The year 2001 ushered in a new era in the history of Sino-US trade ties. It witnessed China's entry into WTO, bridging the past and future of Sino-US trade.

Development and Trends

According to China customs data, in 2001, China, achieved US$54.28 billion in exports to the US (4.2 percent up on a yearly basis), and US$26.2 billion in imports (17.2 percent up), creating a US$28.08 billion trade surplus. The US auditing office revealed that, from January till November of 2001, the US exports to China totaled US$17.32 billion (18.6 percent up on a yearly basis) while its imports were worth US$94.87 billion (a 2.7 percent increase), representing a Chinese trade surplus of US$77.55 billion, slightly down over the previous year. The US remained the second largest trading partner and the largest importer of Chinese goods whereas China was the fourth largest trading partner of the US.

As to the US direct investment, China approved 1,872 projects involving a total contractual volume of US$5.495 billion, with US$3.183 billion already put into use, from January until September 2001. Up to the end of September, US investors overall had launched 33,127 projects with a total contracted value of US$66.087 billion and actual utilization of US$33.28 billion, becoming one of the largest sources of FDI, next only to the regions of Hong Kong and Taiwan. More than half of its Fortune 500 companies have invested in China. Moreover, US service businesses are enjoying a mainland boom and its major corporations in the insurance, banking, cargo and sales sectors have already entered the market.

In 2001, Sino-US trade showed the following trends:

First, there was a slowdown in the growth of bilateral trade. China's imports developed faster than its exports to the US and China was still one of overseas markets for the US with the highest growth rate. China's exports to US increased by 4.2 percent, while US exports to China grew by 17.2 percent. US exports to China have maintained unbroken expansion for 10 straight years with an average rate of 16 percent per year, mainly attributable to marked differences in their economy. Since the first quarter of last year, the US has seen an economic slowdown and its imports have also declined. The September 11 terrorist attack on New York made this even worse. Meanwhile, the Chinese economy has maintained strong momentum, with an average annual increase rate of 7.5 percent, and its import have kept developing. The strong US export performance to China has helped improve the American economic downturn.

Second, in comparison with shrinking transnational investment, US has put more investment into China. In 2001 when major economic powers suffered an economic slowdown and reduced investment overseas as a consequence, China's accession to WTO and its steady economic growth helped increase the confidence of foreign investors and attracted more investment. A US research report says that at least 80 US enterprises decided to move their production lines to China with 34,900 job opportunities, in the seven months from October 2000 till April 2001. The information industry, for example, has been well developed in China and related technological transfers and investment have showed an upturn. Motorola, for example, decided to invest another US$6.6 billion in China in the next five years. It is expected that by the end of 2006, the total investment of Motorola will hit US$10 billion and its purchasing volume will amount to US$10 billion.

Third, although diplomatic relations between China and US were strained after President George W. Bush took office, their economic cooperation has shown positive changes. The US government resumed the cooperative projects of the US Trade and Development Agency (TDA), which were suspended after 1989. On July 31, 2001, the US Department of Commerce and China's Ministry of Foreign Trade and Economic Cooperation (MOFTEC) signed the China-US Operating Framework Agreement in Beijing. On the same day, the TDA and China's recipient organizations including the Shanghai and Shandong bureaus of environmental protection, Shenhua Group, and PetroChina Shareholding Co. concluded four environmental protection agreements whereby the TDA undertakes to provide funds and technological support for the projects of Shenhua Coal Liquefaction, Shanghai Air Monitoring, Shandong Air Monitoring, and PetroChina On-line Automatic Monitoring System of Oil Pollutants. In addition, both countries intensified their cooperation to improve economic slowdown and minimize the negative impact of the September 11 terrorist attack. When the US air cargo and aircraft manufacturing industries encountered difficulties after September 11, their Chinese counterparts offered help. Four Chinese airlines signed contracts valued at US$2 billion with Boeing, the first big order for the aircraft manufacturer since the terrorism incident depressed air travel. At the same time, the US Export-Import Bank helped to promote bilateral trade by providing financial guarantees.

