INTELLIGENCE MEMORANDUM COMMUNIST CHINA: AN OVERVIEW OF THE ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700020057-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 37
• Document Creation Date: December 22, 2016
• Document Release Date: March 2, 2010
• Sequence Number: 57
• Publication Date: October 1, 1971
• Content Type: IM

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dI 6f2 /7-
Secret
Communist Chines An O ier iew of the Economy
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WARNING
This document contains information aLreeting 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.
GROUP1
luded from automatic
dowrading and
.:; F&MnIfic.tion
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Directc.rate of Intelligence
October 1971
INTELLIGENCE MEMORANDUM
COMMUNIST CHINA: AN OVERVIEW OF THE ECONOMY
Conclusions
In the 1970s, Communist China's growing economic strength will be
applied largely to industrial and military modernization, and its international
economic role is likely to remain small.
China's economic strategy for the 1970s calls for a strong push in
domestic investment. Indeed, this program is well under way as evidenced
by the surprising number of industrial projects at various stages of
construction - for example, iron and steel complexes, petroleum refineries,
aluminum plants, and shipyards. Simultaneously, the leadership is faced with
the high costs of serial production and large-scale deployment of missiles
and other modern weapons systems. The agricultural sector, which must
feed a growing population at gradually higher standards, needs additional
support from industry and will be hard put to increase its volume of export
goods in the next few years. Since China's exports consist largely of raw
and manufactured agricultural products, the growth of foreign trade will
be relatively slow.
Japan will continue to be China's natural trading partner because of
geographical nearness, cultural ties, and a suitable offering of goods and
technology. If the Chinese become less sensitive to the presence of foreign
technicians, the Japanese can supply on-the-spot assistance in building new
industrial capacity and developing natural resources, notably petroleum.
Such a development would underscore China's subordinate role in the
international economic arena.
As for the United States, the potential for US-China trade is limited
by several factors. China's foreign trade is small in relation to total output
Note: This memorandum was prepared by the Office of Economic Research
and was coordinated within CIA.
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CENTRAL INTELLIGENCE AGENCY
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and is likely to grow only slowly because of Peking's policy of economic
self-sufficiency, its conservative attitude toward foreign indebtedness, and
its limited range of export goods. And China already has well-established
trading relationships with low-cost suppliers of its major import needs --
grain from. Canada and Australia; and capital goods, metals, and fertilizers
from Japan and Western Europe. Despite these limitations there are obvious
possibilities for growing US-China commercial relationships because of a
US comparative advantage in high-technology industries - such as aircraft,
advanced computers, petro-chemical equipment, and offshore drilling
equipment and the existence of a high-income US market for Chinese
luxury items..
In general, China will continue to depend on the outside world for
new technology and modern machinery in the 1970s. China enters the
international arena as a back runner in the technological race. To be sure,
China will draw rap ,1y ahead of other large low-income, nations, . such as
India and Indonesia, which lack internal momentum in investment and are
burdened by crushing: international debts. At the same time, China wig
be rapidly falling behind its neighbor Japan in total and per carita output
since the Japanese economy is growing at least twice as fast or, afar larger
base. All the leading industrial nations will be devoting substantial resources
to research and development and to the modernization of their industrial
facilities. China with its heavy commitment to defense will be hard-pressed
not to fall farther, i,ack of the international pace-setters.
Purpose of the Memorandum
The purpose of this memorandum is to set forth the strengths and
weaknesses of the economy of Communist China as they affect China's
ability to project its power into the international arena. The memorandum
provides an overview of the Chinese economy - its resources, its pattern
of growth, and its place in the world economy. Appendixes contain a
chronology of economic events in Communist China, estimates of key
economic indicators, answers to questions frequently asked about the
Chinese economy, and comparisons with other economies.
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CONTENTS
Page
Conclusions .
Contents .
I. RESOURCES FOR ECONOMIC GROWTH
Manpower Resources
Agricultural Resources
Industrial Resources
II. THE PATTERN OF ECONOMIC GROWTH
Trends in the Gross National Product .
Agricultural Production 8
Industrial Production 11 .
....... .......
Iron and Steel . . 12
Petroleum 13,
Military Production 14
Industrial Technology .. 15
T''ansportation 16
III. CHINA'S ROLE IN THE WORLD ECONOMY
Foreign Trade 18
Foreign Aid . . . 20
US-China Economic Relationships 22
APPENDIXES
A. 'Economic Chronology 23
B. Economic Indicators 24
C. Terrain Map . 26
D. Administrative Map 27
E. Questions Frequently .Asked'About?the Chinese Economy
F. International Economic Comparisons, 1970 . 30
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Population
Persons per snuara mile
o 2.6 26 26o
UAlnhl6,,..d [=~ 1 = 11
O 1 0 100 200
Persons per square kilome!er
NAMES AND ROUNDARY REPRESENTATION
ARE. NOT NECESSARILY AUTHORITATIVE
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I. RESOURCES FOR ECONOMIC GROWTH
Manpower Resources
Liberation Army (PLA). Thus only males in prime health and of unques-
tioned loyalty to the regime are inducted. The proportion of active-duty
military personnel in the total population is only one-quarter as great as in
The government needs to draft only 10% of the 10 million males reaching
military age each year in order to maintain its three-million-man Peonies
China's huge manpower resources are uniquely suited for both military
and economic development purposes.
the USSR or the United States.
China's abundant manpower is re-
flected also in the availability of tens
of millions of reservists, militia, and
members of the paramilitary Produc-
tion and Construction Corps, which
engages in coit,trurtion. projects and
agricultural reclamation in frontier
areas.
In terms of suitability for eco-
nomic development, the basic char-
acter of the Chinese people is prob-
ably unsurpassed anywhere in the
world. The average Chinese is quick to
learn, industrious and frugal, reason-
ably healthy, and well-motivated to
improve his. maierial lot. The popula-
tion is homogeneous except for the
6% made up of minority nationalities
living in the border areas. Communist
China for the, most part has been
spared the racial and religious blood-
baths of India and other less de-
veloped countries.
levels which the Peking government has maintained over the past 20 years.
year pos:;s formidable problems of feeding and clothing even at the austere
better off with.fewer people: The enormous population growing at 2.2% per
Although the quality of manpower is a distinct asset, China would be
eastern third of the nation contain 90% of the population.
