ESTIMATED PUB DATE - INTELLIGENCE REPORT - ECONOMIC PROSPECTS FOR COMMUNIST CH

Created: 8/1/1967

OCR scan of the original document, errors are possible

Report

Economic Prospects for Communist China0

Copy No. 12

warning

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Foreword

This report reviews economic performance in Communist China and prospects for the period through It is not intended, however, to cover details of the most recent production stoppages ordelays. The report assumes that Communist China will not become engagedajor shooting war0 and that large-scale Soviet economic and technical aid will not bein the period- It makes no specific assurop-tion about whether or not Mao Tse-tung will remain as head of state. However, Chinese economicli depend largely on how long Mao remains on the scene and on the identity of his successor or successors.

Economic data on Communist China published by the regime are fragmentary and unreliable. The Soviet-style statistical system which was being developed during the first five-yearell victim to the frenetic Great Leap Forward,0 the damage to the statistical system probably has been repaired, but the publication of annual statistical reports has not been resumed. The student of Chinese economic affairs has had to be content with only snippets of official data. Accordingly, numerical estimates in thishich have been developedariety of sourcesarc to be regarded as approximations. Among the estimates,those covering foreign trade are generally the most reliable. figures in the report are carried to three or four digits for the purpose of showing the size of year-to-yearand of facilitating calculations of annual rates of growth. In spite of deficiencies in the quality of the data, trends in the numerical series and the general conclusions of the report are believed to give an internally consistent and reasonably accurate picture of the state of Chinese Communist economic affairs.

Text not applicable

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Summary

Introduction

Economic Perforniar.ee

industry and Construction

Transportation and

Communications

Foreign Economic Relations

Economic Problems and Prospects

The Food-Population Problem

Burden of the Advanced Weapons

Japanese and Western European

Assistance for Weapons Programs .

Effects of the Vietnamese War

Economic Implications of the

Cultural Revolution

Status of the Third Five-Yecr

?lan

Tables

China: Major Economic

China: Estimated

Production of Major

China: Estimated

Availability of Chemical

Fertilizer,

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China: Net Imports of

Grain, Selected Consumption Years,

China: Estimated Daily

Availability of Food Per Capita,

Consumption

China: Estimated

Production of Selected

China: Estimated

Availability of Petroleum

China: Imports and

Exports, by

China: Trade with Areas

of the Free

China: Estimated

Commodity Composition of Trade,

China: Extensions and

Drawings for Economic Assistance,

Cumulative Total, , and

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Charts

Figure 1. Communist China: IndexesPopulation andnd

Figure 2. Communist China: IndexProduction,page

Figure 3. Communist China: Trade with Communist6 ,

CENTRAL INTELLIGENCE AGENCY

Directorate of Intelligence

INTELLIGENCE REPORT

Economic Prospects for Communist China Through0

Summary

Economic prospects for Communist China0 continue to be dominated by the food-population problem, the attempt to move to the next stage in the advanced weapons program, and the ups and downs of the Cultural Revolution. The economic balance between means and ends willuncertain, not so much becauseack of resources but because of China's sweeping military ambitions and the attempts of the aging Mao to stamp his brand of Communismecalcitrant nation.

China's hugeillion at7ontinues to growear. No precise information ison the level of food intake, but the following propositions appear to be essentially) he last year of the first five-year plan, the daily caloric intake waser capitaclearly enough by Chinese standards to maintain productive efficiency. After the collapse of the Great Leap Forward in the daily caloric intake fell toer capita, andomplete reversal of economic policy saved the regime from disaster. oday, thJ daily caloric intake is perhapser capita, still some ercent below the7

Note: This report was produced by CIA. It was prepared by the Office of Economic Research and coordinated with the Office of National Estimates, the Office of Current Intelligence, and the Office of Strategic Research; the estimates andrepresent the best judgment of the Directorate of Intelligence as of August

new additions to capacity and from successfulof initial progress mi advanced weapons programs. China is only beginning to move from the explosion of nuclear devices and the launching of test missiles serial manufacture and deploy-pent of advanced weapons. This net* stage willentaii greater demands on the country's scarce scientific, technical, and managerial resources and will continue to drain these resources

from the civilian sector and dc^ay the growth of ane foi ihe broader needs of the economy.

China is determinedpush zn with research and development (MO! in advanced weapons. In the period zi Soviet support,ad already been accomplished oy the USSR and was madeto the Chineseraction of its original cost. Currently, Japan and Western Europe supply key equipment, materials, and technology that support China's advanced weapons program. China thus canider and more rapid program than would otherwise be possible but cannotharp rise in costs

As for the Cultural Revolution, its effects on the economy became Appreciable only In the last quarter Industry, agriculture, trans-portation, and toreign trade have been subject to sporadic disruptions which nave net as yet lederious and se if-reinforcing decline in economic activity. There has been.ecline in efficiency andlew decline inproduction, starting in the idst quarter6 and continuing through he first half

Up to now the war in tfxetnam has noteasurable effect on China's economy. Most of the resources supplied Northmall arms, construction materials, and tne services of engineeringre not the resources in scarcest suppiy within China- furthermore, the transportation of Soviet materiel to North Vietnam by rail creates no special economic problems for

China. One result of thear haspeedup in inveBcment in China's domesticnet, especially in Southwest China.

The economic outlook for Communist China0 will be strongly conditioned by political developments. If the political turmoil continues at about its present level, the econoray seems likely to deteriorate further; if the present disruptive conditions were to continue for an extended period orharp decline in industrial production or an acute food shortage might occur.

It isablthough not likely -that the present indeterminate political situation will end soon with Mao reestablishing control and introducing an economic phase of the Cultural Revolution with similarities to the Great Leap Forward. In this case,bstitution ofand ideological motivations for naterial incentives could be expected as well as theof private plots and free markets in attern of events would ultimately leadeterioration in discipline and morale, dislocation in production and transport, andhunger.

It is alsolthough again nothat Mao will be replacedroup of sober-minded pragmatists who would adopt less grandiose goals, ascertain what economic tasks were feasible, and set to work on themon-doctrinaire fashion. Renewed support from the USSR might possibly be part of the picture. The result coulderious attack on the population problemustained rise in production and living

Even when these two possibilities are ruled out, no very confident estimate of Communist China's economic future can be made, especially given the present record of political turmoil and the past record of twists and turns in economic

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policy* Some general conclusions nay be hazarded, however. The ambitions which have produced China's advanced weapons program will alnost certainly renal ii, and output in the military industries will probably continue to growairly rapid pace. At the sameubstantial part of industry will remain in the backwater of outdated equipment and technology. The food-population problem will not be solved, at least over the next few years. 3arring spectacularly good weather andgood luck, agricultural output will have to be supplemented by continued imports of grain if the population is to be fed at even its present low level. Foreign trade will continue to grow and will continue to be oriented toward Japan and Western Europe. To an even greater extent than the USSR, China willation of extreme economic contrastsungry nation with apopulation, albeit onerowing arsenal of advanced weapons.

