INTELLIGENCE MEMORANDUM CHINA: PROSPECTS FOR FOREIGN TRADE IN 1972

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700030106-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 27
• Document Creation Date: December 22, 2016
• Document Release Date: January 18, 2011
• Sequence Number: 106
• Publication Date: July 1, 1972
• Content Type: IM

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YA; /a6 0, / d .
Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
China: Prospects for Foreign Trade in 1972
Secret
ER IM 72-106
July 1972
Copy No. ,-
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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.
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
July 1972
INTELLIGENCE MEMORANDUM
CHINA: PROSPECTS FOR FOREIGN TRADE IN 1972
Summary and Conclusions
1. The foreign trade of the People's Republic of China (PRC) should
increase by more than 10% in 1972 - to at least US $5.2 billion compared
with $4.6 billion in 1971. As much as one-half of the expected increase
will be attributable to the higher dollar values that resulted from the
revaluations of major world currencies in December 1971. Nonetheless, the
expansion in the real volume of trade will be substantial and will be based
on three major factors:
-- The domestic economy is booming in this the second
year of the Fourth Five-Year Plan (1971-75).
- Peking's more moderate political stance, its
expanding foreign aid program, and its closer attention to the
quality of export goods have helped broaden its international
markets.
-- Chinese imports can now move ahead as rapidly as
exports because the temporary trade imbalance of 1970 was
redressed by restraints on imports in 1971.
2. Most of the expansion in 1972 will take place with China's
principal trading partners - particularly Japan, Hong Kong, and Canada.
The remainder of the increase will be largely the result of an upsurge of
trade with some less developed countries (LDCs), especially in Latin
America, and the USSR. Trade with the United States will rise sharply
on a percentage basis, but will remain small in absolute terms - probably
below $50 million. Trade with Western Europe is expected to show little
change. Political considerations continue to affect China's choices among
Note: This memorandum was prepared by the Office of Economic Research
and coordinated within the Directorate of Intelligence.
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trade partners - for example, grain purchases have been entirely shifted
from Australia to Canada following the establishment of diplomatic relations
between Canada and China.
3. Imports of wheat - which were only 3.1 million metric tons in
1971 - will bounce back nearer the annual level of 4 million to 5 million
tons that has prevailed ever since China's food disaster years of 1959-61.
Imports of chemical fertilizer will remain the same or decline as Peking
continues to press the expansion of domestic production. Imports of metal
products will remain high and may increase. Prospects are good for
substantial increases in imports of mach.-nery and equipment, especially
transportation equipment. The commodity composition of exports will
follow the traditional pattern of agricultural and mineral raw materials,
textiles, light manufactures, and rice and processed foodstuffs.
4. The sizable percentage increases in foreign trade in 1970-72 are
attributable in large measure to the PRC's recovery from the Cultural
Revolution (1966-69) and to other one-time factors. Over the longer term,
China's trade will continue to be small in relation to gross national product
(GNP) and slow-growing in relation to domestic economic activity because
of Peking's (a) policy of economic self-reliance and (b) aversion to
long-term foreign indebtedness.
Background: 1971 Trade in Perspective
5. China's foreign trade sector continues to mirror the general
economic recovery that followed the Cultural Revolution (1966-69) and
the resurgence of capital investment that has accompanied the Fourth
Five-Year Plan (1971-75).* In both 1970 and 1971 the volume of foreign
trade increased more than 9% annually. Four-fifths of China's trade
continues to be with non-Communist countries. And China still remains
free of long-term foreign indebtedness. Deficits with the developed countries
have been balanced by a large surplus in trade with Hong Kong and a smaller
surplus in i;ade with the less developed countries. (Table I shoves trade
with the Communist and non-Communist worlds for selected years, 1959-71,
.and Table 2 shows trade, by area and country, 1970-71. Tables 1-4 are
in Appendix A.)
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6. Imports of foodstuffs have declined in recent years and have been
replaced largely by imports of manufactures, mostly iron and steel products
and nonferrous metals. Machinery and equipment imports have climbed back
to the levels of 1966, with imports of transport equipment being much
higher and equipment for whole plants much lower than in 1966. Exports
consist largely of agricultural products, textiles, and light manufactures.
(Table 3 shows the commodity composition of China's trade in 1966, 1970,
and 1971.)
7. Preiiminary data indicate that China's trade rose to $4.6 billion
in 1971, exceeding the long-standing peak level of 1959. To correct a sizable
deficit with the non-Communist countries in 1970, China reduced imports
from these countries by $35 million while it pushed exports up $235
million. Peking's success is reflected in the following tabulation:
Million US $
Balance of Trade
with Non-Communist
Countries
1970
1971
Developed countries
-880
-630
Less developed coun-
tries
260
205
Hong Kong and Macao
365
440
Total
-255
+15
8. China's trade with the non-Communist countries increased by only
6% in 1971. Trade with the developed non-Communist countries declined
slightly; exports went up by $120 million and imports declined by $1 SO
million. The $135 million increase in trade with the less developed countries
was featured by a sharp rise in imports as China turned to these countries
for greater amounts of raw materials and primary metals. Trade with Hong
Kong grew by 20%. Net earnings in Hong Kong of about $700 million
from direct trade, entrepot trade, and overseas remittances were more than
enough to finance China's deficit with the developed countries.
9. Trade with the Communist countries in 1971 increased by 25%,
the first substantial rise since 1959. Trade with the USSR more than
tripled -? rising to $155 million, compared with $45 million in 1970. Trade
with Romania, North Korea, and North Vietnam also rose sharply.
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Major Developments Affecting 1972 Trade
10. China's total trade in 1972 probably will reach at least $5.2
billion, with perhaps one-half of the increase in dollar value accounted for
by the recent revaluation of world currencies against the dollar. Among
the factors that indicate that China's trade will continue to expand in 1972
and beyond are:
- sharp rises in the value of transactions at the Canton
Trade Fair, especially at the Spring Fair of 1972;
-- increases in the number of exchanges of trade
delegations and of trade exhibits, which suggest possible large
Chinese purchases of machinery and equipment;
- prompt signing of 1972 trade agreements with
long-standing trading partners; and
agreement on a number of major import contracts,
featured by a new grain contract with Canada and contracts
for nonferrous metals and trarbportation equipment.
