ECONOMIC RELATIONS IN THE SINO-SOVIET ALLIANCE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A001700070001-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 51
• Document Creation Date: December 23, 2016
• Document Release Date: May 28, 2013
• Sequence Number: 1
• Publication Date: October 1, 1960
• Content Type: REPORT

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CONFIDENTIAL
Economic Intelligence Report
ECONOMIC RELATIONS
IN THE SINO-SOVIET ALLIANCE
CIA/RR ER 60-21
October 1960
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
N? 148
CONFIDENTIAL
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CONFIDENTIAL
Economic Intelligence Report
ECONOMIC RELATIONS
IN THE SINO-SOVIET ALLIANCE
CIA/RR ER 60-21
October 1960
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.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
CONFIDENTIAL
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CONTENTS
Summary and Conclusions
I. Ideology and Economic Practice
A. Issues in Economic Ideology
B. Economic Practices
II. Level and Growth of Sino-Soviet Economic Relations .
A. Soviet Financial Assistance to Communist China
B. Commodity Composition of Sino-Soviet Trade
Page
1
6
7
11
13
17
18
III. Impact of Soviet Trade and Technical Assistance on the
Economy of Communist China 20
A. Imports of Soviet Industrial Plant and Equipment 21
B. Technical Assistance 22
C. Chinese Exports to the USSR 23
D. Cost to the USSR 24
IV. Role of Communist China in Intra-Bloc Economic Rela-
tions 25
A. Economic Relations Between Communist China and the
European Satellites 25
B. Communist China and the Council for Mutual Economic
Assistance 26
C. Economic Relations of the Asian Satellites 27
V. Economic Relations with the Free World 28
VI. Implications for the Sino-Soviet Alliance of the Growing
Economic Power of Communist China 33
A. Growth of Industrial Power in Communist China . 33
B. International Relations 35
C. Dependence and Self-Sufficiency 36
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Appendixes
Appendix A. Statistical Tables
Page
39
Tables
1. Balance of Trade of Communist China with the
USSR, 1950-59
2. Soviet Project Construction Agreements with
Communist China, 1950-59
3. Estimated Utilization and Repayment of Soviet
Loans to Communist China, 1950-59
4. Commitments of Economic Assistance by Com-
munist China and the USSR to the Asian
Satellites, as of 6 June 1960
27
5 Imports, Exports, and Trade Balances of
Communist China with the USSR, as Reported
by the USSR, 1950-59 40
6. Exports from Communist China to the USSR,
as Reported by the USSR, 1950-58 41
7 Imports by Communist China from the USSR,
as Reported by the USSR, 1950-58 43
Illustrations
Following Page
Figure 1. Communist China: Balance of Trade
with the USSR, 1950-59
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Following Page
Figure 2. Communist China: Principal Soviet Aid
Projects, 1949-60 16
Figure 3. Communist China: Estimated Utilization
and Repayment of Soviet Loans, 1950-59
and 1960 Plan 18
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ECONOMIC RELATIONS IN THE SINO-SOVIKT ALLIANCE*
Summary and Conclusions
The alliance between the USSR and Communist China during the past
decade has been a symbol of the solidarity within the Communist Bloc
in its effort to gain positions of dominance in global affairs. Based
essentially on mutual political, ideological, and strategic interests,
which the USSR and Communist China initially regarded as virtually
identical, the Sino-Soviet Alliance in fact has been a source of added
strength to both the USSR and China as well as to the world Communist
movement. A major element in the alliance as it has developed during
its 10-year existence has been the support provided by the USSR for
the economic development of China, support which has aided China in
moving from a position of industrial impotence to a position of con-
siderable industrial potentiality. These economic achievements of
China have increased its value as an ally to the USSR at the same time
that they have raised the status of China as a world power.
Dissension has been apparent in the alliance, however, in recent
years -- dissension that is partly a byproduct of the heightened eco-
nomic status of Communist China. Each of the partners has developed
reservations about the other, and neither now regards the other as a
harmonious associate in a joint quest for a common goal. Economic re-
lationships between the USSR and China have always had a commercial
air about them, with both countries seeking advantageous terms in
their transactions. Moreover, China has displayed a wariness toward
economic dependence on the USSR beyond that necessitated by the forces
of circumstances. The ideological and political discord probably has
not stripped economic relationships to their bare commercial element,
but it has virtually eliminated any benevolent content that might have
existed. Nevertheless, the leaders of both countries recognize the
cost of dissolution, and both discern the mutual advantages to be
gained in maintaining and improving the basic strength of this alliance
against the capitalist world. Thus, even in the absence of complete
ideological accord, mutual interests of both nations seem to compel a
continuation of economic relations of considerable scope and magnitude.