. pagcfs) was missing from the original

. pagEfs) was missing from the original

Introduction

the establishment ofover Mainland Chinaaohis lieutenants have tried to catapultthe company of modern industrialultimata objective of Mao's economic policy

is political and military power. Industrialization for Communist China, therefore, has meant the building up of basic heavy industrysteel, coal, electricand petroleumand the production of modern machinery and armaments.

made substantial strides towardofodern industrial nation ineight years of Communist rule. Since progress has been erratic. Duringof the newconsolidated its control over thethe small industrial base, and provided

a minimum ration of food and clothing for theDuring the first five-yearhe regimeuccessful start on forced-draft industrialization in the Soviet style. Production and capacity in important basic industries doubled or even quadrupled.

ommunist China had achieved an enviable momentum in economic development, but progress was not swift enough to satisfy the mbitious ruling group. econd five-yearas quickly superseded in8 by the Great Leap This complete turnabout in Chinese Communist economic policy was designed to drive the Chinese economy aheadanic tempo, almost regardless of the cost in men and equipment. The prosaic Soviet pattern of detailed economic planning and material incentives was discarded in favor of political slogans and "spiritual incentives."

The Great Leap Forward proved toanmade disaster for Communist China. Inthe new conununes disrupted proven and efficient production patterns, which, together with unfavorable weather, led to poor harvests; in industry the spurt in production could not be

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maintained because equipment wore out, the labor force was exhausted, and Soviet support was Furthermore, much of the added output wasoor in quality ase useless.

With the adoption of morend the advent of more favorable weather, industry and agriculture gradually Striking successes were achieved in the field of nuclear weapons. 6 the economy had completed its comeback from the low pointnd wastability that promised steady if slow development over the next few years. The Cultural Revolution has interrupted this trend, however, and nowhadow on prospects for the next few years.

The material that follows reviews current economic performance in Communist China andfor the period Theof economic performance is organized by sector of the economy agriculture, industry and construction, transportation andand foreign economic relations. The analysis of economic prospects is treated under fourheadingshe food-population problem, the ability to support advanced weapons programs, the effect of the Vietnamese war, and Lhe economic implications of the Cultural Revolution.

Economic Performance

Agriculture

agricultural output6 because of unfavorableproduction wasillion to 5below the levelven thoughof chemical fertilizer went uptons (see Cottonbyons, whereas soybeanincreased only slightly. In theincreased by at leastillionmuch light industrial capacity remainedlack of agricultural raw materials.

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outputindustrial cropshange greatly compared anwas cotton, whichons to

a totalillion tons. cotton, which is grown primarily on irrigated land, fared better than grain because the dry weather in the summer and fall6 encouraged the early development of the bolls. soybean production6illion tons, or slightly above the level it was claimed in6 that a large soybean harvest was in the making in northeast china. however,evere frost struck the area later in the month and reduced yields.

imports of grain inear" reached their highest levelwhen grain imports began. theymillion tons comparedillion tonsprevious year (see canada,australia, in that order, supplied the bulkimports. net imports of grain are estimated

to have been onlyillion tonsecause ight world wheat supply early in the crop year. chinese exports of grain, whichighillion tons, were only an estimated tons in.

although per capita food consumption alories peras still below the levelalories per day), it was well above that0 calories perhen the country experienced widespread malnutrition (see table much of the improvementas taken the formubstantial increase in the production of subsidiary foods such as pork, poultry, fruits, and vegetables. these foods have been produced primarily on the private plots of the peasants which were reestablished following the disastrous great leap forward. the share of nongrain foods in caloric intake is now probably at leastercent compared with aboutercent in the lean year.

most of the reports on the food situation so farave alluded to rising food prices

vil-' cor.Fiur.iir.io:; yuiir is rrr.n 1 july through

une.

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tabic u

hina: net imports of grair. sslaeted consumption/

million metric tons

retainedrts

canada

5

j

throughune.

virtusetlus signnat import.

and reduced rations in many areas of the country. although higher prices and reduced rations in urban areas may have resulted in part fromand distribution breakdowns caused by the cultural revolution, poor autumn harvests in many areas of the country appear to have been the major factor. both the official price of rice and the price on the free market have increased compared with the same period urther deterioration in food availabilities in the affected areas will probably take place prior to the early harvestut the situation is not expected to become critical. total caloric intakeeems to have beenalories per day, or roughly ercent belowenchmark.

14. 6 the cultural revolution had little effect on agricultural production, in

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Coraaur.ist China: Estimated Daily Availability of Food Per Capita Consumption

Calories Per Cay Per CaMta *f

Year ?/

and Tubers

Foods

I/6S

U0

arc rounded to the nearest ten. Because of.-say not add to the totals shown.

July throughune- The population data used arc asDecember.

December, however, the Maoists were let loose ^siprcci ,A; If, r.

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quantifiable- damage was done to the ruralstructure. Fortunately, it was the slack season in agriculture. Subsequently,inlood of appeals from Peking calied for an immediate upsurge in spring fsrmwork. This turnabout suggests that the regime feared that crop production in the spring and summer could be adversely affected by the Cultural Revolution. The regime backed up its appeals by using the Peoples Liberation Army to Stiffen the administrative structure in the countryside and by reassuring the peasants that no radical policy changes were in the offing. During March,in two separate provinces reaffirmed that the system of private plots would be retained as well as the policy of relying on private for pig raising. Given this emphasis on the status quo, the chances arc good that spring farmwork went forward without serious interruptions -

Industry ant! construction

ndustry in Coimunist Chinaits recovery from the collapse whichthe Great Leap Forward, and industrialwas nearlyercent abovend In the last quarterand the first halfowever, ain industrial production is believedset in because of the Culturalpolitical meetings andby gangs of workers reduced productionplants* In other cases, the flow ofwas interrupted by work stoppages onand disruptions in the managementplants* ew instances,lasted long enough for workers to

be laid off. Furthermore, attacks against the managers and officials in industrialand the replacement of some of them by"revolutionary- managers eroded authority and labor discipline.

Innly six weeks after it had urged an extension of the Culturalto industry, the regies called for During the late winter and spring, workers appear to have beer, less involved in political activity, and the Array began to be used to bolster civilian authority in industry. Nevertheless, the disorders continued, and have intensified since late May. It is unlikely that industrialduring the remainder7 will resume the growth patterns of the past four years.

