THE REVIVAL OF SINO-SOVIET TRADE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700040019-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 20, 2016
• Document Release Date: March 29, 2006
• Sequence Number: 19
• Publication Date: September 1, 1972
• Content Type: IM

 Approved or Release 2006/04/19: CIA-RDP85T0087?R001700040019-gg
Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Revival of Sino-Soviet Trade
Secret
ER IM 72-136
September 1972
Approved For Release 2006/04/19 : CIA-RDP85T00875R0017000449W-6 N 2 86
 25X1 Approved For Release 2006/04/19 : CIA-RDP85T00875R001700040019-6
Approved For Release 2006/04/19 : CIA-RDP85T00875R001700040019-6
 Approved For Release 2006/04/8F( W+RPP85T00875R001700040019-6
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
September 1972
INTELLIGENCE MEMORANDUM
THE REVIVAL OF SINO-SOVIET TRADE
Summary
Sino-Soviet trade, which had plummeted to an annual level of
about US $50 million in 1969-70, has been reviving rapidly and may peach
a level of $350 million in 1973. This level should re-establish the position
of the USSR as the third largest trading partner of the People's Republic
of Ch ,.a (PRC) - trai;:ng Japan and Hong Kong.
2. The revival of Sino-Soviet trade is marked by the following
developments:
? Formal trade agreements again are being signed after
having been suspended since 1967.
? Border trade between Soviet Far Eastern cooperatives and
China's Heilungkiang Province has resumed.
? Most of the commodities eliminated from Sino-Soviet
trade during the depressed period are reappearing.
? In spite of tense political relations and difficult bargaining,
multi-year agreements are being signed for the delivery of major
products such as Soviet aircraft and turbogenerators.
? Finally, a long-term general trade agreement is being
negotiated.
3. Prospects for growth of Sino-Soviet trade above the $350 million
level depend on the course of political relations and on Soviet
competitiveness with other suppliers of machinery and technology. The
Note: This memorandum was prepared by the Office of Economic Research
and coordinated within the Directorate of Intelligence.
Approved For Release 2006/04/ $9 'EP85T00875R001700040019-6
 Approved For Release 2006/04/ft&ff P85T00875RO01700040019-6
Soviets have long since lost their monopoly position of the 1950s and must
share the Chinese market with Japan, the industrial nations of Europe, and,
now, the United States. The Soviets enjoy a natural advantage in the supply
of timber products and certain machinery and replacement parts. At the
same time, the USSR benefits from the supply of Chinese foodstuffs,
particularly to the Soviet Far East, as well as Chinese. textiles, nonferrous
metals, and other raw materials. Because Peking is emphasizing the
acquisition of selected advanced technology from abroad - the kind of
technology that the Soviets are incorporating in their own production lines
only with the greatest difficulty - Sino-Soviet trade is not likely to advance
beyond the $350 million level at a rapid pace.
Background
4. In the 1950s the new Communist government of China was
"leaning to one side" and was adopting the Soviet system of industrialization
lock, stock, and ;,arral. Trade with the Soviet Union rose rapidly to a peak
of $2 billion (exports plus imports) and constituted about one-half of
China's total trade. (For Sino-Soviet trade as a portion of total Chinese
trade in 1950-7i, see the Appendix.) Trade with Eastern Europe brought
China's trade with all Communist countries up to 70% of total trade.
Because of the widening Sino-Soviet rift and the withdrawal of Soviet
technical support in mid-1960, China turned to Japan and Western Europe
for machinery and technology. By the end of the 1960s, only 20% of China's
trade was with the Communist world. This switch is illustrated in the
following tabulation.
