CHINA: A YEAR OF REBUILDING IN FOREIGN TRADE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79B00457A000600050001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 19
• Document Creation Date: December 20, 2016
• Document Release Date: January 25, 2006
• Sequence Number: 1
• Publication Date: July 1, 1977
• Content Type: REPORT

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Secret
China: A Year of Rebuilding
in Foreign Trade
I On file Department of Commerce release
instructions apply.
Secret
ER 77-10385
July 197:7
0
Co
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F777 I
China: A Year of Rebuilding In Foreign Trade
Central Intelligence Agency
Directorate of Intelligence
Key Judgments
Chinese foreign trade in 1977 will rebound from last year's decline, but
still not regain the 1975 level.
Imports Plummet in 1976-China's imports tumbled to $6 billion as
deliveries of grain and machinery from the West dropped sharply. Lower
prices and economic disruption in China also held down import levels. With
exports down slightly to $6.9 billion China produced a record trade surplus
and strengthened its balance of payments with the non-Communist world.
Political and Geological Upheavals-While cuts in some major imports
were expected, the disruption of economic planning and performance caused
by the leadership struggle and the earthquakes depressed trade across the
board in the second half of 1976.
Some Trade Recovery in 1977-The new leadership has reaffirmed the
active trade policy of the early 1970s, stressing the importance of foreign
technology imports and the need to export raw materials to pay for them. A
new foreign trade plan for the Fifth Five-Year Plan (1976-80), however, is still
being formulated. Imports will lead the recovery in trade this year while
export growth continues to lag. The trade surplus will be cut to half last year's
level.
Commodity Imports jump-Deliveries of grain, sugar, cotton, and
soybeans will be more than double last year's level. Imports of industrial
supplies will remain high and prices will be up. Machinery and equipment
imports, however, will drop again. A new round of complete plant purchases
will not occur until late this year and could be delayed if additional
agricultural purchases are necessary.
Modest Export Growth-Any increase in 1977 exports will be in
traditional goods, particularly manufactures, as demand in the West rises.
Sales of Chinese crude oil may no more than match last year's level.
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1 7
Figure 1
CHINA: Index of Trade With Leading Non-Communist Trade Partners'
Index: 1st QTR 1970=- 100
t 2 3 4 1 2 3 4 1 2 3 4 1 -2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
1970 1971 1972 1973 1974 1975 1976
1 2 3 4 1 2 3 4 1 2 3 4 1 -2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
1970 1971 1972 1973 1974 1975 1976
1 Consisting of the Big Seven countries plus The Netherlands, Hong Kong, and Singapore.
These countries normally account for nearly 70 percent of both exports to and imports from
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Overview of 1976 Trade
Political upheaval and natural disaster wors-
ened an expected slowdown in China's foreign
trade in 1976, resulting in the first decline in the
value of trade since 1968. A record $900 million
trade surplus was achieved as virtually all the cuts
fell on the import side (see tabulation). More
significantly, the hard currency trade balance
with the non-Communist countries shifted
sharply from a $715 million deficit in 1975 to a
$745 million surplus in 1976. Exports dipped only
slightly as sales of non-oil goods nearly offset the
drop in petroleum exports.
Exports
Imports
Balance
1970
2,050
2,240
-190
1971
2,415
2,305
110
1972
3,085
2,835
250
1973
4,960
5,130
-170
1974
6,570
7,380
-810
1975
7,025
7,360
-335
19762
6,915
5,970
745
' Exports are f.o.b.; imports are c.i.f.
' Preliminary.
Although Peking had planned to hold the line
on imports last year, the economic disruption
caused by the leadership struggle and the
earthquakes had some adverse effects, especially
on imports in the last half of 1976. (See Figure 1.)
Lack of agreement on the new five-year plan
held up new purchases while the debate over
trade policy probably inhibited initiatives by the
trading corporations. Both the earthquakes and
mourning for Chairman Mao, Premier Chou, and
Chu Te caused suspension of trade negotiations
for various periods during the year. The earth-
quakes had surprisingly little effect on exports,
however. Fourth quarter exports, immediately
following the earthquakes, probably reached the
highest level ever.
Despite the fact that the bulk of the import
reductions came in trade with the West, the share
of these countries in China's trade last year was
82 percent, only 2 percentage points below 1975.
