CHINA'S ECONOMIC SLOWDOWN IN 1972

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700050032-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 20, 2016
• Document Release Date: March 10, 2006
• Sequence Number: 32
• Publication Date: March 1, 1973
• Content Type: IM

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DIRECTORATE OF
INTELLIGENCE
Secret
Intelligence Memorandum
China's Economic Slowwown in 1972
CJPY
DO YOT IJESIRIJY
Secrei
ER IM 73-35
March 1973
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China's rate of economic growth waned noticeably in the second year of the Fourth
Five-Year Plan (1971-75). JuJging from Peking's cryptic disclosures and other indicators,
agricultural production may have declined by as much as 5`%, growth in industrial output
probably fell off to around 8%, and gross national product barely kept pace with the
2% annual increase in population. These are necessarily rough-hewn estimates because China
still discloses only a few selected economic statistics.
Some slippage in the rate of economic growth last year had been anticipated as most
nonagricultural sectors of' the economy had revived production capacity which had been
idled during the Cultural Revolution (1966-69). The slowdown was greater than expected
because agriculture was struck by adverse weather, industrial raw materials were in short
supply, key construction projects lagged behind schedule, bottlenecks in transportation
cropped up, and local authorities misused the decisionmaking authority they had inherited
in the aftermath of' the Cultural Revolution.
How serious the economic setback was and how long its repercussions may persist
are open questions. Peking's mood thus far has been one of concern but not alarm.
Nevertheless, China's planners have reacted to the slowdown with several adjustments --
including revisions in the national economic plans. The government has cut the 1973 ration
of cotton cloth, strengthened measures to conserve food, accorded higher priority to mining
of raw materials, and acted to curb unsanctioned activities by local authorities. It has
also shown a greater willingness to turn to the foreign trade sector to support agriculture
and maintain living standards. Grain and cotton imports have been stepped up and have
included the first purchases of' these commodities from the United States in more than
two decades. Likewise, Peking has contracted since the first of this year for six Western
plants worth almost US $150 million to expand production of fertilizer and synthetic
fibers.
Agriculture will continue to be the pivotal element in China's economic picture in
1973 and the years beyond. With reasonably goon weather, the 1972 slowdown should
prove temporary. All this depends critically Gil continuity in China's recent pragmatic
economic policies, which have permitted the country to handle its heavy task of feeding
and clothing a huge population and still make notable progress in developing modern
weapons and the related industrial and technical base.
Note: Comments and queries regarding this publication are welcomed. They may be
directed to F77 I 25X1
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Official Statistics: Still in Short Supply
1. One bright note for China watchers in 1972 was Peking's decision
to again release some selected statistics, a policy initialed in 1970 by Premier
Chou En-Iai in his last interview with (lie late Edgar Snow. For the third
year in a row, Peking has given out its olTicial "estimates" for lw,,i basic
indicators of agricultural and industrial performance in the Chinese
economy, as follows:
Mill'un Meiric Inns
/970
/971
1)72
Grain
240
250
240
Crude sleet
18
21
23
In addition, the Chinese have announeed a considerable volume of
percentage increases in the production of various goods and services. These
data are much less useful because the base years are ol'ten obscure -- for
example, production of certain commodities in 1972 is compared with "just
before Liberation" (19487) or "prior to the Cultural Revolution" (19657).
By contrast with 1971 when the Chinese reported a 10'/o increase in the
gross value of industrial and agricultural output, no similar overall claim
was made in 1972.
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3. Some observers had expected that, with entry into the United
Nations, the People's Republic of China (PRC) might open its ledgers even
wider and provide detailed data for various UN economic publications. The
Chinese did not do so in 1972, and if Chou's policy remains intact, they
are unlikely to do so this year either. It is noteworthy in this connection
that the many prominent Americans who visited China last year were able
to acquire almost no absolute output figures or any details relating to
the current five-year economic plan.
4. The size and rate of growth of' China's population remains a
special puzzle, even to Chinese officials. Various Chinese leaders have given
out figures ranging from 700 million to 850 million, and growth rates in
the neighborhood of No per year. Moreover, Vice Premier Li Hsien-nien
complained recently that "there are no accurate statistics in this
connection." Because of the problems this uncertainty creates in economic
planning and other matters, Peking apparently will conduct a national census
in 1973 - exactly 20 years after its first one. A recount seems especially
timely in view of the problems Peking probably is facing in providing an
adequate supply of food and clothing to areas hit unevenly by last year's
bad weather.
