CHINA'S TRADE: AUSTERITY MEASURES FOR 1987

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00114R000200100001-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 27, 2016
• Document Release Date: March 29, 2012
• Sequence Number: 1
• Publication Date: March 31, 1987
• Content Type: MEMO

__25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90TO0114R000200100001-5
Central Intelligence Agency
DATE
DOC NO 6-i9 /VI
OIR
P $ PD
DIRECTORATE OF INTELLIGENCE
31 March 1987
China's Trade: Austerity Measures for 1987
Summary
China's trade tbtaled more than $73 billion last year, nearly double
the level recorded in 1980, according to Chinese statistics. Imports
continued to outpace exports for the third consecutive year, however,
leaving Beijing with a deficit of $12 billion. While continuing to post a
large trade deficit with Japan, China recorded a $1.6 billion surplus with
the United States in 1986. Beijing's recent hard line toward
imports--including a reported freeze on imports using centrally allocated
foreign exchange--indicates that trade in 1987 may decline. The austere
measures also indicate that Beijing's foreign exchange reserves may have
dropped substantially from the $10.5 billion posted last November.
Moreover, Beijing's cutback on imports and continued press for exports
will probably further lower US exports to China this year and exacerbate
This memorandum was prepared by I Office of East Asian Analysis.
Information available as of 27 March 1987 was used in its preparation. Comments and
queries are welcome and may be directed to the Chief, China Division, OEA, on
Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90TO0114R000200100001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90T00114R000200100001-5
China's merchandise trade grew nearly 11 percent to reach a record $73.8 billion
in 1986. Exports increased 13 percent to $31 billion, while imports rose less than 2
percent, to $43 billion. Although Beijing recorded its third consecutive trade deficit, last
year's deficit of $12 billion was a nearly $2 billion improvement over the 1985 record
Exports. With a drop in world oil prices crimping what had been the premier
foreign_ exchange earner, Beijing last year turned to textiles, increasing exports 10
percent until they represented more than one-third of total foreign exchange earnings.
Oil earnings plummeted an estimated $3 billion last year compared with 1985,
accounting for only about one-tenth of hard currency earnings. China also increased
agricultural exports in 1986, with cotton, canned products, tea, peanuts, and vegetables
Imports. At the same time, imports grew less than 2 percent, according to
Chinese customs statistics, as more restrictive foreign exchange allocations for
nonessential commodities and closer monitoring of redundant purchases took effect.
Imports of television sets, for example, fell more than 70 percent from a year earlier.
Beijing also reduced some industrial imports; imports of rolled steel fell by one million
tons or 8 percent, copper imports were down 52 percent, aluminum and aluminum
products 45 percent, and synthetic fibers 38 percent. On the other hand, imports of
some industrial materials such as wool, iron ore, and rubber increased by 34, 36, and 25
percent, respectively.
Trading Partners. China's largest trading partners in 1986 were Japan, Hong
Kong, the United States, and the Federal Republic of Germany, accounting for more than
half of China's total trade (see Table 1). Trade with the Soviet Union reached $2.6 by
Chinese accounts, making the Soviet Union China's fifth-largest trading partner.
Although trade with Moscow represents less than 4 percent of Beijing's total trade, the
dollar value has doubled in the last two years with the promotion of border trade and
technical cooperation. Trade with the European Community is also increasing, in part
because of increased concessionary financing and Beijing's attempts to buy less of its
sophisticated technology and machinery from Japan. China continued to hold the
largest bilateral trade deficit with Japan last year, reaching $7.7 billion. Chinese data
indicate Japanese exports to China fell 17 percent as Beijing reduced imports of
consumer goods, but China's exports to Japan declined 22 percent.
Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90T00114R000200100001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90TO0114R000200100001-5
Table 1
China: Top 10 Trading Partners, 1986*
---------------------------
USD Millions
Country
Total
Trade
China's
Exports
China's
Imports
Balance**
Japan
17,200
4,764
12,436
-7,672
Hong Kong and Macao
15,453
9,830
5,623
4,207
United States
7,336
2,622
4,714
-2,092
West Germany
4,558
1,003
3,555
-2,552
Soviet Union
2,640
1,200
1,440
-240
United Kingdom
2,444
1,433
1,011
422
Singapore
1,768
1,215
553
662
Australia
1,617
210
1,407
-1,197
Italy
1,500
363
1,137
-774
France
1,052
321
731
-410
*Based on China's customs statistics.
