CHINA: THE YEAR IN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000605830001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: April 4, 2011
• Sequence Number: 1
• Publication Date: March 28, 1986
• Content Type: MEMO

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Central Intelligence Agency
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DATE 3 3 St.
DOC NO CAM 916 ? .0033
OCR 3
P&PD
DIRECTORATE OF INTELLIGENCE
28 March 1986
China: The Year in Review
Summary
Economic considerations dominated China's political agenda in 1985
to an unusual degree. Buoyant after the October 1984 party meeting that
endorsed urban economic reforms, Deng Xiaoping and his supporters
within the Chinese leadership sought to make 1985 the "Year of Reform,"
carrying out controversial new economic policies and seeking to improve
and consolidate their hold on the levers of power.
But economic policies did not fulfill the reformers' expectations, and
they even exacerbated a number of China's existing economic problems.
The government was rocked by soaring inflation, an overheated industrial
sector, a sharp trade deficit and diminished foreign currency reserves, a
7-percent dropoff in grain production, and a growing corruption problem,
all of which gave political critics of reform the opportunity to renew their
attacks at mid year
This memorandum was prepared by Office of East
Asian Analysis. Information available as ot Z8 March 1986 was used in its preparation.
Comments and queries are welcome and may be directed to the Chief, Domestic Policy
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Despite the increased pressure, Deng and his allies were able to
bring off a significant political victory at the September Conference of
Party Delegates. At that meeting, Deng managed to secure the retirement
of numerous members of the party's conservative Old Guard--including 10
members of the Politburo--and replaced them with younger, better
educated leaders more committed to the principles of reform. Party
conservatives nonetheless remain a formidable force. Party reformers
have recovered somewhat from the political difficulties of last year, but
the complexity of the economic problems that face China has evidently
made them more cautious, and they have set as their goal for 1986
"consolidation and digestion" of reforms already undertaken, and economic
stabilization.
Economic considerations played a major role in China's foreign
relations as well, although strategic concerns remain the central focus.
Chinese leaders expressed satisfaction with the "stable" nature of relations
with the United States, which permitted a 25-percent increase in bilateral
trade (to about $8 billion). No major trade or political issues emerged in
1985, although the usual problems of Taiwan, textiles and technology
transfer remain in dispute.
Last year saw a concerted attempt on China's part to test the new
Soviet leader's interest in rapprochement: anti-Soviet polemics were
reduced, and the level of official contact between the two governments
was raised somewhat. Gorbachev did not offer any significant
concessions on the fundamental issues dividing the two sides, however,
and, by the end of the year, the atmospherics had cooled noticeably, with
the Chinese refuting Soviet claims that relations were improving.
Economic relations between China and the Soviet Union continued their
slow trend of improvement in 1985, with bilateral trade approaching $2
Last year, the first full year in which to measure China's performance under
economic reform guidelines and policies, was a trying one for China's reform leadership.
Starting off the year full of enthusiasm for the economic reform policies approved at the
landmark Third Plenum of the 12th Central Committee (October 1984), party leaders went
from ebullient confidence to gnawing doubt and defensiveness to stiff determination as
they watched the economic, political, and social effects of their policies. Having based
their political philosophy on their ability to bring about economic improvement, party
reformers, led by Deng Xiaoping, were bruised by accusations from conservatives last
summer that they mishandled economic policies in 1985. Although the problems did not
prevent Deng from making important political gains at the Party Delegates conference
held in September, they clearly were enough to slow the momentum of political and
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Deng Xiaoping, 82, is still the linchpin of the political system in China, and
concerns about the state of his health emerged when Deng stopped making public
appearances for a two-month period in late 1985 and early 1986. Deng showed up for
Chinese New Year in his home province of Sichuan, but speculation about him and
possible succession changes intensified last year. Deng himself evidently helped fuel
the rumors at mid year, when, according to Hong Kong publications, he developed a
"second stage" succession package. at some
point in the next two years, the following leadership changes will take place: Deng will
resign as Chairman of the party Military Commission, and will be replaced by Hu
Yaobang; Hu Yaobang will give up his post as General Secretary of the party to
Secretariat Standing Secretary Hu Qili; President Li Xiannian will retire and his job will be
taken over by Premier Zhao Ziyang; Zhao will be succeeded as premier by one of his
younger Vice Premiers, Li Peng or Tian Jiyun.
