China: a huge market gets bigger.

In recent years, the People's Republic of China (PRC) has been one of the fastest growing economies in the world. Its gross national product (GNP) increased 12.8 percent in 1992 and is projected to grow at 8-9 percent annually in the remainder of the 1990s. Foreign trade as a percentage of China's GNP has risen from about 10 percent in the late 1970s to 38 percent in 1992. Certain regions in China are booming, and many people are becoming affluent. Guangdong province, the most open region, with a population of 65 million, has benefited from neighboring Hong Kong's free-wheeling capitalist economy, and the movement of Hong Kong's manufacturing sector into the province has created probably the most dynamic economy in the world.

This dynamic growth can be attributed largely to China's policy of reforming its economy and opening up to the outside world, which began in 1979. The pace of reform has quickened over the past year in the wake of senior leader Deng Xiaoping's call, made in early 1992 during a tour of southern China, for more rapid growth, greater openness, and stepped-up reform. Deng's policies were endorsed by the Fourteenth Congress of the Chinese Communist Party (CCP) in October 1992, by the Eighth National People's Congress in March 1993, and again by the Third Plenum of the CCP's Fourteenth Central Committee in November 1993.

The Third Plenum adopted a decision of steps needed to transform the Chinese economy into a market system with a number of new reform initiatives.

Priority areas for reform activity include the state-owned enterprises, banking and taxation, foreign trade, social security, and the rural economic structure. Rapid economic growth, bold reform measures, and massive infrastructure plans point to enormous market potential in China. The current five-year plan (1991-95) calls for spending $70-80 billion a year on imports. Recently, China announced 210 large projects in 23 industries seeking foreign technology and equipment between 1993 and 2000. The cost of imports for the projects is expected to total $30 billion. Additional spending on infrastructure could amount to as much as $200 billion by the year 2000. As China gives priority to infrastructure development, business opportunities appear especially promising in the energy, telecommunications, and transport sectors.

The Chinese have a high regard for American products and want to see more American companies in the China market. Potential for U.S. exports to China has been enhanced greatly by recent U.S.-China agreements on the protection of intellectual property rights (IPR) and market access. Under the IPR agreement signed on January 17, 1992, the Chinese Government pledged to significantly upgrade China's intellectual property regime. The market access agreement signed on October 10, 1992 called for the Chinese Government to substantially reduce nontariff import barriers, especially in product categories of great interest to U.S. firms.

In pursuing business opportunities in China, U.S. firms need to be aware of the existence of political risks there. Chinese leadership continues to stress economic development as the country's primary objective, with very little attention being paid officially to what might be termed political reform. The rapid economic development of the southern and coastal areas continues to spread to other regions, such as the northeast and southwest, but there remain some anomalies in development which create unrest in the less prosperous areas. On the whole, however, as long as the economic expansion continues generally and does begin to spread to the internal regions, political activity will remain relatively dormant. Nevertheless; should the current inflationary trends become uncontrollable, then unrest could certainly be stimulated. Further, the question of leadership succession remains unresolved, or at least obscure, and future development could generate some uncertainties. At this time, however, the political situation in China is basically stable and is clearly overshadowed by the efforts being made to develop the economy.

TRADE WITH THE UNITED STATES 

After a 20-year hiatus, trade between the United States and China resumed in 1972 following the signing of the Shanghai Communique at the conclusion of former President Nixon's historic visit to China. Trade has developed rapidly since normalization of diplomatic relations in 1979. Two-way trade increased from $2.3 billion in 1979 to $33.1 billion in 1992. U.S. trade has been in deficit with China since 1983. The deficit reached $18.3 billion in 1992 and $21.5 billion in the first 11 months of 1993, second only to the U.S.-Japan trade deficit.

U.S. exports to China have developed unevenly since 1979. The annual volume fluctuated widely throughout the 1980s, and ranged from $2 to $4 billion during 1980-87. The annual export volume was around $5 billion during 1988-90, and rose to $6.3 billion in 1991 and $7.5 billion in 1992.

In 1992, China was the 15th largest foreign market for U.S. goods and took a 1.7 percent share of U.S. total exports. In recent years, U.S. exports to China were led by aircraft and parts, fertilizers, wheat, cotton, turbines, wood, plastics, pulp and paper, electric machinery and computers, professional and scientific instruments, and organic chemicals.

Unlike the fluctuations in exports, U.S. imports from China have grown almost without interruption, from $592 million in 1979 to $25.7 billion in 1992. In 1992, China was the fifth largest exporter to the United States, supplying 3.9 percent of U.S. total imports.

The commodity composition of U.S. imports from China has changed significantly in recent years. Since 1990, leading import items have included textiles, toys and games, telecommunications and electrical machinery, apparel articles and accessories, footwear, and leather articles. For China, the United States is the number one export market, with about one-third of global exports going to the United States.

There are a number of issues that affect the U.S.-China business relationship, most notably the annual renewal of China's Most Favored Nation (MFN) trade status. During 1994, U.S. Government policy makers will make decisions on MFN, discuss China's implementation of our market access and intellectual property rights agreements, and continue negotiations on China's accession to the General Agreement on Tariffs and Trade (GATT).

In support of U.S. business interests, the Department of Commerce hosted the eighth session of the U.S.-China Joint Commission on Commerce and Trade (JCCT) in April. This Commission serves as our principal forum for reviewing commercial issues of mutual concern and advancing commercial ties. Several trade events also will take place this year under the auspices of the JCCT, including seminars and trade missions covering the telecommunications, insurance, chemicals, and energy sectors.

BEST U.S. EXPORT PROSPECTS

Best export prospects reflect the needs of China's rapidly industrializing economy and growing consumer spending. China has an especially strong demand for basic infrastructure, industrial and construction equipment and materials, and a growing array of consumer and health goods.

The recent economic austerity program and China's growing trade deficit with the world, however, will likely have a short-term effect on China's import decisions, especially in the consumer goods and services sectors.

Best prospects may be conveniently grouped in the following categories, roughly in order of market priorities.

* Infrastructure: energy (coal, oil, power), transportation (air, rail, port, auto), telecommunications (digital transmission equipment, fiber optics), and environment.

* Industrial equipment: process industries (chemical, petroleum, metallurgy), manufacturing, high-technology equipment (computers, electronics, instruments), construction equipment, and agricultural equipment.

* Industrial and agricultural materials: steel, chemicals, glass, construction materials, paper, and fiber. Medical goods: pharmaceuticals, medical equipment, and hospital supplies.

* Consumer goods: consumer durables, apparel, and food products.

* Services: financial services, retailing, legal, accounting, advertising, and shipping (still significantly restricted).

This article appeared in a new Commerce Department publication, "The China Business Guide." This 52-page document was prepared by the Commerce Department's Office of China, Hong Kong and Mongolia, in cooperation with the U.S. and Foreign Commercial Service office in Beijing. It is available for $4.00 from Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402;