1959
1966
1970
1971
Non-Communist
Trade
Communist
Trade
Soviet
Trade Alone
31
69
48
74
26
8
80
20
1
79
21
3
Approved For Release 2006/04/1 ~F1 85T00875R001700040019-6
 Approved For Release 2006/04/19 : CIA-RDP85T00875R001700040019-6
SECRET
5. In the early 1960s, China had run a considerable trade surplus
with the USSR to pay off approximately $1.4 billion in Soviet long-term
loans. By the end of 1965 the debt had been wiped out, and Sino-Soviet
trade had fallen to a level based mostly on mutual economic benefits -
that is, a level of $320 million. Soviet imports had been reduced largely
to consumer goods, especially for the Soviet Far East, a food deficit region
isolated from the major areas of Soviet production. In return, China received
badly needed industrial machinery and transport equipment such as trucks
and aircraft, spare parts for the Soviet equipment installed in Chinese
industries, steel products, and timber. In addition, many petty commodities
were traded both ways across the border for the zonvenience of the local
citizens.
Reduced Level of Trade 1967-70
6. The Great Proletarian Cultural Revolution was causing widespread
and violent disruptions throughout the economy by early 1967. Sino-Soviet
trade was affected by (a) deteriorating relations,* (b) p,irges of China's
foreign trade officials, (c) disruptions in transportation, and (d) shortages
of exportable Chinese commodities brought about by the interruptions to
industrial production. These disruptions, when coupled with the
intensification of hostilities along the Sino-Soviet border, caused trade in
1967 to drop to about $105 million, or ore-third of the 1966 level.
7. Trade was affected across the board, but some specific incidents
had important impacts on the level of trade. For example, the Soviets and
Chinese signed an agreement in 1965 to exchange Chinese pork for Siberian
timber. During 1966 this exchange amounted to $28 million worth of logs
shipped to China in return for $47 million worth of meat impcrted from
China. A provision of this agreement called for the Chinese to provide to
the Soviets a monthly bulletin on animal health. During 1967 the Chinese
refused to provide this document, and the Soviets rejected the consignments
of Chinese pork at the border. In retaliation the Chinese stopped imports
of timber from the USSR. As a result the agreement was abandoned in
September 1967, and no further exchanges were observed until mid-1972.
8. Trade in 1968 continued at the low 1967 level; Chinese exports
dropped by $20 million while imports from the USSR increased by nearly
$10 million. Relations continued to worse;, and border incidents to increase.
The two countries could not agree on a trade agreement. Border security
tightened further and culminated in open fighting during 1969. As a result
the border-type trade stopped conmipletely. Total trade fell to about $55
rr.:llion in 1969 and $45 million in 1970, the bare maintenance level (see
The two governments had withdrawn their ambassad')rs by the end of 1966.
Approved For Release 2006/0,Gf11-11DP85T00875R00170004001936
 Approved For Release 2006/04/19sJ R85T00875R001700040019-6
Figure 1). Chinese imports consisted mostly of spare parts for Soviet
equipmen'. while its exports were practically confined to clothing and fruits.
Sino-Soviet Trade
Million US $
1966 67 68 69
'Including the 9.5% revaluation of the ruble against the dollar.
Revived Level of Trade, 1971-72
72
Projected'
9. The emergence of the PRC from the Cultural Revolution, its
return to traditional diplomatic relations, and the end of fighting along
the Sino-Soviet border encouraged Moscow and Peking to reassign
ambassadors during 1970 and to begin normalization of their trade relations.
They first signed a border trade protocol covering three Soviet consumer
cooperatives and the Feilungkiang Provincial Trading Company in
September 1970 and then a general trade agreement in November 1970 -
their first since July 1967. As a result, trade in 1971 jumped to about
$155 million. Another general trade agreement was signed on 5 August
1971 and a third on 13 June 1972. According to these latest agreements,
trade both ways during 1972 is to amount to about 240 million rubles -
$290 million at the new ruble-dollar exchange rate. This level, which appears
Feasible, will return Sino-Soviet trade to nearly the 1966 level.
Commodity Composition
10. Most of the value of China's im torts and exports with the USSR
can be accounted for by a few commodities. China mainly exports food,
clothing, bristles, and tungsten concentrate in exchange for machinery and
equipment, steel products, explosives, timber, and military items (see the
table). The drop in -~rade in 1967-70 saw the drastic reduction or elimination
of some of these items from the trade lists. For example, in addition to
Approved For Release 2006/04/1 6FFb85T00875R001700040019-6
 Approved For Release 2006/04/19Sr1$5T00875R001700040019-6
Commodity Distribution of Sino-Soviet Trade
1966 1967 1968
Chinese exports 143.1 56.7 36.7
Food products 61.3 14.0 5.2
Meat 46.9 0.6 0.1
Fruit 10.1 10.8 4.9
Other foods 4.3 2.6 0.2
Bristles 3.3 1.3 0
Clothing 46.9 24.5 25.5
Leather footwear 0.1 0 0
Cloth fabrics 2.2 5.3 Negl.