Communist China in its developmental program has emulated the
Soviet economic model, including adoption of the Soviet system of eco-
nomic organization and centralized planning. China has received Soviet
technical guidance at all levels. Both countries adhere to the basic
economic principles of Marx, Lenin, and Stalin. Because of its vast
* The estimates and conclusions in this report represent the best
judgment of this Office as of 15 September 1960.
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population, however, China has found it desirable to depart in impor-
tant ways from the Soviet example and has given great publicity to
innovations that are said to constitute unique features of the Chinese
road to Communism. The three main Chinese Communist deviations that
differ in varying degrees from the Soviet model are evident in
(1) the formation of communes, which the Chinese have viewed as an
instrument of rapid economic development leading to a Communist society
and which Soviet officials have dismissed as merely another version of
their agricultural collectives; (2) the new program called "walking on
two legs," which, while retaining large-scale industrialization as the
core of China's economic development, gives greater attention to agri-
culture, small-scale industry, and local capital development than did
the First Five Year Plan (1953-57); and (3) the leap forward* program,
characterized in particular by a willingness to depart in a wholesale
manner from formulated annual plans, as well as by exhortations for
more and more output at almost any cost, by mass mobilization of labor,
and by emphasis on labor-intensive methods of production.
Chinese Communist deviation from Soviet experience has been objec-
tionable to Soviet leaders because it suggested a lessening of depend-
ence on Soviet guidance and generally poor Sino-Soviet rapport. China's
communalization program, for example, apparently was undertaken without
prior consultation with the USSR and was heralded as a shortcut on the
path toward Communism, a shortcut that other countries of the Sino-
Soviet Bloc were invited to imitate. This situation, probably more
than any other domestic economic policy in the past 10 years, taxed the
equanimity of the USSR toward its ebullient partner. Of lesser im-
portance was the Soviet reaction to China's leap forward policy and the
claims of extravagant accomplishments, particularly in agriculture, re-
sulting from the leap forward program. Soviet planners also apparently
were concerned with the imbalances that were generated in the Chinese
economy as a result of this sporadic activity.
Since late 1958, Communist China has backtracked from extreme
claims for the communes and now admits that decades will be required to
overcome Chinese economic backwardness. Changes in the organization of
the commune have been made that strip them of most of the features that
were objectionable to the Soviet leaders. Ideological differences over
the communes will continue, however, because the Chinese leaders still
retain the pretentious name "commune" and because the timetable for
advancing to a higher socialist stage continues as a challenge to Soviet
ideological leadership.
* The term leap forward is a Chinese Communist propaganda term and re-
fers to the economic policy introduced in 1958 under which tremendous
increases in physical output of major commodities were to be achieved
at almost any human or economic cost.
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A crucial element in Sino-Soviet relations is the exchange of goods,
in particular the flow of Soviet-produced machinery and equipment to
Communist China. Since 1950, Sino-Soviet trade has grown more than
fivefold from a value of $320 million* to more than 32 billion in 1959.
More than $12 billion in goods have been exchanged between the two
partners during this decade. The USSR extended loans to China amount-
ing to about $1.3 billion, of which $430 million was for economic
development and the rest was primarily for military purchases. The
credits had been almost fully utilized by 1955, and China now has re-
paid about $800 million of the total indebtedness.
During the past 10 years, Soviet exports of complete installations
and other capital equipment have amounted in value to more than 32 bil-
lion. In a series of agreements negotiated since 1950 the USSR has
agreed to provide Communist China with complete installations for 291
major projects that forth the core of China's industrialization program.
About one-half of these major projects have been placed in full or
partial operation and have contributed greatly to the extremely high
rate of growth of industrial output in China.
All of the complete plants have been constructed and placed in
operation with the aid of Soviet technical personnel. By late 1959,
about 11,000 Soviet engineers, plant and machinery designers, planning
advisers, and other experts had been employed in Communist China. Al-
though the number of technicians in China has been reduced consider-
ably in recent months, Soviet experts continue to fill essential posi-
tions on a number of important projects.
Although the economic gain to Communist China from Sino-Soviet
trade has been given much greater emphasis, the USSR also has derived
substantial benefit from the partnership. By obtaining industrial raw
materials from China, the USSR has fulfilled critical needs and at the
same time has conserved its own foreign exchange holdings. China's
exports of agricultural products and semiprocessed goods add only a
minor fraction to total availabilities of such items in the USSR, but
they enable the USSR to divert labor and other resources to industry,
a matter of particular importance at a time when Soviet manpower
problems are especially acute.
In addition to the important economic ties that Communist China has
developed with the USSR, China has formed extensive and mutually bene-
ficial economic relations with all of the other countries of the Com-
munist Bloc. During 1950-59, China received machinery and equipment
from the European Satellites valued at about $1.7 billion, approxi-
mately 40 percent of Chinese imports of these items from all sources.
* All values in this report are given in current US dollars. Yuan
values were converted at the rate of exchange of 4 yuan to US $1.
This rate of exchange is based on the yuan-ruble-dollar rate and
bears no relationship to domestic price levels.
