IMPACT OF AN OIL PRICE REDUCTION ON THE OECD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000501160001-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 27
• Document Creation Date: December 22, 2016
• Document Release Date: July 13, 2010
• Sequence Number: 1
• Publication Date: April 15, 1983
• Content Type: MEMO

-1 ._.1 - -: ! i__.L1! ~ ~ _I! l ~l l _ Ih11111111191111~~ ~1 1 1. _ _ !ll__l! 1- -. ~Wll AL .1 l! _ _. _
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15 April, 1983
MEMORANDUM FOR: Maurice Ernst
h'IO/Economics
SUBJECT Impact of an Oil Price Reduction on the OECD
1. In response to your request of 13 April, 1983, we conducted
several simulation exercises with the new version of the Linked Policy
Impact Model to gauge the impact of an oil price cut on the OECD
countries using varying assumptions about government policy reactions.
2. In the first exercise, the world price of oil was cut $5.00 per
barrel (from $30 to $25) in 1983, and kept at that price in real terms
through 1987. The level of real OECD GNP was estimated to be 0.6
percent higher in the first year of the price cut
and 1
26
,
.
percent
higher by the third year (see Table 1). If the price decline is $10 per
barrel
in real t
h
,
erms, t
e impact on OECD GNP is approximately twice as
great.
Table 1
Impact on Real OECD GNP of a Cut in World Oil Prices
(percent change in level of real GNP from the baseline estimate)
$5 cut in the world $10 cut in the world
price of oil price of oil
(in real terms) (in real terms)
1983 +0.60 +1.24
1984 +1.03 +2.11
1985 +1.26 +2.59
1986 +1.33 +2.73
1987 +1.34 +2.69
EUR M 83-10119
STAT
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3. In the second exercise we assumed that the government in each
OECD country would raise tax rates on gasoline and other petroleum
products so that the fall in the price of these products was only 75,
percent of what it was in the $5 ..and $10 price-cut scenarios described
above. For example, in the $5 scenario above, the world price of oil
fell 16.7 percent in nominal terms in the first year, and the price of
gasoline in the US fell 10.2 percent. In the tax-increase scenario the
price of US gasoline falls only 7.5 percent. We assumed that the
governments did not increase their nominal expenditures; the new tax
revenues were used only to reduce their budget deficits. In this case,
the estimated impact on OECD real GNP of a $5 or $10 oil-price decline
is 25 to 30 percent less than in the scenarios which assumed no energy
tax increases (see Table 2).
Impact on Real OECD GNP of a Cut in World Oil Prices--
OECD Governments Tax Away One-Quarter of the Price Drop
(percent change in level of real GNP from the baseline estimate)
$5 cut in the world
$10 cut in the world
price of oil
price of oil
(in real terms)
(in real terms)
1983
+0.44
+0.90
1984
+0.72
+1.45
1985
+0.88
+1.77
1986
+0.93 ~
+1.87
1987
+0.95
+1.89
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4. In the third exercise we assumed that OECD governments would
increase tax rates as described above, but that they also would increase
nominal government expenditures exactly the same amount as the increase
in energy tax revenues. In this case, the estimated boost to OECD real
GNP is even greater than that estimated in the no-tax-increase
scenarios, at least in the first year or so. (see Table 3).
Impact on Real OECD GNP of a Cut. in World Oil Prices--
OECD Governments Increase Taxes aad Expenditures
(percent change in level of real GNP from the baseline estimate)
$5 cut in the world $10 cut in the world
price of oil price of oil
(in real terms) (in real terms)
1983 +0.73
1984 +1.07
1985 +1.25
1986 +1.32
1987 +1.39
+1.49
+2.16
+2.50
+2.63
+2.79
Office of European Analysis
Analytic Support Group, OCPAS
STAT
STAT
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vtt..\a. JV GI\M(\ 1 V
(QUANTITIES IN THOUSAND B/D OF OIL OR OIL EQUIVALENT)
1982
1983
1984
1985
1986
1987
----
----
-
----
----
----
----
:CD
PART 1 : O I L SUPPU ES
------------------------
Oll SUPPLIES
)N-OPEC LDCS
16386
.16194
16002
15810
15728
15646
OIL SUPPLIES
'EC
7576
8021
8629
9170
9550
9787
PRODUCTION BY COUNTRY:
ALGERIA
600
'900
800
800
800
700
ECUADOR
200
200
200
200
200
100
GABON
200
200
200
200
180
160
INDONESIA
1300
1600
1600
1600
1500
1500
IRAN
2300
3500
3500
4000
3800
3700
IRAQ
1000
1500
2500
3500
3500
3500
KUWAIT
700
1250
1250
1250
1250
1250
LIBYA
1200
1900
2000
2100
2100
2100
NEUTRAL ZONE
300
500
500
500
500
500
NIGERIA
1300
2100
2000
2000
2000
1900
QATAR
300
500
500
500
500
500
UNITED ARAB EMIRATES
1200
1600
1900
2000
2000
2000
VENEZUELA
1900
2200
2100
2100
2100
2100
NATURAL GAS LIQUIDS
1000
1000
1100
1200
1400
1500
----
----
----
----
----
----
OTIIER OPEC
13500
18950
20/50
21950
21830
21510
SAUDI ARABIA
6300
2617
2880
2824
4621
6710
----
----
----
----
----
----
TOTAL
19800
21567
23030
24774
26451
28220
CONSUMPTION
3319
3433
3577
3726
3879
4038
STOCK CHANGE(1)
259
267
277
288
299
311
EXPORTS
16222
17866
19176
20760
22273
23872
FREE WORLD Oll SUPPLIES
-----------------------
TOTAL FREE WORLD
NET COMMUNIST EXPORTS
43762
45782
47661
49754
51729
53653
---------------------
NET COMMUNIST EXPORTS
1500
1400
1200
1000
1000
800
OIL AVAILABLE TO THE FREE WORLD
-------------------------------
NON-OPEC
25462
25615
25831
25980
26278
26233
OPEC
19800
21567
23030
24774
26451
28220
TOTAL
45262
47182
48861
50754
52729
54453
1982
1983
1984
1985
1986
1987
----
----
----
----
----
----
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v/'~ALL I ILL JI. GI~Af{ 1 V
PART 11: OPEC PRICE AND THE DEMAND FOR OPEC OIL
------------------------------------------------
SCENARIO:
M30
NOMINAL OPEC PRICE $/B
33.60
30.00
31.96
33.92
35.92
38.04
NOMINAL OPEC PRICE - ~ CHANGE
-2.6
-10.7
6.5
6.1
5.9
5.9
REAL OPEC PRICE 1980S/B
29.21
24.67
24.67
24.67
24.67
24.67
OECD REAL ENERGY PRICE - ,'r CHANGE
-2.2
-7.8
-0.2
-0.6
-0.2
0.3
OECD ENERGY DEMAND, UNADJUSTED
73306
74306
76265
78923
82031
85194
ENERGY DEMAND ADJUSTMENT
0
0
0
0
0
0
ADJUSTED OECD ENERGY DEMAND
73306
74306
76265
78923
82031
85194
LESS OECD NON-OIL ENERGY CONSUMPTION
37509
38073
39052
40389
41982
43796
OECD OIL DEMAND
35798
36233
37213
38534
40049
41399
LESS OECD OIL SUPPLIES
16386
16194
16002
15810
15728
15646
OECD OIL IMPORT DEMAND
19412
20039
21211
22725
24321
25753
LDC OIL DEMAND
4657
4853
5170.