The Canton Fairs
11. The semi-annual trade fairs at Canton ordinarily account for
nearly one-half of the PRC's trade with non-Communist countries. The bulk
of China's exports are arranged at these fairs; some import contracts are
also concluded. Because of Peking's emphasis on balancing trade, the volume
of China's imports is closely related to the amount of export sales. Thus,
the volume of sales arranged at the Canton Fairs is a good indicator of
China's trade prospects for the six to 12 months following the fairs.
12. Large increases in Chinese sales at the last two Canton Fairs
indicate that China's exports to non-Communist countries will again rise
sharply in 1972. Total transactions at the 1971 Fall Fair rose to nearly
$1 billion, or slightly above the total at the 1970 Fall Fair. Chinese export
sales accounted for $600 million and purchases for $400 million.
Transactions at the Spring Fair, where activity is usually lighter than at
the Fall Fair, were exceptionally high in 1972 - $100 million to $200
million above the level at the 1971 Fall Fair. Chinese sales were up 20%
to 30% to an estimated $700 million to $800 million. Purchases may have
been less than at the Fall Fair - between $300 million and $400 million.
Trade Delegations and Exhibits
13. Major import contracts with the non-Communist countries have
traditionally been arranged with foreign businessmen outside the confines
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of the Canton Fairs. Trade delegations and temporary industrial exhibits
in the PRC enable the Chinese to ascertain the availability cf industrial
goods. In 1971-72, four major trade delegations headed by the Minister
or one of the Vice Ministers of Foreign Trade have made extensive tours
of (a) the Scandinavian countries; (b) Algeria, France, and Italy; (c) Chile
and Peru; and (d) Afghanistan and Iran. Tangible results of these missions
include large increases in trade with Peru, Chile, and the Scandinavian
countries, especially Sweden.
14. Chinese delegations visiting Western Europe and Japan have been
interested in advanced industrial technology in chemicals, machine building,
and electronics, a sign that the Clmiese may purchase more complete plants
in the near future. Delegations from the developed countries that visit China
normally discuss the sale of particular products, such as trucks, ships, and
aircraft. A parallel increase in the number of delegations exchanged with
less developed countries reflects China's efforts to influence the Third
World - several new trade and aid agreements have been concluded. A
number of exch nges also have been taking place with Communist countries,
notably Romania and Yugoslavia. (For a list of trade and economic
delegations to and from the PRC, see Table 4.)
15. A number of countries - including Denmark, Japan, Sweden,
Canada, Yugoslavia, and Romania - have conducted trade exhibits in the
PRC in 1971-72. These exhibits provide the Chinese with important
information on technical advances in various fields and permit Chinese
technical people to gather information on which to base purchase decisions.
Moreover, the exhibitors usually sell the displayed items at a reduced rate
giving China an opportunity to buy inexpensive prototypes.
Trade Agreements
16. Trade agreements provide the basis for the PRC's trade with the
Communist countries, with some of the less developed countries, and in
part with Japan. In 1972, many of these agreements involve substantial
expansion of trade. In addition to the usual annual agreements, China has
long-term agreements with Algeria, Cuba, Nigeria, North Korea, and
Romania. Several countries have begun to carry on significant trade with
China for the first time in recent history. Among these are Guyana, the
Philippines, and Brazil. Further details on these trade agreements are
presented in the country discussions below.
Major Import Contracts
17. Major import contracts and on-going negotiations provide evidence
of the import levels in 1972 of several important commodities. China's
imports of grain will be up in 1972; China already has purchased about
$250 million worth of Canadian grain for delivery in 1972, compared with
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total purchases of $200 million worth in 1971. China has been negotiating
for Japanese steel. Despite some difficulties over prices, total steel imports
are expected to remain high in 1972.
18. Nonferrous metals imports also will stay high. China's domestic
copper industry is falling further behind its needs, and contracts have been
signed for 1972 delivery of well over 100.000 tons of copper from Chile,
Peru, and Zambia, an amount equivalent to China's worldwide purchases
in 1971. China has contracted to buy 15,000 tons of lead and a similar
amount of zinc from Peru; imports of these metals also may go up. On
the other hand, China's aluminum industry is catching up to needs, and
these imports could start to decline in 1972.
19. Chemical fertilizer contracts negotiated in 1971 for fiscal year
1972 with Japan and the West European consortium NITREX reportedly
were down $30 million from the fiscal year 1971 contracts. However, China
is increasing fertilizer imports from other countries, and new contracts with
Japan and NITREX will undoubtedly be signed for fiscal year 1973
deliveries. The prognosis for imports of chemical fertilizer for the whole
of 1972 is somewhat below that for 1971.
20. In the last year or so, China has contracted to purchase a wide
variety of machinery and equipment, much of which will be delivered in
1972. Transportation equipment heads the list with major purchases of
transport aircraft from the USSR and the United Kingdom; trucks from
Morocco, France, and Rumania; ships from Norway, Poland, and Yugoslavia;
and locomotives from France and West Germany. Negotiations for additional
transportation equipment and for additional complete plants are under way.
Deliveries under any new contracts normally will take place after 1972.
Currency Revaluations and Dollar Estimates
of China's Trade
21. The estimates of the dollar value of China's trade in 1972 will
be affected considerably by the revaluation of currencies in December 1971.
