COMMUNIST CHINA: ECONOMIC PERFORMANCE IN 1962

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CIA-RDP79T01003A001400130001-1
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RIPPUB
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C
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17
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December 9, 2016
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April 6, 2000
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1
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Publication Date: 
December 3, 1962
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BRIEF
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Approved For Release 2M .WfE ICS, - E79T01003A0018130001 j143 Current Support Brief CIA/RR CB 62-83 No. Pages 10 3 December 1962 COMMUNIST CHINA: ECONOMIC PERFORMANCE IN 1962 CENTRAL INTELLIGENCE AGENCY Office of Research and Reports CONFIDENTIAL Approved For Release 20 GROUP 1 Excluded from automatic downgrading and de I ssificati n - DP79TO1 003AO01 400130001 -1 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 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. Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 Approved For Release 2000/08/29 : CIA-RDP79T01003A001400130001-1 C -O-N-' -I-D-E -N-T-I-A-L COMMUNIST CHINA: ECONOMIC PERFORMANCE IN 1962 To judge from recent statements from Peiping, the Chinese Com- munist leaders believe that, as the result of a slight improvement in the 1962 harvest and some limited achievements in industry, the regime has passed the point of most serious economic difficulties and that the road ahead, although difficult, should bring continued improvement. Information, either officially released or independently acquired, continues to be extremely sparse. Official claims, however, note advances in some priority areas of production; scattered refugee and traveler reports indicate slight improvements in the supply of some foods and other-consumer goods; and weather data suggest slightly better growing conditions during the year for the country as a whole. These bits and pieces, together with Peiping's more optimistic outlook since September, indicate moderate improvement in an extremely difficult situation. Even with limited improvement in 1962, serious problems still remain in every major sector of an economy that may be little more productive than it was 5 years ago. Continued Moderate Policies With the Chinese Communist agricultural and industrial failures of the past few years, to which the Sino-Soviet dispute has contributed, Peiping's hopes to achieve world power status in this decade have vanished. The traditional Communist approach of all-out emphasis on expansion of heavy industry ran counter to the realities of the domestic situation and had to be set aside, at least temporarily. Faced with basic problems of overpopulation, backwardness in agriculture, and a low level of tech- nology in industry, the Chinese Communist leaders were forced in 1961 to shift priority emphasis to stimulating production in agriculture, in- dustries supporting agriculture, and light industry. 3 December 1962 CIA/RR GB 62-83 C -O-N-F -I-D -E -N - T -I-A-L Page 1 Approved For Release 2000/08/29 : CIA-RDP79T01003A001400130001-1 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 C -O-N -F -1-D -E -N -T -I-A-L The public rationale offered by expedient responstesptolnatural adopted in 1961 was that these policies we disasters. After 2 or 3 years, it was asserted, of disoussi n hanhina again 'leap forward. '' Late in 1961 the tone though some elements of expediency persisted, Peiping began to assert that moderate policies would be valid over a long period of time. Economic matters not usually questioned openly in China, such as the role of profit incentives and criteria for making estment Congress in March-April newspapers following the National Peoples of downgrading heavy indus- try One article went so far as to justify the policy oin an y ca by arguing that investment was for i du traes that hadse there was no point in producing investment insufficient raw materials and technology to expand production. The communique issued pertaining to the 10th Plenum of the 8th Party Congress, which met secretly in Peipc g on 24-27 e Septem The P96 , suggests a new, more disciplined phase appears to have decided (1) to retain the concepts "leap forward'' and "communes" at least as slogans if not as operative guides to poas to permit no further retreat in collectivization of agriculture, and, m - as a coroll'ar.y;j, to. r.est'r.i'c :private "capitalist" tendencies in the country h are nsirroler to conservativethat preva indent side; and (3) to retain recent emphasis policies for industry, policies whic in 1957. The future trend in economic policies is obscure and represents an lop important element in the uncertainty moderate elements dethe pa tyts. There are strong radical as well as eSeagreed that leadership, and although both factions disagree1on otherwmatters. methods