The upturn in industrial production in the last four years has been based mainlyuller use of existing capacity but also on investment in new capacity, including plants imported from Japan and Western Europe. Excess capacity still exists

in many industries, particularly light industries requiring agricultural raw materials. Capacity is insufficient in some industries that producefinished products, such as flat and rolled steel products. Spectacular achievenents are found mainly in the military industriesfor example, the explosion of six nuclear devices and the start of work on strategic missile systems and other modern weapons programs in the aircraft

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and naval fields. In addition, crude oilhas doublednd the production of such chemical products as urea, vinylon fiber, and Teflon has begunrial basis-

16, During the past several years thefrequently claimed increases in theirdesign complex industrial machinery andmastery of advanced techniques of the absence of information on performancemany of those claims cannot be Those that can be documentedon outside aid from either coitmunist or: ci oo improvement 5

were made in the quality and variety of basic products, especially in the coal, steel, and non-ferrous industries -

19. Most major commodities are now being pro-duced at levels above those8 (sec Tablend the production of some pricrity commodities, such as electronic equipment, petroleum, and chemical fertilizer, has moved well above the peak levels achieved during the Great Leap Forward. Commodities whose production is still below8 level are as follows: nonferrous metalsprimarily for export, some machinery (such as locomotives, freight cars, and irrigationnd cotton cloth.

20- Communist China now is almost sclf-sufficient in the supply of petroleum products represented enlyercent of the total supply (see Its output of crude oil has roughly doublednd future increases in domestic output will probably meet the rising demands of domestic consumers. China now produces jet fuel, the lower grades ofgasoline, and most quality lubricants as well as basic products such as motor gasoline, kerosine, and diesel fuels- It must still rely on imports for the chemical additives needed to improve the jualj ty :jL roduced eraf t

and lubricants and for some specialty products.*

ontinued on p.

1

b -Jl OP

g.

S

S 28

j as l s

s si"

s

t

b I

- -

riu. i.

Table 7

Communist China: Estimated Availability of Petroleum Products

Million Metric Tons hJ

gasolins

1

t ion

. -1

-.i

gasoline

:Vel

.1

oil

availability

St*

ounding, components nay not add to the totals shown.

China's Steel industry is at presenthigher priority than at any time since the collapse of the Great Leap Forward. Theannual production of illion tons is close to the record level of steel produced0 by China's large and medium-size plants. Continued expansion of these plants probably can meet any foreseeable needs for ordinary steel products. Deficiencies exist, however, in the capacity to produce and fabricate refractory metals, high-quality alloy steels, and other finished steel products needed to supply the growing defense, petroleum, and chemical industries. Negotiations with Japan and Western Europe for plant and equipment have been stepped up in the past two years to fill these gaps.

6 the chemical fertilizer industry had an estimated capacityillion to 7tons per year, an increase ofillion tons About two-thirds of this capacity was for the production of nitrogen fertilizer and most of the remainder for the production of fertilizer. Although approximately two-thirdsthe capacity is in large fertilizer plants, recent emphasis appears to be on theof small and medium-size plants. By

the endnstalled capacity will increase by anillion tons, largely through the construction of small plants.

Communist China has relied heavily onof Western plants and technology to accelerate the developmenthemical fiber industry. Total Free World purchases3 amount toillion and include plants for theof vinylon, nylon, polypropylene, and acrylic fibers. In addition, several Chinese-built rayon plantshinese-built virylon fiber plant are in operation. Output from these plants will help restore the per capita production of cloth to the levels attained in thes.

Tn light industry the output of products dependent on agricultural raw materials such as cotton cloth, foodstuffs, and sugar has expanded moderately because of the recovery of agriculture The output of cotton and majorhowever, is still below the levels of

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thes. The production of paper has probably recovered to about the level

Capital construction in both the military and the civilian sectors of the economy expanded considerably. The upturn, which started inpparently was intended to lay the groundwork for the third five-yearnd to speed up the integration of Southwest China into the national transport To date, there is no evidenco that construe tion activity has been disrupted by the cultural Revolution, although Red Guard activity caused some brief delays at plants being constructed with the aid of Western technicians.

Major construction activity is under way on large projects such as railroads in theadvanced weapons facilities in Inner Mongolia and Kansu, and airfields throughout the country. Construction activity also has been featuring military RtfD facilities, electric .power-plants, chemical plants, petroleum extraction

and storage, and other mining facilities. In addition, the Chinese have started constructing sites for many of the complete plants recently purchased from the West.

or the first time sinceof the Great Leap Forward, allplants in Communist China ware in Production from theseaoor plants9 million andillion tons, aboutthe level Installed capacity hasby aboutercent thus can increase output furthercapacity. They also are continuingsmall vertical kilns which producequality cement used in local Because these plants arc numerousscattered, their production is difficult

to estimate, but they probably produceillion tons.

has relied on imports ofand timber to support itsprogram. It can manufacture only

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small amounts of heavy construction equipment such as bulldozers, scrapers, graders, excavators, and road rollers. Since4 the Chinese have signed contracts to import moreieces of heavy equipment worthillion, compared with equipmentillion imported during the Great Leap Forward and equipment worth5 million imported.

sharp increase in the purchaseequipment has been paralleled byincrease in the purchase of timber. the collapse of the Great Leap Forward,began to import sawn logs from the USSR

to supplement their meager domestic production.hinese purchases have graduallyin quantity0 cubic meters owever, they suddenly trebled their purchases, to moreillion cubic meters. The volume of imports6 was about the same as In addition, investment in the major timber regions of Northeast China and Inner Mongolia has been stepped upfor example, the network of forest roads and railroads is being extended in order to open up less accessible areas.

Transportation and communications

Recent trends in the development of the Chinese railroad, highway, and inland waterway systems reflect both the impact of the Vietnamese war and the continued efforts of the central govern-rent to implement long-term plans for economic development of outlying regions.

he development of the Chinese railroad system was concentrated in the Southwest and Northeast sections of the country. In the Southwest the Chinese completed thelines from Chungking to Kuci-yang and from Kuei-yang to K'un-ming, and construction is presently underway on tho line from Ch'eng-tu

to K'un-ming. The second of these lines gives Communist China its first internal rail link with Yunr.ar. Province and makes it unnecessary for Chinese rail traffic to transit North Vietnam in order to reach Yunnan Province. It provides internal access to an area which the

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Chinese wish to develop for its latent mineral and acricultural wealth. This construction also improves tha capability of the Chinese to re-suoply their major military supply depots located along the southern border of Yunnan Province and provides an alternate rail route into North Viet-nar.

the industrialized Northeast,of the petroleum and forestry industriesthe oattern of railroad developinent. 6

a new rail line was completed from Sa-erh-t'u, near the Ta-cVing oil field, to T'una-liao. This new line bypasses the railroad center at Harbin and relieves the flow of traffic on the heavily traveled route between the Ta-ch'ing oil field and Harbin. The Chinese have also expanded the railroad net* work in the forested rcaions near the bordersorth Korea and the UFSR in order to get access to nore timber-

The road construction programas primarily in support of agriculture and the military. The improvement of access to theareas serves the dual purpose ofthe flow of goods between rural and urban Areas aad of consolidating the control of the central government over isolated recions of the country. Military considerations have sometimes doninated, especially in South and Southwest China, where highway construction contributes to the strenathening of border defenses.

