SINO-US ECONOMIC RELATIONS

Created: 5/3/1983

OCR scan of the original document, errors are possible

: DIRECTORATE OF3 Sino-US Economic Relations

Sino-US trade tell more Chan 5 percent in ending live consecutive gears of substantial increases. ime when bilateral political relations were strained--has raised the specter tKat Beijing may again be using economic means to pressure the United States. China's leaders, however, maintain they want to keep political differences from affecting the economic relationship, and large investment projects involving VS firms remain on track. We believe that, to date, the downturn in Sino-US trade has been caused almost entirely by economic factors and would have followed essentially the same course even under the best of political circumstances.

Accumulating problems in the political relationship could, in time, cost US firms a share of the China market. Where close -substitutes tor US goods ere available', Beijing might'favor Jap and Western tor technology, and Canada, Australia, rrance, and several LDCs for agricultural goods.

2 Downturn

A sharpercent decline in Chinese purchases _qt_US_ commodities in? h'as raised fear^f mnBseeal

that the deterioration of bilateral political relations could push the commercial relationship back to its pre-normalization status. At that time, China treated the United Statesesidual supplier, coming here only when its needs could-not-be met elsewhere. Chinese traders have heightened .this concern by

i yd w.nckiij iniNiiiy .uecnnmg imports ofumber, and even light machinery to deterioretIon in the political situation. Beijing's statement last January that it would no longer import US cotton, soybeans, or synthetic fiber in response tofti textlle restrictions has exacerbated the

em. I i

There is, in fact, evidence that last year's decline was the result of economic factors and that the Chinese leadership is .intent on limiting the fallout from bilateral political difficulties. During the recejjt Hu Ha incident, Deng Xieop.i

sh^^flhhthat economic relations between the two countries wi be unaffected by bilateral political differences. The quickening pace of negotiations with USshor oil contracts, and the recently concluded dea 1

develop the Pingshuo open-pit coal mine suggest the continuing high value wl^chthe Chinese place on US investment and technology! flhhk

The fallino-US trade is in large part the result of bumper, domestic harvests which cut into purchases of US agricultural products, especially cotton.and soybeans; the Chinese have not purchased US grain so far this year because of-high prices. Mounting inventories of synthetic fiber reduced imports from all sources and those from the United States-fell 59

held down purchases of US capital goods, especially machinery and

eijing's continued emphasis on economic readjustment

held down

equipment.

An examination of Chinese imports worldwide reinforcesthat US products were not singled out for-from the developed worldholeercent Japan--China's major trading partner--saw Itsubstantialercent last year. PurchasesEurope fellercent, but. the decline. Is thea row, leaving themercent below the peak registered Imports from less developed countries havehile purchases from other communist countries _fel2 and remain well below theirpe.^j j

Chinese'efforts to boost expdrt earnings were more successful in the United States than anywhere elsehe world Sales to the United States roseercent for the year while shipments worldwideercent gain. Exports to both Japan and Hong Kong, China's largest export markets, declined slightly both countries, however, continue to take more than two^tjmes the value of Chinese goods shipped to the United States. |

Outlook3

We expect Sinb-US trade to expand this year. Beiiin currently holds foreign exchange. mm*

access to low

Moreover, it still has government-bracked credit lines

addition to substantial- commercial funding. Althoug continue to use caution in spending its reserves,.we upturn^ in purchases to begin soon. '

interest

in

Beijing wi1 expect an

S

usinessmen currently enjoy tne aavantages of full commercial relations, the ability to use US EXIH credit for China projects, and several years of experience in the China market

political relations between Washington and continue to decjjne, however, US businessmendvant at

be put at

issues seem more manageable, but still have the potential to gradually erode Sino-US economic relations. The Ch'inese-remain highly sensitive to US arms transfers to Taiwan which they regardellwether of Washington's relationship with Taipei. Beijing also remains concerned about US posture-toward its admittance into the Asian Development Bank. However, we'do not believe this issue will impinge directly on US-China commercial relations in the near term.'"

.Chinese are hopeful that further 1iberalization of export controls will emerge from the current policy reviewAt. the same time, they will be uspicious thatVanychanges made witl fail to allow them -significantaccess-to those technologies that the most.

past pouple among their of months litany of

Beijing no grievances with

lists their, the United States.

problems associated with the Hu Ka defection have also run their course, with no apparent affect on bilateral commercial relations.

next Chinese intentions, seasonal decline, we mid-year. ailure

expect - to return to -that Beijing has already implemented bilateral problems. Grain and lumber would pointsoycott of US goods at little additional cost.

month or so should yield important clues as to If US grain prices undergo their usual

China to reenter the US market by the US'market would indicate restrictions in response to be natural starting Both can be obtained elsewhere

iittie additional cost chemical products, steel.

US goods that China could avoi include most typesof light machinery, and plastics, /

in the absence of additional explicit restrictions against trade with the United States, contentious political relations could inhibit commerce. Lower-*level Chinese traders, concerned about their own political futures, may be reluctant to initiate new agreements with US firms if alternative suppliers are available.

ECKT

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