Trade between the United States and China may triple in 1979 as American bankers, oilmen and hotel chain executivesscramble to do business with the awakening giant of international commerce, businessmen china trade experts in the Orient say.
The decision to open full diplomatic relations with Peking is expected eventually to win billions of dollars in contracts for U.S. companies to drill for oil in the South China sea. Peking's demand for new mines, tourist services, airplanes, trucks and steel mills could swell trade figures even more.
But even if two-way Sino-American trade does grow to about $3 billion this year, from about $1 billion in 1978, it will still approach only a tenth of total American trade with Japan and only half of trade with little Taiwan.Oriental trade experts think China's trade with the United States could climb much higher, but as one said, "There are just so many imponderables."
Congress, for instance, now in an unhappy mood over Carter's failure to consult in advance about normalizing relations with Peking, has to cooperate if Washington is to extend most favored nation status to Peking. China will continue to buy U.S. goods even without getting this lower tariff arrangement for its own exports, but analysts say the gesture in favor of Chinese goods would help American traders in situations where they compete closely with Japn or Germany for the Chinese market.
The often politically volatile Chinese must also stick with their extraordinary decision to shelve the economic self-reliance policy of the late chairman Mao Tse-Tung in favor of an unabashed effort to borrow billions of dollars from capitalist banks in Japan and the West. Peking earns $2 billion to $3 billion a year in foreign exchange by selling goods to and receiving overseas Chinese remittances from Hong Kong. Its exports to the rest of the world, particularly Jpan, are increasing, but these are mostly lowgrade consumer goods like fireworks, feathers and pig bristles that cannot hope to raise the capital needed for the post-Mao leadership's ambitious modernization program.
Wang Yao-ting, chairman of the official China Council for the Promotion of International Trade, has laid out in the clearest fashion to date China's willingness to go deep into debt. Wang said Peking was considering adopting methods suggested by foreign customers such as "use credit from foreign trade organizations or foreign banks." The previous Chinese method of delayed payments over five to seven years for purchases like the Pullman Kellogg fertilizer plants "could not meet the needs of our rapidly growing foreign trade," Wang said in an interview in the January issue of the official magazine China Reconstructs.
Petroleum could become one Chinese export that draws considerable foreign currency, but China needs to extract oil from offshore wells in quantities enough to feed both its growing industries and its foreign customers, and for that it first needs considerable investment in new drilling equipment and technical expertise.
The oil companies from the United States and other nations that eventually win the right to construct the new oil fields are expected to take payment in the form of oil from those fields. China will probably use this method of payment in many other manufacuring plant deals.
Louis E. Sauboulle, the Bank of America vice president in Hong Kong who specializes in China trade, said he thought Peking's new commitment to foreign commerce was "firmly based." Recent increases in trade with the United States, however, have resulted largely from "increased sales of agricultural commodities to China, particularly wheat," he told businessmen in San Francisco.
Five American banks have now opened full correspondent relationships with the official Bank of China, including American Security Bank in the District. Many more are moving to offer the full resources of American investment capital to Peking. The other five banks include First National Bank of Chicago, which got a jump on competitors a year ago by severing banking ties with Taiwan; Citibank; Chase Manhattan and Bank of America.
U.S. banks must still use foreign intermediaries in some transactions until the 28-year-old problem of blocked claims and frozen assets is solved. Treasury Secretary Michael Blumenthal and Commerce Secretary Juanita Kreps are scheduled to visit Peking later this year.They may work out ways to pay off about $196 million in claims on formerly Americanowned property in China with about $78 million in Chinese funds held frozen in U.S. banks since 1950.
When asked about the calims and assets issue in a press conference with U.S. journalists Jan. 5, Vice Premier Teng Hsiao-ping siad he thought it was "not a big problem."
In recent weeks the Chinese have signed capital development agreements of enormous size that will affect trade figures with the United States for years to come.
The Largest American deal to date was signed here Jan. 5 U.S. Steel agreed to build a huge iron-ore processing plant worth about $1 billion in an area of Northeast China. The plant, scheduled to be completed in four years, will allow a 25 percent incfease in Chinese steel production.
The Flour Corp. signed a $10 million agreement to plan a copper mine that is expected to lead to a construction contract totaling $800 million over the next several years, the largest U.S-China trade deal to date. The hotel subsidiary of Pan American Airways won a contract to build hotels in China worth $500 million, and manage them for several years. Other American-backed hotel chains have left Peking recently reporting similar arrangements.
Peking, which already owns several Boeing 707s, bought three Boeing 747s and took options on two more last month (December) for a total $250 million deal. Coca-Cola signed an agreement to sell and later bottle its product on the Chinese mainland for the first time in 30 years. This brought cheers from teepotalling foreign travelers who have had to make do with China's own medicinal tasting orange soda pop.
Some bankers in the Orient have begun to express vague worries about China's ability to pay for the size and speed of development it seeks. The National Council for U.S.-China trade, the principal American commercial liaison group, estimates Peking will purchase $40 billion in foreign technology between now and 1985. "By present international standards, they've got enough creditworthiness to absorb that," said one banker. He cautioned, however, that such figures remain for now just estimates.
The Chinese may find they do not have enough trained personnle, English-speaking guides and living facilities to absorb quickly so many projects directed by foreign experts. Some major foreign technology projects, like the massive steel mill outside Wuhan built with German and Japanese help, have experienced serious delays in the past, although these they have been blamed on political disruption, which the government now says is over for good.
Continued bad grain harvests could also cut into Peking's ability to pay for new technology. The 1978 harvest of 295 metric tons failed to meet the leadership's expectations. It forced the purchase of more than $500 million in American grain, a drain on foreign exchange that brings no lasting benefits to the nation's industrial base. Chinese officials have suggested that such large grain purchases will continue for years to come.