CHINA: FOREIGN TRADE RETRENCHMENT IN 1975

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000500200018-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 16, 2016
• Document Release Date: November 9, 2004
• Sequence Number: 18
• Publication Date: June 1, 1975
• Content Type: IR

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Secret
Intelligence Report
China: Foreign Trade Retrenchment
in 1975
On file Department of Commerce
release instructions apply.
Secret
ER IR 75-17
Juno 1975
Copy
N2 123
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China: Foreign Trade
Retrenchment in 1975
The worldwide economic recession is adversely affecting China's trade.
Record Deficit in 1974 - In 1974, Chinese imports - US $7.4 billion - grew
faster than exports - $6.3 billion - leading to a $1.5 billion deficit with the
non-Communist countries and about $1.1 billion overall. Inflation accounted for
much of the increase in trade.
Balance-of-Payments Problems - Even with a greater use of supplier credits
and short-term borrowings, China's balance of payments with the non-Communist
countries plunged into the red. Peking had to draw down its reserves by $300
million to finance the gap.
Trade to Level Off in 1975 - Weakened demand for Chinese exports and
Peking's desire to redress its trade deficit will hold Chinese trade in 1975 to around
last year's levels.
Export Stagnation - Recession will continue to hamper Chinese exports this
year. On the basis of existing contracts, Chinese petroleum exports will double
to about $800 million; lower demand for China's traditional exports, particularly
textiles and fibers, will offset most of the increase.
Imports to Be Trimmed - Import cuts will reduce China's trade deficit to
about one-half of last year's level; imports of agricultural products will fall from
the record 11.9 billion in 1974 to about $1.3 billion this year. Machinery and
equipment imports, which mare tnan doubled in 1974 to $1.7 billion, will grow
much more slowly in 1975. New orders for whole plants - $1.2 billion in 1973
and $900 million in 1974 - will probably decline sharply this year.
Note: Comments and queries regarding this report are welcomed. They may be
25X1 directed to f the Office of Economic Research, -10
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CHINA: Geographic Distribution of Trade, 1974
Imports ( )Exports
Trade Region Turnover
Million US S
I
Japan
3,330
11
West Europe (ncludinq Grime and Yalta)
2,225
III
Southeast Asia (including Hdrg Kong
and Jacaa)
1,785
IV
United States and Canada
1,645
V
Eastern Europe
985
VI
Lat;r, America (including Cuba)
030
VII
Near East and South Asia
160
VIII Far Eastern Communist Countries
Nongalia, North Korea, and North Vietnam) 735
IX Africa 610
X Australia and New Zealand 520
XI USSR 280
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crel
1974 Trade in Perspective
1. China's trade boom fell victim in 1974 to
world inflation and recession. Total trade increased
by about 39%, to $13.7 billion, well below the 67%
increase in 1973. Most of the increase in 1974 was
attributable to higher prices; growth in real terms was
perhaps 10%. The tabulation shows the trend of
Chinese trade, which has more than tripled in dollar
value since 1970.
Million
US $
Percent
Increase
1970
4,290
11
1971
4,720
10
1972
5,920
25
1973
9,870
67
1974'
13,700
39
2. Worldwide inflation pushed up China's import bill while the economic
slowdown in the West cut demand for Chinese exports, resulting in the largest
trade deficit in China's history - about $1.5 billion with the non-Communist world
and, despite a surplus with the Communist world, about $1.1 billion overall (see
Figure 1 and Table 1). The share of the non-Communist countries in China's tctal
trade was unchanged at about 83%.
Total
Exports
Imports
Balance
Total
Exports
Imports
Balance
Total
9,870
4,895
4,975
-~J
13,705
6,305
7,400
-1,095
Non-Communist countries
8,170
3,900
4,270
-370
11,405
4,935
6,470
-1,535
Developed countries
5,260
1,805
3,455
-1,650
7,665
2,375
5,290
-2,915
Japan
2,020
925
1,095
-170
3,330
1,245
2,085
-840
Western Europe
1,690
665
1,025
-360
2,170
820
1,350
?530
United States
875
65
810
-745
1,070
115
955
-840
Canada
410
55
355
-300
575
60
515
-455
Australia and New Zealand
265
95
170
-75
520
135
385
-250
Less developed countries
2,075
1,270
805
465
2,810
1,650
1,160
490
Southeast Asia
825
660
165
495
855
660
195
465
Near East and South Asia
450
260
190
70
760
440
420
120
Africa
470
285
185
100
610
420
190
230
Latin America
300
45
255
-210
530
90
440
-350
Southern Europe'
30
20
10
10
55
40
15
25
Hong Kong and Macao
835
825
10
E'5
930
910
20
890
Communist countries
1,700
99S
705
290
2,300
1,370
930
440
F - East
480
355
125
230
735
580
155
425
USSR
270
135
135
280
140
140
Eastern Europe
605
305
300
5
660
345
315
30
Albania
120
100
20
80
190
130
60
70
Yugoslavia
65
15
50
-35
135
25
110
-85
Cuba
160
85
75
10
300
150
150
....