For example, China's trade in 1970 measured in devalued dollars would
be 10% higher than when measured in old dollars. Imports would have
been valued 11% higher and exports 9% higher. The effect of the currency
revaluation on the dollar estimates of China's trade will not be uniform
with respect to all trading partners. The effect will be greatest with Japan
and West Germany, countries with currencies having the largest revaluation
in relation to the US dollar. In the trade data for 1972, the importation
of $100 million worth of Japanese goods into China will have less real
i
ifi
gn
s
cance for the economy than in previous years. On the other hard,
there will be no effect on dollar estimates of trade with those countries -
especially Latin American and Middle Eastern countries - that kept their
currencies at par with the US dollar.
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22. The currency changes also have considerable effect on the terms
of trade between various countries. For example, Japanese goods have
become more expensive relative to those of Western Europe. China could
turn to other countries for some of the products formerly purchased from
Japan or could exert pressure on Japan to lower p,ices. Moreover, Chinese
goods have become cheaper for Japan, which may help China to improve
its balance of trade with Japan in 1972. (For a more detailed discussion
of the effect of currency revaluations on Chinese trade, see Appendix B.)
Trade with Non-Communist Areas
23. Trade with the non-Communist countries in 1972 probably will
increase in real terms by more than the 6% increase of 1971. China's trade
with the non-Communist countries was brought back into balance in 1971,
and the foreign exchange position of the PRC is much better than a year
ago. Therefore, China should be able to expand imports in concert with
exports in 1972.
The United States: A New Partner
24. Contacts between American businessmen and the Chinese began
shortly after trade barriers were removed in 1971. Direct trade between
China and the United States is occurring for the first time in 1972. The
highlight of trade contacts thus far was the invitation of some 40 Americans
to the Spring Canton Fair. These Americans purchased $5 million to *$10
million worth of Chinese products, including metals, fireworks, foodstuffs,
and other consumer items for delivery in 1972. In addition, goods still
are being imported through third parties - $9.2 million worth in the first
quarter of 1972.
25. On the export side, the only major deal concluded thus far is
the sale of a communications satellite station to China. Boeing, Lockheed,
and McDonnell Douglas Aircraft Companies have been discussing the sale
of aircraft to China, and the prospects appear good that at least-some sales
will be made. The Chinese have also expressed interest in a number of
other US products - telecommunications equipment, machine tools,
transportation and earth moving equipment, aircraft navigation aids,
agricultural equipment and chemicals, and medical instruments. However,
negotiations for major Chinese purchases are apt to be protracted and
delivery of large amounts of these items is not likely to occur in 1972.
All told, two-way trade may reach $40 million to $50 million in 1972.
26. US contacts with the Chinese probably will be stepped up in the
may be invited to China this summer, and the Chinese have said that a
larger American delegation will be invited to the Fall Canton Fair. Although
the effect of the United States' entrance into the Chinese trade picture
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cannot yet be measured with precision, most indications point to a gradual
increase in trade contacts for the first few years. The conclusion of only
one or two major contracts - fur example, a large sale of aircraft - could
cause trade turnover to jump sharply in the year of delivery. Chinese sales
of consumer items almost certainly will increase as American businessmen
attempt to meet the demand for Chinese goods in the affluent US market.
Japan
27. Sino-Japanese trade, which amounted to $926 million in 1971,
will have no trouble moving across the $1 billion mark in 1X72. Japanese
statistics indicate that tra,4e in the first quarter of 1972 went up by 33%
over the first quarter of 1971. More than 2,000 Japanese businessmen
attended both the Fall 1971 and the Spring 1972 Canton Fairs. Contracts
were signed for the exchange of about $400 million worth of goods at
the two fairs, up by about $75 million over the previous two fairs. Also,
under the annual Memorandum Trade Agreement signed in December 1971,
the earliest ever, trade will increase from $70 million in 1971 to $90 million
in 1972.
28. Again, as in 1971, Chinese exports to Japan aye growing at a
greater rate than imports. Chinese imports of steel continued to rise in
the first quarter of 1972, but temporary suspension of the steel negotiations
in April, because of disagreement over prices as well as disappointing sales
at the Spring Canton Fair, might adversely affect steel deliveries for the
year. Fertilizer imports probably will increase only slightly on the basis
of larger deliveries under the Memorandum Trade Agreement. To judge from
the 1971-72 contracts, direct sales by Japanese fertilizer companies will
remain about the same. Imports of Japanese machinery probably will remain
at a moderate level because China, as in 1971, is purchasing only a small
number of Japanese trucks and other vehicles.
29. Japan has been asking for price increases for both steel and
fertilizer to recover losses resulting from the differences in yen and sterling
revaluations in 1971 (China pays for goods imported from Japan in pounds
sterling). The Chinese should successfully resist these demands, especially
in the case of fertilizer, because other sources of supply are available.
30. Chinese exports to Japan in 1972 will expand but not by nearly
so much as the 25% increase of 1971. The Japanese market may be nearing
its saturation point for silk and silk products, which accounted for nearly
one-half of the increase in 1971. Japanese demand for Chinese foodstuffs -
one-half of China's exports to Japan - is not apt to rise rapidly. Soya
bean exports may decline in 1972. Finally, China's growing domestic
requirements preclude the export of large quantities of such fuels and
industrial raw materials as coal, petroleum, or nonferrous metals, for which
the Japanese economy has a voracious appetite.
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Western Europe
31. After a 4% drop in 1971. trade with Western Europe is expected
to increase moderately in 1972. Improved political and economic ties with
the PRC are a major factor in the expected expansion. Moreover, China
may be able to afford a larger deficit in 1972 in its trade with Western
Europe. Factors hindering a large increase in trade in 1972 are Western
Europe's difficulty in absorbing larger quantities of Chinese products and
the reduction in fertilizer sales in fiscal year 1972. Sales of fertilizer to
China by NITREX were reduced by more than one-half in the contract
signed in August 1971. Unless the contract for fiscal year 1973 calls for
large shipments in the remainder of 1972 or unless the Chinese turn to
independent producers in Western Europe, total fertilizer imports will be
reduced substantially.