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Although none of the European Satellites has extended financial assist-
ance for China's development effort, they have negotiated assistance
agreements calling for the construction in China of a number of large
projects. Agreements for at least 100 projects appear to have been
signed, and construction of about two-thirds of these projects has been
completed and the facilities placed in operation.
In the Far East, both the USSR and Communist China have attempted
to make the Asian Satellites an integral part of the Sino-Soviet Bloc.
Such efforts have been successful. These Asian countries are stamped
with what has come to be acceptable as Marxist economic doctrine, and
their international economic relations are closely linked to the Sino-
Soviet Bloc. Both China and the USSR have given each of the Asian
Satellites substantial amounts of economic aid. Although China has
made its most extensive advances in North Vietnam, the regime of which
appears to lean toward China for guidance, and the USSR has put forth
its greater efforts in Outer Mongolia and North Korea, the leaders of
which seem to follow the doctrinal lead of the USSR, a struggle between
the USSR and China for dominant influence in the area, while a real
possibility, is not yet evident.
The USSR and Communist China have many divergent political inter-
ests in the Free World, and certain differences in approach are apparent
in their respective economic policies. Basically the economic policies
of both countries in the Free World probably are harmonious; Chinese no
less than Soviet interests would be served by reducing Western indus-
trial influence in the world and in creating the conditions necessary
for the Communist Party to take over in underdeveloped areas. Any
tensions that may arise probably are reconcilable and, in any event,
are unlikely to result in a significant schism in the alliance.
The irrational zeal of Chinese Communist leaders to rush the world
triumph of Communism, however, combined with their resistance to a
possible general settlement of world tensions and their aggressive at-
titude towards matters of unique concern to Communist China have led
them to a number of acts that are embarrassing to the USSR. The most
significant embarrassments for the current Soviet code for conduct in
international affairs have been the bombardment of the offshore islands,
the military operations in Tibet, and the border incidents in India.
Economic incursions of China into Asian countries have been bolder and
more brazen than those of the USSR. The intensity and extent of these
incursions in recent years have varied with the truculence of China's
foreign policy. China's threats to Indonesia, for example, as the
latter has attempted to reduce the economic influence of its Chinese
populace, have erased much of the good will and diminished the prestige
of all Communist powers. Furthermore, China's unprovoked embargo on
trade with Japan has served as a warning to other Asian nations that
agreements with Communist nations cannot always be accepted at face
value. Divergent aspirations in Asia, originating in incompatible
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nationalistic and Communist Party ambitions of the USSR and China, may
lead to tensions regarding economic policy in the future. The rele-
vance of such tensions does not lie, however, in their schism-creating
properties but rather in their capacity to prolong or accentuate other
differences and in their impact on the effectiveness of policy.
The economic factor of greatest significance with respect to the
future of the Sino-Soviet Alliance is the anticipated industrial growth
of Communist China. China is not expected to maintain its past rate of
growth in industry (averaging 24 percent per year during 1951-59), but
it is expected to have a high rate of growth (averaging about 14 per-
cent per year during 1960-65 and about 10 percent per year during
1966-75). Within two decades, China probably will become the third
ranking industrial power in the world, even though industrial output
will be less than one-quarter that of the USSR. China's dependence on
the USSR for machinery and equipment -- in particular, for the more com-
plex types of installations -- will continue to be great for the next
several years, a period during which the economic leverage that the USSR
can exercise over China will play a key role in determining the nature
of the alliance. Although China will need advanced types of industrial
machinery for the next few decades and although mutual commerce is ex-
pected to continue at high levels, China probably will have achieved a
basic degree of self-sufficiency by the end of this decade. Economic
dependence on the USSR clearly will be a less cohesive force in future
Sino-Soviet relations, for China will not be reaping technological ad-
vantages in the same measure as it has in the past in its trade with
the USSR.
The ability of Communist China to undertake a course of action or
to adopt policies contradictory to or independent of those actions and
policies of the USSR will be increased as the economic power of China
grows. Accessibility to Free World suppliers of machinery and equip-
ment may increase the scope of China for independent action. Conflict
such as that arising from the formation of communes in China will not
be so easily compromised, and disputes relating to such basic issues
as the correct role of the Marxist-Leninist movement in an ideologi-
cally divided world may not be compromised at all when China no longer
feels compelled to look to the USSR for crucial support for its in-
dustrial development. China's capability for acting independently of
the USSR will develop simultaneously with a growth in economic means
for achieving foreign political objectives. China's role as a counter-
poise to the USSR in intra-Bloc affairs will be increasingly important,
and its capacity for independent action in the Free World will be pro-
gressively increased. It cannot be assumed that these developments
will be translated automatically into conflict between China and the
USSR, for both countries undoubtedly will continue to have markedly
similar foreign objectives for the indefinite future. Differences that
do arise in foreign economic policy, moreover, will not necessarily
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disrupt the alliance beyond remedy, because as long as the USSR and
China regard the military power of the Western Alliances as the prin-
cipal threat facing the Communist world, both countries will continue
to look upon the Sino-Soviet Alliance as a crucial safeguard against
the capitalist nations. Nevertheless, the growing economic capability
of China for international mischief will increase the probability that
situations of friction with the USSR will arise. At the same time,
because the Soviet leverage on China gradually will diminish, the ten-
sions that do develop probably will have increasing impact on the ef-
fectiveness of Bloc foreign policies.