Although the changes were not put into effect at the September Conference of
Party Delegates--as some had speculated--Deng did bring off a major political
realignment at that meeting, a rejuvenation of the party's leadership that is consistent in
intent with the "second stage" succession scenario. At the Central Committee plenum
that preceded the Delegates Conference, 65 elderly members of the Central Committee
resigned, including 10 members of the Politburo and one of six members of the crucial
Politburo Standing Committee. The full Delegates Conference then chose 91 new
Central Committee members, preparing the way for the "election" at the ensuing Central
Committee plenum of six new Politburo members and five additional members of the
Secretariat.
Generally speaking, the leadership changes shifted the balance within all the
leading party organs in favor of those associated with reform. Almost all of the
Politburo retirees were considered "conservative" on reform issues, and seven of them
were representatives of China's armed forces, which sometimes has been viewed as
being in opposition to Deng's reforms. Most of the new leaders meet Deng's succession
criteria of younger, better educated, professionally qualified, and politically reliable (read
non leftist). Within the Politburo in particular, the addition of Hu Qili, Tian Jiyun, Wu
Xueqian, and Qiao Shi appears to significantly strengthen the reform group within the
leadership. New Politburo members Yao Yilin and Li Peng, although they publicly
support and administer reform policies, seem to lean toward Politburo Standing
Committee member Chen Yun, who emerged last year as reform's principal detractor.
Deng by no means swept away all opposition to his programs at the party
meetings. The strongest voices in the conservative cause, in fact, maintained their party
positions: Chen Yun and Li Xiannian on the Politburo Standing Committee, Peng Zhen
and Hu Qiaomu on the Politburo, and Deng Liqun on the Secretariat. It also appeared
that Deng had to compromise on some personnel issues, on the pace of implementation
of reform policies, and on the ideological tone of the party's programs. Deng's own
speech to the assembled delegates stressed some conservative themes, including the
need to improve the knowledge of Marxist theory within the party. Deng also had to sit
through a bitter diatribe from Chen Yun, who made his complaints about some aspects
of reform completely clear, and implicitly warned Deng not to try to stifle dissent within
the party.
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In the period leading up to the conference, leadership tensions had been quite
high, and we believe this was a factor in the way Beijing handled economic policy
during the middle part of the year. China's leaders were confronted with a considerable
amount of bad news during the late spring and early summer: high industrial growth
rates, a startling increase in the money supply and capital construction expenditures,
urban food price inflation, skyrocketing imports and a downward plunge in foreign
exchange reserves, a gloomy agricultural forecast, and a host of corruption scandals,
many of them involving the Special Economic Zones. Reform critics seized on these and
other issues and, in our view, forced the reformers into a defensive position. This
accounts for, among other things, Deng's statements in July that the SEZs were
"experimental," and could fail.
Since the party conference, reformers have continued to be defensive in their
speeches and articles about economic policies, but less, we believe, because they fear
conservative attacks, and more because the policies themselves have been flawed, or
incorrectly implemented. Moreover, reformers such as Tian Jiyun and Wan Li have
begun openly to rebut the criticisms leveled at reforms by conservatives last year,
particularly on such issues as grain production and rural industry, and the linkage
between reform policies and corruption. In sum, we believe the reformers have regained
the initiative as a result of the changes brought about by the Party Delegates
Conference, but will not use it to push through any controversial new reforms. Instead,
they have declared 1986 to be a year of "consolidation and digestion" of reforms already
Foreign Policy
China increasingly is tailoring its foreign policy to serve its economic
modernization drive. This is reflected in Beijing's efforts over the past year to improve
relations with both Washington and Moscow. Relations, however, continue to be closer
and smoother with the United States. Indeed, the Chinese continue to regard the United
States as an important strategic shield against Soviet military pressure as well as a key
source of investment capital and technology.
Chinese leaders repeatedly stress that Sino-US relations are "stable"--reflecting
their interest in seeing the economic relationship in particular continue to grow.
Bilateral trade jumped last year by more than 25 percent, from $6 billion to about $8
billion, according to US customs statistics. Direct US investment also increased to just
over $1 billion--most of it in offshore oil exploration and drilling. Economic ties are
likely to geta further boost as a result of recent US efforts to streamline COCOM
procedures for handling Chinese requests for licenses for Western technology. US
exports of advanced technology in fact rose to $500 million in 1985 and almost
certainlywill increase again this year.
