China-U.S. Summitry: Premier Zhu Rongji’s April 1999 Visit

China-U.S. Summitry: Premier Zhu Rongji’s April 1999 Visit

Order Code RS20135
March 30, 1999
CRS Report for Congress
Received through the CRS Web
China-U.S. Summitry: Premier Zhu Rongji’s
April 1999 Visit
Kerry Dumbaugh
Specialist in Asian Affairs
Foreign Affairs, Defense, and Trade Division
Summary
On April 8, 1999, Premier Zhu Rongji will begin his first official visit to the United
States since his selection as China’s Prime Minister in March 1998. Zhu’s visit is another
important step in a seemingly perennial effort to improve U.S.-China relations. Although
U.S. policymakers have tried to lower expectations about the visit’s potential
achievements, there is widespread speculation that a deal may be in the works that could
pave the way for China’s accession to the World Trade Organization (WTO), a matter
under negotiation for over a decade now. Premier Zhu has been candid about his hopes
for such an agreement. But both U.S. and Chinese government officials remain
hamstrung by domestic political constraints that may make it difficult to reach
accommodation on substantive matters. President Clinton is already under fire for his
China policy, which some critics allege has made too many concessions to Beijing and
has even compromised U.S. national security. Although Zhu is in a stronger position at
home, his ability to make concessions sufficient for WTO accession is constrained by
China’s growing economic, political, and social problems, some of which are the result
of new, painful reforms championed by Zhu himself. Any agreement on WTO that may
come out of the Zhu visit is therefore likely to be challenged by key constituencies in
both countries.
Background to Current U.S.-China Troubles
For the past decade, the U.S.-China relationship has continued to seesaw between
notable improvements and frustrating setbacks. Eighteen months ago, much about the
relationship appeared destined to improve its prospects. Clinton Administration officials
continued to emphasize dialogue and engagement with Chinese leaders, and they believed
that China had made important shifts in its willingness to abide by international
agreements, such as in its decision to minimize nuclear cooperation with Iran. Hong
Kong’s reversion to Chinese rule, anticipated with trepidation, occurred without incident
on July 1, 1997. And despite the devastating financial crisis that affected all major Asian
countries beginning in late 1997, China appeared to be weathering the crisis relatively well,
Congressional Research Service ˜ The Library of Congress

CRS-2
and was applauded by American officials for not devaluing its currency, the renminbi
(RMB). Taken in microcosm, these developments suggested that a greatly improved
atmosphere was possible, and they helped bring about the resumption of U.S.-China
summitry, suspended since 1989. China’s President, Jiang Zemin, made a state visit to
Washington in October 1997, and this was swiftly followed by President Clinton’s state
visit to China in June 1998.
But concurrent with these positive developments, unexpected challenges have also
plagued the relationship, and these appear to have intensified throughout 1998 and 1999.
U.S. officials are concerned about a new Chinese crackdown against political dissidence,
begun late in 1998, about a reported buildup of missiles along the Chinese coast facing
Taiwan, and about the increasing U.S. trade deficit with China. Chinese officials object
strongly to U.S. proposals involving a theater missile defense (TMD) system in Asia, and
they have warned of serious consequences if a proposed TMD system should include
defense of Taiwan, which Beijing considers to be part of China. Disturbing reports
surfaced in the American press suggesting a darker aspect to the relationship — one
involving illegal Chinese contributions to American political campaigns, allegations that
American aerospace companies may have illegally transferred sensitive satellite launch
information to China, and charges that China has conducted espionage in the United
States. Problems also persist in the international arena. While Administration officials
defend the engagement policy by referring to the benefits of Chinese cooperation on North
Korea, Pakistan, and India, China is seen to be less cooperative in the U.N. Security
Council on issues such as U.N. involvement in Kosovo and Macedonia.1
It appears that both U.S. and Chinese officials are seeking ways to reduce tensions
and reach accord on issues of mutual interest. But while the willpower may be there,
given the significant constraints imposed by the current political environment, many people
are uncertain that a meaningful agreement on substantive issues can be reached during
Zhu’s official visit. In addition to disagreements with the United States over TMD,
Chinese officials have strongly criticized the U.S. decision in February 1999 to deny, for
security reasons, export licenses to the Hugh Electronics Corporation for a $450 satellite
intended for launch in China. For its part, the United States remains critical of China’s
human rights record, particularly in light of widespread recent reports about a new
crackdown against democracy activists in their efforts to form an independent political
party. U.S. officials are also dealing with evidence that lax security procedures at U.S.
national science labs in the 1980s may have contributed directly to significant
improvements in China’s nuclear weapons capabilities — a charge which Chinese officials
have denied.
The area most often mentioned as a potential basis for accord is some type of forward
movement on China’s application to join the World Trade Organization (WTO). China
is thought to have made its entry into the WTO a top priority, and is frustrated that
negotiations on its WTO access have been going on for 13 years. The United States
contends that China needs substantially to reform its trade regime before it can gain WTO
entry. China, for its part, has argued for more lenient accession terms that would allow
1 On February 25, 1999, China used its U.N. Security Council veto to halt the extension of
the U.N. peacekeeping force in Macedonia (in country since 1993). The vote was a retaliation for
Macedonia’s recent diplomatic recognition of Taiwan.

