(SANITIZED) COMMUNIST CHINA: HIGHLIGHTS OF TRADE WITH WESTERN EUROPE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010096-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 20
• Document Creation Date: December 22, 2016
• Document Release Date: February 1, 2010
• Sequence Number: 96
• Publication Date: August 1, 1971
• Content Type: IM

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Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Communist China: Highlights Of Trade With Western Europe
Secret
ER IM 71-144
August 1971
Copy No. 66
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP 1
Crduded from aalomatie
Jaw.tgradinp and
dreIo IcaUnn
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SECRET
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
August 1971
INTELLIGENCE MEMORANDUM
COMMUNIST CHINA: HIGHLIGHTS
OF TRADE WITH WESTERN EUROPE
Introduction
1. Western Europe, which was already an important source of
industrial goods for Communist China in the late 1950s, became an even
more important supplier after the widening of the Sino-Soviet rift in 1960.
West European machinery and equipment, steel, and fertilizer have made
a sizable contribution to the modernization of China's industry and
agriculture. Furthermore, some of the advanced machinery, electronic
equipment, precision instruments, and special metals have been important
to China's modern weapons program. In 1970, Western Europe provided
31 % of China's total imports and 38% of its imports from the Free World.
2. This memorandum discusses the pattern and growth of China's
trade with the countries of Western Europe since the break with the Soviet
Union. It examines in detail the commodities exchanged between China
and these countries - particularly West Germany, the United Kingdom,
France, and Italy - and assesses the benefits of this trade to China. Finally
the prospects and problems for the future growth of Sino-West European
trade are examined.
Discussion
Trends Since 1960
3. Western Europe's trade with China expanded by more than 50%
from 1960 to 1970 as China's foreign trade shifted dramatically from the
Communist countries to the Free World (see Table 1). Western Europe's
share of China's total trade grew from 17% in 1960 to 24% in 1970. In
Note: This memorandum was prepared by the Office of Economic
Research and coordinated within the Directorate of Intelligence.
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Communist China:
Perspective on Trade with Western Europe a/
1960
1961
1962
1963
1974
1965
1966
1967
b/
1968
1969
1970
Total trade, all countries 3,975
3,015
2,675
2,770
3,220
3,850
4,205
3,860
3,710
3
855
4
250
,
,
Trade with the Free World
1,370
1,335
1,265
1,525
2,120
2,685
3,105
3,060
2,910
3,070
3,375
I
Exports to
625
560
605
755
1,040
1,345
1,575
1,455
1,430
1,535
1,625
M
^
N
Imports from
745
775
660
770
1,080
1,340
1,530
1,605
1,480
1,535
1,750
M
Balance
-120
-215
-55
-15
-40
+5
+45
-150
-50
0
-125
Trade with Western Europe
661
415
319
356
425
648
875
1,030
960
945
1,012
~~~1
Exports to
203
181
149
172
229
300
365
310
335
380
354
Imports from
458
234
170
184
196
348
510
720
625
565
658
Balance
-255
-53
-21
-12
+33
-48
-145
-410
-290
-185
-304
a. Data are rounded to the nearest $1 million. Figures are based on trading partner statistics and are
adjusted to show China's imports c.-;-.f. and China's exports f.o.b.
b. Preliminary.
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the same period, its share of Free World trade with China fell from 48%
to 30% because other Free World countries, most notably Japan, have made
even greater gains from the reorientation of China's trade. J
4. Because of the large component of industrial goods in China's
imports, trade with Western Europe has been sensitive to the ups and downs
of the Chinese economy. Thus, trade suffered during the post-Leap Forward
period, 1961-63, and from the Cultural Revolution in 1968-69. In between,
trade with Western Europe recovered rapidly, reaching a peak level in 1967.
In 1970-71, trade has again rebounded with the resurgence of the Chinese
economy.