Fourth, the negative impact on international trade of the economic downturn in the US and the rest of the world is expected to peak in the first half of 2002, posing a great challenge to Sino-US trade. According to the 2001 China customs statistics, China’s exports to the US grew less than the total exports of the country. Yet, there exists a 3-4 month cycle between transaction and goods delivery, so the statistics did not truly reflect the impact.

China's WTO Accession & Sino-US Trade

China's WTO accession is of great significance to the development of Sino-US trade.

First, it changes the long-standing situation whereby political factors affected trade patterns. Since 1990, the US Congress had been in the regular struggle as to whether or not to extend normal trade relations with China unconditionally, a pain for US commercial and industrial sectors.

Second, trade will be guided not by bilateral political activities but by the WTO, a multilateral organization, which helps to reduce trade disputes and reduce any negative impact on bilateral diplomacy.

Third, China's WTO accession means a great victory for the US China-contact group. The United States has formed two groups of people in terms of China policy, China-contact and China-containment. The former side advocates participating in China’s reform and influencing its development orientation by developing bilateral relations. US industrial and commercial sectors and the moderate politicians also favor this view. China's WTO entry undoubtedly consolidates this group.

Fourth, as China opens wider to the outside world, its economy and the cooperation with US will see an even brighter future. US industrial and commercial circles as well as its academic circles are also optimistic in this regard. Nicholas Lardy, senior fellow with the Brookings Institution and a well-known expert on the Chinese economy, echoes this view in his analysis. He believes that China will overtake Britain, Canada and France within three years after its WTO entry and develop into the third largest trading power in the world. In addition, the country will become the second largest trading economy next to US within ten years after its WTO entry.

Yet, we should also see clearly the possibly increasing frictions between the two countries after China's WTO entry as there may be differences in over fulfilling WTO commitments. US industrial and commercial circles, some opposition factions and Congressional members worry whether China can strictly meet WTO compliance and, in 2000, the US Congress included a clause demanding the administration strictly supervise China in honoring its promises in the law granting China PNTR status. Additionally, the US government has established a China monitoring unit under the Trade Policy Staff Committee (TPSC) and worked out a series of specific moves. The US usually analyzes China’s performance based on the information from Washington, China and Geneva.

The Chinese government has vowed solemnly to strictly perform its WTO duties. Yet, frictions and conflicts will occur if the US government uses political factors as an excuse to push China.

New Problems vs. Old Obstacles

Some old obstacles will continue to impede Sino-US trade despite China's WTO entry. Moreover, new problems may emerge.

Trade imbalance will keep hindering trade. According to Chinese statistics, China had US$29.7 billion in trade surplus with US; while US recorded a trade deficit of US$83.8 billion, making China its second largest trade deficit source next to Japan. The US statistics showed that in January-November 2001, the US had the similar trade deficit with China on a yearly basis. The Sino-US trade imbalance was largely due to FDI, including US investment in China. Investment in terms of technology content and scale will increase in China, which will make the country competitive not only in labor-intensive product exports but also in technology-intensive areas, and aggravate the imbalance. The trade deficit issue may turn into a serious political one owing to US economic slowdown and unemployment pressure.