,shown on 'he map. The river valleys, coastal plains, and low hills of the
Estimated and Projected
.Mi dye ar :; Population
Million ;'
Persons
1945
'.510.
1950
547
1955
611
1.960
689 ;
1965
751.:;
1.970
836
.971.
855
1975
937
1.?80
1.,054'
The geographical distribution of the populatica is extremely uneven, as
apprecianie sent in me population structure.
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Agriculture
OASES
I
I
Agticullurdl region boundary
I
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NAMES AND BOUNDARY RCPRESENTATION
ARd NOT NECESSARILY AUTHORITATIVE
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Percent in cultivation
1) to 30
Non.
0111rmtetl C~~lSLd'
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goods and raw materials for industry.
in relation to the population and to the needs of the economy for export
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Agricultural Resources
China's agricultural resources, while large in absolute terms, aia small
Only about 415,000 square miles - or 11% of the total land area of 3.7
million square miles - is under cultivation. The effective cultivated acreage
is increased by 50% through multiple cropping.
Because of rugged terrain and lack of moisture in the western
two-thirds of China, cultivation is largely confined to the eastern third.
The eastern portion is divided into the predominantly wheat areas of the
north and the predominantly rice areas of the south, as shown on the map.
Additional land, perhaps 3% of the total land area, could be brought
under cultivation, but only at tremendous cost. At the same time, the
development of urban areas, new transportation routes, and military
installations is nibbling away at existing agricultural acreage.
drought. The Communist government has made substantial gains in
afforestation, control of water resources, and restoration of the fertility
of the land. Beginning in 1962, the government has provided increasing
amounts of chemical fertilizer, pesticides, irrigation pumps and piping, and
improved seeds to the agricultural sector. The recurring periods of political
upheaval have prevented the government from reaping the full benefits of
these policies.
Centuries of intensive agricultural use have resulted in the stripping
of China's forest cover, the exhaustion of much of the laid, and the drop
in water tables and alkalization of extensive acreage through overuse of
water supplies. This has left the land even more vulnerable to flood and
from existing land through more fertilizer, better water management, and
improved seeds. These improvements in China's agricultural resources will
.be at a relatively simple technological level appropriate to China's needs;.
it may be a decade before China can achieve the more advanced technology
of agricultural products as raw materials for industry and as export goods,
the government will need an even stronger effort to~ improve agricultural
resources in the 1970s. This effort will center on the increase in yields
Because of the continuing growth of population and the importance
and higher yields of, for example, Taiwa
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Industry
Ch'eng-t
Ch'unc
Major Industrial area
BE Oil basin
++ Main railroad
512351 10.11
NAMES AND RORNOARY NEPRESENTATION
ARE NOT Nr.CrSSARII.Y AUTHORITATIVE
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,
hydroelectric potential, and extensive oilfields which are being rapidly
developed. In metals, China's reserves of tungsten, tin, and antimony are
the world's largest; sizable deposits of iron, manganese, and aluminum ores
also have been found. However, reserves of three key alloying metals -
chrome, nickel, and cobalt are inadequate, and supplies must be imported.
Finally, China remains heavily dependent upon imports for its supply of
natural and synthetic rubber.
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Industrial Resources
China has the energy resources and mineral deposits of a superpower
but lacks the capital plant and technological skill to compete with the
United States and the USSR on a global scale.
In energy resources, China has huge coal reserves
the world's largest
upon this inherited base while at the same time developing for strategic
and "local self-reliance" objectives - new industrial areas in the hinterland.
carryover from the pre-Communist era. Peking's strategy has been to build
Most of China's modern,capital plant is located in the major industrial
areas shown on the map. The concentration of manufacturing capacity in
the northeast (the former. Manchuria) and in the eastern port cities is a
manufacturer of textiles, pharmaceuticals, chemical fertilizer, tires, steel,
electronic and electrical equipment, machine tools, and merchant and naval.
shipping.
on the east coast, is the country's largest industrial metropolis and a leading
The region stretching northeastward from Shen-yang (the former
Mukden) to Ha-erh-pin is China's largest prodtircer of petroleum, coal,
electric power, steel, aluminum, cement, trucks, and railroad equipment.
T+ .e.,,. ... - ---'-- - . . - -
equipment, and instruments) and Sian (jet aircraft, small arms, electrical,
fast-growing hinterland cities are Ch'eng-tu (jet aircraft, electronic
steel, heavy machinery, and naval shipbuilding. The Ch'ung-ch'ing region
agricultural machinery. West of Shanghai is the Wu-han area, important for
Peking has been extensively developed as a production base for missiles
,
land armaments, electronic equipment, machine tools, textiles and
al
sm 1 and medium-sized . plants to serve local needs. These plants typically
produce cement and other construction materials, low-grade chemical
'fertilizer, small motors and other, simple equipment, and consumer goods.
ministries, the communist government has supported the development of
In addition to the large industrial plants controlled by central
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a vigorous program of construction of industrial facilities,
many in the interior provinces;
a substantial flow of machinery and technology from Japan.
and the leading industrial nations of Western Europe;
a steady increase in chemical fertilizer and pumps and other
equipment going to agriculture; and
the restoration of the purged administrative structure , to
normal functioning together with the return to comparatively
moderate economic policies.
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Trends in the Gross National Product
Overall economic growth under Communist rule has been fairly strong
China's gross national product (GNP) has doubled since 1952, reaching
a level of $119 billion in 1970, or $143 per capita. The severe economic
damage resulting from the Great Leap Forward (1958-60) - a disastrous
attempt at instant industrialization - shows up clearly on the top chart
at the right. In contrast, the damage from the political upheavals of the
Cultural Revolution (.1966-69) was relatively mild.
