FOREIGN INFLUENCE ON THE NORTH VIETNAMESE ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78T02095R000800070021-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 43
• Document Creation Date: December 20, 2016
• Document Release Date: April 12, 2006
• Sequence Number: 21
• Publication Date: April 1, 1965
• Content Type: REPORT

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SECUCE
N2 138
CIA/RR ER 65-5
April 1965
INTELLIGENCE REPORT
FOREIGN INFLUENCE
ON THE NORTH VIETNAMESE ECONOMY
On file Department of Commerce
release instructions apply.
DIRECTORATE OF INTELLIGENCE
Office of Research and Reports
SECRET
GROUP 1
Excluded from automatic
downgrading and
declossification
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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CONTENTS
Page
Summary and Conclusions . . . . . . . . . . . . . . . . , . 1
I. Foreign Trade . . . . . . . . . . . . . . . . . . . . . . 3
A. Measures of Dependence . . . . . . . . . . . . . . .
B. Capabilities for Expanding Exports . . . . . . . . .
C. Predominance of Chinese and. Soviet Influence . . . .
A. Economic Credits and. Grants . . . . . . . . . . . . 7
B. Major Aid Projects . . . . . . . . . . . . . . . . . 8
III. Communist Military Assistance to North Vietnam . .
IV. Strategic Implications of Economic Dependence . . .
Appendixes
Appendix A. Statistical Tables . . . . . . . . . . . . . . .
9
10
Tables
1. North Vietnam: Direction of Trade, 1955-63 . . . . . . . 15
2. North Vietnam: Commodity CompOs.ition of Foreign Trade,
1957-63 . . . . . . . . . . . . . . . . . . . . . . 16
3. North Vietnam: Commodity Composition of Trade with the
USSR, 1955-63 . . . . . . . . . . . . . . . . . . . . . 17
)+. North Vietnam: Commodity Composition of Trade with the
Free World,, 1962-63 . . . . . . . . . . . . . . . . . . 19
5. North Vietnam: Commodity Composition of Trade with
Selected. Countries of the Free World, 1962-63 . . . . . 21
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Page
North Vietnam: Economic Credits and Grants Extended,
by Communist Countries, 1955-61 . . . . . . . . . . . . 23
North Vietnam: Economic Assistance from Communist
Countries, by Project, 1955-63 . . . . . . . . . . . . . 24
Charts
Figure 1. North Vietnam: Direction of Trade, 1963
following page . . . . . . . . . . . . . . . . . 6
Figure 2. North Vietnam: Economic Credits and. Grants
Extended by Communist Countries, 1955-61
following page . . . . . . . . . . . . . . . . . 8
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FOREIGN INFLUENCE ON THE NORTH VIETNAMESE ECONOMY*
Summary and Conclusions
The expansion of modern industry and transportation in North
Vietnam and the equipping and training of the military establishment
remain heavily dependent on imports of goods and. services from other
Communist countries, primarily the USSR and Communist China. The
greater part -- perhaps as much as two-thirds -- of the cumulative
total of $1 billion** in commodity imports during 1955-63 has been
subsidized under Communist economic assistance programs (by grants,
discounts, low interest credits, and, the like.***) In addition.,
these programs have included sizable amounts of military and tech-
nical aid.
In spite of the dependence on foreign economic and military aid,
the regime's strategic vulnerability to foreign economic warfare is
rated. minimal because of the basically agrarian structure of the
economy in the North and the guerrilla nature of its war effort
against the South.
The USSR and, Communist China together have accounted for more
than 85 percent of the total of $1 billion in economic aid offered
to North Vietnam since it acquired a national status in 1954. Sup-
port to North Vietnam's economic development by the USSR and the
European Satellites has involved primarily machinery, equipment,
and. technical assistance to heavy industry and motor vehicles
to the transportation sector. By contrast, and in keeping with
their economic capabilities, the Chinese Communists have supplied
larger quantities of basic materials and manpower, have constructed,
only a few heavy industrial plants, have assumed the leading role
in the rehabilitation and expansion of transportation facilities
as well as in the reconstruction and development of the irrigation
system, and have been largely responsible for the growth of light
industry in North Vietnam.