For the past several years, construction activity on the Chinese watervays has beenon the maintenance, expansion, andof existino facilities. For example,

a great deal of effort has been expended onnavioation along the Yangtze River, especiallyhang and Chungkino. This section of the river is now open to shinpinc durino the entire year. In addition, comein port facilities, especially in Fouth China, have also been undertaken. Harbor channels and port facilities have been expanded and improved to accommodate tho increased volume of trade with Japan and other maritime nations.

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performance of the Chinesesystem improvedutare Bade in this report only forbecause of the lack of data*.estimates are suspect because theyon the general level of industrial andwhich in turn has been estimatedthese qualifications, it can bethe railroads6 carried abouttons of freight, or approximately 7more thanillion tons carried in

level of operation is above thatbut is still aboutercent below

the past two years, thereno indications of any serious shortagesstock in Communist China; theresporadic disruptions of railto the Cultural Revolution inand the first half Thesehave occurred on every major line, havewith increasing frequency since May,track nor rolling stock appear to have

been damaged. Passenger service is running only haphazardly, but freight appears to be moving well enough to prevent serious backlogs froct

railroad freight caratars at the endhad increased little if at all by the end

reight cars were produced in

the types of cars reflect theobjectives of the government. Forline with the priority given to thethe number of railroad tank cars has The box car fleet has also beena new type of open car made from ahas been introduced. Imports ofmounted only to an estimatedand exportsnits.

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China probablyotor trucks at the endabout half under military control. inventory has increased rapidly duringthree years, largely because of increases

in domestic production. An0 units were produced in0 in0 Imports, primarily from the USSR, were aiso an important addition to the inventory.0 trucks were imported, whereas exports during this same period,to North Vietnam, are estimated to have been onlynits. Aboutercent of the trucks produced during the past three yearson Liberation trucks turned out at the Ch'ang-ch'un No.otor Vehicle Manufacturing Plant. The remainder wereon Leap Forward trucks produced at the Nanking Motor VehiclePlant. on Yellow River trucks were produced at the Tsinan Motor vehiclePlant.

It makes sense for China, which relies primarily on railroads for long-haul transport, to concentrate as it decs on the production of on Liberation truck. This truck is useful for short-haul support activities connected withcommerce, and agriculture and also for military supply operations.

The rudimentary telecommunications system of Communist China has been little improved in recent years. National communications needs Still are sei"ved largely by open wirelines and high-frequency, point-to-point radio networks, both of low capacity and poor reliability. The pooreffectiveness of these networks restricts their ability to satisfy both civil and military traffic requirements even during periods of normal operation. The telecommunications system cannot compete effectively with the military for The electronics industry stresses theof military end items rather than offor the common carrier communications system.

China has tried for atlast three years to procure modernequipment from Free World sources ofhas been the principal target of theseChina has also directed inquiries to theFrance, West Germany, and Sweden. negotiations haveide rangethey have not resulted inof COCOK embargo restrictions.

The Chinese Communists will persist in their efforts to obtain telecommunications systems from tho technologically advanced aloctronics industries of Japan and Western Europe, with success depending largely on the relaxation of COCOM restrictions.

Foreign Economic Relations

Communist China's foreign trade increased by IB percent58 billion and by aboutercent62 billion. The total6 was tho second highest since the Communist takeover and close to the peak level3 billion China's internal political turmoil did not have significant repercussions on foreign trades near-normal trade relations continued through December (see

ommunist China's trade waswith non-Communistarryover of pre-Communist trade patterns. loseties with other Communist countries had brought the Communist share to more than two-thirds. Since the open break with the Soviet unionowever, there hasapid shift back to the Free World (see The increases in China's tradeere wholly attributable to the continued growth of trade with the Free World. Paced by Japan, West Germany, and France, the Free World accounted for about three-fourths of Communist China's trade Sino-Soviet trade dropped substantially.

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COMMUNIST CHINA:

3

Distribution of Trade with Communist

Non-Communist

ommunist countries

with non-communist COUNTRIES

m? 9 0 IKI m? 5 6 snnjia

The increased Free World share of China's trade56 was the result of China's growing purchases of fertilizer, machinery, and industrial materials from Japan and western Europe. Chinese exports to these countries, particularly agricultural products, increased, but somewhat less rapidly than imports. esult, China's trace with japan and western Europe, after ansurplusgain registered moderate deficits5

Japan supplanted the USSR as China's leading trade partner Sino-Ja?anese trade increasedercent5 andercentlthough Japan's share of China's trade reachedercenthinese trade remained less than

ercent of Japan's total trade. China's trade with Western Europe increased by S2 percent5 and by an estimatedercent in with imports rising more than exports for the second consecutive year {see Table

total exports to Hong Kongillion, including an estimatedworth of goods for reexport to othercountries. total exports5 million, including perhaps for reexport. In addition, Chinaearnings (chiefly overseasand through Hong Kong, estimatedillion ReportsKong indicate that the flow ofthe last four months6 was affected

by the political turmoil within China; totalfor the year reached only anillion comparedillion

rate of growth in China's traceless developed countries of the Free worldsharply 5 and remained about Chinese exports to these countriesthan imports5 and again ineliminating China's deficit with

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Table 9

Communist China: Trade with Areas of the Free World a/

Million US -a

Total Free Vfcr'.d

>-vt- r"

Western Europe Japan

Canada, Australia, and

S'ev Zealand South and Southeast Asia Kong Kong e/ Middle East Africa

Lstin America

Imports Western Europe

Car.ade, Australia,tv Zealand

South end Southeast Asia Hong Sobj Xiddle East Africa

Latin America

y

-

he official statistics ofcountries, adjusted to approximate Chinesean an. and anlso have been made for undercounti ngs Chines* grain purchases sentcountries. Totals are rounded to the nearest

million. Because of rounding, components ray not add to the totnls shown.