The long-term annual growth rate of GNP has been about 4%. Since
population has grown at an average rate of slightly more than 2%, the growth
in per capita GNP has averaged about 2%. Agricultural output since.1952
has approximately matched the. growth rate of population. In contrast,
industrial production since 1952 has grown at an 8% average rate, or 6%
if the larger 1957 base is used.
China is no ordinary less developed country with a per capita GNP
of $100 or less. Rather, it may be considered as an economy with, say,
a $100 "basic mairtenance" sector and a $43 "development thrust" sector.
That is, $100 is needed simply to maintain the population at reasonable
minimum standards, with $43 left over for industrial investment and
development of advanced weapons. As the bottom chart shows, China moved
well above the $100 per capita level by 1957, fell back precipitously as
a result of the Leap Forward, and now is forging ahead with a slowly
widening margin.
Prospects for substantial economic growth in the early 1970s' are good,
assuming no new flare-up of radical economic policies or a prolonged spell
of unfavorable weather in agriculture. Agriculture should stay abreast of
population growth, and industrial production should increase in the range
of 5% to 10% annually. The following favorable factors for growth have
been clearly identified:
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I. THE PATTERN OF ECONOMIC GROWTH
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Gross National Product
Aggregate GMP
Billion 1969 $ US
104
95 VA
,87
64 65 66 67 60, 69 7G
Per Capita GNP
1969 $ US
125 127 136 127
1952
57 58, 59 60 61 62 .63 64 65 66 67 60 69 70
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Agricultural Production
Since 1962, agricultural production has benefited from a combination
of favorable weather, larger supplies of fertilizer and equipment, and a
permissive attitude toward private plots and rural markets.
Population Growth and Agricultural Production
Population
Growth
39b9 1961 1963 1965 1967
The Communist leadership originally counted on collectivization to
boost agricultural, production rather than on large-scale :apital investment.
A sweeping "land reform" program which parceled the I ' 111~rrd out to the
peasants was only the prelude to forcible collectivization ';?iculture,
and by 1957 the countryside had been organized into 750,0(k,ogicultural
producer cooperatives. Collectivization was followed in 1 958 by the
formation of 26,000 supercollectives - the so-called "communes" - which
were to mobilize China's vast labor force for industrial and construction
tasks as well as for agriculture.
25X1
The unwieldy nature of the commune plus three years of unfavorable
weather caused agricultural production to plummet in 1959-61. ; By the
winter of 1960-61, C.hIna was near starvation, and discontent had spread
even to the armed forges.. As, suggested by the chart, the already meager
ration was reduced by' 25% or more over wide areas.
Threatened with the loss of control over China, the Communist
leadership moved quickly to restore the situation by:
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Agricultural
Production
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opening food stocks and arranging for the
annual import of 4-5 million tons of grain,
starting in 1961;
decentradzing agricultural decisions to smaller
organizational units, i.e., the production bri-
gade and she production team;
0 restoring the small private plot and permitting
small-scale private trade in rural products; and
initiating a program of investment which has
greatly increased the flow to agriculture of
chemical fertilizer, electric power, pumps and
other equipment, and improved seeds.
This dramatic turnabout in policy, together with favorable weather,
led to record levels of production in the late 1960s,
In addition to feeding the population, the agricultural sector is
expected to supply raw materials for industry and for export. One result
is a continuing competition between grain and cotton for the availalle
acreage. At present, sufficient cotton is being grown to provide a basic
ration of about five linear me'tcrs of cloth a year - enough for a simple
outfit of tunic and trousers - and to furnish a substantial volume of cotton
textile exports. As for food exports, China typically exports foods that
have a high unit value while importing basic grains, primarily wheat.
Over the next few years, agricultural production can continue to
expand gradually under the present policy of increased inputs to agriculture
and a reasonaui,i permissive attitude toward private activity. Peking no
doubt will continue its efforts to reduce the amount of centrally controlled
resources used in agriculture by encouraging the growth of local industry,
by strengthening the birth control program, and by resisting pressures for
a higher payout to the peasants.
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Representative Industrial Activities
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Feeder bell for blast furnace being machined by a
largo vertical lathe at the Shenyang Heavy
Machinery Plant (Northeast China)
Miniature bouings being ground t > close tolerances
at a factory in Shanghai (East Chl-a)
Nitrogen fertllivs being produced by a small
ehemkal futlllzer plant in Fukien Province (South-
east China)
s
a
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Industrial Production
The volume. and variety of industrial products have increased markedly
ainee 1949, but China still is far behind the leading industrial nations in
most branches of industry.
In the 1950s, the new government gave priority to building up the
capacity and output of basic Industrial fuels and materials, This priority
has been maintained up to the present as shown by the following estimates
of the output of key industrial products:
Steel 1. 5
(million metri tons)
on
i
- % .......
metr
c Lolls)
Electric power
(billion kilowatt hours)
Crude oil, .
(million metric tons)
Cement
(million metric tons)
The groundwork for large-scale production of machinery and
armaments also was laid in the 1950s. Subsequently, the Chinese have
mastered the production of several types of precision machine tools, a
remarkable variety of electronics equipment (including computers, radar,
and communi^,ations equipment), transportation equipment (including
hcavy-e-aty trucks and diesel locomotives), and modern weapons of both
Sovic; and Chinese design. The expansion of light industry - which provides
the Chinese with simple everyday consumer goods and is an important
source of export earnings - has proceeded at a slower puce.
The organization of industry reflects the normal practices of a
centralized"corn mail d economy." The State Council. the highs:Mt government
administrative body, translates the policy guidelines of the Party into
specific directives; these orders are then carried out through a bureaucratic
hierarchy of planning commissions, industrial ministries and departments,
and industrial en1 crpriscs.