Imports from the developed countries, China's
major supplier, dropped from $5.5 billion in 1975
to $4.1 billion in 1976. (See Table 1.) Modest
gains in exports to the developed countries and
Hong Kong were wiped out by declining sales to
the less developed countries, resulting in a small
drop in total export earnings. Trade with the
Communist countries remains small. A slight.
increase in trade with the Soviet Union and East
Europe was largely offset by declining trade with
other Communist countries.
No Gain in Exports
Economic recovery in the developed West pro-
vided a boost in demand for China's traditional
exports and enabled Peking to restore some of the
price cuts made in 1975. Export earnings from
crude oil and petroleum products, however,
dropped sharply from $910 million in 1975 to
about $725 million last year. (See Table 2.) Crude
oil deliveries to Japan fell to 6.1 million metric
tons (122,000 b/d) worth about $540 million from
7.9 million tons (158,000 b/d) worth $705 million
in 1975. Sales of crude and products to Romania,
Thailand, and Hong Kong were up, but sales to
the Philippines were unchanged as only half the
amount of crude under contract was delivered.
For non-oil exports the results were mixed.
Foodstuff exports probably fell due to a de-
creased volume of rice exports and low world rice
prices thoughout last year. Sales of textiles,
clothing, and light manufactures increased; tin
and soybeans declined; and silk exports remained
depressed as Japan continued to restrict imports.
Import Bill Plummets
A combination of lower volumes and lower
prices cut the value of China's major commodity
imports in 1976 by about $700 million. (See Table
3.) Machinery and equipment deliveries also
posted a sharp decline-from $2.2 billion in 1975
to about $1.7 billion in 1976. This reflected the
completion of shipments on most of the whole
plant contracts signed in 1972-74 and the steady
decline in new orders for plants and other major
equipment since 1973.
Whole plant contracts signed last year totaled
only about $200 million compared with about
$400 million in 1975 and the $1.2 billion peak in
1973. Techimport, the trade corporation responsi-
ble for purchasing plants and technology, re-
mained active throughout the year in negotiating
new plant deals even amid the debate over trade
policy. Of the new plant contracts signed last
year, most were for petrochemical facilities to
produce synthetic rubber and textile fibers and
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China: Trade, by Area and Country '
Total
Non-Communist Countries
Developed countries
Japan
Western Europe
United States
Canada
Australia and New Zealand
Less developed countries
East Asia and Pacific
South Asia
Middle East and North Africa
Sub-Saharan Africa
Latin America and the
Caribbean
Hong Kong and Macao
Communist Countries
USSR
Eastern Europe
Far East
Other'
Total
Exports'
Imports'
Balance
14,385
7,025
7,360
-335
12,025
5,655
6,370
-715
8,110
2,620
5,490
-2,870
3,830
1,460
2,370
-910
2,810
840
1,970
- 1,130
495
160
335
-175
490
55
435
-380
485
105
380
-275
2,855
1,980
875
1,105
1,060
890
170
720
335
210
125
85
655
445
210
235
515
390
125
265
290
45
245
-200
1,060
1,055
5
1,050
2,360
1,370
990
380
280
150
130
20
985
480
505
-25
740
540
200
340
355
200
155
45
Data are rounded to the nearest $5 million; due to rounding, components may not add to the totals shown.
Preliminary.
Exports are f.o.b.; imports are c.i.f.
' Albania, Yugoslavia, and Cuba.
Total
Exports'
Imports'
Balance
12,885
6,915
5,970
945
10,545
5,645
4,900
745
6,835
2,695
4,140
-1,445
3,055
1,305
1,750
-445
2,690
985
1,705
-720
350
200
150
50
310
90
220
-130
430
115
315
-200
2,570
1,815
755
1,060
1,160
925
235
690
195
90
105
-15
580
385
195
190
480
370
110
260
155
45
110
- 65
1,140
1,135
5
1,130
2,340
1,270
1,070
200
415
180
240
- 60
1,010
465
545
-80
620
460
160
300
290
165
125
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China: Trade, by Commodity'
Exports
7,025
6,915
Foodstuffs
2,125
2,050
Crude materials
1,925
1,700
Of which:
Petroleum and
Chemicals
300
350
Manufactures
2,610
2,700
Other
65
50
Imports
7,360
5,970
Foodstuffs
920
525
Crude materials
1,025
800
Chemicals
815
600
Manufactures
4,555
4,030
Of which:
Machinery and equipment
2,160
1,700
Metals
1,975
1,800
' Data are rounded to the nearest $5 million. The statistics are adjusted to show
exports f.o.b. and imports c.i.f.