5. Western Europe has provided China a valuable alternative to the
USSR as a source of imports of modern industrial goods. It has provided
China with commodities for economic development which China either
lacked or could not produce in sufficient quantity. Imports of grain and
fertilizer from Western Europe have supplemented food supplies and aided
agricultural development. Chinese industry has benefited in two ways: (1)
from imports of important industrial inputs such as iron and steel --
particuiarly rolled products and special steels -- nonferrous metals, and
industrial diamonds, and (2) from the acquisition of up-to-date technology
embodied in machinery, equipment, and complete plants. Most of the
imports of precision instruments, electronic equipment, and strategic metals
go to defense-related industries which have top priority in China's
development pattern.
6. Some measure of the value China places on imports from Western
Europe is provided by the large trade deficits China has been willing to
incur, particularly since 1965 (see Table 1). Even though China's exports
to Western Europe have grown from 10% to 16% of total exports from
1960 to 1970 and average more than 50% of China's exports to the
developed countries, they fall far short of imports from Western Europe.
The trade deficit has ranged from $150 million to over $400 million during
1966-70. The figure for 1970 was slightly more than $300 million.
Combined with a deficit of $345 million with Japan and $200 million with
Australia and Canada, China's deficit with the Industrial West reached a
record level of $850 million in 1970. Trade with Hong Kong, Singapore,
and the less developed countries as well as remittances from overseas Chinese
provi,-ies hard currency earnings, which in most years offset the trade deficit
with the Industrial West. In 1970, however, China probably had to draw
down its foreign exchange reserves to finance the deficit with the Industrial
West.
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Major Trading Programs
7. West Germany, the United Kingdom, France, and Italy account
for about 75% of China's trade with Western Europe (see Table 2). Trade
with each has increased substantially over the past decade; the relative
positions of the four countries remains the same as in 1960. Exports to
the major partners are dominated by traditional Chinese products -
foodstuffs, textiles, and crude materials - and the commodity mix is much
the same for each country. Imports consist mostly of industrial goods, but
in this case the commodity composition varies from country to country
(see Table 3).
West Germany
8. Over the past decade, West Germany has been China's leading
trading partner in Western Europe. After recovering toward the 1967 peak
in 1969, trade dropped 5% in 1970 as both imports and exports fell. West
Germany has been a major source of steel and machinery and equipment,
and, in the second half of the decade, has become an important supplier
of fertilizer, other chemicals, and nonferrous metals, particularly copper
and platinum. In the 1963-68 period, West Germany was China's largest
West European source of complete plant imports.
9. Economic considerations have been strong in China's trade with
West G,.-rmany. West Germany does not recognize Communist China and,
of late, has been improving relations with the Soviet Union. However, the
products of modern industry and the advanced technology from West
Germany - for example, metalworking machine tools and precision
instruments - are of great value to Chinese industry.
United Kingdom
10. Trade with the United Kingdom boomed from 1963 through 1967
(see 'f'able 2). This advance was halted when political difficulties in late
1967 - which culminated in the sacking of the British Embassy in Peking -
caused trade to plummet by about 30% in 1968. A rapid recovery took
place in 1969, sparked by large Chinese purchases of nonferrous metals
and industrial diamonds. Heavy purchasing of nonferrous metals and
industrial diamonds continued in 1970 as imports rose by 7%. Exports fell
by a like amount and total turnover in 1970 was approximately equal to
turnover in 1969.
11. Imports from Britain are dominated by rm nufactured goods, over
80% of the total each year. Since 1 9,68, nonferrous metal and industrial
diamonds have replaced machinery and equipment as the largest import
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Million US $
1960 19 11 1962 1963 1964 1965 1966 1967 1968 1969 1970
Western Europe
Turnover 661 415 319 356 425 648
875 1,030 960 945 1,012
Exports 203 181 149 172 229
Imports 458 234 170 184 300 365 310 335 380 354
196 348 510 720 625 565
658
West Germany
Turnover 172 81 68 52 69 137 216
Exports 296 272 280 265
52 35
32 34 49 65 81
Imports 120 46 36 18 20 72 135 65 76 78 70
231 196 202 195
United Kingdom
Turnover 164 125 78 82 115 152 178
203 141 211 210
Exports 61 73 50 47 F-9 77
Imports 103 52 28 35 56 75 82 68 70 79 69
96 135 71 132 141
France
Turnover 84 54 66 86 73 102 159
142 170 110 152
Exports 19 13 15 19 28 39 48
Imports 65 41 51 67 45 63 111 40 5 65 57
102 119 9 45 95
Italy
Turnover 63 48 35 40 41 87 113
138 126 128 122
Exports 19 10 12 i9 21 34 52
Imports 44 38 23 21 20 53 61 849 43
9 83 57 56
71 66
Others
Turnover 178 107 72 96 127 170 209 251 251 216
263
Expczts 52 50 40 53 72 85 102
Imports 126 57 32 43 55 85 107 1688 95 101
3 156 115 102
? 161
a. Data are rounded .to the nearest 1 mz ion. Figures are based on trading partner statistics an are
adjusted to show China's imports c.i.f. and China's exports f.o.b.