5. Tables I and 2 of this memorandum list most of the major
statistical figures released by the PRC for the years 1971 and 1972. An
appended table of economic indicators provides unclassified estimates of
long-run trends in the PRC's gross national product, agricultural production,
industrial output, and foreign trade. These estimates were derived from the
PRC's official pronouncements and a wide variety of other sources, including
trade statistics reported by China's trading partners.
Economic Policy: Problems of Local Compliance
6. Peking's principal reaction to the economic slowdown has been
to crack down on local authorities whose actions have run counter to official
policies that "for the present stage" stress moderation, flexibility, and a
no-nonsense approach to economic administration. The new, harder fine
on local compliance with central directives was evident in the New Year's
editorial in the official press which set as a prime goal in 1973 "rectification
of the style of work." With the post-Cultural Revolution economy still in
a state of decentralized decisionmaking, local authorities apparently are
either too inexperienced or too fearful of making missteps to steer a course
that is neither excessively "leftist" nor "rightist." The official press in 1972
was replete with articles condemning local mismanagement in dealing with
agriculture, industry, and construction.
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PRC: Official Claims for Agricultural Production in 1972
Aggregate agricultural production
Grains
Rice
Wheat
Other
Soybeans
Major industrial crops
Cotton
Oilseeds
Peanuts
Sesame
Rapeseed
Minor industrial crops
Hemp (bast fiber)
Silkworm cocoons
Tobacco
Tea
Sugar baets and cane
Up 8%
Down "somewhat"
Down "somewhat"
Down "somewhat"
Up 20%n
Up 20%
Up by "a wide margin"
Up by "more than" 10%
Up by "a wide margin"
Up 20%
7. In agriculture, local zealots were enjoined to cease and desist
from interferring with the "rights" of production team members to spend
part-time tilling their private plots, engaging in useful, slack-season
avocations, and trading on rural markets. They were also reprimanded for
mishandling the shareout from collective labor - that is, for not providing
material rewards to peasants who have worked harder than their cohorts.
Misuse of farm machinery came in for special criticism; examples included
neglect of maintenance and repair, failure to provide for spare parts, and
use of tractors for transport purposes unrelated to agricultural production.
8. In industry, Peking launched a series of campaigns aimed at
checking a multitude of unsanctioned operating procedures. Chinese news
media persistently complained about slipshod managerial practices which
permitted loafing cn the job, shoddy workmanship, waste of raw materials,
and sloppy record keeping. Although such reports exaggerate actual
conditions, the central leadership unquestionably is concerned about the
state of affairs in industrial management at the plant level. China's leaders
evidently are seeking to have it both ways: lip service must be paid to
the rash "revolutionary reforms" of 1966-69, while in actuality the
industrial management structure is to be revamped along the lines of the
standard command economy which proved successful in reviving production
following the collapse of the Leap Forward in 1960.
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Table 2
PRC: Official Claims for Industrial Production
Percent Increase over Previous Year
1972
1971
Iron ore
....
26.1
Pig iron
12
23
Crude steel
9.5
18
Rolled steel
10
15
Electric power
....
18
Coal
.,..
8+
Crude oil
16
28.6
Natural gas
....
25
Chemical fertilizer
18.1
20.2
Cement
..,.
16.5a
Timber
8
Machine building
....
18
Mining machinery
....
68.8
Metallurgical machinery
....
24.7
Agricultural machinery
,,, b
21
Tractors
10
.,,,
Internal combustion engines
25
....
Pharmaceuticals
11
Synthetic fibers
14
....
Bicycles
6.7
,.,.
Wrist watches
12
....
a. Large modern plants only.
b. "Higher" than in 1971.
9. In construction, Peking's invectives were exceedingly harsh:
unbridled local consumption of construction materials and other investment
resources was threatening to undermine the state's priority projects and
to jeopardize important goals in the national economic plans. To curb
excesses, local authorities were ordered. to abandon ill-conceived and
unapproved undertakings and to concentrate on finishing up authorized
projects that were already well under way.