' Preliminary.
for ancillary equipment for the Wu-han steel
mill.
Imports of agricultural commodities tumbled
as good harvests permitted the Chinese to cut
grain purchases to 2 million tons, the lowest level
since the early 1960s. The bill for grain imports
fell to about $305 million-less than half the
level in 1975. Peking took advantage of sharply
lower prices to double the volume of its sugar
imports and to diversify its sources of supply to
Australia, Southeast Asia, and Latin America.
Prices played a role in the value trends of other
commodity imports last year. Delivery of large
amounts of Japanese steel contracted at favorable
prices in late 1975 held down the value of iron
and steel imports despite the larger volume.
Similarly, sharply lower fertilizer prices cut the
value of these imports much more than did the
decrease in volume, On the other hand, higher
cotton prices inflated the value of imports last
year, while the decline in aluminum deliveries
probably reflected the end of a Chinese stockpil-
ing effort in 1975 when prices were depressed.
China: Major Commodity Imports
Value in Million US $, c.i.f.
Grain
Million
metric
tons
7.0
3.3
2.0
Million
US $
1,180
680
305
Soybeans
Thousan
d metr
ic tons
570
Million
US $
155
Sugar
Thousan
d metr
ic tons
410
240
520
Million
US $
220
90
170
Cotton
Thousan
d metr
ic tons
380
164
100
Million
US $
390
125
150
Chemical
Million
fertilize
metric
r'
tons
3.0
2.9
2.5
Million
US $
230
455
270
Rubber
Thousan
d metr
ic tons
205
240
290
Million
US $
165
130
200
Iron and
Million
steel
metric
tons
4.4
3.9
4.5
Million
US $
1,210
1,530
1,400
Aluminum
Thousand metric tons
400
200
Million US $
300
175
Copper
Thousand metric tons
140
120
150
Million US $
290
185
175
Petroleum and products'
Thousand metric tons
900
1,035
550
Million US $
75
130
45
Preliminary.
Product weight.
25X1
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Outlook for 1977
China's foreign trade in 1977 will recover
largely on the strength of renewed agricultural
imports but will fall short of the $14 billion level
of 1975. The trade surplus will drop to perhaps
half the $945 million peak achieved last year as
export growth continues to lag.
The new leadership has openly espoused a
return to the active foreign trade policy initiated
by Chou En-lai in the early 1970s. Peking has
stressed the importance of foreign technology
imports and the attendant need to boost exports,
including raw materials, to pay for them. At the
same time, however, this is a year of rebuilding
for the Chinese economy after the setbacks in
1976. A new foreign trade plan is being
hammered out, which Peking hopes to have
completed by midyear. The Chinese have told
foreign businessmen not to expect any major
activity in capital equipment purchases until at
least late this year. A need for additional
agricultural imports may delay a new round of
industrial purchases to 1978. A major concern for
Peking will be to avoid another occurrence of the
balance-of-payments problems that hit in 1974
when a need for record agricultural imports
accompanied a heavy round of major equipment
purchases.
Modest Export Growth Expected
Again, as in 1976, petroleum will account for a
smaller share of China's exports. Problems of
price and refining characteristics continue to
hamper the marketing of Chinese crude oil, and
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total exports this year may only match the 8 Agricultural Imports Escalate
25X1
million ton level of 1976. Japan, the major
market, has contracted for about the same
amount as was delivered last year; planned
deliveries to the Philippines are double last year's
level, although more than half will be carryover
from 1976. No new contract with Thailand has
been signed, and any increases to North Korea
and Romania will be small. Price boosts taken in
line with OPEC increases will raise the value of
crude oil exports slightly, but only if actual
deliveries are close to the contracted volume.
Sales of petroleum products to Hong Kong and
Southeast Asia may show some gain; however,
rising domestic demand as the Chinese economy
recovers will limit export supplies.
Virtually all the growth in exports this year will
be in non-oil goods, particularly manufactures.
Demand for these goods should rise as economic
recovery proceeds in the West. The value of rice
exports will decline due to low world prices and
greater domestic needs, and China continues to
have only limited amounts of minerals and
metals available for export. Supply shortages
resulting from the economic disruptions last year
may hamper some export sales, but this problem
may abate as domestic production picks up
during the year.