1. Data are rounded to the nearest $5 million. The statistics are adjusted to show China's imports c.i.f. and exports f.o.b.
2. Prelim'nary.
3. Spain, Portugal, Malta, and Gtcece.
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Peking's Reaction io the Balance-of-Payments Deficit
3. Although a substantial trade deficit was expected, Peking probably did
not anticipate the deterioration that took place in its balance of payments with
the non-Communist countries in 1974. Even with the sharp increase in the use
of credits and other short-term borrowing, financing the trade imbalance forced
China to draw down its reserves by about $300 millicn (see Figure 2 and Table 2).
Figure 2
CHINA: Balance of Payments With Non?Communist Countries
Millic'I USS
300r-
Accumulations
_TChang, in OfficW Reserves
? Trade on an f.o.b. basis showed a deficit of $925 million.
? Hard currency outlays for transportation services totaled $400 million.
? China made $209 million worth of downpayments and payments for
services under its whole plant import program and supplied $70 million
in economic aid to the less developed countries.
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China began taking measures to reduce its outlays. Contracts for agricultural
products were postponed and canceled, short-term credits were obtained for
purchases of Japanese steel and fF;rtilizer, and interest rates were raised in the PRC's
Hong; Kong banks to attract increased deposits.
Agricultural Imports - Record Cost
5. Despite cancellations and postponements on several contracts for
agricultural products, the value of China's agricultural imports in 1974 increased
by about 46% over 1973 to $1.9 billion, largely because of higher world prices.
The following tabulation shows the value of the major agricultural imports for
1972.-75:
Total
Wheat and
corn
Soybeans
Soybean
and other
oils
Cotton
Sugar
1. Projected.
1972
1973
1974
1975'
845
1,325
1,940
1,325
345
840
1,145
675
195
50
155
....
....
20
195
335
390
200
110
80
250
450
6. Peking had contracted for almost 10 million metric tons of grain for
1974; shipping delays and contract cancellations reduced actual deliveries to only
7.0 million tons, down from 7.7 million tons in 1973. Higher prices and freight
costs, however, pushed the value up to $ ? .1 billion. With the fall in demand for
Chinese textiles, China canceled contracts calling for delivery of US cotton in the
second half of 1974 and by yearend had even begun to export some cotton.
Skyrocketing world prices were the major factor in the tripling of the value of
China's sugar impcrts in 1974.
7. Decreased volume and softening world prices will likely reduce China's
agricultural import bill in 1975 back to the 1973 level. An improved harvest in
1974 has permitted China to reduce grain imports sharply from its traditional
suppliers - Canada, Australia, and Argentina - to 4.4 million tons. Cotton
purchases also are down sharply, and soybean imports have been phased out. Only
sugar imports are expected to increase; if details on a 5-year contract with Australia
are not worked out, however, they may be lower than predicted.
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Great Leap in Machinery and Equipment Imports
8. China's imports of machinery and equipment doubled - from $855
million in 1973 to $1.7 billion in 1974 (see Table 3 and Figure 3), almost 25%
of total Chinese imports. Deliveries on the $1.2 billion in whole plant contracts
signed in 1973 got under way during the year and totaled more than $200 million.
Even more important were shipments under the $1.8 billion in 1972-73 contracts
for aircraft, trucks, ships, dredgers; mining and oil drilling equipment, construction
machinery, and other machinery and equipment. The non-Communist countries
accounted for most of the increase, with China's machinery imports up two and
one-half times the 1973 level to $1.3 billion. Ships from Yugoslavia provided most
of the increase from the Communist world.