10. By mid-1972 the mounting problems created by local
mismanagement and poor farming weather had become serious enough for
Peking to call for revisions in the 1972 economic plan as well as in the
plans for the remaining years of the five-year plan (1973-75). Details of
the revisions are not known, but they probably involve added support for
agriculture and for production of industrial raw materials as well as
retrenchment in local construction projects.
"Prp
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Agriculture: "Natural Calamities" Again
11. Plagued throughout much of the year by what was officially
described as the worst weather "in several decades," China's agricultural
production dropped an estimated 5% below the 1971 level. Peking blamed
the decline on drought, floods, frost, windstorms. hail, and insects. The
government also asserted -- and with undoubted veracity - that the impact
would have been much greater had the policy of stepped-up investment
in agriculture not been in force over the past decade. On the other hand,
r,-ports earlier in the year suggested that the downturn might have been
less had the local industry program taken away fewer farmhands for
employment in small-scale rural factories.
12. In general, the bad weather hit North China harder than South
China and was more detrimental to cotton than to grain. Peking reported
that grain output dropped 4% below the 1971 level and that production
of cotton and the most important oilseeds also declined (see Table 1). We
believe that the output of autumn-harvested grains - corn, millet, and
sorghum - and of cotton was well below Chinese expectations, particularly
in the North China area. This region is China's most important cotton
growing region and is also an area where imported grain is required to feed
the major cities even when harvests are good.
13. On the heels of a 1971 harvest that matched but did not surpass
the good harvest of 1970, the 1972 shortfalls forced the government to
make economic adjustments on a scale not required since the early I960s.
These included:
- a doubling or tripling of cotton imports;
- the first large imports of vegetable oils;
an intensification of the usual programs to save and
conserve grain; and
In addition, China's imports of grain in calendar year 1972 were increased
to almost 5 million tons, well above the recent annual average of about
4 million tons. As prospects for the 1972 harvests dimmed, the Chinese
entered the world grain markets earlier than usual. q,:;,ne 5.5 million to
6 million tons of grain are likely to be unported by China in 1973.
14. The setback in agriculture was obviously ursetting to a
government which had been according high priority to agricultural
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development since late 1962. The construction of water conservancy and
irrigation projects, the increased supply of chemical fertilizer and pesticides,
and the development of improved seeds and agricultural machinery suited
to China's requirements have been stressed for the past 10 years. Following
the 1971 harvest, the government modified its pricing policies in order to
(a) facilitate increased purchases of needed industrial inputs by farming
units ?- production teams, brigades, and communes - and (b) stimulate the
production of industrial crops. To this end. Peking reduced the state sales
prices of farm machinery, petroleum products, chemical fertilizer, and
insecticides and boosted the state procurement prices of peanuts, sesame,
rapeseed, and sugar crops.
15. Such material incentives yielded only mixed results in 1972.
According to official reports, the supply of chemical fertilizer to farming
units increased by 20`h. No yearend percentage figure was cited for increased
availability of agricultural machinery, although production of tractors
reportedly was up 10% for the year as a whole and of drainage and irrigation
equipment by 30% during the first eight months. Similarly, whereas the
harvests of rapeseeds and sugar crops were both said to have risen by 20%
in 1972, harvests of the much more important crops of peanuts, sesame,
and cotton were admittedly down. Thus, despite the concentrated efforts
of the past decade, China's agriculture remains vulnerable to adverse
weather, and the time is not yet in sight when China can become
self-sufficient in both foodgrains and essential industrial crops.
16. While disappointing to Peking, the lower harvest of 1972 is
u:ilikcly to pose critical economic problems - at least not this year. Another
poor harvest in 1973, however, could have disturbing economic and political
consequences because the agricultural sector must not only provide food
and clothing for China's ever-growing masses but also make available the
surpluses for investment in industry and agriculture, raw materials for light
industry, and exports.