Tungsten concentrates 5.8 1.3 0
Other identified products 15.8 8.9 1.8
Residual 7.7 1.4 4.2
Chinese imports
Machinery and
equipment J
175.3 50.3 59.3
86.2 24.6 14.9
Motor vehicles 27.1 3.8 5.8
Aircraft 14.4 10.7 2.1
Agricultural equipment 14.6 2.5 2.9
Laboratory equipment
Lad instruments 4.7 1.4 1.6
Metalworking machine
tools 7.7 0.8 0.2
Roadbuilding equipment 7.2 0.3 0.1
Complete plants 3.9 0.3 1.7
Miscellaneous machinery
and equipment 6.6 4.8 0.5
Ferrous metals 14.6 8.3 8.7
Explosives 4.7 3.0 2.3
Timber 28.5 1.4 0
Other identified products 11.6 8.1 3.9
Residual J 29.7 4.9 29.5
Million US $
1969
1970
1971
29.0
21.7
70.2
4.7
5.4
18.4
0
0
0
2.4
5.4
10.1
2.3
0
8.3
0
0
8.5
15.2
10.1
23.2
0
1.3
3.3
4.9 ?
L!
2.8
0
1.6
9.3
4.1
2.1
9.0
0.1
0.1
1.7
27.8
24.9
77.9
21.6
16.4
54.6
5.5
3.8
7.2
5.2
4.8
33.8
3.7
2.2
3.6
0.4
0.3
0.5
1.1
1.4 3.8
0.1
Negl. Negl.
0
0 N.A. bJ
5.6
3.9
5.7
3.1
3.3
6.9
0
1.3
4.0
0
0
0
2.4
1.0
1.6
0.7
2.9
10.8
a. Including $7.5 million to $10 million worth of spare parts annually.
b. This category is no longer reported in the Soviet trade statistics.
c.This category undoubtedly includes receipts for military aircraft received during
1966, 1968, and 1971.
Approved For Release 2006/04/ 1]Z=11P85T00875R001700040019-6
 Approved For Release 2006/04/19 SE IA-RDP 5T00875R001700040019-6
the pork mentioned above, China stopped shipping bristles, leather footwear,
and tungsten concentrate.
1 i. At least '15 different commodities were exported to the USSR
by China in 1966; by 1968 forty-six of these were no longer shipped, and
by 1970 the list had been reduced to just 17 different commodities. The
flow of the multitude of chemical and household items that were exchanged
across the border was completely halted. As a result, the total value of
these Chinese border exports, which amounted to $16 million in 1966,
had fallen in value to about $2 million by 1968. Furthermore, the value
of Chinese exports of food and clothing fell from $108 million during 1966
to a mere $16 million by 1970.
12. During this same period the Chinese reduced the value of all
imports and stopped buying - or the Soviets stopped selling - a similarly
large number of commodities. The importing of machinery and equipment
fell from $86 million during 1966 to $15 million during 1968 ?,id remained
at that low level through 1970. At least half of this amount was for spare
parts for the Soviet machinery and equipment installed in Chinese factories.
Timber imports stopped during 1967 and the imports of explosives were
halted during 1969, when open fighting broke out on the border.