CRS-3
it to phase in needed reforms more gradually. While many of these issues have yet to be
resolved, timing has become important this year for China’s WTO accession, since a
November 1999 WTO ministerial meeting is likely to result in decisions that would make
accession for non-members even more difficult. Thus, 1999 is seen by many to be the last
window of opportunity for China’s WTO accession for the foreseeable future.2
China’s Goals and Constraints
China is now in the midst of a decidedly ambitious 5-year program for achieving a
series of sweeping reforms in economic and fiscal policy, and in bureaucratic
infrastructure. Among other things, China’s leadership last year committed itself to
keeping annual growth high and inflation low (at 8% and 3%, respectively); reforming,
3
closing, or privatizing China’s moribund state-owned-enterprises (SOEs) and its frail and
nearly insolvent state banks; requiring the People’s Liberation Army (PLA) to divest itself
of its non-military, profit-making corporate interests; and reducing the bloated state
bureaucracy, including the number of government employees, by as much as 50%.
Although clearly such an ambitious reform program must have the active support of
the senior leadership, it is Premier Zhu Rongji who is most closely associated with the
reform agenda. Zhu has long had a reputation for advocating the kinds of forward-looking
economic and structural reforms that American specialists have said China greatly needs
in order to ensure its economic development goals. Often described as “blunt spoken,”
his directness and candor (along with his willingness to hold live press conferences and
take questions from reporters) are generally perceived by Americans as a refreshing change
from the usual staid approach taken by China’s senior leaders. As Premier, a position to
which he was elevated in March 1998 for one 5-year term, Zhu actively presides over and
directs China’s State Council bureaucracies; thus, he is not only considered the chief
architect of China’s ambitious reform agenda, but is also in charge of its implementation.
His position as head of the government bureaucracy gives him wide-ranging jurisdiction;
nevertheless, he is most strongly associated with an economic portfolio, and is often given
the moniker of China’s “economic czar.”
Although Zhu in recent weeks has discussed a number of the thornier issues in U.S.-
China relations, including TMD and Taiwan, he is thought to have placed China’s WTO
accession at the top of a list of issues to discuss in Washington. According to Chinese
press reports, Zhu is putting together a series of economic and trade measures that he
hopes will result in an agreement with the United States on China’s accession to the
WTO.
4 Although he has not gone into specifics about what these measures may be, in a
2 See CRS Issue Brief 98014, China's economic conditions, and CRS Issue Brief 91121,
China-U.S. trade issues, both by Wayne Morrison.
3 Actual growth for the previous year was 7.8% rather than the targeted 8% rate, according
to Zhu Rongji’s work report delivered at the annual meeting of the National People’s Congress in
March 1999. Cited in FBIS online, March 5, 1999, Document ID FTS 19990305000649. Chinese
leaders reportedly have lowered projections for annual growth in 1999 to 7%.
4 Lam, Willy Wo-Lap, “Zhu’s ‘basket for U.S.’ as he shops for trade group entry,” in South
China Morning Post, March 17, p. 7; “Comparison — Zhu Rongji News Conference” (of March
(continued...)