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n
irl
H
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Communist China: Commodity Composition of Imports
from Western Europe, by Country, 1969 a/
llion US $
Commodity
Western
Europe
West
German
United
Ki
d
y
ng
om
France
Italy
Others
565
200
130
45
70
120
Cn
Foodstuffs
Textile fibers
15
--
15
--
--
Other crude materials
15
b/
10
--
b/
5
,
fuels, and edible oils
15
M
C)
Chemical fertilizers
110
b/
b/
--
3
10
Other chemicals
5
5
30 5
50
?
Man
f
40
30
5
b/
5
__
u
actures
375
150
110
25
30
60
Iron and steel 70
50
Nonfer
5
5
5
5
rous metals
Precisio
i
t
150
50
70
5
--
25
n
ns
ruments
Machine
d
10
5
b/
b/
5
ry an
equipment
65
15
5
15
15
10
a. Data have been rounded to the nearest $5 million. Because of rounding,
components may not add to the totals shown. Data are adjusted to show
China's imports c.i.f.
b. Less than $2.5 million.
Mi
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category. Because of its position as a major broker in diamonds and as
a refiner of nonferrous metals, the United Kingdom has been the principal
beneficiary of Chinese purchases of these commodities. On the export side,
Britain provides the best West European market for Chinese textiles and
light manufactures.
France
12. French hopes for a rapid expansion of trade following recognition
of Communist China in 1963 were never realized. Instead, France has merely
maintained its third place position in Sino-West European trade, primarily
on the basis of periodic Chinese purchases of French wheat. Delays in grain
shipments contributed, along with reduced purchases of chemicals and
manufactures, to a sharp drop in imports in 1969. However, imports
recovered in 1970 as the grain reached China and as deliveries of machinery
and transport equipment rose. China's exports to France have edged upward
over time.
13. In addition to grain, France is an important source of chemical
fertilizer, aluminum, nickel, machinery, trucks, and locomotives. Large
purchases of trucks were made in 1966 and again in 1970, when more
than 2,500 trucks were delivered under a contract for delivery of 3,000.
Also in 1970, China placed an order for 40 electric locomotives worth $30
million for delivery in 1972, and in June of 1971 another contract was
signed for 50 diesel locomotives.
14. In contrast to trade with the other three nations, China runs only
a small deficit in its trade with Italy. Chemical fertilizer is the largest import
from Italy, while sales of raw silk top the exports. Italy recognized China
in late 1971, and in May 1971 a high-level delegation headed by Italy's
foreign trace minister visited Chir:. amid hopes for expanded trade. A
three-year trade and payments agmement is planned (to be signed in the
fall of 1971), but no level of trade was announced nor were any contracts
obtained by the delegation. At present, it seems unlikely that Italy will
reap any greater benefits from recognition than France did.
Other Countries
15. The remaining 25% of China's trade with Western Europe is
distributed among ten other countries, whose trade with China has generally
followed the pattern of the four major partners. Although each country
does less than $50 million in total trade with China every year, China does
obtain valuable products from them: the Netherlands and
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Belgium-Luxembourg are major sources of fertilizer; Sweden supplies special
steels, woodpulp, and paper; Switzerland is an important supplier of
precision instruments and machine tools; and Austria has supplied
steel-making equipment. Recently, China has made inquiries about a second
L-D process steel plant similar to that purchased from Austria in 1965.
