INTELLIGENCE REPORT THE NEW CHINESE AID OFFENSIVE, 1970-75

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000500200022-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 16, 2016
• Document Release Date: November 9, 2004
• Sequence Number: 22
• Publication Date: November 1, 1975
• Content Type: IR

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Secret
Intelligence Report
The New Chinese Aid Offensive, 1970-75
Secret
ER IR 75-21
November 1975
ropy N2 72
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A NEW CHINESE AID OFFENSIVE, 1970-75
Peking's economic aid program, since its inception, has been designed to
widen China's political influence in the Third World and to counter Soviet
influence. In 1970, Peking shifted from radical ideological criteria that
supported only leftist regimes to a broader supporting role among all
developed countries with less attention to political coloration.
Peking assumed a role as spokesman for LDC grievances. Its willingr;ess
to render assistance despite its considerable domestic needs helped it gain a
UN seat in 1971. Since then, China has particularly sought to burnish its
image vis a vis Moscow among poorer LDCs.
Chinese political gains often loom large when compared with the
modest amounts spent on aid. Annual disbursements since 1970 have
averaged less than $200 million, an amount approximating outlays by small
Western donors such as Belgium and half that spent by the USSR. The high
political impact of China's small program stems from:
? A heavy concentration in Africa, where Chinese labor-intensive
projects and the level of Chinese technical skills are most relevant
to development needs.
? An outstanding performance in building the Tan-Zam Railroad,
which no other donor would finance, China's showcase project in
the Third World.
? The high discounted value of the aid to the recipient, which
includes interest-free loans with long amortization periods and
repayments in local currency.
25X1 Note: Comments and queri regarding this report are welcomed. The ma
be directed to of the Office of Economic Research,
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Its position in Africa assured, China has again begun to focus attention
on its Asian neighbors. Aid to countries on China's southern periphery is in
part designed to prevent Moscow from replacing the United States as the
dominant influence in the area. China recently has increased support to
Burma, Cambodia, and Laos. Peking also has signed its first formal economic
agreements with Malaysia, Thailand, and the Philippines. Aid disbursements,
nonetheles3, are likely to be slightly below the level of recent years because
of the completion of the Tan-Zam Railroad.
Chinese military aid also has expanded sharply since 1970, yet continues
to be a narrowly focused effort. More than 85% of China's $300 million in
military aid since tha beginning of 1970 has been concentrated in Pakistan
and Tanzania.
Shift in China's Aid Policy
1. The Chinese aid program was small from its inception in 1956
through the 1960s. Because of Peking's decision to support dissident groups,
many African governments refused Chinese economic assistance, and two
major Asian clients -- Burma and Indonesia -- broke relations with Peking.
These setbacks were followed by the Cultural Revolution, which brought
foreign policy initiatives to a standstill and four years of virtual isolation.
2. In 1970, Chinese economic relations with the LDCs changed
radically. Peking pledged more than $700 million in economic aid to LDCs-
a recoi 1 annual commitment, almost 10 times larger than its average aid
undertakings in previous years (see Figure 1). Subsequently, the list of aid
recipients has grown sharply. Current Chinese aid policy stresses good state-
to-state relations and conscious effort to avoid political strings. Peking
pledged $2.8 billion of aid to LDCs during 1970-75, compared with $1 billion
for 1956-69 (see Figure 2 and Table 1).
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Aid Activities
(1970-Oct 'per 1975)
IIs- OTIIEli
AMERIC)\ 5%
SOUTH
ASIA
Other
34'/r
Ethiopia 3%
ASIA
NEAR EAST
11%
Other 3%
Sri Lanka
7% ,
Nepal
5%
Pakistan
9%
Zambia
13%
c'Gugano
_ A- { JJ
__(
Mau
SenegoR
The Gambia
Guinea-"-L
Bissiu
Sierra
Leone
Chang: E.
Boundary representation is
not necessarily authoritative
NEAR EAST
7%
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 Pakistdn
9%
Zambia
`Nc~al ? r' y~
8angladsh?
Burm<
r i
China: Economic Aid to Less Developed Countries (1956-
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inma
13%
Mauritania` I' /
Mali 1 N
i
ger
enega)' n------! J / Chad , Yemen Yemen
S
Poper\ Sudan I (sang) (Aden)
The Gambia.
Guea?ijuinea rJolta
11 9~ssau (((baome~ l ,
1 ~C ( Somalia
Sierra Ethiopia
Leone Ghan i //\\ C.A.R
Togo /Camerbon'~`~ =
Equatorial =
-T Ug a
Guinea ???~ - 4 _(Kenya
,(tong Z?ire ~twandi?~
,~~/ '(3urundl
Tanzania
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Bangla sl~7
/
r
Burma
Indonesia
,Madagascar
Less Developed Countries (1956-75)
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Ydmer, Yemen
(Sang) (Aden)
r~S~malla
Ethiopia
\. /
\ ,IUg~hda
JAQKenyal
ndt
Burundi
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China: Economic Aid Extended to
Less Developed Countries
Million Current US $
Extende;,
Drawn
1956-69
1970-752
Tota12
1956-74
Total
1,020
2,772
3,792
1,415
Africa
376
1,768
2,144
736
Algeria
52
40
92
44
Burundi
....