The critical shortage of trained personnel in North Vietnam
for the construction and. operation of modern industry and transpor-
tation has been offset in part by the influx of several thousand
technicians, chiefly from the USSR and. Communist China. It is be-
lieved that there are at present 100 to 200 Soviet technicians and.
* The estimates and. conclusions in this report represent the best
judgment of this Office as of 1 March 1965.
All dollar values in this report are in current US dollars.
More than $2 billion in US economic aid. has been extended to
South Vietnam since 1954. Included. in US economic aid programs
are commodity import assistance, financing for counterinsurgency
and rural pacification, assistance for development projects, and
technical assistance.
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1,!500 to 3,000 Chinese advisers in North Vietnam. This influx of
foreign technicians has been one of the most important features of
Communist technical assistance, which also has included the supply
of technical data, advice in planning, and the provision of training
facilities for North Vietnamese abroad.
Throughout North Vietnam's 10-year history, deliveries on credit
have continued to be the mainstay of.North Vietnamese foreign trade.
In 1963, for the third successive year of the First Five Year Plan
(1961-65), North Vietnam was unable to expand its commercial exports
significantly. Ambitious export plans have not been met, primarily
because of continued shortfalls in agricultural production, and.,
therefore, imports have been scaled back each year to well below
planned levels.
Most of North Vietnam's trade (about 85 percent) is with Communist
countries, and the Free World has accounted for approximately 15 percent of
total trade in recent years. Japan is by far the largest trading
partner in the Free World., although its share in North Vietnam's trade
has been declining somewhat in recent years as Hanoi has widened its
Western trade contacts to include more countries.
Ultimately the repercussions of the Sino-Soviet dispute for pro-
Chinese North Vietnam could lead to a loosening of economic ties with
the USSR and indirectly may promote some moderate shift toward the
West in the country's trade. The trade data for 1963, however, sug-
gest that aid deliveries from all Communist countries were maintained
at previous high levels. The economic assistance promised. by the
Communist countries for the First Five Year Plan consists of the
construction of more than 100 major industrial projects and consti-
tutes the core of the regime's plans for the continued development
of modern industry and transportation as well as its hope for the
improvement and diversification of agriculture.
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I. Foreign Trade
A. Measures of Dependence
The extent of the dependence of North Vietnam on external
sources to support its nonagricultural economic sectors is such that
the country can be characterized as an economic ward. of the Communist
world., particularly the ward of Communist China and, the USSR. Not
only must North Vietnam rely heavily on foreign sources for machinery
and the greater part of its industrial raw materials but also it must
depend. on the receipt of foreign aid in order to finance the purchase
of these goods. Cumulatively, from 1955 through 1963 -- virtually
from the inception of the regime -- the import surplus amounted to
about $460 million, or nearly half of all imports (see Table 1*).
If imports of technical services, transportation and other service
facilities connected with trade, and military goods are added to the
import surplus in nonmilitary commodities, the considerable magnitude
of foreign aid as a support to the North Vietnamese economy becomes
evident. In 1963, total trade approximated $253 million, of which
imports were $156 million and exports $97 million. In other words,
about 38 percent of imports were not paid for out of current earnings.
Between 1960 and 1963, imports and exports grew at approximately the
same rate. The desire of the regime to reduce dependence by greater
production for domestic consumption and exports has achieved rela-
tively little success in the past several years.
The high investment content of imports, about 90 percent of
which consisted of producer goods in 1960-62 (see Table 2**), points
up both the relatively undeveloped status of the economy and the inten-
sity of the Communist regime's preoccupation with industrialization.
During 1961-63, roughly one-half of the total imports consisted of ma-
chinery and equipment, most of which were complete plants supplied by
Communist countries. Moreover, the large flow of these goods, as well
as technical services on grant or credit, has been a major factor in the
domestic investment program. In 1960, foreign aid provided roughly
one-fourth of total investment, was equivalent to about 6 percent of
gross national product, and represented some 20 percent of total budget
revenues. /*** The importance of foreign aid to the economy probably
was much the same in 1963, and, as discussed below, foreign aid con-
tinues to be a critical factor in North Vietnam's current long-term
plan.
The rising trend of imports of machinery and equipment is indi-
cated by growing Soviet exports of these goods to North Vietnam. Soviet
deliveries of equipment for complete plants grew particularly rapidly,
accounting for 13 percent of imports from the USSR in 1960 and 43 percent
Appendix A, p. 15, below.