5434
5637
5841
LESS LDC OIL SUPPLIES
7576
8021
8629
9170
9550
9787
LESS NET COMMUNIST EXPORTS
1500
?1400
1200
1000
1000
800
OIL STOCK CHANGE (EXCLUDING OPEC)(1)
1525
2133
2405
2615
2763
2817
STRATEGIC STOCKS
100
200
200
200
200
200
UNADJUSTED DEMAND FOR OPEC EXPORTS
16518
17604
18957
20604
22171
23824
NORMAL STATISTICAL DISCREPANCY
278
263
219
156
102
48
ADJUSTED DEMAND FOR OPEC EXPORTS
16796
17866
19176
20760
22273
23872
LESS OPEC EXPORTS
16222
17866
19176
20760
22273
23872
EXCESS DEMAND FOR OPEC OIL
574
0
0
0
0
0
OECD GNP, (BILLIONS OF 1980$)
7684
7811
8026
8281
8553
8841
OECD GNP, GROWTH RATE
-0.4
1.7
2.7
3.2
3.3
3.4
RAT10, OECD ENERGY DEMAND TO GNP
91,24
90.97
90.88
91.14
91.72
92.16
ENERGY DEMAND TO GNP RATIO, GROWTH
-2.1
-0.3
-0.1
0.3
0.6
0.5
FREE WORLD OIL DEMAND, UNADJUSTED
43774
44519
45960
47695
49565
51277
FREE WORLD OIL DEMAND, ADJUSTED
44052
44782
46179
47851
49667
51325
FREE WORLD STOCK CHANCE
1785
2400
2683
2903
3062
3128
FREE WORLD OIL DEMAND, ADJUSTED,
INCLUDING STOCK CHANGE
45837
47182
48861
50754
52729
544.53
ANNUAL OIL REVENUES, IN BILl10N $
---------------------------------
SAUDI
ARABIAN REVENUES
69.5
21.2
25.1
25.3
49.8
81.1
SAUDI
ARABIAN REVENUES IN 1980$
60.4
17.4
19.4
18.4
34.2
52.6
OPEC
REVENUES
198.9
195.6
223.7
257.0
292.0
331.5
OPEC
RI:VENl1ES IN 1980$
1.7
1.6
1.7
1.9
2.0
2.1
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(QUANTITIES IN THOUSAND B/0 OF OIL OR OIL EQUIVALENT)
1982
1983 1984 1985 1986 1987
PART I: OIL SUPPLIES '
------------------------
OECD
OIL SUPPLIE
S
16386
16194
16002
15810
15728
15646
NON-OPEC LDCS
- OIL SUPPLIES
7576
8021
8629
9170
9550
9787
OPEC
PRODUCTION
ALGERIA
BY COUNTRY:
600
'900
800
800
800
700
ECUADOR
200
200
200
200
200
100
CABON
1
200
200
200
200
180
160
INDONESIA
1300
1600
1600
1600
1500
1500
! IRAN
2300
3500
3500
4000
3800
3700
IRAQ
1000
1500
2500
3500
3500
3500
KUWAIT
700
1250
1250
1250
1250
1250
LIBYA
1200
1900
2000
2100
2100
2100
NEUTRAL Z
ONE
300
500
500
500
500
500
NIGERIA
1300
2100
2000
2000
2000
1900
QATAR
300
500
500
500
500
500
UNITED AR
AB EMIRATES
1200
1600
1900
2000
2000
2000
? VENEZUELA
1900
2200
2100
2100
2100
2100
NATURAL GA
S LIQUIDS
1000
1000
1100
1200
1400
1500
OTIiER OPEC
13500
1
8950
20150
21950
21830
21510
SAUDI ARAB
IA
6300
4050
5091
5537
7700
8500
TOTAL
19800
23000
25241
27487
29530
30010
CONSUMPTION
3319
3450
3602
3756
3
12
4
STOCK CIIANGE(1)
259
267
277
288
9
299
053
310
i
EXPORTS
16222
19282
21362
23443
25319
25646
aN ~
FREE WORLD OIL SUPPLIES
-----------------------
~
roTAl FItrE WORLD
43762
47215
49873
52467
54808
55443
~
NET COMMIiN I S r EXPORTS
---------------------
NET COMMUNIST EXPORTS
1500
1400
1200
1000
1000
800
OIL AVAILABLE TO THE FREE WORLD
----------------------------
NON-OPEC
25462
25615
25831
25980
26278
26233
OPEC
19800
23000
25241
27487
29530
30010
TOTAL
45262
48615
51073
53467
55808
56243
1982
1983
1984
1985
1986
1987
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PART~It: OPEC PRICE ANO THE DEMAND FOR OPEC OIL
-----------------------------------------------------------
SCENARIO:
M25B
NOMIN
AL OPEC
PRICE $/B
33.60
25.00
26.53
28.18
29.89
31,70
NOMIN
AL OPEC
PRICE - ~ CHANGE
-2.6
-25.6
6.1
6.2
6.1
6.0
REAL
OPEC PRIC
E 1980$/8
29.21
20.83
20.83
20.83
20.83
20.83
OECD
REAL ENER
GY PRICE - ,'C CHANGE
-2.2
-14.8
-0.2
-0.6
-0.2
0.4
OECD
ENERG
ADJUS
ENERGY DE
Y DEMAND
TED OECD
MAND, UNADJUSTED
ADJUSTMENT
ENERGY DEMAND
73306
0
73306
75500
0
75500
78519
0
78519
81949
0
81949
85648
0
85648
89267
0
89267
LESS
OECD NON-
OIL ENERGY CONSUMPTION
37509
38134
39340
40877
42645
44627
OECD
OIL DEMAN
D
35798
37366
39179
41072
43003