Large plantri, controlled by the central ministries, account for most
of .mina's modern industrial production. A host of meditrnrsize and small
plants, which process local raw materials at a simple icvcl of technology,
arc controlled by local governmental units. Supplementing the efforts of
the regular industrial plants is the activity of tens of millions of full-time
or part-time handicraft workers, who fill the interstices of the industrial
sector by satisfying those small needs that escape the planners' attention.
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Iron and Steel
The rapid development of tho Iron and steel industry has propelled
China into eighth place in world steel production - far behind the United
States, the USSR, and Japan but well ahead of India.
Soviet equipment and technical aid were instrumental in the rapid
growth of steel capacity and production in the 1950s. During the Leap
Forward (1958-60), however, over-intensive use of equipment and the
commissioning of 650,000 primitive "backyard furnaces" brought the
orderly development of the industry to a halt. Most of the "backyard"
product was unusable, and by 1961 many of the industry's major facilities
had to be shut down for extensive repairs. After the abandonment of the
Leap Forward, capacity and production were built up in rational fashion,
with output of steel reaching 13 million tons in 1966. Following another
sharp but short-lived drop in output during the Cultural Revolution, the
industry today is moving ahead with a vigorous program of expansion aLid
modernization.
The iron and steel industry is located primarily near major deposits
of iron ore and coking coal, which are widely distributed throughout the
eastern half of the country. The principal production facilities are located
at An-shan - the old Manchurian center which produces 30'x% of China's
steel - Shanghai, Wu-han, and Pao-t'ou. Other large facilities arc being built
or expanded mainly in interior industrial areas.
China's capacity for finishing steel has grown more slowly than crude
steel production and does not provide a full assortment of shapes, sizes,
and qualities of product. China is particularly dependent on imports of
some kinds of tubing, sheet steel, and alloy steels. Moreover, in the last
few years r'hina has changed from a net exporter of pig iron to a net
importer, a :dencc that crude steel capacity has overtaken and surpassed
itsi pig iron capacity. China also depends on imports for substantial amounts
of scrap because its industrial sector is still too young to generate much
scrap.
Since 1965, when most of the Soviet-designed construoion projects
were finally completed, China has looked to the Free World for steel
technology and has imported nearly $100 million worth of metallurgical
equipment, including sheet and tube mills, heat trcatiri and soaking
furnaces, ore beneficiation plants, and equipment for basic oxygen
converters.
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Petroleum
With the discovery and exploitation of large new oilfields, China has
become self-sufficient in petroleum and may even be able to export
appreciable quantities of crude oil b;' the mid-1970s.
The priority growth of the petroleum industry has eliminated what
was once believed to be a major vulnerability in China's strategic position.
Whereas China could supply less than half its needs from domestic resources
in the 1950s, by 1965 it was essentially self-3ufficlent in petroleum products.
Output of crude oil has almost quadrupled over the last decade - from
4.6 million tons in 1960 to an estimated 18 million tons in 1970 - and
refining capacity has more than kept pace. In spite of this rapid expansion.
China is not a major producer by world standards - for example, China's
total annual production would satisfy the needs of the Japanese economy
for only about 28 days.
The center of gravity of the industry has shifted markedly under the
Communists from the remote northwest to the industrialized northeast. The
Ta-ch'ing oilficld in the northeast now provides about 60% of China's crude
oil. Other major producers are the older Karamai and Yu-men oilfields in
the northwest and the Sheng-li oilfield in Shantung Province in the cast.
Offshore fields are under investigation or development in order to acquire
new sources of supply.
China now is able to produce a complete range of petroleum products
and is moving gradually into the productioi of petroleum-based chemical
products. The effect of all these developments on the rest of the economy
has been most apparent in the substantial increase since 1965 in
petroleum-powered vehicles for military and civilian use - aircraft, trucks,
tractors, and ships.
Production of crude oil in 1975 could reach 40 million tons. After
satisfying military requirements, as well as the needs of industry, agriculture,
and transportation, the Chinese may have as much as 10 million tons
available for export. At present world prices, this quantity would bring
in $250 million a year, a useful addition to China's present limited array
of exports and a substantial contribution to its earnings of hard currencies.
Japan, with its skyrocketing need for raw materials, is a logical custnrner.
Sales to various less developed countries also would be possible and would
contribute to China's political stature. Western Europe is a less promising
market because of high transportation costs.
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Militate Production
The industrial sector is supplying a rapidly expanding volume of
equipment to all brancheu of the armed forces.
In addition to surface-to-air missiles and short-range naval cruise
missiles, the Chinese have produced an unknown number of MRBMs and
IRBMs. They are also working on an ICBM program.
The Chinese are gradually strengthening their air force by the
production of Soviet-designed aircraft as well as a native-design fighter
bomber. Production in 1971 probably will include more than 500 MIG-19
jet fighters, some MI&21s, about two dozeu TU-16 jet bombers, and more
than 100 of the new F-9 jet fighter bomber.
Construction of naval weapons to date has been largely based on Soviet
systems. These include cruise-missile equipped destroyers, guided missile
patrol boats, and torpedo attack submarines. The Chinese have constructed
a large modern, native-designed attack submarine which is probably
nuclear-powered. They may also be developing a ballistic missile submarine
of their own design.
Production of ground weapons includes substantial quantities of small
arms, artillery, medium tanks, and ammunition.
In addition to armaments production, the Chinese economy contributes
a heavy volume of construction activity to the military effort, e.g., the
construction of shipyards, missile test sites, military bases, and 7irfields -
many with extensive underground facilities; the strengthening and extension
of road and rail transport routes in strategic areas; the building of costly
nuclear weapons production facilities in remote areas; and the construction
of air-raid shelters in the cities.
The resources used in defense include a large share of China's top-level
scientists, enginems, and plant managers and much of the modern machinery
produced at home or imported from Japan and Western Europe. In turn,
the armed forces provide support to the general economy by supplying
men and trucks at harvest time, building roads and railroads, training a
continuing stream of recruits in valuable technical skills, and growing much
of their own food on army farms.
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Industrial Technology
China's rapid advance in industrial technology has still left China far
behind the leading indu,ltrial nations.
