CHINA AND THE THIRD WORLD: SQUARING ECONOMIC AND POLITICAL GOALS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000400600001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: July 15, 2010
• Sequence Number: 1
• Publication Date: January 13, 1983
• Content Type: MEMO

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
13 January 1983
CHINA AND THE THIRD WORLD:
Squaring Economic and Political Goals
Summary
China's increased public stress on its alignment with the
Third World--an emphasis meant to convey more clearly Beijing's
view that its international role is urii,qu;e and ?independez~t --
highlights the importance of Chinese economic as well as
political ties to developing countries. Recent Chinese policy
statements show that Beijing expects to increase its share of
Third World markets, where China's favorable trade balance
partially offsets the cost of Western imports. Beijing
acknowledges that its modernization program benefits directly
from this trade and Chinese officials expect that Beijing's
support for Third World positions in global negotiations will
ultimately produce results that serve Chinese needs.
Beijing's promotion of its own economic development via
trade and other economic opportunities in the Third World serves
to support US strategic interests. China wants to encourage
policies in these countries that contribute to regional
stability, thereby decreasing their vulnerability to Soviet
The Chinese portray their policies as enhancing economic
cooperation among developing countries--a description that seeks
in part to compensate for the cuts in China's foreign aid
programs and to blunt criticism from developing countries over
China's increased competition for international assistance and
markets. If relations become contentious, however, we believe
China's modernization goals will lead Bei~ing to put economic
gain ahead of political objectives.
This memorandum was prepared by the
China, Foreign Relations Branch. questions and comments are
welcome and may be directed to the author at
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The Economics of Ties to the Third World
At the 12th Party Congress in September, China's leaders
ernphdsized that Beijing expects trade to play an essential role
inn China's economic development. The United States and other
industrial states continue to occupy the key positions in Chinese
economic planning because of their investment capital,
technology, management skills, and markets. Nonetheless, the
Chinese target for the year 2000--a fourfold increase in trade to
some $160 billion--did not overlook the Third.World. China's
$6.1 billion in exports to LDCs in 1981 constituted about a third
of all exports--and significantly, the Chinese enjoyed a surplus.
of $2.8 billion that*roughly matched their deficit with the
developed countries. On the military side, in 1981, the Chinese
signed contracts for sole $2.8 billion in arms exports to Third
World customers, who pay for much of the merchandise in hard
currency.
China's Third World trade concentrates primarily on the OPEC
states, and the newly industrializing countries .(NICs)--excluding
Taiwan and South Korea. The Chinese also consistently run small
bilateral surp luses that are signifi~ 'cant in-the aggregate with
the poorer developing countries.
The oil producers are key targets for China:
-- Since 1979, China's exports to the Middle East and North
Africa have risen more than 40 percent to $1.3 billion
last year; a decline in imports from the region ,gave
Beijing a $940 million trade surplus in 1981.
-- Most of China's 30,000 overseas workers are in this
area; the government's principal labor contracting
arm--the China Construction Engineering Corporation--
maintains offices in Iraq, Kuwait, and North Yemen and
plans another in Dubai next year.
-- The Chinese are targeting countries led by radical and
conservative regimes alike as new markets; a new
agreement with Libya will expand investment and trade;
Kuwait and Sau i ra ~a as si es
expansion.
Beijing regards
i?or further trade
* In 1981 Chinese exports to Hong Kong were worth about $5.2
billion and Beijing had a $3.3 billion surplus. These figgures
are not included in those above except for approximately $1
billion worth of goods reexported to other LDCs, becaus
China's special political relationship with Hong Kong .
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-- Finally, the burgeoning Chinese sales of arms abroad
concentrate heavily in the Middle East where Beijing
earned $2.2 billion in 1981 from arms sales to Iraq.
Chinese trade officials. see good potential for increasing trade
with the NICs as well. Recent economic developments support this
conclusion:
In 1981 Hong Kong reexported about $1 billion in Chinese
goods to other LDCs, mostly to .the NICs in East Asia
including Taiwan and South Korea.
Beijing has almost doubled its exports to Singapore
since 1979. Last year China exported $735 million worth
of goods while reducing imports, leaving Beijing
surplus of more than a half billion dollars.
Exports to Brazil reached $346. million in 1981 ar~d
account for half of China's exports to Latin America,
helping the Chinese to realize a slight trade surplus
there for the first time.
In the poorer developing countries, Beijing is also
searching for markets.
-- Beijing has an economic umbrella agreement with each of
the 45 African states with which it has diplomatic
relations. Total trade with Africa will be about $1.2
billion in 1982, probably lifting China's trade surplus
above the 1981 level of $460 million.
-- Two-way trade with Latin America hit $1.2 billion in
1981. China has reduced its imports from Latin America,
but continues to seek new outlets for its products in
the hemisphere. In early November, for example, Chile
approved a new Chinese trade center that wily 1 serve a
number of other South American countries.
Marketing Strategy
Beijing's current investment program, which gives priority
to industries with export potential, is tied to its efforts to
expand economic relations with the Third World as well as
developed countries. Chinese officials usually cite China's
ability to export essentially intermediate-technology goods in
describing their future prospects--products like Chinese
manufactured goods in Southeast Asia and those now entering Latin
American markets. They also point to less expensive items, such
as farm tools, as exports that will continue to be successful in
the Third World. The Third World is also a convenient market
place for China's surplus industrial products, such as electrical
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appliances and machine tools, that have a limited domestic market
because of their low quality. The arms trade also takes up
excess productive capacity while helping the Chinese to modernize
their own military.
