Created: 6/3/1954

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White House

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rederal Burcso nr mvesUgatloQ

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communist china's power'potential7

the problem

To estimate the political, economic, and military development ofChina


Chinese Communists' have as their long-range goal the developmentoviet-stylo state in. China, with its own oases of economic and military strength, and dominant in eastern and southern Asia. To this end they will proceed, as rapidly aa possible, through the forced and ruthless measures characteristic of Communist regimes, to reorganize the social structure along Communist lines, improve the effectiveness of thesystem, and develop the economy to the extent feasible. The regime will devote substantial resources toand strengthening its armed forcesower base for its foreign policy.

Although the (minese plans fordevelopment are not Known in detail, it appears that these plans corn-template an increase In total output7ercent above2 level. Emphasis is placed upon increasing the output of the modern industrial sector, parUcularly heavy Industry andFulfillment of the regime'splans depends upon increasing

1 Except where otherwise lofilceUd explicitly or by context, "Chron' ands usedrefer to Communist China and theCommunis ta.

agricultural output while rigorouslyconsumption so as to provide the resources needed to support theinvestment and militaryA large part of the capital goods needed to fulfill the program will have to be obtained from the rest of the Soviet Bloc in return for Chinese exports.resources will have to be efficiently allocated to ensure that crucial sectors of the economy, such as transport, meet the demands generated by increasing production.

ajor crisis or otherevent, we estimate that China will have attainedrossproduct of roughlyillion, an increaseercent over2 figure. We cstirnate that agricultural output will bo aboutercent higher thannd the output of theindustrial sector of tbeercent higher. The increases inindustries (includingwill of course vary widely from this over-all rate of Increase. Evenowever, the Communists will only have begun the modernization of China's economy. The country willhole remain agrarian and underdeveloped.

We believe that7 the Chinese regime will have Increased its adrruhis-trative efficiency and have furtherIts control over its people andbut the regime will not have been able substantially to alter traditionalpattern? or to obtain more thanacceptance from tha bulk of theHowever, we believe that the regime's ability to direct and control China will not be significantly impaired, furthermore, we believe that the regime will be able to master leadershipthat are likely to arise, even In the event of the death or retirement of Mao Tae-tung.

The internal control and thepower position enjoyed by the Communist regime rest largely upon the power potential of China's militaryat present the largest of any Asian nation. We believe that theestablishment will gain in strength and effectiveness during the period o! this estimate through the regime'sof modernization and training. Soviet assistance will continue to beto tho fulfillment of this program.

e believe China's dependence on the USSR will not be significantly lessened during the period of this estimate, and that maintenance of the alliance with the USSR will continue toominant aspect of China's foreign policy. The Communist Chinese regime will continue to consolidate its political position, to gain in eccmomlc and military strength, and7 willore powerful force tn world affairs than at present.aspects of China's development will be used to support claims that time is on the Communist side in Asia. China's increased power and prestige willhallenge to the influence of thenations In Asia, and to the Asian leadership aspirations of India and



Since their assumption of powerhe Chinese Communists nan, with Soviet assistance, builtowerful militaryThe Communists haveolitical and social revolution of vastand they have virtually eliminated eGective opposition. They have largelyand established control over the country's economy.

The Communist regime has accomplished the foregoing hi the face of serious obstacles and at great economic and human cost9 tbe regime was confronted by widespread economic disruption, and general wearinessfromears of virtually continuous war. The regime has had to Impose Its willhinese people and over an area approximately as large as the US, Mexico, and Alaska combined. The bulk of the people are Illiterate; communication andfaculties are rudimentary or Inadequate In many areas. Formidable problems must still be overcome before the Chinese reach the ambitious goals set by the regime.

II. PRESENT SITUATION IN CHINAhe Chinese Communist regime hasto create an Industrialised andpowerful state. At present, the energies of the legime appear to be devoted to the consolidation and expansion of China'sstrength, modernisation of military forces, and the transformation of China's poUUcal and social stnicture. To these ends, the regime Isore effectiveof government, Intensifying its con-

trois. and undertaking to cumulate orinstitutions or individuals which stand in the way of its goals.

Political Davelopment

Administration and leadership. TheCommunists have adapted Sovietand political Institutions andto Chinese conditions. The highly centralized and dictatorial gcwennneut has Instituted effective measures to suppressregional, clan, and ethnic loyalties, and hasnitary state structure with direct lines of command down to the village level.