Appendix A, p. 16, below.
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in 1963, when they totaled $21.1I million (see Table 3*). Imports
from the European Satellites roughly approximated the pattern of
those from the USSR but with an even greater percentage share of
machinery and equipment. Communist China's exports to North Vietnam
consist largely of industrial raw materials and semimanufactures,
with machinery being less important than it is in Soviet exports.
Free World exports to North Vietnam consist primarily of manu-
factured.goods and chemicals.
The over-all share of industrial goods -- including capital
equipment, fuels, and industrial raw materials -- in imports apparently
has grown from 70 percent in 1957 to 90 percent in 1962, whereas the
share of consumer goods has declined correspondingly. About two-fifths
of North Vietnam's imports are composed of raw and processed industrial
materials such as metal products, raw cotton, industrial chemicals, and
petroleum products. Because of necessary purchases of food abroad in
late 1963, the share of consumer goods expanded and the share of producer
goods declined.
Among the more critical industrial products, no petroleum
products originate in North Vietnam, and virtually all supplies were
obtained from the USSR until 1963. In that year, Rumania became an
important supplier, providing an estimated one-fifth of the total of
about 125,000 tons** of petroleum imported. Most of the industrial.
chemicals consumed also must be imported, although Hanoi hopes to
lessen this dependence in the near future. With the assistance of
the USSR and Communist China, projects have been undertaken to expand
the small chemical industry, especially in production of chemical
fertilizers. The Sovied-aided Lam Thao superphosphate plant at Phu.
The was completed in June 1962 and has
an
annual capacity of
100,000
tons. A nitrogen fertilizer plant at
Phu
Lang Thuong, being
built
by the Chinese, is scheduled to be completed by the end of 1965 or
early 1966.
North Vietnam has practically no domestic armament industry,
and its military establishment relies heavily on the USSR and Com-
munist China for technical advisers as well as for materiel. The
considerable value of military imports is not precisely known; it
is.believed that the North Vietnamese data on total imports (as
shown in Table 1) exclude all such items. Most military goods prob-
ably are delivered to North Vietnam as grants-in-aid.
B. Capabilities for Expanding Exports
The failure of North Vietnam to fulfill its foreign trade plan
in 1963 was fairly typical of performance in recent years and sympto-
matic of the inability to make exports grow faster than imports. The
Appendix A, p. 17, below.
Tonnages are given in metric tons throughout this report.
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original goals for 1963 had called for exports to increase by 19 per-
cent and imports by 12 percent, J representing an increase in total
trade of about 15 percent above the level of $239 million in 1962.
Some time during the year the North Vietnamese apparently scaled down
these plan goals as it became evident that a major shortfall was inevi-
table. By this means the State Statistical Bureau was able to announce
fulfillment of the trade plan, although exports increased by only 5.5
percent and imports by 5.9 percent compared with 1962 J and total
trade amounted. to only $253 million instead of the $274 million origi-
nally planned.
The shortfall in exports in 1963 resulted primarily from con-
tinuing difficulties in agricultural production. During the years
1960-63, North Vietnam had poor harvests caused by both adverse
weather and mismanagement. Exports of unprocessed agricultural prod-
ucts have declined since 1959, and exports of handicraft products
made from agricultural raw materials have shown only modest expansion
(see Table 2). The failure to achieve the expected growth in exports
during 1963 forced the regime to restrict imports, which rose to about
$156 million rather than to the $165 million originally planned. North
Vietnam nevertheless failed to achieve the planned reduction in the
import surplus, which, in fact, registered an increase of about 7 per-
cent.
What expansion has occurred in exports since 1960 has been
made possible chiefly by the growing capacity of the extractive and
light industries (see Table 2). North Vietnam's extractive industries
were developed by the French during their administration of Indochina,
and the Communist regime has continued. to expand mining operations.
Anthracite coal, North Vietnam's largest single export commodity,
accounted for about one-fourth of total exports in 1962 and for about
two-thirds of total exports to the Free World (see Table 4*). Japan
and. Communist China, the principal foreign markets, together purchase
about 90 percent of the coal exported by North Vietnam.
