The bombing of the Chinese Embassy in Belgrade, Yugoslavia on May 8 by NATO forces provoked immediate outrage from Chinese leaders and people. Chinese anger, primarily directed at the United States, appears to have been orchestrated by hardliners within the Chinese government to counter pro-Western forces, divert attention from social ills and mitigate the burgeoning democracy movement.

Protests

Demonstrations took place in at least 18 Chinese cities, including Beijing, Shanghai, Guangzhou, Chengdu, Tianjin and Shenzhen. Protesters at the U.S. Embassy in Beijing burned American flags, threw stones and waved banners that read "Return Blood Debts with Blood" and "Eye for an Eye". In Guangzhou, demonstrators attacked the U.S. and German consulates, and attempted to storm the Canadian and Danish consulates.

Chinese leaders denied organizing the protests, yet the government bussed demonstrators to various sites, provided them with slogans to chant and allowed protests to proceed without police interference. While protests have subsided, the long-term implications for Sino-American relations are just beginning to be felt.

Faltering Relations

The Chinese Embassy bombing has exacerbated an already tense situation between the United States and China. Relations have sagged to their lowest point in years amid allegations of Chinese spying, illegal campaign contributions, and issues over China's entry to the World Trade Organization (WTO). Added to this mix are growing Chinese fears about the influence and strategic power of the United States in China and Asia.

Internal Power Struggle

The reaction to the bombing highlights what appears to be an internal power struggle within the Chinese Government between hardliners and pro-Western reformers, the outcome of which will have serious impact on U.S.-China relations. Hardline factions are using the Embassy bombing as a political instrument to gain the upper hand over reformers, stem the rising tide of democracy, counter the influence of American ideas and culture on Chinese society, and to gain leverage in negotiations with the U.S.

The pro-Western reformers favor a more open society and have fought hard to integrate China with the global economy. However, the reform movement suffered a serious blow when Premier Zhu Rongji failed to reach an accord last month in Washington over China's entry into the WTO.

Opportunity for Hardliners

The Embassy bombing comes at an opportune time for the hardliners, who are concerned about the reformers within the Government and the growing influence of American culture on Chinese society. They have used the incident to spark a wave of nationalism and incite anti-American sentiments.

Hardline conservatives took advantage of faltering trade negotiations with the United States to put reformers on the defensive. By strategically using the media to link reformers with the United States, hardliners were able to depict them as kowtowing to U.S. demands over trade and other issues. The bombing enabled hardliners to capitalize on this initiative and further weaken pro-Western factions. Hardliners used the media to sway public opinion against the United States as well, calling the bombing an attack against China. The media, which reported daily about the destruction inflicted by NATO bombs without any mention of the atrocities inflicted in Kosovo by Serbs, stated the Embassy bombing was a premeditated attack launched by the United States. The media barely mentioned the apologies from U.S. officials over the accidental bombing.

Finally, hardline conservatives used the incident to divert attention away from the fledgling democratic movement and the faltering economy by portraying the United States as the enemy of China. The increased nationalism may also benefit the Government by diverting attention from and thus lessening the impact of the 10th Anniversary of Tiananmen Square (June 4). Students have often been at the forefront of the democracy movement, but in an ironic twist, anti-democratic Government forces used students to gain a political advantage during the crisis.

Implications

U.S.-China relations are at a low point. In Beijing, anti-American forces are poised to benefit from the current crisis. In Washington, anti-Chinese sentiment is sweeping through Congress spurred by allegations of Chinese spying, allegations of illegal campaign contributions, and China's entry to the WTO. Chinese hardliners resent that the United States has been dictating terms for China's entry into WTO and are wary of American influence in Asia. Expectations are that the hardliners will adopt a tougher stance on future negotiations and may rescind some of the economic concessions Premier Zhu offered last month. Also, there have been rumblings from hardline factions about resuming nuclear tests and military weapon sales, either of which would inflame the situation even more.

Hardliners want to create an anti-American environment to further fuel the nationalism created by the bombing. If they succeed, hardliners could undermine the efforts of the pro-democracy movement, which relies in some part on positive perceptions of the United States, and mitigate U.S. influence in China. Even if the hardliners do not fully succeed in their efforts, relations between the two countries will be tenuous at best over the next 12-18 months. This could prove a very difficult time for American businesses in China.

Businesses could be impacted by a multitude of responses to the bombing. Knowledgeable sources say the possibilities could include implementation of more trade barriers, increased regulation and/or restrictions on profit repatriation. The situation could easily disintegrate into an all out trade war between the United States and China. A backlash against using American products may result. Finally, the possibility of violence directed against Americans is also of concern.

China, with 1.2 billion people and one of the largest economies in the world, is a country to be reckoned with both economically and militarily. Sources in China, who know the Government well, advise that this situation, with the current political turmoil, should not be viewed as simply an emotional response to the bombing of the Chinese Embassy. There is a potential for an internal flare-up and rupture in diplomatic relations and/or minimized trade between the United States and China. Risk factors for operating or investing in China have increased dramatically. Companies with business operations in China should monitor this volatile situation very closely. Safeguards should be taken to protect personnel, offices and plants and risk avoidance strategies developed and implemented to offset the negative effects of deteriorating Sino-American relations.

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