CRS-4
mid-March 1999 press conference during which he discussed a broad range of issues in
U.S.-China relations, Zhu was quoted as saying that China was “prepared to make the
largest possible concessions” for WTO access. This would be possible, he said, largely
because continued economic reforms had given Chinese leaders a greater ability to
“supervise and regulate” China’s economy. U.S. trade experts have speculated tha
5
t
these concessions would include a further reduction of tariffs on imports. But according
to Zhu’s own statements, Chinese leaders also may be considering measures to allow
direct foreign investment in key domestic markets that hitherto have been closed or highly
restricted, such as the telecommunications and electronics sectors, banking services, and
possibly the agricultural sector. Only by “encouraging competition” in such sectors, t
6
o
quote Zhu, will there be ultimate benefit to these and other outdated and inefficient sectors
in China’s economy.
7
Even though Zhu Rongji may be willing to make significant concessions to assure
China’s WTO accession, the more important question is whether he will be able to make
them. Although he still appears to be in a strong position politically at home, the domestic
reforms Zhu has pushed for are painful, cutting across a wide group of constituencies that
have vested interests in the status quo. Zhu remains potentially vulnerable to resistance
and criticism from these groups, many of whom are potential victims of the kind of
international competition that WTO obligations could bring. Almost exclusively, the
entities with something to lose from WTO accession are part of the official state sector;
the private and entrepreneurial parts of the Chinese economy, already competitive, stand
to be the chief beneficiaries of WTO membership.
This official concern about the state sector is a serious complication in Premier Zhu’s
efforts to gain support for substantive and meaningful economic concessions on WTO.
Zhu’s support for a decision requiring the PLA to sell off its money-earning corporate
interests, for instance, has won him few friends in China’s military establishment. Indeed,
a key military leader, a vice-chair of the crucial Central Military Commission, has been
described in one press account as an unexpected leader in the “say no to Zhu” contingent
in China. There are others who may want to say no to Zhu:
8
ministers of state government
bureaucracies faced with massive cuts in personnel and resources; demobilized soldiers;
and workers at state-owned-enterprises who may lose their jobs, housing, and medical care
as a result of SOE reform. Some Chinese and U.S. economists also wonder whether such
key, protected sectors in China as telecommunications and agriculture can absorb the
economic shock of an influx of highly competitive foreign imports without resulting in
massive bankruptcies and widespread unemployment. Despite these constraints, Zhu is
4(...continued)
15, 1999), in Xinhua, FBIS online, March 16, 1999.
5 Ibid.
6 In his March 15 press conference, Zhu said that China must introduce competition into the
state telecommunications monopoly held by China Telecom, and suggested it was his intention to
open the telecommunications market gradually to foreign investors. He also suggested that China
would allow foreign banks to begin doing business in renminbi, China’s currency.
7 Ibid.
8 This is General Zhang Wannian, according to Willy Wo-Lap Lam, “Critics Besiege Zhu
Rongji,” in South China Morning Post, Nov. 18, Nov. 1998, p 17.