Early reports from the recently concluded
spring Canton fair point to some progress in
trade. The Chinese are claiming a record
attendance by foreign businessmen, but not a
record number of signed contracts. The results of
this fair, however, almost certainly surpassed the
poor showing of the 1976 spring fair. US traders
signed contracts totaling $60 million, of which
$40 million represent US purchases. This equaled
the level of last fall and was double that of the
fair last spring. The large contingent of Japanese
businessmen registered purchases from China at
about the same level as last fall, although sales fell
fell short of the autumn total. Traders found the
Chinese eager to do business and quite amenable
to buyers' requests on labeling, styles, and
packaging. Yet, shortages, particularly in food-
stuffs, limited some foreign purchases. Prices of
some items were higher, but the large across-the-
board price hikes imposed at the 1976 fall fair
were not repeated.
Rising purchases of agricultural products will
be the major factor in the recovery of imports 25X1
from last year's total. Total imports of agricul-
tural products may top $1.5 billion this year.
ISugar imports may excee mi ion tons,
cotton purchases will be higher, and Peking is
again importing substantial quantities of soybeans
and edible oils. If drought conditions in China
impair the harvests, Peking may be forced to
continue major agricultural purchases through
the second half of 1977 and into 1978.
Imports of industrial supplies are expected to
edge higher this year. Domestic economic re-
covery should increase demand for imports, and
most world commodity prices will be higher.
Steel imports are likely to remain high in view of
the poor performance of China's steel industry
last year. In addition, China will be purchasing
some coking coal from the West for the first time
this year. Rubber prices are higher this year, and
fertilizer imports should rise in both price and
quantity.
Machinery and equipment imports will drop
farther this year, to the $1.0 to $1.5 billion range,
offsetting some of the growth in other imports.
New orders for whole plants and major equip-
ment have dropped sharply each year since 1973,
and deliveries on most of these contracts are now
complete. Aircraft deliveries will continue as the
helicopter and Trident jet contracts wind up.
Imports of oil drilling and exploration equipment 25X1
will remain strong. A second $20 million offshore
drilling ri from Singapore was delivered this
year,
Only two new pant
contracts, worth million, have been signed
this year. If additional heavy outlays of foreign
exchange for agricultural purchases become
necessary, Peking may decide to postpone plant
contracts until next year. At any rate, deliveries
on new contracts for plants and major equipment
would not show up until at least late 1978.
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Balance of Payments Stable
A second, although smaller, trade surplus plus
larger credit drawing should serve to keep
China's balance of payments stable this year. A
smaller current account surplus will be offset by
improvement in the capital account balance.
Progress payments for whole plants and debt
service on short- and medium-term credits will
total an estimated $600 million this year, down
one-third from last year's total. New drawings on
grain and whole plant credits will almost equal
this amount. Any drawdown in China's reserves
should again be small.
Trade, by Country and Area
Japan-Muddling Along
Although Sino-Japanese trade fell by 20 per-
cent from 1975 to 1976, Japan remained China's
leading trade partner, accounting for nearly a
quarter of its total trade. (See Figure 2.) PRC
imports dropped by 25 percent to $1.75 billion
while exports declined by only 10 percent to $1.3
billion, cutting China's deficit to half the record
1975 level.
Crude oil-6.1 million tons worth $540 mil-
lion-accounted for 41 percent of China's exports
to Japan. A decline from the 7.9 million tons
delivered in 1975 stems partly from the refusal of
Japanese refiners to buy more and partly, at least
according to Chinese claims, from rising domestic
demand for the oil. Fibers, fabrics, and garments
continued to feel the squeeze of Japanese
restrictions on silk imports, falling 6 percent from
1975 levels. The results were mixed-but general-
ly on the up side-for other exports: coal,
soybeans, and shrimp fell, for example, while
processed foodstuffs, fish, fruits and vegetables,
chemicals, and wood products rose.
Although the value of China's imports from
Japan fell considerably in 1976, the overall
volume was up from 1975. Steel imports, valued
at roughly $750 million, were down $90 million
from 1975, but the volume actually rose from 2.4
million tons in 1975 to 3.5 million tons last
year-unit values were lower by more than a
third. Imports of synthetic fibers and fabrics
amounted to over $170 million, up 30 percent
from 1975. The volume increased even more than
the value, however, since prices fell 10 to 15
percent. Imports of plastic materials-polyesters,
polyethylene, and polyvinyls-increased 20
percent by value, although price hikes of 5
to 7 percent accounted for some of the
increase.