1 ml nary estlaates.

=- Kst of entrepot trade with third countries.

To judge from preliminary data, China's trade with the Communist countries declined slightly Increased trade with North Vietnam, Albania, and the countries of Eastern Europe was offset by the estimated reduction in trade with the Soviet Union and Cuba. Sino-Soviet trade declinedercent6 to0 million, the lowest level

The commodity composition of Communist China's trade5 reflected further recovery in domestic industry, and also gave someof improvement in the agricultural trade balance (see. Although the importation of foodstuffs remainedigh level, foodwere greater in value than food imports for the first time since As in the past, China exported large quantities of textiles, raw materials, and semimanufactures in return foramounts of finished industrial goods, fertilizer, machinery, and equipment.

The most significant developments inwere the growth in sales of agricultural products and the continued decline in sales of textiles. Food sales increasedercent toillionnd sales of oils, fats, and oilseeds increased byercent0 million. Textiles remained the second largest export category but declined absolutely as well as'relatively for the third straight year. 5 million, textile exports were at their lowest level in six years. Sales of industrial materials showed little change.

China's imports5 included increased quantities of machinery and equipment, chemicals, and other industrial materials, whereas fooddeclinedercent in value. Chinaillion tons of grainomparedillion tons The value of fertilizer importsercentew high5 million. Minerals and metals roseercent0 million, with greatly increased purchases from Western Europe of both ferrous and nonferrous metals. Machinery and equipment imports5

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Table 10

Oomraunist China: EstimatedComposition oi' Trad* a/

Million U3 S

aroriucts

which

focds

materials

-rr-:.

and miscellaneous

which

and equipment

.. i ;

which

materials

and miscellaneous

vhich

are rounded to the nearestillion.rounding, car.poncr.ts may not add to tha totals sho^n.

estimates.

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registeredpercent increase5 million, still less than half9 level. Complete plant orders from the Free World5 totaledillion, slightly3 and

witch from emphasis onplants to emphasis on steel plants.

commodity composition6 followed the pattern and trends of

continued to import increasingmachinery, finished metals, andhile grain contracts indicatedecline of imports to Agricultural products probably againthe major growth in6 exports;

the value of food exports once again exceeded the value of food imports. Plant and equipment orders reported6 were noticeably lower than during tha previous two years, primarily because for the DEHAC steel complexvalued0 millionhave not been concluded. Textile sales may have declined again because of reduced sales to the USSR.

New Chinese Communist economic aidto less developed countries of the Free World declined from0 million4 to0 million annually5 andC. The largest Chinese commitment6reditillion to Cambodia, followedillion in credits to Guineaillion grant to Nepal (sec. China also agreed to supply Yemenillion worth of commodity assistance and Mali withillion in hard currency. Grant assistance was provided to Somalia and Tanzania. Actual drawings remained well below extensions, averagingear over the last three years.

China's economic aid deliveries to Communist countries are estimated to have increased5 Deliveries to North Vietnam

6 were estimatedillion, an increaseillion This increase is roughly the same as the reduction in shipments on credit to Cuba; Cuban credit drawings were negligible in

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Table 11

iist China: Extensions ar.ri Drawings for Eccno-le Ass La/ Cumulative,6

Million US

Recipient Extensions Drawings Extensions Drawing;

To al

Caraiunist countries

y

y

n.a. b/

r;.A.

b/

"

.

Korea

Vietnam

o/

&/

African Republic

(Brazzaville)

-1

1 -

of rounding, components may not add to the totals shewn.

extensions to tiorth Vietnam and Albania wereut no amounts were specified.

hinese budget reports included data onunder the foreign aid program. Annual drawings underprogram,9 hove been estimated separately for eachthe absence of data on annual expenditures from China's budget.

or less.

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nd trade was closely balanced. There probablylight rise in Chinese credits to Albania In contrast with earlier practice, China did not publicly announce the amounts of aid extended to Communist countries5

Communist China improved its overall financial position notably. Foreign exchange and gold holdings increased byillionevel of0 million0 million. China continued to purchase gold from the Westutuch reducedillion compared5 million China's indebtedness to the Free World totaled5 million at the end5 and was probably little changed The export surplus of China in trade with Communist countries declined slightly6 as debt repayments to the USSR ceasedllowingore balanced tradelso, total Chinese deliveries on credit to other Communist countries increased only slightly

Credit has played an important role in financing China's imports from the Free World, but, because of China's conservative policies and reluctance to depend on foreign assistance, all of the credits thus far have been short- and raediura-tern. esult, China has been facedarge volume of repayments each year, andarge repayment on grain credits fell due, payments probably exceeded drawings. Even if China decided to expand medium-term industrial credits sharply, this policy wculd postpone forew years the time when repayments would surpass new drawings, and then payments would rise sharply.

Long-term credits which would deferforr more years would have manyfor Communist China. However, China has not sought long-term credits from the Free world, in large part because thents to depend as little as possible on foreign capital for economic development. Furthermore, the

leadershipractical concern for China's long-run payments position and especially for the possibility that requirements for Western grain may rise in the near future. This conservative financial policy contrasts strongly with the willingness of other major less developedfor example, Indonesia, India, and Egypto incur heavy indebtedness. Should China reverse its position and seek long-term credits. Western European countries and Japan probably would make such credits available.

Scattered returns for the first half7 indicate that the steady growth of China's foreign trade during the last four years has been halted. First-quarter trade returns from Western European countriesontinued rise in Chinese imports over the first quarter6 but virtually no growth in exports to these countries. In China's trade with Japan, however, returns for the first half of the year9 percent decline in Chinese importsercent decline in Chinese exports, compared with the same period

The disturbances in Hong Kong, which began in Kay havearked effect on China's trade with the colony. China's exports, whichonth during the first quarterropped to an averageduring the second quarter, and toillion in July. Chinese imports from Hong Kong arc negligible. In addition to their direct effect, the disturbances in Hong Kong may alsoisruptive effect on Sino-British trade.

Thus, unless the trend is reversed, China's trade7 will decline somewhat. However, the Free World share of China's trade will probably change little because of an expected furtherin Sino-Soviet trade. Sino-Japanose trade will not continue the rapid growth of the past few years, because Japanese markets cannot readily absorb additional Chinese goods. In fact, the Japanese have reported that trade with China in the first five months7 wasercent below the comparable period

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composition of China's trade innot expected to show substantial changes Grain contracts for the first sixdown slightly, compared with the same period

The volume of fertilizer contracted"for7 is more than ercent higher6hases; however,esult of shrewd Chinese bargaining with Western European and Japanesethe value of these fertilizer contracts is up only slightly. Orders placed6 for whole plants and other capital equipment to be delivered7 and later were substantially lower than during the previous two years. for the DEMAC steel complex were suspended during the last halfesumed briefly inut have beer, suspended again. Machinery and equipment importsowever, arencrease6 on the strength of orders placed Early contracts with Japan and early trade returnsew Western European countrieslowdown in the growth of China's agricultural exports

current political turmoil has hadeffect on foreign trace in recentthis turmoil continues at its present leveland if the disturbances in Hongto interfere with normal trade andand through the color.y, China's trade andposition could decline seriously.

