CHINA: DECENTRALIZATION AND THE NEW FOREIGN TRADE LEADERSHIP

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP03T02547R000100290001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 20, 2016
• Document Release Date: May 4, 2007
• Sequence Number: 1
• Publication Date: December 1, 1981
• Content Type: MEMO

Approved For Release 2007/05/06: CIA-R DP03T02547R00010029 OO1-0
Approved For Release 2007/05/06: CIA-RDP03T02547R000100290001-0
STAT
 SECRET
-Approved For Rel ase 2007/05/06: CIA-RDP03TO2547R 00100290001-0 25X1
CENTRAL INTELLIGENCE AGENCY
NATIONAL FOREIGN ASSESSMENT CENTER
CHINA: DECENTRALIZATION AND THE NEW FOREIGN
The Chinese Ministry of Foreign Trade (MFT) appears to have
lost its most recent battle for control of trade policy and will
face additional difficulties as a result of the renewed push
toward decentralization of foreign trade. The MFT has been
forced to relinquish its overall trade coordination and policy
role to Vice Premier Gu Mu and his State Import Export Commission
(SIEC). Because China's foreign trade sector is still being
restructured, the confusion associated with decentralization
almost certainly will continue. 25X1
Beijing has vacillated on the extent of trade
decentralization over the past two years. The decentralization
program, initiated in mid-1979, was designed to improve the
efficiency of the foreign trade system by permitting the
producers and end-users to serve as decisionmakers. As an
incentive to increase China's foreign exchange earnings, Beijing
authorized certain provinces and production ministries to play a
direct role in sales promotion and to retain a portion of their
export earnings. By early 1981, the foreign trade sector was in
disarray and Beijing began reimposing tighter central controls as
part of its expanded economic readjustment program. By July,
however, the MFT's inability to control defiant provinces,
combined with a continuing shortage of foreign exchange, prompted
Beijing to reverse course again more thorough
decentralization.
25X1
The ascendancy of Gu Mu and the SIEC to a predominant role
in China's foreign trade sector was precipitated by the recent
retirement of Foreign Trade Minister Li Qiang. Li, who had held
This memorandum was prepared by of the China 25X1
External Division of the Office of East Asian Analysis, National
Forei qn Assessment Center. Questions and comments are welcome
and ray be directed to the author
25
Am roved For ReIebse 2007/05106`` CIA-RDF03TU2547R0001
020601-0'
 "Approved For Relelse 00100290001-0
I I
the post since 1973, had strongly resisted the decentralization
program, arguing that local officials lacked the experience and
expertise to succeed in highly competitive world markets.
Although Li was eventually forced by the leadership to tone down
his opposition to the initial decentralization, his resistance to
the program was the primary cause for his removal. In March, Li
was appointed an advisor to the State Council--a method often
used to retire older cadres--and in September Beijing announced
the appointment of Zheng Tuobin as Foreign Trade Minister. 25X1
Although he has served in various trade positions since little is known about Zheng's policy views.
Zheng's appointment may have been part of compromise package
designed to satisfy Gu Mu's ambitions. Gu's advocacy of rapid
decentralization of foreign trade was endorsed by the leadership,
much to the distress of the MFT, which advocated a more gradual
approach. More importantly, the State Council granted the SIEC a
greatly expanded role oordinating China's overall trade
policy. 25X1
The New Foreign Trade Hierarchy
Although the outlines of China's new foreign trade
bureaucracy still are uncertain it seems clear that the MFT is
being forced to relinquish portions of its authority to both the
SIEC and to trade entities in and the productio
ministries. the SIEC is to becofii-"
a sort of super-agency that will have policy supervision over
most, if not all, of China's foreign-trade related state
agencies, such as the MFT, the Bank of China and the Ministry of
Economic Relations with Foreign Countries.* Gu Mu told a press
conference in September that the SIEC's new responsibilities
would be conducted on behalf of the State Council. An official
of the Ministry of Metallurgical Industry recently stated that
decisions concerning the division of responsibilities between the
1MFT and his ministry's foreign trade component were now being
adjudicated by the SIEC. The SIEC also is chairing a new
association of producer groups that will coordinate each
industry's foreign trade operations. With a staff of only 300,
the SIEC is not in a position to involve itself in the day-to-day
mechanics of foreign trade. The State Council may be trying to
create a system under which lower bodies can resolve mundane or
technical issues, allowing the leadership concentrate on
broader policy questions. 25X1
1-low much authority the SIEC will have over state-to-state
economic relations is still unclear. In September, Foreign Trade
When set up in 1979, the SIEC was initially charged with
do esc;cally allocating the $26 billion in foreign loans China
arranged to pats for imports. Later it was charged with approving
large scale trade or investment production ministries. made by Provinces or 25X1
-2-
SECRET
 ' 'Approved For Release 2007/05106 CJ Z ,DP03T02547R000100290001-0
Minister Zheng Tuobin chaired China's delegation at the Italian-
Chinese economic commission meetings. Yet Premier Zhao Ziyang
recently designated the SIEC as Canada's counterpart organization
for technical assistance programs, rather than the Ministry for
Economic Relations with Foreign Countries as the Canadians had
expected. SIEC also represented China in negotiations with Japan
over the latest Japanese aid program. Moreover, Zheng Tuobin
appeared only at the welcoming ceremony and banquet for visiting
Venezuelan President Herrera, whereas an SIEC Vice Minister took
part in the actual talks with Premier Zhao Ziyang.
