BUSINESSES LOSE GROUND IN CHINA

A half-dozen years ago, U.S. businessmen were eager to cash in on a seeming Chinese bonanza.

A vast new Chinese market appeared at hand, thanks to landmark agreements between the U.S. and Chinese governments.Commerce between the two nations spurted, and last year it topped, for the first time, $8 billion, counting two-way traffic. It is growing further this year.

But, with time, the United States has seen its once substantial Chinese trade surplus erode. As with other Pacific Rim countries, the United States now runs a trade deficit with China, though a deficit much smaller than with Japan, Taiwan or even South Korea.

As for the future, U.S. business prospects in China appear less than bright, some expert analyses delivered here last week suggest.

Not only is U.S. business losing ground to Japan in the Chinese market, but it is finding rising competition from Western Europe and even the Soviet Union and its East European allies, said Nicholas R. Lardy, a University of Washington professor.

Last year, the European Community outdid the United States in two-way China trade, the first time in years, and if present trends persist, Sino- Soviet trade by 1989 is likely to exceed Sino-U.S. trade, he reports.

Political and economic factors are behind the relative lag in U.S.-Chinese trade.

Financing is one of U.S. business' apparent problems, especially vis-a-vis Japanese competitors. The Japanese government is pouring billions of dollars of aid into China. Official financing from the United States comprises very occasional and modest Export-Import Bank loans.

The U.S. Agency for International Development does not lend to China.

Moreover, the Chinese are wary about raising private funds in the United States. This despite China's having borrowed, by mid-1986, almost $2 billion on international bond markets, including a Eurodollar bond market offering, Mr. Lardy noted.

China's reluctance to float bonds in the United States relates to a legal controversy over a 1911 bond issue here by the Qing Dynasty.

The more China develops closer financial links with Japan and Western Europe, the more it seems likely to develop trade ties with those countries, to the United States' commercial disadvantage.

Roger W. Sullivan, president of the National Council for U.S.-China Trade, warned in another report to the Joint Economic Committee of Congress last week, that non-competitive U.S. financing is costing U.S. exporters heavily.

To compete in China, he said, many U.S. capital goods manufacturers turn to their foreign subsidiaries for better financing. Our comparative disadvantage, Mr. Sullivan predicted, will become more pronounced when China begins to spend heavily in telecommunications and major power plants.

Both Prof. Lardy and Mr. Sullivan cited U.S. export controls as another significant brake on U.S. sales to China, despite the U.S. government's easing of some licensing restrictions.

A recent U.S. delegation to China, said Mr. Sullivan, found primarily European andJapanese advanced equipment . . . and hardly any U.S. equipment at Chinese telecommunications facilities.

The U.S. government, he said, should not only relax export controls on this sort of gear but in other sectors such as semiconductor manufacturing equipment and networking.

A rising Soviet challenge in the China market reflects China's apparent decision for greater balance in relations with the United States and the U.S.S.R.

China, its foreign exchange at a premium, also seems more inclined now to do international business by barter, which the Soviet Union and Eastern Europe favor, too.

Five-year trade pacts have been signed with the Soviets and most of the East European countries. A target to double Sino-Soviet trade by 1990 has been set.

The Soviets, Prof. Lardy projects, may become a major source for China in steel, electrical gear, diesel locomotives and jet aircraft, among other manufactures.

But global politics is hardly the only factor influencing U.S.-Chinese trade relations. National priorities, business attitudes, and China's own developing economy can hurt U.S. trade prospects.

Japanese firms, said Prof. Lardy, have five times as many representatives in China as do U.S. firms. Meanwhile, for budgetary reasons, the U.S. government eliminated the Central Intelligence Agency's China economic research unit, which, in Prof. Lardy's view, was the only organization with the capacity for sustained, in-depth research on the Chinese economy.

China's great agricultural gains, particularly in wheat and cotton, have displaced U.S. exports. On the other hand, China's still pervasive state controls on industry may impede Chinese economic growth, making the country less of a potential market for U.S. and other foreign businessmen.

Inefficiency and protectionism in China can sometimes be blatant, said Mr. Sullivan.

China's tightly circumscribed rules for foreign investors have come under criticism. But here China may be about to offer reforms.

Last month, Mr. Sullivan reports, high-level Chinese officials told visiting U.S. businessmen of plans to relax early next year foreign exchange, marketing and other rules for foreign firms in China.

Said Mr. Sullivan: It's a major breakthrough.

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