44641
LESS
OECD OIL
SUPPLIES
16386
16194
16002
15810
15728
15646
OECD
OIL IMPOR
T DEMAND
19412
21172
23177
25262
27275
28995
LDC O
IL DEMAND
4657
4932
5272
5548
5756
5963
LESS
LOC OIL S
UPPLIES
7576
8021
8629
9170
9550
9787
LESS
NET COMMU
NIST EXPORTS
1500
1400
1200
1000
1000
800
OIL S
TOCK CHAN
GE (EXCLUDING OPEC)(1)
1525
2432
2651
2803
2916
2944
STRAT
EGIC STOC
KS
100
200
200
200
200
200
UNADJ
USTED DEM
AND FOR OPEC EXPORTS
16518
19115
21271
23444
25397
27314
NORMA
L STATIST
ICAL DISCREPANCY
278
167
91
-1
-78
-149
ADJUS
TED DEMAN
D FOR OPEC EXPORTS
16796
19282
21362
23443
25319
27165
LESS
OPEC EXPO
RTS
16222
19282
21362
23443
25319
25646
EXCES
S DEMAND
FOR OPEC OIL
574
0
0
0
0
1518
OECD
GNP, (BIL
LIONS OF 1980$)
7684
7859
8108
8386
8667
8959
OECD
GNP, GROW
TH RATE
-0.4
2.3
3.2
3.4
3.4
3.4
RATIO
, OECD EN
ERGY DEMAND TO GNP
91.24
91.88
92,62
93.46
94.51
95.30
ENERG
Y DEMAND
TO GNP RATIO, GROWTH
-2.1
0.7
0.8
0.9
1.1
0.8
FREE
WORLD OIL
DEMAND, UNADJUSTED
43774
45748
48053
50377
52671
54657
FREE
WUItLD Oll
DEMAND, ADJUSrEO
44052
45916
48144
50376
52593
54507
FREE
WORLD STO
CK CHANGE
1785
2699
2928
3091
3215
3254
FREE
INC
ANNUA
-----
Wc)RLO 01 L
LUDING ST
L OIL REV
---------
DEMAND, ADJUSTED,
OCK CHANGE
ENUES, IN BILLION $
-------------------
45837
48615
51073
53467
55808
57761
SAUDI
ARABIAN
REVENUES
69.5
30.7
42.2
48.9
75.0
88.3
SAUDI
ARA[11AN
REVENUES IN 1980$
60.4
25.6
33.2
36.2
52.3
58.0
OPEC
RI:VENIIES
198.9
176.0
206.9
241.1
276.3
296.7
OPI.C
Itt VENUES
I N 1980$
1 , 7
1.5
1, 6
1 .8
1.9
1.9
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$10 OIL rec~c[ cut, ryV enArybt IN GOVERNMENT POLICIES
(QUANTITIES IN THOUSAND B/D OF OIL OR OIL EQUIVALENT)
FREE WOR1.0 OI L SUPPII ES
-----------------------
TOTAL FItFE WORLD
NET COMMIIN I S f EXPORTS
NET COMMUNIST EXPORTS
OIL AVAILABLE TO THE FREE WORLD
43762
1500
48762
1400
52311
1200
55430
1000
55608
1000
55443
800
NON-OPEC
25462
25615
25831
25980
26278
26233
OPEC
19800
24547
27680
30450
30330
30010
TOTAL
45262
50162
53511
56430
56608
56243.
1982
1983
1984
1985
1986
1987
----
----
----
----
----
----
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PART-II: OPEC PRICE AND THE DEMAND FOR-OPEC OIL
------------------------------------------------
SCENARIO:
M20
NOMINAL OPEC PRICE $/B
'
'
33.60
20.00
21.13
22.47
23.91
25.40
NOMINAL OPEC PRICE -
,~
CHANGE
~
-2,6
-40.5
5.7
6.4
6.4
6.3
REAL OPEC PRICE 1980$/6
'
29.21
16.91
16.91
16.91
16.91
16.91
OECD REAL ENERGY PRICE -
X CHANGE
-2.2
-21.8
-0.2
-0.4
-0.1
0.5
OECD ENERGY DEMAND, UNADJUSTED
73306
76811
81046
85369
89761
93873
ENERGY DEMAND ADJUSTMENT
0
0.
0
0
0
0
ADJUSTED OECD ENERGY DEMAND
73306
76811
81046
85369
89761
93873
LESS OECD NON-OIL ENERGY CONSUMPTION
37509
38207
39669
41434
43406
45570
OECD OIL DEMAND
35798
38603
41376
43934
46355
48303
LESS OECD OIL SUPPLIES 16386
16194
16002
15810
15728
15646
OECD OIL IMPORT DEMAND 19412
22409
25374
28125
30627
326
LDC OIL DEMAND 4657
5008
5371
5659
5871
57
6075
LESS LDC OIL SUPPLIES 7576
S
C
S
8021
8629
9170
9550
9787
OIL
STOCK
CHANGE
(EXCLUDING OPEC)(1) 1525
2755
2926
3013
3089
3072
STRATEGIC STOCKS 100
200
200
200
200
UNADJUSTED DEMAND FOR OPEC EXPORTS 16518
20751
23842
26626
29037
200
31216
NORMAL STATISTICAL DISCREPANCY 278
60
-69
-200
-311
-400
ADJUSTED DEMAND FOR OPEC EXPORTS 16796
20812
23774
26426
28726
30816
LESS OPEC EXPORTS 16222
20812
23774
26375
26117
25657
EXCESS DEMAND FOR OPEC OIL 574
0
0
52
2609
5159
OECD GNP, (BILLIONS OF 1980$) 7684
7909
8195
8496
8787
9078
OECD GNP, GROWTH RATE -0.4
2,9
3
6
3
7
3
4
3
3
RATIO, OECD ENERGY DEMAND TO GNP 91.24
92.89
.
94.58
.
96.10
.
97.70
.
