EAST ASIA: SHORT-TERM PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00367R000201430001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 22, 2016
• Document Release Date: April 1, 2010
• Sequence Number: 1
• Publication Date: April 2, 1984
• Content Type: MEMO

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Cents! Intelligence Agency
Washington, D. C.20505
DIRECTORATE OF INTELLIGENCE
2 April 1984
East Asia: Short-Term Prospects
Summary
Developments in East Asia over the next
several months are unlikely to impinge
significantly on US interests. Washington's
major bilateral relationships with Japan and
China should remain on course, and continued
economic recovery throughout most of East Asia
.should ease some domestic frictions and
bilateral trade problems, at least, in the
short run. Moscow, of course,. will remain
alert for opportunities to expand its
influence, but we foresee no shift in Soviet
strategy that could alter the security
. framework in the region.
There are', however, Some possible developments that could
seriously affect US interests. Washington's relations with
Manila, for example, would be severely strained if an
unconstitutional regime seized power following the death or
incapacitation of President Marcos--particularly in light of a
pending US Congressional review of assistance to the
Philippines. South Korea, shaken last year by the KAL shootdown
and the bombing in Rangoon, faces the prospect of a dialogue on
the future of the peninsula that would involve its vital national
security interests.
This memorandum offers some speculation on these and similar
possibilities, while briefly reviewing some of the longer range
trends that will continue to affect US interest in the region.
This memorandum was prepared by the Office of East Asian
Analysis.
EA M 84-10081
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Major Bilateral Relationships..
China. Premier Zhao's recent visit to Washington and
Beijing's treatment of it give clear indications that China wants
to establish a smoother working relationship with the Reagan
administration in 1984 in order to place Sino-US relations on a
more solid foundation. The Chinese apparently believe that the
President's reelection chances are good and that they must
establish close and effective ties to him.
In addition to its economic and technology needs, Beijing
also has strategic concerns in mind. Chinese officials have
conceded privately that China has not been able to improve its
position in the Sino-Soviet-US triangle and has even lost
ground. They fear that the United States continues to underrate
China's importance and may believe that the Sino-Soviet talks
have reached n securit issues. In any event, the
Chinese hope hat
strengthening relations with t e Uni e a es wi 1 improve their
position between Moscow and Washington, and enhance their access
to US technology and markets. Indeed, because it is an election
year in the United States, Beijing also may believe that it has
increased leverage with the administration on key bilateral
issues and will probably press for more advanced technolo
including arms technology, before the President's visit.
The one factor that could disrupt the relationship is
Chinese sensitivity about US arms sales to Taiwan. The intensity
of the Chinese reaction would depend on US handling of such
sales, including the extent of the publicity, as well as
Beijing's estimate of the impact of the arms on Taiwan's armed
forces and on China's domestic political situation. If Deng
Xiaoping and other senior Chinese leaders concluded that the
weapons sales would expose them to severe domestic criticism,
they would react sharply.
The Chinese, however, clearly want to avoid controversy over
Taiwan. They will probably to try to mute differences with the
administration over Taiwan until US elections are over, while
continuing to prod Washington to observe the joint communique.
Overall, we believe that strategic and economic
considerations will govern the substance of China's policy toward
the United States over the coming year. Although there may be
debate in the leadership over the precise level of China's
relations with the United States and the Soviet Union and over
China's tactics in the triangle, there appears to be liter
.fundamental disagreement over the opening to the west.
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Japan. As for the economic issues to be addressed by
Washington and Tokyo during the coming months, we believe that:
-- Japanese leaders realize that they must negotiate
seriously in order to ease economic strains in the
relationship, particularly during a US election year.
-- Their ability to make concessions has been only
marginally restricted--if at all--by their electoral
setback in December.
Even so, Japan's current account and its trade surplus
with the United States will be even larger this year.
The extent to which the US-Japanese relationship
becomes a campaign issue in the United States may, in
the final analysis, depend more on the state of the US
economy than on the amount of progress on the issues.
Mindful that election year pressures in the United States
could lead to more overt protectionism, Japanese leaders are
trying to build a credible record of progress in negotiating with
the United States during the next few months in order to
strengthen the proposition that cooperation is the best way to
deal with bilateral economic problems. They also hope, however,
that Washington shares this notion and will not risk serious
friction by pressing for major concessions.
Prime Minister Nakasone's new government is politically
stronger than most would have projected immediately after the
setback the Liberal Democrats suffered in the December
elections. Nakasone is in reasonably good position to deal with
bilateral issues, most of which do not have to involve review by
the Diet. Military spending has been set for this fiscal year,
and the next major decision on defense will come this summer when
Japanese leaders must seriously consider whether to abandon the
traditional limitation of one per cent of GNP on the military
budget. Until then, Nakasone will probably maintain the lower
public profile on security issues that he adopted in mid-1983
when his forward leaning posture threatened to become
counterproductive.
