WESTERN EUROPE REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00912A001600010016-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 56
• Document Creation Date: December 20, 2016
• Document Release Date: November 30, 2005
• Sequence Number: 16
• Publication Date: December 20, 1978
• Content Type: REPORT

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Assessment
Center
Western Europe
Review
State Department review completed
Secret
Secret
RP WER 78-021
20 December 1978
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WESTERN EUROPE REVIEW
20 December 1978
CONTENTS
China and Western Europe: An Overview 0 . . . . . 1 25X1
China - Western Europe: From Peking's
Perspective . . . . . . . . . . . . . . . .
China expects to draw heavily on Western
Europe as a source of modern industrial
equipment, technology, and expertise and
to use the region as a vital element in
a strategy of counterbalancing the USSR
on a global scale. I 25X1
EC: A Long, Lon March Toward Increased Trade
With China . . . . . . . . . . . . . . . . . . 7
The exchange of cash and commodities between
the EC and China is small, largely because
of Peking's limited ability to pay for and
absorb the goods offered.
China and Western Europe: Some Organizational
Aspects . . . . . . . . . . . . . . . . . . . 16
The West European treatment of Chinese rela-
tions in the EC and NATO--and China's ap-
proach to these organizations--has, natu-
rally enough, differed because of the dif-
fering purposes the organizations themselves
are designed to serve.
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The French-Chinese Connection 0. . . . . . . . . . 19
Most French officials see the Chinese open-
ing to Western Europe as an opportunity that
should be seized upon for maximum advantage--
not only because of its economic potential
but also as another way of enhancing French
leverage with the USSR. II
West Germany's Fernostpolit.ik
West Germany is clearly pleased, yet some-
what uneasy, about the rapid expansion of
political, economic, and technical rela-
tions with China that has occurred during
the past year.
UK: Opening to the East
0
Relations between the UK and China, which
began both to increase and improve in the
mid-1970s, will expand. even more rapidly
during the next decade.
Italy and China: Improved Prospects for
Cooperation . . . . . . . . . . . . . . . . . 34
Italy has welcomed the opportunity to capi-
talize on a potentially significant export
market as well as to strengthen ties between
China and Western Europe.
China's Relations with Greece, Turkey, and
Cyprus . . . . . . . . . . . . . . . . . 40
China's contacts with Greece, Turkey, and
Cyprus will probably increase as Peking
seeks to counter Soviet influence in the
region and as the eastern Mediterranean
countries try to exploit China's interest
in political, economic, and even security
benefits. II
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Canada: Long Time Fascination With China
. . 43 25X1
Peking's new policy of improving rela
tion
s
with the West has reinvigorated Canadian
interest in China.
Malta: China's West European Beachhead
0
. 46 25X1
Keeping the Soviets out of Malta is clearly
China's main motive in establishing strong
economic and diplomatic links with Valletta.
I
The Soviet Response
The increasing stridency of Soviet warnings
and threats against the Chinese-Western rap-
prochement is doubtless accompanied by a
growing realization among the leadership
that there is little, if anything, they can
do about it.
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1 1
China and Western Europe: An Overview
The Chinese and the West Europeans view their steadily
expanding relationship from very different perspectives.
For Peking, two considerations are dominant: rapid eco-
nomic development and greater security vis-a-vis the
Soviets. After years of insisting that China must rely
mainly on its own resources for development, the Chinese
are now making up for lost time. Their delegations are
crisscrossing Europe with long shopping lists (including
military items), economic agreements are proliferating,
and hundreds of students will be sent to Europe over the
next few months. In the security area, Peking is making
clear at every opportunity the importance it attaches to
the containment of the Soviets and its concern that weak-
ness in the Atlantic Alliance is undermining this effort.
For the Europeans there are many secondary motives,
but the driving force is commercial. Few Europeans suf-
fer from the illusion that there is a vast and easily
exploited market in China, but they all know that sig-
nificant opportunities do exist; and given Western Europe's
current economic situation, the opportunities look par-
ticularly enticing to them. To the extent that security
considerations enter their calculations, the lessons they
draw are ambivalent. They recognize that bolstering the
Chinese makes sense in terms of the international power
balance--and also could open up diplomatic opportunities
for them in their relations with the Soviets. At the same
time, many of them are concerned over the possibility of
an adverse reaction from Moscow.
Nowhere is West European ambivalence more notice-
able than in the area of arms sales. These are often
particularly lucrative, and they have an obvious appeal
to those who emphasize Europe's interest in helping China
become a more effective counterweight to the Soviets. Yet
deals in this field have the greatest potential for pro-
ducing an unpleasant Soviet response. Soviet President
Brezhnev tried to play on these concerns in letters last
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month to London, Paris, and Bonn--although he too, dis-
played a degree of caution
The Soviets probably recognize that they will be
unable to prevent the expansion of Sino - West European
ties, including those in the arms field. The pace of
expansion is likely to be gradual for other reasons,
however, and China will remain a small market for European
industry. The Chinese have consistently proven to be
sticky negotiators, and they are asking for things which
the Europeans will often be reluctant to give: the sale
of weapons production technology, for example. Even more
important, China's ability either to pay for or to absorb
the goods it wants is limited. Both the Chinese and the
West Europeans, moreover, have other foreign policy con-
cerns that loom much larger than Sino - West European
relations, and neither the leaders in Peking nor those in
Europe are likely to put too much faith in a nexus of this
But the expansion, gradual though it may be, also
seems irreversible--barring another sea change in Chinese
policy. The Europeans will remain nervous about the Soviets,
and while recognizing that they are in competition with
each other (and with the United States), they will at the
same time be reluctant to move too far ahead of each other
in such a sensitive field as arms. Commercial advantage
will remain the dominant consideration, however, and a
slow growth in Sino - West European commerce in such sen-
sitive fields as weapons technology and nuclear power is
almost certain. West Germany, France, the UK, and Italy
will probably get the lion's share of China's business,
both military and otherwise, but smaller countries such as
Switzerland and the Nordic countries will also obtain a
piece of the action. II
The pace of the expansion is not likely to be af-
fected much by the establishment of diplomatic relations
between China and the United States. If anything, this
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development is likely to accelerate the Europeans'
efforts, both because they will consider that it
enhances the respectability of doing business with Peking
and because they almost certainly anticipate more active
competition from the US in the future.
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China - Western Europe: From Peking's Perspective
II
China expects to draw heavily on Western Europe as
a source of modern industrial equipment, technology,
and expertise and to use the region as a vital element
in a strategy of counterbalancing the USSR on a global
scale. Chinese officials miss few chances to warn the
West Europeans about the peril Moscow poses to the West
and to encourage a strong, united Western Europe firm
in its opposition to Soviet expansionism. Conversely,
the Chinese are quick to criticize what they interpret
as the slightest sign of "appeasement" on the part of
the West Europeans. This encouragement of anti-Sovietism
goes beyond European regional concerns to encouragement
of greater West European cooperation with the Third world,
particularly in Africa and the Middle East. For example,
earlier this year the Chinese were approving of French
aid to President Mobutu to repel the second Katangan
invasion of Zaire. Peking also hopes for closer rela-
tions between Western Europe and Japan in the interest
of containing the Soviets.
This does not mean that Peking wants to encourage
West European unity, strength, and independence at the
expense of Western European ties to the United States.
On the contrary, though uncertainty about US steadfast-
ness produces an occasional note of ambivalence in Pe-
king's statements, the Chinese generally emphasize the
indispensability of the United States, in the mainte-
nance of NATO and the defense of Western Europe. "Neu-
tralization" of the region, with its concomitant damage
to US - Western European relations, would be a severe
blow to Peking.
The anti-Soviet orientation of China's attitude
toward Western Europe has contributed to Peking's con-
tinuing ambivalence toward the major "Eurocommunist"
parties. Although there have been tentative signs this
year that the Chinese are rethinking their policy toward
these parties, Peking's suspicion of their continued
links to the Soviets has continued to inhibit Chinese-
Eurocommunist rapprochement.