98.89
ENERGY DEMAND TO GNP RAT10, GROWTH -2.1
1.8
1.8
1.6
1.7
1,2
FREE WORLD OIL DEMAND, UNADJUSTED 43774
47080
50377
53381
56140
58421
FREE WORLD OIL DEMAND, ADJUSTED 44052
47140
50309
53181
55829
58021
FREE WORLD STOCK CHANGE 1785
3022
3203
3300
3387
3381
FREE WURLI) OIL DEMAND, ADJUSTED
,
INCLUDING STOCK CHANGE 45837
50162
53511
56482
59216
61402
ANNUAL OIL REVENUES, IN BILLION $
---------------------------------
SAU01 ARABIAN REVENUES
69.5
35.9
52.4
63.3
67.0
70.8
SAUDI AItARIAN REVENUES IN 1980$
60.4
30.3
42.0
47.6
47.4
47.1
OPEC RI VENUES
198.9
151.9
183.4
216.4
227.9
27.9
OP(C ItiVENUES IN 1980$
1.7
1.3
1.5
1,6
1.6
1.6
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 Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000501160001-0
(QUANTITIES IN THOUSAND B/D OF OIL OR OIL EQUIVALENT)
1982
1983
1984
1985
1986
1987
----
----
----
----
----
----
PART I: OIL SUPPLIES
------------------------
OECD
OIL SUPPLIES
16386
16194
16002
15810
15728
15646
NON-OPEC LDCS
OIL SUPPLIES
7576
8021
8629
9170
9550
9787
OPEC
PRODUCTION
ALGERIA
BY COUNTRY:
600
900
800
800
800
700
ECUADOR
200
200
200
200
200
100
GABON
200
200
200
200
180
160
INDONESIA
1300
1600
1600
1600
1500
1500
IRAN
2300
3500
3500
4000
3800
3700
IRAQ
1000
1500
2500
3500
3500
3500
KUWAIT
700
1250
1.250
1250
1250
1250
LIBYA
1200
1900
2000
2100
2100
2100
NEUTRAL ZONE
300
500
500
500
500
500
NIGERIA
1300
2100
2000
2000
2000
1900
QATAR
300
500
500
500
500
500
UNITED ARAB EMIRATES
1200
1600
1900
2000
2000
2000
VENE7_UELA
1900
2200
2100
2100
2100
2100
NATURAL GAS LIQUIDS
1000
1000
1100
1200
1400
1500
----
----
----
----
----
----
OTIIER OPEC
13500
18950
20150
21950
21830
21510
SAUDI ARABIA
6300
3645
4465
4764
6821
8500
TOTAL
19800
22595
24615
26714
28651
30010
CONSUMPTION
3319
3445
3594
3746
3901
4054
STOCK CIIANGE(1 )
259
267
277
288
299
310
EXPORTS
16222
18883
20744
22679
24451
25646
FREE WORLD OIL SUPPLIES
-----------------------
TOTAL Fllr_E WORLD
NET COMf4l1N I S f EXPORTS
43762
46810
49246
51694
53929
55443
---------------------
NET COMMUNIST EXPORTS
1500
1400
1200
1000
1000
800
OIL AVAILABLE TO THE FREE WORLD
-------------------------------
NON-OPEC
25462
25615
25831
25980
26278
26233
OPEC
19800
22595
24615
26714
28651
30010
TOTAL
45262
48210
50446
52694
54929
56243.
1982
1983
1984
1985
1986
1987
----
----
----
----
----
----
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 Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000501160001-0
PART I1: OPEC PRICE ANU 111E DEMAND FOR OPEC Oll
------------------------------------------------
SCENARIO:
M25C
NOMINAL OPEC PRICE $/8
'
33.60
25.00
26.55
28.18
29.87
31.65
NOMINAL OPEC PRICE -
X CHANGE
-2.6
-25.6
6.2
6.1
6.0
6.0
REAL OPEC PRICE 1980S/B
29.21
20.77
20.77
20.77
20.77
20.77
OECD REAL ENERGY PRICE - x, CHANGE
-2.2
-13.2
-0.1
-0.6
-0.2
0.4
OECD ENERGY DEMAND, UNADJUSTED
73306
75203
77927
81143
84684
88186
ENERGY DEMAND ADJUSTMENT
0
0
0
0
0
0
ADJUSTED OECD ENERGY DEMAND
73306
75203
77927
81143
84684
88186
LESS
OECD NON-OIL ENERGY CONSUMPTION
37509
38179
39336
40830
42565
44517
OECD
OIL DEMAND
35798
37024
38590
40312
42120
43669
LESS
OECD OIL SUPPLIES
16386
16194
16002
15810
15728
15646
OECD
Oll IMPORT DEMAND
19412
20830
22588
24503
26392
28023
LOC OIL DEMAND
4657
4927
5262
5536
5742
5948
LESS LOC OIL SUPPLIES
7576
8021
8629
9170
9550
9787
LESS NET COMMUNIST EXPORTS
1500
1400
1200
1000
1000
800
OIL STOCK CHANGE (EXCLUDING OPEC)(1)
1525
2351
2589
2758
2882
2916
STRATEGIC STOCKS
100
200
200
200
200
200
UNADJUSTED DEMAND FOR OPEC EXPORTS
16518
18687
20610
22626
24466
26300
NORMAL STATISTICAL DISCREPANCY
278
195
133
53
-15
-79
ADJUSTED DEMAND FOR OPEC EXPORTS
16796
18883
20744
22679
24451
26221
LESS OPEC EXPORTS
16222
18883
20744
22679
24451
25646
EXCESS DEMAND FOR OPEC OIL
574
0
0
0
0
575
OECD GNP, (BILLIONS OF 1980$)
7681
7846
8084
8355
8633
8924
OECD GNP, GROWTH RATE
-0.4
2.1
3.0
3.3
3.3
3.4
RA710, OECD ENERGY DEMAND TO GNP
91.24
91.66
92.19
92.89
93.81
94.51
ENERGY DEMAND TO GNP RATIO, GROWTH
-2.1
0.5
0.6
0.8
1.0
- 0.7
FREE WORLD OIL DEMAND, UNADJUSTED
43774
45396
47447
49595
51763
53671
FREE WORLD OIL DEMAND, ADJUSTED
44052
45592
47580
49648
51748
53592
FREE WORLD STOCK CHANGE
1785
2618
2866
3046
3180
3226
FREE WORLD OIL DEMAND, ADJUSTED,
INCLUDING STOCK CHANGE
45837
48210
50446
52694
54929
56818
ANNUAL OIL REVENUES, IN BILLION $
---------------------------------
SAUDI
ARADIAN
REVENUES
69.5
27.0
36.2
41.0
65.4
88.2
SAUDI
AKA[tIAN
REVENUES IN 1980$
60.4
22.5
28.3
30.2
45.5
57.9
OPFC
REVENUES
198.9
172.3
201.0
233.3
266.6
296.3
OPt C
ItI VENUES
I N 1980$
1.7
1.4
1.6
1.7
1.9
1.9
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 Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000501160001-0
y ? ? / 1.1\1.1?V 1 1/\/\LV 11~\I1\{.f\V L1/ ~
(QUANTITIES IN TNOUSANO 8/D OF OIL OR Oll EQUIVALENT)
1982
1983 1984 1985 1986
1987
----
---- ---- ---- ----
----
PART 1: OIL SUPPLIES
:CD
------------------------
OIL SUPPLIES
IN-OPEC LDCS
16386
16194
16002
15810