On the other hand, imports of chemical
fertilizers and capital goods declined both in
value and in volume. Chemical fertilizer imports
fell 75 percent to $70 million because China
failed to sign an agreement covering second-half
imports. Prices were off an average of 40 percent,
however, accounting for a large part of the
decline in value.
Imports of machinery and transport equipment
fell from about $660 million in 1975 to $410
million in 1976. Deliveries of ships nose-dived
from $175 million to $25 million, accounting for
a large part of the decline. By the end of the first
half of 1976 most deliveries had been completed
on the whole plants ordered in 1973-74, and
thereafter machinery imports tailed off sharply.
New orders for whole plants, on the other hand,
more than doubled, from $60 million in 1975 to
at least $140 million in 1976. About half of this
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CHINA: Geographic Distribution of Trade, 1976
Trade Region
Million US$
I Japan
3055
II Western Europe
2690
III Southeast Asia (including
Hong Kong and Macao)
2300
IV Eastern Europe (including Albania
and Yugoslavia)
1185
V United States and Canada
660
VI Far Eastern Communist Countries
620
VII Sub-Saharan Africa
480
VIII Australia and New Zealand
430
IX USSR
420
X Middle East
395
XI Latin America (including Cuba)
270
XII South Asia
195
XIII North Africa
185
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amount was for two petrochemical plants and
the other half was for additional facilities for the
Wu-han steel complex.
In 1977, crude oil exports may fall even
further-the annual agreement calls for ship-
ments of only 5.2 million to 6.2 million tons. If
oil shipments only reach the agreed minimum,
China's traditional exports could not make up
the difference. China's imports, however, will not
fall any further and could possibly grow.
Increasing imports of steel and fertilizers at a
minimum will offset a decline in machinery
imports. Already the Chinese have signed con-
tracts for 3.4 million tons of ordinary steel, and
these contracts cover imports only through
September. Imports of specialty steels should
drive the total to over 4 million tons. Despite the
fact that China's newly acquired fertilizer plants
should start full production this year, the Chinese
are continuing fertilizer purchases. Contracts
covering the first half of the calendar year
amount to the equivalent of 1.7 million tons of
ammonium sulfate, and total imports for the year
probably will return to 1975 levels.
In late March, Peking and Tokyo agreed "in
principle" to negotiate a comprehensive long-
term trade deal. Although the announcement
was ballyhooed as a step of major significance,
the terms of the deal are yet to be completed.
Both sides have favored a long-term trade
agreement at least since 1973, but negotiations
25X1 have always broken down over the details.n
Efforts to conclude the agreement may again
prove elusive.
United States-Slow Growing
In 1976 China registered its first trade surplus
with the United States since 1971, when US
controls on imports from China were lifted.
Chinese exports totaled $201 million; imports,
$150 million.* In the first half of the year M. W.
Kellogg completed deliveries on the eight ferti-
lizer plants ordered in 1973; in the second half
Chinese imports plummeted to $15 million. (See
Figure 3.)
Imports
from all hard-currency areas collapsed in the
second half of 1976. Imports hardest hit were
agricultural commodities and capital goods-
items that since 1972 have accounted for the
lion's share of US sales.
Until full diplomatic relations are established,
Peking may well continue its policy of limiting
purchases from the United States when alterna-
tive supplies are available. Hua Kuo-feng and his
Cabinet probably will continue to view the
United States as a residual supplier of basic
commodities-grain, cotton, aluminum-buying
only for short-term exigencies. The clear superi-
ority of the US in high technology areas will
continue to ensure some sales to China, however.
US exports to China may fall to around $100
million in 1977, continuing the decline from the
banner years of 1973 and 1974. To date, contracts
signed for deliveries in 1977 total about $80
million, composed chiefly of oil-well drilling and
logging equipment, machine tools, polyester
fibers, and cotton.
Chinese exports to the US probably will reach
$250 million in 1977 as the demand for Chinese
foodstuffs, silk, cotton textile fabrics, and handi-
crafts continue to grow. The US market for these
traditional export items is limited, however, and
there are no prospects in sight for any large
commodity sales to US firms. Over time, tin sales
are likely to decline as Peking diverts this metal
to domestic use. The small quantities of Chinese
crude oil available for export make petroleum
sales to the US any time in the near future
unlikely.
