China's Trade Ace: Deny US Big Three Access to Car Market

SHI ZHEN is the kind of Chinese consumer United States automakers are hoping to attract. He owns a refrigerator, an air conditioner, a microwave oven, and a big-screen color television. Now, he's in the market for his biggest purchase yet: a car.

A government engineer who has saved per diem money from frequent overseas trips and much of the profits from his wife's sideline beauty parlor business, Mr. Shi says he has about $8,000 to spend on his first set of wheels - probably a lower-end, Chinese-made Changhe.

``Everyone tells me that owning a car is troublesome,'' he says. ``But, ever since I started working, I have wanted to own a car.'' But whether US carmarkers get a chance to sell to Shi, and millions of other Chinese expected to buy family sedans in the next two decades, will depend on the outcome of a bitter trade battle between China and the US over copyright piracy.

Foreign automakers have lined up for a piece of this potentially huge market. The Chinese government projects that car sales will expand from only 350,000 vehicles in 1994 to 4 million annually by 2010.

But last week, Beijing threatened to withhold that prize from the Big Three US carmakers - General Motors Corporation, Ford Motor Company, and Chrysler Corporation - if the US follows through on threats to punish China for rampant copyright infringement and imposes punitive tariffs on up to $1 billion in Chinese exports.

Beijing says it will suspend talks with the American automakers to produce cars and components in China. That would give, European, Japanese, and South Korean carmakers an opportunity to make further market gains.

Today in Beijing, American and Chinese negotiators resume trade talks that broke off in mid-December when US officials walked out. Chinese warnings to shut out the US automakers have punctuated past disputes, which have brought the two countries to a near trade war, only to be averted with a last-minute compromise.

Angered that China has failed to shut down plants producing pirated compact discs, videos, and software, the US has given China until Feb. 4 to tighten copyright enforcement.

Chinese officials are reportedly moving to ease tensions, promising Monday that they will launch a crackdown on compact-disc piracy during the Chinese New Year festival, which begins on Jan. 31. China's Xinhua news agency also reports that local governments are being required to file weekly reports now on inspections of suspected pirate factories.

``The issue now is enforcement, and enforcement is not words and promises. The United States is looking for action,'' says a senior diplomat, voicing fears that Chinese pirated compact discs are flooding other Asian markets where copyright infringement had been curtailed.

In a speech Wednesday, Chinese President Jiang Zemin accused the US of raising issues that strain relations. ``We should take great foresight and seek common ground to let Sino-US ties develop in a new pattern,'' Mr. Jiang urged.

American carmakers would ``see major setbacks if the trade conflict eventually occurs,'' warned the official English language China Daily newspaper.

Executives of the three car companies in Beijing are refusing to comment on the Chinese threat. But James Paulsen, president of Ford China operations, told the China Daily that ``we are concerned that there is a potential conflict.''

Ford is now negotiating with a potential Chinese partner to produce the new small-engine Taurus in China and, along with General Motors, is vying to build cars with Shanghai Automotive Industry Corporation. Chrysler, which already produces the Jeep Cherokee in a Beijing joint venture, has been negotiating to manufacture minivans, although recently company officials said the deal was unlikely due to an unacceptable Chinese offer.

While the market potential over the long term is appealing, the blow against US companies could be less imminent than Chinese officials suggest, Western analysts say. To allow time to streamline China's unruly auto sector from 120 car and parts producers into eight significant players, the government has blocked new foreign auto ventures until 1996.

That leaves the European producers, Volkswagen, Citroen, and Peugeot, already in China, with favored positions for the interim. Other potential foreign carmakers have been urged to invest in parts operations as a prelude to landing big future contracts in a country of 1.2 billion people, where only 1.2 million cars are in use now.

Faced with transforming decrepit state industry and reemploying millions of workers, Premier Li Peng, and other central planners, would like to make autos a key growth industry for the future.

In another year, China says it will allow in three or four new foreign automakers to help modernize the industry and build new family models. China hopes to have cars that sell for less than $5,000 by the turn of the century. Those new designs will be allowed to dominate 70 percent of the domestic market.

Still, Western and Chinese analysts say expanding car production along the blueprint of China's senior leadership will be difficult. Chinese cities are already jammed with traffic, clouded with pollution, short on energy, and built for bicycle traffic. More cars could be disastrous, they warn. Then, expecting many Chinese, whose average per capita income is around $500 a year, to buy cars down the road overestimates their affordability, Chinese observers say.