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Increasing Sino - West European trade, with the
prospect of greater increases to come, provides tangible
content to the more problematical and slower developing
political relationship. So far this year Peking has
signed a trade agreement with the EC and a long-term
economic cooperation agreement with France. Various
types of long-term agreements with Italy, West Germany,
and Great Britain are under consideration. During the
same period, China also has concluded scientific and
technical cooperation agreements with France, Italy, West
Germany, and Britain. Chinese delegations of all sorts
have crisscrossed Europe in increasing numbers. China
also is turning to Western Europe as a source of educa-
tion necessary to improve and expand its pool of scien-
tists and engineers. Large numbers of Chinese students
eventually will study at European institutions.
Western Europe will continue to be a major supplier
of plants and equipment for China's modernization drive,
although the Europeans face stiff competition from Japan
and--potentially--the United States. Peking is interested
in purchasing a wide range of industrial goods, including
steel mills, petrochemical plants, thermal and nuclear
power stations, truck plants, and mining equipment. By
purchasing technology from various West European countries
the Chinese will avoid overdependence on one source, gain
access to US technology produced in Western Europe under
license, and promote competition in price and financing
terms among potential suppliers. They also hope to en-
courage West European governments to press for revision
of strategic trade controls.
China's military interest in Western Europe goes
beyond urging that the region look to its own military
strength vis-a-vis the USSR. Peking is interested in
purchasing modern arms and military technology, including
such items as antitank missiles, helicopters, and combat
aircraft. During the past year, Chinese military dele-
gations have visited every major national armaments in-
dustry in Western Europe. Moreover, China is attempting
to create the impression of a military relationship be-
tween Western Europe and China through visits by West
European military delegations to Peking, exemplified by
the publicity given by the Chinese press to the visit
last April of`the chief of the British defense staff.
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China's opening to Western Europe still faces major
economic obstacles, and there remain important differences
over political subjects, particularly detente. Neverthe-
less, barring a political upheaval in Peking that might
bring to power a more inward looking, less pragmatic
leadership, the o enin is likely to continue and will
probably widen.
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EC: A Long, Long March Toward Increased Trade With
China
A spate of contacts, rumored deals, and negotiations
on trade agreements highlights the European Community's
scramble to profit from China's decision to turn again
to Western suppliers for technology and equipment. The
two-way flow of commodities and cash, however, remains
small. Increases implied in recent agreements are on
the order of 15-20 percent per year through the mid-
1980s--a feasible target starting from current low
levels.
Except for the problems involved in sales of military
equipment and nuclear technology, constraints on in-
creased EC-China trade are largely on the Chinese side--
primarily China's limited ability to pay for and absorb
the goods offered. While China may now be willing to
accept conventional foreign credits, Peking still wants
to offset imports with exports of Chinese commodities.
0
For the West Europeans, the key obstacle to meeting
trade goals will be finding suitable Chinese products
at competitive prices. Soviet displeasure with growing
EC-China trade, and particularly with the prospect of
Chinese arms purchases, may affect EC relations with both
China and the USSR. The West Europeans will consider the
Soviet angle, as well as US policy, in responding to
Chinese requests for goods considered sensitive. Although
a turning point appears to have been reached, frustratingly
long and difficult negotiations loom for the West Euro-
peans; regardless of the outcome, China will remain a
small market for West European industry. II
EC-China Trade Ties
The EC Commission has sole authority to set general
rules for trade between member states and outsiders. Com-
mercial arrangements are left up to individual member
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states whose bilateral accords cannot specify or eliminate
quotas or provide for preferential trading arrangements.
In November 1974, the EC offered to negotiate trade agree-
ments with state-trading countries, including China.
Following mutual diplomatic recognition in 1975, China
responded favorably to the EC invitation. An agreement
was tentatively approved in September 1977 and formally
signed in Brussels last spring. The five-year, non-
preferential agreement contains a weak most-favored-nation
clause; a "balance trade" clause, according to which the
two sides promise to make "best efforts" to expand trade
at similar rates; a safeguard clause, which provides for
"friendly consultations" in case of EC difficulties with
Chinese goods and which tacitly recognizes an EC right
to apply specific restrictions if difficulties persist;
and a clause designed to prevent Chinese sales at prices
well below market levels.
The agreement allows the EC to maintain its current
restrictions on selected Chinese goods while calling for
the Community to liberalize imports from China as much
as possible. For its part, China promises to take im-
ports from the EC into "favorable consideration," a
promise hailed by the West Europeans as a Chinese con-
cession not previously granted to any trading partner.
The agreement also establishes a joint EC-China Economic
Commission to review progress in promoting trade. The
initial meeting of the Commission will be held in the
first half of 1979.
Exports from the EC to China reached $1.4 billion
in 1975 but by 1977 had fallen back below $1 billion.
Even in 1975, however, exports to China represented
less than 0.5 percent of total exports by EC countries,
or about 1 percent of sales outside the Community.
China's share of imports by EC countries was only about
0.3 percent. Both market shares were well below the
levels of the early 1960s.
Over the past two years, a flurry of Chinese delega-
tions has descended on Western Europe. At each stop,
the missions have looked, poked, prodded, and made
various--sometimes overlapping or contradictory--promises
to government and business officials. Very few major
contracts have been signed. Nevertheless, a quiet but
sharp increase in trade has occurred. In the first half
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of 1978, EC shipments to China ran close to the total
for all of last year. Over the full year, EC exports
to China no doubt have broken the 1975 record.
Major European Traders
West Germany
The West Germans have been less active than their
EC partners in obtaining an all-encompassing trade agree-
ment with China, possibly because West Germany outsells
the rest of its EC partners combined. Nevertheless,
West Germany agreed in November to begin discussions
leading toward an economic cooperation agreement. West
Germany recently won the first major West European
contract from the Chinese since the current buying round
began. It calls for a West German consortium to provide
approximately $4 billion in know-how and equipment to
modernize the Chinese coal mining and coal mining equip-
ment industries. While financing details still must be
worked out, a West German bank consortium apparently
will provide credit with five- to 10-year terms. The
West Germans have also signed contracts for the construc-
tion of five petrochemical plants. A rumored $14 billion
contract for West German construction of an integrated
steel complex will probably be split among suppliers in
several countries, including Japan and perhaps France,
the UK, and Italy.
France
France's independent foreign policy stance makes
Paris the obvious first point of contact for the Chinese
in Western Europe. As with Franco-Soviet ties, however,
the "special relationship" provides only limited trade
advantages for France. Although at the forefront in
negotiations and publicity, the French consistently run
a poor second to West Germany when final contracts are
signed and deliveries made.
In the current round of Sino-European trade talks,
France was the first to obtain formal signature of a new
bilateral trade agreement. The pact, signed in Peking
on 4 December by French Foreign Trade Minister Deniau,
calls for total two-way trade of $13.5 billion in 1979-85.
The agreement also stipulates that "best efforts" be made
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to balance trade, and France has promised to make $6.75
billion worth of credits available for its exports,
probably at interest rates of 7.25-7.50 percent. The
credits, reportedly repayable in 10 years, will be made
available only as contracts are signed.
Specific sectors mentioned in the agreement as being
of priority interest to the Chinese include steel,
electrical energy (nuclear, hydroelectric, and thermal),
mining research, hotels, port facilities, aviation,
agricultural machinery, rail transport, and oil. Pro-
jects listed as being in advanced stages of negotiations--
and for which French firms will receive "preference"
from Peking if all competitive and technical considera-
tions are equal--include a steel complex, a magnesium
plant, a specialty steels plant, a sugar refinery, and
an aluminum complex. The most publicized project connec-
ted with the trade package is a Chinese commitment to
purchase two nuclear power plants, which would be built
by the French under US license. France has pledged not
to sell the plants until US approval is obtained. China
is pushing for French arms sales not spelled out in the
agreement, particularly deliveries of missiles and pos-
United Kingdom
A draft UK-China trade agreement was drawn up during
Chinese Deputy Premier Wang Chen's visit to the UK in
November. The draft contains a target of $10 billion
in total two-way trade during the period 1979-85. The
signing of the agreement is planned for Industry Minister
Eric Varley's trip to Peking next April. The pact lists
12 sectors of key interest to the Chinese, largely du-
plicating the French-Chinese list. One potential problem
is that conclusion of the agreement may hinge on a British
decision to sell the vertical-takeoff Harrier aircraft.
