TNAG-2750-FCO40-3965-Most-favoured-nation-status-for-China-Hong-Kong-interests-1993 — Page 238

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Carried as he proposer Received wisdom has it that the US was always more forgiving of Hong Kong than of the rest of the "Four Tigers" (Korea, Singapore and Taiwan) as they all increased their respective trade imbalances with the US during the 1980s. But there is a risk that US hostility to China's soaring trade surplus may yet be turned on Hong Kong. We may then find our power to influence the US Administration on Hong Kong's behalf has been weakened.

1.

2.

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All the evidence indicates that unconditional renewal is a non-starter: President Clinton will renew in June 1993 while at the same time setting conditions for renewal in 1994. Among the worries cited by the Administration and on the Hill (along with Human Rights and Democracy) - it is my impression that China's trade surplus seems to be gaining prominence. We have seen a number of accounts that the record trade imbalance has raised hackles in the protection lobby and made it difficult for those in the Administration disposed to find some pragmatic deal for China, (see Washington Telno 371)

3.

I see from the US/China trade brief (by Economic Advisers copy attached), that while China's surplus with the US between 1987 and 1992 rose to record levels, Hong Kong's and Taiwan's surpluses correspondingly fell, mainly because Hong Kong and Taiwanese companies relocated production to China's coastal provinces. It could be that US wrath at a rising deficit with "Red" China would be soothed by the knowledge that net trade with "Greater" China is the same overall as five years ago, but I doubt it. I suspect that Americans attach an emotive significance to a deficit with a communist country which will be hard to deflect. In any case the protectionist lobby have a vested interest in presenting free trade as a threat, and what better enemy of US interests than China?

4. The next step for the lobby is to look for someone to "blame" for China's surplus. President Clinton himself, during his telephone conversation with the Prime Minister on 10 February, pointedly mentioned that a lot of China's exports were financed by Japanese money. The finger may soon point at Hong Kong as well as Japan and Taiwan. Our bullish statistics (eg 70% of foreign capital in Southern China comes from Hong Kong; three quarters of those employed in Hong Kong manufacturing 3 million - work in Southern China), may look less rosy from the US protectionist end of the telescope.

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