I. Ideology and Economic Practice
Since 1958, world attention has been drawn to the spectacle of
open Sino-Soviet discord over Communist China's internal economic
policy. In particular, the Soviet leadership has reacted coolly to
the commune program especially to the original claim that the commune
system is a shortcut to Communism. The deviations of China from the
Soviet line contrast with China's deferential attitude in the early
1950's on matters of economic policy and mark the first time a major
Chinese economic program has met with open Soviet disapproval.
Chinese Communist innovations adopted during the leap forward,
combined with the commune movement, now amount to a distinct Chinese
variant on the Soviet model for economic development that guided Com-
munist China during its First Five Year Plan (1953-57). The emergence
of a Chinese variant offended the USSR in spite of the Soviet acknowl-
edgment of the need of each country of the Sino-Soviet Bloc to pursue
its own road so long as the Bloc country adheres to basic Communist
principles. The innovations that have been most irritating to the USSR
generally are deviations to which the USSR has expressed ideological
objections or which would appear to the USSR to create economic in-
stabilities that might inhibit industrial growth in China. The harm-
less or permissible deviations that have emerged are original tech-
niques or programs developed to make the most effective use of China's
particular economic resources, most specifically its vast population.
The USSR has encouraged this latter type of deviation, partly in the
interests of promoting over-all Bloc economic strength and partly to
increase the appeal of Communism to countries with economies resembling
that of China.
Several factors complicate the attempt to distinguish between ob-
jectionable and permissible deviations in the economic policies of
Communist China. Some of the new programs have involved both types of
deviation in a confusing mixture. The commune, for example, by the
beginning of 1960 had come to resemble an unobjectionable federation
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of agricultural collectives, while still retaining its objectionable
name. Isolating any ideological element in Chinese deviations also
has been made difficult by China's refusal to admit unorthodoxy at all.
The regime has explicitly claimed that all innovations have been well
grounded in Marxism-Leninism and have been undertaken following the
urging of the USSR in 1957 that each country of the Sino-Soviet Bloc
adapt basic Communist principles to its own special conditions. 1/*
China's frequent shifting of the ideological justification and impor-
tant characteristics of its new program must have confused the USSR,
which has exhibited uncertainty in recent months over the degree to
which some elements of the Chinese program may exceed the leeway al-
lowed in the 1957 mandate for creative adaptation. Moreover, Soviet
efforts to soft-pedal differences, in the interest of upholding Bloc
unity, have made it difficult to measure the full intensity of Soviet
annoyance at certain Chinese internal policies.
A. Issues in Economic Ideology
There is little in Communist China's basic approach to eco-
nomic development with which the USSR could reasonably disagree. Both
countries subscribe to basic Marxist-Leninist-Stalinist economic aims
of socialization, centralized planning and administration of the'econ-
omy, and forced-draft industrialization. Both countries give top
priority to production of producer goods and furnish heavy industry
with the best managers, workers, machinery, and raw materials. In
both countries, consumers chafe under the restrictions placed on pro-
duction of consumer goods. The USSR continues generally to endorse
China's economic program. On the eve of the 10th anniversary cele-
brations in Peking last October, for example, Khrushchev praised the
Chinese Communists for their many "outstanding successes in all fields
of socialist construction." The Soviet attitude seems to be that
the modified features and claims of the leap forward and commune move-
ments, while distasteful, are peripheral and subsidiary.
The Chinese Communists for their part have been vociferous in their
professed devotion to basic tenets of Communism. People's Daily
'(Jen-min jih-pao), for instance, published this statement of ideologi-
cal allegiance in January 1960: "China's socialist cause strictly ad-
heres to the universal truth of Marxism-Leninism in all basic prin-
ciples, loyally carrying forward and developing the glorious cause of
the LSovieg October Revolution." W This statement is one of the
strongest in what appears to be a campaign of persuasion which Party
leaders have oonducted since December 1958 to convince Soviet skeptics,
as well as their own faithful, that the Chinese road to socialism is
a thoroughly orthodox one. This campaign has been marked by moderation
of language and policies compared to the period of formation of the
communes in mid-1958, when Chinese Communist leaders were predicting
the early advent of Communism.