China: Commodity Composition of Trade'
Commodity Group
1973
19742
Total imports
F
d
t
ff
4,975
7,400
oo
s
u
s
C
d
1,000
1,480
ru
e materials, fuels, and edible oils
Ch
i
l
985
1,110
em
ca
s
M
f
445
740
anu
actures
Of which:
2,505
4,000
Machinery and equipment
M
l
855
1,700
eta
s
Oth
1,330
1,650
er
Tot
l
40
70
a
exports
F
d
t
ff
4,895
6,305
oo
s
u
s
Cr
d
1,595
2,200
u
e materials, fuels, and edible oils
Ch
i
l
870
1,250
em
ca
s
M
f
245
320
anu
actures
Oth
2,160
2,500
er
25
35
1. Data are rounded to the nearest $5 mullion. The statistics were adjusted to show China's imports c.i.f.
and exports f.o.b.
2. Preliminary.
9. Peking signed contracts for about $900 million worth of whole plants
in 1974. Rapid inflation and tight world credit, plus China's need for a breathing
spell to absorb the large amount of technology a;ready purchased, were the major
reasons for the slowdown in purchases. Contracts worth $550 million were for
the Wu-han steel rolling complex, with the balance of the purchases going for
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CHIIA: Commodity Composition of Trade, 1974'
Machinery
and Equipment
Other
8%
23%
Other
14%
Nonferrous
Metals 1%
and Fabric
10%
Other
15%
7%
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TOTAL '
IMPORTS
US $7,400
,MILLION,
Iron
and
Steel
16%
Grain
15%
Chemicals
10%
Clothing'
Products 00
Animals, Meat
and Fish
10% /
TOTAL '
EXPORTS
US $6,305
,MILLION,
Grain
10%
Mineral
Fuels
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additional synthetic fiber, fertilizer, and electric power plants. New orders for
machinery items and transport equipment in 1974 were off much more sharply
than whole plant purchases.
10. China's machinery and equipment inip its will grow more slowly in 1975.
Much equipment is in the pipeline under contracts signed in the past few years.
Equipment for the whole plants purchased in 1974 will be added to continuing
shipments under 1973 contracts, and British and Soviet aircraft will be delivered
in greater numbers. Such machinery as oil drilling and mining equipment will also
ae given priority, with less essential purchases being deferred to reduce import
costs. New contracts for whole plants may decline further to save on downpayment
outlays. For example, in the first four months of this year, Peking signed contracts
worth only $20 million for bearings plants, which was a radical scale-down of
the $100 million facility originally sought.
Export Drive Stalls
11. Peking's drive to boost export earnings ran afoul of the worldwide
economic slowdown in 1974, causing Foreign Trade Minister Li Chiang to remark
at one point that only rice and petroleum had good export prospects. While exports
from China rose by about $1.4 billion in 1974, almost 30% of the increase came
from larger deliveries of petroleum at substantially higher prices. Sales of crude
oil and petroleum products to non-Communist countries amounted to 4.4 million
tons, worth $416 million. Chinese rice exports benefited from high world rice prices,
but the volume was down from the record 1.9 million tons, in 1973. Other
traditional Chinese exports, particularly silk and cotton textiles, fac.;d declining
demand. Late in the year, even petroleum exports met with problems v-rhen Japanese
buyers, pleading full storage tanks, refused to take delivery of 900,000 tons of
crude oil under a 1974 contract.
12. Both the spring and fall Canton Fairs in 1974 were commercially dismal
events for China. Traders at the spring fair balked at the high prices for Chinese
goods, and business fell 40% below the level of the 1973 fall fair to $800 million.
Price cuts on Chinese goods at the fall fair did not overcome depressed world
demand, and total transactions fell to $700 million, the lowest total in years. The
poor sales at the fall fair will affect China's export performance through the first
half of 1975.
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13. Continuing recession in the non-Communist world, lower prices for some
major export and import items, and Peking's desire to redress its trade deficit will
hold the value of China's trade in 1975 to around the 1974 level - $13-$14 billion.
The trade deficit is likely to be reduced to about $500 million -- one-half the
1974 level - and the hard currency balance of payments is likely to be improved.
Export Stagnation
14. Barring a rapid turnaround in the world economy, Chinese exports this
year will probably grow little over last year's level.
? Lower demand will cut sales of China's traditional exports, particularly
silk fiber, textiles, and clothing.
? Soft world demand for rice will reduce China's export earnings.