15728
15646
OIL SUPPLIES
'EC
7576
8021
8629
9170
9550
9787
PRODUCTION BY COUNTRY:
ALGERIA
600
'900
800
800
800
700
ECUADOR
200
200
200
200
200
100
GAOON
200
200
200
200
180
160
INDONESIA
1300
1600
1600
1600
1500
1500
IRAN
2300
3500
3500
4000
3800
3700
IRAQ
1000
1500
2500
3500
3500
3500
KUNAIT
700
1250
1250
1250
1250
1250
LIBYA
1200
1900
2000
2100
2100
2100
NEUTRAL ZONE
300
500
500
500
500
500
NIGERIA
1300
2100
2000
2000
2000
1900
QATAR
300
500
500
500
500
500
UNITED ARAB EMIRATES
1200
1600
1900
2000
2000
2000
VENEZUELA
1900
2200
2100
2100
2100
2100
NATURAL GAS LIQUIDS
1000
1000
1100
1200
1400
1500
----
----
----
----
----
----
OTIIER OPEC
13500
18950
20150
21950
21830
21510
SAUDI ARABIA
6300
4699
6115
6793
8500
8500
----
----
----
----
----
----
TOTAL
19800
23649
26265
28743
30330
30010
coNSUMPTION
3319
3457
3612
3767
3915
4044
STOCK CIIANCE(1)
259
267
277
287
298
309
EXPORTS
16222
19925
22377
24689
26117
25657
NoN-OPEC
25462
25615
25831
25980
26278
26233
OPEC
19800
23649
26265
28743
30330
30010
TOTAL
45262
49264
52096
54722
56608
56243
1982
1983
1984
1985
1986
1987
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 Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000501160001-0
PART 11: OPEC PRICE AND THE DEMAND FOR OPEC OIL
------------------------------------------------
SCENARIO:
M20C
NOMINAL OPEC PRICE $/B
33.60
20.00
21.16
22.47
23.86
25.31
NOMINAL OPEC PRICE - % CHANGE
-2.6
-40.5
5.8
6.2
6.2
6.1
REAL OPEC PRICE 1980$/8
29.21
16.80
16.80
16.80
16.80
16.80
OECD REAL ENERGY PRICE - 'X CHANGE
-2.2
-18.5
-0.0
-0.5
-0.1
0.5
OECD ENERGY DEMAND, UNADJUSTED
73306
76150
79705
83534
87553
91423
ENERGY DEMAND ADJUSTMENT
0
0
0
0
0
0
ADJUSTED OECD ENERGY DEMAND
73306
76150
79705
83534
87553
91423
LESS OECD NON-OIL ENERGY CONSUMPTI
ON 37509
38304
39656
41324
43215
45323
OECD OIL DEMAND
35798
37846
40049
42210
44338
46100
LESS OECD OIL SUPPLIES
16386
16194
16002
15810
15728
15646
oECU OIL IMPORT DEMAND
19412
21651
24047
26400
28610
30454
LDC OIL DEMAND
4657
4998
5350
5631
5841
6048
LESS LDC OIL SUPPLIES
7576
8021
8629
9170
9550
9787
LESS NET COMMUNIST EXPORTS
1500
1400
1200
1000
1000
800
OIL STOCK CHANCE (EXCLUDING OPEC)(
1) 1525
2576
2783
2908
3005
3015
STRATEGIC STOCKS
100
200
200
200
200
200
UNADJUSTED DEMAND FOR OPEC EXPORTS
16518
19804
22351
24769
26906
28929
NORMAL STATISTICAL DISCREPANCY
278
121
~26
-80
-170
-247
ADJUSTED DEMAND FOR OPEC EXPORTS
16796
19925
22377
24689
26737
28681
LESS OPEC EXPORTS
16222
19925
22377
24689
26117
25657
EXCESS DEMAND FOR OPEC OIL
574
0
0
0
620
3025
OECD GNP, (DILLIONS OF 1980$)
7684
7881
8142
8428
8713
9008
OECD GNP, GROWTH RATE
-0.4
2.6
3.3
3.5
3.4
3.4
RATIO, OECD ENERGY DEMAND TO GNP
91.24
92.40
93.62
94.79
96.10
97.07
ENERGY DEMAND TO GNP RAT10, GROWTH
-2.1
1.3
1.3
1.2
1.4
1.0
FREE WORLD OIL DEMAND, UNADJUSTED
43774
46301
49011
51608
54094
56191
FREE WOiil_D OIL DEMAND, ADJUSTED
44052
46422
49037
51527
53924
55944
FRCE WORLD STOCK CHANCE
1785
2842
3060
3195
3303
3324
FRf E W(dtLD 01 L DEMAND, ADJUSTED,
INCLUDING STOCK CHANGE
45837
49264
52096
54722
57227
59268
ANNUAL OIL REVENUES, IN BILLION $
---------------------------------
SAUDI
ARAIIIAN REVENUES
69.5
29.3
41.6
49.3
66.8
70.5
SAUDI
AttAIItAN REVENUES IN 1980$
60.4
24.6
33.0
36.9
47.1
46.8
OPEC
ItI VENUES
198.9
145.5
172.8
202.5
227.4
237.0
OPI C
Iil VENUES I N 1980$
1.7
1 .2
1.4
1.5
1.6
1.6
Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000501160001-0
 S5 Sanitized Copy Approved fo_ r Release 2010_/07/13: CIA-RDP85T00287R000501160001-0
(QUANTITIES IN TFIOUSAND B/D OF OIL OR OIL EgU1VAlENT)
1982
1983 1984 1985 1986 1987
----
---- ---- ---- ---- ----
PART 1: OIL SUPPLIES
OECD
------------------------
OIL SUPPLIES 16386
.16194
16002
15810
15728
15646
NON-OPEC LDCS
Oll SUPPLIES 7576
OPEC
8021
8629
9170
9550
9787
PRODUCTION
ALGERIA
BY COUNTRY:
600
'900
800
800
800
700
ECUADOR
200
200
200
200
200
100
GABON
200
200
200
200
180
160
INDONESIA
1300
1600
1600
1600
1500
1500
IRAN
2300
3500
3500
4000
3800
3700
IRAQ
1000
1500
2500
3500
3500
3500
KUWAIT
700
1250
1250
1250
1250
1250
LIBYA
1200
1900
2000
2100
21
NEUTRAL ZONE 300
500
500
500
00
500
2100
500
NIGERIA 1300
2100
2000
2000
2000
1900
QATAR ~ 300
500
500
500
500
500
UNITED ARAB EMIRATES 1200
1600
1900
2000
2000
2000
VENEZUELA 1900
2200
2100
2100
2100
2100
NATURAL GAS LIQUIDS 1000
1000
1100
1200
1400
1500
OTHER OPEC 13500
18950
20150
21950
21830
21510
SAUDI ARABIA 6300
3845
4698
5018
7099
8500
TOTAL 19800
22795
24848
26968
28929
30010
CONSUMPTION 3319
3448
3597
3750
3905
4053
STOCK CIIANCE(1) 259
267
277
288
299
310
EXPORTS 16222
19080
20974
22930
24726
25647
FREE WORLD OIL SUPPLIES
roTAL FItrE WORLD 43762
47010
49479
51948
54207
55443
NET COMMIIN I S f EXPORTS
---------------------
NET COMMUNIST EXPORTS 1500
1400
1200
1000
1000
800
OIL AVAILABLE TO THE FREE WORLD
-------------------------------
NON-OPEC 25462
25615
25831
25980
26278
26233
OPEC 19800
22795
24848
26968
28929
30010
TOTAL 45262
48410
50679
52948
55207
56243.