Ultimate power in China resides In the Communist party and is rested in the Political Bureau {Politburo) of the Party's Central Committee. Under Mao Tse-tung's leadership each of the five principal members of the Politburo appears to have certain general areas of resporrstblllty, ln addition to collective responsibility in the Politburo: Liu Shac-c'hl, party affairs; Chon En-lei, operation of the government; Chu Teh, military; and Ch'en Yun and Kao Kang, economic affairs.

The decisions of the Politburoovernmental structureon that of the USSR. (Seehe highest place in the governmentalis reserved for the All China People'sa body to be chosen by nationalnow promisedntil Ihls event takes place the top governmental body la the Central People's Government Council, headed by the Chairman (hlaoTse-tung) and six vice-chairmen. To bolster tho fiction thatoalition, three of the six vice-chairmen aw "democratic peraonages'> repre-aentlng other political groups such as the Chinese Democratic League and the Kuamin-lang Revolutionary Committee. Theadministrative bodiesthe Government Administration Council and the People'sMilitary Councilnominally responsible to the Central People'sCouncil However, since the principal members of the Politburo are also members of these aorainistraUvj bodies, the authority of the Communist party is brought to bear directly upon the administration of the state, Decisions made by the national authority are Implemented in each of the administrative regions of Chinaegional organization composed of party, government, and militaryimilar pattern or Integrations of party and government Is repeated down to local government level.

Chinese leadership is marked by theand stability of the party elite. The Communist readers have been closely knit by their common experience In revolution and war since the party's foundings in any group, however, there have been rivalries for power in the past and some almostexist at present. Partysuch as the4 warning by the Central Committee on existing dangers to party unity suggest the existence ofand rivalries, and there arc hints of the existence of ill-defined groupings about Liu Shao-chl and Chou En-tal. There Is no firm evidence, however, of clearly establishedamong the upper echelons. There have been no major purges in she pastears.

The precise manner in which Sovietor control finds its way into Chinese pouciss is not known. The USSR apparently treat* its Chinese ally with deference. Soviet advisers almost certainly are in contact with the highest level of Chinese party andleadership, but we do not believe that these Soviet officials issue direct orders. We believe the USSR Is able to exert Influence over Chinese policies primarily by virtue of their common ideology nnd China's economic and military dependence on the USSR.

olitical Controls. The Communisthas vigorously and ruthlessly set about establishing poliucal control over the Chinese people TO do this, it haside array of programs, ranging from toducements and patriotic appeals to coercion and terror.

he Chinese Communists have developed an elaborate system of persuasion, involving social, economic, legal, and psychological pressures, and the operations of an extensive and highly coordinated propagandaThe Communists have sought toln theense of participation in


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"new China" and, through exaggerated claims of China's military and diplomatic accomplishments, lo stimulate Chinesepride. The regime has attempted to win public support by extensive campaigns against corruption and nepotism and byincreased opportunity to the peasantry and urban proletariat The regime has tiled in particular to win the loyalties of youth.

IT. The Communists have had considerable success In winning support from certainof the population. Some of therevolutionary zeal remains. Inarge portion of China's youth Isby the regime's achievements. Other Important and energetic elements of support are found among members of the armed forces, government workers, skilled industrial workers,onsiderable proportion of the women.

hrough terror and force, thehave eliminated the landlord class and thousands of businessmen, professionals, and former government officials. There is noof significant organized resistance to the regime. To insore Its control, the regime has established extensive security and police forces inhe army. In addition to these organised forces, the regime's ability to ferret out dissenters has been augmentedervasive system of vigilance committees and volunteer informers.

owever, much of the voluntary support the regime received9 has beenTho regime's coercive measures have created an atmosphere of fear among many segments of the population. Many Chinese have probably become increasingly suspicious that the USSK is encroaching upon China's sovereignty. In some instances, strongreactions have resulted from attacks on religious and traditional institutions-taxation and regimentation have caused an adverse reaction among the farmers. Dissatisfaction has arisen among workersesult of the failure of realto rise. Merchants and pettyare resentful of heavy taxes andcompetition. Dissatisfaction has grown among Intellectual and professional groupsesult of the drop in their living standards and of the regime's unrelenting pressure toward literal conformity.

such dissatisfaction asin China has neither theintensity, nor the physical means bytransform itself into effective resistance.

