BEIJING: China is hardly best pleased with Washington for complaining to the World Trade Organisation (WTO) about its export policies, but the dispute is unlikely to do serious damage to what US Treasury Secretary Henry Paulson has called the most important bilateral economic relationship in the world.

Given that Beijing itself is striving to reduce its trade surplus, trade policy experts said the US case should be viewed as an attempt by the Republican administration of President George W. Bush to regain the initiative after losing control of Congress in November to the Democrats.

“I think that by doing this the United States isn’t interested in solving the problem. It’s feeling pressure from the mid-term election and wants to show it’s hardline on Chinese trade,” said Ren Yifeng, executive secretary-general of the China Society for WTO Studies.

“Of course, China will be unhappy about this. It’s politicising the issue. But I don’t think this will have a huge impact on China-US trade and economic relations,” said Ren, whose institute comes under the Ministry of Commerce.

The only comment by the ministry itself has been to call the US filing with the World Trade Organisation “a pity”.

In a complaint lodged on Friday, US Trade Representative Susan Schwab said several of China’s subsidy schemes appeared to grant significant incentives for foreign investors in China to export steel, wood, paper and other manufactured products.

“Other subsidy programmes at issue provide incentives for companies in China to purchase domestic equipment and accessories, instead of buying from US exporters,” she said.

Ren said that, while the Chinese government recognised the need to adjust a variety of subsidies and had been consulting on the issue, it would take time to reach a consensus among the various ministries and interest groups involved.

China typically bristles at outside pressure, but Ren said the US case could be a spur to China.

“I think domestic discussion will accelerate,” he said.

Indeed, two sources with government ministries said on Monday that China was considering removing or reducing value-added tax rebates on a range of steel products earlier than planned.

Qing Wang, an economist with Bank of America in Hong Kong, said the WTO case could help forge a domestic political consensus over how fast China should adopt market-based pricing for key inputs such as land, capital and natural resources.

After all, he noted, preparations for WTO membership in 2001 galvanised a whole series of market reforms.

“At the end of the day this might help China to speed up the process of transforming its growth model from being external demand-driven to domestic demand-driven,” he said.

Yet even if that is the ultimate goal of the US action, international trade lawyer Guan Anping said it made no sense for Washington to sue China.

“There aren’t that many Chinese subsidies that are clearly out of step with WTO requirements,” he said. “I think that China will respond vigorously to the case, and the United States may not necessarily win. It’s not that clear-cut.”

Guan, who worked in the foreign trade ministry before China joined the WTO, said Washington’s essential complaint is the scale of the government’s continuing involvement in the economy.

“That’s vaguer and more difficult to frame in a law suit. In China, we have the term ‘hidden rules’, and it’s very difficult for foreign laws or legal cases to confront them,” he said.

“It’s hard to say whether the United States really wants to deal with this as litigation or is looking to test China’s preparedness to offer concessions,” he added.

What is also hard to predict is the political reaction of US multinationals. Along with other foreign-owned firms that generate 58 per cent of China’s exports, they benefit from the very tax subsidies that Schwab said are hurting America, especially its smaller manufacturers.

From a macro-economic perspective, analysts played down the dispute.

“Even if China were to abolish all of what the US is complaining about, they’d still be an export juggernaut,” an economist in Beijing said.

Tim Condon at ING in Singapore agreed that the case, at this point, was not a threat to the trend of growing China-US trade.—Reuters