Commodity Composition
16. The pattern of Chinese exports to Western Europe remained fairly
stable in 1960-69, a period when the value of exports nearly doubled (see
Table 4). Crude materials, the major export category, include silk and other
textile fibers, hides, bristles, and other crude animal materials. Foodstuff
exports are limited to frozen and preserved items and must face the barriers
of the Common Market. Also, in the past there have been problems with
Western Europe's health regulations for meat imports, as when Italian health
inspectors turned down tinned pork in 1968. Exports of manufactures,
which have more than doubled since 1960, are still dominated by
low-quality textiles, clothing, and light manufactures, such as footwear, toys,
and office supplies. Tin and antimony, major exports in earlier years, have
been available only in small quantities recently.
17. Imports from Western Europe are concentrated in the products
of modern industry (see Table 5). Foodstuffs, almost all wheat from France,
were an important component in the post-Leap Forward (1961-64).
Additional purchases were made in 1968-69. These grain purchases have
been small in comparison with purchases from Australia and Canada. The
small volume of crude material imports consists largely of synthetic textile
fibers.
18. As part of the emphasis placed on agriculture in the 1960s, China
began importing large quantities of chemical fertilizer. Imports from Western
Europe increased by nearly four times, from $27 million in 1960 to $124
million in 1967. Western Europe's share of China's total fertilizer imports
increased from 11 % in 1964 to 62% in 1967 in value terms. With the closing
of the Suez Canal, Western Europe has been at a marked disadvantage in
competition with Japan because of higher freight rates, and its share slipped
to about half of China's fertilizer imports in i970. In order to maintain
their market share, West European producers have been lowering their f.o.b.
prices. Because of oversupply conditions among Free World fertilizer
producers, China has been able to play off large West European firms such
as Nitrex and ANIC against the Japanese producers to obtain the best
possible prices. In addition to fertilizers, China imports about $30 million
in industrial chemicals, dyes, and pharmaceuticals from Western Europe each
year.
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Communist China: Commodity Composition of Exports to Western Europe a/
Total
Foodstuffs
Of which:
Animals, meat, and fish
Grains
Fruit and vegetables
Crude materials, fuels, and
edible oils
h7
Of which:
Oilseeds
Textile fibers
Crude animal materials
Chemicals
Manufactures
Of which:
Textile yarn and fabrics
Clothing
Nonferrous metals
Million US $
1960
1961
1962
1963
1964
1965
1966
1967
1968
1
969
203
181
149
172
229
300
365
310
335
380
33
13
11
20
20
35
59
50
57
66
5
1
1
4
3
4
12
13
11
22
10
--
2
1
2
2
4
5
9
4
5
3
1
5
6
12
19
15
18
19
C/)
114
76
58
86
123
165
195
159
159
170
C)
20
1
1
6
19
24
24
24
22
15
LTI
H
21
23
18
33
44
52
61
50
48
65
22
23
20
29
34
43
46
37
42
49
5
4
6
8
13
19
25
22
23
27
51
88
73
58
73
81
86
79
96
117
19
20
17
26
36
34
35
33
40
47
1
3
1
3
3
4
4
5
5
7
8
57
49
18
17
20
15
10
11
24
a. Data are rounded to the nearest -$1 million. Because of rounding, components may not add to the totals
shown. Figures are based on trading partner statistics and have been adjusted to show China's exports f.o.b.
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Communist China: Commodity Composition of Imports from Western Europe a/
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
Total
458
234
170
184
196
348
510
720
625
565
Foodstuffs (grain)
--
29
52
47
33
1
6
--
32
14
.
Crude materials, fuels, and
edible oils
37
38
14
12
22
18
22
55
38
27
C/)
Of which:
CCD
0
Textile fibers
19
26
10
10
11
12
11
11
12
14
C)
Chemicals
85
59
53
72
35
93
95
145
175
149
rt
lIl
H
Of which:
Fertilizer
27
28
31
62
7
66
60
124
119
ill
H
Manufactures
336
107
51
53
106
236
387
520
380
375
Of which:
Textile yarn and fabrics
23
19
13
11
18
16
7
21
17
12
Iron and steel
148
23
8
13
21
46
87
183
100
70
Nonferrous metals
61
14
8
2
10
53
51
68
108
149
Machinery and equipment
54
30
14
21
40
94
202
189
93
63
a. Data are rounded to the nearest 1 million. Because of rounding, components may not add to the totals
shown. Figures are based on trading partner statistics and are adjusted to show China's imports c.i.f.