Economic Problems and Prospects

The Food-Population Problem

food-population problem continuesCommunist China's most serious economic Production of grain6 probablyslightly aboveillionut the population had grownillion persons. esult, people are not eating today as well as

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theyecade ago, even though the output of subsidiary foods has increased substantially0 and imports of grain have continuedillionillionear.

Production of grain6 is believed to have been someillion toillion tons short ofillion tons required toer capita domestic supply equal to that. If the population of Communist Chinato expand at the estimated present rate ofercent per year, illion tons would have to he produced0 to restore per capita domestic availability in the consumptiono the level. Merely to keep pace with the increase in population, grain production would have to increase somewhat moreillion tons each year, but to regainhe ground lost Sinceould require an increase in production ofillion tor. inch year.

A compulsory program of birth control in Communist China conducted over the next several decades could ease the pressure of population on food supplies. irth control campaign thaton economic as well as social pressures to limit the size of families was started inn large urban centers. Over the countryhole, the regime has attempted to indoctrinate people by encouraging late marriage, the spacing of births three years apart through the use of contraceptives or abortion, and sterilization after the birth of three children.

The effectiveness of the current birth control measures is difficult to judge. Ithowever, that at least in some urban areas, traditional attitudes have begun to change, especially among young people. The peasants, numbering more thanercent of the totalremain the key element in any birthcampaign. Even if the Chinese could mount

a highly successful rural birth control program, it would securemall reduction inover the nextears, and this would tend

to be offset by rising life expectancies. harp change in China's demographic patterns is not now in view, and certainly not

67. Three elements, however, couldore drastic alteration of present patterns and trends. None is likely, but all are within the realm of possibility, as follows:

(a) isastrous dip in the food supply might bringituation equal to or worse than thatnd could cause an appreciable change in mortality rates.

fb) Rapidly evolving Western technology mightethod of contraception enabling the Chinese government to reduce birth rates in an unexpectedly rapid manner. The use ofevelopment would hinge on the priority that the regime gives to birth control and on the costs of applying it.

(c) The Chinese Communist government might choose to use its administrative muscle to prevent all males from marrying before age nd all females beforeven if there were no change in the number of children per marriage, this policy would have an appreciable effect. The short-run effect would be the loss in births during the transition from present ages of marriage to the older ages. The long-term effect would be the reduction in the annual rate of growth of populationesult of the increased length of time between generations.

68. The Chinese Communist leadership realizes that increases in agricultural output will have to come mainly from improved yields rather than from an expansion of acreage. Large increases in output from private plots are possible, but only if the government liberalizes its policy toward private activity and enlarges the acreage devoted to private plots, which now represents no moreercent of total cultivated land. Present production from private plots cannot be measured precisely, but the plots supply most of China's

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nongrain foods, which currently constitute aboutercent of the available food, including as much asercent of its hogs and poultry and most of its fruits and vegetables.

69. Since the regime is not likely to increase the amount of land devoted to private production, any effort to expand food supplies will have to be concentrated on increasing the production of grain grown on collective land. Through suchwill depend mainly on the increased use of chemical fertilizer. Although China needs more of the complementary factors that make fertilizer more effective, the country now apDlies so little fertilizer, as shown below, that additionaladone would increase output significantly.

Country

of Chemical Fertilizer Applied per Hectare Of Sown Area (in Terms of Nutrient Content)

)) Taiwan )

0 the total supply of fertilizer is expected to beillion toillion tons. The amounts expected to be produced domestically and imported are as follows:

Million Tons

Type of Fertilizer Availability Production Imports

to to 9 o 6

toto 6 o 6

to to

71. Ifercent of the fertilizer available were used on grain crops and if weather werethe output of grain0 could be as highillionillion tons. This amount at best would equalilograms per capita produced On this basis, it is

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estimated that the present low level of per capita consumption will not improve, and imports of grain will continue at least at their current level. The prospects0 are that the food supply will continue to be tight and critically dependent on weather conditions. Food per capita willnot increase appreciably unless the country experiences above-average weather or unless the private plots are considerably expanded.

Burden of the Advanced Weapons Programs

China has made rapid progressdevelopment of modern weapons systems inthe disruptions of the Great Leap Forwardwithdrawal of Soviet support. The Chineseable to explode six nuclear devices,surprisingly diversified weapons program, andon other military research and Their programs up to now havea large extent on outdated technologythe USSR Research clearly hasway to push beyond the technology provided

by the USSR. Chinese work on strategic missile systems almost certainly will continue under the highest priority. Fighter aircraft are probably next in priority, and a follow-on to theuch as theould soon make an appearance.

China lags far behind the nations of the world in industrial and technology. Nonetheless, thesteadily progressed in the developmentmilitary hardware byscientific, and technical resources

on weapons development and by importing keyand materials. This progress has been achieved by withholding resources from theeconomy and by delaying the growtheneral industrial base for the broader needs of the economy. Delays in the developmentodern industrial base will in turn influence the future pace, scope, and effectiveness of weapons programs.

During the period of Soviet support, emphasis was placed on the growth of basic owever, efforts have focused on the expansion of facilities to produce complex commodities such as certain electronics items, special metals, plastics, synthetic fibers, and other chemical products, in large partof the requirements of weapons programs. Expansion of the key machine-building sector has also had high priority. Since the withdrawal of Soviet support, China has been turning to Free World countries for advanced machinery, scientific equipment, critical raw materials, and technical data.

A continuing key weakness in China'stechnology is the shortage of wall-trained ongineers and technicians at the middle and upper levels. The Chinese leadership has had to choose which types of technical work are to be supported and which neglected. At present, Chinese scientific and technical research work is concerned largely with urgent practical problems, as opposed to general scientific research, and is concentrated to an important degree in thearea. The regime can assemble teams ofand engineers to focusmallof high-priority problems, but its efforts on military programs are at the expense of basic industrial programs. One ameliorating factor is the appearance of appreciable numbers oftrained researchers with five or ten years' experience who are now reaching upper levels of competence.

