THE BALANCE OF PAYMENTS OF THE SOVIET BLOC AND COMMUNIST CHINA WITH THE FREE WORLD 1948-53

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92B01090R000300020037-3
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• Document Page Count: 58
• Document Creation Date: December 9, 2016
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• Sequence Number: 37
• Publication Date: July 11, 1955
• Content Type: IR

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SECRET
ECONOMIC INTELLIGENCE REPORT
THE BALANCE OF PAYMENTS
OF THE SOVIET BLOC AND COMMUNIST CHINA
WITH THE FREE WORLD
1948-53
EIC-R-11
11 July 1955
Prepared Jointly by IAC and Other US Government Agencies
ECONOMIC INTELLIGENCE COMMITTEE
SECRET
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WARNING
This material contains. information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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ECONOMIC INTELLIGENCE REPORT
THE BALANCE OF PA7~I~PPS OF THE SOVIET BLOC
AND COMMUNIST CHINA WITH THE FREE WORLD
~9~-53
Prepared Jointly by IAC and Other US Government Agencies
ECONOMIC INTELLIGENCE COMMITTEE
S-E-C-R E-T
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FOREWORD
This report was prepared by the EIC Subcommittee on International
Trade and Finance on the basis of contributions from the Departments
of State and Commerce, the Federal Reserve Board, and the Central
Intelligence Agency. The study was undertaken in order to meet a
need for organized information on the balance of international pay-
ments of the Soviet Bloc and Communist China with the Free World,
no systematic study on this subject having previously been avail-
able. It should be noted that most balance of payments data are
essentially estimates. The data used in this report are the best
currently obtainable, but in some instances they are quite frag-
mentary and lead to only approximate results. These results are
useful, however, in that they indicate the general orders of
magnitude of the variables involved. It was possible to resolve
only partially a number of important problems related to the:
balance of .payments of the Soviet Bloc and Communist China with
the Free World. It is hoped that further research will provide
the basis for a more complete and reliable study on this subject.
This report was reviewed and concurred in by the EIC repre-
sentatives of the IAC agencies; of the Departments of the Treasury,
Defense, and Commerce; and of the Federal Reserve Board and the
Foreign Operations Administration.
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CONTENTS
Page
Summary . , . ? 1
I. Balance of Payments of the Soviet Bloc with the Free
World 5
II. Balance of Payments of Cc~munist China with the Free
World 10
III. Balance of Trade and Shipping of the Soviet Bloc
and Coannunist China with the Free World 16
Appendixes
Appendix A. Methodology Involved in Arriving at Soviet Bloc
Balance of Payments 21
Appendix B. Methodology Involved in Arriving at Communist
China's Balance of Payments ~+3
Appendix C. Note on Soviet Bloc and Ccenmunist China
Trade Data 51
1. Summary of Mayor Accounts in Soviet Bloe an3 Communist
China Balance of Payments with the Free Worlds 19+8
and 1950-53 ? 2
2. Balance of Payments of the Soviet Bloc with the Free World
1g~8-53 6
3. Balance of Trade and Shipping of Communist China
with the Free World, 1948 and 1950-53 ~
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Page
4.
Major Uses of Foreign Exchange by Communist China
in Payments to the Free World and Probable Sources,
Cumulative 1951 through 1953 ?
1~+
5.
Combined Trade and Shipping Accounts of the Soviet Bloc
and Communist- China with the Free World, 19+8 and
1950-53 .
17
6.
Estimated Shipping Costs as Percentages of C.I.F. Values
in Soviet Bloc Trade, 194-g-5o
22
7.
Soviet Bloc Imports and .Exports by Regions~F.O.B.
and C.I.F. Values, 1945-53
26
8.
Shipping Rate and World Price Movements, 1g45-53
2$
9.
Estimated Shipping Costs in the Trade of the Soviet Bloc
with the Free World, 194-8-53
29
10.
Soviet and Polish Trade as Percentage of Soviet. Bloc Trade
With the Mayor Regions of the Free World Other than
Continental Western Europe, 1g48-53
30
11.
Estimated Shipping Account in the Balance of Payments
of the Soviet Bloc with the Free Worlds 194.8-53 ?
32
12.
Swedish Deliveries to the USSR under the Loan Agreement
of ~6, 1945-5~+
33
13.
Compensation Payments for Nationalized Properties
Made by the Soviet Bloc to Western European Countries,
1950 -53 . . .
34-
14.
Selected Data on Known Changes in the Foreign Exchange
Holdings of the. Soviet Bloc, 19+8-53
36
15.
Soviet Bloc Sales of Gold to the West, 1950-53
4~0
16.
Adjustments for Estimated Shipping.Costs in Recorded Trade
of Cammunist~China with the Free World, 1948, 1950-53
45
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THE BALANCE OF PAYMENTS OF THE SOVIET BLOC
AND COMMUNIST CHINA WITH THE FREE WORLD
1948-53
Summary
1. This report presents the results of a study which attempted
to construct balance of payments accounts for the Soviet Blocs and
Communist Chinas with the Free World for the period 1948 through
1953?*~" A summary of the ma,~or balance. of payments accounts so con-
structed is given in Table l.~'~'
2. Merchandise trade* has been the largest factor affecting
the foreign accounts of the Soviet Bloc and Communist China with the
Free World. Total Bloc exports to Free World countries declined from
approximately $1.6 billion in 1948 to approximately $1.4 billion per
year in 1952 and 1953. Three-quarters or more of these exports --
over ~1 billion per year in 1952 and 1953 -- originated in the Soviet
Bloc countries. Bloc imports also declined over the period from
approximately $1.9 billion in 1948 to approximately $1.4 billion per
year in 1952 and 1953. The decline in the physical volume of trad2
was greater than these value figures may suggest, since prices rose
over the period considered.
3. The decline in Bloc-Free World trade since 1948 was accom-
panied by a sharp rise in intra-Bloc trade, associated with a con-
certed Bloc program of reorienting Satellite and Chinese trade.
There was, however, a temporary rise in trade with-the Free World
in 1951, largely as a result of the stockpiling activities and price
rises associated with the outbreak of hostilities in Korea.
* As used herein, the Soviet Bloc includes the USSR, Poland, East
Germany, Czechoslovakia, Hungary, Rumania, Bulgaria, and Albania.
~ Some 1948-49 data. on pre-Communist China are included in this
report for comparative purposes.
-~~ The data on the Soviet Bloc and on Communist China are developed
and for the most part presented separately because of the difficulties
involved in making much of the relevant material comparable. However,
combined trade and shipping accounts for the Soviet Bloc and Communist
China are presented.
~ Table 1 follows on p. 2.
~~ All references to trade in this report, unless otherwise indi-
cated, are to recorded trade (-see Appendix C, p. 51) as distinguished
from unrecorded trade.
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Summary of Major Accounts in Soviet Bloc
and Communist China Balance of Payments with the Free World
1848 and 1950-53
Million US $
1948
1950
1951
1952
1953
Soviet Bloc and Communist China ~*
(Trade and shipping accounts)
Exports, f.o.b. (Bloc ports)
1,640
1,475
1,514
1,369
1,380
Imports, f.o.b. (Free World
ports)
-1,936
-1,1+71+
-1,659
-1,373
-1,365
Balance on trade
-296
1
-145
-4
15
Balance on. shipping
-89
-5?:
-76
-35
-~
Balance on trade, s,nd shipping
-385
-50
-221
-3g
-25
Soviet Bloc
Balance on trade
-88
-6
-42
-37
-44
Balance on shipping
-53
-30
-40
-22
-24
Balance on trade and shipping
-11+1
-36
-82
-59
-68
Balance of capital movements
and transfers
167
46
79
67
4
Net changes in gold and foreign
exchange holdings
23
105
125
102
171
Errors and omissions
-49
-115
X122
-110
-107
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Summary of Major Accounts in Soviet Bloc
and Communist China Balance of Payments with the Free World
19+8 and 1850-53
(Continued)
Million US
19+8
1950
1951
1952
1953
Communist China
Balance on trade ~
-208
7
-103
33
59
Balance on shipping c/
-36
-21
-36
-13
-16
Balance on trade
and shipping
-2~+~+
-14
-139
20
~?3
Unrecorded imports ~
Negligible
Negligible
-86
-70
-93
Receipts covering above e~
2~+~+ ~
l~+
225
50
50
a. See Table 5,
p.
17,
below.
b. See Table 2,
p.