Similarly, with a considerable growth in production of apatite
(a phosphate source for production of fertilizer), which reached. 678,000
tons in 1962, J North Vietnam has been able to increase significantly
its exports of apatite to Communist markets, primarily Communist China
and the European Satellites. Between 1958 and 1962, exports of apatite
reportedly quadrupled. / Because North Vietnam has only a small
capacity for processing apatite into usable form, most of it (80 per-
cent in 1962) always has been exported..
C. Predominance of Chinese and Soviet Influence
The overwhelming dependence of North Vietnam's economy on the
Communist world is evident from the fact that trade with Communist
* Appendix A, p. 19, below.
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countries in 1955-56 made up more than 95 percent of total trade and
has remained at about 85 percent since that time. In absolute terms
this trade has increased in every year except 1958 and in 1963 amounted
to $211 million, representing an increase of only 5 percent above the
level of the preceding year (see Table 1). The large import surplus
each year has been financed under the Communist assistance programs to
North Vietnam, which consisted mainly of grants during the years 1955-56
and of long-term, low-interest credits in succeeding years.
The USSR and Communist China overshadow all other trading; part-
ners of North Vietnam, together accounting for approximately two-thirds
of the latter's total trade. Soviet - North Vietnamese trade in 1963
was valued at $92 million, a slight increase above the level of 1962.
In 1963, North Vietnam's trade with Communist China is estimated
to have been between $70 million and $75 million. In general, it, is
clear that North Vietnam's trade with the Communist countries will con-
tinue in the future, as it has in the past, to be determined largely by
the composition and amount of the economic assistance component of that
trade. Trade with the European Satellites has fluctuated. in absolute
value and has accounted for less than one-fifth of North Vietnam's total
trade in recent years. Although North Vietnam's trade with Rumania in-
creased in 1963, its trade with the European Satellites as a whole de-
clined.
In general, trade with the non-Communist world has been a mar-
ginal share of the total foreign trade effort of North Vietnam down to
the present time (see Tables 4+ and 5*). Although trade with the Free
World increased at a much higher rate than with Communist countries, in
1963 it still accounted for about 17 percent of total trade. Japan is
by far the largest trading partner in the Free World (see Figure 1), but
its share of North Vietnam's total trade with the Free World has been
declining, from about 67 percent in 1960 to about 29 percent in 1.953.
Of the remaining trade with the Free World, the majority was with the
industrialized countries. For the most part this trade appears to be
designed more to enhance political prestige than to reap economic benefits.
Although any large growth in trade with the Free World during
the next few years is unlikely, North Vietnam probably will attempt, to
increase the share of the Free World in its trade. To date, North
Vietnam has made only a few contacts with Free World suppliers of
industrial equipment, but it has followed the example set by Communist
China and North Korea in discussing orders in the West for some capital
* Appendix A, pp. 19 and 21, respectively, below.
S-E-C-R-E-T
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SECRET
Figure 1
NORTH VIETNAM: DIRECTION OF TRADE, 1963
(Percent of total)
Q Communist Countries
Free World
50229 1-65
SECRET
GROUP 1
Excluded from oummmic
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equipment, including a vinylon plant with the Japanese. Prospects
for expanding exports to the Free World seem limited, but the diffi-
culties that North Vietnam would. have in financing imports of equip-
ment from non-Communist countries could. be mitigated. if Free World
credits or Chinese loans of Free World currencies were available.
II. Communist Economic Assistance to North Vietnam
A. Economic Credits and. Grants
Known economic credits and grants extend.ed.by other Communist
countries to North Vietnam during the past decade have amounted to
more than $956 million, J from 70 to 80 percent of which is esti-
mated to have been drawn by the end. of 1963.* Parallel with their
status as North Vietnam's chief trading partners, Communist China
and the USSR also are the largest contributors of foreign aid. as
shown in Figure 2.** Together they provided about 85 percent of the
total aid. received. by North Vietnam. Communist China has extended.
financial aid. amounting to $457 million (or 48 percent of total Com-
munist aid. to the country), followed. by the USSR, whose aid totals
about $369 million, or 39 percent of the total (see Tables 6 and 7***).
Credits and grants extended by the European Satellites account for the
remainder of foreign aid received. but have been small by comparison,
amounting to approximately $130 million. Rumania has been the major
Satellite contributor, followed. by Poland and. Czechoslovakia. Albania,
Mongolia, and. North Korea have delivered. only small amounts of aid,
consisting mainly of consumer goods, medical supplies, and. livestock.