CRS-5
thought to be exerting enormous pressure at home to gain support for enough concessions
to gain WTO access on what U.S. officials have insisted must be “commercially viable”
terms.9
U.S. Goals and Constraints
According to Administration officials, a broad range of issues in U.S.-China relations
will be on the table for discussion during Premier Zhu’s visit. At the top of this U.S. list
10
are issues involving non-proliferation and China’s human rights record, the latter being of
particular congressional concern. In addition, according to one U.S. official, the United
11
States will use the occasion of Zhu’s visit to “reaffirm our position on Taiwan,” and to
emphasize that the United States will continue to adhere to its obligations under the
Taiwan Relations Act. In addition to these perennial concerns, China’s potential WTO
12
membership is clearly also on the minds of U.S. policymakers. U.S. trade officials have
made a number of trips to China within the last few weeks, seen to be part of an intensive
effort to reach accord on a WTO agreement, and recent statements by U.S. officials
suggest that China has made substantial (although still insufficient) progress toward
meeting WTO requirements. One recent trade publication has reported that China i
13
s
offering to allow foreign investors a 35% stake in telecommunications firms, a 40% stake
in banks, and a 50% stake in insurance companies by the year 2005. Still, U.S. officials
14
have been endeavoring to lower expectations about the potential achievements of the Zhu
Rongji visit.
In spite of the differences plaguing U.S.-China relations, many U.S. policymakers find
much to support in the principles behind China’s current reform agenda, including new
validation of the private sector, the emphasis on market competition, and attempts to place
limits on the role of the communist state apparatus. Thus, U.S. officials may wish to find
ways to support Zhu Rongji, the reform agenda’s principal advocate, in an effort to help
him with his own political and economic problems in Beijing. An agreement paving the
way for China’s WTO accession would be the centerpiece of Zhu’s visit, and could
9 According to USTR Charlene Barshefsky, the United States will not agree to “a sweetheart
deal” to give China WTO access on terms of special privilege. Quoted in Chicago Tribure, March
5, 1999, p. a35.
10 These issues were enumerated in testimony by Stanley Roth, Assistant Secretary of State
for East Asia, in hearings before the Senate Foreign Relations Committee on March 25, 1999.
11 Responding to intense congressional pressure on the human rights issue, the Clinton
Administration announced on March 26, 1999, that the United States would introduce a resolution
condemning China’s human rights record at the U.N. Conference on Human Rights in Geneva some
time in April 1999.
12 Roth, Ibid.
13 On March 5, 1999, U.S. Trade Representative Charlene Barshefsky left China after two
days of talks on WTO. During the talks, she met for nearly 3 hours with Premier Zhu Rongji. On
March 24, 1999, U.S. Assistant Trade Representative Robert Cassidy arrived in China for further
talks, during which there was enough progress to justify a second visit by Barshefsky, who left for
Beijing on March 28, 1999. Also in China beginning March 28, 1999, was U.S. Secretary of
Commerce William Daley, scheduled to be in China until April 1, 1999.
14 China Weekly Fax Bulletin, Orbis Publications, Washington D.C., March 29, 1999.
www.orbispub.com

CRS-6
strengthen his hand against his own critics at home. But in light of fierce American media
attention on possible U.S. national security breaches, and given current congressional
tensions with the White House over a broad range of issues in U.S. China policy, some
have suggested that Administration officials appear to have limited flexibility to make bold
policy moves unless those actions have broad domestic support.
Congressional Actions
Congressional opinion remains divided on what the United States should seek to gain
from Premier Zhu’s visit. In a Dear Colleague letter (dated March 15, 1999) proposing
legislation to require prior congressional approval before the United States could support
China’s WTO accession, Senators Jesse Helms and Fritz Hollings stressed human rights
and security issues, saying:
...the [human rights] situation in China has degraded significantly ...
Additionally, we remain troubled by the allegations regarding the possible
illegal transfer of technology to China, as well as lingering questions over
Chinese espionage and involvement in U.S. elections. Any trade agreement
with China would be premature before these issues are resolved.
In floor debate on a similar motion (ultimately tabled by the Senate), Senator Hutchinson
stressed common congressional themes: skepticism about Chinese promises, doubts about
whether China had made enough market reforms to fulfill WTO obligations, and objection
to “lowering the bar” for China on terms of membership.
15
Prospects
Despite the low profile being taken by U.S. officials, the frequency and apparent
intensity of U.S.-China talks over the last two months suggest that both sides believe they
are close to an agreement on at least the basic framework for China’s future accession to
WTO membership. How that agreement is viewed in the United States is likely to depend
on whether the United States is perceived to have backed off of its insistence that China
be admitted on commercially viable terms. Some have suggested that a WTO agreement
could be made more palatable if it were followed by other agreements or understandings
designed to appeal to unhappy constituencies on either side. These could include
understandings involving Taiwan’s swift accession to the WTO (widely supported within
16
Congress) and on China’s receipt of permanent most-favored-nation trade status (MFN,
now officially known as NTR, or normal trade relations), something long sought by
Beijing and supported by some Members of Congress. Although failure to reach an
understanding on WTO during Zhu’s visit — something which a Chinese spokesman has
said China is “mentally prepared” — would not necessarily mean a further erosion in U.S.-
China relations, it would indicate that agreements on far more fundamental differences in
the relationship are not likely in the foreseeable future.
15 Senate floor debate on the Hutchinson amendment to S. 544, making emergency
supplemental appropriations and rescissions. The Senate tabled the amendment, 69-30.
16 Taiwan has also had a long-standing application for admission to the WTO as a “customs
territory.” Beijing has strongly opposed Taiwan’s admission to the WTO before China’s
admission.