17. The effects of an off year in Chinese agriculture generally are
reflected in living standards and the performance of light industries more
in the following year than in the current year. Even so, for 1972 the
government announced only that (a) retail sales of consumer goods "rose,"
(b) supplies of basic necessities were "adequate," and (c) state purchases
of grain were "satisfactory." By contrast, in 1971 Peking had claimed a
7.8% increase in retail sales. Where percentage gains were cited, they dealt
almost e3.clusively with increased sales of food items raised on private plots
(pork and eggs) or goods not made from agricultural raw materials (synthetic
fabrics, bicycles, wrist watches, television sets, and transistor radios).
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18. The average Chinese consumer in 1972 thus apparently was no
worse off, nor was he any better of'f'. Estimated GN13 per capita remained
virtually unchanged at roughly $155.
Industry and Construction: Searching for Balance
i 9. China's commentary on industrial production and investment in
capital construction in 1972 was low-pitched compared with the claims of
197! . For 1971, Peking had implied a growth rate well in excess of f 0%
for industrial production and announced that investment was "considerably
greater" than in 1970. In the subdued language of 1972, industrial output
was said to have "continued to rise" and construction to have scored "fresh
successes." Substantially fewer gains for major industrial products were
announced in 1972, and the rates of increase in every case were below
those reported for 1971.
20. Judging from the official figures shown in Table 2, frcon, cattered
reports of percentage increases in gross value of industrial output in various
provinces and major cities, and from numerous other reports on major
industrial facilities, China's overall industrial grcwth probably declined from
an annua', rate of about 13% in 1971 to around 8% in 1972. While still
a respectable rate of advance, China's planners seemed to be concerned
over whether such a pace can be sustained in the three remaining years
of the f+ve-year plan. Reports throughout the ye::r indicated that production
of raw materials, coal, and electric power was not keeping up with demand.
Significantly, Peking's yearend reporting omitted 'ny percentage claims for
increased output of cement, iron ore, coal, or electric power.
21. In part, the industrial slowdown was attributable to:
- failure to complete on schedule the construction of' key
investment projects and resultam imbalances among basic
industries;
shortages of' both industrial and agricultural raw materials;
and
-- confusion ani i.;,certainty among loca! cadres, workers,
technicians, and scientific personnel, many of whom are
still smarting from maltreatment administered during the
Cultural Revolution.
However, some slackening of the pace had been anticipated simply because
the relatively large increases of the previous two years represented catch-up
gains achieved by reviving production which had fallen off during the
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"revolutionary" turmoil of I967-08. By 1972, China's modern industries
were operating at or near full capacity. Moreover, in such industries as iron
and steel and cement the large increases in output of I970-7I relleck-d
in part the rapid proliferation of small-scale plants. Quantum jumps in
output from commissioning more and more of these ol'ten Primitive facililies
could not be expected to continue indefinitely. Indeed, the Chinese appear
to have cut back on expanding the number of small plants in 1972, and
production from these enterprises - with the notable exception of chemical
fertilizers, steel, and cement - apparently leveled off during the year.
12. According to Peking. crude steel production totaled 23 million
tons, a gain of 9.5% above the 21 million tons produced in 1971. Pig iron
production again expanded at a swifter rate (I 2'/,) than crude steel, although
not fast enough to obviate the need for continued imports. As in recent
years, the increase (I 5'%.) in crude steel production registered by the
small-scale and medium-scale plants of "local industry" exceeded the
national average. Local plants presently account for roughly one-fifth of
the pig iron and one-seventh of' the crude steel produced in China. With
both defense and non-defense requirements for higher quality and special
steels growing rapidly, China last year opened negotiations for the import
of at least $300 million worth of* advanced steel finishing equipment. t'.ven
when this capacity is in place, China will continue to need to import
substantial amounts of steel products. China's annual imports of steel
products have amounted to about 2 million tons over the past several years.
23. China has yet to release figures on production of' nonferrous
metals and minerals. Many of' these commodities are known to be in keen
demand by the defense and machine building industries, yet - apart from
aluminum -- China seen-s unwilling or unable to expand capacity. Unless
the copper, lead, and zinc industries are expanded soon, China will become
seriously dependent on foreign suppliers over the next few years. A large
part of China's traditional export metals (tungsten, tin, antimony, and
mercury) continues to be reserved for domestic consumption.