32. France could press West Germany for first place among China's
West European trading partners in 1972 on the basis of continued large
exports of trucks and the delivery of diesel locomotives from a $30 million
contract concluded in 1971. On the other hand, West Germany continues
to be a major source of steel products and machine tools, commodities
that also are in great demand in the PRC. In addition, West Germany is
delivering some diesel locomotives on a 1970 contract. The sharp drop in
China's imports in 1971 from the United Kingdom may be reversed in 1972
as machinery, aircraft, and airport equipment are delivered in greater
quantity. Despite excellent political relations, Italy continues to have
difficulty in increasing its trade with China. Some expansion in trade may
result from (a) the recently concluded $10 million barter deal exchanging
Fiat trucks for Chinese commodities, (b) visits to Italy by several Chinese
trade delegations, and (c) visible Chinese interest in Italian machinery and
chemicals.
33. Of the lesser trading partners of Western Europe, China has shown
particular interest in the Scandinavian countries as evidenced by the dispatch
of the high-level trade delegation to these countries in 1971. Sweden had
considerable success in increasing exports in 1971, and the recent Swedish
exposition in Peking should help to stimulate sales still further. Denmark
also may have good prospects for trade increases as a result of its recent
exposition in Peking. The 1972 trade agreement between Finland and China
calls for a 10% increase in trade. China has been negotiating with Norway
for purchases of ships and has agreed to buy greater amounts of woodpulp.
As for other European countries, the Netherlands' hopes of doubling exports
to the PRC in 1972 seem overly optimistic. Belgium's recognition of China
in late 1971 could lead to increased trade. Austria and Switzerland will
remain important sources of specialized steel products and machine tools,
respectively.
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Canada and Australia
34. Canada will make significant gains in trade again in 1972, probably
moving up to third place among China's trading partners. Trade with Canada
is one-sided; China's trade deficit in 1971 was $187 million. More than
90% of Canada's exports have consisted of wheat. In December 1971 a
contract was signed for $195 million to $200 million worth of ::heat to
be delivered in 1972, about the same as total sales in 1971. An additional
contract for $100 million worth of wheat was signed in June 1972, one-half
to be delivered in 1972 and the remaiiider in the first quarter of 1973.
In addition to wheat, China has been buying wood pulp, aluminum, and
nickel from Canada. China has also shown an interest in Canadian chemicals,
tobacco, and machinery. Canadian companies have high hopes of increasing
exports further - some 200 companies plan to exhibit their wares at the
exhibition in Peking in August and September. The only drawback to
continued rapid expansion of trade is the small volume of Canada's imports
of Chinese goods. Peking will not lightly accept greater trade deficits with
Canada.
35. China penalized Australia for its diplomatic fence-sitting by
turning to Canada for all its wheat imports in 1971. As with Canada,
Australia has furnished only a small market for Chinese goods. China can
use Australia's metals and purchased considerable quantities of pig iron,
aluminum, and steel products in 1971. Australia has offered copper, but
China is more likely to purchase its copper from friends in Latin America
ana Africa. In 1972, Australia is selling sugar to the PF.C and will continue
to sell metals products. Trade turnover probably Ail! be about the same
as in 1971.
Hong Kong
36. China's trade with Hong Kong will prosper again in 1972. Hong
Kong probably will increase its purchases of Chinese products by 10% to
15%, compared with a rousing 21% in 1971. Foreign exchange earnings
from trade and finan' ial activities in Hong Kong may reach $800 million
in 1972: perhaps $500 million from provisioning Hcng Kong, $150 million
from goods sent to Hong Kong for re-export, and $150 million from
remittances of overseas Chinese and Peking-owned enterprises.
The Less Developed Countries
37. China's efforts to assume the leadership of the Third World are
reflected in the rapid rise in trade with the less developed countries. The
growth of Chinese exports to the LDCs often is tied to China's foreign
aid program in Third World countries: The PRC has improved its image
in these countries by adopting a less doctrinaire foreign policy and by
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providing hard-working technicians who live as austerely as the local
population. Peking has announced its willingness to adhere to most of the
13 principles governing trade relations and trade policies adopted at the
third session of UNCTAD (United Nations CoiAerence of Trade and
Development) held at Santiago in April and May 1972. Trade with the
LDCs should increase by at least 10% in 1972. China's trade surplus -
$205 million in 1971 - will decline in 1972 because increases in imports
of metals and other industrial raw materials from the LDCs will exceed
the expansion of China's exports.
38. In Deember 1971 a four-year agreement was reached with Chile
to purchase $65 million to $ 70 million worth of Chilean copper annually.
China has also agreed to purchase about $3 million worth of nitrates in
1972. China's imports from Chile, which were less than $10 million in 1971,
should reach at least $70 million in 1972.
39. With Peru, China has contracted to buy copper, lead, and zinc
worth more than $100 million during 1972-74. Fish oil and fish meal
ordered by China for 1972 delivery will cost an additional $30 million.
These purchases should raise China's imports from Peru to at least $60
million, more than double the 1971 level.
40. China and Guyana signed a long-term trade agreement in late 1971
whereby China will purchase aluminum, timber, and sugar possibly valued
at $5 million to $7.5 million annually. To offset declines in imports of
Cuban sugar, China recently purchased $23 million worth of sugar from
Brazil, and further contracts illay be in the offing. China has also purchased
about $4 million worth of Mexican cotton to be delivered in 1972 and
may purchase other Mexican commodities shortly. China also recently
inquired about the possible purchase of 100,000 tons of corn from
Argentina to be delivered to Chiic. China's aid agreements with several i`
the Latin American countries provide for delivery of Chines.- commodities
such as foodstuffs, consumer goods, and mining equipment. Aside from
these deliveries, China's exports to Latin America will remain at a very
low level.
Africa
41. Sino-African trade increased sharply in 1970 and 1971 and should
rise again in 1972, though less ebulliently. Tanzania, Sudan, Nigeria,
Morocco, and Algeria head the list of the PRC's African trading partners.
