Bombs, spies and trade
NATO's accidental bombing of the Chinese embassy in Belgrade on 7 May 1999 may prove a key moment not only in Sino-American relations, but also in Chinese internal politics. Far from being a temporary 'flap', as US Ambassador to China James Sasser described the mass demonstrations outside his embassy, the bombing has cast doubt on some of the fundamental aspects of Sino-American relations and has strengthened forces opposed to the further opening of China to the outside world.
The incident came at a time when key Chinese provinces and economic sectors were becoming more fearful of the consequences of China joining the World Trade Organisation (WTO) and reducing barriers to foreign imports – especially given the mass hardship already caused by the Asian economic crisis and by domestic reforms. These groups are increasingly aligned with conservatives in the communist leadership, grouped around parliamentary chairman Li Peng, and oppose the reformist premier, Zhu Rongji. Their strong resistance to any further trade concessions to the US has been reinforced by widespread public rage over the embassy bombing, and over American policy in general. This anger and concern is focussed, above all, on US military supplies to Taiwan and on moves to create a US missile shield in East Asia, including Japan and perhaps Taiwan.
It is clear, therefore, that the rhetoric from Washington and Beijing in recent years about a Sino-US 'strategic partnership' has been overblown and misleading. The task facing leaders and diplomats on both sides is rather to manage and to limit the inevitable rivalry between the two countries so as to prevent a collapse of pragmatic links and a drastic escalation of tension. This undertaking is, however, becoming increasingly difficult.
The World Trade Organisation
Despite extensive concessions, Zhu failed to gain US acceptance of China's entry into the WTO during his visit to Washington on 7–10 April 1999. This led to increased domestic criticism of him even before the bombing. Such splits in the Chinese leadership are usually veiled behind hints and oblique references.
After the bombing, however, these differences were partly revealed in the official media and during academic discussions. This reflects not only the anger at US and NATO behaviour, but also the increased openness of the Chinese system. Faced with this wave of criticism, President Jiang Zemin, who had hitherto backed Zhu, has begun to distance himself from the premier.
Zhu was perceived to have been humiliated by President Bill Clinton's rejection of the proposed WTO agreement. In addition, he was accused of having been outmanoeuvred as the Americans demanded more concessions on tariffs and subsidies for steel and textiles in an effort to increase opportunities for US exports to China. The general feeling in Beijing is that China has offered as much as it realistically can to Washington, and that, in the wake of the bombing, further concessions are politically impossible.
According to the deal reached by Zhu on 8 April, average industrial tariffs are to be reduced from 24.6% to 9.4%, and tariffs on 'US priority products' – including cars, information technology and chemicals – are to be cut to 7.1%. Increased Chinese exports to the US would mainly benefit manufacturers of cheap consumer goods, but both heavy and high-technology industries, such as steel, automobiles and telecommunications, may suffer badly in the face of cheaper American imports. Consequently, the opposition to Zhu now receives support from the bosses of China Telecom, who have found backing within the military for their argument that to open China's internal telecommunications market to foreign competition (as agreed by Zhu) would threaten national security.
Most important is the rising opposition from the Ministry of Agriculture, the extremely powerful agricultural sector and several influential rural provinces, especially in the grain-growing areas of the north. Many farmers and regions are likely to suffer as a result of Zhu's concessions on food-import tariffs. These concessions will reduce tariffs to 17.5%, while those on 'priority US items' will be cut to 14.5%. US agricultural products, especially grain and fruit, are of a higher quality than China's, and are on average some 30% cheaper, posing a serious threat to Chinese producers. WTO accession on these terms could, therefore, widen the already dangerous economic gap between the poorer interior provinces and the wealthy coastal regions. According to official figures, average peasant incomes fell by 12.5% in 1998.
These groups are trying to reverse some aspects of Zhu's liberalisation programme and perhaps to force his resignation. Li, who made his career in the state water and electricity sectors, has long been seen as the ultimate representative of the conservative bureaucracy. He played a key part in the bloody suppression of student-led protests in 1989, and has been even less apologetic about it than the other leaders. Li is also the most instinctively anti-American of the three top leaders. As premier in 1989–98, he continued the economic reforms initiated by paramount leader Deng Xiaoping, but in a relatively cautious way.
Not surprisingly, Li has strongly criticised the proposed terms of accession to the WTO. He has stated that China will sacrifice neither its principles nor its interests to join the organisation, and that the country is not interested in being admitted at any particular time – the latter being an implicit criticism of Zhu's keenness to gain admission by November. Li has reportedly succeeded in ensuring that agreement on WTO entry would have to go through the parliament. All of the top leaders acknowledge the need to develop the economy, but Li (unlike Jiang and Zhu) has only rarely spoken of the need for greater openness or used the official slogan of 'joining up with the paths ['standards'] of the whole world'.