1982
1983
1984
1985
1986
1987
----
----
----
----
----
----
Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000501160001-0
 S5 Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000501160001-0
PART II: OPEC PRICE AND TIIE DEMAND FOR OPEC OIL
------------------------------------------------
SCENARIO:
M25D
NOMINAL OPEC PRICE S/B
33.60
25.00
26.58
28.23
29.94
31.74
NOMINAL OPEC PRICE - ~ CHANGE
-2.6
~
-25.6
6.3
6.2
6.1
6.0
REAL OPEC PRICE 19805/8
29.21
20.75
20.75
20.75
20.75
20.75
OECD REAL ENERGY PRICE - x CHANGE
-2.2
-13.3
-0.1
-0.6
-0.2
0.4
OECD ENERGY DEMAND, UNADJUSTED
73306
75417
78217
81477
85064
88631
ENERGY DEMAND ADJUSTMENT
0
0
0
0
0
0
ADJUSTED OECD ENERGY DEMAND
73306
75417
78217
81477
85064
88631
LESS OECD NON-OIL ENERGY CONSUMPTI
ON 37508
38231
39410
40919
42673
44660
OECD Oil DEMAND
35798
37186
38806
40557
42391
43972
LESS OECD oll SUPPLIES
16386
16194
16002
15810
15728
15646
OECD OIL IMPORT DEMAND
19412
20992
22804
24747
26663
28326
LDC OIL DEMAND
4657
4936
5275
5549
5755
5963
LESS LOC OIL SUPPLIES
7576
8021
8629
9170
9550
9787
LESS NET COMMUNIST EXPORTS
1500
1400
1200
1000
1000
800
OIL STOCK CHANGE (EXCLUDING OPEC)(
1) 1525
2392
2606
2770
2893
2929
STRATEGIC STOCKS
100
200
200
200
200
200
UNADJUSTED DEMAND FOR OPEC EXPORTS
16518
18898
20857
22895
24762
26630
NORMAL STATISTICAL DISCREPANCY
278
182
117
35
-35
-100
ADJUSTED DEMAND FOR OPEC EXPORTS
16796
19080
20974
22930
24726
26530
LESS OPEC EXPORTS
16222
19080
20974
22930
24726
25647
EXCESS DEMAND FOR OPEC OIL
574
0
0
0
0
884
OECD GNP, (BIlL10NS OF 1980$)
7684
7868
8112
8385
8666
8963
OECD GNP, GROWTH RATE
-0.4
2.4
3.1
3.4
3.4
3.4
RA'f10, OECD ENERGY DEMAND TO GNP
91.24
91.67
92.22
92.93
93.87
94.57
ENERGY DEMAND TO GNP RATIO, GROWTH
-2.1
0.5
0.6
0.8
1.0
0.7
FRCE WORLD OIL DEMAND, UNADJUSTED
43774
45569
47679
49855
52051
53988
FR[E WoItLD OIL DEMAND, ADJUSTED
44052
45751
47796
49890
52015
53888
FRI.E WOltl_U STOCK CHANGE
1785
2659
2884
3057
3192
3239
FREE W()ItL(I 0 i L DEMAND, ADJUSTED,
INCLUUiNG STOCK CHANCE
ANNUAL OIL REVENUES, IN BILLION $
45836
48410
50679
52948
55207
57127
--------------
-------------------
SAUDI AItADIAN
REVENUES
69.5
28.9
38.5
43.7
68.6
88.4
SAUDI AItANIAN
REVENUES IN 19805
60.4
24.0
30.0
32.1
47.5
57.8 ~
OPIC RI VENUES
198.9
174.1
203.5
236.3
270.2
297.1
OPIC RI VENUES
IN 1980$
1.7
1.4
1.6
1.7
1.9
1.9
Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000501160001-0
 Sanitized Copy Approved for Release 2010/07/13: CIA-RDP85T00287R000501160001-0
$10 PRICE CUT, TAX RATES AND EXPENDITURES CHANGES
(QUANTITIES IN THOUSAND B/D OF OIL OR OIL EQUIVALENT)
1982
----
1983 1984 1985 1986 1987
---- ---- ---- ---- ----
PART I: OIL SUPPLIES
OECD
------------------------
OIL SUPPLIE
S
16386
16194
16002
15810
15728
15646
NON-OPEC LDCS
OIL SUPPLIES
7576
8021
8629
9170
9550
9787
OPEC
PRODUCTION
ALGERIA
BY COUNTRY:
600
900
800
800
800
700
ECUADOR
200
200
200
200
200
100
GABON
200
200
200
200
180
.
160
INDONESIA
1300
1600
1600
1600
1500
1500
IRAN
2300
3500
3500
4000
3800
3700
IRAQ
1000
1500
2500
3500
3500
3500
KUWAIT
700
1250
1250
1250
1250
1250
LIBYA
1200
1900
2000
2100
2100
NEUTRAL ZONE
300
500
500
500
500
2100
500
NIGERIA
1300
2100
2000
2000
2000
1
00
QATAR
300
500
500
500
500
9
500
UNITED ARAB EMIRATES
1200
1600
1900
2000
2000
2000
VENEZUELA
1900
2200
2100
2100
2100
2100
NATURAL CAS LIQUIDS
1000
1000
1100
1200
1400
1500
OTIIER OPEC
13500
18950
20150
21950
21830
21510
SAUDI ARABIA
6300
5065
6521
7207
8500
8500
TOTAL
19800
24015
26671
29157
30330
30010
CONSUMPTION
3319
3462
3617
3772
3914
4043
STOCK CHANGE(1)
259
267
277
287
298
309
EXPORTS
16222
20287
22777
25098
26117
25658
FREE WORLD OIL SUPPLIES
'~
---------------
TOTAL FItF_E WORLD
43762
48231
51302
41
37
5
55608
55443
NET COMMl1N 1 S T EXPORTS
---------------------
NET COMMUNIST EXPORTS
1500
1400
1200
1000
1000
800
OIL AVAILABLE TO THE FREE WORLD
-------------------------------
NON-OPEC
25462
25615
25831
25980
26278
26233
OPEC
19800
24015
26671
29157
30330
30010
TOTAL
45262
49631
52502
55137
56608
.