About 40 percent of total economic assistance to North Vietnam
has been in the form of grants, most of which were extended. in 1955
and. used. in the years 1955-59 as a platform of subsidy from which indus-
trialization could be launched. As the economy developed., however,
grant aid. was replaced by the long-term, low-interest credits (with
interest rates of 2 percent on the average and repayment periods of up
to 10 years and even longer) that continue to be drawn on. With the
exception of the early postwar years, when assistance consisted largely
of food and other consumer goods, the economic assistance programs have
served. mainly to finance the import of machinery and. equipment (particu-
larly complete plants), which reportedly made up 87 percent of total
aid deliveries in 1962. J More than 40 percent of total economic
assistance extended by the Communist countries has been promised for
the First Five Year Plan, approximately 48 percent of which has been
pledged. by the USSR, about 37 percent by Communist China, and 15 per-
cent by the European Satellites.
* In addition to the cumulative import surplus of -x+60 million dur-
ing 1955-63 in the official commodity trade series, technical services
and. possibly shipments of goods unrecorded in the trade figures would
be included, in drawings on credits.
Following p. 8.
Appendix A, pp. 23 and. 24, respectively, below.
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B. Major Aid Projects
In contrast to the policies of 1955-60, which stressed, the de-
velopment of agriculture and light industry, North Vietnam's First Five
Year Plan emphasizes the expansion of heavy industry, in particular the
machine building, chemical, electric power, and metallurgical industries.
Some diversification of agriculture is provided for, primarily through
the development of tropical export crops. Because of domestic limita-
tions, foreign capital goods and technical aid provided on credit will
continue to be of key importance to this plan, especially if the domestic
Economy continues to be held down by a weak agricultural sector.
Chinese Communist aid during the early years of reconstruction
(1955-56) was concentrated on the rehabilitation of motor, rail, and
water transport facilities and telecommunications and on the development
of irrigation projects. Following this reconstruction phase, greater
stress was placed on the construction and expansion of light industrial
projects, including 14 rice plants; 5 sugar refineries; a rubber goods
factory; a textile mill; and several factories to produce consumer
goods, including soap, stationery, enamelware, matches, cigarette.,
and porcelain. Most of these projects have been completed. Beginning
in 1959, however, the Chinese began to direct an increasing proportion
of their aid. to the construction of several heavy industrial projects,
most notable the iron and steel complex at Thai Nguyen with a planned
capacity of 200,000 tons of iron and steel a year by the end of 1965.
Thermal electric powerplants at Thai Nguyen and Viet Tri were built
with Chinese aid, with further assistance for expanding these plants
promised under the 1961 agreement. The Chinese also have aided in
the development of the chemical industry by building the Viet Tri
chemical products complex and currently are constructing a, nitrogen
fertilizer plant at Phu Lang Thuong.
In contrast to the Chinese aid program, Soviet assistance to
North Vietnam has been channeled primarily to the heavy industrial
sector of the economy, especially the mining, manufacturing, and
power industries. Projects to be financed with Soviet credits during
the First Five Year Plan are in the same general areas as projects
undertaken in the pre-1961 period. For the period 1961-65 the USSR
has promised. assistance for the construction of eight thermal electric
and hydroelectric powerplants with a total capacity of about 200 mega-
watts, including the large Thac Ba hydroelectric powerplant with a
planned capacity of 120 megawatts in 1965. Further assistance will
be made available to the coal mining industry, including some for -;he
expansion of the Hon Gay - Cam Pha anthracite mining region and the
construction of new mines at Mao Khe and Dam Dau. The increased pro-
duction of coal will be of significant value to the North Vietnamese
economy because coal is both a major source of energy and the most
important single export commodity. The initial phase of the establish-
ment of a machine building industry has been financed by Soviet aid.
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NORTH VIETNAM: ECONOMIC CREDITS AND GRANTS
EXTENDED BY COMMUNIST COUNTRIES, 1955-61*
350 (Million US Dollars)
European Satellites
M USSR
Communist China
223
200
128
3
25
*In 1962 the USSR extended a credit; value unknown.
In 1963 no credits were extended.
GROUP 1
SECRET Excluded from crop-oc
downgrading and
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