were wasteful, they can be expected The radicals probably would like revert mto Maoi~t oderates, howelver,phalvees, once agricultural conditions permit. indicated that they would like to see a trend of toward a current Sonnet eve, market type of socialism that would be to the right practic. Slight Increase in Agricultural Production and in Food Supply The preliminary assessment of the agricultural a sitti atiof in C move munist China in 1962 is for a slight increase in p Page 2 3 December 1962 CIA/RR CB 62-83 C-O-N-F-I-D-E-N-T-I-A-L Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 C -0-N-F -I-D-E -N-T -I-A-L the abnormally low levels of 1960 and 1961. Production of grain in 1962 may be no higher than the 185 million metric tons (mt) harvested in 1957, a year in which the;population.was,10, percent smaller. Estimates of out- put are based primarily on weather data, although the probability of some- what larger acreage of fall grain crops and slightly increased supplies of chemical fertilizer also have been taken into consideration. The level of grain imports by China in the 1962/63 consumption year (July-June) will provide an additional indication of the actual size of the harvest of 1962. Thus far, contracts have been signed for delivery of a smaller quantity of grain in the 1962/63 consumption year than in the previous consum'p'tion year, but additional contracts probably will be signed in the next 2 months for delivery before June 1963. The further decentralization of authority within the collective farm system in 1962 -- the production team of about 30 households is now the basic unit for carrying on agricultural activities -- probably had little effect on the output of rice, wheat, and miscellaneous grains. Encourage- ment by the regime of work on private plots and of trade in open markets, however, is believed to have resulted in a substantial increase in the sup- ply of vegetables, fruits, and sweet potatoes in rural and urban areas. The assessment of the harvest for 1962 implies that for the fourth consecutive year the food situation will be stringent. The average diet in 1962 probably increased slightly above that in 1961, largely as the result of increased production on private plots. The food situation prob- ably will remain critical throughout the winter of 1962-63, although in- creased availability of such subsidiary foods as vegetables and sweet potatoes may make malnutrition less serious than it was in the previous year. Problems of Population and Unemployment Previous estimates of the population of Communist China for the years after 1958 recently have been replaced by the following figures: 3 December 1962 CIA/RR CB 62-83 C -O-N-F -I-D -E -N -T -I-A-L Page 3 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 C -0-N -F -I-D -E -N -T -I-A-L Estimated Midyear Population (Millions) 1958 657 1959 673 1960 685 1961 696 1962 706 By comparison the previously estimated figure for 1962 was 717 million. The new estimates were made on the assumption that the death rate in- creased sharply after 1958 because of nutritional disorders, weakening resistance to disease, and a loss of energy resulting from acute shortages of food. In spite of a lower rate of population growth -- about 1. 5 percent per year -- Peiping is still faced with the problems of food supply and unem- ployment. The inability of the state to maintain full employment was tacitly acknowledged in 1962. In both city and country, unemployed and underemployed persons were encouraged to work private garden plots, produce handicraft articles, and trade their private produce in rural and urban markets. The resurgence of Chinese Communist propaganda on birth control since early 1962 suggests Peiping's open recognition of the need to control the growth of population. Reshaping of Industry In 1962 the Chinese Communists seem to be having limited success in carrying out their policy of reshaping industry. In January 1962, Po I-po, Vice Premier and Chairman of the State Economic Commission, set forth the following major industrial goals for the year, goals that were reaffirmed at the National Peoples Congress in March-April 1962 and discussed more fully in various newspaper and periodical articles throughout the year: (1) increased production of chemical fertilizer and farm machinery, especially medium and small farm implements; (2) ex- pansion of production of light industry and handicrafts, especially 3 December 1962 CIA/RR CB 62-83 G-G-N-F-I-D-E -N-T-I-A-L Page 4 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 production of those goods using industrial products as raw material,iri puts; (3) continued improvement in and additions to productive capacity in the mining and timber industries and increased production in these industries; (4) development of short-distance transportation; (5) im- provement in the operational efficiency of industrial plants through en- forcement of targets for quality improvement, cost reduction, and in- creases in output per worker and through further