Nakasone's ability to make concessions on economic issues
remains limited, however; more by the traditional domestic
pressure groups--especially in agriculture--than by the lower
number of seats his party holds in the Diet. In any event, Tokyo
will avoid major concessions. In addition to the domestic
backlash such moves might arouse, Japanese leaders by tradition
are inclined to move incrementally. They further believe that
the nature of the issues necessitates a continuous negotiating
process and that Japan's trade surplus with the United States
de
.
will grow this year no matter what concessions are ma
~~?
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Over the next few months, Nakasone will probably profit from
a relatively united Liberal Democratic Party. This could begin
to change by summer as potential contenders in party elections
for president--and hence prime minister--in November look for
ways to challenge Nakasone. If factional maneuvering began to
undercut his leadership, Nakasone could threaten to hold another
Lower House election. He reportedly would prefer to avoid one,
even though the Liberal Democrats would probably regain some of
the seats lost in December. In any event, a summer election in
.laDan would disrupt ongoing negotiations with Washington.
Succession Politics
The endemic problem of succession politics will probably
manifest itself somewhere in East Asia this year. The list of
possibilities is long, including North or South Korea, China,
Taiwan, the Philippines, Indonesia, and Burma. The sudden
departure of the top leader in any of these countries would bring
political uncertainty and could lead to a crisis. With one or
two exceptions, however, political changes of this nature would
be unlikely to impinge dramatically on the United States.
The most obvious exception is the Philippines, where a
succession struggle is already under way. The death or
incapacitation of President Marcos would force the succession
issue at a time moderate opposition groups would be unprepared to
gain from it. Indeed, the odds of a military coup and/or a bid
for power by Mrs. Marcos would rise appreciably. Should an
unconstitutional regime seize power, Washington's relationship
with Manila would come under considerable strain, in part because
a US Congressional review of a military bases compensation
package providing military and economic assistance to~_h_e
Philippines would probably be under way at the time.
Another exception is Korea. The mutual antipathy on the
divided peninsula makes political uncertainty--in the north or
the south--especially dangerous. Indeed, the death of Kim I1-
song would almost certainly lead to considerable anxiety and
tension throughout the peninsula. Kim has been grooming his son
to succeed him, but his succession is by no means assured. A
"palace struggle"--as opposed to a widespread breakdown in
order--is therefore possible; if it were prolonged, serious
factional conflict could develop and at least some South Korean
leaders would be tempted to interfere. We believe that any major
changes in North Korean policy would occur only after a successor
had consolidated his authority, and that this process will prove
to be relatively long. No successor is likely to amass the power
wielded by Kim I1-song.
In the South, constitutional provisions for an emergency
succession appear no more promising or 'durable than they did
under President Park. If Chun were assassinated, the army would
probably once more impose martial law and assume control while
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contemplating a successor from within its ranks. Although we do
not believe the sweeping leadership changes that occurred after
Park's death would not be repeated, the transition would give
Pyongyang an opportunity to try to exploit.
Although of considerable importance in the longer run,
succession politics on Taiwan are not likely to generate
immediate problems. In an effort to create a stable succession,
Chiang Ching-kuo has personally orchestrated the inclusion of
increasing numbers of ethnic Taiwanese into the party and
government. There is, however, no clear cut successor--
especially since Premier Sun suffered a stroke in February--and
there is a slight chance that Chiang's abrupt departure from the
scene could undo his plans for a consensual succession with
significant Taiwanese involvement. On the other side of the
Taiwan Strait, Chiang's death would increase apprehensions in
Beijing about its prospects for dealing .with a leadershia no
longer dominated by fellow mainlanders.
Should Deng Xiaoping die in the near future, his leadership
of China would probably pass to one of his generational peers, a
member of the old guard whose seniority and personal connections
approximate Deng's. We believe the leadership would avoid a
divisive power struggle and that the younger Hu Yaobang would
remain titular head of the party, presiding rather than ruling,
much as he does under Deng. Still, political tensions and
infighting would be likely to grow, with some negative
implications for foreign policy. During previous periods of
domestic uncertainty, Beijing has tended to become more rigid on
foreign policy and the leadership has reacted more sharply to
real or imagined provocations from abroad.
New leaders in Indonesia and Burma would almost certainly
come from the military given the predominance of that institution
in both countries. Whether or not the succession process was
relatively smooth, it is difficult to foresee a new leader in
either country making a fundamental change in policy direction,
or a situation developing that could affect US elections.
Elsewhere in the region, a political shakeup is at least possible
in Malaysia because of a national bank scandal, and a Labor Party
victory is also possible in New Zealand although elections there
are unlikely to precede those in the United States.