6,
below.
c. See Table 3,
p.
12,
below.
d. See pp. 13 and ~+8,
below.
e. Principally remittances from overseas Chinese, utilization of foreign
exchange holdings, and proceeds of unrecorded exports.
f. Includes $212 million of official grant aid to pre-Communist China.
~+. Soviet Bloc and Communist China trade with the Free World has
been more or less in balance during the post-World War II period. The
Bloc has had small but continuing def icits on shipping account, with
,both gross payments and receipts and net def icits on this account
small in relation to the trade account.
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5. The largest known capital movements and transfers to the Soviet
Bloc consisted of Finnish reparations and payments for German claims to
the USSR, which amounted to $96 million in 19+8 and totaled approxi-
mately $300 million for the period 1948 through 1952, when they were
completed; private remittances from the US which totaled approximately
150 million during 1948-53~ and deliveries to the USSR under the
Swedish loan of 1946, which totaled approximately $110 million during
the period of the study. Other capital movements were extremely small.
With virtually no "invisible" earnings available from such items as
tourism and shipping services any Bloc import balances not covered by
capital imports would have had to be financed by the use of gold
reserves, since foreign exchange holdings seem to have been limited.
The USSR, which has by far the largest gold reserves in the Bloc, seems
to have sold only minor quantities of gold to the Free World during
the period from the end of World War II to 1953. From 1949 to 1952 the
European Satellites sold gold at a rate which averaged somewhat less
than $100 million per year. In 1953, large quantities of gold were
placed on Free World markea:,s by the USSR, sales amounting to perhaps
$150 million. Preliminary data indicate a volume of sales by the USSR
of about $125 million in 1954?
6. The errors and omissions residuals in the Soviet Bloc accounts
indicate an excess of estimated receipts over estimated payments of
~i100 million to $125 million per year after 1949. Errors of signif-
icance relative to the size of these residuals may be involved in
almost all of the mayor items indicated, but it is believed that such
errors may be at least in part offsetting. A major item in the
omissions is unrecorded trade (not to be identified with illegal
trade-) .
7. Communist China incurred deficits on trade and shipping account
(including unrecorded trade) in each year of the period covered. The
foreign exchange receipts used to finance these deficits were obtained
primarily from remittances from overseas Chinese, utilization of foreign
exchange holdings, and the proceeds of unrecorded exports (largely
opium.) .
* See p. 1,-below.
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I. Balance of Payments of the. Soviet Bloc with the Free World.
1. The major items in the balance of payments of the Soviet Bloc
with the Free World for the period 1948 thrt~ugh 1953 are summarized
in Table 2.* During this period the value of commodity exports. of the
Soviet Bloc declined from approximately $1.4 billion in 1948 to under
$l.l billion in 1953. There-was a moderate increase to approximately
~1.2 billion in 1951. During 1952 and 1953, exports amounted to some-
what less than ~1.1 billion per year.
2. Imports have follcswed a generally similar movement, declining
from an annual level of $1.4 billion to X1.5 billion in 1948-49 to an
annual level of $1.1 billion to $1.2 billion from 1950 through 1953?
Fluctuations in imports were somewhat greater than fluctuations in
exports. Imports declined to approximately the level of exports in
1950, rose more than exports during the general post-Korean scramble
for imports in 1951, and declined about as much as exports during
1952 and 1953? It should be noted that these data are in value terms
and because of price changes during the period do not imply equivalent
quantity changes.
3. The decline in the trade of the Soviet Bloc with the Free
World -- both imports and exports -- from 1948-49 to 1950-53 was
accompanied by an increase in antra-Bloc trade associated with the
Bloc policy of economic integration and reorientation of trade toward
Bloc partners. Bloc trade with the Free World during the 1950-53
period was approximately in balance. The average annual trade deficit
during this period was about $35 million compared to $120 million
during 1948-4g.
4. The estimated deficit on shipping account has not varied
greatly over the period 1948-53. The over-all trade and shipping
accounts show approximately the same movement toward balance as do -the
trade data. The deficits were reduced from an average of almost $70
million in 1948-49 to approximately $35 million in 1950 and an average
of nearly $70 million during 1951 through 1853?
5. During the 1948-53 Period the Soviet Bloc obtained foreign
exchange through long-term capital transactions, unilateral transfers,
short-term credits, and gold sales which enabled it to maintain deficits
on current account (that is, import surpluses). The decline in theme
~ Table 2 follows on p. 6.
~ Continued on p. 8.
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size of the annual current account def icits during the period was
accompanied by a decline in receipts on capital account resulting from
the following factors:
a. The reduction in Finnish payments for reparations and former
German claims from an average of about $87 million a year in 1948-49 to
an average of $42 million a year in 1950-52 and their cessation after
1952.
b. The virtual cessation of deliveries under the Swedish-
Soviet loan agreement after 1952.
c. An apparent depletion of foreign exchange holdings and
increase in short-term liabilities to foreigners (usually taking the
form of deficit positions on clearing account).
d. The reduction in private remittances from the US from
$5l million in 1948 to an average yearly rate of $15 million in 1950-53?
Ei. Net receipts on capital account declined from $167 million in
1948 to $46 million in 1950. They amounted to a mere $4 million in 1953?
Of the decrease of $121 million from 1948 to 1950, $61 million was
accounted for by the decline in Finnish payments for reparations and for
former German claims transferred to the USSR, and $36 million by the
reduction in remittances from the US. Net receipts on capital account
rose $21 million from 1950 to 1952 but reached only 40 percent of their
1948 level. The increase was due mainly to an increase in deliveries
under the Swedish loan. Compensation payments for properties national-
ized by the Satellites began in 1950 but were small. The end of Finnish
reparations and of deliveries under the Swedish loan explains the near-
disappearance of Soviet Bloc receipts on capital account in 1953?
7. On the basis of the estimates indicated in Table 2,* receipts
on capital account provided slightly more than enough financing to
cover the current account def icits in 1948, 1950, and 1952 and to
finance virtually the whole of the def icit in 1951. During 1949 they
financed approximately 60 percent of the def icit. In 1953, however,
their contribution to financing the deficit was negligible. In all
years of the period covered, reductions in US dollar and :continental
European foreign exchange holdings provided additional financing to
the Soviet Bloc. The data suggest that in 1948 Bloc transactions were
p,
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carried out in such a manner as to reduce the Bloc's US balances by
about $50 million and to increase balances in continental Western.
Europe, particularly Belgium, by approximately the same amount. From
1949 through 1953, however, there seems to have been a steady reduction
of known balances in the US and in Europe totaling somewhat more than
$100 million. Soviet gold sales at the end of 1953 ~Y ~Ve been made
at least in part for the purpose of replenishing working foreign
exchange balances drawn down as a result of a general balance of pay-
ments stringency.
8. Changes in the Soviet Bloc's sterling balances are not con-
sidered explicitly in this report. Even though the Bloc maintains
.sizable sterling balances for use as working capital in foreign trade
operations, there is reason to believe that variations in the Soviet
Bloc's sterling balances were of little importance over this period.
9. Gold sales of about $100 million per year in 1950-52 and
$150 million in 1953 have been reported. Preliminary data indicate a
volume of sales of about $125 million in 1954. On the evidence of the
available data, there appear to have been no gold sales by the Soviet
Bloc in 1948, but sales of about $100 million may have been made in
1949.
10. The errors and omiss~:ons items in the Soviet Bloc foreign
accounts are residuals which result from the fact that total-receipts
of foreign exchange and total payments as calculated in this report
are not equal. The values of these residuals indicate that total cal-
culated receipts were greater than total calculated payments by about
$50 million per year in 1948 and 1949 and by $100 million to~$125 million
per year in 1950 through 1953? A mayor omission in the available data
that accounts at least in part for these differences is unrecorded trade
in which a net import balance almost certainly obtained, at least during
the later years of the period under study. Other am.issions in the
available data include changes in sterling balances, in some clearing
balances with Western European and Latin American countries, and in
Swiss franc balances; net payments for services (including those for
diplomatic missions) other than shipping; and net payments or receipts
of foreign exchange by the Soviet enterprises in Austria. The resid-
uals are affected not only by omissions but also by errors in the
estimates of listed items. Such errors may have been fairly large
* Known as Upravleniye Sovetskaya Tmushtchestva v Austria (USIA), or
Administration of Soviet Property in Austria.
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relative to the size of the residuals, particularly in the shipping
account and gold sales estimates. In the case of gold sales, it is
estimated that there is a probable range of error of ? $30 million
per year in 1952 and 1953 and somewhat more than this in 19+9.