Economic Slruotion

china Is an underdeveloped agricultural countryopulationillion. China's estimated gross national product of approximatelys less than one-third of Soviet and about one-fourteenth of US GKP. China's per capita gross national product of roughlys about equal to Out of India but only about cute-quarter that or Japan. WhOe there are the beginningsodern industrial development the present contribution of the Industrial sector to totalmall. The regime faces atask tn achieving its long-term goalodem Industrialized economy. Tothis, the Communists are developing their organization for planning and forthe economy.

As in any planned economy, the national budget is the major instrument forresources to implement thehe Chinese national budget had risen tohird of theubstantially lower proportion than in the case of the USSR. The two most Important categories of budget expenditures during this period have been military outlay and capital Investment. (See Chartor breakdown of the budget.)

hen the Communists undertook the task of rehabilitating and expanding the Chinese economy afterears of wartime disruption, production was extremely low. At that tune, the production of electric power was only about two-third's of the peakunder the Japanese, coal roughly two*

1 KtUraate* based on ltsa data are used generally throiigtioo: Cranees3 are believed not to have altered the general order of maanltodes or the relationship*.

fifth's, and finished stool about orx-slxth. (Seey the endhe Chinese had succeeded in general ln rehaUulatthg the economy. Steel production exceeded byone-quarter the highest levels reachedthe7rain and power production were slightly shore this level; and coal output was atoat three-qaar-ten of this level. (See Chart in for ccmpar-iscr. of Chinese production2evels and with production in US aad USSR)













The general rise in domestic production and trade, the great expansion of overland trade between the Soviet Bloc and China, and the movement of military supplies to Korea have increased demands on Chinese transport capacity. The regime has almost restored the rail net developed by the Chineseand the Japanese in their respective zones priorhe Communists have also brought to completioniles of new lines. (For major transport lines sset end ofowever, the rail net ia still inadequate in many areas. Lack of rail transportation has greatlythe exploitation of strategic minerals in western China, Including such key projects as the development of tbe Yumen on fields. Moreover, the Chinese have not yet restored the prewar supply of freight cars andLargely because of the increased transport demand and shortages of rolling stock, the rail system Is currently operating under considerable strain. Drastic measures are being employed to stretch presentby lnteristfylng the utilisation of

ther forms of transport havemaller part In the regime's program. There Is still relatively Utile motor transport. Long distance motor transport has not beenin most areas because of poor roads and shortages of fuel. Transport via InlandIs not utilizing the full capacity of avail' able shipping, apparently in part because of the significant change in the pattern of trade. Cargo junks make up the bulk of China's Inland and coastal water transport capacity, though the Chinese ocean-going merchant fleetmall slow ships plays aopart Id coastal trade from Shanghai northward. China Is dependent on non-Chinese shipping for almost all of herforeign trade. Civil aviation is little developed and has been used primarily as an adjunct of military air transport, especially during the Korean War.

2ft Although the Communists hare made considerable progress in rehabilitating tbe Chinese economy, the basic pattern remains unchanged. Agriculture is still the primary activity and per capita production is still low. The ronjor sector contributions to grossproduct are shown In Chart IV.the geographic concentrations ofactivity within China remainunchanged. (Seet end of text.)

n the other hand, the Communists haveajor change in the direction and composition of China's foreign trade.8 practically all of this trade was with countries not now in the Soviet Bloc, while2 the Soviet Bloc accounted for aboutercent of Cliina's foreign trade. In terms ofdollars, China's total foreign trade2 was roughly the same asimports in constant dollars wereless2 than8arge Import surplus was financed by Japa-


Chart 4


gross national product

estimated percentage contribution of sectors


Investment in Manchuria. Imports of consumer2maller proportion of the total thanmports of military2uch greater proportion of the total thanmports of capital goods and industrial raw materials constituted about the2 aahese changes in direction and composition have come about In part because of China's new politicalwith the Soviet Bloc, In partof Western trade restrictions, and ta part because of the requirements of China's programs of economic and military

ChJnese Communut Armed Forces

he Internal control and thepower position enjoyed by the Communist regime rest largely upon the power potential ot China's military esUbushment. Within China, tbe armed forces haveosition of unique privilege and power In the state hierarchy since Mao Tse-tung assumedof the party. The loyalty of theforces adds greatly to tbe regime's power to coerce the people. Tbe Chinese military establishment to at present the largest of any Asian nation, withillion men in the field forces and an actual aircraft strength of more. (See Tablehese forces, supported by the USSR and greatly improved by the Korean War, have given the Communists an overwhelmingadvantage over the countries of non-Communist Asia and nave profoundlythe over-all balance of power rn Asia.



nfantry Dlv.