In the 1950s the USSR supplied the equipment and technical support
for the construction of about 150 modern industrial plants, including steel
mills, electric powerplants, machine tool plants, and armaments plants.
About 10,000 Soviet engineers, technicians, and production managers served
tours in China, and thousands of Chinese scientists and technicians were
trained in the USSR.
The abrupt withdrawal of Soviet technicians in mid-1960, combined
with the calamitous Leap Forward (1958.60), brought to a halt this progress
in industrial technology. After the Leap was abandoned, China turned to
Japan and Western Europe for modern machinery and technology with
emphasis on technology in the iron and steel, chemical, electronics, and
machinebuilding industries. The subsequent advance in industrial technology
was again delayed by the political turmoil of the Cultural Revolution
(1966-69).
1
t
In addition to the foreign sources of technology, China has benefited
from the extensive training and on-the-job experience of tens of thousands
of its own young scientists, engineers, and plant managers. Today, the level
of industrial technology lags behind the technology of Japan and Western
Europe from 5 to 20 years or more depending on China's industrial
priorities. Furthermore, within each industry, there is a striking contrast
between large modern plants and local plants which use primitive methods
and large numbers of unskilled workers. Peking preaches a doctrine of
self-reliance in technology, yet China mist continue to rely on Japan and
Western Europe for much of its modern technology in the 1970s.
A special problem concerns the replacement of the 200 Western-trained
scientists and engineers, now in their 50s, who have pioneered China's
nuclear and missile and other high-priority programs. The on-going Maoist
revolution in education, with its emphasis on manual labor and the
curtailment of theoretical academic training, conceivably could block the
development of the most promising young technical people. The
go,rcrnment, however, is exempting a small number of talented youths from
the manual labor requirements and is believed to assign these youths to
technical institutes to work under top scientists.
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Transportation
Rail transport is predominant in the modern sector of China's
economy, with water and road transport playing important supplementary
roles.
Railroads have borne the burden of increased economic a. ;ivity,
particularly in industrial areas such as northeast China. Since 1950 the
Chinese have added more than 11,000 miles of main and branch lines to
the railroad network, which now totals about 25,000 miles, as shown on
the map. Chinese railroad construction has concentrated on correcting the
uneven distribution of the rail system. A striking example is the line linking
Ch'eng-tu in Szechwan directly with K'un-ming in Yunnan. This line was
recently completed after more than a decade of high-cost construction
through rugged mountainous terrain. Although, China's railroad system is
primarily steam-powered, diesel locomotives have been introduced at an
increasing rate since 1965. China is presently experiencing the revolution
in railroad motive power completed in Western countries more than
10 years ago.
The Chinese road network totals more than 300,000 miles, about six
times the length of serviceable roads in 1949. More than half the system
consists of natural earth roads; the remainder is made up primarily of gravel
roads and a few thousand miles of bituminous-bound and hard-surface roads.
In most sections, truck transport provides short-haul service to the railroads
and inland waterways. Motor trucks are supplemented for local haulage by
large inputs of such primitive native transport means as wagons, carts, pack
animals, and coolie porters. The quality of China's roads does not permit
extensive long-distance truck haulage, except in the west where railroads
do not exist.
China's navigable inland waterways total more than 100,000 miles;
routes on streams suitable for modern motorized vessels amount to some
25,000 miles. Inland waterways supplement the railroads and carry bulk
cargoes for long distances when speed is not of major importance. Navigation
on the Yangtze River - historically the great commercial artery of China -
has steadily improved. Oceangoing vessels can sail as far inland as Wu-han,
while junks, barges, tugs, and large river steamers sail as far as Ch'ung-ch'ing.
The dense network of waterways in the populous eastern third of China
provides low-cost local haulage for an infinite variety of foodstuffs and
industrial goods.
Civil aviation is of minor importance in China. Air cargo is
characteristically made tip of high-value, low-volume items such as expensive
machinery needed at remote construction sites or medical supplies required
on an emergency basis. Passengers arc mostly government officials and
foreign visitors.
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Principal Transportation Routes
Imr..Um,.l t dur
A.W." p...1OI9
Ruh..ll, p..1?1014
Ro.d
Maio, w.I.~wry
DIIN l'
YII AMA
i rc
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III. CHINA'S ROLE IN THE WORLD ECONOMY
Foreign Trade
China's foreign trade, rigidly planned by the central government and
controlled through a handful of state trading corporations, effectively
supports China's industrial and agricultural goals.
The total trade volume of $4.2 billion is small in relation to domestic
output, partly because a vast country such as China can produce a wide
variety of products for its own use and partly because so much of China is a
subsistence agriculture economy. Nonetheless, for some items - grain,
chemical fertilizer, steel, rubber, and certain nonferrous metals and transport
equipment - China ranks as an important purchaser; its practice of giving
single large contracts increases the impact on individual Western firms and
even individual countries.
China has made selective use of trade as a political tool, most recently in
placing all its wheat import business with Canada, leaving none for Australia.
On the other hand, Japan - China's largest, most convenient, and least-cost
trading partner - has been increasing its primacy in China's trade in spite of
festering political problems. And West Germany sells more to China than the
United Kingdom or France despite the absence of formal diplomatic
relations.
1980
uV W-V, LIMV \..wu-
Trade munists, China's total trade grew steadily
from $ l
2 billi
i
1950
.
on
n
to $4.3 billion in
100%
1959; in the second decade the trend has
Dovo Pod been cyclical, with trade dropping off after
_-_-_- during the Cultural Revolution and regain-
a new peak. Along with these fluctuations
in the volume of trade there has been a
a:_
USSR \~ 60% dramatic shift in Chin
'
s tr
a
Eastern Europe ?" ' v, wiuC ouzo or uuna's trade was
- 19% with the Free World; a decade earlier
Oth
C
er
ommunlstV~ almost two-thirds was with the Communist
1970 countries, with the USSR being the pre-
4.2
China exports foodstuffs, textiles, un-
processed agricultural materials, and an
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increasing range of miscellaneous manufactures in exchange for machinery
and equipment, grain, chemical fertilizer, metals, and other industrial
materials. China's trade in 1969, by commodity category, is given below:
Million `US $
Exports
Imports
Total,
2,020
1,835
Foods
615'
350.
