ECONOMIC DEFENSE DIVISION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP64-00014A000100050003-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: November 9, 2016
• Document Release Date: July 13, 1998
• Sequence Number: 3
• Content Type: REPORT

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0"3or":ttnation Area
co'uatr? es needed for policy decisi.o and progmns by
a en i.ee of the _1.$. Govcr ent charg d v th the ar ird tr tion of
econo s; c defense 1st slat'.on and colic directives.
Intelligence, r z ardin he :soviet :floc and its relations with o
t TT ` f*
2. vela inte"I li ;er a on cunvnt t!~a?s actionz3 wh..ch a- M,
1. Provide i telli e Ja r the ., veto nt and ap lic xt on of export
controls aW Hillary ecor .c defense me ur a ain at the Soviet
g?Qc .
3.
in f.
nan
ise intelli. a about fore n firms ant', individuals e a
t'tx-rAsh Agency re aentat on on is ter-ms s c
working groups in the s+eono is defense field.
6. Pxopare coUectlon req .r+ crztE In support of the .unctions
n _i ab and evaluations of n el i e rat .als as requested.
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 WORRips
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Project No. 110.1
Determination and Portrayal of Clandestine
West-East Trade Centers, Channels, Traders
and Techniques
Financing of West-East Trade
I
25X1X4
"O"Pcm
29 June 1954
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 SEC RE T
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25X9A1 Introduction
15
29
Ccm nuniet China
33
Recent Developments
42
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tra :0 t ~ a an arm otI
tear
clint s* a x; is to r `=:V or
oonseqaent1l a very s sitive
in
for ale, w ni1d
sboct
Zia 1 to pros tton unc'(.r thr e sp _r l.aa .
processce of financing
are P tacl to my
rw* trarraaa tlona
e O secrets
rnare
g or a trgr s&ct . .
In Spi9 of the above w
{'.`f 1c It h h wr pose, 71 to
t24. cat s an to 110V the. :"+ vii v
of ;atrate.;Jc c a?: ?itics incl.L llrtg t,,t "r : ,. ci jai
gir tactics a 1a, ". f'everal
the eat two years, bk #,
corm i ,s t ',At s in trcv r1t st t'
countries *
'ne a1 appll
t
E C
ava le on the fi a ~ci of clanAest1re eat-Fast
t of thi,, t rtsive tr?*r lc. -11;1s lack of
pall,- to the txiste-n of r . i bank secrecy
+?rar t
been p a C : t on, tc. p4r r"i
c ' t. L n$;` FA w T ~~r .4~; ; ..t. pmt ?f*rt .
2f3.
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amlee,# or banks
not pr
,100 do
dlre+.-t1yi rat a r U
eret t acs
Rit act on b:
tr national + swo well an '1 ery prof .tab1fz
or strategic -;
ems:, e`?
fic $8 'sees of his
vis": etc.), tees respectable fi often oran ize covert selling oampantes
cover a a : f i t coapaniw x fch. att ,at to i's' r+ ictia e
On their tide tb?e xm;tat firms ash t l e r e j,,' tss ai ? ft'4 fr
*f not too a natre -r a corporation with a rtrtteu z,u;
by a tr iste perms waoh as a formtw e 'tr .
of w1 .i.irpn s to
in
wit, v-10 Soviets requlreff
I addition to the
agents In *very ritl
accowl is is tke fay
often awpo
that : the
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 Sanitized - Approved For Release : CIA-RDP64-00014AO00100050003-4
Ethic it tndicpOMMOhle try the
l th t the Item will to the )
(with all
that t rte:ar `'.
At this i4,* the
ar;i ina rcIA yerte
preers to bar F
s a,
[en f U r)
o n i n a l p Of, etrat is
Perfectly is ,
?e rc=~andieea
rany re tYes a notice of
0reet 2
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,ugh a o rt or
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f .tia1;te
In tr tts, the `t a1 bwnw senLt
. acller,
moeiyr no Taint,
uiltj
-nation f t i s knot..
Is the
hip dacuftmts
";t! vld ry rurd'> er which raw,
a NATO part &-,d tr sfe're tLc oda to VAR
eredU le
a W/ Mi a
LSECRET.
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,A c n b k id Increswo profits
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.i cat credit $TWT 'Y
ilv so,-* type, of
Paris appe
ftnancI # wit'
tf two c
arrang
for
h of Me i`inmcl ^t ,
was
S
al" p vi.ci aaat such
25X' '1 'bi the
t 118I) ate
will be e to
I,!* "al 'as
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 25X9A1
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 25X9A1
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Although Soviet Mae countries, as
in this pipers CotniL China is a
have not been treated indivi
stricter-controls
against China than against Other
B.S. Foreign Aesete C4Mtro1 T guia'
ores applied
on of the Cwt Ch a in Xorsa in 1950.
of Chinks Peiping, (which has var i branches in other count riev )
direct control of the Chinese Caestrnist Pinistry of Finsmce-.
ThrOzgh its branch in HaigkorW it eontrcxis various subsidiary berraice: in that eii.
The most mrte nt of `moo banks In Korgkong owned and operated by the C t
,are:
1.
Banc of Caawnicatiorw
2.