S Armored DI*.

S Parachute Dlv.

e Canity fHw.rtillery Dlv.ndependent Hagndependent Bn.

Totalc.e0 PleM Force

Treal SUetUjtfl HJXO

Total aircraft Strength


PMWn Fat*.

Ground Alt


Ubm Lgt

liloc Med.


lslon0o PI ator. lex Erab.


Total Strength so.cco Kaval Vessels1

rarjporti Public Btcurttyco.ko* IS security Dlv.ndependent

"Tne light cruller UDanevM to be nonoperaricoal. In addition to the rtaeU Uzltd the OCH hu from ISOrmed noon JunU ind dUtrKt pniral craft. It la known lhat eernt Chicew personnel havesabmarln* training andoiW raftroanne. potslbly ol the "iweHoin-range" type, to Inband) at TUnilao. Thiselle* ed to botrainingnd la not operational.

'identified unltt constitutesnub portion ox total estimated strength, in addition to other*nldenUned dtritlon* and rtglmtnU, there aro an unknown number of small local unlU of varybx tn* satleted throughout.

The Chinese Army, with its heavyon the foot soldier and human or animal trarisport, would be less deterred by formidable terrain and extremes of weather thanechanized army. On the other hand, deficiencies in logistics,heavy equipment, and combined arms technique would pot the Chinese Armyisadvantageous position in dealingodem Western army under conditions where heavy equipment and modemcould be used.

The Chinese air capability was not fully tested in Korea. Combat activity was limited almost entirely to an air defense role, and the air force operated as one component of the Communist Air Force, which also Included Soviet and Korean units. The Chineseair capability in air defense under good visibility conditions, but they have littleat present for combat operations at night or In marginal weather. Although tactical support operations were notin Korea, the Chinese Air Force has some capability for such operations.although the Chinese bombingwas not tested in Korea, theyizable force of light bombers, both jet and piston,ew medium rxonbers.

The Chinese Navyow over-alleffectiveness by US standards. Hot only is Its equipment scanty but its mission and interests are subordinated to those of the army and the air forces. However, the Chinese Navy has the capability for carrying out limited surface combat operations In the coastal waters off the China mainland. These could include raids, coastal security patrols and escort operations, mine laying end mine sweeping. And amphibious assaulthort distance. While the naval air force ists formative phase, itimited capability of supporting surface combatby mine laying and by low altitude attacks against surface elements.

he major weakness of the Chinese armed forces is their lack of domestic supplyand their concomitant dependence upon the Soviet Union for such Items as tanks, aircraft, military transport, naval vessels, POL. electronic equipment, and spare parts. At the present tone this weakness wouldcritical in the erenteneral war In the Far Bast which Involved both the Soviet Union and China, Inircurnstance, the ability of the Soviet Union to supply China with military goods would be llrnlted by the capacity of the Trans-Siberian railway, in view of the tie man'! on this capacityIn supplying Soviet forces In the Par East Chinese arsenals at the present tune are capable of producing small arms, light and heavy machine guns, mortars, light artillery, and ammunition for these weapons, but not tn sufficient quantities to supply the present needs of the modernisation program.

Chinese Communis! Foreign Policy

The task of carryingolitical, social, and economic revolution within China along Communist lines is complicated by China's International relationships. China's alliance with, and dependence on the USSR as wen as their common Ideologyhina to subordinate some of its interests to broader Bloc interests. Mainlyesult o/ China's aggressive posture and actions toward non-Communist states, China has largely been cut off from non-Communist economicand diplomatic support

The Peiping regime has embarkedrogram to make China theommunist Asia. An intrinsic part of this programtrengthening of China's military establishment. Partly in pursuit of its long-range objective and partly in response to Soviet policy, Peiping has assumed arole in furthering internationalpolicy in Asia.