Communist China's military programs may take aboutercent of its GNP. Thisomewhat lorger share of GNPuch larger share of industrial production than in France and the United Kingdom. Of greater importance, China's weapons program uses manpower, equipment, and materials of the highest qualityscarce resources that otherwise could be used to build up tho civilian sector of the economy.

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77. The experience of Other countries indicates that military costs will become even greater in the years ahead, as Communist China moves various weapons systems into production and deployment. Moreover, the regime faces rapidly risingosts. Weapons systems now being developed are based on Soviet designs, and hence the bulk of the basic research has already been done. The Chinese could, of course, minimize further increases osts if they were willing to settle for proven Soviet systems and thus.the technology ofs. Hut China has for several years been going ahead with itsfforts, such as those needed for an ICBM program.

78. Costs will mount as Communist Chinato place various weapons systems in series production and to deploy them in the field. Even if in the next few years it produces only improved copies of Soviet systems, serious problems will be faced in mastering the production techniques and reproducing specialized parts or components. Production costs relativeosts are likely to be higher for China than for the United states or France, because those countries already possess the industrial machinery, processes, and skills needed to back up their production programs. Xn addition, China will have to meet the heavy annual operating and maintenance expenses of the deployed units.

79. In the absence of extensive foreign assistance, China's supply of skilled manpower almost certainly will prove inadequate both toigh-priority modern weapons program and to provideupport neededteady buildup of the civilian economy. Over the next several years, China will continue to be faced with serious shortages of scientific, managerial, and engineering personnel and will be forced to concentrate its effortsarrow range of high-priority industries. Most of the country's top-drawer technical talent continues to consist of Chinese who were educated abroad, both in the

Free World and in the USSR. Domestic training to the doctorate level is now well under way,ew hundred already graduated. The closing of China's universities because of the Cultural Revolution is delaying this program.

Japanese and Western European Assistance for Weapons Programs*

80. ajor factor in Communist China'sproduction potential is its ability toequipment and technical data from the Free World. hina has purchased more thanillion dollars worth of machinery,and scientific instruments from Japan and Western Europe. This figure does not include purchases of transoortation equipment, technical

data. The following tabulation shows the sharp rise3 in imports from Japan and Western Europe of machinery, equipment, and scientific

Million US S

Scientific

Year Total Machinery and Equipment a/ Instruments

imports of transportation equipment.

estimate based on data for the first

' for additional information, see CIA/RR, The Contribution of Imports to Communist China's Advanced Weapons Program,imnrTnt nrrrirm.

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81. Communist China's shopping list for imports is lengthening. The list includes an increasing proportion of items related either directly orto the advanced weapons program. China has been ineraasing its purchases of such items as rolling mills, special-purpose lathes and other ruchine tools, scientific instruments,and other electronic equipment.

B2. Many items of strategic equipment on China's shopping list fall within COCOMand the regime has had difficulty inthe types and quantities of machinery rc-

portance to China's military programs.

hina's purchasesplants from Japan and Westernexpanded considerably. The value oftotals0 million. The bulk of

the purchases have been in support of the civilian economyor example, chemical fibers, fertilizer, and plastics plants. However, some of these notably steel and other metallurgical plants, will supply important inputs for theof China's military-industrial base. the purchase of advanced Western technology and equipment for priority sectors of the civilian economy, such as chemicals andanpower for use in weapons programs.

acquisition of foreign technicallittle or no costistinctCommunist China's weapons production. gathers technical documentarythrough open sources in Japan and the

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West, such as libraries, bookstores, universities, and scientific publishing houses. Chinese scientific and technical delegations obtain technical data from visits to Free world factories, laboratories, and universities as well as through other direct personal contacts. Scientists and engineers visiting China often undergo intensive questioning about technical matters.

85- Some technical information also isdirectly by the Chinese or is transmitted in connection with negotiations or sales of equip* nent. When purchasing modern plants or equipment, the Chinese usually obtain agreement from theto supervise installation of thein China, to train Chinese technicians in its use, and to guarantee continued operation and In some cases the Chinese purchaseknowhow rather than equipment. For example, in5 the Chineseontract for this purposearge Swiss producer of diesel engines.

86. Over the next few years, China willeven more heavily on Japan and Western Europe to help in its industrialization. As theof modern weapons increases and as China is forced to rely more and more on its own RtD and engineering resources to support the development of new weapons programs, additional types and quantities of special materials, advancedand modern technology will have to befrom the Free World. Imports of xodcrn equipment and technology will serve not only to support weapons programs but also to relieve the pressure on supplies of skilled manpower andin industryhole. Thus substantial increases in imports of this type and continued negotiations for additional kinds of equipment and materials are likely.

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of the Vietnamese War

87. Chinese aid to North Vietnam has grown steadily over the past year. Under the aidsmall arms and ammunition, trucks,raw materials, semimanufactures, food, and other consumer goods have been furnished.

lave been

supplied. The Chinese have increasedroad range of items to replace bombing losses, including rails, construction materials, spare parts, and drugs and medicine.

Chinese Communist capabilities forthe above materials and manpower farcommitments made so far. The level of assistance would have to rise sharply before shortages would begin to develop in suchas steel products (includingrugs and medicines, and trucks. Chinese aid to North Vietnam, together with Soviet aid transiting China, has increased the burden on tho rail net, but aid shipments still preemptmall fraction of Chinese rail capacity. To the best of present knowledge, this flow of aid has beer, maintained with only minor interruptions in spite of internal political turmoil.

Perhaps the most significant step taken by the regime as the result of the situation inhas been the assignmentigh priority to defense and defense-related construction in South and Southwest China, particularly on airfields and main-line railroads. 5wo rail lines (Chungking to Kuei-yang and Kuei-yang to K'un-ming) were opened to traffic,andhird (Ch'eng-tu to K'un-ming). The buildup of the South and Southwest China area is

inpeedup of the regime's long-range policy of developing the human and natural resources of the hinterland of China, but the situation inis the primary immediate stimulus. quantities of heavy equipment and high-quality materials and engineering skills are being used in these areas at the expense of construction in the civilian industrial sector.

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Economic Implications of the Cultural Revolution

The present Cultural Revolution in Communist China is spiritually akin to the ill-fated Great Leap Forward. Theis an attempt by the aging Mao to rekindle the spirit of "permanent revolution"and permanent sacrifice. It has proceeded in stages. Prior to6 the militant teenage Red Guards adhered fairly well to Premier Cnou En-lai's admonition to stay out of factories and farms. But in December the Cultural Revolution was officially extended to industrial andenterprises, within six weeks thedisturbances in agriculture, industry, and transportation were serious enough to give the regime pause.