Beijing, however, is clearly looking beyond a straight line
projection of its current trade pattern. In public as well as
unofficial commentary, Chinese officials suggest that closer ties
with countries in Asia, Africa, .and Latin America could open a
vast market for China's goods.
In a recent policy statement, Minister of Foreign Economic
Relations and Trade Chen Muhua said that China saw a huge market
for projects involving labor cooperation that would in turn
promote Chinese exports of industrial goods. For example, the
Chinese have approached commercial interests in Brazil with an
offer to provide the labor for Brazilian overseas projects.
Competition from Chinese workers, moreover, already concerns
South Korea and, less so, Taiwan, which are traditional labor
suppliers for the Middle East.
Beijing is also looking closer at a more direct involvement
in joint economic projects overseas.. In September, trade
officials announced that while joint projects with foreign
investors are becoming more numerous in China, the Chinese .are
now also playing an investor's role in the Third World, where
they claim China can offer an attractive partnership with its own
technical and managerial skills.
Foreign Policy and Economic Relations
China's emphasis on the Third World stems in part from its
desire to lessen Chinese identification with the West.
Nonetheless, we believe that China is also trying to create a
more coherent political and economic policy that can serve
Chinese goals in the Third World over the longer run.
On the one hand, Beijing is singling out the political value
of new economic initiatives in the Third World.
Foreign Ministry Advisor e Ying to
Chinese ambassadors during his tour of the Middle East last
summer that China would use "economic diplomacy" primarily to woo
the more radical Arabs away from the Soviets. China's goals for
relations with moderate Arab countries are similar; the Chinese,
for example, appear to regard stepped-up economic relations with.
Saudi Arabia as the first move toward diplomatic relations.
Beijing also hopes that its offers of increased trade will
encourage Latin American holdouts to drop diplomatic relations
with Taiwan.
At the same time, .Beijing is publicly burnishing its
identity as a leader in Third World affairs. In doing so, the
Chinese are highlighting such areas as the exchange of technology
and joint economic projects, in part, to suggest that such
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cooperation supplants the cuts in China's foreign aid programs
over the past few years. In general,
discreet st le has engen ere muc goo
cb;untries.
The Chinese are also more actively counseling Third World
representatives to cooperate in international negotiations and
seeking to use a unified Third World stand in international
fo-rums to their benefit. At the meeting of 24 developing
countries during the IMF session. last August in Toronto, for
example, the Chinese representative said relations among the
developing countries should have precedence in the group because
the North-South dialogue is stalemated, Beijing has stepped up
its charges that the West is paying less for commodities,
charging exorbitant interest rates,- and erecting trade barriers
to shift the impact of the global recession to the Third World.
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In Toronto the Chinese backed a doubling of IMF quotas--
moderate by LDC standards--and an increase in contributions to
the International Development Association (IDA) for low interest
development loans. The proposal for lower tariffs-among Third
World countries and the establishment of a unified tariff
structure for nonmembers also received Chinese support at the
"Group of 77" meeting in New Delhi last February.
Competition with the Third World-
China's recently expanded role in Western markets, making it
an economic competitor with the developing countries, conflicts
with its political goals for the Third World. China's efforts to
increase exports while holding down Third World imports. have
already produced intermittent frictions as well. The Algerians
complained about the policy, for example, to Zhao Ziyang on his
African tour last month. Indian concerns that China's low per
capita income could give it some priority for the World Bank's
development funds and other soft loan programs, are also shared
China's direct response to these Third World concerns so far
has been relatively weak. We believe the Chinese at this point
may not judge the problem as sufficiently important to .warrant
greater attention. Until now, Chinese trade competition has had
the greatest effect on the NICs in East Asia--South Korea,
Taiwan, Hong Kong, and Singapore. Beijing hopes to replace these
NTCs as producers of intermediate-technology and labor intensive
gc;ods as they move into high-technology industries. As far as
these countries are concerned, the political fallout from direct
economic competition is also not a major Chinese worry. At the
same time, China appears to believe that it can publicly place
by many other Third World countries.
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the onus for shortages in development funds available to the
Third World on Western reluctance to increase contributions to
the international financial institutions rather than on Chinese
claims on such funds.
In any event, we believe Beijing will take a hardheaded,'
practical approach to rising criticism from the Third World about
its impact in these areas. By identifying themselves as a member
of the Third World, the Chinese are sending the message that they
intend to claim their share of international markets and
development funds. In our view, this leaves little room for
Beijing to soften the effects of its trade or other competition
beyond the political palliatives and limited economic initiatives.
which have already been taken.
Beijing, we believe, will continue to use Third World
rhetoric for whatever leverage it provides in bilateral
negotiations with the United States and other developed countries
and to shield its own policies on sensitive issues such as
nuclear proliferation. The Chinese, however, will not let real
economic opportunities slip by and are'still likely to strike
their bargains even if they violate declared. Third World
policy.
If China maintains modernization as its priority, its
domestic goals will limit its flexibility in dealing with other
developing countries. Trade and Foreign Ministry officials will
probably find themselves more frequently working at cross
purposes as the search for economic opportunities conflicts with
other foreign policy goals. As a case in point, China's arms
sales to one country could damage bilateral relations with others
and prove politically embarrassing if one or more belligerents in
a conflict decide to make it an issue. The Chinese may well .find
ways to soften the effects of their economic priorities on
specific bilateral relationships, but their growing competition
with other developing countries for markets. and development funds
will make it difficult for Beijing to maintain its claim of
special concern for the Third World.
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