China's domestic interest, International relationships, and long-term aspirations have resultedoreign policy along these broad lines: (a) maintenance of the alliance with the USSR: (b) aid to indigenous Communist parties and groups in non-Communist Asian countries; (c) continued application ofwarfare pressure against non-CornmurJst Asia; and (dl diplomatic and propaganda

efforts designed to enhance China's prestige and world status.olicy appears to be designed to further China's domestic and International objectives without provoking open conflict with tho West. It also appears to be based on the belief that time will work to the Communist advantage In achieving China's International aspirations.


Long-Range Objectives and Plans

Chinese Communists have asgoal the development of astate ln China with Its own basesand mfUtary strength, andin eastern and southern Asia. Tothey will continue to reorganise thestructure, improve theand modernize the economy asas possible- They will continueenlarge the state sector of theand subjugating privateestablishing large ccoperatlve andfarms. They will continue to giveto basic industrial and transportThe regime will alsoresources to modernizingits armed forces as afor its foreign policy.

Problems of Leadership and Control

recent months, there haveindications that the partyIs dissatisfied with the performancehigh officials. The currentthe need for party unity andwhite directed immediately atdissidents, appear ultimatelyto improvement of collective planningIt also seeks to minimizedifferences among party leaders Inof Mao's death. Disagreementaid and Ihe pace of socializationan obstacle to the success ofprogram

3B. It Is possible that China will be facedsuccession" problem between now and

ao, nowears old. Is reported to be in poor health. If he were to retire or die during thisollegial succession, at least initially, would be more probable-ingle leader were chosen cither Liu Shao-ch'i or Chou Bn-lai would appear to be the most likely successor. In any event, Mao's disappearance from the scene would probably have an adverse effect upon China's ruling group, and would almost certainly have an adverse effect upon China's relative prestige within the Sino-Soviet partnership. Wehowever, that the problems arising out of possible need touccessor to Mao will not seriously impair the dictatorship or the regime's ability to direct and control China.

The regime must also overcome its acute shortages of qualified technical, managerial, and administrative personnel. Suchaffect all sectors of the regime's efforts to adrnlnlster, control, and develop China. The capacity ot Chinese middle schools andof higher education will be adequate toraction ofechnicians, teachers, medical personnel, and trained workers in government and commerce which the regime hasIt will require7 to carry out Its naUonal economic programs. Tbe effects of this shortage in trained personnel will be aggravated by widespread Chinese technical inexperience and by the high degreehina will thereforeattempt during the period of thisato to deal with shortages of trainedby lowering educational standards, by sending greater numbers of Chinese students to the USSR for training, and by utilizing Soviet advisers and technicians. By such measures, China will probably be able to avoid any serious breakdown of Its political and economic programs. Nevertheless, the snort-age of trained personnel will continue to be an important retarding factor in the regime's over-all progress.

The regime will continue to have difficulty in raamtalnlng its present degree of support while pushing forward with its programs. Political and economic pressures will tend to

antagonize the peasantry and certain other groups, and all classes will Increasingly resent the use of force. Government appeals toas well as efforts to persuade the people ofesslty for Soviet advice and guidance may backfire by fosteringof Soviet influence in China, and thereby increase dissatisfaction with the regime. The regime's attacks on traditional Chinese values will continue to encounter Increasedparticularly in rural areas. In any case, the regime will be unable to offer significant incentives to mitigate these adverse reactions because of the pressure on available resources entailedulfillment of Its military andprograms.

However, in some segments of thecertain other factors will be working in the regime's favor.ubstantial portion of China's population will haveunder Communist Indoctrination.pride may be stimulated by propaganda extolling real and imaginary achievementsnewense of participation In China's national life will be Increased by the activities of elective local, regional, sndbodies, even though these bodies will In fact have no real authority.