24. Production of' coal is estimated to have increased by less than
5% to 340 million tons in 1972, compared with Peking's claim of an 8%
growth rate in 1971. The slow growth in China's primary source of energy
can be traced to (a) the lack of major investment in the industry since
the mid- I960s, (b) the increasing difficulty of opening new mines now that
the best and most accessible resources have bean tapped, (c) the long
gestation period from start of' mina construction to extraction of coal, and
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(d) the perennial shortage of pit props. Because most major mines are now
producing near capacity levels, little additional output can be derived from
expanding existing facilities. In 1972, only a few new (nines were reported
to have been opened, adding at most merely 2 million tons to national
output. The local industry program of building small-scale coal mines
appears to have run its course for the time being, with the surviving mines
accounting for about one-fourth of national output. Chinese plans for
further development of the coal industry are not known; however, mining
machinery, including coal extraction equipment, apparently has a high place
in the PRC's current list of import needs.
25. Output of electric power is estimated to have increased by about
10% to 95 billion kilowatt-hours in 1972, substantially below the 18%
increase claimed for 1971. Electric power capacity is presently about
22 million kilowatts, of which 2 million kilowatts were added in 1972.
With powerplants currently being utilized at a high rate, future increases
in production will depend on comparable additions to capacity. Accordingly,
the Chinese have begun constructing new powerplants, some of which will
employ imported equipment. Thus far, foreign purchases have been mostly
small gas turbine and medium-sized thermal units worth a total of about
$150 million. The Chinese also have been showing interest in importing
large units with capacities of 300 megawatts and above.
26. By the end of 1971, 35,000 small rural hydroelectric nowerplants
had been built. At yearend 1972, the capacity of such plants had totaled
about 1.4 million kilowatts, or roughly one-sixth of China's hydroelectric
capacity. Generation of electricity from these and other local powerplants
accounts for only about 5170 of total electric power production. Power from
small plants, nevertheless, is essential to the development of local industries
and contributes an important part of the electrical energy going to
agriculture for irrigation and other uses.
27. China's petroleum industry in 1972 continued to register
remarkable gains in crude oil production, expansion of refining capacity,
and output of petroleum products. Production of crude oil rose to a record
level of 30 million tons. No serious problems were evident, although here
again the rate of increase slackened - 16% in 1972 compared with 28.6%/
in 1971, according to Peking. New catalytic cracking units were completed
at several refineries. Volume and quality of major products - including jet
fuel, motor gasoline, diesel fuels. and various lubricating oils - were raised,
and most refineries initiated or increased the supply of raw materials to
the petrochemical industry. A shift from coal to oil as fuel for some thermal
electric powerplants and the expansion of land, sea, and air transportation
also absorbed a large share of the increased supply.
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28. The volume of the foreign trade in petroleum in 1972 remained
at a low level, despite reports that an expansion of Chinese exports is under
consideration. Estimated imports of petroleum amounted to less than
300,000 tons - about the same level that has been maintained since 1966.
Exports also remained at a low level, probably less than 250,000 tons
Within a few years, however, China could have as much as
10 million tons of petroleum available for export annually.
29. The continued rapid growth of petroleum production has
bolstered China's program for development of its small petrochemical
industry which, according to Peking, sharply increased the production of
synthetic fibers and compound detergents in 1972. Of even greater potential
importance were Chinese negotiations to import complete plants for both
ethylene and synthetic fiber production. After protracted bargaining, the
Chinese early this year signed contracts with Japanese suppliers for two
complete plants that will provide China ,vith its first large facilities for
producing ethylene, a versatile petrochemical with numerous military and
industrial applications. The PRC also this year has contracted with Japan
for an acrylonitrile monomer plant which will manufacture synthetic fiber,
synthetic rubber, and plastics. In addition, the Chinese apparently completed
in 1972 an old Soviet-aid project at Lan-chou, which probably is China's
largest present producer of synthetic rubber.
30. The Chinese also dispatched technical personnel to Japan and
Western Europe to acquire firsthand knowledge of the technology and
operation of modern synthetic ribcr plants. Although no contracts were
concluded for fiber plants in 1972, negotiations are usually a drawn out
process, with the Chinese requiring presentation of every detail. The types
of plants under consideration include those for producing vinylon, polyester
fibers, nylon-6, and nylon-66.
