Further Export Drive by China Seen Despite U.S. Deficit : Trade: The CIA lists steps Beijing has taken recently to tilt the balance in its favor--amid the debate over most-favored-nation status.

WASHINGTON —  The Chinese government can be expected to keep pushing exports to the United States and curtailing U.S. imports despite a record $10.4-billion U.S. trade deficit with China, the CIA predicted Friday.

Even so, two Administration officials said the renewal of most-favored-nation status for China is essential to keep pressure on Beijing to adopt a more liberal trade policy that would help the United States gain markets there.

Rapidly growing Chinese exports to the United States now account for nearly one-fourth of China’s foreign sales while U.S. merchandise exports to China dropped sharply last year, the CIA reported to Congress’ Joint Economic Committee.

In the two years since the military crackdown at Tian An Men Square, the agency added in its annual assessment of China’s economy, the Beijing regime has devalued its currency and taken other steps to accelerate exports while erecting a series of barriers to imports of consumer goods and other items.

Export-led growth helped China’s economy bounce back from recession in 1990, the CIA said, but its severe import restrictions may trigger a backlash from trading partners.

“The United States--crucial to China in the first half of the decade (of the ‘80s) primarily as a source of technology and training--has emerged as China’s foremost export market,” the CIA report said.

“China’s exports to the United States expanded on average more than 30% yearly throughout the 1980s, 10 times as fast as China’s purchases from the United States.

“Last year, Chinese exports to the United States increased 27% to $15.2 billion--accounting for nearly one-fourth of China’s sales--while U.S. merchandise exports to China fell 17% to $4.8 billion, boosting the U.S. trade deficit with China to $10.4 billion,” it noted.

Sen. Jeff Bingaman (D-N.M.), who presided at the hearing, said China’s “one-sided policy may not fully explain the U.S. (trade) deficit, but it surely accounts for a large part of it.”

As a result of its export promotion policies and a clampdown on imports, China’s foreign exchange holdings rose to nearly $36 billion, the report said. The country increased its trade surplus with the European Community to $4.9 billion and nearly doubled its trade surplus with Japan to $5.2 billion, according to the report.

“The (Chinese) leadership’s continued emphasis on export growth without import liberalization risks foreign protectionism,” the report concluded.

Joseph A. Massey, assistant U.S. trade representative for Japan and China, acknowledged that there are “serious problems” with China’s trade policy, despite a change for the better in the country’s overall economic policies since U.S. recognition of Beijing in 1979.

“In the space of only 10 years, China emerged from self-imposed isolation to become a participant in the global trading community, aware of the community’s rules and increasingly sensitive to its criticisms,” Massey testified.

“Over the last two years, however, China’s trade policies have skewed the bilateral trade relationship increasingly in China’s favor,” he added. “The United States now runs a substantial, and growing, trade deficit with China. . . . The deficit reflects a decision (by China) to resort to protectionist measures.”

But Massey argued that withdrawing most-favored-nation status from Beijing would “result in a serious loss of leverage that would make it exceedingly difficult for the United States to obtain any concessions from China.”

The CIA report said China’s domestic economy has shown a sharp increase in industrial output and two years of bumper grain crops. But it said that the state-run sector is still weak.