This article validates virtually everything the opponents of PNTR have been saying for months. The effectiveness of the Chamber of Commerce, the National Association of Manufacturers, and the Business Roundtable, through their blue-chip public relations apparatus, to marginalize the opponents and mask the corporate sector's intent and strategy from the American people was necessary, but not sufficient, for their legislative victory. Another reason for their win, of course, was the conspicuous absence of some progressive anti-globalization forces who chose to sit this fight out on account of a variety of misplaced ideological and political sensibilities. _______________________ May 25, 2000 Page One Feature House Vote Primes U.S. Firms To Boost Investments in China By HELENE COOPER and IAN JOHNSON Staff Reporters of THE WALL STREET JOURNAL The China investment rush is on. Even before the first vote was cast Wednesday in Congress's decision to permanently normalize U.S. trade with China, Corporate America was making plans to revolutionize the way it does business on the mainland. And while the debate in Washington focused mainly on the probable lift for U.S. exports to China, many U.S. multinationals have something different in mind. "This deal is about investment, not exports," says Joseph Quinlan, an economist with Morgan Stanley Dean Witter & Co. "U.S. foreign investment is about to overtake U.S. exports as the primary means by which U.S. companies deliver goods to China." Michael T. Byrnes, chief representative of Rockwell International Corp.'s China division, seconds that: "In China, that's the direction we're going." Wednesday, by a vote of 237-197, the U.S. House of Representatives gave its approval for the world's largest communist nation to become a card-carrying member of the ultimate capitalist club, the World Trade Organization. The hotly contested House vote was portrayed by proponents as a historical watershed. It was "the most important vote we [have] cast in our congressional careers," said Rep. Bill Archer, House Ways and Means chairman. The vote perfectly punctuates the end of the 20th-century struggle between communism and capitalism for dominance of the world economy. Capitalism won. With China's entry into the WTO, free markets and free trade have emerged as the unchallenged global standard for business. The vote also cements a legacy for Bill Clinton. He will now be viewed by history as a president who firmly opposed protectionist forces within his own party, winning approval for the North American Free Trade Agreement in 1993, the WTO in 1994 and, finally, permanent normalization of trade with China. After Wednesday's vote, Mr. Clinton said: "This is a good day for America. Ten years from now we'll look back on this day and be glad we did this." For business, which spent millions of dollars on advertising and lobbied vigorously for this outcome, the consequences are more practical, but no less far-reaching. In the tense weeks leading up to last night's vote, business lobbyists emphasized the beneficial effect the agreement would have on U.S. exports to China. They played down its likely impact on investment, leery of sounding supportive of labor-union arguments that the deal would prompt companies to move U.S. production to China. But many businessmen concede that investment in China is the prize. Consider Mr. Byrnes's company, Rockwell, a Milwaukee-based maker of automation and aviation equipment. In 1987, Rockwell invested in a small cable factory in the southern city of Xiamen that produces about $3 million worth of equipment a year for the China market. Like many foreign companies in the 1980s, Rockwell was allowed to invest only if it entered a joint venture, a messy arrangement that required Rockwell to cooperate with four local partners, all of them state-owned. The experience so frustrated Rockwell that it never invested in another factory in China, preferring instead to export as much as $200 million worth of products each year to China from the U.S. and other countries. Now, Rockwell says that's likely to change. The WTO agreement, Rockwell hopes, will encourage China to abide by international rules, such as publishing regulatory changes and making transparent the workings of its bureaucracy. "We're looking for predictability, reliability," Mr. Byrnes says. With that, Rockwell expects to set up more factories. "My advice back to the headquarters," Mr. Byrnes says, "is WTO makes things more predictable for investing." Technically, Wednesday's vote in the House has no direct bearing on China's entry into the World Trade Organization. That was all but assured last week when the European Union completed negotiation of a broad trade agreement with China, following a similar agreement with the U.S. last year. But under WTO rules, China still couldn't enter the group until Congress provided permanent normal trading relations with China -- rescinding the law under which China's trade status came up for a vote each year. If the measure hadn't passed, China would have had the right to deny U.S. companies the access to its markets that it is extending to other WTO members. Now that that hurdle is cleared, the agreements to let China into the WTO will probably boost exports to the country by lowering its tariffs on a host of products. The U.S. Department of Agriculture estimates that American farm exports to China will rise by $2 billion within five years. U.S. and foreign moviemakers also expect to do more business in China, where their combined annual quota will rise to 40 releases from 10. Equipment manufacturer Caterpillar Inc. exports about $200 million of tractors and other construction equipment to China a year, a figure that has roughly tripled in the past few years as