31. The development of a substantial petrochemical industry, apart
from its contribution to modernizing both defense and non-defense
industries, has the potential for easing China's dual problems of feeding
and clothing the huge population. Petrochemicals can serve, for example,
as substitutes for grain-base and potato-base alcohol used by the Chinese
in making synthetic rubber. They also can replace the wood pulp, cotton
linters, and similar agricultural raw materials used in making rayon-type
fibers. If China succeeds in greatly boosting its production of synthetic
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fibers and fabrics, Peking may find it easier to shift some cotton acreage
into grain production.
32. Perhaps the most impressive development in the PRC's chemical
industries in 1972 was the commissioning of an additional five large-scale
chemical fertilizer plants and at least 100 small ones. As a result, claimed
production rose by 18.1%, only slightly less than the 20.21/0 claimed for
1971. Consistent with China's long-term emphasis on increasing the share
of nitrogen fertilizer in total output, nitrogen fertilizer reportedly rose by
23.4% and phosphate fertilizer by 10.9%.
33. Of the large fertilizer plants that came on stream in 1972, by
fa, he most important is a modern new facility in Shantung Province. This
plant is highly mechanized and has an annual capacity of 110,000 tons
of urea fertilizer. In addition, the Chinese recently purchased three huge
urea plants from the Dutch; when these facilities become operational in
the latter 1970s, they will probably double China's capacity to produce
high-quality urea fertilizer.
34. The PRC also pushed ahead with the expansion of' small-scale
fertilizer plants. These plants presently account for about 60% of total
output, although the quality of product varies widely and in general is much
lower than that of large-scale plants. Despite the favorable growth prospects
for total domestic production, the demand for chemical fertilizer by Chinese
agriculture remains insatiable, and in 1972 the PRC imported 4.2 million
tons of high-grade fertilizer.
Construction Materials
35. Peking withheld any useful assessments of the 1972 performance
of the hard-pressed construction materials industry. Official news media did
report a gain of 8% in timber production, the first such figure in several
years. It was also reported that 600 more small-scale cement plants were
constructed in 1972, bringing the total to more than 2,400, and that small
plants accounted for 48% of China's cement production. With the demand
for construction materials at or approaching an all-time high, Peking's
reluctance to be more definitive suggests that shortages of these materials
are constraining the investment program. For many years now, the highest
quality construction materials have been preempted by China's multifaceted
defense and defense-support projects.
36. In 1971 the Chinese had published special articles praising the
"swift" growth of the construction materials industry and had claimed that
cement produced by large modern plants had increased by 16.5% over the
preceding year. They mach no such claims for 1972. Actual production
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from large cement plants probably rose only about one million tons, or
TA, to roughly 15.5 million tons. As for the local plants, production at
the astonishing level cited would equate to about 14 million tons. The
quality of cement produced by small plants is low, aiad it is used almost
exclusively in building the thousands of small-scale, agricultural-support
projects in rural areas. It cannot be used to erect large scale, modern
facilities.
37. Some apnreciation of' the magnitude of' the demands being placed
on China's construction :-iterials industry can be inferred from a listing
of major claimants:
- the construction of' new industrial and military production
facilities, sonic of which are quite large;
the building of new rail lines, highways, and airfields;
the hardening against attack of defense production
facilities and fortifications; and
the nationwide construction of tunnels and air raid
shelters.
Machine Building and Armaments
38. Peking's comments on machine building in 1972 dealt mostly with
the technological advancement of the industry since 1949. The few
percentage figures cited for production wre for 1971 compared with 1957
and 1965. A February 1973 broadcast on progress in agricultural
mechanization, however, noted that in 1972 output of farm machinery was
"higher" than in 1971 and that production of tractors and internal
combustion engines had risen 10`7 and 2570, respectively. The skimpy
reporting was not surprising; the Chinese rarely give out figures on machine
building because much of the industry is engaged directly or indirectly in
armaments production. Nevertheless, in 1971 Peking had reported an overall
increase of 18% as well as gains for thre'; non-defense categories currently
being stressed in the five-year plan - 68.8% for miring machinery, 24.7%
for metallurgical machinery, and 21%% for agricultural machinery. The
suspicion is strong, therefore, that at least some branches of machine
building turned in a sub-par performance in 1972.