? A doubling of petroleum exports to $800 million may only offset the
decline in other exports.
Sales at the Canton Fair, a major indicator of China's exports, point to lagging
exports this ye,-r. Early reports from the 1975 spring fair show smaller attendance
and slow business activity. Sales probably picked up toward the end of the fair,
but probably not sufficiently to surpass the depressed level of the fair last fall.
Trimming the Import Bill
15. In the past, China has reacted to large trade deficits by cutting back
imports the following year to bring trade back into balance. Use of credits will
permit another trade deficit this year, but the size of the deficit will be reduced
to ease the tight foreign exchange situation that cropped up late last year. Peking
has already taken steps to trim imports in 1975 and will tailor its purchases during
the year to match the fortunes of exports.
? Imports of agricultural products in 1975 have been cut by $600 million
from last year's level.
? Purchases of less essential machinery and equipment are being deferred.
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? China will benefit from lower world prices for steel and nonferrous metals
while maintaining the volume of metals imports.
Virtually all of the cuts will be in imports from the non-Communist countries.
Should export earnings fall below the 1974 level, Peking may clamp down harder
on new purchases and postpone deliveries on some contracts.
Balance-of-Payments Recovery
16. Statements by the Chinese over the past year indicate that the overall
payments balance with the non-Communist world, rather than simply the trade
balance, has become the area of primary concern. Despite a deficit in 1974, China's
balance of payments is not in crisis. Reserves are adequate, and Peking's credit
rating is excellent. Credits for grain, whole plant equipment, and Japanese steel
and fertilizer will finance much of the reduced trade deficit in 1975. Repayments
of short-term credits and progress payments for whole plants will total more than
$1 billion this year. With continued large remittances from overseas Chinese and
some bank borrowing, however, China may be able to avoid drawing down its
reserves of gold and foreign exchange. One important sign of financial health is
the net purchase of $50 million worth of gold in the first four months of this
year, compared with net sales of $350 million in 1974.
Trade, by Country and Area
17. The following sections summarize recent trends in China's trade with.
major Communist and non-Communist partners and survey prospects for 1975.
The United States - After Rapid Growth:, Prospects Down
18. The United States remained China's second largest trading partner as total
trade broke through the $1 billion mark in 1974.* Agricultural products accounted
for most of the growth in Chinese imports - from $810 million in 1973 to $955
million in 1974. Although: grain imports fell by 20% to about $400 million, soybean
and cotton imports rose by $200 million. Chinese exports of $115 million --
predominantly consumer goods - nearly doubled the 1973 level.
19. The record $840 million trade deficit partly explains China's desire to
minimize agricultural imports from the United States in the last half of 1974 and
its current low interest in US agricultural products. Other explanations include
mo- tra a to used in this report differ from data issued by the US Department of Commerce,
which publishes all trade data on an f.o.b. basis. The figures used in this report have been adjusted to show
China's imports c.i.f. and exports f.o.b.
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Peking's stated dissatisfaction with the quality of US wheat, corn, and soybeans
and an improved domestic crop, which probably lowered total grain import
requirements. Long-term arrangements for grain imports from Canada, Australia,
and Argentina make the United States a residual supplier. China's recent decision
to cancel or postpone deliveries of US cotton and to sell cotton on the world
market stems from overbuying cotton at lust year's high prices and from diminished
foreign demand for Chinese cotton textiles. In 1975, agricultural imports from
the United States - primarily cotton - probably will not exceed $75 million.
20. Sino-US trade for 1975 is expected to fall to about $400 million, of
which $250 million will be Chinese imports. Industrial imports will surpass
agricultural imports for the first time as deliveries accelerate on equipment for
eight Kellogg Company ammonia plants ordered in 1973. China will continue to
import machine tools, construction equipment, paper, aluminum, and fertilizers.
With US export controls off, Chinese imports of steel scrap will rebound.
21. China's exports to the United States could reach $150 million in 1975.
Chinese interest in the US market is growing at a moderate pace. In February
a Chinatex delegation to the United States querried bLlsincssmen on current
fashions, packaging and labeling requirements, pricing, and distribution channels
and methods. Other market survey missions are expected later this year. Lack of
"most-favored-nation" status and the problem of US private claims on China and
of blocked Chinese assets in the United States continue to restrict the development
of normal trading relations. Dramatic increases in Sino-US Trade would not occur
this year, even if steps were taken to settle these problems.
