Sat, Sep 08, 2001 page19

• China's penalizing CSFB riles US Congress

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  China's punishment of Credit Suisse First Boston for hosting Taiwanese officials may fuel a new backlash in the US Congress against the communist country, legislative aides warned.

  Chinese authorities ejected the bank from a multibillion-dollar share sale by China Unicom Ltd, the nation's No. 2 mobile phone company, after the company sponsored a European tour by Taiwan government officials.

  The action, which drew a protest from the George W. Bush administration, may generate investigations in Congress, said Sam Stratman, a spokesman for House International Relations Committee Chairman Henry Hyde, an Illinois Republican.

  "This is about the credibility of financial markets," Stratman said.

  The incident followed similar actions by China against foreign companies, including a threat to ban Japan's Matsushita Communication Industrial Co from selling mobile phones for a year because its handsets had a reference to Taiwan as the Republic of China.

  One legislative aide said the incidents demonstrate that China -- which is on the verge of completing a 15-year bid to join the World Trade Organization -- can't be trusted to follow global trading rules.

  "It's an outrage," said Bob King, a spokesman for Representative Tom Lantos of California, the International Relations Committee's top-ranking Democrat. "It's certainly not going to help relations with the US."

  "People don't like to trade with bullies," King said. "It raises questions about China as a trading partner."

  The US is China's biggest trading partner.

  China has previously punished US banks, stripping Morgan Stanley Dean Witter & Co of a mandate after its analysts helped drive down Hong Kong stocks in 1997.

  The government had never before punished a bank for its relationship with Taiwan.

  State Department spokesman Richard Boucher said the US complained to China about its treatment of Credit Suisse First Boston.

  "We are concerned about that matter," Boucher said.

  "We have already raised it with the Chinese government."

  Boucher also confirmed that the US ambassador to China, Clark Randt, skipped a dinner in Beijing with Chinese officials.

  Boucher declined to confirm reports that Randt acted in protest of the treatment of Credit Suisse First Boston, a unit of Zurich-based Credit Suisse Group that was formed in 1988 through a consolidation with the US investment bank First Boston.

  The action comes just as China settled another dispute involving financial services companies that may clear the way for the country to enter the Geneva-based WTO.

  China agreed Wednesday to give foreign life insurers the same access as American International Group Inc to a market projected to grow to US$35 billion within four years, bowing to demands by the EU.

  Chinese officials said they now expect negotiations on terms for membership in the WTO to be completed next week, paving the way for a vote on China's effort to join the global body, which should encourage foreign investment in the country.

  "We are expecting this will be the final round," said Gao Wenfang, a trade counselor at the Chinese Embassy in Washington.

  David Aaron, a senior trade official in the Clinton administration who helped negotiate the 1994 agreement that established the WTO, said China's action against Matsushita "conceivably could run afoul" of the WTO's services agreement.

  Proving unfair treatment of CSFB "would be more difficult, because they could always claim they did it for some other reason," Aaron said.

  US-China relations have been recovering since April, when China detained members of US Navy reconnaissance plane that collided with a Chinese military jet and made an emergency landing on China's Hainan Island.

  Relations also suffered in 1999, when a commission chaired by Representative Christopher Cox, a Republican of California, described ties between Chinese espionage, US trade with China, and illegal Chinese campaign donations.

  China's move against Credit Suisse may be a prelude to a wider action against US companies that help Taiwan in such areas as advanced computer exports and defense, said John Tkacik of the Heritage Foundation, a Washington think-tank with allies among conservative leaders.

  "The next round, of course, would be Boeing, Lockheed- Martin, IBM, anybody that has any high-tech or defense dealings with Taiwan," Tkacik said.

  China, however, would be cautious before moving against US companies outside financial services, said Roger Robinson, chairman of the William J. Casey Institute of International Economic Security.

  China targeted the financial services industry in its public relations battle over Taiwan because the companies are so eager to enter the Chinese market, said Robinson, who served in the Reagan administration as senior director for International Economics Affairs at the National Security Council.

  The main risk for China is in setting a precedent for employing capital market sanctions at a time when Congress is debating whether to establish such sanctions in the case of Sudan, Robinson said.
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