56243
1982
1983
1984
1985
1986
1987
----
----
----
----
----
----
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PART 11: OPEC PRICE AND THE DEMAND FOR OPEC OIL
------------------------------------------------
SCENARIO:
M20D
NOMINAL OPEC PRICE $/B
33.60
20.00
21.22
22.58
23.99
25.48
NOMINAL OPEC PRICE - x, CHANGE ~
-2.6
-40.5
6.1
6.4
6.3
6.2
REAL OPEC PRICE 1980S/B
29.21
16.75
16.75
16.75
16.75
16.75
OECD REAL ENERGY PRICE - x CEIANGE
-2.2
-18.6
-0.0
-0.5
-0.1
0.8
OECD ENERGY DEMAND, UNADJUSTED
73306
76560
80236
84115
88193
92184
ENERGY DEMAND ADJUSTMENT
0
0
0
0
0
0
ADJUSTED OECD ENERGY DEMAND
73306
76560
80236
84115
88193
92184
LESS OECD NON-OIL ENERGY CONSUMPTION
37509
38423
39816
41510
43440
45634
OECD OIL DEMAND
35798
38137
40420
42604
44753
46550
LESS OECD OIL SUPPLIES
16386
16194
16002
15810
15728
15646
OECD OIL IMPORT DEMAND
19412
21943
24418
26795
29025
30904
LDC OIL DEMAND
4657
5016
5376
5656
5865
6076
LESS LOC OIL SUPPLIES
7576
8021
8629
9170
9550
9787
LESS NET COMMUNIST EXPORTS
1500
1400
1200
1000
1000
800
Oll STOCK CHANGE (EXCLUDING OPEC)(1)
1525
2651
2811
2923
3020
3033
STRATEGIC STOCKS
100
200
200
200
200
200
UNADJUSTED DEMAND FOR OPEC EXPORTS
16518
20188
22776
25203
27361
29425
NORMAL STATISTICAL DISCREPANCY
278
99
1
-105
-195
-269
ADJUSTED DEMAND fOR OPEC EXPORTS
16796
20287
22777
25098
27166
29157
LESS OPEC EXPORTS
16222
20287
22777
25098
26117
25658
EXCESS DEMAND FOR OPEC OIL
574
0
0
0
1048
3499
OECD GNP, (BILLIONS OF 1980$)
7684
7928
8199
8489
8778
9087
OECD GNP, GROWTH RATE
-0.4
3.2
3.4
3.5
3.4
3.5
RAT10, OECD ENERGY DEMAND TO GNP
91.24
92.36
93.59
94.77
96.08
97.02
ENERGY DEMAND TO GNP RAT10, GROWTH
-2.1
1.2
1.3
1.3
1.4
1.0
FREE WORLD OIL DEMAND, UNADJUSTED
43774
46615
49413
52032
54533
56669
FREE WORLD Oll DEMAND, ADJUSTED
44052
46713
49414
51927
54338
56400
FREE WORLD STOCK CHANGE
1785
2917
3088
3210
3318
3342
FREE WORLD OIL DEMAND, ADJUSTED,
INCLUDING STOCK CHANCE
ANNUAL OIL REVENUES, IN BILLION $
---------------------------------
45836
49631
52502
55137
57656
59742
SAUDI ARABIAN REVENUES
69.5
32.0
44.8
53.0
67.2
71.0
SAUDI AItAE11AN REVENUES IN 1980$
60.4
26.8
35.4
39.3
46.9
46.7
OPEC RIVENUES
198.9
148.1
176.4
206.8
228.7
238.6
OPI C 111 VENUES I N 1980$
1.7
1.2
1.4
1.5
1.6
1 .6
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Distribution:
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4 - IMC/CB
1 - EURA
2 - EURA Production
1 - EURA/EI
2 - EURA/EI/EI
1 - Author
DDI/EURA/EI/EI 18Apr.83) STAT
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1 July 1983
CHINA: MOUNTING ECONOMIC MANAGEMENT PROBLEMS 25X1
Summary
Premier Zhao Ziyang, in his 6 June govern~aent nark report-to
the National People?a Congress, Named that Chinas investment
spending is 'out of control' and criticized the governaent for
its 'failure to take sufficiently forceful aeasures? to remedy
the situation. Partly to blame, said Zhao, are economic reforms
that decentralized production and investment decisions. Beijing
late last year took steps to recentralise at least part of the
investment decisions but, judging from first-quarter 1983
'statistics, these measures have met with scant success. ire
believe Beijing Ni11 be forced to take much stronger ~tep~--
perhaps undercutting ele~eents of the government's economic reform
program--lest current trends significantly hamper long-range _
development plans.
China began the period following the 1976 fall of the fang
of Four with a high-speed development program cast in the mold of
past attempts: rapid heavy industrial growth to support a
massive investment campaign, and a corresponding lack of emphasis
on consumer welf are and light industry. The Third Plenum in
December 1978 repudiated this approach and redefined China's
economic goals; putting balanced growth and improvements in
living standards first. To implement this policy, China
undertook economic management reform and decentralized some
decision-making functions. Although agriculture has grown
impressively--justifying Beijing's policies--the rest of the
economy has not fared as well.
EA M 83-10119
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 ~ t n~ ~m~er~nr?~ i ~ll i uur.~ . ~a
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CONFIDENTIAL
Investment: Growing and Unmanageable
The government has attempted unsuccessfully to cut
investment rates ever since late 1978. This departure from
policy tradition has been necessary because, with too few
construction inputs and too many projects, construction times for
even the most critical projects are unacceptably long. A second
motivation has been the goal of raising living standards, to be
achieved partly by deemphasizing investment.
Although generally in keeping with state plans, investment
spending hit historic peaks in 1979 and 1980 (see table 1 for
investment data). In early 1981, the government called for
"readjustment," slashing the original 55 billion yuan investment
target for that year to 30 billion yuan. This move was taken--on
the advice of Chen Yun, Deng Xiaoping's most seasoned economic
policy advisor--as a drastic measure to implement investment-
cutting policies we believe the Deng group was unable to
legislate in 1979 or 1980. Although investment spending by
yearend 1981 was below the2preceding year, it still exceeded the
plan by nearly 50 percent. Investment controlled by the state
:;=budget was only 20 percent over ~lan, but investment outside the
l
an.
budget was 80 percent over p
In 1982, government pleas and warnings to cut investment
were again ignored and investment overshot the relatively austere
38 billion yuan target for the year, this time by over 40
percent. In fact, 1982 investment was a record 55.5 billion
yuan, 11 billion yuan over the preceding year. Investment from
all sources of funds exceeded the plan, with that from
discretionary enterprise earnings outstripping the target by over
100 percent.
1The term "investment" throughout this typescript refers to
new fixed investment in state-owned enterprises.
2We are comparing final data with the original plan. In
fact, in both 1981 and 1982, Bering revised upward its
investment targets halfway, through the year, a move we believe
made virtue of necessity.
3As table 1 shows, investment spending comes from a variety
of sources. -The source the government can most easily control is
spending from the state budget. Spending from retained
enterprise earnings is least susceptible to government
management, while soendinq from domestic and foreign loans falls
between these extremes.
2
CONFIDENTIAL
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CONFIDENTIAL
Industry: Overreacting
We believe that 6ei~ing's difficulty in guiding industrial
production stems from its inability to control investment. In
line with its investment-cutting policy, the government early in
1979 sought to redress the imbalance between producer goods and
consumer goods production by giving priority to the lonq-
neglected light industry sector.- Industrial results in 1979 were
close to the plan, with light industry up at a slightly higher
rate than heavy industry (see table 2 f or industry data). In
1980 and 1981, however, the economy overreacted to pro-light
industry policies: heavy industry in 1981 dropped below 1979
production levels. Although the rapid growth of light industry
was in the right direction, it overshot the target. The
traditional complaint against heavy industry--that it turned out
unusable, poor quality products--was ~in 1980-81 us
characterize light industry for the first time.