The full extent of British credits apparently is
still being worked out. A consortium of banks reportedly
agreed on 6 December to lend the Bank of China a total
of $1.2 billion, with repayment in about five years and
an interest rate of 7.25 percent. According to the press,
the funding will work exactly like a standard buyers'
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credit, with the money released to the Bank of China and
then to British companies as sales are made. The credits
will be guaranteed by the British Government.
Italy
Italian companies have a relatively long history of
activity in China, particularly in oil and petrochemical
equipment sales. Italy was the first EC member to sign
a trade agreement with China, in 1971. That three-year
agreement contained a general list of goods to be traded,
provided most-favored-nation treatment (with exception for
EC obligations), and established a joint commission to
meet at least once a year to review progress. No specific
trade target was set.
The Italians are negotiating a new trade agreement
with China and hope to conclude it early next year. Given
the French and British precedents, a target two-way trade
goal will probably be specified through 1985. One deal
currently being discussed with the Chinese would involve
Fiat construction of a tractor plant. In the long term,
Fiat hopes to participate in a complex producing trucks
and diesel engines. The Italian state oil company, ENI,
hopes to play a role in Chinese oil development. Italy
has already offered China a $1 billion line of credit,
although details have not been worked out and probably
will not be decided until specific contract negotiations
are further advanced.
Sorting Out the Potential Market
A summation of current Chinese agreements and
negotiations involves the danger of double-counting.
The Chinese are not averse to--and are rather adept at--
negotiating with several countries for the same items
at the same time. For example, aluminum and steel
complexes head the lists of potential contracts with both
France and West Germany. France appears to have the
inside track on the initial aluminum contracts while,
within Western Europe, West Germany could be the first
to supply steel equipment. Both the UK and France hope
to participate in coal modernization plans, but West
Germany has already won the lion's share of the early
contracts in this field. France and Italy both are
confident of winning vehicle plant contracts, and all
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major EC countries are bidding on oil development pro-
jects--areas in which the United States and Japan hold
Even after allowing for double-counting, China's
1976-85 modernization plan could entail a substantial
amount of business for all the large EC countries. The
plan lists 120 major projects, including:
-- Ten steel plant complexes.
-- Nine nonferrous metal plants.
-- Eight coal fields.
-- Ten new oil and gas fields.
-- Thirty electric power plants.
-- Six major railway networks.
-- Five major ports.
Compensation and Balanced Trade
Compensation and balanced trade are constant themes
in talks with the Chinese. Most negotiations commence
with Chinese offers to pay for oil exploration and equip-
ment with crude oil, for coal mining equipment and
technology with coal, and so forth. Western Europe's
response has been skeptical, questioning just how much
China has to offer. While China's crude oil reserves,
for example, may be great, the West Europeans note that
Chinese crude is not well suited to their refineries
because of its high paraffin content. In addition,
Peking thus far refuses to discount its price to make
Chinese crude competitive with Arab oil that is closer
to Western Europe. Italy and France have agreed to buy
small test shipments of Chinese crude and both have
hinted at larger purchases in the future. Italy has
mentioned the possibility of taking up to 20,000 barrels
per day in 1979. A truly significant increase in pur-
chases, however, depends on Wropean refining results
and Chinese price decisions.
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Peking has naturally raised questions about increased
West European imports of Chinese manufactured goods and
liberalization of Western Europe's tariff and quota re-
strictions on Chinese products. Despite the EC-China
trade agreement, liberalization will be slow in coming.
It is likely to be particularly slow for textiles, a
sector in which West European firms are already suffering
from foreign competition, overcapacity, and high un-
employment. II
The possibility of West European firms obtaining
access to China's huge and presumably low-cost labor
force for subcontracting and assembly operations--somewhat
along the lines of the Taiwan, South Korea, and Hong Kong
models--is being explored. Although the Chinese until
now have disdained such operations, associating them
with colonialism and exploitation, these activities could
Credits and Direct Investment
For many years China has adamantly refused to accept
overt foreign credits. Suppliers' credits, euphemistically
referred to as "deferred payments" by the Chinese, have
been used to finance plant purchases. The Chinese, how-
ever, have now agreed to buyer's credits from France and
the UK. In addition, a thinly disguised form of debt
has operated fairly efficiently, whereby the Bank of
China has accepted foreign currency in interest-paying
deposits and drawn on the deposits to pay for imports.
Although deposits have been limited to about one year,
two-five year deposits are now being considered; five-
10 year credits of this type may result from current
contract and financing negotiations.
Just how far China will go in accepting standard com-
mercial credits and other financial schemes cannot be
predicted. The Chinese have given conflcting signals
on the issue, probably because the leadership is still
formulating a decision. West European bankers and
government officials would prefer to use standard com-
mercial loans or lines of credit rather than the deposit
scheme. With a regular line of credit, West European
banks would have use of the funds until called upon by
the Chinese, and government guarantees would be easier
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EC: Share of Trade With China*
Exports
Imports
1960 0.79 0.53
1970 0.41 0.30
1973 0.50 0.31
1974 0.35 0.29
1975 0.48 0.27
1976 0.41 0.28
1977 0.24 0.26
1978
(1st half) 0.39 0.26
1985
(illustrative) 2.0 - 2.5 2.0 - 2.5
*Figures include intra-EC trade. China's trade share excluding in-
tra-EC trade would be about double the figures shown. Data cover
all nine current EC members--Belgium, Denmark, France, Ireland,
Italy, Luxembourg, the Netherlands, the UK, and West Germany.
to obtain. West European banks, businesses, and govern-
ments will be flexible on the financing issue, and few
deals will fall through because of credit problems.
The possiblity of direct Western investment in China
appears more remote than conventional trade financing,
although again Peking's signals are conflicting. A
French business and banking delegation in Peking last
month reported that China formally proposed that a vehicle
manufacturer, Peugeot-Citroen, and an aluminum and
specialty steel firm, Pechiney-Ugine-Kuhlmann, invest
directly in Chinese projects. According to the press,
the only stipulation was that Chinese capital represent
at least 51 percent of the total investment and owner-
ship. The Japanese report similar proposals. These
reports should be treated cautiously, for they may re-
flect nothing more than China's increased willingness t
discuss alternative financing possibilities.
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PRC: Trade With Selected Countries
million US $
1975
1976
1977
Exports Imports
Exports Imports
Exports Imports
Total
7,180
7,395
7,265
6,010
7,955
7,100
EC
703
1,637
825
1,475
875
1,040 25X1
Japan
1,459
2,369
1,306
1,746
1,473
2,036
Hong Kong and
Macao*
1,400
35
1,630
30
1,795
45
Eastern Europe
485
525
435
550
600
625
United States
158
334
202
149
203
188
Singapore
251
44
254
41
262
62
USSR
150
129
179
238
177
161
Communist Far
East**
540
200
460
160
420
210
*Including entrepot trade.
**North Korea, Mongolia, Vietnam, Cambodia and Laos.
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China and Western Europe: Some Organizational Aspects
The story of increasing Chinese - West European
relations has unfolded in multilateral organizations as
well as in the bilateral dealings of individual West
European states with China. The West European approach
so far has been positive but cautious, largely out of
fear that West European relations with the Soviet Union
might be damaged. The West European treatment of Chinese
relations in the EC and NATO--and China's approach to
these organizations--has, naturally enough, differed
because of the differing purposes the organizations them-
selves are designed to serve.
In the case of both the EC and NATO, China has
voiced strong support for the organizations' goals:
increased integration for the Community and a strong de-
fense against the Soviets for NATO. With the EC, how-
ever, it has been both necessary and desirable from the
Chinese point of view to go beyond verbal support: nec-
essary, because the EC Commission must negotiate trade
agreements with outsiders; desirable, because the Chinese
think a more economically, politically, and militarily
integrated Europe cannot help but be troublesome to the
The West Europeans, for their part, are interested
in trade with China and intrigued by the Chinese support
for integration; at the same time, they are aware of the
potential for irritating the Soviets that is inherent in
stronger EC-Chinese ties. Hence the caution in the West
European approach. There is a sense that the proper I
amount of EC dealings with China might actually make the
Soviets more cooperative, while too rapid movement toward
closer ties could only alarm Moscow and produce specific
negative results. The problem, of course, is finding the
magic point at which the positive disappears and the nega-
tive begins. Whatever the course of West European -
Chinese trade relations, however, the EC provides .a useful
framework within which they can develop.