Trade data derived indirectly from the reports of Free World trading
partners are subject to error, and errors may also have developed in
the process of converting these trade data denominated in foreign
currencies to US dollar equivalents. Some errors were also involved,
in all probability, in arriving at our shipping account estimates.
11. It has been suggested that the values of the errors and
omissions residuals might be used as estimates of Soviet Bloc pay-
ments abroad for unrecorded trade including illegal imports of
strategic goods* and of Bloc payments for Communist activities in
the Free World. Such an interpretation, however, should not be
made. The errors involved in the "recorded" balance of payments
items, from which the residuals were derived, could be so large
relative to the residuals that the values of the residuals as such
cannot be used as precise estimates of any spec if is variable or
variables. It appears, however, that the accounting of total Bloc
earnings and uses of Free World foreign exchange in this report does
indicate, in an approximate manner, the general order of magnitude
of the volume of Free World financial resources which have been
available to the Bloc for financing unrecorded transactions~'~tith the
Free World. It is hoped that in future studies a mere precise esti-
mate of the magnitude of these resources can be made, using as a basis
the known "recorded" items and the appropriate ranges of error in-
volved.
II. Balance of Payments of Communist China with the Free World.
1. Historically, China has incurred large def icits on trade and
services account, which def icits before the Communist regime were
financed largely by personal and institutional remittances from over-
seas Chinese. The same basic pattern appears to have continued under
the Chinese Communist regime in its balance of payments with the Free
World.
~ Unrecorded trade is not to be identif ied with illegal trade.
See p. ~+1, below.
~? Not to be identified with Communist expenditures abroad financed
by contributions, earnings, and the like, obtained from Free World
sources, which expenditures involve no financial transfers from the
.Soviet Bloc to the Free World.
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2. In 1846-~+$, Chinese exports to the Free World avera ed about
$250 million per year, and imports averaged slightly above 820 million,
although they declined sharply over this period to a low of approxi-
mately $460 million in 1948.* The import surpluses during this period
were financed largely by governmental grants and loans (mainly UNRRA
grant assistance and US grant and loan assistance), which averaged
370 million per year, and by private remittances, which averaged
115 million, leaving a balance averaging $84 million, which was
financed by the sale of foreign securities and short-term foreign
assets.
3. Data for 1949 are not available. The balance of payments of
Communist China since 1949 shows important differences from the earlier
period. These have, in general, reflected the cessation of off icial
grant and loan assistance; a downward movement of remittances, par-
ticularly institutional remittances; and the virtual nonexistence of
official gold and foreign exchange reserves which could be drawn upon.
4. In 1950, Communist tyhina had a small. export surplus which was
the result of an increase in exports of 60 percent above the 1946-48
average level and a reduction in imports of 14 percent from the 1948
level and of over 50 percent from the 1946-48 average level.
5. In 1951, China incurred a deficit on recorded trade account of
approximately $100 million, which was the result of a 20-percent drop
in exports from the 1950 level. In 1952 this deficit position was
replaced by a trade surplus as a result of a 50-percent drop in imports
following the coming-into effect of Western export controls in June
1951. In 1953, both exports and imports increased slightly over 1952
to $322 million and $263 million, respectively. The surplus on trade
and shipping was approximately $40 million. A summary of the trade
and shipping accounts c1f continental China with the Free World for
1948 and 1950-53 is given in Table 3.~
6. Services other than shipping are believed to be a minor item
in the Chinese Communist balance of payments. It is believed that
they involve net payments or receipts of no more than a few million
dollars per year.
-~ See International Monetary Fund, Balance of Payments Yearbook,
1948, U.
~ Table 3 follows on p. 1.2.
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7. Western security controls on exports to Communist China were
first imposed after the Korean attack in 1950 and did not become
effective until 1951. It can be assumed that unrecorded imports in
1950 were small. Given the fact of a small export surplus ~in 1950,
the bulk of remittances in that year were probably added to the
meager foreign exchange reserves. Unrecorded imports became signif-
icant in 1951, amounting to approximately $86 million in that year.
They continued at about the same level in 1952 and 1953, when they
amounted to approximately $70 million and $93 million, respectively.
The cumulative total of unrecorded imports for 1951 through 1953 is
thus estimated at approximately $250 million. Unrecorded imports
are not the same as illegal imports.' The estimates indicated for
unrecorded imports should not, therefore, be used as estimates of
illegal imports.
8. No separate estimates for shipping charges on unrecorded
imports were made. The mayor portion of unrecorded imports into China
involved transshipments from Western Europe via Gdynia. Charges on
shipments from Gdynia moving on Bloc vessels. would not be relevant
to this report. Available information does-not permit an estimate
of shipping charges. Such shipping charges are, however, considered
to have been small relative to total payments.
9. Communist China incurred def icits on trade and shipping account
(including unrecorded trade) in each -year of the period covered. The
foreign exchange receipts used to finance these def icits were obtained
primarily from remittances from overseas Chinese, utilization of foreign
exchange holdings, and the proceeds of unrecorded exports (largely opium).
The totals of receipts covering these def icits are residual balances, but
the remittances are based on independent estimates. It is believed that
foreign exchange was available to cover .the def icits on trade and shipping
account amounting to $2~+~+ million and $14 million in 19+8 and 1950, as
indicated in Table 1. For the period 1951 through 1953, Communist
China incurred a cumulative def icit on recorded trade and shipping
account of approximately $75 ~-llion.? As indicated in paragraph 7, above,
unrecorded imports during the same period of 1951 through 1953 have been
estimated at $250 million. The total def icit on recorded trade and
* These estimates of unrecorded trade were obtained from National
Intelligence Survey 39, China, Section 65 on "Trade and Finance,"
MaY 195+, PP? 56-57, s.
~ See p. 41, below..
P. 2, above.
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shipping and unrecorded trade during 1951 through 1953 thus amounted to
$325 million. It is believed that foreign exchange was available to the
Chinese Communists in sufficient volume to cover this deficit of $325
million over the 3-year period, but little is known regarding annual
availabilities of foreign exchange.
10. The major uses of foreign exchange by Communist China in
payments to the Free World for unrecorded imports and to cover its
def icit on recorded trade and shipping account and the probable
sources,, on .a cumulative basis for 1951 through 1953, are summarized
in Table ~+.
Major Uses of Foreign Exchange by Cc~nmunist China
in Payments to the Free World and Probable Sources
Cumulative 1951 through 1953
Million US $
Uses
Sources
Def icit on recorded
Remittances
200
trade and shipping
75
Unrecorded imports
250
Other sources of
foreign exchange
125
Total uses
325
Total sources
325
The estimate indicated for total sources is not an estimate of all
sources of foreign exchange available to the Chinese Communists in this
period but rather represents sources believed.to have been drawn upon
to finance the payments indicated f`or trade and shipping. Additional
sources may have been available to the Chinese and may have been used
~ Thus the receipts data indicated in the bottom line of Table 1
(p. 3, above) for the years 1951, 1952, and 1953 represent only an
arbitrary distribution of the $325 million figure indicated.
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by them to make transfers to the Soviet Bloc- to accumulate reserves
and~or to finance a possible deficit with the Free World on other
than trade and shipping accounts.
11. The Chinese Communists had virtually no gold and foreign
exchange holdings at the beginning of 1950, all off icial reserves
having been sent. abroad previously by the Nationalist government.
Remittances from overseas Chinese constituted the principal source of
funds used to finance the def icits on recorded and unrecorded trade
and shipping. Estimates of remittances to China during this period
vary widely. Most estimates for 1951 cluster around 100 million.
Recent reports indicate a marked fall in 1852 and 1953 to perhaps
$50 million per year or less. The principal other sources of foreign
exchange available to the Chinese Communists are believed to have been
from the sale of Hong Kong and US currency which formerly circulated
on mainland China, the use of foreign exchange balances accumulated
in 1950, and the proceeds of unrecorded exports (principally opium).
12. Up to 50 million US dollars in Hong Kong currency is believed
to have been circulating in South China during 1950. In addition,
probably several million dollars of US currency previously spent by
US troops in China remained in private hoards. It is known that the
Communist government aaa.de vigorous attempts to collect these privately
held foreign currencies. The Chinese Communists earned a balance of
payments surplus during 1950 which probably permitted an accumulation
of foreign exchange reserves of somewhat over $50 million. Part of
these reserves may have been drawn upon during the 1951-53 period.