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19. Iron and steel has been a major import item from West Europe.
A bulk commodity like fertilizer, iron and steel is vulnerable to higher
freight costs. Imports of iron and steel from Western Europe reached a
peak of $183 million in 1967 but dropped off for the next two years
as Japan became China's largest supplier. Although imports rose slightly
in 1970, Western Europe's share of China's iron and steel purchases
continu.;zd its decline as purchases from Japan increased by about 50%.
20. In 1968, China sharply increased the value of its imports of
nonferrous metals in order to supply industrial needs and to support
stockpiling activities. These metals are important to industry and, in some
cases, to the modern weapons program. Western Europe has been the major
beneficiary of these purchases largely through the London Metals Exchange.
Imports from Western Europe reached $149 million in 1969 and should
have retained that level for 1970, as Chinese purchases remained strong.
While imports of platinum fell off in 1970, heavy Chinese purchases were
noted in copper, aluminum, and nickel. Also, Chinese imports of industrial
diamonds were again sizable, totaling $23 million in 1970, roughly the same
as 1969.
Machinery and Equipment
21. Imports of machinery and equipment from Western Europe are
significant because they supply China with up-to-date technology to
modernize its industry. Table 6 gives the breakdown of machinery and
equipment imports for the past five years. Until 1970, when Japan surged
into the lead, Western Europe was the largest Free World supplier of
machinery and equipment. In 1966 and 1967, deliveries of complete plants
from Western Europe boosted the total to more than $200 million.
Subsequently these imports have been falling off. Preliminary returns for
1970 indicate that machinery and equipment imports from Western Europe
were about the same as in 1969.
22. Nonelectric machinery has been the dominant sub-category, of
which metalworking machine tools and complete plants were the major
items (see Table 6). In addition, pumps, textile machinery, and heating
and cooling equipment have also been important. The bulge in imports of
nonelectric machinery in 1966-67 was due to deliveries on contracts for
complete plants.
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Total
Nonelectric machinery
Metalworking machine tools
Textile machinery
Heating and cooling equipment
Pumps
Other nonelectric machinery c/
Transport equipment
Road motor vehicles
Aircraft
Ships and boats
Electrical machinery, apparatus,
and appliances
Electrical measuring and
controlling devices
Professional and scientific
instruments and apparatus
1965
1966
1967
1968
1969
110
220
205
110
75
60
125
120
60
35
15
30
40
30
20
5
10
5
b/
b/
5
10
5
5
bf
5
5
5
Y
30
70
60
25
15
15
50
50
20
20
10
30
25
10
10
--
--
5
5
5
15
20
5
--
20
25
20
10
10
10
10
5
5
5
15
20
15
15
10
a. Data are rounded to the nearest $5 million. Because of
rounding, components may not add to the totals shown.
b. Less than $2.5 million.
c. West European trade statistics do not provide data on
shipments of equipment for complete plants; however, most such
shipments probably are included in this sub-category.
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Communist China.: Imports of Machinery, Transport
Equipment, and Precision Instruments a/
Million US $
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23. When China turned to the Free World as a source of complete
plants 2/ following the break with the USSR, Western Europe became a
major supplier. In the period 1963-68, 35 complete plants and major
additions to existing plants costing $150 million were sold to China by
Western Europe. These plants were of three main types - chemical plants,
plants producing special-purpose manufactures, and plants for the steel
industry. A major objective in these purchases has been to acquire modern
industrial technology and to provide prototypes to copy. During the Cultural
Revolution, Chinese interest in purchases of complete plants dropped off
sharply. In 1969-71, with the strong economic recovery and the advent
of a new five-year plan, negotiations for and purchases of whole plants
have been renewed. Again, the primary interest is in plants for the
metallurgical and chemical industries. Four contracts have been signed with
Western Europe, including an air separation plant from France, an electrode
plant from Britain, and an engine block foundry from West Germany, In
addition, there are about a dozen other plants in various stages of
negotiation.