20 December 1978
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In the military sphere, there is no organization
readily available to structure and contain West Euro-
pean - Chinese relations. This has led some West Euro-
peans to suggest that, to the extent they consult each
other on arms sales to the Chinese, they should do so
in the EC. Others have thought that specific arms sales
could be considered by COCOM--the Western committee that
approves sales of items based on advanced technology to
Communist countries. Most, however, agree that neither
the EC nor COCOM can treat properly the military dimension
of the subject--which leads, almost inevitably, to NATO.
From the West European point of view, however, NATO
is far from the ideal forum. For one thing, deliberations
would be heavily influenced by the United States: a
common NATO policy for selling arms to China would not
necessarily coincide with an ideal common European policy.
Another problem is that NATO, loose association of states
that it is, has traditionally had a difficult time defining
itself in relation to other parts of the world (except,
on most occasions, the USSR). So it is difficult to
arrive at common external policies. Common arms sales
policies are particularly difficult to arrive at because
national economic as well as security interests are
involved. In the Chinese case, the glaring implications
for East-West relations increase the complexity of attempts
For many of these reasons, NATO has dealt with the
Chinese problem in the most general way. At the North
Atlantic Council meeting on 20 November--the most thorough-
going recent discussion of China in a NATO forum--the West
European caution on selling arms to the Chinese was
evident. Most of the Ambassadors agreed that the Soviet
reaction should be a primary consideration of NATO coun-
tries in their dealings with the Chinese. Some speakers
pointed to the possibility of future political turmoil in
China; others highlighted the practical constraints on
Chinese economic development. 25X1
The Dutch had little success recently in proposing
that NATO go beyond general discussion and consult on arms
sales to China. While the Italians and Canadians were
willing, the British and French--both of whom had possible
military sales in the works--were opposed. 25X1
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Arms sales will continue on a purely bilateral basis
for the foreseeable future. This is not merely because
the political rhetoric about caution conflicts with eco-
nomic interest. It is, rather, that some NATO members
feel themselves to be perfectly capable of exercising
caution in selling arms to China--without detailed Alliance
discussion. And yet it is possible that as more arms are
sold (or look as if they might be sold) to the Chinese,
other members may feel the need for more specific con-
sultations. For instance, discussions might be held on
the implications of a particular sale, with the under-
standing that the results of the discussion were in no
way binding on the seller. Or an attempt might be made
to arrive at a definition of what it is proper to sell--
bilaterally--to the Chinese: defensive weapons only--or
some offensive weapons as well? However, anything resembling
a common policy on arms sales seems a distant 25X1
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The French-Chinese Connection
0
Most French officials see the Chinese opening to
Western Europe as an opportunity that should be seized
upon for maximum advantage--not only because of its
economic potential but also as another way of enhancing
French leverage with the USSR. According to this
thesis, the Soviets--feeling themselves in danger of
encirclement by a Chinese - West European - US alli-
ance--will be more inclined to accommodate European
interests in hopes of securing their Western flank. A
minority view in the French foreign office holds that
an increase in Chinese activity and influence in Western
Europe--particularly if Moscow perceives it as fostered
by the West Europeans--could provoke unforeseen and
possibly dangerous Soviet reactions. Thus, the French
reaction to China's probes has two predominant themes:
an avid interest in the possibilities, mingled with
anxiety over the reactions of the superpowers--particu-
in such areas as arms sales and nuclear exports.
A more active China on the Soviets' eastern border
suits French foreign policy. France is interested in
keeping the Soviets off balance, in reducing their
ability to involve themselves militarily in Africa and
elsewhere, and in easing their military pressure on
Europe. At the same time, France does not want to
antagonize the USSR by aligning itself too closely with
the Chinese. In its more grandiose moments, France
sees itself as a sort of Zubin Mehta, orchestrating the
superpowers' relations with the Third World. One of
its main goals is to bring China into the concert of
nations, provided that China does not try to play first
violin and provided its contribution contains sufficient
nuances.
France has long seen itself as the industrial
nation best qualified to deal effectively with the
Third World. Paris aspires to be more than just a
principal source of technology for Peking; it hopes to
be China's main interlocutor and primar point of
contact on the European continent.
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The French think that the public way in which the
Chinese have sought West European technology is intended
to create the impression that the West Europeans are
aligned with Peking in the Soviet-China dispute and are
not averse to furthering that impression within limits.
Accordingly, France is happy to be supportive of
China's effort to expose many of its senior officials
to Western organization and work methods--provided the
Chinese do not venture into areas the French consider
sensitive. Paris, for example, expects almost 500 Chi-
nese students to arrive in France, starting in February
1979. But the Chinese had proposed that over 200 be
accepted for advanced studies at certain scientific re-
search centers that are considered sensitive by the
French. According to a Quai official, the French re-
few high-technology items, while more profitable con-
tracts for less advanced items go to their competitors.
In fact, the main return the French expect for the time
they spend satisfying Chinese interest in such technol-
ogy is to open the door to a wider array of French goods.
Moreover, the French have not yet taken a firm po-
sition on the transfer of computer technology to the
Chinese because of its military ramifications and be-
cause it might incur Soviet displeasure. Some 13 dele-
gations of Chinese technicians visited the French com-
puter research center during 1978. The French do not
want to be put in the position, however, of providing a
The seven-year bilateral trade agreement signed in
Peking in early December was a psychological boost to
French ambitions in China and a signal from the Chinese
that they are willing to expand their trade with France
in at least certain areas. At the moment, France is
more interested in economic and commercial sales to China
than in arms sales. France has no illusions that China
will become a major export market in the near future--the
ambitious new agreement projects an eight-fold increase
over 1977 in French-Chinese trade through 1985. France
is starting from a low base, however: France's share
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of the Chinese import market was less than 2 percent in
1977. France in the past five years dropped from fourth
to 12th among China's trading partners because of its
inability to move beyond occasional one-shot capital
equipment contracts into a wide spectrum of high volume
repeat sales of consumer goods. France feels that, as
a late-starter in the newly opened and potentially impor-
tant Chinese market, it must hurry to establish its share
against competition from Japan, UK, West Germany, and
the United States. In addition to more work for its
own industries, France hopes that China will become a
significant supplier of raw materials. The signing of
what is a framework agreement signals a turning point
in French-Chinese economic relations, but France must
now quickly table some highly competitive offers in order
to exploit the political and psychological momentum the
accord has generated.
Projects that might reach fruition quickly are those
involving hydroelectric power as well as China's agreement
in principle to buy two nuclear power plants from France--
the first such sale of nuclear technology to China by a
Western power. If approved by the United States, the
highly coveted order will go to Framatone, a nuclear
plant construction company financed by the French Gov-
ernment (COGEMA) and another private firm, Altshom-At-
lantique. The sale has yet to be approved formally by
the Coordinating Committee for Export Control (COCOM),
an organization set up by industrial nations to screen
the sale of sensitive technology to Communist countries,
but France foresees no objections from other COCOM mem-
bers since China is already a nuclear power. The sale,
however, requires US approval since it is a Westinghouse
license. The French have received an "exclusively peace-
ful use" guarantee from the Chinese and have asked the
United States for approval prior to 23 December, a dead-
line the Chinese have set. Other details of the sale
remain to be worked out.
France has not yet signed a major arms agreement
with China, although the French are ready to sell de-
fensive weapons and the Chinese ready to buy. Guided
missiles are the most likely sale to be consummated,
but quantities and financial terms still must be worked
out. Given the complexities involved--and the fact
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that both the Chinese and the French are prudent trad-
ers--agreement on terms will most probably be time-con-
suming. But it is likely that some French weapons
systems--probably defensive--will be ultimately sold.
The French claim that they are picking and choosing
from the Chinese wish-list and that they have no desire
to help China achieve strategic objectives. The French,
in fact, may be trying to condition military sales on
economic sales.
not always easy to determine the difference.
The Soviets have given the French several sharp
warnings against selling arms to the Chinese, most re-
cently in a letter from Soviet President Brezhnev to
French President Giscard last month. France's stock
reply to Moscow is that France is a sovereign nation
and will act in its own national interest. France is,
however, sensitive to Soviet concern and will not
deliberately strain its relations with the USSR. The
French think they are on safe ground by confining sales
to defensive systems, although they admit that it is
In addition to the economic and nuclear agreements,
the French have concluded a scientific and technical
accord with the Chinese and now hope to add high fashion
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Six HOT antitank missile launchers produced by Euromissile mounted on a West German
helicopter. The French Gazelle helicopters the Chinese are seeking to purchase are similar,
and carry as many as six HOT launchers.