The US still adopts strict export controls on hi-tech products into China. In 1999, Congress issued the Cox Report. Ever since, the US has intensified its control for the fear that China might use imports in military applications and pose a threat to US. In addition, the US denounced China's involvement in arms proliferation, which it said undermined American security. China held that there was no foundation for this worry and charge, and it was American export controls that led to the Sino-US trade imbalance. On January 11, 2001, the US announced it would relax export controls on super-computers to China and at the end of 2001, it decided to loosen restrictions on computer technical parameter exports. The US, on the whole, still employs strict restrictions against China. In May 2001 the China Aviation Technology Import and Export Corp., sued by the US Department of Justice, agreed to pay a fine of US$2.3 million. The corporation was responsible for US$1 million, and its US branch company not only paid US$1.3 million to US Department of Commerce but also was deprived of the right to export for ten years. After six years of investigation of the McDonnell Douglas Company's suspected breach of the export control law, the US Department of Commerce imposed US$2.1 million in civil compensation. The US also forbids commercial satellite exports for rocket launches in China, on the pretext of China's involvement in arms proliferation. In September 2001, the US government imposed sanctions on Chinese companies and it does not allow commercial satellite exports on the excuse that China infringes the missile non-proliferation agreement between the two countries signed in November 2000. Yet, many in the US objected to such controls. American industrial and commercial sectors think the restrictions too severe, diverting business opportunities to their foreign counterparts. The American Chamber of Commerce in China pointed out in its 2001 White Paper on American Business in China that US export controls against China were the toughest among China’s trade partners and restrictions on US enterprises’ exports of dual-use technologies to China would only cause US enterprises to lose business opportunities. Many sources in US called on the government to re-appraise the export control policies on China. At the conference of Wassenaar Arrangement on Export Controls held in Slovakia at the end of 2001, the US proposal of intensifying multi-lateral export controls was rejected by other participating countries.

In recent years, the US has tightened its anti-dumping and trade protectionism against China. It intensifies its umbrella policy on domestic industries and China has been the country that experiences most of the anti-dumping cases by US. From 1980 to 1999, the US launched investigations in 68 separate anti-dumping cases against China, or 7 percent of the total. In 2000, the US initiated 10 such cases against China. In the first half of 2001 alone, the number of the cases amounted to 10.

Some new phenomena may cause long-term impact on Sino-US trade ties.

In June 2001, the Chinese government issued the Regulations on Transgenic Agricultural Organism Safety. This aroused the attention and concern of US soybean producers and soybean-related associations as well as the US government. The regulations, the US government said, caused chaos in international soybean markets and pressure on US exporters, from some obscure clauses. Yet, through these regulations, China aims to improve the system of identification, safety appraisal, and approval of such products instead of imposing restrictions on their import. The regulations are in line with WTO principles concerning technological trade barriers. So far, both sides have negotiated on this matter. The event indicates the frictions in the field of technological criteria will increase in their trade.

Steel trade friction between the two countries shows that they will deal with the trade disputes more on the base of global multilateral framework to normalize their competitive relationship. In recent years, China has become an increasingly important processing base in the world and China-made products have exerted great impact on international markets. In 2000 China increased its steel exports to the US. In October 2001, the US International Trade Commission considered and decided that the US would levy anti-dumping duties on China's exports of hot-rolled steel, cold-rolled steel, steel plate, concrete iron and pipe steel, which US believed hurt its own iron and steel enterprises. In 2001, China's steel exports to US declined remarkably and in 2002, the US government may launch investigation of protective measures of China's steel industry under domestic pressure, according to Article 201 of the US domestic trade law. At the beginning of December 2001, Assistant Director of US Department of Commerce Faryar Shirzad visited China with his trans-sectoral delegation and held talks with China on the steel trade issue, in an attempt to encourage China to join the US-initiated plan to cut down global production of iron and steel. Before that, China had reached agreement with other steel powers. Under the agreement, each country should circulate data on its steel production situation and related economic policies possibly causing steel overproduction. In September 2001, the OECD (Organization for Economic Cooperation and Development) Steel Committee gathered together leading steel powers in a conference to discuss the issue of overproduction. Several non-member countries of OECD including China, Russia and Ukraine were also invited to the conference. The initial negotiations on steel trade between China and US shows the two countries may have cooperation as well as conflict in the steel trade, as long as they normalize their competition under the multilateral framework besides WTO.

(The author is assistant professor with the School of International Studies of Peking University and managing director of the Research Center of International Political Economics)

(china.org.cn February 27, 2002)