Why Gates May Matter More to China Than Bush: William Pesek Jr.
April 19 (Bloomberg) -- A word to those anxiously awaiting the outcome of Hu Jintao's visit to the White House: The news is already out, and it's the Chinese president's itinerary.
Before doing lunch with President George W. Bush in Washington, D.C., tomorrow, Hu was scheduled to dine with Microsoft Corp. Chairman Bill Gates in Washington state. You would think Hu, anxious to make a big splash in the U.S., would make a beeline for the White House.
Nope, Gates first, Bush later. It's a scheduling decision with a message: China's relationship with America is focused more on industry than on government.
The U.S., after all, refuses to classify Hu's trip as a ``state visit,'' an honor afforded to his predecessor, Jiang Zemin, in 1997. So perhaps the Bush administration shouldn't be surprised if Hu treats the White House as a stopover between the world's richest man, Gates, and the world's largest oil producer, Saudi Arabia.
Hu's itinerary says it all. After checking in with the folks at Microsoft and Boeing Co. and then with Bush, Hu heads off to Saudi Arabia, Morocco, Nigeria and Kenya, where China's interests are no mystery: energy.
Call it practical planning. Few expect much from Hu's first official U.S. visit since becoming president three years ago. It's an election year in the U.S. and a record Chinese trade surplus that tripled last year to $102 billion -- and keeps growing -- is unnerving Congress.
Photo Op
The Bush administration is anxious about China's rising military spending and its dealings with regimes the U.S. wants to isolate, including Iran, Sudan and Venezuela. Bush wants China to strengthen its currency and may ask for assurances that China isn't about to dump some of the $265 billion of U.S. Treasury debt that it holds.
China has its own list of concerns. It wants to avoid a trade war with the world's biggest economy, while also creating the impression its relationship with the U.S. is a constructive one. Hu wants to assuage fears in the U.S. about China's global ambitions.
Neither leader is about to cede much, making Hu's White House visit little more than a photo opportunity.
After the flashbulbs stop firing, Bush can tell his base he pushed Hu on the yuan, human rights, China's embrace of some unsavory governments and its role in taming North Korea. Hu can go home and say he stood firm against Washington's demands and reminded the U.S. of China's rising clout both economically and politically.
Gates First, Bush Second
Hu's visit to Gates before Bush may also be significant in relation to China's campaign against piracy.
Anyone who has been to China recently is likely to chuckle heartily when Beijing says it's cracking down on piracy. One doesn't need to look for violations of intellectual property rights -- they find you, and often. You're accosted with offers for fake designer goods, DVDs, software, you name it. About 90 percent of software used in China is pirated, according to the Business Software Alliance.
Piracy may be a bigger problem for China than it is for the Microsofts, Louis Vuittons and Bulgaris of the world. While it hurts corporate profits, it does even more damage to entrepreneurship in the most populous nation.
Piracy's Cost
When I see how rampant piracy is in China, it's not Tom Cruise's paycheck or Nike Inc.'s bottom line that I weep about; it's the conspicuous lack of Bill Gates-like visionaries to emerge from China.
China's economy doesn't need more factories; it needs more twentysomethings perched before laptops, lab tables or drawing boards coming up with new products and ideas. In other words, young people innovating.
The economy is growing 10 percent, attracting loads of foreign direct investment and getting lots of great press. Compared with India, though, China suffers from a dearth of entrepreneurs. Perhaps Gates's example will resonate with Hu.
China is already the world's factory floor, and it's working to go up-market and create service industries. The next step in its development is creating ideas, technologies and products that no one has thought of before. Its future as an innovative powerhouse -- and its ability to create millions of new jobs as a result of it -- depends on protecting the ownership of those advances.
Innovation Needed
Weak enforcement of intellectual property rights means innovators won't profit from their ideas -- not when copycat operations can duplicate products at a fraction of the cost. It undermines the incentives to go through the trials and tribulations of research and development.
This isn't an easy issue for China. Counterfeiters, for better or worse, create jobs. Those making a living selling knockoff Eminem CDs, Sony video games and Tommy Hilfiger jeans are folks who aren't about to head to Tiananmen Square and challenge the Communist Party's leadership. It's a Faustian bargain, though, and one Gates may have more success talking Hu out of than Bush.
Few think the U.S. and China will become trusted friends anytime soon. Hu's travel schedule suggests China is betting economic ties will overcome political mistrust. China's leader may just end up being right about that.
To contact the writer of this column:
William Pesek Jr. in Hong Kong, or through the Tokyo newsroom at wpesek@bloomberg.net.
Last Updated: April 18, 2006 16:21 EDT
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