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It was that ideologically presumptuous claim, as well as
various features of the communes themselves, that drew open Soviet
objections. Chinese backtracking, however, seems to have brought the
Chinese estimate of their timetable for ideological development back
into line with the Soviet view. The editorial in People's Daily in
January 1960 was an important statement reviewing prospects for the
coming decade, yet it made no reference to the building of communism,
which Liu Shao-chi had said in July 1958 would be realized "very
soon." )1/ Instead, as in estimates dating from precommune days, the
editorial described the coming decade as one of building socialism
and of realizing in the main the modernization of industry, agricul-
ture, science, and culture. This projected level of development
appears to equate to a stage of "socialism," which Stalin claimed was
achieved "in the main" by the USSR in 1936. A Chinese timetable for
achieving basic socialism in 10 years would seem consistent with a
recent semiofficial Soviet estimate that Communist China is 17 or 18
years away from full socialism.
The Chinese Communists also have belatedly acknowledged the
Soviet stand that abundance of material goods per capita is a pre-
requisite to the achievement of socialism. With humility that would
have been inconceivable during the height of the leap forward move-
ment, the 1960 New Years Day editorial in People's Daily qualified
the longstanding slogan to overtake Great Britain in output of major
items in 10 years by admitting that even then "China's per capita out-
put will still be very low; still very backward compared with that of
Britain." In the same vein a Chinese diplomatic note to India in
December 1959 asserted that Communist China was not a threat to other
countries partly because it would be internally preoccupied for "dec-
ades or even more than a century" in overcoming its economic back-
wardness. 2/
In addition to acknowledging that in the development of a Com-
munist society China is well behind the USSR, China has gone far in
removing ideologically controversial features introduced into its
domestic program during 1958. Although retaining the pretentious
name "commune," China has admitted that this form of organization is
"not communistic" but is based only on collective ownership, a low
form of socialist ownership. The communistic element of free supply,*
Originally an important and controversial feature of the commune, has
been reduced. Liu Shao-chi explained to the Communist world jn the
October 1959 issue of the Cominform journal Problems of Peace and
Socialism (Problemy Mira i Sozializma) that free supply now formed
* Under the system of free supply, it was planned that an increasing
portion of food, clothing, and other basic consumer goods would be
distributed free by the communes.
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only 20 to 30 percent of a peasant's income and was really only a form
of social insurance. Private activity revived slightly durfng 1959 as
individual peasants were again permitted to cultivate mall private
plots, to raise hogs, and to trade privately at rural fairs. Partici-
pation in communal activities such as messhalls is now encouraged but
not enforced, even in model communes.
The USSR, although not openly critical, probably-had reserva-
tions about the way Communist China carried out the mass labor drives
of 1958. The technique of carrying out economic programs by mass
campaigns -- huge labor drives under political pressure -- has been a
fundamental feature of China's leap forward movement. By contrast,
the USSR in recent years has stressed material incentives and orderly
economic planning; it has not employed shock campaigns as a primary
economic technique since the Stakhanovite movement of the early 1930's.
It seems probable, therefore, that the USSR considered unwise the
Chinese shock campaigns of 1958, both because they relied on political
coercion rather than on material incentives and because they disre-
garded the balanced planning of labor and supplies of raw materials.
Neither of these objectionable features, however, was prominent during
the 1959 mass campaigns, which were conducted so as to interfere as
little as possible with established economic programs. An important
ideological concession to the USSR was China's admission in August 1959
that it had been too egalitarian in 1958. An immediate result of
China's change of view was that peasants conscripted for labor drives
began to be paid.
By backtracking from its original extreme position, Communist
China has reduced Soviet opposition to the leap forward and the com-
mune. A turning point in the Soviet attitude was perhaps evidenced
in October 1959, when top Party leaders Liu Shao-chi and Teng Hsiao-
ping (apparently second-ranking and fourth-ranking members of the
Party hierarchy) stated the Chinese case for communes and mass campaigns
in articles appearing in Problems of Peace and Socialism and in Pravda.
Although Soviet leaders have not been completely won over, it was evi-
dent at the October celebrations in Peking that the USSR had made little
attempt to restrain the delegates from the European Satellites from
praising communes and the leap forward. Softening of the Soviet atti-
tude also is suggested by the willingness of Radio Moscow to incorporate
favorable items on communes in foreign broadcasts, for example, to
Indonesia. Further evidence of Soviet unbending is a speech by Ambas-
sador Chervonenko in Peking on 13 February 1960 (at a banquet celebrat-
ing the 10th anniversary of the Sino-Soviet treaty of friendship) in
which he quoted with approval a Chinese press item about the contribu-
tion of the leap forward movement and the commune to China's economic
successes. His speech is the first major speech by a visiting or resi-
dent Soviet official in China that even mentions the word commune.
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Communist China and the USSR seem to have reached an uneasy
working agreement over their doctrinal differences. This relationship
may have become stabilized for the time being because neither side has
significantly changed its position in recent months and neither side
is under immediate pressure to do so. China seems satisifed both with
the commune organization, which was functioning efficiently last fall,
and with economic progress being made under the leap forward. The
USSR, entering a long period of international negotiation, also has no
apparent cause to stir up the conflict.