39. Judging from highly fragmentary data, China's production of
general industrial machinery and transport equipment probably rose by
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5'%,-10`/, in l Q72, compared to 101%,20`/, in 1971. At numerous industrial
exhibitions both at home and abroad, the Chinese unveiled prototypes of
a wide assortment of' modern-looking equipment, ranging from numerically
controlled machine tools to conlputers using integrated circuits. These
]sigh-technology products are intended to show China's state-of-the-art in
engineering technology. Production of Fnch items, with few exceptions, is
still experimental. Moreover, the widely heralded "technical innovations"
campaign consists not so much of? original research and development but
rather of' adapting proven foreign technology to Chinese conditions.
40. The local industry program is of' marg'nai significance in most
branches of machine building apart front the vantifacture of simple
agricultural implements, small industrial engines, ar.d elect onic components
adaptable to Libor-intensive production techniques. Batch production of'
trucks in small-scale facilities was again highlighted by the official news
media. but such production contributes little tc the solution of' China's
chronic shortage of automotive vehicles.
41. In armaments production, there appeared to be i sl+ickening
during 1972 it work on at leas! aircraft and naval ships. Output of aircraft
declined, and naval ships spent longer on the building ways. The Chinese
continued to produce a broad assortment of weapons of' both Soviet and
Chinese design. No space satellites were launched during the year, but
construction continued on associated instrumentation facilities. Two nuclear
tests were conducted, bringing the total since 1964 to 14. Production of
ground weapons included tanks, a widening variety of artillery, and small
arms.
Transportation: Heavily Burdened
42. China's recent economic recovery and expansion began to
overload the transportation system in 1972. For example, railroads. the
backbone of' China's transportation system, experienced periodic freight car
shortages during the year. Peking reported an increase of only 6.8'%, in the
volume of freight hauled by rail, far below the 18`/, figure implied for 1971.
The volume of' cargo carried by trucks reportedly rose a scant 3.4"/%%.
43. The burden on available rail and road services was exacerbated
last May with the mining of North Vietnamese ports. After all initial period
of transition, the Chinese transported large quantities of military and
economic goods - both their own and Soviet - across inland China in
support of Hanoi.
44. The impending strain on transportation had apparently been
anticipated because Peking has given high priority to expansion of the
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transport sector in the current five-year plan. In 1972 the Chinese continued
the construction of new rail lines, roads, and jet-capable airfields. Significant
progress was made on several major trunk rail routes in the rugged central
and southwestern areas of the county where many new industrial projects
are being built. Substantial quantities of transport equipment were imported,
including:
diesel locomotives from West Germany;
electric locomotives from France;
railroad tank cars i'rom Ronumia;
aircraft from the United Kingdom and the USSR;
trucks from .Japan, Western I?urope, and the 1?u: opean
Communist countries; and
merchant vessels from various Communist and
non-Communist :,ourccs.
In addition, several new pipelines were constructed between North Vietnam
and points inside the Chinese border to facilitate the shipmeot of' petroleum.
Foreign Trade: On the Rise
45. China's foreign trade in 1972 rose to an estimated $5.5 billion,
an increase of about 20'70 over that of 1971. Perhaps as much as one-half'
of the increase in dollar terms, however, was the result of the revaluation
of world currencies in December 1971. As in 1971, exports grew somewhat
faster than imports, aid China's favorable trade balance with the world
expanded. The direction of trade in 1972 did not shift markedly. Trade
with non-Communist countries still comprised more than three-fourths of
China's total trade. Trade with Communist countries increased largely as
a result of a sharp rise in Sino-Soviet trade to about $250 million.
46. Japan remained as China's larL st trading partner. Sino-Japanese
trade topped the $1 billion mark in 1972 for the first time, while China's
trade deficit with Japan was reduced to less tha-, $200 million. Chinese
exports to I-long Kong (including reexports to third countries) rose to more
than $600 million, and overseas remittances and other earnings from Hong
Kong totaled about $150 million.
