Mission heralds new era in China trade

THE one thing US Secretary for Commerce Ron Brown double-checked in his luggage before boarding the plane for Beijing was his pen. The canny politician has revealed he expects to walk away from China clutching business deals worth ''several billion dollars'' - or about US$1 billion a day for the duration of his trip.

US corporations are understandably keen for Mr Brown to scrawl his name on the dotted line. But they are also aware - as is Mr Brown, despite his best public relations efforts - that there is more to this trip than making cash for America.

The fact is, Mr Brown's pen is going to be signing as many cheques as it is deals. For he has strongly hinted he is prepared to end a four-decade ban on what is known in political parlance as ''tied aid''.

Basically, tied aid offers a country financial aid on the condition it places large orders with companies from the donor country.

More simply, it is aid for exports - or in the words of maverick money man Marc Faber: ''bribes''.

The aid takes the form of low-interest loans from government-run banks such as the US Import-Export Bank. But it also clears the way for individual companies to offer financial incentives to generate deals.

''We're in China to do deals,'' Mr Brown said this week. ''Other countries are operating with an unfair competitive advantage by using tied aid.

''We intend to compete and win. We do not want the Germans or the French or anyone else to move in. We want US companies to not just get their fair share, but more than their fair share of what's on offer.'' Mr Brown's troop of travelling cheerleaders - 24 of the most important chief executives in America - is obviously effusive about such moves.

For them, it is a much-awaited licence to compete equally with companies from Germany, France, Japan and Australia, who have been signing tied-aid deals with China for years.

Unsurprisingly, these same companies are less enthusiastic about the US aid-for-exports revival. William Courtauld, president of the British Chamber of Commerce and a director of Jardine Pacific, preferred to call tied aid ''bought deals''. ''I didn't think tied aid was in the Queensberry Rules,'' he added.

Call it what you will, everyone has been doing it except the Americans, and in Washington, that did not wash. A powerful pack of business-backed politicians has been lobbying Bill Clinton's administration to relax the 40-year-old ban since the president came to power. US economic growth, they argued, was increasingly dependent upon China's economic growth.

They have a point. Tied aid works. When Germany's Chancellor Helmut Kohl visited China he signed deals worth a cool US$4 billion. He also agreed to lend Chinese companies about US$2 billion for the privilege.

''What really irked the Americans was seeing Chancellor Kohl go to China and come back with the goodies because he was offering them an aid-for-exports package,'' said the research director of a major local securities house. ''It was a clear example of US companies losing out to their European rivals.'' China's Minister for Foreign Trade and Economic Co-operation, Wu Yi, is also keen for the US to reintroduce aid-for-exports deals.

Credit is becoming increasingly rare for Chinese companies as Beijing attempts to rein in inflation. Any source of funds that does not involve domestic borrowing has to be a good idea. And if it is at very attractive interest rates, so much the better.

The scene for this giant leap in Sino-US relations was set by President Clinton's plan to create six million American jobs and boost US exports to $1 trillion by the end of the century by drastically relaxing export controls. WASHINGTON formally stopped linking export orders and financial aid in the 1950s. But in a gesture towards economic reality, it set up the Trade Development Agency (TDA) and the Overseas Private Investment Council (Opic), which offered financial assistance to US companies doing business overseas.

However, in 1989, the TDA stopped all financial aid to China and Opic ceased offering risk insurance to US investors in the mainland. The linking of trade with issues such as human rights in the annual MFN tussle eventually led to China's status as financial pariah.

With MFN removed from the equation, Ms Wu has confirmed she will be discussing the reintroduction of these two programmes with Mr Brown.

US companies cannot wait. Braham Singh is the managing director of the Hong Kong operation of Sprint Corporation, the huge US information-systems company whose chairman, William Esrey, will be accompanying Mr Brown.

He said: ''The US has to do whatever it takes to be competitive. The US has been trying to slug it out in a competitive market place with one hand tied behind its back. Now the playing field will be level.'' Having access to low-interest loans from the US Export-Import bank would make a huge difference to US companies bidding for major infrastructure projects, said Michael Pralle, president of General Electric Capital East Asia.

''The Chinese are price-driven, and assistance on the debt side would allow US firms to compete on an equal footing with the French and Germans. It could be extremely significant,'' he said.

Robert Laban, director of Pitney Bowes, the massive US electronics company whose chairman, George Harvey, will also be feeding from the same trough as Mr Brown, said: ''We will be signing deals during Mr Brown's trip, and we are willing to extend certain financial assistance to facilitate the process.'' The vice-president of the American Chamber of Commerce in Hong Kong, Tom Gorman, also took an unsurprisingly upbeat view on the reintroduction of tied aid.

''US relations with Chinese companies will be dramatically increased. Most US businesses watched rival governments from Australia, Japan and Europe offer financial support and felt the US Government was not being as supportive.'' Those days are now over, and the Japanese, Germans, French, and to an extent the British, are not thrilled. They have been fighting an American onslaught ever since China opened its doors and a return to a level playing field bodes badly for their prospects.

They have good reason to be fearful. When US companies could not fall back on tied aid to generate deals with China, they were forced to sell their services according to their technical expertise, cost efficiency and service.

Armed now with tied aid to lubricate the deal-making process, US companies can offer a far more attractive package.

Enzio von Pfeil, chief economist at S. G. Warburg Securities, said: ''[China] needs US technology, it needs US expertise, it needs the US style of funding and it needs the US market.'' MAURICE Vallat, president of the French Business Association and senior local representative for telecommunications company Alcatel, said: ''These kinds of deals have helped a lot, but it could be argued that the US is too late.'' He added that many Chinese firms had already signed major deals with non-US companies. ''The modernisation of China began ages ago and these deals cannot be undone,'' he said.

But Mr Vallat is being too optimistic. It is estimated that China will be spending upwards of $600 billion purely on the development of its infrastructure by the year 2000.

There is patently plenty of scope for further major deals to be signed.

Helmut Peper, managing director and chairman of shipping company DSR/Senator Line as well as president of the German Business Association, offered a more pragmatic and ultimately resigned opinion.

''Secretary Brown is basically following in the footsteps of Chancellor Kohl, and what is valid for the Germans should also be valid for the Americans. We are in the market, they are in the market, and the market should be open. Fair competition is fair enough.'' Mr Courtauld, of the British Chamber of Commerce, insisted British companies would not be disadvantaged and said aid-for-exports packages might not be in the best interests of the companies or China. ''Bought deals are sometimes not the best way to generate long-term relationships,'' he said. ''There is no reason whatsoever for UK companies to feel downhearted just because this US thrust is taking place. It is a market in which everyone uses their elbows and we will be using our elbows too.'' But the question is: will elbows be enough? Mr Courtauld has already stated he thinks tied aid is not part of the Queensberry Rules. But when it comes to emerging markets, US companies fight with their gloves off.