The US-China military relationship is developing at a gradual pace but has hit
some snags along the way. The United States has taken some initial steps to assist
China with military modernization. A key component of that assistance--the sale of an
avionics package for the Chinese F-8 fighter--is now before the US Congress for
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approval. But Chinese demands that Washington give private assurances that visiting
US warships would not be carrying nuclear weapons forced the US Navy last spring to
postpone indefinitely a planned port call to Shanghai.
The differences over the port call appear to reflect an increasing reluctance on
the part of some senior Chinese leaders to have China identified strategically with the
United States--lest that complicate Chinese efforts to improve relations with Moscow
and compromise China's more independent foreign policy posture. Over the past year
or so, and especially since the accession of Soviet General Secretary Gorbachev, Beijing
has made several symbolic concessions designed in part to test the new Soviet leader's
interest in seeking a rapprochement with China. In addition to referring once more to
the USSR as "socialist," and Soviet leaders as "comrades," the Chinese have cautiously
agreed to reestablish some long-severed ties--trade union and parliamentary relations.
They have stopped short of agreeing to restore formal party-to-party ties, presumably
hoping to extract a significant Soviet political concession in exchange.
Thus far, Moscow has been unwilling to offer such a quid pro quo. At the recent
Soviet party congress, Gorbachev reiterated the standard Soviet line of offering to
improve relations with China as long as it was not at the expense of any third party--a
not very veiled reference to Soviet allies in Vietnam, Afghanistan, and Mongolia. As a
result, progress toward an expansion of political relations appears to have stalled once
more over China's demands for satisfaction on the so-called "three obstacles"--that is,
that the Soviets either withdraw their forces from Afghanistan, cease their support for
Vietnam's occupation of Cambodia, or substantially reduce Soviet forces along the
Sino-Soviet border, including those in Mongolia.
After months of muting their criticism, the Chinese in fact have increased the
volume recently of their attacks on Soviet foreign policy. They also have rebuffed
Moscow's efforts to pin down dates for the exchange of visits by Soviet and Chinese
foreign ministers, which Beijing agreed to in principle last fall. It would appear that the
Chinese are trying to exploit the Soviets' interest in the visits to induce Moscow to
adopt a somewhat more flexible approach to some of the security issues that divide
Sino-Soviet economic relations continue to improve. Over the past three years,
bilateral trade has increased substantially, approaching $2 billion. The Chinese and
Soviets are moving ahead, for example, with plans for the Soviets to help modernize
some factories they built in the 1950s, and to build several new projects. Even if
political relations remain stalemated, the Chinese probably calculate that expanding
economic ties will help to keep tension with Moscow manageable, and will give them
access to some useful Soviet technology.
China's relations with Western Europe, Japan, and much of the Third World also
are being shaped increasingly by economic considerations--that is, the desire for
markets, raw materials, technology, and investment capital. In the case of Western
Europe and countries around China's periphery, strategic considerations of course still
weigh very heavily. The Chinese continue to strongly support Pakistan and the Afghan
resistance as well as Thailand and the Cambodian insurgents as a means of keeping the
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Soviets and their allies in check. By the same token, they remain supporters of a strong
NATO as a counterweight to the USSR. In Northeast Asia, Beijing would like the United
States and Japan to make some overtures to North Korea to help China counter the
recent increase in Soviet influence in Pyongyang. Chinese leaders continue to urge
Washington in particular to agree to hold tripartite talks with North and South Korea as
a means of reducing Moscow's ability to exploit tensions on the peninsula.
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Subject: China: The Year in Review
1 - Mary Yee, Office of East-West Economic Policy, Room 4426,
Department of Treasury
1 - Joan Plaisted, Office of Chinese Affairs, Room 4318, Department
of State
1 - William B. Abnett, Director of China Affairs, USTR, Room 316,
600 17th St., NW, Washington, DC
1 - Myna Stolz, Office of East Asia and the Pacific, Room 3820,
Department of Commerce
Central Intelligence Agency
2 - C/OEA/CH
1 - C/OEA/CH/FOR
1 - C/OEA/CH/DEF
1 - C/OEA/CH/DEV
1 - OEA/Production Officer, 4G48
1 - D/OEA, 4F18
1 - DDI, 7E44
1 - Senior Review Panel, 5G00
1 - PDB Staff, 7F30
1 - NIO/EA, 7E62
1 - C/PES, 7F24
1 - FBIS/NEAAD/China Branch, 306 Key
1 - C/EAC::]5E 18
1 - CPAS/ILS, 7G50
5 - CPAS/IMC/CB, 7G07
1 - Author
1 - Chrono
DDI/OEA/CH/DOM 28Mar86
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