Crude materials
450
310 ;
Chemicals'
90.
310.:
Textiles
500,
30
Metals
70
465
Machinery, and equipment
25
240
Other manufactures
270
1'30
Machinery and transport equipment for China's industrial modernization
come from Japan, Western Eurepe, and Eastern Europe. Japan and Western
Europe supply the more advanced technology and also most of China's
imports of steel and chemical fertilizer. Canada and Australia have been
China's grain suppliers, with occasional shipments by France. Principal
imports from the Free World less developed countries include rubber from
Malaysia, Singapore, and Ceylon; copper from Zambia, Chile, and Peru; and
textile fibers from Pakistan, the United Arab Republic, and East Africa.
Hong Kong and the countries of Southeast Asia with sizable Chinese
populations buy large quantities of specialty foods, cotton textiles, and light
manufactures. This, area provides China with hard currency earnings to
finance the substantial deficits in trade with the developed countries of the
Free World. For example, China's trade surplus with Hong Kong was $355
million in 1970. In addition, China obtained another $175 million from
remittances handled by the Hong Kong banks from Chinese residing abroad
and from business and investment profits remitted back to the Mainland.
China has followed a conservative international financial policy and is free
of long-term international debt. China's reserves of gold and foreign
exchange now amount to more than $700 million. Short-term commercial
credits have been extensively used to finance imports of Western grain and
fertilizer. Repayments have been prompt and outstanding short-term
indebtedness was about $350 million at the er
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Foreign Aid
China maintains a sizable foreign economic and military aid program
in selected Communist and non-Communist countries at an annual cost of
roughly $400 million a year.
North Vietnam is the largest single recipient of China's foreign aid,
having received by the end of 1970 $660 million in military aid and $945
million in economic aid. Military and economic aid to North Vietnam ;lave
each been running at about $95 million a year in 1968-70. Military aid
is made up primarily of small arms and ammunition; economic aid of
foodstuffs, clothing, coal, and trucks.
China also is a source of aid to insurgent movements in Southeast
Asia for example, the Pathet Lao in Laos and the Communist guerrilla
forces in northwest Thailand - but compared to its aid to North Vietnam,
Chinese commitments to these other movements are small. In an endeavor
to foster independence of the Soviet Union, China also has furnished
large-scale economic and military aid to Albania since 1961 and has recently
entered into aid agreements with North Korea and Romania. As for Cuba,
China for the last few years has been buying Cuban sugar at a price that
represents a subsidy of roughly $50 million per year.
In the period 1956-70, China extended a total of $1.7 billion in
economic aid to the Free World less developed countries, mainly in the
form of long-term low-interest loans. Only about one-third of this amount
has been actually drawn; thus the outpayments have been at an average
rate of $40 million per year. The most spectacular single aid project is
the $400 million railroad to connect Zambia's copper belt with the
Tanzanian port of Dar-es-Salaam. In addition to economic aid, China
extended by the end of 1970 some $200 million in military aid to
non-Communist countries, of which two-thirds went. to Pakistan primarily
in the form of jet aircraft and tanks. The chart on the facing page gives
further details on China's aid to the less developed countries. of the Free
World.
20
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Economic and Military Aid to Less Developed Countries of the Free World
Extensions and Drawings, by Area
ACONOMIC C1ITO NSI0NS
IASY AS W W rti
IA
N a.6.laT AND SOUTH etts+i
1968 r 11964 ' c1965 ' 1966,
081 810.9r 707.`;119.,
716 138.2 201 ;'.2.3
;,. .'i 0 0 ?. ?,42,9
28,0 N2;t
1969 1970
IRI,D' 452 8
1967. < 1968 .1969,'y 1970"~
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of US companies or indirectly through third parties. It also is preparing
for direct trade by hinting to US traders that they may be invited to the
October 1971 trade fair in Canton.
US-China Economic Relationships
Over the next several years, US-China economic relationships are likely
to be overshadowed by the political issues between the two powers.
The US embargo on trade with China was lifted in April 1971,
permitting commercial transactions between US firms and Chinese trading
corporations for the first time in two decades. US importers have moved
quickly to initiate certain specialty imports through intermediaries in Hong
Kong and other countries. But Peking has been in no rush to expand its
trade ties with the United States, indicating that trade expansion with the
United States would follow, not precede, the solution of the Taiwan
problem, UN membership for Peking, and a US withdrawal from Vietnam.
At the same time, China has not been pera!izing itself by refusing to
purchase equipment embodying advanced US technology. Where
advantageous, it has been procuring American goods through subsidiaries
suppliers of its major import needs of grain, fertilizer, and machinery.
And China already has well-established trading relationships with low-cost
attitude toward foreign indebtedness, and a limited range of export goods.
slowly because of a policy of economic self-sufficiency, a conservative
The potential for US-China trade is limited by several factors. China's
foreign trade is small in relation to total output and is likely to grow only
markets with its major exports of textiles and staple foodstuffs.
China would have difficulty in achieving large-scale penetration of US
and luxury products such as rugs, embroideries, silks, art objects, and curios.
include` specialty foods, crude animal materials such as bristles and feathers,
Neverthel ;, there are obvious possibilities for commercial relations
between the 't ..'o countries. Potential Chinese exports to the United States
search for commercial aircraft, trucks, truck components, and scientific
petrochemical equipment,, and offshore drilling equipment are prime
examples of such goods. China may also include US goods in its worldwide
not such goods would be licensed for export to China. Advanced computers,
For the near future, China is most likely to be interested in US
industrial goods embodying advanced technology and not available from
other sources. And the key question for any sale ',-fould be whether or
instruments. Finally, China may occasionally purchase US grain, steel, or
chemical fertilizers if it wishes to make a political gesture or if it faces
greatly increased domestic requirements for these items.
volume of US-China trade highly speculative. Perhaps by the mid-1970s
imports and exports might each be in the range of $100-$200 million
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NV,l~ttt'. 1 Appendix A
Economic Chronology
1949.52: Rehabilitation: restoration of railroads, factories, and water
control systems to operation; provision of stable currency;
evening out of food supplies; establishment of economic law
and order.