20
20
....
Cameroon
....
71
71
... .
Central African
4
....
4
4
Republic
Chad
....
50
50
2
Congo
25
20
45
33
Dahomey
....
44
44
....
Equatorial Guinea
....
24
24
....
Figure 2
1974 1975
Est.
Table 1
China: Economic Credits and Grants to LDCs,
Ext nded and Drawn1
Million Current US $
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Table 1
China: Economic Credits and Grants to LDCs,
Extended and Drawn1
(Continued)
Million Current US
Drawn
1956-69
1970-752
Total2
1956-74
Africa (continued)
Ethiopia
....
84
84
2
Gabon
....
25
25
....
Gambia
....
16
16
... .
Ghana
42
....
42
5
Guinea
66
11
77
67
Guinea Bissau
....
16
16
....
Kenya
18
....
18
3
Malagasy Republic
....
66
66
4
Mali
55
4
59
50
Mauritania
5
59
64
9
Mauritius
....
35
35
....
Mozambique
....
59
59
....
Niger
....
51
51
1
Rwanda
....
22
22
2
Senegal
....
49
49
2
Sierra Leone
....
40
40
4
Somalia
22
112
34
43
Sudan
....
82
82
15
Tanzania
54
277
331
251
Togo
....
46
46
1
Tunisia
....
40
40
....
Uganda
15
....
15
5
Upper Volta
....
43
43
3
Zaire
....
100
100
Negl.
Zambia
18
262
280
186
East Asia
166
107
273
162
Burma
27
57
84
46
Cambodia
92
....
92
69
Indonesia
47
....
47
47
Laos
....
26
26
....
Philippines
....
24
24
....
Eu
rope
....
45
45
6
Malta
....
45
45
6
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Table I
China: Economic Credits and Grants to LDCs.
Extended and Drawn'
(Continued)
Million Current US $
1956-69
1970-752
Total2
1956-74
Latin America
....
143
143
20
Chile
....
65
65
17
Guyana
....
36
36
1
Peru
....
42
42
2
Middle East
191
183
374
152
Egypt
106
28
134
66
Iraq
....
45
45
?..
North Yemen
57
22
79
54
South Yemen
12
43
55
12
Syria
16
45
61
20
South Asia
287
526
813
339
Afghanistan 28
45
73
27
Bangladesh 11
....
11
11
Nepal 66
117
183
67
Pakistan 141
250
391
134
Sri Lanka 41
114
155
100
1. Excluding an estimated $1 billion of services provided at no cost to
LDCs.
2. Through 31 October 1975.
Concentration of Aid Effort
3. Chinese economic assistance is basically an African-centered
program. Almost 65% of pledges since 1969 have gone to Africa. A $400
million credit for the Tan-Zam Railroad gave Tanzania and Zambia first and
second rank among Chinese clients after 1969. Pakistan, the third largest aid
recipient, together with Sri Lanka and Nepal, dominates South Asia receipts
- 19% of total Chinese aid. The Middle East, never an important claimant,
received around 7%. China began a small aid effort in Latin America in
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1971. Since then, Peking has signed almost $145 million in agreements with
Chile, Guyana, and Peru, but little has been done to implement agreements.
Economic Aid: A Pragmatic Program
4. Chinese economic assistance has carved a niche in the global aid
scheme. Deliveries under this program have averaged about $165 million
annually over the past five years, comparing with the aid efforts of smaller
Western donors such as Belgium and the Netherlands. Despite the moderate
sums pledged, China's aid has been highly visible and has had considerable
impact - again particularly in Africa. The image of Chinese support to
Africa is one that few major powers are effectively challenging. Focus on
countries where China's skills and technology are applicable combined with a
carefully supported, balanced aid package and an understanding of the
problems and psychology of its "brothers" in the Third World has contributed
to Peking's stature in the LDCs.
5. China has emphasized project assistance that provides easily
perceived development benefits in a short time. Profiting from its own
postwar experiences, China has emphasized unsophisticated, labor-intensive
projects. Light industrial plants - such as textile, plywood, and paper and
food processing - are built at low cost and are put into production rapidly.
Most of these plants require minimum skills for operation. Only 5% of
China's aid has been allocated to heavy industry, all in Pakistan. This
contrasts with the 65%-70% of Soviet aid allocated to heavy industrial
projects.