Although Sino-Soviet discord over the internal policies of
Communist China has been largely patched over, there remain unresolved
differences over the commune, and there also is probably a residue of
ill will and suspicion on both sides following nearly 2 years of
misunderstanding. Soviet leaders must still resent, for example, not
being taken fully into Mao's confidence in the early stages of the
commune program in 1958. The USSR may regard the extraordinary revo-
lutionary spirit and egoism exhibited by Chinese Communist leaders
during the leap forward movement as further evidence of their unreli-
ability as allies. Chinese leaders probably feel with some bitterness
that Soviet criticism of the communes has strengthened rightist op-
ponents of the regime and has constituted Soviet interference in
Chinese internal affairs. Moreover, China may be irked at the patro-
nizing air with which the communes have been dismissed by Soviet
leaders as neither novel nor practical. No top Soviet leader has yet
spoken favorably of the Chinese commune movement, which China insists
is one of the most significant elements of its internal program. Thus
there were some awkward moments last October at the 10th anniversary
celebrations in Peking, as Khrushchev and Suslov tried to avoid men-
tioning the word "commune" in their speeches. Khrushchev ducked the
issue, saying it was not for him as a guest to discuss Chinese ac-
complishments in detail. Suslov, even more awkwardly, merely noted
that Chinese peasants were "firmly set on the socialist path of de-
velopment."
The chances of an open Chinese challenge to Soviet ideological
leadership on this matter have been receding in recent months as Com-
munist China has taken steps to stretch out the period of evolution of
the commune. An intervening stage of evolution below the higher so-
cialist level has been introduced. Whereas transition to state owner-
ship was once said to be the next stage, in January 1960 it was decreed
that the next goal would be the gradual transition from collective
ownership on the basis of ownership by the production brigade* to
* The production brigade, the next administrative level below the
commune, became in 1959 the fundamental unit for production and owner-
ship when the commune failed to live up to expectation. The production
brigade is approximately the same size as the old agricultural producer
cooperative.
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collective ownership by the entire commune. The current emphasis seems
to be on the word gradual because in the meantime China has been re-
assuring production brigades that basic ownership would remain at their
level for the foreseeable future.
B. Economic Practices
Participating in the worldwide Communist movement and being
heavily dependent on Soviet advice and help, the Chinese Communists
have established practices and institutions similar to those that had
proved effective in the USSR. The Chinese adopted, in particular, the
system of economic organization developed by the USSR during its early
5-year plans. The State Council, equivalent to the Soviet Council of
Ministers, administers the whole economic program under policies set
down by the handful of Communist leaders at the top. Major industrial
plants are controlled through central economic ministries and minor
plants by provincial and local governments. The machinery of central
planning in Communist China is a copy of that developed by the USSR,
although statistical support for this machinery is less sophisti-
cated and less reliable in China. The economy in China, as in the
USSR, is directed through a comprehensive annual plan, which in turn
is guided by a more general 5-year plan. These plans emphasize the
building up of industry, especially heavy industry, and the rapid
transformation of ownership from the individual to the state.
The role of the top Party leaders in establishing broad eco-
nomic policy and insuring its implementation is the same in Communist
China as in the USSR. By borrowing Soviet fiscal and commerical
policies, the Chinese Communists have effectively controlled inflation,
limited personal consumption, and directed resources toward uses
favored by the regime. Like the USSR, at least during its early plan
periods, China has been obsessed with quantity rather than quality of
industrial output and has used industrial and transport equipment far
more intensively than is customary in non-Communist countries.
Notwithstanding the controversy raised by the commune movement,
state control over rural life has been firmly secured and is being ad-
ministered in a fashion similar to Soviet administration of rural
economic life. Like Stalin, Mao Tse-tung decided to collectivize
peasants rapidly after announcing plans to do it gradually. Chinese
agricultural collectives, including the present commune, have assumed
the same relationship to the government and Party as the collective does
in the USSR. The government collects taxes, sets procurement quotas,
and assigns production targets. Close Party supervision, amounting at
times to virtual operation, has been a feature of both Soviet and Chi-
nese farm organizations. The Chinese production brigade, nominally
subordinate to the commune, is now the basic unit of farm ownership
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and management and in size and function resembles the Soviet collec-
tive.
The wholesale adoption by Communist China of Soviet techniques
and standards in trade, transportation, and communications has greatly
facilitated economic dealings between the two countries. Communist
China has adopted the metric system and uses the Soviet ruble as the
medium of exchange in its trade with other members of the Sino-Soviet
Bloc. China, like the European Satellites, has not attempted to alter
its 56-inch gauge railroad system to conform to the Soviet 60-inch
gauge. Fast and effective techniques have been developed for trans-
ferring freight or for changing the trucks of the cars themselves at
the change-of-gauge points, although tieups at these points still occur
from time to time. Agreements between China and other Bloc countries
have reduced complications in routing intra-Bloc railroad traffic,
which usually can proceed from origin to destirtion on a through bill-
of-lading.