During this period, attempts were also made to draw gold and silver out
of private hoards: $15 million per year may have been sold in Macao
and Hong Kong. Estimates of Chinese Communist receipts from opium sales
as such are not available, but some part of the remittances indicated
in Table ~+~ is thought to have been in payment for opium exports.
13. There was a substantial capital flight from Communist China
in 1950 and 1951, but this is not considered in this report,primarily
because of the unavailability of appropriate data. In any event, it
is believed to have taken the form of a reduction of private hoards
of specie and foreign currencies, so that its effect on Communist
China's balances of payments probably was indirect and small.
* Transfers of Foreign exchange to other. members of the Soviet Bloc
are believed to have taken place. However, no good estimates of the
amounts involved are available.
~' P. 1~+, above .
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14. In summary, the Chinese Communists earned a surplus on recorded
trade and shipping accounts in 1952 and 1953, reversing their deficit
position Qf 1950 and 1951. Despite a decline in remittances over the
period, they also were able to finance a signif scant value of unrecorded
trade from 1951 through 1953?
III. Balance of Trade and Shipping of the Soviet Bloc and Ccenmunist China
with the Free World.
1. In general, this report deals separately with the foreign accounts
of the Soviet Bloc on the one hand and of Communist China on the other.
However, combined trade and shipping accounts for each year of the period
except 1849, for which year data on China's trade are not available, were
constructed in order to permit the drawing of conclusions regarding
changes in trade between the Free World and the Soviet Bloc and C ~-
munist China. These combined trade and shipping accounts are shown
in Table 5.~' The balance of payments accounts other than trade and
shipping of the Soviet Bloc and Communist China were not combined,
because it was not possible to make estimates of Chinese Communist
capital account receipts and expenditures or of changes in Chinese
foreign exchange holdings comparable to those made for the Soviet Bloc.
2. Exports of the Bloc to the Free World show a downward trend
fran about $1.6 billion in 1948 to about $1.4 billion in 1852 and 1953?
Imports, including those of Nationalist China financed through off icial
grant and loan aid in 1948, show a steeper downward trend frrom about
$1.9 billion in 1848 to about $1.4 billion in 1952 and 1953?
3. Trade of the Soviet Bloc and Communist China resulted in annual
trade surpluses or def icits of less than $20 million in 1850, 1952, and
1953. In 1951 there was a def icit of 145 million. It may be noted-that
most of the total Bloc deficits in 1948 and 1951 were accounted for. by
Communist China's def icits. In 1952, C anmunist China's surplus reduced
the Bloc def icit to $4 million, and in 1953 china's surplus more than
offset the Soviet Bloc's def icit. As a consequence, the Bloc as a whole
in 1953 had a surplus on trade account.
* It will be remembered that China was nat a member of the Bloc in
1948 and 1949?
~ Table 5 follows on p. 17.
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~+. Bloc payments on shipping account ranged from approximately
125 million in 1951 to about $75 million in 1953. Bloc earnings
averaged approximately ~1+U million per year in this soma period.
These receipts were earned primarily by the merchant marines of the
USSR and of Poland, these two Bloc countries alone having sizable
merchant marines. The deficit on shipping account in Bloc-Free
World trade is estimated at between approximately $35 million and
$90 million per year for the period of the report.
5. Taking both trade and shipping accounts into consideration,
the Bloc as a whole from 1950 onward incurred def icits of less than
100 million per year except in 1951, when the deficit amounted to
over 200 million.
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APPENDIX A
METHODOLOGY INVOLVED IN ARRIVING AT SOVIET BLOC BALANCE OF PANTS
1. As is indicated in Appendix C, Soviet Bloc exports are generally
recorded as Free World trading partner imports c.i.f. the Free World
country involved, and Bloc imports are generally recorded as Free World
trading partner exports f.o.b. the Free World country involved. As a
consequence, recorded trade data on Bloc-Free World trade overstate
Bloc receipts and understate Bloc payments. In order to make-the
appropriate adjustments, it was necessary to estimate total shipping
charges on Bloc-Free World trade and the portions of those charges which
were earned by the Free World on the one hand and the Bloc on the other.
2. In estimating total shipping charges, the regional distribution
of Soviet Bloc-Free World trade was an important consideration. Esti-
mates of the percentages represented by ocean shipping costs of the
total delivered (c.i.f.) values of goods imported by various Free World
countries or groups of countries from other Free World .countries or
groups of countries during the period January-September 19+9 and
calendar year 1950 were obtained from. a study of the International Bank
for Reconstruction and Development (IBRD).~' In the present report, it
was assumed that the cost of moving goods -- measured as a percentage
of c.i.f. values -- between a specified region of the, Free World and
the Soviet Bloc in 19+9-5o was the same as that of moving goods between
that region and a Free World area or areas adjacent to the Soviet Bloc
(for example, Scandinavia or Turkey). This assumption requires for its
validity that the average value per ton of goods moving in Bloc-Free
World trade and the cost of shipping per ton in this trade be the same
as in the trade between the Free World regions spec if ied and the Free
World areas indicated adjacent to the Bloc. An examination of the trade
moving between the spec if ied Free World regions and the indicated Free
World areas adjacent to the Bloc on the one hand, and of trade between
those regions and the Bloc on the other, disclosed that the assumption
is a reasonable one, except in the case of Bloc trade with continental
Western Europe.
~- International Bank for Reconstruction and Development, Economic
Department, The Shipping Account in the World Balance of Payments,
27 May 52, U.
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3. In the case of .this Soviet Bloc trade with continental Western
Europe -- which averaged over 60 percent of total Soviet Bloc trade
with the Free World during the 19+$-53 Period -- imports and exports
are carried partly by sea and partly by rail, and many of the imports
involved are high-value, low-weight connn.odities. The I:BRD study
results, which were based on ocean shipping costs, were not appropriate
for the purpose of determining the shipping costs involved in this
trade. An examination of the shipping costs of leading commodities in
this trade indicated that these costs averaged approximately 10 percent
of the c.i.f. value of Bloc exports and 5 percent of Bloc imports. The
higher figure for Bloc exports than for imports is the result of the
higher proportion of bulky raw materials in Bloc export trade. The
figures of 10 percent and 5 percent of c.i.f. value were used in
arriving at estimates of the total shipping costs involved in trade
between the Soviet Bloc and continental Western Europe.
~+. The costs of shipping goods, measured as percentages of c.i.f.
values during the period 191+9-50, used in computing total shipping
casts on Soviet Bloc trade are given in Table 6.
Estimated Shipping Costs as Percentages oP C.I.F. Values
in Soviet Bloc Trade
191+9-50
Trade of the Soviet Bloc With:
Soviet Bloc Exports
Soviet Bloc Imports
US and Canada
12 ~
12
UK
12 cf
9
Continental Western Europe
10 ~
5
Other sterling areas
13 ~
11+
Other Asian and African areas
16 hf
13
Latin America
12 ~
13
a. International Bank for Reconstruction and Development, Economic Depart-
ment, op. cit.
b. Where no data on freight payments were available, an average figure of
12 percent of total c.i.f. import values was used, as was done in the
source cited.
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Table 6
Estimated Shipping Costs as Percentages of C.I.F. Values
in Soviet Bloc Trade
1948-50
(Continued)
c. Average of ratios of shipping costs to total c.i.f. values of
imports by the UK from Finland and Yugoslavia.
d. Average of ratios of shipping costs to total c.i.f. values on
imports by Norway, Sweden, Turkey, and Greece from (in each case) all
other OEEC countries. (The OEEC countries are as follows: Austria,
Belgium, Denmark, France, Federal Republic of Germany, Greece, Iceland,
Ireland, Italy, Luxemburg, the Netherlands, Norway, Portugal, Sweden,
Switzerland, Turkey, and the UK.) The UK and continental Western
Europe were included in the single category of "OEEC Countries" in the
IBRD study on shipping costs. The 9-percent figure for the ratio of
shipping costs to total c.i.f. values on imports by Norway Sweden,
Turkey, and Greece (as representative of Soviet-Bloc ports] Prom the
other OEEC countries was considered appropriate for Bloc imports from
the UK, but not far those from continental Western Europe, as indicated
in paragraph. 3, above. This 9-percent figure was considered .appropriate
in the case of Bloc imports from the UK, because Bloc-UK trade, unlike
Bloc-continental Western European trade, is carried almost entirely by
sea, so that the results of the IBRD study, based on ocean shipping
costs, are relevant and the distances involved in the two trade flows
are comparable.
e. Independent estimates (not. based on IBRD study) arrived at as
indicated on p. 22, above.
f. Average of ratios of shipping costs to total c.i.f. values on
imports by India, Ceylon, and Burma, from Finland.
g. Average of ratios of shipping costs to total c.i.f. values of
imports by Greece, Turkey, Norway, and Sweden from India, Ceylon,
Australia, and other nonparticipating (in QEEC) sterling areas.
h. Ratio of shipping costs to total c.i.f. values on imports by non-
sterling Middle East from Finland.
i. Average of ratios of shipping costs to total c.i.f. values on
imports by Greece and Turkey from nonsterling Middle East, UK dependent
overseas territories, and other OEEC-country dependent overseas terri-
tories.