1953-57: First Fivc-Y;zar Plan: successful Soviet-'Ole plan for building
up capacity and production III basic industries -- steel, coral,
elce Iris power, cement, simple machinery; good start on
defense industries; collectivization of agriculture wits,
emphasis on investment frem local resources; import dl
machinery and technology from Communist countries.
1958-60: Great Leap Forward: attempt at instant Industrialization
through frenzied Increase in tempo of industry and
agriculture; backyard steel furnaces and other wasteful small
Industrial projects; unwieldy supercollectiveq (communes) In
agriculture; ban on private plots; breakdown of planning and
statistical system; withdrawal of Soviet technicians In
mid-1960; poor harvests in 1959, 1960, r r.J 1961 ;acute food
shortages especially in the winter of 1960.61.
19,61-65: Readjustment and Recovery: emergency measures to regain
tolerable food balance, including annual import of 4-S
million metric tons of grain beginning ir. 1961, restoration
of smaller collective units in agriculture, permissive attitude
toward private plots, and increase of industrial inputs to
agriculture; shutting down of wasteful industrial production
and concentration of industrial investment on weapons,
petroleum, electronics, and fertilizer industries: shift of trade
from Communist countries to Industrial West.
1966-69: Grcai Proletarian Cultural revolution: Maoist attempt to
revitalize revolution by reversing trends toward
bureaucratization, "expertism," and material incentives;
unleashing of youthful Red Guards with subsequent
asst;w,ption of power by army; damage to industrial
production in 1967-68 (down 15.20%) and foreign trade
(down 10% in 1967-68), but little damage to agricul urc
which had good weather and might even have benefited from
lessened control.
1970-75: Resumption of Regular Planning: general trend to political
and economic moderation and announcement of Fourth
Five-Year Plan for 1971-75; record industrial and agricultural
production in 1970; petroleum and armaments industries as
pace-setters; release of a few national production figures,
possibly foreshadowing lifting of I1-year statistical blackout.
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Appendix 0 F T
Economic Indicators
t?;7 1 7 19',q i~;v t1r,0 t_Gt 1?52
WP (billion 1969 119 $) 57 791 91 qA 8~r b3
rovulatton, * itl#yont 570 542 51 414 699 701 Yip
(million (7pt9cxtal
Pot tapits 04P 101 127 139 131 125 ?9 107
11959 Uft 0)
[Frain (Million t* !iris 154 147; 200 150 1st} 1i,-180
tone)
('nttt>tt iteill.icrta t~!?ttic 1.7 1:6 1.7 1.5 1,4 0.9 0.9
tc": A 1
lnr4u4trial pttx3u!;t.1on 51 ton 130 143 15()-152 103-103 104-104
itwe (1957 1- 100)
Crude etpgl (a+illitytt 1.35 S.33 P.O ,!10 13
t trio tonol
Coal (t illio t-ottle 66.5 130.7 230 9t?9 290 170 100
tong)
Klectric power (billiton
kilowatt houta)
Cruse all (ttIlliot
mo-tric tonal
Altaisinum (thtrtiRantl
itq?trit; tong)
7.3 19.3 29.5 41.5 47 31 30
0.44 1.46 2.2$ 3.1 4.t, 4. 3.0
0 39 49 70 90 tt0 70
C?t nt (Million attic 1.85 4.4 9:1 10.6 1.^ 6.0 .3
ton*)
ch@ftieal fertiliitgttt
(ikUAlion "trio to""
of i dt3uct E i13htl
tupply 0.4 1.9 1.0 :1,1 3,5 E.4 3.1
prot]wt. ion 0.2 0.1 1.4 1.9 7.5 1.4 2.1
Truck* (t?> q.in.1 Amity) 0 7.3 11.,0 t9.4 13 1 114
L4titn+e (unit..g) 2A 1447 3a0 90o 600 100 23
rttai$ht carp (thov#an4 5.b 7.) 11 13 23 3 4.0
unit
>a t
cotton cloth (billion 3.9) 13.09 S.7 7.3 3.0 4.0 4.2
8inear r !tortrt
rnroi9n tt-*d4 (billion
1r. 1)
1 tal 1.19 3.03 3.74 4.24 1.97 3.02
export, 0.11 1.40 1.91 2.40 1.94 1.52
lMports 1.0;1 1.43 1.13 2.06 2.03 1.50
1
I
r
1
w
t
0
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ti1~.t :fit 1.."1' Appendix 0
Economic Indicators
o,;P.
149
x1 4,v3nr1A11c3mr ot4-yp t
('tiltt3h pf+tair 'R)
10 11 t3 i1.; 14 17
I t 9 WOn 220 240 1941 200 0 3VO
33 35 42 41 41 44 110 40
s.a 6.9 R to 19 11 14 1A
?'t *rtte # toot l to l 1) t eat
rwl.ti thh~t)
C041 4t iliito* ttic
tlpcttih Pc' thiilic!