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to the list. Designer Pierre Cardin has accepted a
Chinese invitation to organize two fashion shows to be
held in Peking and Shanghai next March. Cardin, who in
previous seasons showed a modified version of the Mao
tunic as part of his collection, now hopes to persuade
the Chinese to discard their "grotesque" clothes and
adopt international fashion. There is undoubtedly a
great deal of wishful thinking and a bit of cultural
chauvinism in the French optimism about the future
Chinese market, but the race for the embourgeoisement
of the Chinese is on.
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West Germany's Fernostpolitik
II
A responsible German foreign policy may not give
in to the temptation to play up Soviet-Chinese differ-
ences. (West German Foreign Minister Hans-Dietrich
Genscher, 23 August 1978)
The West Germans are clearly pleased, yet somewhat
uneasy, about the rapid expansion of political, economic,
and technical relations with the People's Republic of
China that has occurred during the past year. The "Chi-
nese breakthrough," as dubbed by the Soviet media, has
resulted in a steady stream of high-level Chinese visit-
ors to Bonn, the virtual doubling of West German exports
to China, and the conclusion of several technical and
development accords. Not since the early heyday of
Ostpolitik have top leaders in West German industrial
and government circles been so acutely eastward-oriented.
The growing China trade has added an economic dimen-
sion to the already delicate political balancing act in-
herent in Bonn-Peking-Moscow relations. The Soviets have
indirectly warned the West Germans about overplaying the
economic gains to be had in the Chinese opening to West-
ern Europe. West German officials are in fact worried
about possible economic retaliation by the Soviets for
the sharp increase in West German economic ties with
China. *
",It can be argued that the West Germans actually have a measure of
economic leverage with the Soviets. West Germany in 1977 supplied
nearly one-fourth of Soviet machinery and equipment imports from
the West and was the larggst single supplier of equipment for the
chemical industry, metal-cutting and forge press equipment, and auto
production. It would be hard for the Soviets in the short term to
switch to alternate suppliers; if they did so, they probably would
not get the delivery terms and the technology they prefer.
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Bavarian conservative leader Franz Josef Strauss in 1975 conferring with the
then Chinese Foreign Minister, Chiao Kuan-hua
Some West German officials are concerned the govern-
ment will be unaware of or unable to control commercial
deals that could trigger some sort of adverse Soviet re-
action. Many Qf the major deals under consideration are
for the modernization of specific Chinese industrial sec-
tors, such as petrochemicals, which Moscow could conceiv-
ably view as directly threatening Soviet interests. Such
package deals do not require approval by the West German
Government. The West Germans, particularly Chancellor
Schmidt, have gone to great lengths in recent weeks to
assure Moscow that such trade ties are simply part of
the process of building normal relations with China.
Nevertheless, the West Germans believe that the Soviets
are irrational on the subject and see little possibility
of completely assuaging Soviet fears about the Bonn-Pe-
king connection.
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Hints of possible West German "arms sales"* to China
are apt to be as unsettling to West German officials in
Bonn as they are to Soviet officials in Moscow.
I IThe West German Government wou nave Lo Ilcense
or approve deals involving specific armaments, but has
little to say about the end use of ostensibly nonmilitary
hardware, such as trucks and communication gear, which
the Soviets tend to lump in the armaments category.
Many West German officials, especially in the Foreign
Ministry, are ambivalent about the value of such potential
sales. Some Foreign Ministry officials have unofficially
supported visits by the Chinese, such as that in May-June
by a military delegation from China's "armaments office,"
going so far as to be listed on one occasion as a co-
sponsor along with West German commercial and industrial
associations.
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25X1
West German private industry clearly has become less
reticent about hosting Chinese arms shoppers, but con-
tinues to be reluctant to conclude any deals without some
sort of official sanction.
*Since 1971 the West German Government has banned the export of arma-
ments to so-called areas of tension. Although senior officials of
both coalition parties--the Social Democrats and Free Democrats--
have defended specific sales to countries not directly affected by
"tension," such as Iran, they have also stated their intention to
maintain a restrictive arms export policy, at least for the fore-
seeable future.
20 December 1978
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The West German Government must also contend with
the line on arms sales espoused by the opposition parties,
the Christian Democrats and their Bavarian ally, the
Christian Social Union. Both parties publicly claim that
they would be less reluctant then the present government
e ri.s ian Democrats' spokesman in the Bun-
destag for defense policy publicly called for a "delib-
erate development" of a "community of interests" between
NATO and China. He also said that West German policy
should "spare no effort" to be of assist to the
Chinese in their modernization efforts.
Regardless of whether the present social/liberal
coalition stays in power or is replaced by a conservative
government, the West Germans will remain constrained for
some time to come from too actively playing the "China
card." Although the Soviets appear to have resigned
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themselves to the growing economic links between Bonn
and Peking, Moscow would certainly seek to retaliate
against any sort of arms deals at the present time.
Schmidt told British Prime Minister Callaghan in October
that there would be no West German arms exports to China
except as part of the co-production arrangements with
France. Even here, however, Bonn will need to weigh
carefully the possibility of an adverse Soviet reaction
which could damage the hard won and fragile benefits of
Ostpolitik. For their part, the Chinese are sensitive
to West German concerns about the Soviets and have pur-
posely played down anti-Soviet polemics in the West
German - China context. For Bonn, however, there remains
the tough question of determining the i its of Soviet
toleration before they are exceeded. FLj-m
20 December 1978
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UK: Opening to the East
Relations between the UK and China, which began
both to increase and improve in the mid-1970s, will ex-
pand even more rapidly during the next decade. Although
stepped-up bilateral contacts have been confined mostly
to talk, some concrete deals have been made during the
past three years and, more importantly, the groundwork
has been laid to broaden cooperation in such diverse
areas as trade, culture, education, public health, in-
dustrial technology, energy resources, politics, and
defense. As Peking intensifies its contacts with the
outside world, particularly the West, the new era in
Anglo-Chinese relations will become increasingly im-
From the Chinese perspective, the step-up reflects
the desires of the post-Mao leadership to broaden con-
tacts with the West generally and specifically to speed
up Peking's development program with sophisticated
Western technology and equipment. From London's per-
spective, future economic and trade pacts are the most
important aspect of cooperation with China, since agree-
ments in these areas hold open the prospect of a vast
new market that could give the British economy a much
needed boost. Despite the existence of certain limiting
factors related to the ability of the Chinces to finance
and abrosb Western goods and technology, British leaders
see the prospect of a large-scale market as an opportun-
ity that cannot be missed.,* The British already have
offered the Chinese extensive lines of credit, including
possible government-to-government loans, and will con-
clude phased agreements geared to the Chinese capability
to absorb. Bilateral trade already has picked up sig-
nificantly and tentative agreement has been reached to
bring two-way trade to between $8 and $10 billion by
1985.
*British spokesmen and a recent. government report, China: Future
Import Policy, identify such areas as coal mining, oil exploration,
agriculture, and the steel, chemical energy, defense, rail, and
aerospace industries as especially good prospects for enhanced trade.
20 December 1978
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Arms sales will play an important part in future
Anglo-Chinese relations, both because the UK is willing
to supply Peking with weapons and military technology
and because the Chinese have linked the question of ex-
pansion in other areas with London's willingness to sell
arms.* Peking has expressed an interest in purchasing
a varied and substantial amount of military hardware,
such as tanks, guns, naval vessels, radar systems, mis-
siles, aircraft, as well as the spare parts and know-
how. If agreement can be reached, the most significant
and controversial deal--symbolically, if not militarily--
will be to sell the Hawker-Harrier jump jet fighter to
China. The British Government is presently considering
a Chinese request for the plane, but London will move
cautiously before making a final decision.
*During the mid 1970s the sale of the Spey engine, including license
to produce it in China, for a Chinese-designed aircraft was the
single most important deal between Britain and China. That agree-
ment has recently been updated, another jet engine agreement has
been made with Vickers, and a deal to supply China with marine
turbine engines for high-speed naval vessels is near completion.
