China shows pragmatic face to U.S. business

China shows pragmatic face to U.S. business

By Tiffany Wu

SHANGHAI (Reuters): After NATO planes bombed the Chinese
embassy in Belgrade in 1999, mobs in China hurled stones at U.S.
diplomatic missions, firms canceled meetings with U.S. executives
and WTO talks ground to a halt.

But since a U.S. spy plane and Chinese fighter collided over
Hainan on April 1, sending Sino-U.S. relations into a fresh
tailspin, major deals with American firms continue to be signed,
appointments kept and corporate lunches eaten.

Why the contrast?

China watchers say tensions could escalate, especially on the
particularly thorny Taiwan issue, but so far, the starkly
different response is a sign Beijing recognizes business ties
have become a linchpin of Sino-U.S. relations.

China is more pragmatic and commercially driven -- it has
"grown up" in an economic sense, business executives say.

"I have not seen any hard evidence of a negative backlash
towards American companies either by the government or the
general public," said the Beijing American Chamber of Commerce's
chairman and General Motors executive Timothy Stratford.

But Stratford did note: "It's always possible that if things
deteriorate very seriously (in a political sense), there could be
some negative implications (for business)."

To a certain extent, the 1999 embassy bombing, which killed
three Chinese journalists, was a more severe crisis -- the United
States admitted it was wrong and Beijing was the clear victim.

Former U.S. President Bill Clinton was still apologizing for
that incident on a trip to Shanghai last week.

But there is more of a gray area surrounding the mid-air plane
incident last month, allowing each side to blame the other for
the collision which left the Chinese pilot dead and the U.S.
plane still stranded on Hainan Island.

Beijing's response has been measured. After the Belgrade
bombing, Chinese authorities allowed furious anti-U.S. protests.
This year they swiftly quelled public reaction.

China is irked by the U.S. refusal to stop spy flights off its
coast, Washington's pledge to supply Taiwan with arms and its
appointment of a special coordinator for Tibet.

A U.S. Congressional debate and vote on China's trade status
in coming weeks could add fuel to the diplomatic fire.

Analysts say the first commercial casualty from the recent
disputes, perhaps the only one so far, appears to be a setback in
China's 15-year quest to join the World Trade Organization.

"A series of political disputes between Washington and Beijing
have put the WTO talks on hold and there seems to be little
chance China -- or Taiwan -- will enter the World Trade
Organization this year," said a May research report by China
strategist Andy Rothman from Credit Lyonnais Securities Asia.

In the corporate realm, business is proceeding. Ford sealed a
Chinese joint venture soon after the April 1 collision, Motorola
and Lucent Technologies won CDMA gear deals this week and Boeing
expects no impact on jet sales.

"We did have concerns, but approval was granted by the central
government in a timely manner, so we didn't really feel much
difficulty because of the political issues," said Ford's China
spokesman Kenneth Hsu.

Business leaders said it was important diplomatic ties did not
worsen, or they could see China penalizing U.S. firms to make a
political statement, as in 1996 when it handed a billion dollar
contract to Europe's Airbus instead of Boeing.

China might pick a high profile business deal, for example in
the aircraft or energy sectors, to send a message that trying to
isolate China would be a dangerous strategy, they said.

"One can never separate politics from commerce," said Gong Li,
China managing partner of consultancy Accenture in Shanghai.

While the spy plane incident alone would not have jeopardized
Sino-U.S. business ties, the other strains ratchet up the risk.

The most sensitive issue is Taiwan, which China regards as a
breakaway province that must be reunited, by force if necessary.
Beijing is worried Washington will some day revoke its support of
"one China", analysts said.

CLSA's Rothman said China was reluctant to return to the
bargaining table of the World Trade Organization because of fears
U.S. President George W. Bush had "changed U.S. policy on the one
issue that was more important to Beijing than economic reform and
social stability: Taiwan."

Nevertheless, Beijing realizes strengthening commercial
bridges to the United States might be the politically savvier
move. Corporate America is one of China's best allies.

"There's no intention to use the current troubled political
aspects of the relationship to hijack the commercial, economic
ties," said Goldmans Sachs economist Fred Hu in Hong Kong.

Said Accenture's Li: "People realized that despite a terrible
incident like the bombing of the Chinese embassy in Belgrade,
Sino-U.S. business relationships went back to normal eventually."