BEIJING — BEIJING -- Chance or design?

A week after saying that the United States would pay for giving China a diplomatic slap in the face, China's president travels to Germany and awards a $1 billion contract to build minivans and engines to Mercedes-Benz instead of Chrysler or Ford.


The judgment by business leaders is that Mercedes' victory had more to do with subsidies from the German government than deteriorating U.S.-China relations. But they add that American trade with the world's most dynamic economy could be throttled if the two countries' diplomatic brinkmanship goes much further.

"The bilateral problems have a serious impact on trade," said Anne Stephenson-Yang of the U.S.-China Business Council. "But not deals being nixed -- it's canceled trips, canceled exchanges and reduced investor confidence that hurts."


More serious trouble could soon come if the troubled diplomatic relations lead to China losing its most-favored-nation trading status, or MFN, with the United States. Some members of Congress have proposed ending MFN unless China releases human rights activist Harry Wu, a naturalized American citizen who has been arrested and charged with espionage.

Revoking MFN would place new tariffs on Chinese goods. China would presumably retaliate by taxing goods from the United States and thereby threaten to price them out of the Chinese market.

"If someone doesn't take charge on both sides, there will eventually be trouble for American companies," said William Overholt, head of research for Bankers Trust Co. in Hong Kong.

Relations began deteriorating last month when the Clinton administration allowed Taiwan's President Lee Teng-hui to make private visit to the United States. China, which considers Taiwan a renegade province rather than an independent country, regarded the visit as an insult and recalled its ambassador from Washington.

And the relationship only worsened when Mr. Wu was arrested, after entering the country from Kazakhstan.

Such rumblings are rarely felt at the local level, where much business in China is carried out. Baltimore-based ITC Inc., for example, sells painting and coating materials to Shanghai-area offices. Beijing's diplomatic preferences never factor into the equation, company officials have said.

But high-profile purchases -- such as aircraft, automobile factories and infrastructure projects -- are decided in Beijing's ministries.

Even there, sales are rarely made on the basis of day-to-day political storms, Ms. Stephenson-Yang said. The State Council -- the equivalent of China's Cabinet, "doesn't dictate that way," she said.


Chrysler Corp. had expressed only lukewarm interest in the minivan project, largely because of the conditions set by China. Chrysler Chairman Robert Eaton had said that his company had less than a 50 percent chance of winning the contract, and business analysts said that any company would have found it difficult to make a profit under China's terms.

But the recent disputes between Beijing and Washington highlights the isolation of the United States as it tries to encourage human rights as well as trade, a position that could allow European and Japanese firms to capture a larger part of China's market at the United States' expense.

This week, for example, German Foreign Minister Klaus Kinkel said that trade, not human rights, would be emphasized during President Jiang Zemin's visit to Frankfurt and Bonn, Germany.

As if to show its approval, China's government-run newspapers have praised Germany's strategy. On last night's television news, Mr. Jiang was shown inspecting Mercedes-Benz products and shaking hands with German businessmen. Sino-German trade, the commentator said, has a "bright and rosy" future.

Mercedes, a subsidiary of Daimler-Benz AG, is to own 45 percent of the new minivan venture, with one of China's state-run companies owning the rest. China projects that the new minivan factory will produce 60,000 vehicles a year by the year 2000.

Washington has sometimes tried to emulate Germany's strategy. But human rights and differing views on the status of Taiwan continue to overshadow trade.


"Obviously you can sell your country's products better if you focus on one message," said Wang Hong, a researcher at China's Institute of American Studies. "Most countries do it that way, but the United States insists on mixing trade and politics. It's hard for Chinese leaders to understand that."