In sum, we believe that during the period of this estimate the regime will not havechanged the prevailing social customs and practices, nor will it have gone far in reducing iUiteracy. We believe that while the regime will continue to receive tbe support of some and face the hostility of other portions of the population, the bulk of the people willto accept Communist leadershipIn any event, because the efficiency of governmental control apparatus will probably improve, the degree of control exercised by the regime over the people will probablyFinally, we believe that thewill continue to resolve any personalwhich might significantly impair its ability to direct and control China-Economic Problems ond Programs

Although the Chinese plans for economic development are not known in detail, the regime In3ubstantial reduction of Its goals in the first year of tho (toe-year program. The program now appears to be to increase the gross national productrTercent above2 level. Emphasis Is placed upon increasing the output of the modern Industrial sector, particularly heavy industry and transport. Plans fordevelopment appear to be directed in particular toward continued rehabilitation and expansion erf the Manchurlan plant, with some expansion of industry in the rest of China.

The central economic problem confronting the regime In carrying out its plans is to accumulate capital resources and to allocate such resourcesay most conduciveapid ond efficient implementation of ItsThe major domestic determinant in the success of the programs will be the extent to which the regime Is able to Increaseoutput to feed the growingto provide raw materials for Industry, and to provide exports to pay for essential capital goods Imports. At the same time, in restricting consumption the regime must avoid destroying production Incentives. The regime must also avoid disrupting production by pressing loo aggressively with its political, social, and economic reforms. The task of allocation will require the development of an effective administrative apparatus, despite the obstacles faced in the lack of trainedpoor communications, the low level of literacy, and the awkwardness of the written language. Allocation decisions must be made between the competing claims on theand energies or the regime for the economic, military, political, and social pro-grams.

Aside from domestic considerations, the most Important factor determining the rate of Industrial development In China will be the volume of goods and services made available to China by the USSR. While China's ability to export commodities tn demand by the Soviet Union and the European Satellites is anelement, of eoual significance 'a thein the Bios of desired goods and services and tbe policy of the USSR with respect totrong China.

China's, agricultural system. Involving about three-quarters ot the total population, has basic weaknesses. Thereow latto or cultivated laud to the population. Tha ram-era lack knowledge ol nowhey lack capital with which to purchase fertilisers, insecticides, and equipment; Individualare generally too small to permit the introduction of mechanlaaUon even If capital were available These factors result in InefE-dent use of manpower and low output per pup

Taking into account the many problems Involved, we believe agricultural production will have Increased by abouthese gains In output are expected to result from expansions ofunder culUvetlon. extension and repair of irrigation faculties, Increased use of chemical fertilisers, and the additional incentive toand diversified production Indued by the expansion of urban and export markets. However, weather and other unpredictablemay prevent tlte Communists from achieving such an Increasn. The regime may also encounter difficulties In Its efforts toagricultural production and tocrop collection. The emphasis will be placed on cooperative action rather than on the formation of Stat* (arme However, im-plcmentathin of the regime's plan to organise someercent of tht farmers into producers' cooperativesay have disruptiveon agricultural production.

In order to provide capital from Increased production tc support Industrial expansion and tncreaaed Imports of capita: goods, the Communists must maintain control onr the rate of consumption Pressures .'or increased consumption will come from the farmers,numbers of Industrial workers, and the over-all rise in total populaUon. TheIncrease. Inesult of Improved public health measures and inesult of more stable conditions, will tend to beby migration, In the large urban areas where per capita consumption Is about twice that of the rmreas. Because otopulation growth projected at less than one percent per year, would increase total consumption by five to eight percent27 even In the absence of any change In urhan and rural living standards. Although the regime will be faced with many difficulties in restricting consumption,in rural areas, we believe that itsmechanism is adequate to restrictto roughly half of theercent increase In total outputhe remaining proportion could provideinvestment resources to permitof the regime's estimated industrial and military programs.

Another crucial problem in fulfilling the industrial program will be the supply ofgoods. Domestic capital goods output is small, of pool' quality, and of limited variety, and the Chinese Communists must depend on foreignwith the Sovietthe bulk of their supply of capital goods. Although the USSR provided USmillion in credits to China inid agreement, the Soviet Union probably will not grant substantial further credits to China for capital goods and therefore we believe that China's imports with lha possible exception of some military Items are likely to belimited to the amount which can be financed ihrough exports Moreover, since import programs from Bloc countries arein annual barter contracts and since transport between China and these countries is difhcult, deliveries of capital goods are likely to be uncertaini with resulting adverse effects on the development program