~. Average ratio of shipping costs to c.i.f. values of imports by OEEC
countries from Latin America.
_ 23 _
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5. Shipping costs in the years 1848 and 1g51-53 were not the same
proportion of c.i.f. values as in 1949-50, data for which are indicated
in Table 6,* because shipping rates in the period under study did not
move at the same times or in the same degree as did the prices of the
commodities traded. It was necessary, therefore, to make an adjustment
for shipping rate changes over the period in order to arrive at appro-
priate estimates of total shipping costs for each year of the period
other than 1949 and 1950. This adjustment did not have to take into
account the entire change in shipping rates but only such changes as
were greater than or less than the changes in commodity prices. The
adjustment was made in the following manner. First, a preliminary
estimate of shipping costs was obtained by multiplying the recorded
trade data indicated in Part I of Table 7~' by the appropriate figure
representing shipping costs as a percentage of total value from
Table 6.- The resulting estimate of shipping costs was then adjusted
by multiplying it by our index of the ratio of shipping rates to world
prices for the appropriate year,* indicated in Table 8.~~ This
resulted in estimates of total shipping costs for Soviet Bloc imports
and .exports for each year of the period under study. The total shipping
costs thus obtained are indicated in Table g.A~~ These total
shipping costs were also used to calculate c.i.f. import values from. the
~ P. 22, above.
-x-~ Table 7 follows on p. 26, below.
~-x-~ The cost of shipping is, of course, a larger percentage of f . o.b .
than of c.i.f. values. If shipping costs are 9 percent of c.i.f. values,
for example-, they are 10 percent of f.o.b. values. In making the adjust-
ment indicated for Bloc exports, based on Free World c.i.f. values, the
percentages indicated in Table 6 were used directly. For Bloc imports
which are based on Free World f.a.b. values, the procedure used was as
follows: The percentages indicated in Table 6 were subtracted from
100 percent, and the reciprocals of these differences were multiplied
by the f.o.b. values to give the total c.i.f. values. The differences
between the f.o.b. and c.i.f. values represent shipping costs.
~- This adjustment was not applied to the shipping costs on trade
between the Soviet Bloc and continental Western Europe. A large portion
of this trade moved by rail. Rail freight rates are typically "sticky"
prices, whereas seaborne shipping rates were quite volatile during this
period. It was ass~ed that the movements in these two categories of
shipping rates more or less offset each other and that as a result the
adjustment was not required.
*-~ Table 8 follows on p. 28, below.
~* Table g follows on p. 29, below.
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recorded f.o.b. import values, and f.o.b. export values from the
recorded c.i.f. export values. These data are shown in Part II of
Table 7, and Table 7 thus shows Bloc imports and exports valued f.o.b.
(the totals here are the same as those in Table 2*) and valued c.i.f.
The differences in each case represent shipping costs.
6. The total shipping charges on trade between the Soviet Bloc
and the Free World (shown in Table 9) were, of course, paid for partly
by the Bloc and partly by the Free World. In allocating these costs
between the Soviet Bloc and the Free World, it was assumed that in
trade with countries other than those of continental Western Europe,
one-half of Soviet and of Polish trade with the Free World moved on
Bloc vessels (only the USSR and Poland among Bloc countries have sizable
merchant marines); that trade with the Free World of the European
Satellites other than Poland all moved on Free World vessels; that Bloc
vessels did not carry goods moving between Free World ports; and that
Free World vessels did not carry goods moving in antra-Bloc trade. In
allocating shipping charges on Bloc trade with continental Western
Europe, it was assumed that 25 percent of this trade moved on Bloc
facilities and 75 percent on Free World facilities.
7. These assumptions were based on incomplete inf ormation and are
regarded as no more than reasonable approximations of the true variables
involved. Each of the assumptions indicated taken by itself is not
.necessarily valid. For example, the assumption that Free World vessels
were not used in antra-Soviet Bloc trade is not wholly correct. The
countries of the Soviet Bloc charter some Free World vessels for use in
antra-Bloc trade. The utilization of Bloc vessels by the Free World in
non-Bloc trade is much less common. It is considered on the basis of
all available information that the Soviet Bloc incurs a deficit on
shipping account with the Free World. The assumptions indicated above
used in allocating shipping costs as between the Bloc and the Free
World reflect the apparent tendency of .the Bloc to employ Free World
shipping facilities in order to ease the strain on its own limited~~
~ P . ,~- above .
~~ The difference between the c.i.f. and f.o.b. values for a given
volume of exports or imports is made up of total shipping costs,
including freight charges, port disbursements, and insurance charges.
Insurance charges are typically a small part of total shipping costs.
No explicit consideration was given to insurance costs in the IBRD
study cited above or in this report. It is believed that the resulting
error is a minor one.
~~ Continued on p. 28.
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transport facilities. It is believed that the errors involved in
making the several assumptions indicated tend to be offsetting and that
taken together on balance they provide an appropriate basis for the
division df total shipping costs on Bloc trade with the Free World into
Bloc payments on the one hand and receipts on the other.
Shipping Rate and World Price Movements
1948-53 a/
(1)
(2)
(3)
Shipping $ate
Index b
Index of Average
of World Export
and Import Prices
Index of Ratio
of Shipping Rates
to World .Prices ?/
1948
133
110
121
1949-59 ~
loo
loo
100
1951
159
118
135
1952
114
115
99
1953
94
102
92
a. International Monetary Fund, International Financial Statistics.
various issues, 1950-54, Washington, D.C. U.
b. Average of shipping rates for Norwegian, Swedish, Danish, and UK
tramp steamers.
c. Column 1 divided by column 2.
d. January-August (that is, pre-devaluation) period only for 1949,
8. In order to allocate total .shipping costs on Soviet Bloc-Free
World seaborne trade as between Bloc payments and Bloc receipts, it was
necessary to compute the percentage that combined Soviet and Polish
import and export trade with the major regions of the Free World other
than continental Western Europe constituted of total Soviet Bloc import
and export trade with those regions, in each of the years from 1948
through 1953? The resulting percentages are shown in Table 10.*
Table 10 follows on p. 30.
S-E-C-R-E-T
1949-50 =loo
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9. Soviet Bloc earnings on shipping account for each year of the
period covered were obtained by multiplying one-half of the USSR's and
Poland's combined percentage of Soviet Bloc exports to the Free World
exclusive of those to continental Western Europe by the estimated total
cost of shipping those exports and adding one-fourth of the cost of
shipping Bloc exports to continental Western Europe. Bloc payments
were obtained by multiplying the percentage of total imports from Free
World areas exclusive of imports from continental Western Europe pur-
chased by the Satellites other than Poland by the estimated total cost
of .shipping those imports, adding one-half of the USSR's and Poland's
combined share of the total cost of shipping those imports, and adding
three-fourths of the cost of shipping Bloc imports from continental
Western Europe. The resulting data are shown in Table 11.*
10. It would be desirable, of course, to have an estimate of the
Soviet Bloc shipping account obtained in a more direct manner than
that explained above. The assumptions on which the shipping account
was constructed are at best only partially valid and the results no
more than approximations, but they are the best available at this time.
It is hoped that more information on Bloc shipping earnings and pay-
ments will become available in the future and that a more accurate
shipping account in the Soviet Bloc balance of payments with the Free
World can be constructed at such time as a new report on this subject
is prepared.
11. The items included under the Capital Movements and Transfers
heading in Table 2,~ are not complete, but all available information
on this subject has been compiled and presented. Data on private
remittances from. the US were taken from US Department of Commerce
balance of payments data. Data concerning Finnish reparations pay-
ments and payments for German claims and data concerning Polish
repayments of the 19+5 Swedish loan were obtained from the Inter-
national Monetary Fundy Balance of Payments Yearbook 1y47-53. Czech
drawing on the International Monetary Fund was obtained from the
International Monetary Fund, International Financial Statistics.*
~ Table 11 follows on p . 32.