Trade with these countries increased by more than 50% in 1971 and
probably will level off in 1972. Trade with Tanzania is linked to purchases
from China to pay for local costs of the Tan-Zam Railroad. For a time,
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the Tanzanians had difficulty selling Chinese goods locally as provided under
the aid agreement. Now that this problem has eased and now that the project
has reached its full level of activity, trade with Tanzania probably will level
off. Trade with Sudan spurted in 1971 as a result of improved political
relations and also may level off in 1972. Nigerian trade has been stabilized
under a three-year agreement. A large part of the gains in 1972 thus will
come from increases in trade with other countries patronized by the PRC,
such as Ethiopia, Somalia, Guinea, Sierra Leone, Burundi, and Tunisia.
Middle East and South Asia
42. China's trade with Egypt, Iran, and Iraq in the Middle East appears
to be on the upswing. The trade agreement with Egypt for 1972 calls for
a 13% increase in trade over that in the agreement of 1971. Delegations
from Iran and Iraq visited China in 1971 and a high-level Chinese trade
delegation visited Iran in 1972. The Chinese probably are interested in
chrome and fertilizer from Iran and sulphur and fertilizer from Iraq. China
is buying increased quantities of fertilizer from Kuwait and has contracted
to purchase 100,000 tons of sulphur from Syria.
43. In South Asia, trade with Pakistan may increase slightly in 1972.
China is scheduled to ship $20 million to $30 million worth of raw materials
under aid agreements to help with the rehabilitation of Pakistan in the
wake of its war with India. On the other hand, trade may be adversely
affected by the separation of Bangladesh, the source of almost all of the
jute that has been shipped to China in past years. China's trade with Sri
Lanka (Ceylon) will decline again in 1972. Sri Lanka is cutting back on
imports of Chinese products that fall outside of the annual rubber-rice barter
deal. The barter deal is at about the same level as in 1971 - 200,000 tons
of Chinese rice for 39,000 tons of Sri Lankan rubber.
44. Notwithstanding optimistic forecasts by Malaysian officials,
China's trade with Southeast Asia probably will not increase greatly in 1972.
The Malaysians again' are projecting large sales of rubber to China, yet in
the past few years sales have remained steady and in all likelihood will
stay about the same in 1972. The attempts of the Malaysian National
Cor2oration (Pernas) to channel all transactions with China through its
offices have met with some success. The Chinese apparently consider the
control by Pernas to be detrimental to trade between the two countries,
and a large part of Malaysian trade still will be carried out by private overseas
Chinese concerns. As a result, most of Malaysia's imports will continue to
arrive via Singapore. Trade with Singapore itself may show small increases.
Trade with Burma and the Philippines should rise substantially; neither is
a major trading partner of China.
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Trade with Communist Countries
45. The resurgence of trade with the Communist countries will
continue in 1972. Sino-Soviet trade negotiations for 1972 have just been
completed. Chances are that trade will rise again, perhaps reaching $200
million to $250 million, compared with $155 million in 1971 and $45
million in 1970. Transport aircraft continue to loom large in Soviet exports
as well as industrial machinery and metal products. China has been selling
its traditional products to the USSR - textiles, foodstuffs, and crude
materials.
46. Trade with Eastern Europe should increase moderately in 1972.
China is receiving important transportation and industrial equipment from
Eastern Europe in return for light manufactures and foodstuffs.
Sino-Romanian trade should retain its upward momentum. A sizable portion
of China's exports to Romania consists of commodities being delivered
under aid agreements concluded in 1970-71. The 1972 Sino-Hungarian
agreement reportedly projects at least a 10% increase in trade. Agreements
have also been signed with Poland, East Germany, Czechoslovakia, and
Bulgaria. Trade with these countries probably will maintain the 1971 pace.
47. As to the other Communist countries, Chinese trade should
increase with North Vietnam, North Korea, and possibly Mongolia; should
remain about the same with Albania; and should decline with Cuba. China
almost certainly will provide additional supplies needed by North Vietnam
to carry on its military activities in Southeast Asia and to rebuild facilities
destroyed by bombing. China also will supply sizable quantities of goods
to help North Korea's economy. Sino-Mongolian trade will remain small -
perhaps totaling $5 million. China will retain its role as the main prop
to the Albanian economy; no major change is foreseen in the amount of
goods that China will supply. Sino-Cuban trade will be affected mainly by
the shortage of Cuban sugar - China already is turning to other countries
for sugar ordinarily imported from Cuba.
Longer Term Prospects
48. China's recent overtures to the outside world have created a wave
of excitement in the West and a scramble to get a share of the "huge"
China market, This excitement is difficult to square with the PRC's
longstanding attitudes toward international trade. China is serious about
self-reliance, and almost all of the products imported fall into one of the
following categories:
- Raw materials that China is unable to produce itself.
- Materials that China has only limited capacity to
produce but for which the Chinese are developing production
to phase out imports gradually.
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Mach;.nery and whole plants that will provide China
with the industrial capacity to turn out products n:'w being
imported.
- Items of specialized equipment that will serve as
prototypes that the Chinese will copy or redesign for their own
purposes.
49. Moreover, Peking places great store on avoiding long-term
indebtedness, which, the Chinese believe, inevitably leads to loss of political
and economic independence. Trade is kept approximately in balance each
year; the temptation to allow imports to outstrip exports is sternly
repressed. Further, in its pursuit of leadership in the Third World, China
will continue to give priority to aid programs and trade relations with the
less developed countries even at the sacrifice of imports from the developed
countries. The PRC's aid programs to small Communist countries and to
the LDCs have been costing the Chinese roughly $400 million a year in
resources.
50. Under present policy, then, China will increase its imports only
to the extent it finds new markets for its exp arts. Prospects are dim for
substantial expansion of exports of traditional manufactures to the
developed countries. Industrial raw materials are a better bet; however,
China is producing only enough of most of these materials for its own
needs.