Like the Minister of Defence, General Chi Haotian, Li has gone much further than the other leaders in attacking the US, declaring that 'the whole Chinese people is united in hatred of the enemy'.
Reformists on the defensive
Even before the embassy bombing, NATO's campaign over Kosovo had strengthened the position of the conservatives, who were able to draw on deep Chinese hostility to Western and, especially, US 'arrogance', 'imperialism' and 'hegemony'. The furious reaction of American politicians to reports of Chinese nuclear espionage have been portrayed in China as part of a deliberate policy of whipping up anti-Chinese hysteria.
The Chinese point out that the US retains an overwhelming superiority in nuclear weapons. Given this imbalance, Beijing is deeply worried by tentative US moves towards establishing an anti-ballistic-missile shield for its allies in East Asia, possibly including Taiwan – something which could greatly reduce the diplomatic and military importance of China's limited nuclear arsenal.
However, while Zhu has suffered as a result of the bombing and the WTO question, the broadly pro-reform mainstream still seems to be in control of overall policy. Jiang has continued to insist on maintaining the priorities laid out by Deng.
He has reaffirmed the policy of reforming state-owned enterprises, and accelerating the modernisation of the armed forces. He strongly emphasises multi-polarity in foreign affairs as a means of constraining the US, and, consequently, has called for closer strategic links with Russia. But, even after the bombing, he still seems to want basic policy on relations with the US to conform when possible to the pragmatic principles he specified in 1996: 'Enhance trust, reduce trouble, develop cooperation and refrain from confrontation'.
Jiang has sought to defer the WTO issue, and to reduce political conflict, by calling for a new group to examine the full domestic ramifications of entry. The president presumably hopes that, by dealing with the matter in terms of balancing competing interests and as a technical economic issue, he will be able to separate the WTO question from the wider controversy over economic change, cuts in state subsidies and increased unemployment, and thereby save the reform programme.
The nationalist upsurge
The fury of the student demonstrators outside the US and British embassies and other Western offices was fuelled by long standing feelings of humiliation at the hands of stronger foreign powers. On several occasions this century, such anti-Western protests have combined with discontent over domestic issues to help to topple Chinese governments.
Although the present Chinese regime played a role in encouraging and orchestrating the demonstrations, it was aware of the need to contain them in case they threatened its own rule. Moreover, angry as they may be at US actions, most urban Chinese remain fascinated by Western culture and desirous of Western goods.
Much as they might wish it otherwise, mainstream leaders like Jiang know that they have no alternative but to try to preserve a working relationship with the US. Above all, they recognise the critical importance of American markets for Chinese exports and for the Chinese economy – in 1998, more than $70 billion of Chinese goods were exported to the US, 38.7% of all Chinese exports. The industries, cities and provinces which produce these goods now make up a formidable and wealthy lobby for preserving good relations with the US. By contrast, according to US figures, only $14bn of American goods were exported to China, increasing calls in the US for protective tariffs – demands which have been strengthened by the upsurge in anti-Chinese feeling.
Leaders in Beijing also realise that China is not sufficiently wealthy or technologically sophisticated to engage in an arms race with the US, and that an attempt to do so could result in the country meeting the same fate as the Soviet Union. China's 1998 military budget was between $12bn and $35bn, and even a planned 10% increase will leave it vastly below America's military budget of $278bn. Recent statements by US leaders about their wish to resume constructive engagement with China have therefore been reported in the official media, and the beginnings of an attempt at rapprochement are visible.
Nonetheless, the risk that mutual hostility will develop to a point where pragmatists in neither administration are able to control it is greater than at any time since the flare-up over Taiwan in 1996. Preventing the formal separation of Taiwan from China is an issue on which no government in Beijing can compromise, and Chinese observers believe that there is a danger that moves in this direction could take place under the protection of the US navy and an American anti-ballistic-missile shield.
It also looks extremely unlikely that the Chinese leadership will reach consensus on the US terms of entry into the WTO. Beijing, therefore, expects Washington to offer concessions in order to restore working relations, and as indirect 'moral' compensation for the embassy bombing. Such concessions may, however, not be possible for US domestic reasons.
Not only is the US Congress in a strongly anti-Chinese mood, but America will shortly be entering a presidential election year, when opposition parties (whether Democrat or Republican) have traditionally accused the administration of being 'soft on China'. In these circumstances, there is even a risk that, in June, the Congress will vote against renewing China's Most Favored Nation trading status. If the US proves unyielding on trade, Zhu's premiership may be doomed, and Sino-American relations will spiral further downwards.