Soviet Aircraft Deliveries
13. In contrast to the large reductions in other trade and in spite
of the progressive worsening of Sino-Soviet relations during 1966-70, the
USSR shipped a sizable number of military and civilian aircraft to China
durin3 1966-71. According to Soviet trade data, the value of Chinese imports
of aircraft, including spare parts, totaled $71 million in 1966-71 (see the
table). Other information suggests that actual Soviet aircraft sales to the
PRC during this period exceeded this amount. Soviet export data usually
do not identify all of the specific commodities shipped, nor do they openly
record military shipments. It has been hypothesized that the category of
unidentified commodities ("Residual" in the table) contains Soviet military
shipments to other countries under credit or current account. Deliveries
under grants are not included in Soviet trade statistics. The residuals in
Chinese imports in 1966. 1968, and 1971 all reflect abnormally high
amounts - 30 million each in 1966 and 1968 and $11 million in 1971.
Indeed, the residual for 1968 accounted for one-half' of all Chinese imports
from the USSR in that year. These residuals coincide with the Soviet aircraft
sales to the PRC shown in the following tabulation.
Approved For Release 2006/04/1 %J 85T00875R001700040019-6
 Approved For Release 2006/04/1 6AZF*b'F85T00875R001700040019-6
AN-12 4 10 --
AN-24 -- 5 6
IL-18 J 6 IL-62 2
MI-6 -- -- 3
a. Nine additional IL-18s were purchased in 1964-65
and 5 in 1967.
14. The value of Soviet aircraft deliveries to China during 1966-71,
roughly estimated on the basis of Soviet export. list prices, was between
$85 million and $160 million; the lower figure represents only the price
of the aircraft sold in 1966-71, and the higher figure includes the IL-18s
purchased in 1964-65 as well as a 50% markup for spare engines and other
equipment for all of the aircraft. These estimates suggest that the value
of Soviet aircraft deliveries to China during 1966-71 exceeded the
$71 million listed in Soviet trade statistics and may have equaled the value
of the listed aircraft deliveries and the "Residual," or a total of
$150 million.
Balance of Trade
15. When, at the end of 1965, the PRC had finished paying off its
debts to the USSR, it no longer needed to run a trade surplus. Accordingly,
Chinese exports to the USSR in 1966 dropped by $83 million whereas
imports fell by $16 million from the 1965 level. Thus the Chinese ran
a $32 million trade deficit with the USSR, the first deficit since 1955.
A slight Chinese surplus was recorded in 1967, but in 1968, despite the
strained relations and low levels of trade, another $23 million deficit was
recorded by the Chinese (see Figure 2) -- 38% of their total imports from
the Soviets. Trade between the two countries since 1968 has been roughly
in balance.
16. If - as Peking states - China has owed no debt to the USSR
since 1965, it is unclear how the large trade deficits in 1966 and 1968
were settled. Soviet payments for shipments bound for North Vietnam over
China's transport system undoubtedly helped, covering perhaps one-fourth
to one-third of the trade deficit in these years. Other service transactions
probably provided little if any offset, and it seems unlikely that the USSR
would carry sums this large as clearing account credits to China. Therefore,
a sizable portion of the 1966 and 1968 trade deficits probably were settled
in hard currency or gold.
Approved For Release 2006/04/1991 JM5T00875R001700040019-6 7
 Approved For Release 2006/04/1 9&. 05T00875R001700040019-6
China's Balance of Trade with the USSR
Million US $
Prospects
17. Under the most recent Sino-Soviet trade agreement, signed on
13 June 1972, trade for 1972 is to amount to 240 million ruoles - $265
million at the old ruble-dollar exchange rate or $290 million at the new
rate. This volume represents a 75% increase over 1971 in real terms and
is about 85% of the real level of 1966 trade.
18. With the return to higher levels of trade, many more of the
commodities that were traded during 1966 are reappearing. For example,
China for the first time in recent years will be importing large numbers
of Soviet 5-ton trucks and a few 10-ton and 27-ton dump trucks, oil drilling
equipment, power generating equipment, and timber. Chinese exports that
are reappearing include substantial quantities of chicken eggs, salt, and
canned pork.
19. The timber for pork exchange may be particularly significant.
These items were tied together in a 1965 contract, and in 1966 the total
value of the shipments both ways reached $75 million. No known contract
connects the two commodities at this time, and the value of the initial
exchanges amounts to only a few million dollars. But the potential for
very large exchanges in the near future is present - the USSR can use
the food for its Siberian citizens, and the Chines? still are faced with meager
forestry reserves coupled with a growing need for wood products.