~ P. 6, above.
The financial counterpart of reparations payments from Finland
to the USSR, which have been added to the statistics of Finnish exports
to the USSR, were used in arriving at total Free World exports to the
USSR in this report (these reparations payments ceased at the end of
1952).
~ International Monetary Fund, International Financial Statistics,
Washington, D.C., Sep 5~+, vol 7, p. 11.
- 31 -
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Data on Swedish deliveries to the USSR under the 1946 loan agreement
are presented in some detail in Table l2. Data on compensation pay-
ments for nationalized properties are presented in Table 13.*
Swedish Deliveries to the USSR
under the Loan Agreement of 1946 a/
1948-54
Cumulative
to the Beginning of the Year
1948
19?+9
1950
1951
1952
1953
1954
Swedish Crowns
43
99
152
229
379
55o c/
562
Deliveries during the Year
Swedish Crowns
US Dollars
56
15.6
53
13.1
77
14.g
150
29.0
171
33.0
12
2.3
a. International.Monetary Fund, Balance of Payments Yearbook~l9 7-53,
Washington, D.C.~ Sep 1954, vo1 5~ U.
b. Converted at prevailing official exchange rates.
c. The Swedish government reported that the cumulative amount of credit
which had been extended to the USSR at the end of 1952 was 555 million
kroner. The reported deliveries above total 550 million kroner.
Presumably the difference of 5 million kroner is due to the lag
between deliveries and charges against the credit account.
Table 13 follows on p. 34.
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Compensation Payments for Nationalized Properties
Made by the Soviet Bloc to Western European Countries ~~'
1950-53
Million US $
1950 ~
1951
1952
1953
1950-1953
Switzerland
Czechoslovakia
7.5
1.0
1.0
1.0
10.E
Hungary
2.3
0.6
0.6
0.6
~-.l
Rumania
6.~+
0.9
o.g
8.2
Total
9.8
8.0
2.5
2.5
22.8
Franc e
Czechoslovakia
0.5
0.6
0.5
0.5
2.1
.Hungary
0.2
0.2
Poland
3.0
3.0
3.0
g.0
Total
0.5
3~6
3.7
3.5
11.3
ux
Czechoslovakia
3.7
3.7
3.8
3.8
15.0
Sweden
Hungary cf
0.5
0.5
0.5
1.5
Poland
1.8
3.6
2.6
2.6
10.6
Total
1.8
~-.1
3.1
3.1
12.1
Totals ~
15.8
1g.?+
13.1
12.g
61.2
~- Footnotes for Table 13 follow on p. 35?
-3~+-
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Table 13
Compensation Payments for Nationalized Properties
Made by the Soviet Bloc to Western European Countries a~
1950-53
(Continued)
a. Commerce, Office of International Trade, European Division; State
IR-5976.2, East-West Trade and Trade A reements France Poland, p. 15,
6 Sep 53, S. Payments included in the table are: 1 spec if is pay-
ments known or believed to have been made,- and (2) equal periodic pay-
ments at the rate required to meet the total amount required by an
agreement when such an agreement was known or believed to be operative.
b. There were no known compensation payments before 1950.
c. Includes payments-for claims other than nationalized properties.
d. .Table excludes probable off icial compensation to the Netherlands,
for which no information was available, and direct compensation to
private firms.
12. Data on changes in gold and foreign exchange holdings were
obtained from a number of sources. Changes 3n foreign-held US dollars
balances were obtained from the Federal Reserve Board, Federal Reserve
Bulletin. Only the USSR was covered for 19~-8-50. Thereafter Poland,
Czechoslovakia, and Rumania were also covered. Changes in continental
European balances are elaborated in Table 14.E The item "changes in
other balances" includes an increase of $17 million in 19+8 in Rumania's
indebtedness to Argentina, and a decrease of the same amount in 1950,
when a reported gold shipment by Rumania to Argentina is believed to
have repaid the 19-8 debt. This shipment was included in the data on
gold sales. Gold sales data, as estimated on the basis of intelligence
reports, are presented in Table 15.-~ Changes in US currency holdings
were based on Federal Reserve data.
13. There may be significant errors in the several estimates which
errors affect the errors and omissions residuals. The probable range
of error appears to be largest in the case of the shipping account and
gold sales estimates. The probable range of error in the gold sales~~~
* Table 1 follows on p. 36.
~ Table 15 follows on p. ~+0.
Continued on p. ~+0.
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Table 15
Soviet Sloc Sales of Gold to the West
1950-53
Million US $
Year
Firm Data
Less Firm Data
Total
1950
January-June
8..Q
44.9
52.9
July-December
18.4
25.5
43.9
Total
26.4
70.4
1951
January-June
63.8
17.9
81.7
July-December
15.7
2.6
18.3
Total
~.5
20.5
100.0
1952
January-June
24.0
21.2
45.2
July-December
22.4
18.0
40.4
Total
X6.4
3~.2
85.6
1953
January-June
25.5
3.8
29.3
July-December
81.7
36.5
118.2
Total
107.2
40.3
1+7.5
a. CIA ORR.
figures for 1952 and 1953 may be as high as ? $30 million per year
and somewhat higher than this for 1949. Trade statistics in the
nature of the case are not wholly reliable and are subject to some
error. In addition to such errors in the estimates, omissions in
payments data resulted because information on some variables was
so limited that no estimates of these variables were attempted.
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For example, data on Soviet-Bloc sterling balances, on clearing balances
in some Western European and Latin American countries, on Swiss franc
balances, on net payments for services other than shipping, and on
foreign exchange earnings and payments by the Soviet enterprises in
Austria were limited or nonexistent. Generally these items were small
and in part at least offsetting. It is believed that on balance the
errors and omissions are not so large as to affect significantly the
results of this study.
1~+. Unrecorded trade should be distinguished carefully from illegal
or clandestine trade. The difference may be clarif ied by the following
illustrations:
a. A shipment of ball bearings loaded on a ship and ostensibly
consigned to a Free World port is offloaded at a Soviet Bloc port
because the ship receives new instructions while at sea. This ship-
ment is illegal (clandestine) because it violates export controls. It
is also unrecorded, since trade statistics do not show the bearings as
destined for a Bloc country.
b. If the same transaction involved butter rather than ball
bearings, the transaction would not be illegal, since butter is not on
the export control lists. It would-still be unrecorded, however,
because it would not appear in the recorded statistics of Soviet Bloc-
Free World trade.
c. Transactions may be unrecorded in Soviet Bloc-Free World
trade in cases where say Country A reports exports to another Free World
Country B, where Country B transships these commodities to the Bloc,
and where Country A reports exports on the basis of immediate rather
than of ultimate destination.
d. If owing to a failure of export control procedures, a
shipment of ball bearings actually receives the necessary export
licenses and leaves a Free World country with invoices indicating a
Soviet Bloc destination, the transaction will appear (that is, is
recorded) in Soviet Bloc-Free World trade statistics but will still
be illegal or clandestine. A variation of this case would be one where
goods on the control list are actually exported to the Bloc as a result
of misleading or false invoices.
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APPENDIX B
METHODOLOGY INVOLVED IN ARRIVING AT COMMCTNIST CHINA'S BALPLNCE
OF PANTS
1. The data on recorded trade for 19+8 used in determining China's
balance of payments accounts are included iri this report for purposes
of comparison. They were taken from. the International Monetary Fund,,
Balance of Payments Yearbook for 1911$. The data for 1950 were taken
from the State Department, A New Estimate of Communist China's Foreign
Trade in 1950.* These data were derived frwn Chinese Communist news
sources. The .data on recorded trade for the period 1951 through 1953
were obtained from the Department of Commerce.' They were derived
from Free World statistics of trade with Communist China and were
adjusted for shipping time lags, double counting of Chinese exports
through Hong Kong, and double counting of Chinese imports through
Switzerland.
2. Communist Ghina's exports to the Free World in the period 1951
through 1953 were converted to an f.o.b. basis by deducting the esti-
mated costs of shipping to Free World ports from the trade-data, after
the adjustments indicated above had been made. No such conversion was
necessary for the .19+8 and 1950 data, since they were given on an f.o.b.
basis. No conversion was required for the data on Communist China's
imports for the period 1951 through 1953, since they were derived from
Free World trade statistics and were already expressed on an f.o.b.