Japan - At the Top
22. Japan remained China's leading trade partner as total trade boomed to
$3.3 billion in 1974. China's imports nearly doubled -- from $1.1 billion in 1973
to $2.1 billion - while exports rose by only one-third from $0.9 billion to $1.2
billion. The failure of exports to keep pace with imports resulted in a record $840
million trade deficit with Japan - five times the 1973 deficit.
23. During 1974, imports of whole industrial plants, machinery, and
transportation equipment from Japan tripled to $575 million. Although new plant
orders were down in 1974, Peking signed eight contracts for more than $400 million
worth of whole plants - the largest, a $228 million steel rolling mill - for delivery
starting in 1975. Peking complained that negotiations for the plants faltered because
of Japanese reluctance to quote fixed prices. Sharply rising prices -- and tight
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supply - also hampered imports of steel and fertilizer. Steel imports rose 401
in value but only 8% by volume, compared with 1973. Fertilizer imports, which
rose 12% in value, actually fell 30% by volume.
24. China's traditional exports were sluggish, dampened by Japanese recession
and import restrictions. Silk exports dropped to $93 million, down $100 million
from 1973. Earnings from textiles, fruits, and vegetables also shrank. The entire
increase in China's exports to Japan was provided by petroleum at prices four
times the level of 1973. The flow cf oil surged from I million tons in 1973 to
4 million tons in 1974. Oil earnings of $390 million accounted for 31 % of China's
exports to Japan in 1974, up from 3% in 1973. Exports of 8 million tons of
crude oil, worth almost $700 million, are expected in 1975.
25. In 1975, Sino-Japanese trade could approach $4 billion. China's imports
are likely to remain about $2.1 billion as deliveries of machinery and equipment
level off. With world steel prices down, decreased expenditures on steel will
probably offset a $100-$200 million increase in China's fertilizer bill. Oil should
push tip China's exports to around $1.7 billion, cutting China's trade deficit with
Japan in half. If the Japanese economy recovers and Tokyo relaxes restrictions
on silk, the gap would narrow still further.
Western Europe - Source of Machinery
26. China's trade with Western Europe increased by 28% in 1974 to $2.2
billion. A $325 million increase in imports to $1.4 billion led to a trade imbalance
of $530 million, more thar 4a% larger than China's deficit with this area in 1973.
Western Europe will remain a major source of metals, machinery, and
high-technology equipment in 1975. In May of this year, the European Economic
Community (EC) commissioner for external relations visited Peking for talks on
development of EC-China ties in light of the EC's new authority to establish a
common commercial policy for members and to negotiate trade agreements with
state trading nations. China agreed to establish diplomatic relations with the EC --
the first Communist country aside from Yugoslavia to do so - and announced
that it is ready to negotiate a trade agreement with the Common Market. Such
an agreement with the EC would have greater impact on political relations than
on the volume of China's trade with the nine members of the EC, however.
West Germany
27. West Germany retained its position as China's leading trade partner in
Western Europe as total trade climbed from $487 million in 1973 to $650 million
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in 1974. Steel products made up 45% and machinery 30'%, of the $482 million
in Chinese imports. Chinese exports of $168 million posted a $38 million gain
over 1973. In 1974, West German firms obtained contracts for whole plants woi th
nearly $300 million, including contracts for a $200 million cold steel rolling mill
and a $57 million continuous-casting mill as part of a steel complex at Wu-han,
and a $19 million vinyl-chloride plant and a $15 million polyethylene plant as
part of' a petrochemical facility near Peking. Sino-West German trade will continue
to expand in the next few years, spurred by deliveries on these major contracts.
United Kingdom
28. Although Sino-British trade rose slightly in terms of sterling, in dollar
ter,--, it fell from $340 million in 1973 to $329 million in 1974. China's exports
rose nearly 33% to $136 million. Chinese imports, however, dropped from $238
million to $193 million. China's purchases of nonferrous metals dwindled to $15
million, down $63 million from 1973, as China shifted copper purchases to Japan
to take advantage of inventory clearance prices there. The British were unsuccessful
in landing any contracts for whole plants and concluded contracts for only
$4 million worth of machinery and equipment in 1974. Nevertheless, deliveries
of machinery and equipment on contracts signed in 1972 and 1973 reached $93
million in 1974, and deliveries scheduled for 1975 and 1976 of Trident aircraft,
coal mining equipment, and truck cranes amount to more than $250 million.
