COMMUNIST CHINA: ECONOMIC PERFORMANCE IN 1962
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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
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Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
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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.
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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
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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:
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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
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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.
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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.
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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
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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
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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.
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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.
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ORR/St/11D Distribution of Current Support Brief No,, 62-83,FN Communist
China: Economic Performance in 1962 -- 3 December 1962
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