China plans to purchase US goods in a big way

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Last updated at: (Beijing Time) Wednesday, October 29, 2003

China plans to purchase US goods in a big way

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China, responding to months of sustained pressure from the Bush administration to reduce its $103 billion trade surplus with the United States, will soon announce the purchase of billions of dollars worth of American goods, including airplanes, jet engines and auto parts, US and Chinese trade officials and company executives said Tuesday.

China plans to announce the deals before Premier Wen Jiabao's planned US visit in early December, in an attempt to soothe rising protectionist sentiments in Washington. Chinese and American officials said the timing and the size of the contracts are intended to ensure that Wen is received warmly, by giving the Bush administration some relief from complaints by US manufacturers about competition from China, an issue that could become increasingly sensitive in the run-up to next year's presidential election.

US trade officials said they expect China to announce a multibillion-dollar deal to purchase dozens of Boeing Co. jets to support an expansion of its airline industry. An executive at Boeing confirmed that finishing touches are being applied to the deal, but declined to discuss financial terms. US Commerce Secretary Donald L. Evans, who is on a four-day visit to China, said in an interview in Beijing Tuesday that an agreement between Boeing and China's commercial aviation authorities will likely be announced "in a matter of weeks, not months."

China also plans to buy billions of dollars worth of engines and other equipment from U.S. suppliers as part of the construction of domestically made jets by a consortium of Chinese companies, AVIC 1 Commercial Aircraft Co. Ltd., according to the US officials and confirmed by the consortium. China has already signed letters of intent to buy jets for the project from General Electric Co. and avionics equipment from Rockwell Collins Inc., but those companies have yet to receive any orders.

While the purchasing announcements may influence trade politics in Washington, economists say they are not likely to be big enough to substantially reduce the US trade deficit with China. The money would be spent over several years. Moreover, in the long term, the trade deficit largely reflects the movement of American manufacturing to China -- a fundamental shift that is unlikely to reverse. Indeed, more than half of Chinese exports to the United States are produced by factories wholly or jointly owned by American companies, according to the China Council for the Promotion of International Trade, a government-affiliated group.

Those deals and others reflect China's recognition that a trade war with the United States would be disastrous. The United States, the world's largest consumer market, last year bought one-fourth of China's exports.

Bush administration officials, while welcoming the prospect of major business deals for American companies, said their criticisms of China's trade policies could not be bought off with the purchase of U.S. products. Rather, they said they would continue to press for greater access to Chinese markets for U.S. companies, enforcement efforts against still-rampant counterfeiting and piracy of American products, and China's elimination of subsidies for unprofitable state-owned companies.

"We'll be very glad to have them buy American goods," said a Bush administration official who confirmed that China has professed an intent to move in that direction. "But it's bigger than that. There needs to be a real structural adjustment."

China has in recent weeks rebuffed a series of Bush administration entreaties to allow its currency, the yuan, to be determined by market forces. Some U.S. manufacturers, particularly in the textile and furniture industries, argue that China's currency is priced too low relative to the dollar, making its exports unfairly cheap. Some members of Congress are threatening to impose protective tariffs of 27 percent against all Chinese goods if Beijing does not raise the value of its currency.

Chinese government has refused to change its currency policy, asserting that the nation's banks are too full of bad loans to handle the freely moving money that a looser currency would create. China has trimmed the tax rebates it pays to exporters in a bid to mollify critics. Now, eager to avoid barriers to its fast-growing exports to the United States, China aims to quiet calls for protectionism by increasing its American imports, a senior official in Beijing said.

"The trade deficit is so large," the official said. "China is really trying to solve this. There are many ways to do it, but one way is to buy more things from the United States."

China's strategy is based on the assumption that, as it develops and grows, it will continue to spend trillions of dollars buying goods from around the world. It needs cotton for its enormous textile industry, energy to power its factories and basic commodities such as copper and tin to supply its vast manufacturing enterprise. It cannot meet its own needs domestically, so it is going to spend its money somewhere. The expenditures amount to a form of political capital, favors to be dispensed and targeted strategically to cultivate and maintain geopolitical relationships.

"As China's purchasing power expands, it will buy more and more from other countries," said Cao Siyuan, an economist at Beijing Siyuan Research Center for Social Sciences, formerly an adviser to the State Council, the Chinese equivalent of the Cabinet. "China takes the Sino-U.S. relationship very seriously, both from the political side and the economic side, and sincerely wants to solve the conflict. It will shift more and more of its purchasing to the United States."

China imported more than $185 billion worth of goods from all over the world in the first half of this year, and exported $190 billion in goods in the same period. It is now running huge trade deficits with Asian countries as it absorbs steel from Japan and Korea to support a construction boom, basic commodities from Malaysia and Indonesia.

The Bush administration contends that China's trade surplus with the United States is in part a product of its refusal to fully open its markets. Commerce Secretary Evans has accused Beijing of breaking with its market-opening obligations under the World Trade Organization, a charge he made again on Tuesday during a speech before the American Chamber of Commerce in Beijing.

China's government rejected claims that it has failed to meet its WTO obligations. "China has strictly fulfilled its commitments," foreign ministry spokeswoman Zhang Qiyue said at a news briefing. "China is very sincere."

Zhang repeated Beijing's longstanding claim that the trade deficit is in part the result of American rules that bar exports of high-tech goods that could potentially be used for military purposes. Evans dismissed that claim, saying that sales of such goods, even if doubled, would have a minor impact on the overall trade deficit.

Evans on Tuesday presided over the ceremonial signing of three contracts under which China's rail ministry will buy more than $100 million worth of equipment from U.S. suppliers. Then he met privately with several government ministers and spoke for more than two hours with Premier Wen. Following that meeting, he told reporters that he had pressed Chinese officials for swifter removal of barriers to free trade.

Evans characterized the premier's response as encouraging, particularly on the issue of the trade surplus.

"He realized that market access for American products and goods is a direction they must go," Evans said. "Their feeling was that the size of the surplus that's out there now is not sustainable and they needed to work on ways that are out there to close the gap."

Wen was quoted in Wednesday morning's China Daily newspaper pledging that "China will take measures to expand imports to the United States."

China will soon send a delegation to the United States to purchase more American goods, Wan Jifei, chairman of the China Council for the Promotion of International Trade, said at a Wednesday morning news conference held by the U.S.-China Business Council in Beijing. He said purchases would focus on telecommunications and aviation.

Whatever the political significance of the purchases of U.S. products soon to be announced, for major American companies they could help solidify significant footholds in what many economists assume will eventually be the largest market for just about everything. Boeing, in a fierce battle with the European consortium Airbus, already claims roughly two-thirds of the market for passenger airplanes in China. The company forecasts that over the coming two decades, China will require some 2,400 new airplanes, worth nearly $200 billion.

AVIC 1, the Chinese consortium planning to manufacture advanced regional jets -- planes targeted for the country's less-populated western provinces -- is expected to produce its first aircraft in 2007. AVIC 1 forecasts a need for about 500 of the planes, with research and production beginning later this year.

"We plan to import lots of equipment from suppliers in the United States, such as aircraft engines," Li Genxing, an official in the international purchasing department of the Shanghai-based company, said.

(Source: agencies)

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