In 1982 the economy simply did not comply with the plan,
which called for 7-percent light industry growth and a 1-percent
heavy industry increase. Heavy industry grew at nearly a 10-
percent rate for the first time since 1978. Light industry fell
below the plan in spite of a public continuation of the "light
industry first" policy. Production data for the first quarter of
1983 show that the 1982 trend continues, with light industry
falling even further?behind heavy industry.
What Went Wrong?
Economic reforms have created conditions in which central
government plans for investment can be largely ignored. Budget.
reforms implemented~in ave given local governments greater
control over spending, and enterprise management reforms since
1979 have permitted enterprises to retain a growing share--
reported to be about one-quarter now--of their profits. Chinese
press sources claim that the pool of extrabudget discretionary
funds was over 60 billion yuan in 1982, against a government
tudget that year of only about 100 billion yuan.
? 3
CONFIDENTIAL
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CONFIDENTIAL
The reforms also have given enterprises and production
ministries increased authority over roduction decisions. The
strong government support for light n ustry and scathing
criticism of heavy industry in 1980-81 apparently depressed the
demand pull of investment on heavy industry. By 1982, however,
we believe heavy industry producers began to take advantage of
the market-oriented environment that light industry more' rapidly
adapted to in 1980.4 In our view, investment demand for producer
goods and a visible drop in criticism of heavy industry in 1982
permitted the strong ~eav industry resurgence that left light
industry in its wake.
Bering, presumably fearing a repeat performance in 1983,
late last year legislated a 30-percent tax on nonbudget
investment that exceeds the plan. At the same time, Premier Zhao
Ziyang announced that 10 percent of all retained earnings must be
turned over to the central government for use in critically
needed energy and transport projects. The 1983 investment plan
is set slightly below last year's record level, with increases in
budget-controlled spending supplanting decreases in investment
from retained earnings (see table 1). Sixth Five-Year Plan
investment requirements are high and the government wishes to
maximize control over how the funds are spent.
Bering also has expressed concern about overproduction in
heavy industry and about light industry's inability to come even
close to the target in the first quarter this year. A national
industrial conference was convened in late March, but press
reporting disclosed much less strident criticism of the swing
back to heavy industry than we expected. The conference
reaffirmed the program initiated in 1980 of priority inputs for
light industry, but this call was mild compared with=publicity
for this program in 1980-81. Bering presumably is trying to
coax the economy toward balanced growth rather than using the
4Historically, heavy industry enterprises have produced
according to government orders, not to satisfy market demand.
Light industry, although also producing for government orders,
has typically been more flexible. When government orders for
heavy industry were drastically cut in 1981, heavy industry's
inexperience prevented it from effectively interacting with end-
users of its products. Two years' experience has paid off. For
example, strong rural demand for small tractors finally was
translated into a 50 percent increase in tractor production in
1982, after successive drops in production over the preceding
three years. ~~
SAlthough Bering continued to proclaim publicly a pro-light
industry poltcy, the statements were more tempered, and explained
that heavy industry also served an important function.
4
CONFIDENTIAL
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more heavy-handed tactics of the 1981 readjustment.
Implications and Prospects
Beijing's inability to control these important economic
variables has serious implications for both short-term
performance and long-term development plans. The excessive
growth of heavy industry since the final quarter of 1981 has
built up pressure on an already strained energy sector. As more
energy and raw materials are channeled to meet growing .heavy
industry demand, light industry growth rates have dropped off.
In the first quarter of this Year, heavy industry growth surged
to an 11.7 percent rate, squeezing light industry down to a 2.5-
percent rate for the quarter, well below the 4.1-percent target
for 1983.
Critical to China's long-term development plans is the 6th
Five-Year Plan's emphasis on qualitative rather than quantitative
economic progress. In this plan period--and for the rest of the
decade--Bering is asking industrial producers to keep production
increases within the moderate plan in order to focus on improving
productivity and to permit energy and transport capacity to catch
up to demand. Atwo-pronged attack on?these bottlenecks,
building new capacity and retooling inefficient users of energy
and raw materials, is scheduled to last through the 1980s.
Bering fears--and we believe these fears are legitimate--that if
industrial producers go all out for production increases and if
low priority investment continues to rise, government plans to
ease energy and transport shortages will be seriously undercut. .
Premier Zhao, speaking in early June at the National
People's Congress, complained that the government has "failed to
take sufficiently forceful measures" to regain control of
investment. Indeed, a pre-NPC People's Daily editorial warned
that if current investment trends contirtue, China may have to
take the sort of drastic moves it did in early 1981. Zhao,
though very critical, was not explicit about new measures to
resolve the problems and did not threaten a new readjustment
campaign.
We believe that Bering would prefer not to prescribe the
strong medicine it felt compelled to use in late 1980-early 1981
to readjust the economy, slashing investment and other
spending. That remedy brought the economy up short, producing
the lowest growth rates in recent years and unsettling foreign
investors and domestic producers. A noted government economist
recently urged that tax and price policies be used to guide the
economy along the desired growth path, but Zhao's NPC work report
stopped short of calling for similar measures. We believe
Bering will try quietly to recentralize control and that this
ultimately will alter elements of the government's economic
reform program, scheduled for implementation after 1985
5
CONFIDENTIAL
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Table 1: Chinese Investment Plans and Performance
(Billion Yuan)
1979 1980
1981
1982
1983
n Final Plan
Pl
Final
Plan
Final
Plan
Final
Plan
a
NeM Investment
-- 50.0 50.0
53.9
30.0*
44.3
38.0*
55.5
50.1
FroBudget
36.0
28.1
17.0
20.76
18.63
19.2
26.1
39
5
.
Loans ** 4.0
9.5
9.45
11.3
19.3
13.85
13.0
Retained Earnings -- 10.5
16.4
14.09
8.1
17.0
.10.75
*Plan revised to 38 billion ,yuan and 44.5 billion yuan, respectively, midway through
1981 and 1982; see text.
**Includes foreign exchange loans from Bank of China and domestic bank loans
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Table 2: Chinese Industrial Plans and Performance
annual percentage change
1979 1980
1981 1982
1983
Plan
Final Plan
Final
First
Plan
Second
Plan Final Plan
Final
Pl
an
Industrial
Production
8.0
8.5
6.0
8.7
6.0
3.0 4.1 4.0
7.7
4.0
Light
Industry
8.3
9.6
8.0
18.4
8.0
8.0 14.1 7.0
5.7
4.1
Heavy
Industry
7.6
7.7
4.0
1.4 ~
4.0
-2.0 -4.7 1.0
9.9
3.9
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