47. Sino-US trade in 1972 took a sharp upward turn as a result of
the intense interest generated by President Nixon's visit io the PRC, tii'
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gradual removal of political and legal harriers to trade, and nrosl particularly
China's purchase of US grain and cotton for 1972-73 delivery. 'T'rade with
the United Slates jumped from $S million in 1971 to $92 million in 1972.
China's exports to the United Slates of $32 million consisted of' a variety
of crude nutlerials, foods, and light manufactures. US export; to China
totaling $00 million were mostly wheat and crr?n, which were shipped in
the last few monthrs of the year. Besides the 1:4rge purchases of' US farm
products, the highlights of' Sino-US Trade in 1972 were the attendance of
US businessmen at time soring and fall ('anion fairs and the contract for
ten Boeing 707s wort;( 11101.1t $120 million for 1973-74 delivery. Sino-US
trade in 1973 could be three or four times the level of 1972, judging from
existing contracts for US farm products and Boeing aircraft.
48. New emphasis is being placed on foreign trade by ('eking,
reflecting its greater interest in international affairs and decisions to improve
its dontest;c perfor'nutnce by acquiring larger amounts of foreign equipment
anti technology. In addition to expanded outlays for farm products from
abroad, Clrina has under contract for 1973 (delivery substantial amounts
of' transportation equipment, various types of machinery, a-1(1 sonic whole
plant equipment and will continue to import large quantities of metals,
fertilizer, and other industrial materials. To pay for its rising import
rL uirements, Peking has Iatmche(' an effort to increase foreign exchange
earnings, including price increa:,es for exports in strong demand, measures
to enlarge remittances ?::;J hank deposits of' overseas Chinese, and initial
steps to develop new markets (both in new areas such as file United States
and in new products such as petroleum to Japan). Ostensibly. This campaign
is to permit larger imports of capital goods: it undoubtedly also represents
Chinese recognition that last year'; agricultural shortfalls make necessary
the acquisition of' additional hard currency in ways not dependent kin
domestic agriculture.
49. Since the first of' the year, China has also indicated a willingness
to revert to its pre-Cultural Revolution practice of using medium-terra
credits for purchases w;wle industrial plants. The contracts for the two
ethylene plants not:d earlier involve the first use by China of' medium-term
credits from the Japanese Export-Import Bank since 1963, when the
now-defunct Yoshida Letter prohibited such credits for China. The three
urea plants ordered from the Netherlands ar;: also likely to invol'.' some
type of deferred payment arrangement. China's current negotiations with
Japanese and West Eur: pe in firms for whole plants cover a broad range
of' i,idustrial facilities. If all pending deals are consummated, the total co,,-,t
wiii amount to at least QcoO million, roughly twit-;: the tet;;l value of whole
plant purchases from Ja,mn and Western Europe (luring the mid-1960s.
These facilities are not likely to enter prod!rction during the current five-vear
plan, however, because of' the time required for machinery and equipment
to be manufactured, shipped, and erected at the plant site.
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11)52 1057 1958 11)511 196)) 11101 111112 11813 I1165
(1N1' (I)l
PopulatI)
m, mid-,year (million pernou:O.. ,1711
Per capita
GNP (11)7(1 115 E),,,,,,.,,. 1(14
Grain (m
Impcr(Ilion 11)711 (IS E) .......... ? . , b9 (million nu`tric tone)............ 154 (million metric loon)........... I .3 I production index (1957 --
Cotton ImduN(riu
(10).
I 1
('rude steel
Coal (million
lion nu`lrir tuna)... ..... 1{li.5
I':leetric
rower (billion kilo Ott huural.. 7.:3
('rude oil
(million metric coon)......... 11.44
('1'r;ert
trillion n`Lrlc loon).......... 2.81{
('hell.ical t
ertilizern (million motric tuna)
Supply
11. ?1
Production
lion ........................ 0.2
I inporl
N...?....? .................. 9.'
l Lachine
tool)) (thuunluul uuila) ........ 1:1.7
Trucks
thlrl11d 1)III(N),, ,, ,, ,, ,, ,, ,, I)
LOCamoti
vea (,in!LN) .................. 29
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Cotton cloth
Foreign t
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Total . .
1.89
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 Approved For Release 2006/04/19 : CIA-RDP85T00875R001700050032-0
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