China has pushed an ambitious infrastructure program, says Dick Kahler, president of Caterpillar China Co. WTO entry will cut tariffs to 10% from 20%, making Caterpillar's products even more affordable to Chinese customers. "We don't see why we can't continue to see that kind of growth," Mr. Kahler says. Indeed, the fear among many in China is that local businesses will be swamped by foreign goods. A play that premiered in Beijing Wednesday titled "Made in China" tells the story of a beleaguered Chinese cosmetics maker fighting a flood of foreign imports. "Chinese factory managers are terrified about the low tariffs," says the play's director, Wang Shaoying. Still, if the strategic plans of American companies are anything to go by, U.S. exports aren't the big trade story here. "U.S. exports will increase, over time," says Greg Mastel, director of global economic policy at the New America Foundation, a Washington think tank. "But not at the rate of investment, and the corporate community has been quiet about that. They've been able to avoid telling that story." That story reflects a simple business fundamental: Companies need to be closer to their customers. And China has 1.2 billion potential customers. Direct foreign investment in China already has burgeoned. It totaled $45 billion in 1998, according to a January study by A.T. Kearney Inc., the Chicago management consulting firm. Last year, after the onset of the Asian financial crisis and a slowdown in the Chinese economy, the total shrank to $40 billion. Now, many economists expect investment in China will resume rising, by as much as 15% to 20% a year. With WTO membership, China agrees to allow foreign-owned dealership and distribution services, a big boost for auto makers and heavy-equipment manufacturers. U.S. banks, too, will get a crack at a market totaling 1.1 trillion yuan ($132.88 billion), in terms of loans outstanding. U.S. lenders ultimately will have unlimited access for the first time to manage the deposits of Chinese citizens and to lend to individuals and corporations. And foreign asset managers will be allowed to establish joint-venture fund-management firms. Consider Motorola Inc.'s China plans. Motorola has just developed a $600 combination computer and wireless phone, called Accompli, which it makes entirely in China. "It has really clever Chinese features, all done based on market research in China," says Motorola Chairman Chris Galvin. Already, Motorola has China sales of about $3 billion each year. When it officially joins the WTO later this year, China will allow foreign companies 49% ownership of telecommunications carriers, and 50% two years later -- compared with nothing today. Mr. Galvin believes that will be a huge opportunity for Motorola as its Chinese customer base expands. Motorola also plans to invest in Chinese Internet ventures, he says. In Shanghai, General Motors Corp.'s Buick Regal is in the second year of production at a factory that cost more than $1 billion to build. About 60% of the car is made locally, says Larry Zahner, president of GM China Group. Much of the rest, about $250 million a year, is imported from North America, mostly from Michigan. But even with China in the WTO -- which should eliminate Chinese rules requiring local content -- the Detroit company expects to raise the local content of its cars manufactured in Shanghai to 80% or 90%, Mr. Zahner says. Eastman Kodak Co. is well into plans to invest $1 billion on manufacturing plants in China. Kodak expects China will leapfrog the U.S. as Kodak's biggest market by 2025. To that end, Kodak has been boosting its manufacturing capacity there, as well as encouraging smaller investors to open Kodak Express processing stores. European and Japanese multinationals have been drawing up their plans as well. Germany's Volkswagen AG and Japan's Toyota Motor Corp. have big Chinese investment plans on the drawing board. In an era when new models are rolled out with increasing frequency, factories can't wait months for parts to be shipped around the world. As a rule of thumb, auto companies want their suppliers to locate within 250 miles of the final assembly plant. Many of the biggest trade concessions China made in return for its acceptance into the WTO are in banking, insurance and other services. New York Life Insurance Co. is one insurer already planning to set up a joint-venture with a Chinese partner, though it hasn't made public the amount it wants to invest. Just after the vote Wednesday, New York Life International's chief executive, Gary Benanav, was preparing to hop on a flight to China. "As quickly as possible, we are going to apply for a license to enter the life-insurance market," he said. American International Group already has pumped hundreds of millions of dollars into China, mostly to set up offices, train Chinese insurance agents and to ingratiate itself with local regulators by plowing collected premiums back into Chinese infrastructure projects. It also is expected to be among the first to set up a fund-management joint venture. Even agriculture companies are getting in on the act. Poultry giant Perdue Farms Inc. is ratcheting up its investment in China with a joint venture for a processing plant and hatchery near Shanghai. Beijing is well aware that entry into the WTO will bring a rush of foreign investment. Indeed, that's a big reason why, after years of dragging its feet, China has in the past two years aggressively pursued WTO entry -- to bring in the money needed to keep the economy growing and modernizing. Mike Dolan Deputy Director, Public Citizen's Global Trade Watch Field Director, Citizens' Trade Campaign 202-454-5122 (tel), 202-547-7392 (fax) 215 Pennsylvania Ave. SE Washington, DC 20003 [EMAIL PROTECTED] www.tradewatch.org