24. After 1966-67, when large purchases of trucks and ships were
made, imports of transport equipment dropped off sharply. This category
revived in 1970 when more than 2,500 trucks were delivered from France.
Imported trucks provide China with heavy-duty cargo and dump trucks
needed by China's military forces and for mammoth construction projects
in China's rugged into ior. The ships imported from Western Europe are
used ships acquired for scrapping and for expanding the Chinese merchant
fleet.
25. A critical class of imports from Western Europe is electronic
equipment and precision instruments. These inciude computers,
sophisticated measuring and testing devices, electrical controlling devices,
and scientific apparatus. Much of this equipment has direct applications
in China's modern weapons program. From 1963 to 1969, about $120
million worth of these goods were imported from Western Europe, with
the United Kingdom, West Germany, and Switzerland supplying 80% of
the total. Western Europe supplied 70% of China's imports of these items
from the Free World.
2. Throughout this memorandum the ierms complete plants and plant
additions do not include the buildings and other structures that are
constructed at a plant site. These structures are usually designed and built
by Chinese personn'tl using indigenous construction materials. The terms
refer to blueprints, machinery, and equipment used to set up production
lines or complete components for processing raw materials at new or existing
plants.
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Prospects
26. Early returns from China's trading partners, contract information,
and other current reporting - especially from the Spring Canton Fair -
suggest that the volume of trade with Western Europe will rise moderately
to a new peak level in 1971. The following tabulation shows the unadjusted
trade returns for Western Europe and China's four major partners for the
first quarter of 197C and 1971:
January - March 1970 _
January - March 1971
Tutilovor Imports Exports
Turnover Im portn EY
t
por
e
Western Europe
252 144
111
220 a/
115 ,
105 a/
Of which:
West Germany
Uniteu Kingdom
France
Italy
67 43
60 38
44 28
31 12
24
22
16
19
52
28
53
31
31
9
37
10
31
19
1e
21
a.
Eotimatao aoa
on incomplete rotkrna.
Imports are off - sharply so from West Germany and the United
Kingdom - in comparison with early 1970. However, imports in the first
quarter of 1970 were extraordinarily high, so import performance should
look better as the year progresses. Exports are at roughly the same level
as in 1970 and are expected to rise as China's domestic economy con4inucs
to gain momentum.
27. Reports from the 1971 Spring Canton Fair indicate that it was
generally successful from the viewpoint of both buyers and sellers. Japan
again captured the biggest part of the steel contracts, although Austrian
and Swedish firms reportedly sold substantial quantities of special steel.
British and German negotiations continued after the fair. West European
traders also shared in Chinese purchases of chemicals, macl;inc tools, and
transport equipment. Traders found most Chinese goods in adequate supply
at moderate prices. There was an increased willingness on China's part to
satisfy buyer's demands, especially on style and product specifications. Also,
increased sales of Chinese nonferrous metals have been noted.
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28. Imports of transport equipment should incicase as deliveries begin
under French and West German contracts for 120 diesel and electric
locomotives. China is showing continued Interest In truck imports and is
seriously nc gotiating with Britain and possibly West Germany for
commercial aircraft. Nonferrous metals, a major import commodity for the
past two years, will be a question mark, Early this year, China announced
that it would by-pass the London Metals Exchange and deal directly with
copper-producing cow tries. Agreements have already been signed with Chile
and Peru and negotictions are under way with Zambia, in January of this
year, BtiFein recorded no deliveries of nonferrous metals ,,r industrial
diamonds to China.
29. Negot;ations with West European fertilizer producers are now
taking place; faced with oversupply conditions and Japanese competition,
the producers may have to cut prices even further. As a result, even if
volume is maintained, the value of imports of Western European fertilizer
may fall. Also, there have been no new contracts for French wheat.
Purchases of machinery and complete plants will undoubtedly rise as China
gears up to meet the goals of the new Fourth Five-Year Plan (1971-75).
However, the effects of new contracts for complete plants would not be
felt for two or three years.