Shipment of this equipment, possibly coupled with increased copper purchases,
will help boost Sino-British trade in 1975 to between $450 and $500 million.
29. With Sino-French trade up nearly 50% over 1973, France overtook Britain
as China's second leading trade pt-rtner in Western Europe. China succeeded in
increasing exports by 25% over 1973 to $160 million, compensating for a fall
in exports of textile fibers, yarns, and fabrics to one-third the 1973 level by boosting
clothing exports from $3 million in 1973 to about $45 million in 1974. China's
imports grew to $188 million in 1974, partly because China purchased French
wheat - worth roughly $40 million - for the first time since 1970. Machinery
and equipment accounted for $80 million of China's imports in 1974 as deliveries
began on 1973 contracts - totaling almost $390 million - for two petrochemical
complexes, off-highway trucks, Super Frelon helicopters, and oil exploration
equipment. In 1974, French firms received additional orders for about $200 million
in whole plants and equipment, including a $120 million fertilizer plant and a
$50 million thermal powerplant. Sino-French trade could approach $500 million
in 1975 as deliveries on these contracts accelerate.
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Other West Euopean Countries
30. In 1974, China's trade with other West European countries increased
about one-third over 1973. Since February 1973, China has contracted for eight
urea plants worth $89 million and dredgers worth $90 million from the Netherlands,
an $87 million thermal powerplant and a $16 million polypropylene plant from
Italy, a $20 million offshore oil rig and a $13 million catalyst plant from Denmark,
$30 million worth of plant and equipment from Sweden, and several ships from
Norway. In 1974, with deliveries on these contracts beginning, China's imports
from Norway, the Netherlands, and Italy jumped sharply, up 176% with Norway,
96% with the Netherlands, and 43% with Italy. Further increases are expected
in 1975 as deliveries of this equipment expand.
Canada and Australia - Major Grain Suppliers
31. Canada was China's second largest grain supplier in 1974, after the United
States. Wheat deliveries dropped from 2.5 million tons in 1973 to 1.9 million tons
in 1974, but higher prices pushed the value up to $400 million from $245 million
in 1973. Total imports of $515 million in 1974 also included $74 million worth
of nickel, $20 million of copper, and $5 million of fertilizer. Chinese exports to
Canada rose slightly, from $55 million in 1973 to $60 million in 1974. The $455
million deficit with Canada is disappointing to the Chinese, who have sent two
trade delegations to Canada for discussions on increasing Chinese exports in 1975.
China has scheduled imports of about 1.7 million tons of wheat in 1975, part
of which is a carryover from unfulfilled contracts in 1974. Lower prices this year
will reduce the wheat bill to about $270 million and help to narrow the trade
gap.
32. Sino-Australian trade jumped to $477 million in 1974, a $230 million
increase over 1973. Australian wheat deliveries mounted from 800,000 tons in 1973
to 1.4 million tons in 1974, more than doubling in value to $175 million. In
addition, China purchased $50 million worth of Australian sugar. Total imports
of $356 million also included wool, iron ore, steel, and aluminum. China's exports
increased from $86 million in 1973 to $121 million in 1974. Wheat deliveries
in 1975 are expected to remain at last year's tonnage. China's imports of sugar
and metals may increase. Troubles may arise for some trade items because Canberra
has requested voluntary restraints on the export of textiles, and Peking appears
ready to link its purchases of wool with the fortunes of Chinese textiles in Australia.
Earlier this year, Chira shipped a small amount of crude oil to Australia for test
purposes, but significant exports are not expected within the next year.
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tlong Kong
33. Hard currency earnings from I-long Kong, which largely covered China's
deficit with the developed West in previous years, posted only modest gains and
offset only half of the $2.9 billion trade deficit in 1974. Exports to and through
Hong Kong increased 8% in 1974, compared with a 60% increase in 1973, and
earned $1.2 billion. (Exports to Hong Kong rose about 10% to $873 million while
e-exports through Hong Kong to third countries were virtually unchanged at $313
million.) Hong Kong was also the channel for an estimated $250 million in
remittances from overseas Chinese and from PRC businesses in Hong Kong and
for ;115 million in borrowings from PRC-controlled banks. China's imports were
a mere $20 million.