kir*att hutn) -
Ctvw'ie Oil (0111i0h
r !ttic Who)
too 11s 114 14 144 144 330 AlislAthn t't1WvVMh4
t'ttic totio)
13 (01"aht (ixillic!v? aatrig
toot)
C rsic111 [artiliikutx
f*1111*n t !iriW 1x3'hi
r Vto-4et voij1ht1
4.11
4.tf
31
240
#,7
#.1
3#1i
11
7.0
#.R
~:
Zoo
4.5
4.9
7.;
?.77
).22
3.0
4.20
3--
3.71
3.06
4.307
1.077
1.7a
2.90
2.17
1.92
1.99
2.02
2.07
1.20
1.47
1.46
2.03
1.04
1.92
1.114
2.14
I sr?.t:Kr?.'r
rat 'Atst top
41abb t78 #)
rtait, 6% 1 It toff
fnttc'tt toillinh t !ttic
tons)
=233 thfivotttcl atho!1*cttt^
it4PA t 19s * 1041)
1"tt3Aurt irsa+
tsrta
ttwt-lit ttht sl-atid a~,i t*
1,0
1'taiol/t :onto tthwr&rrf
smitx)
C tt*h `loth (billion
111w'$r #Awtt:ro)
rOtOlitl trade (billion
TatA1
rxportst
.sports
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Appendix C
Terrain
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SPICK ET Appendix D
Province-level Administrative Divisions
r
1
I
. t 4...%;
Z .?i ?
ct+t b
yv
arrn. ?Yq0? uHrtt? _ `f
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Appendix 1 ` 1;C l lIT
QMSTIONS l kt Qttl-,Nt'LY ,SKI) A110VT THE CHINESE" ITONUM.Y
Q: Is Cltina likely to spill across Its hnttnclatfes to seine the "tkr
bowl" area of Sotttheas. A_ala?
A. No. The the sutplua in this area at the most is 5 million tons.
Which is only 2' i'9 of C'hina's Cttttcnt gain ptodu01on, hutthctmote, if
the C'hinew took the atra, the surplus Could well vanish because of disrupted
incentives: ai the minimum, the surplus could not be procured and
transported cntt?frec. finally, China could obtain 5 million additional tons
of grain at much less tick and cost by other means - for example, by
latying additional gain of fertilitet abroad or ny reallocating resources at
home. Of course, C`hina's ;cadetship could move into Southeast Asia kw
political or military reasons of tecause of an erroneous assessment of the
economic issues involved.
Q. Arr the Chinese peop!~ better off economically unckr the
Communist government than they were before 19497
A. Yes, With the exception or i9Go?tiI, the Chinese have had enough
to cat since the Commur'.t% came to power, and the stability of economic
life has been grv4tiy itnptovcd because of the elimination of large cealc
famine, inflation, brigandage, civil war, and epidemics as well as of the
marked reduction in the effects or flood and drought, The majority of
the people lead more secure lives, economically speaking. The 5%-10% of
the people at the top in pre-Communist days fled the country, were killed.
or were dispossc%szd.
Q. I:. the distribution of
Cor y nLsts?
Income egalitarian under the Chinese
A. Yes. The distribution of income and perquisites is more nearly
equal than in any other major country. Distinctions in pay, dress. mode
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SE(_;It 1+T
l e ndltt E
of tfanslx.itt. afd_ Life style are sutptisingly small between the average woiker
and the plant mat+,:. t, Party membet-a are enjoined to live frugally, amt
cfppottunities fot conspicuous consumption ate few. The ftlhttal
devolution was launched by Matt ill patt because he thought the cadres
were losing this egalitarian spirit.
Q. i) ws Cammunkst china have an inffiatlon problem?
A. No. Prices, wa#cs, and tents in the modern part of the economy
ate fixed by govc-nntcnt fiat and effectively enforced. In the countryside,
much economic activity is contained within the household and another large
share is conducted on a batter basis, The "shad.-out" of the crop at the
end of the harvest sc son is largely in kind. Still another part of tutal output
Mfrs tot taxes paid in kind to the government of as a quota sold to the
government at fixed prices. Inputs of fcrtilixcr and equipment are paid rot
by the collective unit at fixed pricer. local mirkets may have fluctuating
prices, but buying for resale 1% prohibited and prices far out of line normally
would be the subject of official action.
Q. Ito* do the Chinese manage to have a balanced foreign trade
account?
A. State foreign trade corporations are authoriycd to contract for
only those goods which are coveted by export carning. When exports falter.
as happened during the Cultural Revolution. imports are correspondingjy
tightened. The tradc with individual nations dots trot necessarily balance -
for example. China uses its large trade surplus with Hong Kong and
Southeast Asia to cov, r its trade deficits with Japan, Canada, and Western
Europe.
Q. How have the Chinese Communists eradicated the opium
problem?
A. Stringent controls over opium poppy production and use were
adopted at the 21st session of the State Council on 24 February 1950.
Basically the statute prohibited the private importation. processing, and sale
of opium and other narcotics. However, government controlled production
continues and is reflected in the small quantities of raw opium and poppy
husks which are legally exported from time to time. The tight political
control exercised by the government over its citizens has probably made
the enforcement of these laws quite effective in most arras of the country,
ontro over production .;nd trade in the southern border areas
has probably been more difficult, and scattered report.` in recent years
indicate that small amounts of Illicit opium are produced end traded in
the tribal areas of the south.
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Appendix F S 'CRET
Intatnrtlonsi Economic
Comporlsons, 1970
Land area (million
square miles)
Cultivated (percent)
r'oreated (percent)
Population, m4c1'yenr
(million persons)
Average annual
increase (percent)
GNP (billion 1969 US $)
imports (billion US *$)
t::xports (billion US $)
Grain production
(million metric tons)
industrial production
index (1965 - 100)
Hard coal (million
metric tons)
Electric power (billion
kilowatt hours)
Crude oil (million
Patric tong)
Crude steel (million
metric tons)
Cement (million metric
tons)
Railroads (thousand
miles)
Highways (thousand
miles)
Clii>a Taiwan India Japan_
3.7
0.014
1.2
0.14
11
50
16
9
20
8
22
69
37
32
036
X50
104
243
205
2.2
2.3
119
5
47
186
500
928
2.10
1.52
2.15
10.9
11.7
40.0
2.07
1.56
1.96
19.3
12.0
42.6
215-220
6
83
16
150
186
138
222
117
215
139
117
300
4
60
13
62
349
740
1,760
18
17
13
25
3
36
18
86
325
10
590
622
934
3,698
Telephones in use
(millions)
0.2
Radios in use
8.5
(millions)
30
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