Approved For Release 2006/04/1 ?' Cl'A=RDP85T00875R001700040019-6
 Approved For Release 2006/04/19 : CIA-RDP85T00875R001700040019-6
SECRET
20. Other sizable Chinese purchases from the USSR planned for
1972-73 include $35 million to $75 million worth of new aircraft and as
many as 11 turbogenerator sets totaling 1 million kw of power and valued
at about $50 million. A ]on" term agreement covering the turbogenerators
was signed on 31 May 1972. In exchange, the Chinese will continue to
sell more of the same consumer goods items, with the value of food and
clothing increasing significantly again. Both sides will want trade to remain
in balance.
21. For some time, China and the USSR have been negotiating a
formal long-term trade agreement. The Chinese apparently have been
difficult on such matters as the selection of commodities, delivery
conditions, prices, and terms of guarantee. The Soviets seem more anxious
than the Chinese to conclude a long-term agreement. One possible
explanation for Peking's position is that competition for China's business
is increasing,.
22. Now that Sino-Soviet trade is being determined to a greater extent
by economic considerations, the Soviets will have to compete for the
Chinese business with all other industrial countries. The Soviets are no longer
sole suppliers for many items, particularly now that the United States and
many other countries are selling - or trying to sell - aircraft and other
sophisticated equipment to China. Moreover, the Chinese are doggedly
determined to increase their mastery of modern technology and to depend
on the outside world only for the most advanced technology not available
within China. As a result, the Soviet Union, which has notorious problems
of its own in translating present-day technological advances into the
production process, is not in a favorable position to meet the most
important of China's future industrial needs. In short, Sino-Sovie*~ trade
after 1973 probably will continue to increase but at a much reduced rate.
Approved For Release 2006/04/19 : CIA-RDP85TOO875ROO1700040019-6
9
 Approved For Release 2006/04/19 : CIA-RDP85T00875R001700040019-6
SECRET
Sino-Soviet Trade as a Portion of Total Chinese Tradea
Year
Total
Chinese
Trade
Sino-
Soviet
Trade
Sino-Soviet Trade
as a Percent of
Total Chinese Trade
Total
Chinese
Exports
Chinese
Exports
to the
USSR
Chinese Exports
to the USSR as a
Percent of Total
Chinese Exports
Total
Chinese
Imports
Chinese
Imports
from the
USSR
Chinese Imports
from the USSR as a
Percent of Total
Chinese Imports
1950
1,210
325
26
620
190
31
590
135
23
1951
1,900
750
39
780
305
39
1,120
445
40
1952
1,890
965
51
875
415
47
1,015
550
54
1953
2,295
1,165
51
1,040
475
46
1.255
690
55
1954
2,350
1,279
54
1,060
550
52
1,290
720
56
1955
3,035
1,700
56
1,375
645
47
1,660
1,055
64
1956
3,120
1,460
47
1,635
745
4C
1,485
715
48
1957
3,055
1,295
42
1,615
750
46
1,440
545
38
1958
3,765
1,515
40
1,940
880
45
1,825
635
35
1959
4,290
2,055
48
2,230
1,100
49
2,060
955
46
1960
3,990
1,665
42
1,960
850
43
2,030
815
40
1961
3,020
915
30
1,530
550
36
1,495
365
24
1962
2,675
750
28
1,525
515
34
1,150
235
20
1963
2,770
600
22
1,570
415
26
1,200
185
15
1964
3,220
450
14
1,750
315
18
1,470
135
9
1965
3,880
415
II
2,035
225
II
1,845
190
10
1966
4,245
320
8
2,210
145
7
2,035
175
9
1967
3,895
105
3
1,945
55
3
1,950
50
3
1968
3,765
95
3
1,945
35
2
1,820
60
3
1969
3,860
55
I
2,030
930
I
1,830
930
2
1970
4,220
45
I
2,045
20
2,175
25
I
1971
4,635
155
3
2,415
75
3
2,220
80
4
SECRET 11
Approved For Release 2006/04/19 : CIA-RDP85T00875R001700040019-6