By David Brindley

Staff Reporter

After nearly a decade of troubled diplomatic relations between China and the United States, politics seems to be giving way to pragmatism.

Case in point: In March 1996, China's leaders were so irritated by a trip Taiwan's President Lee Teng-hui made to the United States that they sent naval troops to conduct military exercises off the coast of Taiwan. The United States, in turn, sent two aircraft carrier battle groups to the Taiwan Strait as a way of sending a direct message to China that it would not tolerate China's expansionistic overtures in the region.

China backed down the day after U.S. forces arrived, withdrawing its fleet.

And despite the heightened political tensions, commerce went ahead as usual. In fact, that same year, Chinese imports to the United States grew by 13 percent, to $51.5 billion, over 1995 imports.

Another example: When the movie "Red Corner" was released last year, some analysts predicted it would create a political firestorm with China over its depiction of human rights violations. But in fact, the Chinese largely ignored the movie and political relations never turned the wrong corner.

"Given the critical role of the U.S. market and the kind of economic stability that kind of an export orientation permits, the Chinese figured that there really had to be more of an effort on their part to smooth the waters," said Jonathan Pollack, senior advisor for international policy at the Rand Corp., the Santa Monica-based think tank.

Eager to gain the good graces of the new and improved Asian giant, President Clinton hosted Chinese President Jiang Zemin in a state visit last October. Clinton will also visit Beijing later this year the first state visit by an American president since the Tiananmen Square crackdown.

Critics have charged that the administration's turnabout is partly related to secret donations China made to the Democratic National Committee in 1996, through local intermediaries.

The administration has denied any quid pro quo, and said China has made genuine efforts to improve its human rights practices. While acknowledging that "serious problems remained," the State Department's annual human rights report said that "in 1997 the government took several positive actions to address international concerns."

One major step forward for the Chinese, the report noted, was the release of the prominent dissident and democracy activist Wei Jingsheng from prison last November (although human rights groups argue that the report overplayed the positive steps that the Chinese have taken.)

While the Clinton administration is pressing China to further open its market to U.S. exports, it may be increasingly difficult given the Asian meltdown. China's strong currency, relative to its regional partners, will make it more expensive for China to import goods. That could, in turn, put pressure on China's burgeoning U.S. trade imbalance. Already the country has the second highest trade deficit with the U.S., after Japan.

China's exports to the U.S. grew by about 20 percent last year. Even though that growth rate may dip somewhat in 1998, because Chinese imports will be more expensive relative to other Asian imports, the overall trade imbalance will likely remain on an upward trend.

And that could cause political friction here in the U.S. "If the trade deficit with China begins to bump up, that's a political problem," said Pollack.

Trade imbalance is also a growing concern for local businesses especially local entertainment companies. A major sticking point in trade relations has been China's notoriously poor protection of trademarks and intellectual property.

Since the early 1990s, the United States has placed intense pressure on China to close down factories making counterfeit copies of compact discs and movies.

According to Molly Kellogg, vice president of anti-piracy for Warner Bros. in Burbank, Chinese efforts to close down those factories have been so successful that a new problem has arisen. Many factories have now been opened in Hong Kong and Macao, an autonomous territory of Portugal that will revert to China next year, and are exporting counterfeit copies to China.

Since the crackdown on counterfeits hasn't effectively stemmed the flow of contraband in China, U.S. companies are adopting a new strategy: focusing on opening China's market further.

China's restriction on the amount of cultural imports films and entertainment seems to be fueling offshore counterfeiting operations. Kellogg points out that in the past two years, only four Warner Bros. films were allowed to legally enter China. Many other feature films, however, have entered the market illegally via counterfeiting operations.

"Unless you can provide (legal) product to replace pirate product," says Kellogg, piracy will continue. Given China's sensitivity to opening its doors to Western culture, that is clearly a political issue that will take time to sort out.

But with politics giving way to pragmatism, the former is less important in trade relations. The "political atmosphere doesn't make much of a difference" for U.S. businesses in China, says George S. Yip, a professor at the Anderson Graduate School of Management at UCLA and author of the forthcoming book "Asian Advantage."

"Overall prospects continue to be good," he said. And that's music pirated or not to U.S. businesses' ears.

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