The Little Red Order Book

Even before President Nixon lifted the embargo on direct trade with China (see THE WORLD), some of America's largest companies were breaking into Mao's market. Among them: General Motors, Monsanto, Hercules, Cummins Engine and American Optical. U.S. business with the Chinese has risen from nothing in 1969, when the Administration first began easing trade restrictions, to $3,500,000 last year.

All of the deals have been made through the third parties or foreign subsidiaries of U.S. firms. American companies have been barred from doing business directly with China, and Peking has professed a distaste for dealing head-on with "American imperialists." Even Ping Pong diplomacy has not yet changed the official stance of the Chinese, but they have no ideological objections to buying from U.S. subsidiaries.

American Optical, through its Austrian subsidiary, has sold medical research microscopes to China. Overseas branches of Monsanto have shipped a variety of chemicals, including materials for aspirin and rubber. The subsidiaries are forbidden by the U.S. Government to sell any of 600 "strategic items," but the embargo list leaves plenty of room for trade. General Motors, for example, sold $682,000 worth of diesel engines and spare parts in 1970 to Roberto Perlini Co., an Italian truck manufacturer, who sent them to China along with 80 Perlini trucks.

Bulldozers and Cashmere. The Commerce Department is preparing a new list of items for direct sale to China. The list will ban the export of almost all industrial goods but is likely to permit sales of Pharmaceuticals, foods and other commodities. The Chinese appear to want a great many American products, particularly the forbidden items, including delicate research equipment, bulldozers and trucks. But Peking has little to offer in return, aside from hog bristles, cashmere, embroidered silk and linen, tung oil and some rare metals. Hercules, Inc. is the only U.S. company known to have bought any Chinese goods recently: $1,000,000 worth of rosin acquired through a London broker.

The Chinese do, however, have surprisingly large reserves of hard Western currency. They always pay their bills in convertible currencies, often Swiss francs. The money comes from the sale abroad of Chinese foodstuffs, textiles, flashlights, bicycles and other small manufactured goods. The customers who supply the cash are mostly in Asia, and they gladly dip into their own meager reserves. "Frankly," says a Republic of Singapore trade official, "the Chinese goods help dampen inflation here because they're so cheap."

A Lot of Aspirin. China's foreign trade was up 10% last year to $4.2 billion, and is growing faster now that the country is abandoning self-imposed isolation. Fully four-fifths of China's trade is with non-Communist partners, notably Hong Kong, West Germany, Britain and Australia. Japan, by far the People's Republic's most important trade partner, may do as much as $1 billion worth of business with Peking this year. For this privilege, a delegation of top Japanese businessmen must make a yearly pilgrimage to Peking to sign, along with a trade agreement, a communique denouncing their own government. This year's "annual humiliation," as the Tokyo press calls it, contained a new section excoriating Japanese militarism.

The China market may be worth as much as $7 billion to Japan in a few years. Some Administration officials estimate that U.S.-China trade could eventually reach $300 million a year. But Harold Scott, director of the U.S. Bureau of International Commerce, says that the list of items permitted in trade with China will be too restrictive to expect even that much. After a decade of direct trading, he points out, the U.S. still sells only $450 million worth of goods annually to the Communist nations of Eastern Europe. Still, some American businessmen are greatly encouraged by the opportunities presented by China's 740 million potential customers. "You just can't look at a market of that size," says a Monsanto spokesman, "and not believe that eventually a lot of goods are going to be sold there. Just one aspirin tablet a day to each of those guys--and that's a lot of aspirin."

Paying on Time. Until now, American businessmen have been afraid that their Stateside customers might not like the idea of their doing business with the Chinese Communists. As a result, most of the deals made by U.S. subsidiaries so far have been concluded quietly. Representatives of U.S. firms use Chinese-speaking middlemen who operate primarily out of Austria, Switzerland, Britain, Australia and Japan. The middlemen bargain with officials of Chinese state enterprises, while the U.S. clients hide out in hotel rooms. The bargaining, as many impatient Americans have learned, is often long and drawn out.

Dealing directly with the Chinese can also be tough. "Any businessman who thinks he can fly in one day and have a reservation out the next, is not going to do much business in China," says former Canadian Agriculture Minister Alvin Hamilton. His agents once spent six excruciating weeks working out a wheat deal with the Communists. "They're difficult to deal with," according to one London banker. "They want to re-examine every / and / before they dot and cross them." But, adds a Canadian banker, "they're strictly honorable in adhering to their agreements. They pay their debts promptly."

Other Western businessmen who have dealt with the Chinese report that negotiations were often prefaced with days of ideological interrogation and political lectures. Recent Japanese visitors say that the political instruction is down to as little as half an hour. "They used to take us out to dinner," recalls Ralph G. Keefer, president of a Montreal import-export firm. "Now they take us to the Peking Revolutionary Opera. It's nearly always loaded with political overtones." According to Keefer, who has visited the mainland a dozen times, "everyone is nice and polite. They do tend to be political from time to time. Until we get to the business part." Then the Chinese are all business. They never give a discount for large orders or pay a premium for attractive delivery terms. To anyone's knowledge, the Chinese have not once agreed to a sale on anything but their own conditions.

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