34. Higher prices accounted for the rise in value of Chinese exports in 1974.
The volume of exports to Hong Kong actually declinc,d 10% to 20% as recession
struck the Crown Colony. Exports of textiles and clothing fell 38% in value -
to $180 million in 1974 - and possibly 60% in volume. This year, prices for China's
traditional exports are likely to be lower. Unless the Hong Kong economy recovers
subs'ant7ally, hard ,: rrency earnings from Hong Kong may not grow in 1975.
Less Developed Countries (LDCs) - Major PRC Customers
35. Sino-LDC trade kept pace with the overall growth in China's trade in
1974, reaching $2.8 billion, still about 20% of total Chinese trade. Foreign exchange
earnings from LDCs lagged behind the leaping hard currency deficit with the
developed West, however, as China's imports increased 45`/0 against a 30% growth
in exports. Chinese exports to Southeast Asia did not grow at all, mainly because
of a cutback in demand for Chinese clothing and textiles. Trade with Latin America,
the Near East, and South Asia grew most -- about 70% overall. Exports to Africa
increased more than 45% while imports stood still.
36. Trade with the LDCs is likely to stagnate in 1975. High oil prices may
force many LDCs to spend less for Chinese textiles. China's prospects for increased
oil exports to the Philippines and Thailand are limited. China will probably cut
back imports of cotton from the LDCs; lower prices for nonferrous metals will
hold down costs of copper, zinc, and lead imports. Peking may also limit "political
purchases" from the LDCs, such as bananas and crude oil.
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The Communist Countries - Secondary Role
37. After increasing sharply from 1970 to 1972, China's trade with the USSR
leveled off. In 1974, two-way trade reached about $280 million, a slight increase
over 1973 trade of $270 million but less than the 10% increase called for by
the 1974 trade agreement. Aircraft, helicopters, steam turbine generators, trucks,
steel products, and timber made up the bulk of Soviet exports to China last year.
In exchange, China sent foodstuffs, light industrial goods, and nonferrous metals.
The 1975 agreement calls for no change from 1974 in the level and commodity
composition of trade.
Eastern Europe - Growing Smaller
38. Even though Sino-East European trade grew at an average rate of 14%
from 1971 to 1974, Eastern Europe's share in China's trade fell from 9% to less
than 5%. In spite of the diminishing role of this bilateral trade, an estimated 25%
of China's imports of machinery and equipment in 1974 were supplied by Eastern
Europe. In exchange, China exported light manufactures, foodstuffs, and metals.
Trade agreements signed for 1975 point to a slower rate of growth in China's
trade with Eastern Europe. Trade agreements with East Germany, Poland, and
Czechoslovakia called for increases ranging between 5% and 10%. For East Germany,
the r.arget of 5% is a substantial reduction from the 40% increase in 1974. Trade
agreements with other East European countries mention continued increases in trade
without specifying the amount.
Yugoslavia - A Special Case
39. Yugoslavia is unique as the only Communist country that F;;ttles its trade
account with the Chinese in hard currency. Following the first trade agreement
in more than a decade in 1969, trade between the two countries doubled each
year, reaching $135 million in 1974. Trade heavily favors the Yugoslavs, with
Yugoslav exports of $110 million in 1974 - primarily ships and metals - and
imports of only $25 million - mostly rice and soybeans. If Belgrade accepts a
Chinese offer of a $75 million interest-free credit for the extension of a railroad
line to the Albanian border, trade will continue to expand and China's deficit
with Yugoslavia will probably diminish.
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40. High world prices, particularly for rice and sugar, and increases economic
aid to North Vietnam resulted in sharp increases in China's trade with t`ie other
Communist countries. In 1974, China's trade increased about 90% with North
Vietnam and Cuba and 10% to 1517o with North Korea and Mongolia. Because
world prices for raw materials and agricultural commodities have fallen from 1974
peaks, the value of China's trade with these countries may decline in 1975. North
Vietnam imported large quantities of Chinese grain last year; in 1975, North
Vietnam probably will shift away from gain to purchases of Chinese machinery
and fertilizer. In 1 974, imports of Cuban sugar were 380,000 tons; this year China
probably will import less than one-half last year's tonnage. North Korea imported
about 750,000 tons of Chinese crude last year; with China's exports of crude oil
expected to reach 1 million tons in 1975, further increases in Sino-North Korean
trade are likely. Sino-Mongolian trade is small and will remain so -- perhaps $5-$10
million per year.
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