Free World ports basis. Data on imports for 19118 and 1950 which were
on a c.i.f. basis were converted to an f.o.b. basis in the manner
explained below.
3. Costs of shipping Chinese exports have been estimated at 15
percent of c.i.f. values on shipments to Western European and Western
Hemisphere ports and at 5 percent of c.i.f. values on shipments to
other ports during 1952. Costs of shipping Chinese imports have been
estimated at 10 percent of f.o.b. values on shipments from Western
European and Western Hemisphere ports and at 5 percent of f.o.b.
* State, IR-5677, 19 Nov 51, C.
~ See Appendix C.
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values on shipments from all other ports during 1952.* The relatively
smaller shipping costs on Chinese imports Prom distant ports than on
Chinese exports to distant ports are the result of the lesser importance
of low-value bulk items in imports than in exports. In arriving at
preliminary estimates of total shipping costs on Chinese trade with the
Free World, the percentages indicated above for 1952 -- which seemed
appropriate for the purposes of this report -- were applied to the
statistics on trade between Communist China and the Free World for the
years 1951 through 1953? The preliminary estimates for 1951 and 1953
were then adjusted to take into account differential changes in shipping
rates and in unit values of trade, as compared with 1952.E This adjust-
ment was made by multiplying the preliminary estimates by the index oP
the ratio of shipping rates to world prices given in Table 8 shifted
to a 1952 base (that is, with the value of the index for 1952 equal to
100), for the appropriate year.~-~ The estimated shipping costs on
imports for 191+$ were taken from the Balance of Pa ents Yearbook for
1948. The figure for these costs (3n Table 1 *~ includes a small
element made up of charges other than shipping costs, which could not
be separated out. Estimated shipping costs on imports for 1950 were
calculated on the assumption that the over-all ratio of preliminary
estimated shipping-costs to the total f.o.b. value of imports in 1951
could appropriately be applied to the total f.o.b. value of imports in
1950. The resulting preliminary estimated shipping costs for-1950 so
obtained were then adjusted in the manner described for the 1951 and
* These percentages of trade data in value terms have been used in
a number of intelligence studies to arrive at estimated shipping costs
and to adjust-trade data from an f.o.b. to a c.i.f. basis~or vice versa.
The import shipping adjustments involved were used, for example, in
State, IR 6129, Chinese Communist Imports From Non-Communist Countries
Rose in the Third Quarter of 1952, Dec 5 , ; and the impor an
expor a us ens nvo ve were used in arriving at the data in the
tables on trade in NIS 39, China, Section 65, off. cit., p. 115-116.
~' The same sort of adjustment was made in arriving at estimated
total shipping costs on Soviet Bloc trade with the Free World. See
Appendix A, par 5, p. 24, above.
P. 28, above.
* An alternative method of estimating total shipping costs on trade
between C~*+n~nist China. and the Free World, based on T? he Shipping Account
in the World Balance of Payments, off. cit., gave almost exactly the same
values as resulted from the method used.
~ Table 16 f o11o~IS on p . 45 .
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1953 preliminary shipping costs. The preliminary and adjusted esti-
mates of total shipping costs on trade between Communist China and
the Free World for the period covered are indicated in Table 16.
Table 16
Ad,~ustments for Estimated Shipping Costs in Recorded Trade
of Communist China with the Free World
191+8, 1950-53
Million US
.~ ~8
1950
1951
~
1~
Exports, c.i.f. .(Free World ports)
356
290
350
Estimated shipping costs,
preliminary
-28
-20
-30
Estimated shipping costs,
adjusted
-39
-~
-28
Exports, f.o.b. (Chinese ports)
21+8 ~
400
317
270
322
Imports, f.o.b. (Free World ports)
1+56 ~
393
420
237
263
Estimated shipping costs,
preliminary
26
13
17
Estimated shipping costs,
adjusted
36 ~
21
36
13
16
Imports, e.i.f. (Chinese ports)
492 ~
414
1+56
250
279
a. Total trade of China, Trade with the Soviet Bloc in. h+$~ however
was exceedingly small. ~n effect, therefore, these figures represent
trade with the Free World. The import figure includes $212 million
(f.o.b. Free World ports) in official grant aid.
b. Includes some services other than shipping.
4. Communist China's exports for the years 1951 through 1953 -- as
originally derived on a c.i.f. Free World ports basis -- and imports --
as originally derived on an f.o.b. Free World ports basis -- are
indicated in Table 16. By subtracting tike estimated shipping costs
described in the paragraph above from the export data on a c.i.f. basis,
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the indicated export values f.o.b. Chinese ports were obtained; and b y
adding the estimated shipping costs to the import data on an f.o.b.
basis, the indicated import values c.i.f. were .obtained. The data
indicated. for 19+8 and 1950 were obtained as explained above. Export
and import values f.o.b.~shipping account balances, and the balances
of trade and shipping for the years 19+8 and 1950 through 1953 and
cumulated for 1950 through 1953 are shown in Table 3.*
5. Shipping costs were high on both exports and imports in 1951,
amounting to about $~0 million on exports and $35 million on imports
because of the large volume of trade and the inflated post-Korea
shipping rates of that year. During 1951-53, shipping costs fell by
about 50 percent on exports and 60 percent on imports because of a
decline in the volume of trades an even greater decline in shipping
rates, and a large reduction in (long-distance) trade with the US.
Imports direct from the US in this period were completely cut off as
a result of US trade controls.
6. The allocation of total shipping costs on trade between C~-
munist China and the Free World was made on the basis of the following
considerations.. China has no oceangoing merchant marine of consequence
and therefore no earnings on shipping in trade with the Free World.
China's exports to the Free World are typically sold on an f.o.b.
Chinese ports basis with the Free World importers paying shipping costs.
China's imports from the Free World are carried primarily on Free World
vessels. As a consequences it was considered that Communist China in
the period under nonsideration had no receipts Prom the Free World on
shipping accounts and that her payments to the Free World shipping
services were equal to the costs of transporting her imports from Free
World to Chinese ports.
7. The estimates of Chinese Communist net balances on shipping
account (equals payments on shipping of imports) indicated in Table 3
were arrived at without giving explicit consideration to the following
factors
a. A number of Free World vessels were engaged in Chinese
coastal trade during the period of this study. No allowance Was made
for Free World earnings on the charter of these vessels.
* P. 12, above.
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b. During part of the period covered, some Free World vessels
were employed in carxying Chinese imports from the Soviet Bloc.
Chinese payments for the services of these vessels were not included
in the calculations of payments to the Free World.
c. Sane Chinese small craft are used in trade between South
China and-Hong Kong, but they are few in number in relation to the
Hong Kong craft engaged in this trade. The earnings of these Chinese
small craft are minor and are not taken account of in this report.*
8. Payments for the services of Free World vessels engaged in
trade between China and the rest of the Soviet Bloc are of some con-
sequence and represent a more signif scant omission than that of earnings
of small craft in the South China-Hong Kong trade. Many of the Free
World vessels used in trade between China and the rest of the Bloc are
under charters and some volume of Chinese imports from the Soviet Bloc
moves under space contracts on Free World ships.
g. The employment of Free World vessels in Chinese Communist
coastal trade is also of some consequence. Detailed analyses of ton-
nages in China trade carried on Free World vessels were made in various
intelligence studies, but no estimate has been made of the monetary
payments by the Bloc for these services. The absence of such an esti-
mate represents a gap in our current knowledge. It is thought that
as a result of the several factors indicated, payments by China to the
Free World for shipping services may be understated by perhaps as much
as ~10 million per year. However, in view of the fact that the amounts
involved are not very large, and in view of the serichus problems
involved in attempting precise estimates, no allowance for these items
was attempted in these calculations.
10. No specific estimates of shipping charges on unrecorded imports
were made. Most unrecorded imports into Communist China involved trans-
shipments from Western Europe via Gdynia. Charges on shipments moving
* There is some evidence that in 1952 Soviet ships carried rubber from
Ceylon and cotton from Pakistan to Communist China. The costs of the
shipping services involved should really be subtracted from the Chinese
def icit on shipping account, as calculated, since they did not involve
payments to the Free World. However, in view of the fact that the
amount involved is uncertain and in any case quite small .(probably
less than ~1 million), no account is taken of it in our calculations.