51. Peking at any one time has outstanding short-term commercial
obligations of about $300 million. These obligations are comparable to a
revolving credit account and are small in comparison with the total volume
of foreign trade transactions and the PRC's holdings of gold and hard
currency of three-quarters of a billion dollars. On occasion in the mid-1960s,
the PRC arranged to pay for Japanese and West European industrial plants
over a period of several years, a normal business practice applicable also
to purchases of large aircraft or ships. If, in the 1970s, Peking similarly
were to relax its puritanical aversion to debt, its foreign trade - especially
in big-ticket items - might be raised by a few hundred million dollars on
a one-shot basis.
52. In the long term, the PRC could put more stress on exploiting
its resources of such materials as coking coal, petroleum, and nonferrous
metals to increase sales abroad. Another possibility is for China to sell more
finished and semi-finished goods rather than raw materials since such
products earn more for the same volume of raw materials. The Chinese
are becoming more amenable to buyer's demands in product specifications
in order to make their goods acceptable to - the developed markets.
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53. One long-run possibility for substantial increases in exports lies
in the expansion of Chinese handicraft production geared to the afflue;it
Western (especially US) markets. In contrast to many other Chinese export
goods, handicraft products require large quantities of labor and small
amounts of raw materials. Except at harvest time, the labor of older rural
craftsmen could be advantageously directed toward the earning of foreign
exchange. China's urban areas also suffer from underemployment, and
additional man hours devoted to production of handicrafts for export would
come at practically no cost to the economy. Whereas the Communists ruined
handicrafts in Eastern Europe, much of the centuries-old Chinese handicraft
structure and tradition remain intact; handicrafts production could flourish
with proper governmental sponsorship. The Western markets are there;
Chinese handicrafts enjoy a vogue rind are not directly competitive with
domestic products, as textiles and foodstuffs would be.
54. In the meantime, China's best export prospects lie in the less
developed countries and Hong Kong, where Chinese foodstuffs and
manufactures are in great demand. Markets in the LDCs may ultimately
contract when and if these countries increase their own food production
and start producing the types of manufactures presently imported from
China.
55. Another important long-term determinant of China's foreign trade
is the degree of success experienced by Peking in dealing with the
food/population problem. As matters now stand, the PRC's population
control program has not been pressed forcefully for a long enough period
to have had an appreciable effect on demographic rates. For the next few
years at least, the agricultural sector can only gradually provide more goods
for export. Because agricultural products loom so large in the PRC's exports,
and because Peking is deliberately reducing the PRC's dependence on
imports, foreign trade is likely to grow at a slower face than economic
activity as a whole. The sizable rise in foreign trade anticipated for 1972
is the result of non-recurring factors, notably the revaluation of major world
currencies in December 1971.
SFC.R FT I c
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APPENDIX A
Statistical Tables
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China: Direction of Foreign Trade a/
Million US $
Total Trade
Communist Countries
Non-Communist Countries
Year
Turnover
Exports
Imports
Total
Exports
Imports
Total
Exports
Imports
1959 -
4,290
2,230
2,060
2,980
1,615
1,365
1,310
615
695
Cn
tTj
1962
675
2
1
525
1
150
410
1
915
490
1
265
605
660
Cl)
C')
,
,
,
,
,
C)
1966
4
245
210
2
2
035
1
090
585
505
3
155
1
625
1,530
1
,
,
,
,
,
,
irS
1967
3,895
1,945
1,950
830
485
345
3,065
1,460
1,605
1968
3,765
1,945
1,820
840
500
340
2,925
1,445
1,480
1969
3,860
2,030
1,830
785
490
295
3,075
1,540
1,535
1970
4,220
2,050
2,170
825
480
345
3,395
1,570
1,825
1971 b/
4,635
2,415
2,220
1,040
610
430
3,595
1,805
1,790
a. Data have been rounded to the nearest $5 million. Because of rounding, components
may not add to the totals shown.
b. Preliminary.
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Table 2
Chinas
trade, by Area and Country
Million US $
1971 Y
Area and Country
Total
Exports
Imports
Total
Exports
Imports
Toi;a1 trade
1,120
22,0010
22,170
42,635
22,4115
2,221
Non-Communist countries
3,395
1,570
1,825
31595
1,905
11790
Developed countries
2,2'0
675
1,555
2,220
795
1,425
East Asia and Japan
1,040
300
740
1,000
365
635
?7rpan
855
255
600
926
320
606
Australia
175
40
135
65
40
25
Western Europe
1,015
355
660
975
400
575
West Germany
270
70
200
247
87
160
United Kingdom
212
69
143
160
68
92
France
154
57
97
191
66
125
Italy
132
56
76
125
54
71
Netherlands
58
25
33
60
35
25
Switzerland
41
18
23
41
22
19
Sweden
33
16
17
56
16
40
North America
175
20
155
245
30
215
Canada
176
22
154
239
26
213
United States
Negi.
Negl.
Negl.
5
5
Negl.
Less developed countries
790
525
265
925
565
360
Southeast Asia
270
210
60
270
220
50
Malaysia and Singapore
190
140
50
182
144
38
Indonesia
35
30
5
34
29
5
Middle East and South Asir.
d10
180
130
315
160
155
Sri Lanka (Ceylon)
86
:6
40
78
36
42
Pakistan
61
30
31
68
31
37
Egypt
34
13
21
46
15
31
Latin America
15
10
5
60
10
50
Africa
195
125
70
280
175
105
Hong Kong and Macao
375
370
5
450
445
5
Hong Kong
.359
354
5
432
428
4
Communist countries
825
480
345
1,040
610
430
USSR
45
25
20
155
75
80
Eastern Europe
320
160
160
365
185
180
Czechoslovakia
56
25
31
53
24
29
Poland
50
24
26
54
21
33
East Germany
78
36
42
80
40
40
Romania
108
58
50
145
85
60
Far East
iau
125
65
260
185
75
North Korea
100
50
50
13-
70
65
North Vietnam
90
75
15
120
110
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Table 3
China; Commodity Composition of Tiade
Million US $
Commodity Group
1966
1970
1971 1
Total imports
2,035
2,170
2,220
Foodstuffs
510
355
265
Crude materials, fish,
and edible oils
340
360
425
Chemicals
250
330
330
Manufactures
935
1,125
1,200
Of which:
Machinery and equip-
ment
455
395
450
Metals
280
600
625
Total exports
2,210.