Chekiang i of Corr+c
3.
fang Co s'csi al Be*
4.
Shanghai C ial Bw*
5.
Pao Shy nit
s in turn, controls the following R
oug banks:
1.
China and South Been Banc
2.
China State Bank
3?
gircheng Banking corporation
Is.
National Commercial Bank
Nati onal. I trial Barak of China
2 P* riee, Repto A 29 to Lo rdon, (Info. Wash. A 3 13 Aug 1953.
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6.
Sin
Try
7.
W Shf
Bank
8.
Tien Zieb 06wercial Bank
9.
Young Brothers Baking Corporation
14.
Ch% Banker C+ oxation
. Bwgkoog and Ssatow Ca erecial Bank
12. Kwangtung Provincial
All of thaw banks are responsible, under direction of the Bank of Chinas
for epo eroring Illegal trade with western countries and betaa Rae tong and
Chine. They make funs available to their branch" on the mainland to pay
for controlled goods illegally imported. They also maintain close contacts
2*+ett of
tly
n B kong and either
tern banks.
Sterling and Swiss France are the ;fin curies used for pint, US
dollars being used less and less for fear of blocking of accounts by the V .S.
under Foreign Assets Control regul a.tione. rter transactions also appear I
n-
pm-te Ml in Chine" Trade.
Similar to other Soviet Mae coxntries, Chine has a national purchasing
~~1 i drr
A - the Chinese 1`t4o 3 f4
% '.. _- - ---- -
por
(G I C
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-3,5-
Peiping and a. vitally ir:orta,nt office in Eat '+crisn w=tare ww tern -procurer nt
has centered. Recently it 'Inr been rer,,ortod t'i . an office has been o)ened in
25xyW n where close co)jaboration is raintai.ned wi.~.h t -Ile ` .nk of China. The CND'C
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 25X9A1
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Any discussion of Communist Chinese trade requirRS sloe nerl tion of the
Portuguese colony, Macao. Branches of Chin' ee barks in Macao, pRrticularly
the Nan T'uug Bank & Nary Twang Co., pa: ticipate in arranging ti -e financing
of sbipsents of strategic crodities from the west,, ~any of which eventually
find their way into China. Although it is well known that a great deal of
smuggling takes place between ?!acao and Co unist China, the extent of this
traffic is difficult to estimate. IL
Communist China has been attempting to carry an as much trade as
25X?ible on a so-called barter basis. Actually Ls/G and Ls/C are used but
SECRET
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-41-
often the western supplier must agree to accept a similar value of cor.odities
before the CNIFC will agrea to the contract. This is often very unsatisfactory
to the western trader because of the limited market in 'uropee for China's few
exportable commodities.
Chine's trade with Japan is conducted alwost exclusively on a barter basis
but in cases involving credit or cash paym nt, the medium of exchange utilised
is pounds sterling. The Japanese Ministry of International Trade and Industry
reported in 1953 that no transactions denominated in dollars between Japan
and Communist China were permitted. In trade with Japan un+ er "Escrow barter,"
China is r quired. to deposit with banks, either Japanese or foreign,, in Japan
the amount of money for tie entire barter settlement plus 50 percent of the sum
as security. Another method of financing is a back-to-back letter of ores' it in
Sterling. Under the back-to-back IIC, Co -nuniet Chins gust deposit with a bank
of a third country in Hongkong the count of money for the entire barter seettlo-
went plus 50 percent of tie sum while Japan deposits the sum for the barter pay.
went r my with the bank. Under this fornuls Japanese traders may make shipments
prior to the arrival of collateral from Pod Chime."
Increased enlarge restrictions and the U.S.'s fight against the smuggling
of strategic goods to China forced the wovieet purobacing organisation, RCMP"
(the in ;t1 x fhe Russian name for this age=cy) in 1953 to take some counter
25X9A1 ',ensures.
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.Recent delete is
No -mention has been mde in the foregoing description of W/E financing
of the important role played by Soviet sales of gold bull on which have taken
on increase! importance during the past year. This has been done puurcosely
as the subject is of sufficient significance to warrant a separate study,
currently being undert&ken elsewhere yin the agency. Neveertheless, this paper
would be incomplete without some reference to these transactions. During the
past two years it has beooi a more and :ore difficult for the LS>ET and its
satellites to export in sufficient quantities the commodities wanted by western
nations. As a result the bloc has not earned en uw=,h foreign Currency to pay
for its current import program, propagat4a activities, eta. 'gin the rest.
Consequently, increasing amounts of soviet gold have been sold in London,
Paris, Amsterdam, and in Switzerland to replenish depleted reserves of sterling
and other currencies.
Past patterns of W /E trading and financ ng could alter radically during the
coming months depending on the outcome of present negotiations In COCOb$ on
western controls against the %ropean Soviet bloc and forthcoming negotiations
in CHINCC on controls against Communist China. If controls are relaxed
appreciably, as appears likely at present, it may be unnecessary for the Soviet
bloc to go through the circuitous .rocesses now employed to obtain embargoed
goods except on a very short list of commodities that will be retained for
embargo and/or quantitative control. The life of 1w/f traders would accordingly
be greatly simplified.
25X9A1
28 June 1954
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