In view of the current deficiencies in rail transport and the large prospective increase in traffic requirements, the Communists will have to make strenuous efforts to Insure that the rate of increase in transport capacity,railroads, keeps abreast of thegenerated by the increase inThe most urgent need will continue to be rolling stock- Locomotive and freight cars cannot be produced domestically hi adequate quantities and therefore will have torucial area of Investment required for the fulfillment of the Chinese economic program will be the expansion of railroad capacity. The regime has recognized

the Importance or this problem and wo believe that It will continue to give It high priority.

he Chinese will divert substantialto buildingodern military force. Over and above the funds allocated Innational budgets for miliury(see Chartubstantial runds for military purposes, such as arsenalare concealed in other categorieshe Budget. We believe that at present something aver USillion, about one-third of the national budget, is being upended on military Items and lhat this level will not changeduring the period of this car-mate. Moreover. Cnce China's anriaments Industry does not prod nee heavy equipment such as tanks and artillery orajor share of foreign exchange earnings must be used for military end-Items as well as equipment for expanding China's armament production We believe the Chinese win utilise roughly one-third of total export earnings for theof military end-Items and POL during the period of this estimate- This does not include possible imports af military supplies given to China by the USSRrant or credit basis.

e estimate that7 China canIts total exports by aboutercentrimarily through Increased exports of agricultural and mineral raw materials. This increase would probably provide adequate funds for minimum Import requirements of the industrial, agrtcuiluril. and military pro-grama The Soviet Bloc will probably make these imports available.

he Chinese Communists may seek totrade with non-Cocunumst countries. Relaxation of non-Communist trade controls could contribute to the fulfillment of theprograms and reduce China's economic dependence on the rest of the Soviet Bloc. These erects would materialise, however, only to the extent that non-Communist countries were willing and able to extend credits and supply goods not avallablo lo China from Bloc sources, or on terms more advantageous to China than those entailed In trade with the Bloc.

n summary, although the Chinese will face many serious difficulties in achieving their econosuc goals, we believe that7 the regime can expand total outputercent

Probable Developments in the Chinese Communist Military Establishment

The regime apparently Intends to strengthen the military establishmentthrough modernisation rather thanignificant increase in manpower. Soviet assistance will continue to be Essential to the fulfillment of this program.

The capability of the army will almostimprove. The number of Infantrywill probably be reduced to provideto strengthen the remaining infantry divisions, and to Increase the number ofand support units. Training will beand selection and utilisation ofwLQ improve.

The air force ts expected to be expanded and to be developedore balanced force. Its personnel strength will probably be expanded to0 and Its authorized aircraft strength Increased to,et fighterset light bombers. The extent to which aircraft are provided to fill out the authorised strength depends on Soviet supply. The over-allreadiness of the Chinese Air Force isto Improve appreciably during the periodesult of increases in aircraft and personnel strength, improvement in training, and an increase in supporting services and faculties.

Naval development will probably beminor, although It may include the acquisitionumber of coastal or medium-range submarines from tbe USSR. It isexpected that the Chinese Naval Air Force will be developed to an authorised strengthircraft,et fighters andet light bombers. Newin training are expected to bewhich will enhance the capability of this force to attack shipping of all types along the China coast


e believe that7 the Chinesewin have further tightened IU control over tu people. Wc also believe that unless some major crisis or other unpredictable event occurs, the regime will byaveross national product of roughlyillion, an Increaseercent ever2 figure. The agricultural contribution to GNP7 will probably be aboutercent above2 level. That part of the GNP accounted (or by the modern industrial sector of the economy7 will probably be roughly US0 percentover2 level. The country willhole remain agrarian and underdevel-oped.

espite the progress madehe Communists will have only begun tho task of transforming China. The country willhole remain agrarian, illiterate, andMoreover, while the regime will probably haveodestsector, China will be faced withdifficulties in maintaining the rate of growth,

e believe China's dependence on the USSR win not be significantly lessened during the period of this estimate, and thatof the alliance with the USSR will continue toominant aspect of China's foreign policy. The Communist Chinesewin continue to consolidate its political position, to gain in economic and military strength, and7 willow powerful force in world affairs than al present.aspects of China's development will be used to support claims that time Is on the Communist aide ln Asia. China's increased power and prestige willhallenge to the Influence of the Western nations In Asia, and to the Asian leadership aspirations of India and Japan

Original document.

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