Communist China adhered closely to the Soviet pattern for eco-
nomic development throughout the period of the First Five Year Plan
(1953-57). As early as 1956, however, Chinese dissatisfaction with
the economic guidelines provided by Soviet experience began, for these
guidelines did not help solve China's population problem, which is
unlike any that the USSR had ever faced. China then sought to devise
its own program to create more complete employment for its huge, un-
skilled, and rapidly growing labor force. In 1958, radical modifi-
cations of economic policies were instituted With the goal of changing
China's population from an economic liability to an asset. Emphasis --
in both industry and agriculture -- was placed on combining large
amounts of labor with relatively small amounts of capital equipment.
By early 1960 it was clear that a distinct Chinese Communist
variant of the Soviet model for economic development had been estab-
lished. In spite of drawbacks and growing pains, the new program ap-
pears effective in stepping up the pace of economic development. It
is now believed that as a result of economic gains achieved during the
leap forward movement the gross national product of Communist China
will rise about 70 percent during the Second Five Year Plan (1958-62),
instead of the 45 percent projected by the original plan.
Innovations adopted in 1958 were designed not to replace but
to supplement the Soviet model previously followed, which concentrated
on construction of capital-intensive large-scale factories. While
large-scale industrialization remains the core of the new Chinese Com-
munist program, Chinese planners simultaneously have been giving
greater attention to agriculture and small-scale industry than they did
during the First Five Year Plan period. This diversified emphasis,
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which the Chinese Communists call "walking on two legs" or the "general
line for building socialism," along with the leap forward and the com-
mune make up the Chinese variant.
The Chinese Communists have been willing to depart radically
from planned programs and regard some economic imbalances and even
some dislocations as evidence of progress. They have never believed,
however, that the resources needed by the main industrialization pro-
gram should be diverted into small-scale and local industry. When such
diversions occurred, as during the nationwide drive of 1958 to set up
thousands of native types of blast furnaces, they were soon regarded as
excesses to be corrected. The Chinese plan has been to rely primarily
on manpower and materials available locally to carry out new ventures.
The program has been characterized by the mobilization of manpower on
an enormous scale. In agriculture the regime initiated massive labor
drives to increase the crop area under irrigation, to plow more deeply,
and to collect and spread vast quantities of manure and primitive
fertilizers. These measures not only eliminated unemployment that had
existed in the countryside but also added greatly to the burden of
those farmers who had been fully employed. In industry the regime
transferred control of many state enterprises to local governments and
promoted construction of many small projects requiring the labor of
vast numbers of people but relatively little equipment. Small-scale
production contributed substantially to over-all production of coal,
cement, pig iron, and crude steel during 1959. In both the agricultural
and industrial program, however, a great deal of waste and inefficiency
developed during 1958, leading to the modification of some practices
and the elimination of others in 1959. Nevertheless, the basic program
is being pushed with fervor by dedicated Party cadres, with the result
that the average Chinese on the farm or in the city is one of the most
overworked persons in the world.
Although withholding specific approval for the commune, the USSR
has been able to muster a fairly tolerant attitude toward the Chinese
Communist variant for economic development taken as a whole and seems to
accept the Chinese claim that this variant was undertaken in conformity
with the principle laid down in the USSR that each country pursue its
own road to Communism. The USSR has indeed provided material support
for the new Chinese program -- for example, by accelerating deliveries
of transportation equipment during the height of the leap forward move-
ment when a shortage of transport capacity developed.
II. Level and Growth of Sino-Soviet Economic Relations
One of the more significant developments of the past decade has been
the growth in economic relations between Communist China and the USSR.
The USSR during the 10-year period 1950-59 has regularly accounted for
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between 40 and 50 percent of the total trade of Communist China. Simi-
larly, China has been one of the leading trade partners of the USSR,
participating in about 20 percent of total Soviet trade. There has
been about a fivefold expansion, averaging about 23 percent annually,
in the dollar value of Sino-Soviet trade from 1950, when it amounted to
$320 million, to the peak year of 1959 when exchanges totaled more than
$2 billion, as shown in Table 1 and Figure 1.* The dynamic growth of
this partnership in trade dominates the impressive expansion in China's
total foreign trade, which has increased at an average annual rate of
about 15 percent, and gross national product, which has increased at an
average annual rate of about 10 percent.