The earliest deal between London and Peking was for the Trident
jet and, although it is primarily a civilian aircraft, some have
been adopted for military purposes.
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The sale of weapons--particularly offensive weap-
ons--is a sensitive issue that Prime Minister Callaghan
wants to defuse. He points out that any broad economic
or trade agreement will emphasize British industrial and
commercial goods and that military hardware and technol-
ogy will assume a much smaller role. Callaghan's ra-
tionale is that nonmilitary sales probably would be more
lucrative in the long run. More importantly, he recog-
nizes that military sales could have a negative effect
on relations with the other Western Allies and the USSR,
as well as on domestic politics.
Callaghan has indicated that the UK does not want
to be China's lone supplier of military goods and pre-
fers a coordinated Western approach. Therefore, London
has announced that arms sales to China will be handled
on a case-by-case basis and, in full consultation with
Britain's allies. The sale of defensive weapons does
not appear to bother the UK's West European allies who
are themselves involved in arms deals with China or the
United States, but London believes that Washington, if
not the other allies, would be more skeptical about of-
The step-up in Anglo-Chinese relations and the pos-
sibility of major arms deals have brought a sharp reac-
tion from the Soviet Union. Soviet President Brezhnev,
in a recent blunt letter to Prime Minister Callaghan,
warned the UK to exercise caution in selling arms to
China, since Peking is "not part of arms control talks
and follows an aggressive ideology." The Soviet initia-
tive, which climaxed a campaign to dissuade the British
from selling the Harrier to China, warns that UK-USSR
relations could be damaged by this and other weapons
The letter actually may have increased the likeli-
hood of an agreement on the Harrier. Callaghan and For-
eign Secretary Owen, not wanting to appear to be pres-
sured by Moscow, have indicated that they support moves
toward detente, but will not permit the Soviets to inter-
fere with growing British-Chinese relations or with a
specific arms deal. A stiffening attitude in Westminster
is likely to increase tensions between London and Moscow,
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which already are high because of Soviet human rights
policy, adventurism in Africa, and the Warsaw Pact arms
build-up. Nonetheless, Soviet anxiety, which is taken
seriously by the Callaghan government, is one of the
most important reasons for delays in completing a
Harrier deal and, along with the concerns of Britain's
allies, will be a major consideration in future arms
deals.
The expansion of British-Chinese relations is sup-
ported by the Labor and Conservative parties, although
Labor's left wing has strong reservations about arms
deals because it fears that they will lead to an increase
in Chinese-Soviet and Anglo-Soviet tensions. The Con-
servatives see little chance for a thaw between the
UK and the USSR and favor strengthening China primarily
as a counterweight to growing Soviet power as long as
the Chinese do not pose a threat to the security of
Britain or Western Europe. For this reason the Tories
are particularly anxious to see major agreements con-
cluded, and have charged that the Callaghan government--
because of fear of Soviet reaction--has deliberately
dragged its feet on the Harrier deal.
British policy toward China will continue regard-
less of which party wins the next general election. If
a Tory government is returned, however, the policy--
particularly its military aspects--will be pursued even
more vigorously, and anti-Soviet undercurrents are likel
to be more blatant.
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Italy and China: Improved Prospects for Cooperation
During the past year, bilateral contacts and
agreements between Italy and the People's Republic of
China have burgeoned in several key areas. Rome has
welcomed the opportunity to capitalize on a potentially
significant export market as well as to strengthen ties
between China and Western Europe--particularly Italy--on
all fronts. At the same time, Italian initiatives have
been complicated by problems related to possible Italian
arms sales to Peking clearly the most controvert
aspect of relations between the two countries. u
After establishing diplomatic relations with China
in 1970, Rome sought persistently to increase Italian
trade with Peking but experienced uneven success as a
result of Mao's commitment to autarky. But the signing
of a trade agreement with. China in 1971 placed Italy in
the forefront of EC nations dealing with China. The
agreement provided for an. annual mixed commission
meeting to review the progress of bilateral trade,
numerous exchanges of technical delegations, and parti-
cipation in reciprocal trade fairs. As a result of the
treaty, Italy agreed to provide China with items such
as machine tools, agricultural machinery, chemical
products, and motor vehicles in return for textiles,
food products, and handicrafts. The volume of this
trade, however, was strictly limited by the Chinese
preference for deferred or installment payments over
the extension of export credits--a fact dictated by
Peking's chronic shortage of hard currency and its
desire to keep exports and imports balanced.
Improving Trade Prospects
The current Chinese leadership's more outward look-
ing policies have greatly improved the prospects for Sino-
Italian cooperation, especially in the industrial and
technological fields. This attitude was underscored by
Chinese Foreign Minister Huang Hua's unofficial visit
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to Italy in early October. Although Huang signed bila-
teral cultural, scientific, and technological agreements
while in Rome, Italian Foreign Ministry officials viewed
his trip as having three broader objectives: to heighten
West European perceptions of the Soviet threat, to use
that as a basis for greater Sino - West European coopera-
tion, and to arrange West European participation in China's
20-year development plan. II
The most recent Sino-Italian trade statistics give
some idea of the dimensions of the new Chinese opening
to the West. In the past year, for example, the Chinese
sent four trade delegations to Italy, and during the
first half of 1978 Italian exports to China increased
by over 300 percent, compared to the same period in
1977. The total value of Italian exports to China--
$70 million--now slightly exceeds the value of their im-
ports for the first time in three years. Despite the
improvements, the current level of trade is still not
commensurate with Rome's ability to supply or with China's
ability to consume Italian products. A significant ex-
pansion of bilateral trade can only be achieved if the
Italians convince the Chinese to buy entire "turn-key"
industrial plants, to accept lines of export credits, or
to agree to trades involving industrial plants or produc-
tion for Chinese energy-producing supplies such as coal
Last February, Italian Foreign Ministry officials
recognized their country's potential to play a role in
China's master plan, especially those aspects involving
improved transportation and increased agricultural mechani-
zation. There were signs, for example, that the Chinese
were interested in having Fiat build a pro osed truck and
diesel engine factory--at a total cost of p$8 billion. At
that time, Italian Foreign Minister Forlani even ventured
to suggest to Ambassador Gardner that such projects could,
over the long term, mark the reorientation of Italian trade
away from the Soviet bloc and toward China.
Italy wasted no time reacting to the apparently
favorable Chinese attitude. In recent months, several
high-level Italian delegations--representing both govern-
ment and industry--have visited :Peking. One of the most
significant trips was led by the Italian Minister of
Transportation, who returned with the impression that
China wanted to sell some of its oil to a West European
20 December 1978
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country. Subsequent negotiations culminated last Novem-
ber in the first large-scale petroleum contract between
Peking and a West European country. Although the amount
of oil involved--100,000 metric tons--is relatively small,
the deal could conceivably result in much broader trade
agreements involving entire Italian industrial plants in
exchange for more substantial amounts of Chinese oil. F7
Several weeks later the Italian Foreign Trade Minis-
ter made a firm offer of $1 billion in initial exports
credits--the interest rate and method of repayment was to
be discussed by a subsequent delegation of Italian bankers
who would visit China in December. The Italian Foreign
Trade Minister also prepared the groundwork for a trip to
Italy next spring by his Chinese counterpart--giving rise
to speculation that they might then conclude a bilateral
economic and industrial cooperation agreement. In the
meantime, negotiations over such diverse projects as the
construction of a tractor manufacturing facility, a coal
slurry pipeline, and long-distance power transmission lines
suggest the potential for a further expansion of Sino-
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The PCI's Position
The question of arms sales to China is a complex one
for the Italian Communists. They have recently shown a
keen interest in reestablishing party-to-party relations
with the Chinese. Such a move would also serve to empha-
size to domestic and foreign audiences the PCI's inde-
pendence from the Kremlin.
Chairman Hua Kuo-feng's trip to Yugoslavia last fall
produced rumors that the Chinese were willing to rees-
tablish relations with the Italian Communists. The PCI
reacted warmly and also took a positive view of Foreign
Minister Huang Hua's subsequent visit to Italy. But de-
spite the PCI's apparent willingness, little concrete
progress has been made in improving relations between
the Italian and Chinese parties. This probably reflects
Peking's continuing skepticism of the PCI's independence
as well as its desire-to-pursue relations on a state-to-
The Italian Communists hope to improve their ties
with the Chinese without needlessly antagonizing Moscow.