improvement in management and in the care and repair of equipment; and (6) further reduction in the scope of capital construction. Apparently the Chinese have achieved limited success in carrying out this policy: it is believed that there have been increases in output of priority goods such as chemical fertilizer, some farm implements, and many types of light industrial and handicraft products; that production of heavy industrial products for in- vestment purposes has declined; that output per employed worker has in- creased somewhat (in large part, simply by laying off excess labor and thereby adding to the problem of unemployment); that technical and managerial personnel have been accorded greater prestige and responsi- bility; and that problems of quality, cost, and maintenance of equipment have been eased (but still persist as obstacles to industrial efforts). The limited evidence available suggests that the level of total indus- trial production in 1962 may be no higher than that in 1957 but that the composition of output has changed substantially. Production of agricul- tural chemicals, some farm equipment and tools, and light industrial products made of industrial raw materials is considerably above the level of 1957, but production of the machine building, paper, and textile indus- tries has dropped below that in 1957. Production of steel and electric power may be at roughly the level of 1958. A major economic objective in 1962 was to raise the level of indus- trial technology in order to create a base capable of supporting the de- velopment of military industries and agricultural chemical industries. It is not known what technological progress was made in 1962 in the type of industries needed to support an advanced weapons program, but increases in output of chemical fertilizer and insecticides suggest improved domestic technical ability to operate plants in the chemical industry. 3 December 1962 CIA/RR CB 62-83 Page 5 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 C -0-N-F -I-D-E -N-T-I-A-L Unused industrial capacity now exists in several key industries in Communist China, including the steel, electric power, machine building, and textile industries, as plants either have reduced the number of hours of operation or have closed down completely. In industries supporting agriculture, however, especially chemicals, additions to plant capacity and to the managerial and technical force of the plants are sorely needed. Petroleum Supply Situation It is estimated that the total of petroleum products available in Com- munist China in 1962 is somewhat lower than the total available in 1959, the last year for which data were published, but supplies apparently have been adequate to meet the essential needs of both the civilian and military consumers. It is believed that domestic production of petroleum products in 1962 was at roughly the same level as in 1960. There are no known technical or other special difficulties to which the domestic industry might have been subject in 1962, and the eight major refineries, which use rela- tively simple processes, are believed to have sustained a high level of operation throughout the year. The major sources of crude oil continue to be the oilfields at Yu-men, Karamai, and the Tsaidam Basin and the shale oil plants at Fushun. Imports of petroleum products are estimated to have declined from 3. 2 million mt in 1961 to 1. 9 million mt in 1962; with the sharpest de- cline taking place in imports of motor gasoline - - from 1.0 million mt in 1961 to 0. 3 million mt in 1962. The brunt of the decline in imports of motor gasoline is believed to have been absorbed by the civilian motor transport industry rather than by the military, whose requirements in- creased late in 1962 because of military operations in Tibet. Imports of aviation fuels and high-quality lubricants in 1962 continued at the level of 1961. Communist China is totally dependent on imports for these prod- ucts and assigns a high priority to sustaining the supply of the products. Importance of Foreign Trade The economic and political difficulties with which Communist China now finds itself confronted have had a marked effect on its foreign trade. 3 December 1962 CIA/RR CB 62-83 C-O-N-F-I-D-E-N-T-I-A-L Page 6 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 During the past few years, the reduction in agricultural products avail- able for export, the deterioration in Sino-Soviet relations, and the re- trenchment policy in industry have combined to lower the total volume of trade and to alter sharply its direction and composition. Total trade (imports plus exports) in 1961 amounted to only $2. 9 billion -- compared with $4. 3 billion in 1959 and $3. 