* Sino-US trade data used in this report differ from data issued by the US
Department of Commerce, which publishes all trade data on an f.o.b. basis.
The figures used in this report have been adjusted to show China's imports,
c.i.f.
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Highlights of US-China Trade 1
China Buys
Aluminum
Grain Shipments
Begin
t _.~
50 I
mpor
Controls
Lifted
II III IV I II III IV 1 II III IV I II III IV I II III IV 1 II III IV I
1971 1972 1973 1974 1975 1976 77
1. Data are from US Department of Commerce and
show both exports and imports on an f.o.b. basis.
Western Europe-Deficit Drops
Last year China lopped off over $400 million
from its 1975 deficit with Western Europe. Aided
by recovery of the European economies, Chinese
exports almost reached $1 billion, up nearly $150
million from the previous year. Larger sales of
silk and cotton textiles accounted for most of the
increase. Imports fell to about $1.7 billion, down
more than $250 million. Western Europe contin-
ued to be a major source of metals and
machinery. The decline in imports, which began
in the third quarter of 1976, is likely to be
reversed later this year. Chemicals and steel will
provide the impetus for growth-not, as in the
past, machinery and transport equipment.
For political reasons, the Chinese would like to
be the first Communist country-thus preempt-
ing the Soviets-to sign a trade agreement with
the European Community (EC). Nevertheless,
negotiations continue to be delayed for a variety
of economic reasons. Chief among them is the
EC's insistence on a safeguard clause to protect
industries of member nations and on smaller
import quotas for a number of China's exports.
Peking fears that the safeguard clauses will be so
ambiguous as to allow countries importing PRC
products the right to curtail imports whenever
they desire. Textile quotas are the principal
problem for Peking, which hopes to earn a good
deal from increased exports, but quotas on food
and mineral products have also caused delay. An
EC mission will visit Peking in July for further
talks, but no agreement will be signed until late
this year at the earliest.
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Germany
Germany stood out as the only developed
country to increase exports to China in 1976.
PRC imports climbed from $600 million in 1975
to $715 million last year. Chemicals nearly
doubled, to $140 million. Machinery increased
from $160 million in 1975 to $270 million last
year as deliveries rushed to completion on nearly
$500 million worth of plants and equipment
ordered since 1973. Steel imports fell from $305
million in 1975 to $290 million last year, but rose
in volume from 480,000 tons to over 515,000 tons.
PRC exports also increased from $195 million in
1975 to $235 million in 1976. A boost in textile
sales accounted for all of the increase.
Although China's imports may decline slightly
in 1977, the decline will be temporary. Contracts
for two petrochemical plants last year totaled $45
million, and two additional plants worth $40
million were purchased in mid-1977. Discussions
are being held on a number of other projects,
including $240 million in semisubmersible oil
drilling rigs and a semiconductor manufacturing
facility. In November 1976, a PRC-FRG mixed
commission met in Peking to discuss means of
stimulating trade. West Germany provides an
important alternative source to Japan for China's
industrial imports-hence, the outlook for future
growth in trade is good.
Last year two-way trade between France and
China just about matched the level of 1975.
Exports increased 13 percent to $170 million
while imports fell 7 percent to $400 million.
Textiles accounted for most of the export
increase; agricultural exports remained the same
as in 1975. China's imports of steel dropped 20
percent in value, to $70 million, but rose in
volume. Aluminum imports were neglible after
reaching $40 million in 1975. Imports of trans-
portation equipment dropped from over $50
million in 1975 to less than $20 million last year,
largely reflecting a decline in deliveries of Berliet
trucks. Five Super Frelon helicopters were
ferried to China last year, and the same number
are expected this year. Imports of machinery, on
the other hand, jumped to $280 million last year
as deliveries speeded up on equipment for the
petrochemical complex ordered in 1972. This
year imports from France probably will sink
dramatically, buoyed only by larger steel pur-
chases and the possibility that China might again
rely on France to fill some small orders for grain.
Machinery imports probably will total only about
$100 million, consisting largely of deliveries on
two fertilizer plant contracts.