2,050
2,415
Foodstuffs
615
645
790
Crude materials, fish,
and edible oils
480
430
500
Chemicals
90
105
125
Manufactures
1,025
870
1,000
Of which:
Textiles (including
clothing)
490
495
550-600
a.
Preliminary.
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Table 4
SelectLd Exchanges of Trade eid Economic Delegations
Between China and Non-Conuaunist countries
1971-72
Country Date of Visit
Delegations from China
Afghanistan and Iran Mar-Apr 1972
Trade delegation headed by Chen Chieh, Vice Minister of
Foreign Trade.
Trade delegation headed by Pai Hsiang-kuo, Minister of
Foreign Trade, made extensive tour of three countries.
Trade delegation headed by Chou Hua-min, Vice Minister of
Foreign Trade.
Denmark, Finland, Sep-Oct 1971
Norway, and Sweden
Equatorial Guinea Sep 1971
France 1971-72
Trade delegation headed by Chou Hua-min, Vice Minister of
Foreign Trade.
Economic and technical study group.
Groups visited France to attend an oceanographic confer-
ence, the Paris Air Show, and an inter;sational elec-
tronics meeting and to inspect agricultural machinery.
Trade delegation. Annual trade agreement was signed while
in Guinea.
Mar-Apr 1972
and later
Apr 1972
and later
Summer 1972
March 1972
Fall 1971.
Nov 1971
Nov 1971
May 1972
Jun-Jul 1971
Mar 1972
May 1972
Extended visit by group from China National Light Industry
Products Export and Import Corporation.
Three delegations visited Japan in March-April: a petro-
chemical and synthetic fiber delegation, an automotive
delegation, and a shipbuilding delegation. A high-
powered delegation may visit Japan before end of 1972.
Trade delegation led by Chen Chieh, Vice Minister of
Foreign Trade. Group also visited Hungary.
Trade group from China Council for Promotion of Interna-
tional Trade.
A group was scheduled to visit N.exico in April, and a
Chinatex delegation may visit Mexico in late 1972.
A mission is expected to go to the Netherlands.
A group visited the United Kingdom to survey electronics,
chemical fibers, and oceanography installations.
A delegation from the Federal Economic Chamber visited
Peking.
The Economic Commission o1 the Belgium-China Association
visited China.
An economic delegation visited China following the visit
of Chairman and Madame Ne Win in August.
A ten-member economic delegation.
Economic mission.
A group from Ontario visited China.
An aviation delegation and a shipping delegation.
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Table 4
Selected Exchanges of Trade and Economic Delegations
Between Chinn and Non-Communist Countries a/
1971-72
(Continued)
Country
Date of Visit
Delegations to China
Continue
Dec 1971
Economic mission.
Apr-May 1972
A group visited China to discuss technical aid to Chil
May-Jun 1972
e.
Economic mission.
Denmark
Jan 1972
Delegation to discuss sale of cargo vessels.
Egypt
Jul-Aug 1971
Government trade delegation.
Equatorial Guinea
Apr and Oct 1971
Trade missions visited China.
Finland
Nov 1971
Trade delegation.
France
Fall 1971
Aircraft industry delegation.
Guyana
Nov 1971
Trade mission -- long-term trade agreement signed.
Iran
Nov 1971
Trade delegation.
Iraq
Jun 1971
Economic and technical delegation.
Italy
May 1971
Government economic delegation.
Japan
Fall 1971
Business groups from the Kansai area and Tokyo visited
China.
1971-72
Various trade missions visited China mostly to discuss
rubber sales and to attend Canton Fairs.
May 1972
Trade delegation.
Oct 1972
De
1972
Delegation from National Mexico City Chamber of Commerce
c
.
Two Mexican businessmen visited China to discuss trade.
Netherlands
Nov-Dec 1971
Economic delegation visited China for 15 days.
Norway
Feb 1972
Eight-man sales mission.
Panama
Late 1972
Planning to send-a trade mission to China.
Peru
Apr 1972
Delegation to discuss Chinese use of Peruvian fishmeal.
Philippines
May 1971
Trade mission of Chamber of Commerce.
Mar 1972
Five-member working and trading group.
Sierra Leone
May 1972
Trade mission.
Singapore
Oct 1971
Trade mission of Singapore Chamber of Commerce.
Sweden
Fall 1971
Mar-May 1972
Industry Minister visited China.
Delegs'-,ions to discuss trade and to support Swedish
exhibition.
May 1972
Trade delegation.
Jun 1971
Shipbuilding group.
Mar 1972
A
1
Aviation delegation to discuss airport support systems.
pr
972
Top-level delegation from London Chamber of Commerce.
a T is 1st s meant to be representative an is not necessarily complete. Ordinarily, groups
whose sole purpose was to sign an annual trade agreement, to contract for an individual commodity, or
to attend the Canton Fair have not been included. Also a number of dignitaries and delegations
visited China to discuss economic and political matters. These visits have not been included unless
trade 'negotiations were a major factor in the visit.
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Recent Monetary Changes and Dollar Estimates
of China's Trade
Important revisions in the exchange rates of key world currencies in
December 1971 complicate the task of comparing China's foreign trade in
1971 with expected trade in 1972. Data for PRC trade are calculated on
the basis of the official statistics of China's trading partners. These statistics
are in the currency of the trading partner; conversions to US dollars are
made at the exchange rate currently in effect. As a result of last December's
revisions in exchange rates, most currencies have become more valuable in
terms of the dollar - that is, the dollar value of goods moving in foreign
trade has been increased by varying amounts.