The Economic Outlook
The economic outlook in East Asia this year is perhaps more
promising than in any other region. Ind~ed, South Korea, Taiwan,
mers
f
i
or
c per
and Singapore should rank among the very best econom
in the world. Overall, however, activity will not expand at
traditional rates and there are some major long-term problems.
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The economic growth outlook in Tokyo is better than it has
been since the late 1970s. Most forecasters expect GNP growth to
top 4 percent. Domestic demand increased in late 1983 as private
consumption picked up and private housing investment rebounded.
The strength of the domestic recovery should boost imports and
help keep the trade surplus from getting further out of hand.
But Tokyo will be faced all year with record breaking surpluses,
and will be struggling to contain protectionist forces abroad.
The Chinese economy is expected to continue growing at a
relatively rapid pace, with agriculture and industry both
performing well. In view of their favorable balance of payments
position, the Chinese are expected to relax import restric
this year but will probably retain a modest trade surplus.-~~~~5
The Australian economy should rebound sharply from its
negative growth in 1983. Inflation should drop appreciably,
although unemployment will probably remain high for another 2 to
- -- --~
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The Philippines presents a sharp exception to this generally
promising outlook. Manila is already in the midst of a major
economic crisis and is rescheduling its foreign debt. Although
growth prospects are reasonably good in Thailand and Indonesia,
both could come under some pressure from their foreign debts if
the international economic recovery falters. Even South Korea,
with its excellent performance record and credit rating, is
potentially vulnerable to a cutback in private bank lending
because of its $40 billion foreign debt--the third largest among
developing countries--about one third of which is short term.
Economic links between the United States and East Asia
continue to grow, but with some worrisome trends all too
evident. Last year, East Asian countries accounted for about 30
percent of total US trade, compared with about 24 percent ten
years earlier. The value of US trade with East Asia last year
amounted to $135.billion; ten years earlier, total US trade was
about $140 billion. For more than a decade, t-Fie United States
has run a trade deficit with East Asia--one that is steadily
mounting. Ten years ago, the ratio of US imports to exports
(from and to East Asia) was 1.1 to 1; last year, that ratio had
reached 1.7 to 1.
Trends in the trade of manufactured goods are especially
noteworthy. Last year, East Asia provided about 47 percent of
all US imports of manufactured goods, up from 33 percent a decade
ago. In 1983, the value of East Asian manufactured goods
imported by the United States came to $72.3 billion, compared
with total US manufactured imports of about $41 billion a decade
ago. The ratio of US-manufactured imports to exports (from and
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? to East Asia) ran about 1.9 to 1 ten years ago; in 1983, it was
2.4 to 1.
Japan, South Korea, Hong Kong, and Taiwan constitute the
overwhelming proportion of East Asian manufactured trade with the
United States. Together, they provided over 40 percent of all US
imports of manufactured goods last year; their combined surplus
with the United States in this category totaled $46.7 billion--
$12 billion more than the overall US trade deficit with the
entire region.
In time, the complaint often heard in the United States
about Japan--that it gets a free ride on defense only to take
advantage in trade--may be extended more broadly to the region.
In any event, the basic dichotomy that has long marked East
Asia--growing economic prowess and continued reliance on the
United States for security--continues to hold. and arobabl.y will
only become more pronounced in the future.
Regional Security
Moscow's gradual yet sustained military buildup remains a
key dynamic in the regional security setting. Since 1978, the
USSR has concentrated on the deployment of strategic weapons--
nuclear armed submarines and aircraft, and more recently SS-20
missiles. Overall, the buildup appears designed to counter US,
Japanese, and Chinese forces, either separately or in alliance.
For that very reason, the Soviet buildup has been a major factor
impelling China, Japan, and the United States toward closer
cooperation. On the diplomatic level, Moscow has been primarily
concerned with deterring and, if possible, reversing the
development of such cooperation. In doing so, the USSR has taken
a hard line toward Japan--in light of its longstanding alliance
with the United States--and a notably more flexible approach
toward China.
Moscow, however, appears to face a dilemma in attempting to
make real progress in Sino-Soviet relations while also dealing
with the United States and Japan. To substantially improve
relations with Beijing, the Soviets must negotiate security.
issues important to the Chinese, e.g., reducing forces near their
common border. At the same time, they now face a US military
presence in the region that is increasing for the first time
since the 1960s and that is being augmented by better equipped
Japanese forces. Indeed, the Soviets have impressed upon the
Chinese that there can be no discussion of Soviet forces in the
Far East without considering the presence of US and Japanese
forces in the region.