United Kingdom
Sino-British trade slipped in 1976 for the fourth
straight year. Although Chinese exports-$135
million-recovered 20 percent from the 1975
recession, Chinese imports-$145 million-tum-
bled by $60 million. Purchases of aluminum,
construction and mining equipment, and aircraft
engines and parts dropped the most. Steel imports
and Trident aircraft deliveries, on the other hand,
were up. Chinese imports should increase sub-
stantially in 1977 because 11 of the 25 Tridents
purchased over the past few years are scheduled
for delivery. In addition, deliveries under a $200
million contract for Spey jet engines and technol-
ogy, signed in late 1975, should begin this year.
Canada and Australia-Grain Sets
the Pace
China's imports from Canada last year fell to
$220 million, about half the 1975 level, while
exports advanced from $55 million in 1975 to $90
million in 1976. Grain accounted for most of the
drop in imports as wheat deliveries fell to 1.1
million tons worth $157 million compared with
1.9 million tons worth $360 million in 1975.
Imports of nonferrous metals, mostly aluminum,
were about $21 million, down from about $35
million the year before, while deliveries of
woodpulp rose by $12 million to $32 million. The
increase in Chinese exports reflected improving
sales of textiles, clothing, foodstuffs, and light
manufactures. China's imports from Canada will
exceed the $300 million mark this year. Wheat
contracts for 1977 total 5.3 million tons. Lower
prices will hold the value to an estimated $520
million, and delivery will spill into the first half
of 1978. Imports of nonferrous metals are
expected to be higher this year. Chinese exports
will edge higher; but the Canadian market for
Chinese goods remains limited, and restrictions
on textile imports by Ottawa are possible.
Australia moved ahead of Canada last year in
the ranking of China's trading partners as PRC
imports dropped by only $80 million to $280
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million and exports rose from $86 million in 1975
to $104 million. Wheat deliveries to China
totaled 900,000 tons worth $130 million, off
500,000 tons and $97 million from 1975. Sugar
imports, however, jumped from only $14 million
in 1975 to $60 million last year, and pig iron and
nonferrous metals imports held steady at about
$55 million. Chinese exports showed some gains
in foodstuffs and crude materials, but Australian
restrictions on textiles and footwear limited the
growth in sales of manufactures. Imports from
Australia in 1977 should reach at least $400
million. Grain contracts total 2.5 million tons
worth about $275 million, and sugar deliveries
will rise to 260,000 tons worth almost $70
million. Increased Chinese purchases of pig iron
and nonferrous metals are also likely. Chinese
exports, on the other hand, will probably stay
below the $125 million level.
Hong Kong-Slower Growth of the
Local Market
Trade with Hong Kong, including goods for
reexport, grew by about 17 percent last year and
the colony remains China's second largest trading
partner and export market after Japan. Hong
Kong's retained imports of Chinese goods were
$1,095 million, up only $75 million from 1975,
while reexports rose 40 percent over 1975 to $492
million. PRC imports from Hong Kong were only
$5 million. Sales of petroleum products grew by
$20 million to about $60 million, although
China's share of the Hong Kong market held
steady at about 12 percent. Deliveries of petro-
leum faltered in the third quarter of last year
when supply shortages forced China to suspend
shipments under a contract with a US firm in
Hong Kong. Foodstuffs, the largest export item,
increased less than 5 percent last year, and
deliveries of textiles and clothing showed moder-
ate gains.
Growth of exports to Hong Kong in 1977 may
be hampered by tightening supplies of foodstuffs
in China. Increased sales of manufactures,
however, should be sufficient to maintain at least
last year's export level.
Peking is also expanding its commercial
operations in Hong Kong to increase exports to
both Hong Kong and third countries. In 1976 the
PRC-controlled oil distributor in Hong Kong
opened the first of several service stations, and a
PRC-linked firm announced plans to build a
plant to assemble machinery from Chinese
components for sale overseas.
Less Developed Countries.-Down
Both Ways
Cuts in imports from the Third World roughly
matched declining sales to these countries,
holding China's trade surplus with the less
developed countries at $1.1 billion. The East
Asian countries were the only bright spot in the
downward trend in PRC-Third World trade as
oil exports to and sugar imports from Thailand
and the Philippines boosted trade. A smaller
volume of rice sales at lower prices, slow recovery
of demand in the LDCs, and some shortages of
Chinese export goods all combined to reduce
exports last year. Commodity imports from the
LDCs were down almost across the board-no
grain and smaller quantities of cotton and crude
oil were delivered, and lower prices cut the value
of nonferrous metals and sugar imports. Only
rubber imports rose in both volume and value.