9 billion in 1960 -- and the figure for 1962 may be roughly 5 percent lower than that for 1961. Faced with a hungry population and a stumbling economy, the regime is now concen- trating import priorities on foodstuffs and raw materials, whereas im- ports of Bloc-supplied investment goods have been drastically reduced. Since 1960, imports from the Soviet Bloc have represented less than one- half of the total imports, a situation that would have been almost incon- ceivable a few years earlier. This changing import picture is sum- marized in Table 1, and the extent to which certain major imported com- modities now contribute to the economy is shown in Table Z. Although Communist China is less dependent now than it was before 1960 on imports from abroad of machinery, equipment, and technical assistance, there are some vulnerable spots in the Chinese economy that would.'give the.'regime:considerable difficulty if it should be denied access to foreign markets. It has been suggested, for example, that the world reaction to the Sino-Indian conflict could result in some form of Free World embargo against China. It also has been suggested that the con- tinuing deterioration in Sino-Soviet relations could result in a break or in a further reduction in economic relations between China and the Soviet Bloc. If economic sanctions of various kinds should be imposed against China by the Free World and/or the Soviet Bloc at a time when the Chinese are still faced with major problems in starting an economic recovery or when the Chinese might be engaged in further conflict on the Indian bor- der, the effects on the Chinese economy could be relatively serious. The following tentative estimates are male of the effects on China if eco- nomic sanctions were to be imposed. 1. If an embargo on strategic goods, similar to the UN embargo against China during the Korean War, were imposed against China by all non-Bloc countries, the effect on the Chinese economy would be relatively small. With the exception of rubber, none of the major items China now 3 December 1962 CIA/RR CB 62-83 Page 7 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 C -0-N-F -I-D-E -N-T -I-A-L Table 1 Communist China: Imports by Major Commodity Groupings and Source 1959 and 1961 Million US 1959 1961 Total Soviet Bloc West Total Soviet Bloc West 040 2 330 1 710 550 870 Total , , ff t 10 N.A. 10 520 70 450 s u Foods Grains N.A. N.A. N.A. 370 20 350 Sugar N.A. N.A. N.A. 150 50 100 a/ i l t 810 240 570 590 230 360 s er a Raw ma Of which : Petroleum products 120 120 N.A. 130 130 N.A. Rubber 120 N.A. 120 60 N.A. 6o Fertilizer Machinery and equip- 70 N.A. 70 50 N.A. 50 t b/ 980 910 70 200 30 men All others 240 180 6o 80 50 30 a. Sugar imported from Cuba. b. Including trucks, of which 2,500 were imported in 1962 -- 2,000 from the Bloc and 500 from non-Bloc countries. imports from the Free World would be embargoed, and in all probability China: could satisfy most of its requirements for rubber by purchases through Soviet Bloc intermediaries. 2. A total embargo by non-Bloc countries against Communist China would have the important effect of depriving the Chinese of their main sources of imported grain and fertilizer. Grain imports from the 3 December 1962 CIA/RR CB 62-83 C -O-N-F -I-D-E -N-T -I-A-L Page 8 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 C -O-N-F -I-D-E -N-T -I-A-L Table 2 Communist China: Dependence on Imports of Selected Items 1962 Net Imports Total Domestic Soviet Dependence on Imports Availability Production Bloc West Percent Food grains a/ 120,000 115,000 b/ 287 4,100 4 Petroleum products 6,180 4,320 1,860 N.A. 30 Rubber 120 N.A. N.A. 120 100 Fertilizer 3,500 2,100 Negl. 1,400 40 a. Food grains include tubers on the basis of tons of tubers equiva- lent to 1 ton of grain. b. Available for human consumption after an estimated deduction of 37 percent from a gross output of 182 million tons. This deduction accounts for losses resulting from the milling of grain, handling, and transportation and storage losses and for such nonfood uses as re- serves for seed, feed, and industrial requirements. West have averaged about 5 million mt annually during the last 2 years, and, given the unfavorable results of the harvest in 1962, a similar quantity of grain probably will have to be imported in 1963 in order to maintain the already low level of per capita supplies. Failure to import 5 million mt of grain in 1963 might reduce by 3 to 4 percent the total caloric availability, thereby diminishing labor productivity, which is already low, and causing increased rural dissatisfaction if farm procure- ment is tightened. Per capita food supplies would fall back toward the extremely low level experienced in the winter of 1960-61, before imports of grain became available for distribution on a large scale. The cumu- ],g;;tive effects of prolonged malnutrition and widespread dissatisfaction could lead to a level of unrest that would tax the police powers of the regime. 