that its national growth target was 7 percent. However, growth in the first quarter actually reached 9.7 percent, as investment climbed despite warnings from Beijing.

In an additional effort to slow China’s rapid economic growth, the State Council has also increased the proportion of the cost of aluminum, steel, cement and real estate projects that investors must finance with their own money instead of borrowing almost the entire amount from banks. Investors in steel projects must now make a down payment equal to 40 percent of the project's cost, up from 25 percent. For cement, aluminum and real estate projects, the minimum contribution by investors was raised to 35 percent from 20 percent.



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Kim Jong Il Reaches "Understanding" With Chinese Government

China announced Wednesday that the North Korean leader, Kim Jong Il, reached a "broad common understanding" with the Chinese government during three days of talks in Beijing on the crisis over his country's nuclear weapons program and will make his "own contributions" to resolving the dispute.

The International Department of the Chinese Communist Party said Hu had reminded Kim that China, as a Korean Peninsula neighbor, "has been committed to safeguarding peace and stability on the peninsula, supports a nuclear-weapons-free goal, supports a peaceful solution to the nuclear issue through dialogue and upholds that the Democratic People's Republic of Korea's rational concerns should be addressed."

This was seen as a bow to Kim's insistence that, in return for giving up his nuclear weapons program, North Korea should get formal security guarantees from the United States. But, the reports said, Hu made it clear that getting rid of the nuclear weapons also had to be addressed.

"The DPRK side will continue to adopt a patient and flexible manner and actively participate in the six-party talks process and make its own contributions to the progress of the talks," the New China News agency quoted a party spokesman as saying. The spokesman reported that Kim said "the DPRK side sticks to the final nuclear-weapons-free goal and its basic position on seeking a peaceful solution through dialogue has not changed."

The Bush administration was awaiting an official Chinese account of the discussions during three days of complete media silence. During Vice President Cheney’s visit to Beijing last week, he told Hu’s government that time is running out on the months-long Chinese effort to broker a diplomatic solution that would provide North Korea with security guarantees and economic aid in return for shutting down its nuclear weapons development.

China’s efforts to date have produced to rounds of multi-party talks, the second round of which took place at the end of February. But that session, held in Beijing, produced only agreement to form working groups in various aspects of the crisis and to meet again by mid-year.

Recently however, North Korea has been reluctant to move forward on the working groups. Pyongyang is eager first to nail down guarantees of economic aid in return for an offer to suspend its weapons program pending further negotiations on security guarantees and the U.S. demand for scrapping of the program.

The Korean nuclear crisis has been an unwelcome distraction for the government in Beijing, which wants to focus on economic development and the danger that Taiwan might declare independence from the mainland.



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