6. The most ambitious aid project - the Tan-Zam Railroad - has
been particularly impressive. This railroad is one of the finest examples of
railroad design and construction available in the LDCs today. The 1,150-mile
line, begun in 1970, was cc,;.pleted in mid-1975, a year ahead of schedule.
Drawdowns averaged almost $100 million a year and covered both direct aid
and help for local expenditures. At the peak of construction, 16,000 Chinese
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workers were employed, and sales of consumer goods, supplemented by hard
currency, covered local expenditures.
7. China copes with shortages of local funds and skills that often
plague other foreign aid donors by supplying these needs as part of its
assistance package. China provides the administrators, skilled personnel, and
often large numbers of unskilled laborers to carry out the construction. In
1974, 23,000 Chinese were working on aid projects abroad. We estimated
that in Africa one technician is present for every $5,000 to $6,000 of
Chinese project aid expended, compared with the Soviet practice of sending
one technician for each $70,000 disbursed.
8. Peking's aid terms are far more attractive to the borrower than
those of any other Communist donor. Grants, which have averaged about $40
million annually since 1969, account for about 15% of its total aid extended
since the beginning of the program. This compares with less than 2% in other
Communist programs. China also has provided the equivalent of about $1
billion of grantsl in the form of free technical services to development
projects. Its credits are all interest-free, and in recent years repayment
periods often have been longer than the 10 years typical before 1970. Grace
periods ranging up to 20 or 30 years are frequently allowed. For example,
the Tan-Zam Railroad credit allows 30 years for repayment beginning in
1983. Chinese aid thus has been especially attractive to the poorer LDCs.
China also accepts local goods in repayment, making its aid particularly
attractive to the poorer LDCs. At present, because of long grace periods
still in effect, only small repayments have been made.
Military Aid
9. China's military aid is a low-key program, which has not seriously
challenged Soviet dominance among Communist arms suppliers, even in
Black Africa. The aid has been almost entirely grants, and few Chinese
1. The value of these services is not included in estimates of China's aid
undertakings.
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military personnel have been attached to the programs. The aid extended
now totals $555 million, of which more than one-half has been provided since
the beginn?ng of 1970 (see Tables 2 and 3).
Table 2
China: Military Aid Extended to Less Developed Countries
1958-751
Million US $
Total
555
East Asia
Africa
Cambodia
15
Algeria
10
Indonesia
20
Burundi
5
Middle East and
Congo
South Asia
Equatorial Guinea
Guinea
Negl.
5
Iraq
Nepal
Negl.
Negl.
Mali
Negl.
Pakistan
405
Sierra Leone
5
Sri Lanka
5
Sudan
10
Syria
5
Tanzania
60
Uganda
Zaire
Negl.
5
Zambia
Negl.
1.
Through 31 October 1975.
10. Almost three-fourths of China's total military aid has gone to
Pakistan. Initial shipments were made available at the onset of the 1965
Pakistani-Indian war, when no other country was willing to supply Pakistan
with military goods. Chinese equipment accounts for about half of Pakistan's
air and ground force inventories; it includes MIG jet fighters, IL-28 jet light
bombers, light and medium tanks, and a variety of ground forces,
communication, and support equipment. Pakistan also has recently received
Shanghai-class gunboats and hydrofoils from China for the first time.
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China: Military
Table 3
Aid to Less Developed Countries
Million US $
Extended Drawn
Total
555 460
1958-63
35 35
1964
5 5
1965
80 15
1966
10 75
1967
55 25
1968
25 30
1969
5 25
1970
65 25
1971
75 65
1972
80 75
1973
15 70
1974
65 15
1
1975
N.A.
1. Through 31 October 1975.
11. The other major recipient of Peking's military aid is Tanzania,
which has received $60 million in aid, all of it delivered. During the past 5
years, Tanzania has been almost completely dependent on China for military
supplies and training.
13. LDCs have been willing to accept Chinese military aid despite the
small amounts, its limited range, and its unsophisticated character. Few
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Chinese military personnel have been attached to the programs; in 1974
there were only 1,000, with about 750 in Tanzania alone. Except for Pakistan
and Tanzania, Chinese military assistance has had little effect on recipients'
military establishments.
14. We do not foresee any major shifts in the character or direction of
the Chinese aid program over the next few years. Sub-Saharan Africa will
continue to receive most of Peking's foreign assistance. We do not expect
any major new initiatives.
15. Total Chinese disbursements will probably fall somewhat despite
the $2.4 billion of economic aid now in the pipeline. The Tan-Zam Railroad
has just been completed, and no other large-scale Chinese projects are on
the horizon.
16. Peking is likely to place greater emphasis on improving economic
relations with Southeast Asia to match the region's changing political
realities. China has recently instituted commercial contracts with several
Free World Asian neighbors and probably would move quickly to exploit
opportunities to establish an aid presence.
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