U.S. and Chinese trade officials concluded a day-long session of high-level talks here Monday with a pledge that Beijing will crack down on rampant traffic in pirated goods by prosecuting more people engaged in the enterprise. But the talks ended with no change on a major source of discord -- the flood of Chinese-made textiles reaching American shores.
In a sign that trade tensions between the two countries are likely to intensify, China's exports surged in June while import growth slowed, according to Chinese government figures released Monday. The result is a $9.7 billion overall Chinese trade surplus with the world -- its third-largest monthly surplus on record.
Always complex, commercial relations between the United States and China have grown more contentious in recent months. Beijing has denounced the Bush administration's decision to choke incoming shipments of Chinese textiles as an anathema to free trade. U.S. trade groups accuse China of keeping the value of its currency too low, making its goods unfairly cheap on world markets. Recent weeks have seen escalating tensions as the state-owned Chinese energy business CNOOC Ltd. pursues the U.S. firm Unocal Corp. in a takeover battle with Chevron Corp. -- a spectacle that has ramped up U.S. fears about China's emerging force in the global economy.
Even as trade frictions worsen, corporate ties between the United States and China continue to develop, linking the two giant economies while bringing U.S. capital and management to bear on China's transition from communism to free enterprise. This week came reports that Goldman Sachs Group Inc., the U.S. investment bank, has joined with the German financial firm Allianz AG to seek the purchase of a $1 billion stake in China's largest state-owned bank, the Industrial and Commercial Bank of China. China's leaders are keen to sell shares in its biggest financial institutions to foreign investors as they seek to modernize a lending culture that has left banks with an estimated $500 billion in bad loans. Meanwhile, China Petroleum and Chemical Corp., known as Sinopec, one of China's three largest energy companies, is forging a venture with Exxon Mobil Corp. and Saudi Arabian Oil Co. aimed at delivering a $3.5 billion expansion to an oil refinery in southern China.
But as a high-level U.S. trade delegation met with Chinese counterparts here in China's capital, officials focused on a long-sought and vexing goal -- curbing the widespread trade of counterfeit and pirated goods that U.S. companies say costs them billions of dollars a year in lost sales. U.S. Trade Representative Rob Portman and Commerce Secretary Carlos M. Gutierrez said the meetings had produced merely incremental gains.
"I did not have high expectations for major breakthroughs," Portman said in an interview late Monday. "I thought we made measured progress in a number of areas. I'm not satisfied with process. It should be about outcomes."
Experts were dubious about China's pledge for stricter enforcement against piracy, noting that Beijing routinely hands out such promises as parting gifts to visiting U.S. officials, while the trade remains brazen as ever. On the streets of every Chinese city, peddlers and shops openly offer products including Prada handbags, Windows software and new Hollywood movies selling for less than $1. The illicit trade is a major source of employment, and factories are often protected by local officials, some of whom own stakes in them.
"The Chinese government does not have the power to stop piracy," said Tao Xinliang, dean of the department of intellectual property at Shanghai University. "The government closes a lot of factories, but lots of others keep opening."
One senior Chinese official on Monday suggested that the government is doing all it can to combat piracy. At a morning briefing, Li Dongsheng, vice minister of the State Administration for Industry and Commerce, said that in the first half of the year, the government investigated more than 2,400 cases involving illegal use of foreign trademarks while shutting down hundreds of factories.
"Some nations have criticized China for lax trademark and anti-counterfeit efforts," Li said. "Many foreign investors don't understand China's law or how our enforcement system works. But the statistics speak for themselves."
In simple terms, Washington's trade dispute with Beijing boils down to a single number -- the $162 billion trade surplus China enjoyed with the United States in 2004. Chinese officials argue that the gap proves that its companies have proved adept at making goods Americans desire. Trade groups in the United States point at the same figure as a sign of foul play, arguing that the Chinese juggernaut manipulates its currency, exploits workers and steals intellectual property.
Limiting the trade deficit with China has become a major goal of the Bush administration. At an evening news conference, Gutierrez said the administration would use the size of the deficit as an indicator of China's progress on combating piracy and removing barriers to U.S. goods.
"That's one of the measures we will look at," he said. "What we will focus on very intensively is our exports to the Chinese market. China has full access to our market. What we want is full access to the Chinese market."
He and Portman highlighted a pledge from Beijing that it will set aside a current draft of procurement regulations that would mandate that a slice of the government's software purchases must go to Chinese companies -- a market they said could be worth as much as $8 billion to U.S. firms.
But if the size of the deficit is to gauge the U.S.-China trade relationship, Monday's data signaled continued turbulence ahead. Over the first six months of the year, China's exports worldwide rose 33 percent compared with the same period a year earlier, exceeding $342 billion, while imports increased by 14 percent, to $302.7 billion. Most economists expect that trend to continue, with some predicting that China's surplus with the world could exceed $100 billion for 2005, more than triple last year's surplus.
"The U.S. deficit with China is going to be growing," said Jonathan Anderson, chief economist at UBS Investment Research in Hong Kong. "It's going to look uglier."
Economists say the slowdown in China's import growth is the result of clamps the government imposed on investment to choke off the threat of inflation, combined with a surplus of factory capacity that has diminished the need to buy goods abroad. Until recently a major importer of steel, China became a net exporter this year -- the result of exuberant investment in an abundance of steel mills.
The textile trade has been a primary irritant between Beijing and Washington. Since the expiration on Jan. 1 of a global system of quotas that limited how much any one country could ship to the United States or Europe, Chinese-made goods have swamped the U.S. market. In May, the Bush administration imposed "safeguard" quotas on seven categories of Chinese textiles -- a move the United States can pursue under the terms of China's entry to the World Trade Organization. U.S. manufacturers filed petitions Monday seeking new quotas on additional categories of textiles.
At the meetings, China did not offer a proposal aimed at settling the textile dispute. A U.S. trade official who spoke on condition of anonymity because the official was not authorized to speak on the matter said the Chinese were holding off, cognizant that Washington is in no position to deal as Congress considers passage of the Central American Free Trade Agreement.
Special correspondents Eva Woo and Jason Cai contributed to this report from Shanghai.