Nonetheless, we expect Moscow to persist on its present
course without giving up any real ground to the Chinese. If so,
the problem in time will clearly shift to the Chinese side, e.g.,
whether to continue Sino-Soviet talks in the face of a seeemingly
endless Soviet force buildup. Since the talks began over a year
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ago, for example, Moscow has created an additional division on
the Chinese border, deployed a bomber squadron to Vietnam for the
first time, and continued its deployment of SS-20s in the Soviet
Far East. The evidence suggests that Beijing is still prepared
to be patient in dealing with Moscow, but we wonder how long this
Although Moscow's relations with Pyongyang have been
distant for some time, there have been some indications of a
warming trend over the past year. More recently, Soviet
officials have said that a marked improvement in relations will
occur this year. If a thaw does take place, the Soviets might
provide a strong endorsement of North Korea's proposal for talks
with the United States and South Korea. They have been
circumspect about the proposal so far, probably because of some
initial confusion about its origin. But North Korea's objective
in talking with the United States--a peace treaty leading to the
withdrawal of all US forces from South Korea--is one Moscow fully
For their part, the North Koreans probably will persist with
their proposal in the hope that it will become a campaign issue
in the United States. They may also perceive a potentially
exploitable difference between the essentially non-committal US
response and the strongly negative South Korean reaction to their
proposal for three-way talks. In addition, the current emphasis
on diplomacy is a useful way for Pyongyang to blur memories of
the Rangoon bombing. As a result, the North will probably
continue to publicize its offer, seeking bilateral contacts with
the United States, and subtly denigrating South Korea.
In the South, popular emotions stirred by the KAL shootdown
and the Rangoon bombing last year could be fueled further if a
dialogue on Korea does develop. The importance of the issues
involved--the US security commitment to Seoul as well as
reunification itself--is both broadly shared and deeply felt.
Indeed, the speed with which Seoul withdrew its approval of
three-way talks--once they were proposed by the North--reflects
considerable sensitivity over any discussions between the United
States and North Korea about security conditions on the
peninsula. In our view, South Korean leaders firmly believe
that, barring a fundamental change in North Korean policy that
would include a far smaller share of resources for the military,
there is no real alternative to the US security commitment and
the presence of US forces in the South.
This conviction would generate a certain level of anxiety
among South Koreans whether talks were three-way or involved
additional parties. Another potential problem facing Seoul
should talks begin is the prospect of different approaches
surfacing in the South over the issues involved. Public
divisiveness and resulting tensions could become severe if they
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pitted the government on one side and a substantial group e~ d by
someone like opposition leader Kim Dae-Jung on the other.
In Southeast Asia, the impasse over Kampuchea seems likely
to continue. Although it can be argued that no one is entirely
satisfied with the current situation, it also seems clear that no
party is about to conclude that a major change in strategy would
be in its best interest. Relations between Hanoi and Moscow
appear firmly in place as does the cooperative effort between
Thailand and China. In contrast, Sino-Vietnamese relations
appear as frigid as ever, with the Chinese applying more military
and psychological pressure on the Sino-Vietnamese border than
they did last year.
Thus far this dry season, Hanoi has refrained from major
military operations along the Thai-Kampuchean border in order to
emphasize its interest in a dialogue with ASEAN. There has been
no real give in Hanoi's position on the issues however, nor is
any change likely within ASEAN. As a result, Hanoi's diplomatic
probing could end with Foreign Minister Thach's recent tour
through ASEAN and Australia.
Meanwhile, Pol Pot's Democratic Kampuchean (DK) forces have
become more aggressive. Helped both by increased Chinese
military assistance and the absence of a Vietnamese dry season
offensive, they have struck Vietnamese positions near the border
and deeper in the interior. However Hanoi weighs the results of
its diplomatic efforts, it will so r later have to deal with
the increased DK military effort.
If the DK continues to grow, it could prove to be as much of
a problem for ASEAN as for the Vietnamese. It is possible, for
example, that the increasing disparity between the military
capabilities of the DK and the non-Communist Kampuchean
resistance forces will lead a majority within ASEAN to question
seriously whether the non-Communists will ever be able to play a
meaningful role. In such an event, ASEAN could be expected to
intensify pressure on the United States to provide direct
military assistance to non-Communist forces, or alternately, to
begin exploring an accommodation wit that would severely
strain ASEAN's relations with China.
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SUBJECT: East Asia: Short-Term Prospects (EA M 94-10081)
Distribution:
National Security Council
1 - Gaston Sigur
1 - David Laux
1 - Don Gregg
Department of State
1 - Don Anderson
1 - Assistant Secretary of State Wolfowitz
Department of Defense
1 - Jim Kelly
Department of the Treasury
1 - Doug Mulholland
Department of Commerce
1 - Eugene Lawson
1 - Dave Peterson
Central Intelligence Agency
1 - 0/DDI
1 - D/OEA .
1 - NIO/EA
OCR ina
5 - CPAS I
1 - OEA/Production
1 - OEA/CH
1 - OEA/NA
1 - OEA/SA
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