The PCI might thus be inclined merely to look the other
way--particularly if an arms deal with Peking included
mainly defensive weapons and was concluded quietly. Sales
through third-country outlets or international arms traf-
fickers might permit the PCI to disclaim responsibility.
But if the Italian Communists were forced to make an offi-
cial public record of their position on arms to Peking,
there is a greater chance they would oppose the deal to
keep peace with the Soviets.
Outlook
As a result of China's expanding commitments to inter-
nal development and foreign contacts, bilateral relations
and trade with Italy will probably improve significantly
in the future. There appears to be a convergence of in-
terests centering on Rome's ability to provide large-scale
20 December 1978
38
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industrial plants and technology in return for Chinese en-
ergy supplies. Any significant expansion of trade, however,
is dependent on Peking's willingness to accept a line of
export credits tied to purchases of Italian goods. And
although the Chinese desire for Italian arms is a key ele-
ment in the relationship, Italy will remain reluctant to
deal with the Chinese unless it can convince its EC part-
ners to adopt a common position on the issue while avoiding
developments that would force the Italian Communists to take
a public stance. Under these circumstances, the prospects
for mutually beneficial ties between Italy and China appear
virtually unlimited.
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China's Relations with Greece, Turkey, and Cyprus
0
China's contacts with Greece, Turkey, and Cyprus
had been quite limited before the visits of Foreign Min-
ister Huang Hua to Ankara and Athens earlier this year.
They now promise to increase as China seeks to counter
Soviet influence in the region and as the eastern Medi-
terranean countries try to exploit Peking's interest
for political, economic, and even security benefits.
China's positions on issues affecting the region under-
scores its greater interest in recent years in a strength-
ened Western Europe able to cope with any Soviet threat.
Background
Relations between the three countries and China
date back to 1971-72, when Ankara, Nicosia, and then
Athens recognized Peking. At that time, the unexpected
abstention of Cyprus on the vote to bring China into the
UN--as well as the yes votes of other so-called mini-
states--was one of the factors leading to Peking's entry
into that body sooner than either its opponents or its
supporters had expected. In establishing ties with Pe-
king, none of the three countries felt it was doing more
than conforming to the growing view in the West that
China could no longer be ignored. On a more positive
note, Greeks and Turks were hoping for profitable com-
mercial ties with Peking and for diplomatic support of
their respective cases on the Cyprus problem. For the
Chinese, the eastern Mediterranean connection was yet
another effort to increase their legitimacy and to match
Ties Developing Slowly
The Hua visits to Ankara and Athens were in fact
aimed at countering Soviet initiatives such as the in-
vitations to Turkish Prime Minister Ecevit and Greek
Foreign Minister Rallis and Moscow's proposals for a
far-reaching Soviet-Turkish "political document." In
addition to delivering warnings in both capitals about
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Soviet intentions, Hua agreed in Ankara to the activa-
tion of a dormant committee to consider greater economic
cooperation. In Athens, he signed a cultural coopera-
tion agreement--the first of its kind with a West Euro-
pean country--that provides for scientific, educational,
and cultural exchanges. Greek and Chinese leaders also
agreed to look into the possibility of broadening their
economic cooperation, particularly in the maritime field.
Hua invited Ecevit and Greek Prime Minister Karamanlis
to visit China.
Prior to the Hua visit, neither Peking nor any of
the three countries, except perhaps Cyprus, had shown
much interest in developing political and economic ties.
Close party ties were not feasible because the Communist
parties in Greece, Turkey, and Cyprus are generally pro-
Soviet, and pro-Chinese splinter groups are insignificant.
To be sure, Peking signed trade agreements with all three
countries during ministerial and, in the case of Cyprus,
presidential visits to Peking between 1972 and 1974, but
these did not significantly advance commercial ties. In
1977, for example, Greek, Turkish, and Cypriot trade turn-
over with China only amounted to $5 million, $7 million,
and $300,000 respectively, most of it in the form of
Greek and Turkish exports of agricultural products and
China Neutral on Regional Disputes
If the economic gains of the Peking connection have
been disappointing for the Greeks and Turks, so too have
been the diplomatic payoffs for their respective cases
on the Cyprus and Aegean disputes. Peking has pursued
an evenhanded policy on both, generally abstaining on
the Cyprus issue in the UN and listening without comment
to the Greek and Turkish views on the Aegean. Such com-
mentary as they have made portrays these issues as yet
another example of superpower-- articularly Soviet--
machinations in the region.
Eastern Mediterranean Connection Highlights Sino-Western
Rapprochement
Hua and other Chinese officials have in fact shown
more concern about the adverse effect the disputes are
having on NATO. In a policy that differs little from
that of the Western allies of Greece and Turkey, the
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Chinese have urged both countries to show a spirit of
compromise and patch up their differences so as to
strengthen the Western defense system. I
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Hua also praised Karamanlis for his efforts on be-
half of West European unity and expressed support for
Greece's bid to join the EC. Similarly, the Chinese
have welcomed Karamanlis' initiatives on behalf of Balkan
cooperation, which they see as an antidote to Soviet in-
fluence in the region, particularly in the post-Tito era
in Yugoslavia. II
Outlook
Relations between Peking and the three countries
are likely to improve further, but the process is apt to
be slow. Although Greeks and Turks appreciate Peking's
new interest in their region and in a strengthened West-
ern Europe, they continue to view their relationship
with the Soviet Union and their more immediate Communist
neighbors as more important politically and economically.
And while they welcome China's presence as a counter to
Soviet influence, they are also concerned about the pos-
sible adverse consequences of the intrusion of the Sino-
Soviet rivalry into their area. China, for its part,
gives greater priority to improving its ties with the
larger and technologically more advanced West European
states, from which it ho es to secure arms and the means
to rapid modernization.
may see it in their interests to strengthen their ties.
Greeks and Turks do, however, appreciate China as a
potential market for their products, and this apprecia-
tion is apt to grow as their export capabilities develop.
And if the USSR adopts a more active foreign policy in
the region in the post-Tito era, both Moscow and Peking
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Canada: Long Time Fascination With China
While it is impossible to determine the exact
measure of Canada's contribution to China's de-
cision to become a major and responsible actor
in international affairs, Canada's role can be
considered a distinctive and important accom-
plishment of contemporary Canadian foreign pol-
icy.
1978 Survey of Relations
with China prepared by
External Affairs.
Canadian Prime Minister Pierre Trudeau made an exten-
sive private visit to China in 1960 before he became in-
volved in Canadian politics. The country fascinated him,
and as part of his campaign to be prime minister eight
years later, he promised to work toward establishing dip-
lomatic relations. China was already a major market
for Canadian wheat, and Canada had high hopes for both
expanding the bilateral relationship and for playing a
special role in convincing the Chinese to broaden their
Diplomatic re-
lations were estab-
lished in 1970 and
a steady stream of
Canadian officials
visited China to
discuss trade and
other matters.
The high point of
these early years
was Trudeau's of-
ficial visit in
1973. He con-
cluded a wide
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range of bilateral agreements that covered consular re-
lations, most-favored-nation treatment, establishment of
a joint trade committee, a long-term wheat sale, and a
unique family reunion program. Under the program, some
3,000 Chinese have joined relatives in Canada. Trudeau
talked extensively with Premier Chou En-lai and met Chair-
man Mao Tse-tung for two hours in what the New China News
Agency described as "a friendly atmosphere." The Canadi-
ans took this to mean that China highly favored Canada.
The opening
to
China
fit nicely
Option," set out
in
1972,
which was
create counterweights" to the heavy US influence in
Canada and to develop a distinct identity in interna-
tional politics. The Canadian public--almost as fasci-
nated with China as Trudeau--also favored this move.
The US Embassy in Ottawa surmises that in the Chinese
view, part of the attraction was toward Canada as a
strategically placed window on North America.
But the Canadians became disappointed with the rela-
tionship. China was mainly interested in buying wheat,
and last year wheat still accounted for 83 percent of
Canada's exports to that country. Finished goods repre-
sented only .3 percent of total sales to China in 1977.