**Minus sign indicates a deficit for China.
Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90TO0114R000200100001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90TO0114R000200100001-5
According to China's customs statistics, total trade with the United States fell
about 1 percent last year, to $7.3 billion. Beijing recorded a 12-percent increase in
exports to the United States and a 7-percent decline in US imports, leaving it with a
US trade statistics, however, show the opposite, with a US deficit with China of
$2.1 billion, underscoring the large discrepancies between US and Chinese calculations
of trade data (see figure 1). Although discrepancies frequently exist in trade partner
data, Chinese statistics have shown consistently higher figures for imports and lower
figures for exports for only one major trading partner--the United States. In large
measuFe, differences in US and Chinese valuation and classification methods have led to
the discrepancy. Time lags in recording trade flows also contribute to the gap, as do
differences in the conversion and aggregation of trade data between renminbi and US
dollar equivalents nd the treatment of transshipments through third parties, especially
Hong Kong.
China's exports to the United States increased 21 percent to $4.7 billion last year,
according to US Department of Commerce statistics, led by a nearly 70-percent increase
in exports of clothing, apparel, and footwear, which together accounted for more than
one-third of total US-bound exports. Beijing also significantly increased its exports of
electrical and power-generating machinery to the United States. At the same time, the
value of China's exports of petroleum and petroleum products, and nonferrous metals
showed substantial declines as prices dropped. Stricter US import controls on
nonferrous metals such as tungsten also contributed to lower sales. China's imports of
US goods fell by 19 percent to $3.1 billion, reflecting significant declines in purchases of
consumer goods and textile fibers, yarns, and fabrics as Chinese production of these
products increased. The value of US exports of petroleum and petroleum products,
inorganic chemicals, and some machinery and equipment showed gains.
Prospects for 1987
More Controls on Imports. Conservative Chinese officials opposed to trade
liberalization have called for a belt-tightening since the mid-January resignation of
General Secretary Hu Yaobang, indicating that trade levels--at least for imports--may
fall in 1987. In early February, People's Bank of China President Chen Muhua told a
visiting US diplomat that foreign exchange controls would be tightened and import
substitution policies followed more strictly--even to the extent of banning foreign
products of higher quality than those produced domestically. Later in the month, Vice
Premier Li Pang told a visiting French diplomat that foreign businessmen should be
prepared for possible contract cancellations and a closer review of future contracts.
Some cooperative projects would also be reviewed, according to Li, and possibly
cancelled.
There is increasing evidence that Beijing is implementing even more control over
hard currency spending. Some US Embassy sources report that a moratorium on
Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90TO0114R000200100001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90TO0114R000200100001-5
Figure 1.
United States-China Trade*
5 -1 ................................................................................................................................................!'
4 ........................................................................................................................y.........a..........
0
5 -4 ............. ............................................ .............................. 1;
C
0
I
? ...................... .... ..................................................
21- .. ...............................`. ;,#P!?
...... E? .................................................................................................................................
oI
1979 1980 1981 1982 1983 1984 1985 1986
* Based on US data.
Legend
US imports
US Exports
Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90TO0114R000200100001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90T00114R000200100001-5
imports has been instituted that may last six months--paralyzing import-dependent
industries that do not have long-term supply contracts. Last year, China imported
roughly $3 billion in raw industrial materials, a large portion of which were used in
export industries. A moratorium therefore would eventually affect hard currency
earnings from exports as well. We believe many of the large export-oriented state
enterprises that are dependent on imports are covered under long-term supply
contracts. However, many of these are only umbrella agreements under which
short-term contracts are carried out--most often quarterly--and therefore they, too,
may be affected by the new directive.
More Controls on Foreign Exchange. The new'import restrictions build on
already tight foreign exchange controls imposed in response to the rapid decline in
foreign_exchange during 1985 and early 1986. These controls, moreover, appeared to be
taking effect as the growth in imports was held to less than 2 percent last year and as
reserves were beginning an upward trend, according to the official reserves position last
November (see figure 2). This suggests that Beijing is facing a foreign exchange
shortage more severe than indicated in the $10.5 billion level of reserves posted last
Outlook for Bilateral Trade. According to US Embassy officers in Beijing, the
effects of China's foreign exchange crunch have been felt by many foreign companies,
and rumors that Beijing was suspending negotiations on foreign contracts for machinery
and equipment were generating significant concern. In their contacts with US
businessmen, most believed they would face increasing difficulty in obtaining future
contracts. Beijing's recent shift toward imports from the European Community may also
reduce the US market share in China. Given the more limited access by Chinese
enterprises to foreign exchange, we believe there will be more pressure for increased
use of barter and countertrade in purchases, possibly increasing the level of technology
imports from the Soviet Union.