In Table 5, the physical flow of China's exports and imports in 1970
are shown as (a) originally valued in terms ui the exchange rates in existence,
in 1970 - that is, according to the old dollar - and (b) re-valued in terms
of the exchange rates in existence after December 1971 - that is, according
to the new dollar. The dollar figure under the revaluation is 10% higher,
with imports 11% higher and exports 9% higher. The year 1970 was used
for the comparison because more complete data are available for 1970 than
for 1971. Because the monetary readjustment came at the end of 1971,
the data for 1971 as presented in this and other reports may be taken
as essentially having been calculated in the ^ld dollar.
Terms of trade between countries have been affected by the divergent
changes in exchange rates. These effects are complicated by the fact that
much of China's trade is carried out in third country currencies. The bulk
of China's trade is carried on in currencies that retained the existing gold
par value (a revaluation of 8.57% against the dollar). Almost all of the
Commonwealth countries, France and its territories, and some of the Middle
Eastern and African countries fall into this category. The main exceptions
are in trade with most West European countries, where the rate of
revaluation varies from country to country. The Canadian dollar appreciated
by about 8%, the USSR revalued th? ruble by about 9.5%, and most
countries of Latin America and the Middle East kept their currency at par
with the dollar. Some trade is carried on in Chinese currency (the renminbi).
As the renminbi was kept at par with the pound sterling, the effect of
revaluation would be identical to that of the pound (8.57%).
Perhaps the best way to show the possible multiple effects on terms
of trade is to use the example of Japan. Almost all of Sino-Japanese trade
is carried out in pounds sterling. The value of the pound increased by 8.6%
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in relation to the dollar while the yen increased by 16.9%. The immediate
effect was a loss to Japanese exporters on outstanding contracts - they
were paid off in pounds that had decreased in value relative to the yen.
Japanese importers gained some because of this relationship. The net effect
is likely a loss to Japan because Japanese exports to China are about double
imports.
As new contracts for Japanese goods have been negotiated, the Chinese
have attempted to retain previous prices in terms of pounds sterling (in
effect offering lower prices in terms of the Japanese yen). The Japanese
have attempted just the opposite. Japan will undoubtedly give in to some
extent; however, it is possible that the price differential could lead to some
reduction in trade with Japan and a concurrent increase with certain of
the West European countries. The revaluation of currencies will have the
opposite effect on Chinese exports to Japan. These new currents in the
Sino-Japanese trade relationship are hardly surprising; after all, the
re-alignment of currencies had as one of its major goals the slackening off
of Japan's tremendous trade surpluses.
In general, the countries that kept their currency at par with the US
dollar, such as those in Latin America and the Middle East, will gain the
most in terms of trade for their exports. These gains will have little effect
on China's imports because these countries are not major exporters to China,
and their products are not competitive with those of Japan and West
Germany, countries whose currencies were revalued the most. Those
countries that could gain in terms of exports to China are Italy, Sweden,
and perhaps the United Kingdom and France, whose g.: c; , are competitive
with those of Japan and West Germany and whose currencies were
revalued, less. Chinese exports to the less developed countries could be
affected, barring price adjustments, because Chinese goods would cost
somewhat more.
In the body of the memorandum, China's trade was forecast as
advancing from $4.6 billion (old dollars) in 1971 to at least $5.2 billion
(new dollars) in 1972. Suppose, in fact, that these prove to be the final
dollar totals. How much of the 12% increase would be the result of the
monetary changes, how much the result of a rise in the real volume of
goods? (The worldwide inflation is not taken into account in this
discussion.) To answer this question, the physical volume of trade, country
by country, could be priced for 1971 and 1972, first in old dollars, then
in new dollars. The PRC of course has the option of shifting at least part
of its trade toward areas where the currency changes are more to its
advantage as well as putting the heat on suppliers whose prices have risen
in the wake of the changes. Thus the monetary effect will be less, than
the 10% suggested by Table S. The intuitive- judgment in the text is that,
of the substantial percentage rise in China's trade expected in 1972,
"perhaps as much as one-half" will be the result of the monetary changes.
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Table 5
China: Trade in 1970 as Measured in Old and New Dollars
Old Dollar
Percent Revaluation
of Local Currency
Against the Dollar
Total
Trade
China's
Exports
China's
Imports
Total
Trade
China's
Exports
China's
Imports
Africa
5.0
195
125
70
205
131
74
Australia
8.6
175
40
135
190
43
147
Canada
E
8.0
176
22
154
190
24
166
gypt
34
13
21
34
13
21
France
8.6
154
57
97
167
62
105
Hong Kong
8.6
359
354
5
390
384
5
Italy
7.5
1."
56
76
142
60
82
Japan
16.9
85:.
255
600
999
298
701
Latin America
--
15
10
5
15
10
5
Malaysia and
Singapore
8.6
190?
140
50
206
152
54
Netherlands
11.6
58
25
33
65
28
37
Pakistan
61
30
31
61
30
31
Sri Lanka (Ceylon
) ?.0
86
46
40
89
47
41
Sweden ?
7.5
33
16
17
35
17
18
Switzerland
13.9
41
18
23
47
21
26
United Kingdom
8.6
212
69
143
230
75
155
West Germany
13.6
270
70
200
307
80
227
Other Non-Communi
countries
st
8.0
349
224
125
377
242
135
USSR
9.5
45
25
20
49
27
22
Other Communist
countries
9.0
780
455
325
850
496
354
4,220
2,050
2,170
4,650
2,240
2,405
a. Because of rounding , components may not a to the totals shown. Totals have Been
rounded to the nearest $5 million.
b. Only approximate. The currencies of some countries remained at par with the US dollar
and most of the others changed at the same rate as the British pound.
c. Most countries kept their rates at par with the US dollar.
d. Most countries changed at a rate identical with the British pound. Some remained at
par with the dollar. A few changed their rates by greater amounts than the pound.
e. Some countries kept their rate at par with the ruble while others kept their rates in
-line with the British pound.
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