After Trudeau's trip, four years passed before another
cabinet-level minister visited China, again to sell
wheat. Canada concluded that its limited relationship
was probably as close "as it is possible for a Western
country to have with China."
into Trudeau's "Third
an attempt "to
The new outward-reach policy of China has rein-
vigorated Canadian interest. This time the Chinese are
the initiators of delegations and agreements. In Octo-
ber 1977, Chinese Foreign Minister Huang Hua, former
Ambassador to Canada, chose Ottawa for his first visit
abroad as Foreign Minister. A steady stream of other
delegations followed, including Chinese experts who have
been quietly scouring Canada for advanced technology.
Canadian officials see these trips as evidence of a con-
centrated Chinese effort to absorb Western know-how. They
point to the Chinese push to train thousands of students
in the West--u to 500 of them in Canada--as part of
this effort.
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Canadian businessmen also got the message. A high-
level Canadian industrial and commercial delegation in
Peking in October received a "promise of over $10 billion
of trade between now and 1985," up from about $2.2 bil-
lion over the past six years. One observer estimated,
however, that this jump would be just enough to main-
tain Canada's current share of 2 percent of China's
external trade.
Canadians, concerned that the 7 to 1 trade imbalance
in favor of Canada would inhibit the Chinese from mak-
ing further deals, are busily devising ways to keep the
imbalance within bounds China will find acceptable.
There are few Chinese products that Canada wants to
buy, but businessmen are exploring other methods, such
as "triangulating" trade (receiving payment in goods that
Canada then sells to a third country), to encourage
China to deal with Canadian companies.
As a member of NATO, Canada has been concerned
about the security aspects of other countries selling
arms to China, and has no visible intentions to do
so itself. Fear of Soviet reaction could play a part,
but would not weigh nearly as heavily as it does on
West E o eans who face the Russian bear on their door-
step.
The Canadians, eager to share in the boom in sales to
China, take comfort from the Chinese assurances that they
will favor Canadian goods over those of the US, given
comparable technology and price. These assurances will
probably not hold good in light of the normalization of
relations between the United States and China. Observers
point out, in addition, that the US generally outper-
forms Canada in most areas, that Japan is already far
ahead of everyone else in trade with China, and that
West European industrialists have also made inroads.
Thus, while Canadians believe that they were a con-
tributing factor in China's emergence from isolation,
they realize with regret that Canada can no longer
lay claim to the hi with China of any
Western country.
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Malta: China's West European Beachhead
economically and politically.
Prime Minister Mintoff has always emphasized Malta's
links with the Third World and with most Communist coun-
tries except the USSR. It is not surprising, therefore,
that he agreed to China's request for diplomatic recog-
nition in 1972 or that he accepted Peking's terms: the
severance of relations between Valletta and Taipei.
Since then, Mintoff has traveled to China three times
and economic relations between China and Malta have
deepened. Chinese assistance to Malta is substantial
and has had a significant impact on the country both
Economic Ties
Shortly after diplomatic recognition, China agreed
to grant Malta a $45-million interest free loan, with no
conditions attached. A $4.6 million line of credit was
also included in the package. The $45 million loan is
being used for a variety of projects, but the most im-
portant is the construction of a drydock facility that
will be capable of servicing 300,000 ton vessels; when
completed it will be one of the largest facilities of
its kind in southern Europe. There are approximately
100 Chinese technicians involved in the project, which
has been plagued with a variety of problems ranging from
language barriers between the Maltese and Chinese to
the inexperience of both sides in building a facility
of this size.
Meanwhile, China has emerged as one of Malta's ma-
jor trading partners, accounting for about 30 percent of
Valetta's transshipment business. The percentage will
increase, moreover, under the terms of a May 1978 agree-
ment calling for more Chinese ship visits. The Chinese
have also contracted for more ship repair visits and for
the construction of a variety of small vessels; two
5,700 ton petroleum carriers have already been delivered.
The carriers are Malta's most significant export to
China, but do little to correct the heavy trade deficit
with the Chinese.
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Domestic Impact
Projects such as the drydock construction help
shore up Miritoff's domestic political base. With the
British military forces scheduled to withdraw from Malta
on 31 March 1979, unemployment is certain to increase
and Mintoff--who depends on Malta's labor movement for
much of his political strength--could become more vul-
nerable politically. The new drydock's increased ca-
pacity for ship repair and modification should offset
some of the unemployment potential since it will be
inaugurated next March. The threat of unemployment in
r
f
d b
u
y
y
Malta's present drydocks should be reduce
i
on.
contracts for a variety of vessel construct
Even the Nationalist opposition, which had been
cool to China when it was in power, has been compelled
to take notice of China's economic contribution to Malta.
In July 1978, at Chinese invitation, a Nationalist dele-
gation headed by opposition leader Fenech Adami paid a
five-day goodwill visit to China. The Chinese invita-
tion to the Nationalists is a clear signal to Mintoff
that China has no qualms about dealing with his opposi-
tion if this would facilitate blocking an eventual So-
viet presence in Malta.
Chinese Objectives
Keeping the Soviets out of Malta is clearly the
main Chinese motive in establishing strong economic and
diplomatic links with Valletta. Since the Soviets lost
their Egyptian bases, it has become more difficult to
resupply and refit their Mediterranean naval squadron.
Obviously, the Soviets would like a replacement for
these lost facilities. Malta possesses everything they
need--strategic location, drydocl_facilities, and a
skilled labor force to man it.
China will probably continue to support Mintoff
as long as he maintains his current policy of neutrality--
with an emphasis on aloofness toward the Soviets. And
given his excellent relations with Peking, Mintoff would
have to think long and hard before yielding to Soviet
overtures.
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The Soviet Response
0
With each demonstration of Western receptivity to
overtures from the Chinese, Moscow professes to be more
alarmed. In even the most minor incidences of concilia-
tion or cooperation, the Soviets perceive an unsettling
new alignment of international forces, an alignment di-
rected primarily against themselves. But the increasing
stridency of their warnings and threats against this
Chinese-Western rapprochement is doubtless accompanied
by a growing realization among the Soviet leadership
that there is little--if anything--they can do to pre-
The Soviets condemn China's growing connection with
Western Europe in all its manifestations, from innocuous
cultural exchanges to suggestions of overt military sup-
port. Party-level dealings--for example, Chinese Premier
Hua Kuo-feng's recent visit to Romania and Yugoslavia
and the favorable reactions of the Italian and Spanish
Communist parties--complete the threat posed by warming
state relations and the evident willingness in some West
European capitals to balance their Soviet connection with
their new Chinese one. The Soviets have closely moni-
tored the nature and development of each country's rela-
tionship with China, particularly those whose governments
are considering sales of military hardware. The Soviets
see multiplying Western sales and investments in China
as strengthening the Chinese not only economically, but--
most significantly--politically. They appear to realize
that any genuine military impact would be further down
It is unquestionably the political impact of West
European arms sales to China that disturbs the Soviets
most profoundly, particularly the global perception of
the success of China's anti-Soviet policies. But while
they have said they would regard such sales as "unfriendly
acts," they are clearly unwilling to risk alienating the
West Europeans with strong-arm tactics. Moscow may also
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have concluded that arms sales to the Chinese--of defen-
sive weapons, at least--are inevitable, and that a mod-
erate approach on the Soviets' part may induce the West
Europeans to place some limitations on their dealings
with the Chinese. Soviet Embassy officials and military
attaches in West European capitals are energetically
seeking information on possible Chinese military pur-
chases. It is also possible that Moscow will attempt
to enlist some Third World countries to support its po-
sition.
The tone of Soviet diplomatic demarches to West
European governments concerning arms sales to the Chi-
nese has been cautionary, the theme being China's war-
like intentions and the certain damage to international
detente. This was the approach taken by Soviet Presi-
dent Brezhnev during his talks with West German Chancel-
lor Schmidt in Bonn last May and by Soviet Foreign Min-
ister Gromyko on his visit to Paris in late October.
The Soviet media ceaselessly echo this warning, only
more stridently.
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bhuhhl
The Soviets can be expected to maintain and amplify
their outcry against arms sales. It is doubtful, how-
ever, that Moscow will take stronger measures if such
measures threaten to harm Soviet interests without en-
suring the desired impact on West European policy. SALT,
MBFR, or bilateral economic arrangements could well prove
to be the next forum the Soviets choose to express their
displeasure over the West's Chinese connection.
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