While the import restrictions will most likely further lower US exports to China
this year, we believe Beijing will continue to press hard for exports to the United States.
The new position of textiles as China's premier foreign exchange earner will make
Beijing less amenable to limiting sales to the United States. Consequently, we expect
Beijing to take a hard line in this year's negotiations for a new bilateral textile
agreement.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90T00114R000200100001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90T00114R000200100001-5
Figure 2.
China's Official Foreign
Exchange Reserves
Bank of N
China Holdin s
State-Held
Reserves
Broadened definition of
calculating official
reserves begins
Adequate level of
reserves according
Ito Chinese officials
Total Reserves
Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90T00114R000200100001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90T00114R000200100001-5
China's Trade: New Austerity Measures for 1987
DISTRIBUTION:
National Security Council
1 - Doug Paal, Senior Assistant for China, Taiwan and Hong Kong, Rm 302
Old Executive Office Building
Department of Energy
1 - Douglas Faulkner, Rm GA257, Forrestal Building
Department of Defense
1 - Major William J. Suggs, Department of the Army, Office of the
Assistant Chief of Staff for Intelligence, DAMI-FII, Rm 2A474, Pentagon
Department of Treasury
1 - Douglas Mulholland, Deputy Assistant to the Secretary for Trade and Investment
Policy, Rm 4326, Department of Treasury
1 - Jonathan Hill, Office of East-West Economic Policy, Rm 4450, Department of
Treasury
Department of State
1 - Joan Plaisted, Office of East Asian and Pacific Affairs, Rm 4318, Department
of State
1 - William Newcomb, Office of Economic Analysis, Communist Economic
Relations Division, Rm 8448, Department of State
1 - Tom Fingar, Chief, Office of Analysis for East Asia and Pacific,
China Division, Rm 8840, Department of State
United States Trade Representative
1 - William Abnett, Director for Chinese Affairs, Rm 315, Old Executive Office
Building
Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90T00114R000200100001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90T00114R000200100001-5
Department of Commerce
1 - Jeffery Lee, Office of PRC and Hong Kong, Rm 2317, Department of Commerce
1 - Christine Lucyk, Office of PRC and Hong Kong, Rm 2317, Department of Commerce
1 - Myna Stoltz, Country Policy Analyst, Office of East Asia and the Pacific,
Rm 3820, Department of Commerce
3 - Betsy Hudson, Office of Intelligence Liaison, Rm 6854, Department of Commerce
Central Intelligence Agency
2 - Chief, China, Office of East Asian Analysis, China Division, Rm 4G20,
Headquarters
10 - Trade and Technology, Office of East Asian Analysis, China Division
Rm 4G32, Headquarters
1 - Chief, International Security, Office of East Asian Analysis
China Division, Rm 4G32, Headquarters
1 - Chief, Political Assessments, Office of East Asian Analysis
China Division, Rm 4G32, Headquarters
1 - Chief, Economic Assessments, Office of East Asian Analysis
China Division, Rm 4G24, Headquarters
1 - Office of East Asian Analysis, Systems Development Staff, Rm 4G48,
Headquarters
1 - Director, Office of East Asian Analysis, Rm 4F18, Headquarters
1 - DDI, Rm 7E44, Headquarters
1 - National Intelligence Council, Analytic Group, Rm 7E47, Headquarters
1 - Senior Review Panel, Rm 5G00, Headquarters
1 - President's Daily Brief Staff, Rm 7F30, Headquarters
1 - EA, National Intelligence Officer, Rm 7E62, Headquarters
1 - Chief, Product Evaluation Staff, Rm 7F24, Headquarters
1 - Chief, EA,Rm 5E18, Headquarters
1 - Intelligence Liaison Staff, Office of Current Production and
Analytic Support, Rm 7G50, Headquarters
5 - Control Branch, Office of Current Production and Analytic Support,
IMC, Rm 7G07, Headquarters
1 - D/DCI/DDCI, Executive Staff, Rm 7D60, Headquarters
1 - Chrono, Office of East Asian Analysis, China Division, Rm 4G20
Headquarters
1 - Production Officer, Office of East Asian Analysis, Rm 4G48, Headquarters
1 - FBIS/NEAAD/China Branch, Rm 306, Key Building
1 - LDA/AN/China, Rm 1H18
2 - Con ressional Liaison, Rm 7B02
1 - Rm 814 Key
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP90T00114R000200100001-5