Table 1
Balance of Trade of Communist China with the USSR 21
1950-59
Million Current US
Year
Total
Trade
Exports
Imports
Trade
Balance
1950
320
183
137
46
1951
750
308
442
-134
1952
965
413
552
-139
1953
1,170
474
696
-222
1954
1,275
575
700
-125
1955
1,705
636
1,069
-433
1956
1,460
745
715
30
1957
1,290
743
547
196
1958
1,515
881
634
247
195912/
2,050
1,100
950
150
Total
12,500
6,058
6,)442
-384
a. Derived from information released by Communist China
and -its trade partners. Soviet reporting of Sino-Soviet
trade differs in certain details from the above data.
For the value Of trade as reported by the USSR, see Ap-
pendix A, Table 5, p. 40, below.
b. Provisional.
* Following p. 14.
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MILLION US DOLLARS
1100
1000
900
800
700
600
500
400
300
200
100
o
COMMUNIST CHINA
BALANCE OF TRADE WITH THE USSR
1950-59*
Figure 1 50X1
CHINA IMPORTS
/
IMPORT
SURPLUS
EXPORT
SURPLUS
\CHINA EXPORTS
1950
29039 7-60
1951
1952
1953
1954
1955
1956
1957
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1958
1959*
(Preliminary)
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More than $12 billion was involved in the turnover of trade between
Communist China and the USSR during 1950-59. Exports and imports were
basically in balance, with the USSR having a small export surplus of
about Wo million for the 10-year period. During the first 6 years of
this partnership (1950-55), however, China incurred trade deficits
totaling about $1 billion in trade with the USSR. These deficits were
offset by Soviet loans and credits totaling about 31.3 billion which
were almost entirely utilized during this formative period. China
achieved export surpluses estimated to total about $675 million during
the 4-year period 1956-59. This accomplishment reflects, in part,
rather startling economic progress by the Chinese and their execution
of a rigid foreign trade policy that emphasizes steady expansion of
exports and spartan restriction of imports. China should be able to
continue to maintain substantial export surpluses in its trade with the
USSR for the next 2 or 3 years, enabling it to liquidate short-term
obligations and to meet the remaining payments due on long-term loans.
By 1962 the. unpaid balance of China's debt to the USSR probably will
amount to little more than $100 million. It appears likely that annual
payments will continue for several years after 1961 or 1962 but at a
considerably reduced annual level.
The keystone of Sino-Soviet economic relations lies in the major
projects being built in Communist China, using Soviet equipment and
machinery and Soviet technical assistance. In a series of agreements
extending from February 1950 to February 1959 the USSR committed itself
to assist China in the construction of 291 major projects, by providing
complete installations and technical services valued at approximately
$3.3 billion, as shown in Table 2.* Agreements signed during the period
February 1950 to April 1956 envisioned the construction of 211 major
Soviet-assisted projects. The Chinese Communists announced in April
1959, however, that the 211 projects had been reduced in number to 166
as a result of merging some of these projects during construction. The
subsequent agreements of August 1958 and February 1959, providing for
the construction of 125 additional major projects extending through the
Third Five Year Plan (1963-67), places the total of major projects to
be constructed in China with Soviet assistance at 291. Of this number,
approximately one-half have been fully or partly completed and put into
operation. The principal Soviet aid projects in China are shown in
Figure 2.**
Maintenance and expansion of existing transportation and the de-
velopment of new routes play a crucial role in the continuation of close
economic ties between the USSR and Communist China. Railroads are by
far the most significant form of transport connecting the two countries.
* Table 2 follows on p. 16.
** Following p. 16.
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Table 2
Soviet Project Construction Agreements
with Communist China 2/
1950-59
Value of
Complete Sets
Date of
Agreement
Economic Credits
(Million
Current US $)12/
Number
of
Projects
of Equipment sj
(Million
Current US $) 12/
February 1950
300
50
N.A.
September 1953
1/
0
91
1,300 2/
October 1954
130
15
100
April 1956
0
55
625
August 1958
0
14-7
N. A.
February 1959
0
78
1,250
Total
430
291 V
3,275
a. y
b. Converted from rubles at the official rate of exchange of
4 rubles to US $1.
c. Including technical assistance related to these projects.
d. An agreement signed to deliver equipment for a total of
141 projects.
e. This sum includes the value of
assistance for all of the 141 proje
f. The Chinese announced in April
Soviet-assisted projects agreed on
duced in number to 166 as a result
equipment and technical
cts.
1959 that the 211 major
through April 1956 were re-
of merging of some projects
during their construction. Thus the total of 336 projects was
reduced to 291.
The Trans-Siberian Railroad and its three connecting lines with China
in past years have carried about one-half of the volume of total im-
ports and exports of Communist China.
An additional railroad link between Communist China and the USSR,
the Trans-Sinkiang Railroad, may be completed before the end of 1961.
The Soviet broad gauge line is in operation from Aktogay in Kazakh
SSR to the Chinese border and the Chinese Lung-Hai Railroad has been
extended westward as far as Hami. The Trans-Sinkiang line will be of
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72
, COMMUNIST CHINA S---'
PRINCIPAL SOVIET AID PROJECTS
8 1949-60
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