3 December 1962 CIA/RR CD 62-83 C-O-N-F-I-D-E-N-T-I-A-L Page 9 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 3. If the USSR and the European Satellites were to break off economic relations with Communist China and if, at the same time, non-Bloc countries were to impose a strategic embargo against China, there would be a substantial reduction in the military capabilities of the Communist regime. The Chinese Air Force would be immobilized by a lack of aviation fuels, and ground transport capability would be reducedbyrshor.ta-ges of spare parts, motor gasoline, lubricants, and possibly rubber. Moreover, recovery of the Chinese economy as a whole would be retarded by at least several years because of the dif- ficulties of making or purchasing from the Free World replacements and parts for Soviet-built machinery. 4. If the USSR and the European Satellites were to break off economic relations with Communist China and if all non-Bloc countries were to impose a complete embargo against China, economic recovery would be postponed even further. Without outside sources of grain and fertilizer, the food and agricultural situation in China would become even less tenable, and efforts toward rational industrial recovery would be delayed by the overriding need to stimulate farm output. In this event the Chinese economy might continue in the doldrums or recover ;slowly over a long period of time. But even with the outlook for its economy dim, China would continue to pose a military threat to its weaker Asian neighbors. Although its air force would be grounded and although shortages of fuels, rubber, and replacement parts would curtail its transport capability, China could still field a ground force more power- ful than any combination of the present forces of its southern neighbors. 3 December 1962 CIA/RR CB 62-83 C-O-N-F-I-D-E-N-T-I-A-L Page 10 Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 Approved For Relett)K 1/$W1 9j f A RDP79T01003A001400130001-1 CONFIDENTIAL Approved For Release 2000/08/29 : CIA-RDP79T01003A001400130001-1 Approved For Reg Analyst: A/F g A 01400130001-1 25X1A GROUP 1 COFIDETIAI Excluded from automatic downgrading and L declassification Classification Number of Copies Date Returned O DDI 4 Dec 62 ~.~_-...m 110 25X1 A OCR 6)- _ ~w-..n 113 114 25X1 C 115 .,._. -- .~ 116 x 117 ._.118 120.a~__ r. ~. ~. t .m. .._ a. 121 a . 12 2 ~. ~. .~ -..-.. _ ~. s. ~.. .~ - ..... .123 124 ~~ ..~. 125 ~. _ ~.. 126 127 - 130 ~ 131 - 137 A/F 25X1A 4 Dec 62 138 - 143 Filed in St P C Q Roeer Hilsman,~The Director ~of In~el- ence and ~+ Dec ~2 Research, State Dept. 10~+ Walt Rostow, counselor =d Chairman of te o icy sec .e_. s,~-.n ..~ .v~ak-ouncilStat_e Dept., 1 W. Averell Harriman, Assistant SecretrL'bi?`Fa Dec Eastern Affairs, State Dept. l0 .s ._.7 aysen, Deputy pecla:"ss2~ sn the president, Dec 2 White House 5X1A iog DCI 5XTA 2 Series N u m b e r_ 6 2 - 8 3 -CIA/RR Date of Document 3 December 1962 Recipient `~ n .2 / tic c%p '~'~'- -~ 1~c Pte? - ~r`~ c?~ Approver't'se,/08%2,,Q79TO 1QQg3Q30001-1 25X1A 3S sE-- - - - / - 25X1A 25X1A Approved For Release 2000/08/29 : CIA-RDP79T01003A001400130001-1 S-EmC? ,-F,-T Approved For Release 2000/08/29 : CIA-RDP79TO1003A001400130001-1 ORR/St/11D Distribution of Current Support Brief No,, 62-83,FN Communist China: Economic Performance in 1962 -- 3 December 1962 PRIORITY --- this report must be disseminated first thing Monday morning (3 Dec 62). per DDI 82 St/FM 25X1 A 83 Analyst/Branch A/F) 84 CR/ CR 85 BR./CR 86 Ilk./ CR 81 Library / CR 88 IPI/ CR. 25X1 A 89 VMR., 90 AD/OO 91 Chief, FDD 92 CD/OO 93-95 RID/AN, Unit 4 96-98 OSl 99 OBI 100 OTR./IS/IP, Room OCi 1 Hqo 101 NPIC/RET, Room 502, Steuart Bldg. i02 -143 St/ P/ C. Room 4F41 ]"Isle A~ 144 Coxinmandant Nat'l War College, Ft. Leslie l~r.,~cNF.ir, Attn: Classified Records Section, Rin, 26, Nat'l War College B14g., Wash, 25. DG Co 143-155 ACSI/Army1 R. 1D479, Pentagon 156-169 Navy, Director ONi, Room 5B659, Pentagon 1-0-179 HQ USAF, Atb : AFC1N-3D1o Room 48137, P m--tagou 180-181 Asset. Secretary of Defense, ISA. Room 3DZ?,",, Pentagon 182-185 USIA, Attn: W. Phelps,, IRR/D,. Room 701, Waikkor Johnson Bldg.,, 1734 Now York Ave.. Na W 186-197 State, INR Communications Center, Room 78118, State Dept, Bldg, 198-199 DIA, Services Division, Publications Section, Room ZCZ30, Pentagon 200-20! Dr, Neilson Debevoise, NSC, Room 365, Execsrzt,ve Office Bldg. 2OZ Dept, of the Treasury, Office of Internationai Fa nance, Mrs. E. D. Dawning, Room 5421, 15th Ste & Pennsylvard.v), Ave., Now* Attn: William Turpin, Special Asst, to Secretary of the Treasury, Room 3330, Treasury Bldg. 203-250 Records Center Reci ev t 32 AD/ RR 33 DAD/RR 34 Ch/E 35 St/PR 36-40 D/A (1 each branch) 41-46 D/ (1 each branch) 47-56 DIR (1 each branch; 3 for R/FU) 57-64 D/ M (1 each branch) 65-73 D/I (1 each branch; 2 for I/TF) 74-76 D/GG 77-80 St/I (1 each branch) 81 E1C/S GROUP 1 S-~E-^C-R-E-T Excluded from automatic downgrading and Approved For Release 2000/08/29 : CIA-RDP 1400130001-1 Approved For Release 2000/08/29 : CIA-RDP79T01003A001400130001-1 riffs tiora 4f Current Sup 't !Brief No, O/DDf . AttnA R ad- an 7E32 Hq. 3 TIC 4 - 11 QCI t r1la1 42 m 14 1 20 21 z - 30 NSA ^ 31 NSAL 3Z= 250 QRR/St/IID Di. tribubbO1t 25X1A O rt f!u$ be dtsireml ted fret m )rTli g (3 Dec Oct per Approved For Release 2000/08/29 : CIA-RDPT9T QQ ~10T1400130001-1 fica on dec lassi