30. Exports to Western Europe have been on an upward trend and
may rise to $400 million in 1971. Nonferrous metals exports should rise
as China appears willing to export these in greater quantities. Furthermore,
the accommodation of buyers witnessed at the Canton Fair and the desire
of the West Eurjpean countries to increase trade with China should improve
sales of manufactures. However, the traditional Chinese export mix will
continue to face the problems of limited demand in Western Europe coupled
with the restrictions of the European Community's agricultural policies.
31. The growth of Sino-West Euvopean trade will continue to be
constrained by Western Europe's competitive position vis-a-vis Japan
particularly in bulk products such as steel and fertilizer and by the large
trade deficits which China incurs each year. Closely related to the latter
is China's inability to increase exports of its traditional products to
developed countries. Nonetheless, the products of West European
technology are of great value to China's economic development and can
contribute considerably to China's industrial advance under the new
five-year plan. Because China has an understandable aversion to dependence
on a single source of imports, Western Europe will continue to be an
important component of China's total trade. And even though China has
a firm policy of economic "self-reliance", Western Europe has a dynamic
technology that China will find profitable to exploit for the foreseeable
future.
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S uni nary and Conclusions
32. Western Europe's trade with Communist China expended by more
than 50110 from 1960 to 1970 and now accounts for almost )4%/0 of China's
total trade. Its sh: re of Sino-Free World trade, however, taas fallen from
48%1o to 30% as other Free World nations, notably Japan, have made even
greater dins. China's turnover with Western Europe ir, 1570 was up to
$1,012 million, just below the record level of 1967, After two years of
improvement in the trade balance, China's trade deficit with Western Europe
worsened in 1970 when imports grew to $658 million and exports fell to
$354 million. Within Western Europe, four nations - West Germany, he
United Kingdom, France, and Italy - account for about three-quarters of
the trade with China.
33. China benefits from trade with Western Europe by acquiring
valuable inputs for industry and agriculture and up-to-date technology for
industrial modernization. In addition, much of the imports of precision
instruments, electronic equipment, and strategic metals find direct
applications in China's modern weapons program.
34. Imports from Western Europe are concei,truted in the products
of modern industry - fertilizer, steel, nonferrous metals, machinery, and
transport equipment. Fertilizer imports, estimated at $120 million in 1970,
were back near the peak level of 1967. Iron and steel have dropped off
sharply beginning in 1968 as the bulk of Chinese steel imports shifted to
Japan. Purchases of $150 million worth of nonferrous metals and over $20
million worth of diamonds in 1970 continued the high levels of the past
three years. Machinery and equipment - the major import category during
the period of peak deliveries of complete plants in 1966-67 - were about
the same in 1970 as in 1969 - $65 million. Chinese exports find fairly
good markets in Western Europe, accounting,for over 20 of China's exports
to the Free World. Exports featuic crude materials, foodstuffs, textiles, and
light manufactures.
35. Trade with Western Europe should advance moderately to a new
pea' level in 1971 even though first quarter returns show imparts down
and exports about the same as in the first quarter of 1970. There are no
contracts for French wheat, and imports of nonferrous metals may suffer
as China begins dealing directly with copper-producing countries. Japanese
competition will again limit sales of fertilizer and steel. On the plus side,
imports of transport equipment will be higher as deliveries begin on
contracts for locomotives, and China shows continued interest in truck
purchases. Also, there are hopes for increased purchases of machinery with
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China's renewed interest in complete plants and thn beginning of a new
five-year plan. Exports to Western Europe should rise in 1971 as sales of
nonferrous metals Increase and China becomes more amenable to buyer's
specifications for consumer goods.
36, In the future, Sino-Western Europetun trade will continue to face
three problems: (a) Western Europe's competitive position vis-a-vis J, pan,
particularly in bulk commodities such as steel and fertiliser where larger
transport costs give Japan a considerable advantage; (b) the continued I,irge
Chinese trade deficits; and (c) the difficulties of increasing exporl,s of
~raditio?utl Chinese products to developed countries. However, China will
require many of the products of West f"suropean technology as It implements
the new five-year plan, in part because of China's aversion to dependence
on a single source of imports, 'T'hus, Sino-Western Europe trade should
continue to rise at a moderate rate and Western Europe will continue to
be an important factor in China's total trade,
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