China Set to Go On Buying Spree For U.S. Goods
Bid to Shrink Trade Gap,
Earn Diplomatic Points
Could Benefit Boeing, GE
By CHARLES HUTZLER
Staff Reporter of THE WALL STREET JOURNAL
BEIJING -- China is trying to ease some of the contentiousness stemming from its trade surplus with the U.S., orchestrating a buying spree of American products ahead of the Chinese prime minister's coming visit to Washington.
Faced with a loud U.S. lobbying campaign to reduce a trade imbalance that last year hit $103 billion in China's favor, Premier Wen Jiabao told American officials and executives this week that more than one delegation soon would head to the U.S. on missions to purchase American goods, participants in the meetings said Wednesday. Among the priciest items on a Chinese shopping list that includes telecommunications and chemicals equipment are potentially billions of dollars in aviation equipment, with Boeing Co. to receive multiyear orders for as many as 30 airplanes, U.S. and Chinese business executives said.
Boeing executives declined to confirm publicly that a deal was pending, saying any announcements would be made by the buyers. But executives at Air China, one of the country's three largest airlines, said the carrier is slated to receive some of the Boeing aircraft. An industry executive said rather than big-ticket 747s and 777s, the Chinese orders are expected to consist mainly of narrow-body 737s, whose least-expensive model sells for an advertised $41 million.
General Electric Co. also is receiving some of the Chinese largess. Earlier this year, GE won a $900 million order for gas turbines. GE's aircraft-engine division also is expected to sign a contract soon with government-backed Avic I Commercial Aircraft Co. to supply engines for a 100-seat regional jet the Chinese company is developing, said Geoff Li, a GE spokesman in China. Mr. Li and other executives wouldn't provide details, though late last year, after signing a letter of intent for the project, GE said the deal could yield the company $3 billion of revenue over the jet's expected 20-year lifespan.
While China typically times big deals around high-profile political meetings, the circumstances surrounding the run-up to Mr. Wen's planned foray to the U.S. in December are different. Trade generally has served as a bright spot in relations amid tense differences over weapons proliferation, Taiwan and human rights. The Chinese leadership has made it a priority to foster steady relations with the U.S., whose investments and purchases of Chinese exports provide crucial fuel to China's economy. But the trade deficit is now a hot-button issue for the Bush administration, which faces a presidential election next year with the prospect of a rebounding U.S. economy that isn't generating large numbers of new jobs.
The White House has dispatched a series of officials to Beijing in recent weeks with a message of urgency about the gap. Commerce Secretary Donald Evans, in Beijing this week, said Mr. Wen and his other Chinese interlocutors realize the deficit is becoming politically unsustainable.
"I got assurance that [Mr. Wen] is committed to closing the trade-deficit gap," Mr. Evans said Wednesday. Reuters news agency, quoting an unidentified official in China's Ministry of Commerce, reported that more than 100 executives and officials from Chinese companies and ministries will accompany Mr. Wen to the U.S. Mr. Wen also is encouraging Chinese companies to make long-term investments in the U.S., American business executives said.
Yet Mr. Evans and members of his entourage also said the trade imbalance is underpinned by structural problems and other barriers that one-time purchases of goods, no matter how large, won't resolve. Much of the U.S. ire has focused on the yuan, whose peg to the dollar, U.S. officials and some economists say, leaves the Chinese currency undervalued and makes China's exports cheaper.
China has so far shown little willingness to let the yuan appreciate in value, fearing it would destabilize a debt-laden banking system and sap the rapid economic growth needed to create jobs. Defending the Chinese policy, the director of the State Administration of Foreign Exchange, Guo Shuqing, said Wednesday that a doubling of the yuan's value still would leave wages for Chinese workers at only 6% of those in the U.S.
There are other complaints, too, from U.S. executives and politicians that China uses sometimes unfair policies to compete. China is coming under increasing charges that it is backing away from market-opening commitments it made when entering the World Trade Organization in 2001.
Indeed, in a study issued Wednesday, the U.S. semiconductor industry stepped up pressure on China to dismantle policies that U.S. executives say protect domestic companies at the expense of foreign microchip producers.
The Semiconductor Industry Association singled out an official policy of refunding to domestic producers all but three percentage points of a 17% value-added tax levied on chip products sold in China. Chips designed and made abroad don't get the rebate, resulting in an effective 14% tariff on imported semiconductors. (See related article.)
The report by the San Jose, Calif., trade group -- which backed China's WTO accession -- says China could increasingly draw capital and work away from the U.S.
Thus, caught between these policy priorities and U.S. pressure, Mr. Wen's government is left with few short-term options other than the buying spree. "Wen is looking for ways to smooth trade tensions, but there's not much room to maneuver on the currency," said an American business consultant in Beijing.
In a sign of this limited scope for action, China is considering buying a large amount of U.S. grains, possibly soybeans, said Phil Laney, China director for the American Soybean Association. "It would be a wonderful PR move," said Mr. Laney. But, he added, the purchase "would do nothing to remove the [import] restrictions." |