In7 the government issued orders aimed at restricting the economic impact of the Cultural Revolution and restoring order to the economy while at the same time maintaining the political objective of rooting out "bourgeois" and "revisionist" tendencies. From February through lace Hay the regime gradually remedied the excesses of December and January that had threatened to produce serious economic Since late May, however, sporadichave flared up again and caused new dislocations in industry, agriculture, and If these new revolutionary tremors continue, they may become even more serious than those at the turn of the year.

Although the damage to the economy caused by the Cultural Revolution since6 cannot be quantified, it has been appreciable. Fear of potential losses was clearly responsible for the regime's decision in7 to moderate its policies. Transportation and communications, food and distribution, and foreign trade seem to have been affected for only short periods of time. Industry and agriculture, however, may have been more seriously affected. esult ofwith industrial operations, output in the last quarter6 probably began to decline

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gradually, and this decline appears to have continued through the first half In agriculture, disruptions during the winter and early spring may have affected planning and preparations for spring farm work,oncentrated campaign of spring work could have compensated for any delays in preparation for spring planting.

current lack of economic momentumpart the result of the failure ofand peasants to respond satisfactorilytransmitted through theCommunist Party organization. Tse-tung has increasingly relied onLiberation Army as the primaryrelaying and enforcing economiccapabilities of the Army for preventingand disruptions in production have,hampered by conflicting directives fromleadership. The Army has not succeeded

in obtaining steady increases in production from workers and peasants.

Status of the Third Five-Year Plan

The first five-year plan for the economic development of Communist China covered the. The second five-year plan was to haveut was almost immediatelyby the Great Leap. After the collapse of the Leap Forward, economicwas carried out on an ad hoc basis.

Int the 1st Session of the Third National People's Congress, Chou En-lai announced that, after one more year of recovery andhird five-yearould be launched. Subsequently, little was heardlan. Theession of the Third National People's Congress, which should have been heldould have been the normal occasion for announcing the specific goals and guidelineslan. But the session was not held. Bits and pieces of information gathered6 and

7 suggest that there never hasully detailed five-year plan. ureaus, and individual economic units have continued to work on an ad hoc basis as.

96. The uncertain status of the third five-year plan must be attributed in large measure to the Cultural Revolution, which surfaced The period when the plan should have been announced and put into operation was the time in which the Cultural Revolution was brewing and absorbing the attention of Mao and many of his chief lieutenants . here still is no concrete evidenceetailed third five-year oian exists. The Cultural Revolution continues to number economic planners and administrators among its victims> At the same time, there is no evidence that the Cultural Revolution has superseded technical economic planning and administration in the same sweeping way that the Great Leap Forward superseded the second five-year plan.

Prospects

97. Communist China has been in existence almostears, long enough to have experienced five distinct phases of economicehabilitation,oviet-style five-year plan, the Great Leap Forward, recovery, and now the Cultural Revolution. These eventful years may be characterized by the following general proposi-

tions:

(a) The Communist regime hasingle national economic unit that is welded together not only by nationwide systems of and communication but also by modern means of economic, political, and military Perhaps the most significant aspect of the present Cultural Revolution is that this unity, which has been arge extent created and preserved by the apparatus of the Communist Party, is being placed in jeopardy.

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Takenhole- the economy isonsiderably higher level in industry and technology than when the Communists came to power. It has important industrial andproduction capacity built upreater variety of industrial output.

It is not the lack of resources thatorderly economic development but the military ambitions and ideological biases of the leadership. Mao and his associates disown, on ideological and political grounds, many policies that would assist economic growth and improve living standards, such as morereliance on foreign assistance, the greater use of material incentives for workers and peasants, firm birth control measures, and stretching out the development of modern weapons.

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The economic outlook for Communist China will be strongly conditioned by political At present the Communist Party is inand the government bureaucracy under attack.esult, control over the economy has beenand the efficiency of the economy has, If the political ontinues at its present level, the economy seems likely tofurther. If turmoil were to continue for an extended period or were to intensify so that central authority was further eroded, decisions as to the allocation of resources would become more difficult,harp decline in industrialor an acute food shortage might occur.

It is possible that the presentpolitical situation will end soon, with Mao reestablishing control and introducing an economic phase of the Cultural Revolution with similarities to the Great Leap Forward. As with the Leapone would expect to see the substitution of political and ideological for material incentives, an attempt to move ahead rapidlyroad front, and perhaps the abolition of private plots and

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free markets In agriculture. attern or events, if continued, would almost certainly leadeterioration in discipline and morale,in production and transport, andhunger. Althoughequence cannot be ruled out, it appears unlikely, since it is not believed that Mao willlear-cutof the political struggle or that he can implement radical economic policies of the kind postulated without resistance from some of those who have thus far supported him.

is also possible that Mao willroup of sober-minded pragmatistsadopt loss grandiose goals, ascertaintasks are feasible, and set to workin nondoctrinairo fashion. Renewedthe USSR might even be part of therosult coulderious attack on theproblemustained rise inliving standards. But such an outcomeappear probable. The period after theof Mao is likely to be characterizedconfused contest for power. It is alsothe leadership will continue to assignweight to political and ideologicaland that it will inherit some ofgoals of its predecessor. will almost certainly from tine

to time be sacrificed to politicaligh priority will probably continue to be given to advanced weapons, although perhaps with some stretching out, and it is likely that China's hostility toward the United States will continue.

when these two possibilitiesout, no very confident estimate ofeconomic future can be made,the present political turmoil and theof twists and turns in economicgeneral conclusions may be hazarded,ambitions which have produced theprogram will almost certainly remaindegree, as will the competition within the Communist world. These willthe allocation of resources, probably at

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the expense of the measures required to achieve sustained economic growth. At the same time, China will have to continue to cope with such basicas the unfavorable food-population ratio, the costs and imbalances produced by its advanced weapons program, and the shortcomings of itssystem.

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It is likely that in the period0 the Chinese economy will continue to be characterized by differing rates of growth in the various economic sectors, reflecting tho disparity between ambitions and resources. Output in the military industries will probably continue to growairly rapid pace, as will output in other priority industries. At the same time, apart of industry will remain in theof outdated equipment and technology. The overall rate of growth in industrial production is likely to be less thanecause the capacity idled by the Leap Forward has now largely been taken up. The food-population problem will remain unsolved over the next few years at least. Barring spectacularly good weather and spectacularly good luck, agricultural output will have to be supplemented by continued grain imports if the food intake of the population is to be maintained at even its present low level. China willungry nationispirited population,ationrowing arsenal of advanced weapons. Foreign trade will probably increase and willoriented toward Japan and Western Europe.

Original document.

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