BEIJING -- While Chinese restrictions on genetically modified farm goods have drawn strong protest, few have noticed China has quietly sealed off investment in its burgeoning biotechnology sector.

Chinese import regulations on genetically modified agricultural products created widespread concerns that China was exploiting international worries over genetically modified food to circumvent its World Trade Organization commitments to open its agricultural sector to foreign competition.

The new import rules have drawn the ire of the U.S. farm lobby, motivating everything from special U.S. trade missions to President Bush specifically raising the issue during his meeting with Chinese Premier Zhu Rongji in Beijing during February.

An interim agreement brokered on March 20 has lifted the immediate threat of an interruption of U.S. soybean imports valued at more than $1 billion annually, but a satisfactory resolution of the dispute has been plagued by vague and contradictory regulations issued by competing government ministries.

Meanwhile, on April 1 China's "Catalog for the Guidance of Industries for Foreign Investment" went into effect -- including a set of rules prohibiting foreign companies from investing in the lucrative genetically modified seed-development business.

The investment ban so far hasn't attracted widespread attention. But to companies such as U.S.-based agribusiness giant Monsanto Co., the new prohibition suggests a disregard for the spirit, if not the text, of China's WTO obligations. And although China-based joint-venture operations of Monsanto and other major international biotech companies haven't been affected by the new regulations, the company is plainly aggrieved by the new regulations.

"China has imposed the most restrictive regulations on the production, research and importation of GMO crops in the world," says John L. Killmer, Monsanto's greater China president. The ban, Mr. Killmer argues, is specifically designed to shut foreign companies out of the world's largest government-funded biotechnology-development programs.

"They have one foot on the accelerator, which is funding biotech research and development, and they have the other foot on the regulatory brake," Mr. Killmer says.

Much of the interest in investing in China's biotech industry stems from the fact that the Beijing itself is investing so much. While public funding for biotech development in industrialized countries has waned in recent years in reaction to consumer wariness about the potential health and environmental impact of the new technology, China has gone on a spending spree to boost its genetically modified agriculture sector.

"China is accelerating investments in agricultural biotechnology research and is focusing on commodities that have been mostly ignored in industrialized countries," notes a recent article in the journal Science. China's Ministry of Science and Technology boosted its funding of biotech research to $48 million in 1999 from $8 million in 1986, the article notes. And China devotes 9.2% of its national crop-research budget to biotech research, up from 1.2% in 1986 and well above the 2%-to-5% range of other developed countries.

Those funds have helped produce a bumper crop of 141 genetically modified plants, including cotton, rice, wheat, soybean and tobacco, that have been approved for field trials, environmental release or commercialization, the article says. And if it follows through on its announced plan to raise its national plant biotech-research budget by 400% before 2005, China will account for one-third of the world's spending on biotech research and development, the article adds.

But China's willingness to spend on developing its own biotech sector isn't matched by a willingness to allow foreign investment in the industry.

"Up until a year ago we were of the opinion that China was a wholehearted supporter of this technology and [the prohibition] really was a surprise to us and, as far as I know, to Chinese scientists," a Beijing-based Western diplomat says of the issue.

While the purpose of the policy is not entirely clear, some agricultural experts say the prohibition is an attempt to protect domestic biotech companies against competition from more technically and commercially sophisticated Western biotech companies like Monsanto.

Several Chinese biotech companies and researchers declined to comment on the issue.

In any case, it isn't likely that international biotech companies such as Monsanto will change China's policy soon, says the Beijing-based diplomat. "Lawyers don't seem to find any WTO violation in this investment prohibition," he says.

Another Western diplomat involved in agricultural-trade negotiations said calling the investment prohibition a protectionist measure would oversimplify the complexity of internal divisions among China's leaders on the best approach to cultivation of GMO agricultural crops.

"I think it was imposed due to extreme nervousness about biotech in general because the government hasn't come to a consensus about whether biotech is good for China and the potential consequences that going down the GMO road might have on major trading partners like Japan," this diplomat says. "On the other hand, there may also be the thought that if China can become a leader in biotech development without foreign involvement, it will be a matter of pride and national achievement, a high-tech sector that's theirs."

China risks going it alone and failing, however. The cost could be high. If China doesn't have its own top-quality genetically modified seeds to offer its farmers, they may turn to illegally imported foreign seeds, says one agricultural expert.

"Perhaps people involved will come to the understanding that it's a high-tech industry and without injections of vigor and technology from outside, [China's] going to see countries like India getting ahead," he said. "They say they're protecting their consumers and farmers from foreign competition, but all they're doing is delaying the inevitable."

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