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on Bloc vessels are, of course, not relevant to this report. Available
information does not permit an estimate of shipping charges on un-
recorded imports which may have moved on Free World vessels. Such
shipping charges are., however} considered to have been small, relative
to total payments.
11. Unrecorded imports into Communist China became signif scant in
1951, when they totaled $86 million. They remained at this level in
1952 and 1953, when they amounted to $70 million and $93 million,
respectively. The .total of unrecorded imports for the period 1951
through 1953 is thus estimated at approximately $250 million. These
estimates of unrecorded trade were not arrived at as residuals after
all other calculations had been made, as was done in calculating the
balance of payments of the Soviet Bloc with the Free World. In
arriving at balance of payments account for Communist China, the esti-
mates of the magnitude of unrecorded trade were taken from Section 65
on"Trade and Finance'of National Intelligence Survey 39 on China.
12. Information on remittances from overseas Chinese is extremely
sparse and estimates of their magnitude vary widely. The given esti-
mates of slightly more than $100 million in 1951 and somewhat less
than $50 million per year in 1952 and 1953 represent the best ,judg-
ment available as to their magnitude.
13. Remittances during the late 1930's may have exceeded $200
million per year, of which about $40 million were private remittances
from the US. World War II cut off most remittances, and remittance
channels appear to have been disorganized until 19+8. Estimates for
19+8 seem to indicate a total of about $80 million to $120 million,
of which perhaps a third were institutional remittances.
1~+. The Chinese Communist regime has made very strong attempts to
increase remittances by means of propaganda, improvements in financial
channels, and, in some cases, blackmail. Political and econ~.ic con-
ditions in mainland China have, however, led to a virtual cessation of
institutional remittances and probably have inhibited overseas Chinese
from sending more than subsistence money to their families in China.
The reluctance of overseas Chinese to send money to Communist China
appears to have been growing during 1952 and 1953? Western controls
do not appear to have been an important deterrent except in the case
of the US and possibly the Philippines and Formosa.
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15. The only official statistics on remittances to Communist China
are fram Malaya and Thailand. Remittances through off icial channels
in Malaya are given as $12 million in 1951 and as $9 million in 1952,
and from Thailand as $~+.5 mi.llion in 1951 and about $1 million in 1952.
These figures, however, certainly understate actual remittances, as the
local Chinese often use small remittance brokers in preference to banks.
For example, the US Embassy in Bangkok estimated remittances from
Thailand at $12 million in 1951 and $10 million in 1952.E
16. Of the 8 million to 10 million Chinese living in Southeast
Asia, 60 to 70 percent are in Malaya and Thailand. Remittances from
other Southeast Asian countries are generally illegal, and there are
no quantitative estimates of them. However, Chinese residents of
Indonesia, Indochina, Burma, the Philippines, and Taiwan must have
remitted at least several million dollars a year.
17. The 2 million Chinese in Hong Kong are a recent (largely post-
W orld War II) and probably large source of remittances. There are
many estimates of remittances from Hong Kong ranging from $20 million to
$180 million a year. These, however, include remittances from South-
east Asia which are channeled through Hong Kong.
18. There are no remittances from the US to Communist China through
off icial channels. Part of the $4 million to $6 million of US remit-
tances to Hong Kong may find their way to Communist China. US currency
may also be sent by mail, or in other covert ways.
19. Total remittances to Communist China of about $100 million in
1951 would imply an average remittance of slightly less than $10 per
overseas Chinese, or of $~+0, if 1 out of ~+ overseas Chinese is a
remittor. It is estimated that total remittances of $100 million in
1951 might be broken down as follows: Malaya, $30 million; Thailand,
$10 million; other Southeast Asia, $20 million; Hong Kong (direct),
$30 million; US and other, $10 million. There is no estimate for
remittances by geographical area for 1952 and 1953?
~ State, Bangkok Dsp 1~+~-~-, 19 Aug 52, C .
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APPENDIX C
NOTE ON SOVIET BLOC AND COMMUNIST CHINA TRADE DATA
1. The Bloc trade data on which this report is based are unadjusted
data representing the combined trade in value terms of the Free World
with the countries of the Soviet Bloc and Communist China, compiled by
the Department of Commerce from official published and unpublished
reports of the Free World countries engaged in trade with the Bloc.
These Commerce compilations include statistics for all countries whose
exports to or imports from the Bloc amounted to ~1 million or more in
any year between 19+7 and 1953. Values originally expressed in foreign
currency units were converted to US dollar equivalents on the basis of
rates published by the International Monetary Fund (generally prevailing
off icial exchange rates).- Where these were not available, rates based
on information from the countries involved were used. Hong Kong data,
converted by Commerce to US dollar equivalents on the basis of rates
published by the International Monetary Fund, wex~ recalculated on the
basis of prevailing free market rates.
2. Data from the Department of Commerce compilations were added
to arrive at totals of reported Free World trade with the Bloc coun-
tries, individually and as a group. Inconsistencies in the trade
statistics as reported by the various countries result from the
following factors:
a. In the official trade statistics of most of the countries
included in the compilations, exports are valued f.o.b. frontier or
port of shipment of exporting country. Exceptions are Canada and the
Union of South Africa, which report f.o.b. inland point of shipment,
and the US and the Angle-Egyptian Sudan (through 1952), which report
on a free alongside ship (f.a.s.) basis.
b. Most of the countries included in the compilations value
imports on a c.i.f. basis in their trade statistics except the following
which value imports f.o.b. country of export: Australia, Canada, Cuba,
Northern Rhodesia, the Philippines, Southern Rhodesia, South West Africa,
~ F.a.s. basis data have been treated as f.o.b. data. The differences
resulting from this treatment are minor.
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the Union of South African Venezuela, and the US. New Zealand
reported on approximately a c.i.f. basis in 19+8-51 and thereafter
on the basis oP current domestic values of goods in the exporting
countries.
c. General trade figures (exports including re-exports and
general imports) are used where available. However, about ~,lf of
the countries included report on a special trade basis (domestic
exports and imports for consumption). Transshipment and transit trade
are excluded fry all data except that Hong Kong statistics include
goods moving in transit through that country.
d. The reporting practices of Free World countries vary as to
the inclusion of golds silver, and currency. The trade data have not
been adjusted to exclude any gold or silver which countries may have
included in the value of their trade with the Soviet Bloc. Up until
1953, only very small amounts of such items could be identif ied. In
1953 the value of these #.tems increased but was still small in relation
to total Free World trade with the Soviet Blocs
e. The value of trade with the Soviet Zone of Germany is
greater by an unknown amount than that indicated in the Department of
Commerce compilations because trade with the Soviet Zone has not con-
tinuously been reported separately from that with Western Germany
during the 19+8-53 period. However, all mayor countries trading with
the Soviet Bloc were reporting trade with the Soviet Zone separately
by 1953? The unreported trade with the Soviet Zone-may have been sub-
stantial during the 19+8-50 period but probably had become relatively
small by 1953.
f. China data, as far as possible refer to mainland China
including Manchurian Inner Mongolian and Tibet. There are a substantial
number of exceptions to this rule, the ma,~or one being the inclusion of
Taiwan (Formosa) in the definition of "China" by a number of European
countries. The other important exception is that Switzerland defines
"China`: to include mainland Chinas Hong Kongo Taiwan and Macao. It is
known that a large part of Switzerland's exports to "China" are re-
exported from Hong Kong to other Southeast Asian countries.
g. There is an. unknown amount of double counting in the totals
shown for Free World trade with Cozntnunist China because of trade moving
through Bong Kong, which may be counted both by the original country of
origin or destination and by Hong Kong. This duplication is believed to
be much greater for Free World imports than for Free World exports.
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h. The total values shown for Bloc trade are also understated
by the amount of transactions c~nitted because of difficulties in re-
cording or caanpilation. Smuggling is always omitted; and postal sh3~p-
ments, trade between contiguous areas and the like are frequently
omitted in the official sources.
3. The net effect of these inconsistencies on the over-all values
shown-for trade between the Free World and the Bloc countries is
thought to be quite minors with three exceptions -- the double counting
of trade through Hong Kong; the valuation of USA Canadians and certain
sterling area country imports on an f.o.b. rather than a c.i.f. basis;
and the incomplete reporting off'-trade With the Soviet Zone of Germany
in earlier years. Adjustments were made in this report for the inter-
zonal portion of trade with the Soviet Zone of Germany in the earlier
years* and for the first two factors indicated.
* The limited information available warranted no further adjustment
on this account.
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