Recovery of Sino-LDC trade in 1977 will be
largely on the import side. Agricultural products
will lead the way as China imports 700,000 tons
of grain from Argentina, more cotton from the
Middle East and South Asia, soybeans and
soybean oil from Brazil, and greater amounts of
sugar from East Asia and Latin America. In
addition, metal imports should increase, and
rubber prices are climbing. Exports to the Third
World will lag, cutting China's large surplus with
this region. Chinese foodstuffs and possibly some
other goods may be in short supply, and low
world rice prices should persist. Any help from
increased deliveries of oil to the Philippines and
Thailand will be marginal.
The Communist Countries-Little Change
Decreases in aid deliveries to some of Peking's
traditional Communist recipients offset increases
in trade with the USSR and Eastern Europe and
kept trade with the Communist world roughly
the same as in 1975.
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USSR
Sino-Soviet trade jumped about 50 percent last
year to $416 million. A sizable carry-over from
the 1975 trade agreement pushed China's imports
up to $238 million from $129 million the year
before. Exports to the USSR were $178 million,
up $28 million from 1975, resulting in a Chinese
deficit of $60 million. Price increases due to the
shift to calculating trade at world market prices,
instituted in 1975, instead of the system of
stopped prices, which priced goods at the level of
the year they entered trade, accounted for a large
share of the increase in value. Thus, trade volume
probably only returned to the level of 1974 after
an estimated 30-percent decline in 1975. Trade
still consists primarily of an exchange of Chinese
foodstuffs, textiles, and consumer goods for Soviet
metals, machinery, and equipment.
Prospects for improvement in Sino-Soviet eco-
nomic relations this year are poor. Trade is tied in
with the overall political relationship, and any
immediate hopes for change from the post-Mao
leadership were quickly stifled as China reiter-
ated its anti-Soviet stand. The 1977 trade
agreement has not yet been signed, but trade
25X1 levels this year are likely to fall.
nomic and political relations kept Romania as
China's largest Communist trading partner, with
trade estimated at $470 million last year. Trade
with Eastern Europe will probably continue to
stagnate in 1977. With the higher prices now
being charged for East European machinery, the
importance of these countries to China as a
source of machinery and equipment may have
diminished. Further exchanges of oil for fertilizer
continue to bolster Sino-Romanian trade. In
addition, China has agreed to supply 10,000 tons
of cotton to Romania this year, worth over $15
million at current prices.
Other Communist Countries
Political factors may have accounted for a
share of the decline in China's trade with other
Communist countries last year. Economic aid to
Vietnam continues but has been winding down
since the war. Relations with Albania cooled
during the year and likely had an effect on trade
and aid. Sino-Cuban trade fell last year to about
$120 million, down $13 million, although the
rumored break in economic relations over the
Angola issue never materialized. Sugar imports
from Cuba actually more than doubled to about
196,000 tons, but sharply lower prices held down
the value. The drop in Sino-North Korean trade
from $335 million in 1975 to $258 million in
1976 was probably the result of economic
Eastern Europe
China's trade with Eastern Europe last year
remained at roughly the $1 billion level of 1975.
The effect of price revisions was much smaller in
1976 than in 1975. Except for Romania and
Bulgaria, trade with the other East European
countries declined, perhaps reflecting difficulties
in negotiating trade using world prices as a guide.
Machinery and equipment plus fertilizer from
Bulgaria and Romania made up the bulk of
Chinese imports. Chinese exports were largely
foodstuffs, nonferrous metals, consumer goods,
and about 500,000 tons of crude oil worth an
estimated $40 million for Romania. Close eco-
problems on both sides or the border.
Trade with the other Communist countries will
probably grow little in 1977. Trade with Vietnam
will not make any gains, and while relations with
Cambodia are good, the prospects for expanded
trade are limited. Laotian and Mongolian trade
will remain small, perhaps $5 to $10 million
each. Sino-Cuban trade will likely stay at last
year's level as China meets more of its sugar
needs in the West. Ship deliveries from Yugosla-
via this year may lift trade above the $30 million
level of 1975-76. Peking's willingness and ability
to provide more aid to the troubled North Korean
economy could provide some boost to Sino-
North Korean trade this year.
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The authors of this paper are
hina Division, Office
of Economic Research. Comments and queries
are welcome and should be directed to either
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Secret
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