25X1
Gu Mu's bureaucratic maneuvering has left the MFT weaker
than ever before. The NIFT's previous monopoly over trade has
been shattered by the aggressive entry of many new trade
entities. The State Council has indefinitely postponed a
national conference to allocate foreign trade responsibilities
primarily because the MFT could not resolve the demands of these
new trade units. A meeting with a number of production
ministries in October ended inconclusively as MFT's efforts to
retain its trade monopoly were rejected by the other
ministries. Large-scale trade purchases negotiated by the
provinces or the production ministries, however, will continue to
require SIEC approval. Unlike the earlier attempt at
decentralization, the MFT may not even retain authority over
certain key commodities such as petroleum and rare metals. The
State Council has authorized China's aviation industry to export
titanium, and in September the Petroleum Ministry si n d its
first oil export contract independent of the MFT.
The reaction of trade officials of provinces and producti2fiX1
ministries to the expanded decentralization has ranged from
energetic participation to bewilderment. While Beijing has not
yet officially granted trade autonomy to many provinces, several
have taken advantage of the current disarray and have
unilaterally initiated direct trade. On the other hand,
Beijing's failure to issue firm guidelines in trade matters hn25X1
Many of China's trading partners have expressed approval for
the decentralization program since it offers them the prospect of
dealing directly with local producers or purchasers, negotiating
for the best goods at the most favorable price. However some of
the IIFT'
l
s
ongstanding partners have remained loyal.
i
-3-
SECRET
 -Approved For Relegse 0100290001-0
I I
Implications
By empowering the SIEC to coordinate foreign trade, Beijing
hopes to avoid the administrative confusion associated with the
previous decentralization effort. Unlike the MFT, the SIEC
supports decentralization and, because it is not directly
involved in conducting trade, it presumably can impartially
adjudicate and oversee the ex an i n of this important sector of
the Chinese economy. 25X1
Nevertheless, by again decentralizing its foreign trade,
Beijing will face many of the same problems that caused it to
temporarily retreat from the program during the first half of
this year. Inexperienced local and production ministry trade
officials may again engage in cutthroat competition that will
wipe out profits. Similarly, new trading entities may again
overbuy, duplicate their purchases, or stress non-essential
imports. The MFT's fears that these inexperienced
representatives will damage China's reputation by making
unfulfillable contracts may well be realized. The new trading
structure is also likely to generate antagonism among the remote
and smaller provinces that are denied the economic benefits of
increased trade autonomy. Moreover, it is unclear whether the
MFT or the Bank of China will be willing to bail out any new
trading entities that run into trouble. The MFT almost certainly
is demoralized over its diminished prerogatives and will continue
maneuvers to protect its remaining turf and regain its lost
authority. Finally, the SIEC's ability to successfully oversee
the decentralization remains an open question. If
decentralization gets out of hand, Beijing will find it even more
difficult to tighten control over foreign trade given the
a ressive nature many of the new trading entities.
25X1
-4-
SECItET
-Approved For- Release-2.00-7/05/O& ?-CIA ICDRO-3TO254 R00C 04-290 }0-1--0-----.-- --
 `Approved For Relea 0100290001-0
SUBJECT: China: Decentralization and t e New Foreign
Trade Leadership
Distribution:
Nat ional Security Council
1 - Mr. Donald Gregg
Department of State
1 - Assistant Secretary for East Asia and Pacific Affairs
1 - Director, Office of Chinese Affairs
1 - Director, Office of Research and Analysis
Department of Defense
1 - Deputy Assistant Director for Current Intelligence
Department of Treasury
1 - Special Assistant to the Secretary of Treasury
1 - Office of East-West Economic Policy
Department of Commerce
1 - Office of Intelligence Liason
1 - Director, Division of PRC Affairs
Special Trade Representative
2 - Office of the U.S. Special Trade Representative
Central Intelligence Agency
1 - FBIS/Analysis Group China
1 - NIO/EA
1 - Chief, China Reports
1 - OCR/EA
1 - Domestic Policy Branch
1 - China Internal Division
2 - China External Division
J-- Director, OEAA
1 - D/NIC
5 - OCO1IDC1C
1 -
2 - D/NFAC
I - Foreign Policy and National Security Affairs Branch, CE
-5-
S EC1 ET
Approved For Release 2007/05/06: CIA-RDP03TO2547R000100290001-0