APPROVED
DATE: HAY
13
NATIONAL INTELLIGENCE ESTIMATE
(Supersedesnd)
Problems and Prospects in Communist China
Iht
DIRECTOR OF CENTRAL INTELLIGENCE
ConcunW in by Ihm UNITED STATES INTEUJGENCE BOARD
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national intelligence estimate
Problems and Prospects in Communist China
TABLE OF CONTENTS
THE 1
I. THE ROAD TO
II.
A
B
B. Foreign
ANNEX A: ECONOMIC
1 ECONOMIC PERFORMANCE IN
D
ducation and
n.
Economic
and
O.
ANNEX B: ORDER OF BATTLE TABLES
Tableir
TaMe I:
Tableround
MAPS
Disposition of CommonUt Oround Forces Communist China: General
problems and prospects in communist china
THE PROBLEM
To establish where Communist China now stands in itssituation and foreign policies, to identify the majorIt faces, and to estimate probable development* over the next two yean or to and, where possible, further ahead.
CONCLUSIONS
China's domestic situation appears slightlyfrom Its recent grievous state.onsiderableimprovement reflects relatively moderate, pragmatichave replaced the excesses of the 'leap forward" andprograms. With good luck and good management,could within the next couple of years resume aof growth approaching lhat of the First Five-YearIt Is likely to fall short ofritical questionnext Ave years will be whether the Chinesewillragmatic course in the face ofideological compulsions. Unsound doctrinaireweather, and other unfavorable lac ton could combinecomplete economic stagnation. )
discontent will persist and could increase ifsituation deteriorates, we do not believe thatpose any serious threat to tbe regime in the next two10)
China's econcpuc difficulties and theof Soviet cooperation have lessened the relativeof Communist Chinas military establishmentPeiping still hu by far tbe strongest Asian army,is sufficient to support the kind of relatively cautious foreign
policies Peiping has
duct during lbs next two years It will almost certainly notilitarily significant nuclear weapon* system until well beyond this period' )
D Pelplng's dispute with Moscow springs irom basic issues ot incompatible national and party Interests, and the Chineseno signs of relenting. Public polemics may be damped down on occasion, but we do not beundamental reconciliation will take place. The Chinese will almost certainly continue to attempt to expand their Influence at SovietIn the underdeveloped countries and to turn Communists throughout the world against Khrushchev and bisormal schism could occur at any time, although the chances are reduced by each party's great anxiety to avoid the onus of having split the world Communist movement)
E. Communist China's foreign policy will probably continue generally along current lines. Peiping will remain passionately ana-American and will strive to weaken the US position,In east Asia, but is unlikely knowingly to assume great rlska. China's military force will probably not be used overtly except In defense of Its own borders or to assert territorial claims against India Subversion and covert support of localwill continue to be Pelpmg's mode of operation in southeast Asia and,ecessarily more limited degree, elsewhere in Asia and In Africa and Latin America.)
DISCUSSION
L TH* tOAO3
he srtnaUon In Communistittle better than It has been during the past two years. However, the effects of unadvisedand the almost total loss ot Soriet support. Intensifiedong spell of bad weather, havehinsar different rrasn the one which, fire yean ego, so exuberantly asdertaok tbe risks of the economic 'leap forward" and oi aawrUre Independence of Moscow.
he Chinese Communist leaden had concluded that the country's rate of economic progress was urutstUfactory. Despitegrowth In the Industrial sector. China's agricultural produe-
' rttii qoMtkcnwd tanke PMSJSJ Omree-nlat AdvancedUbdthed *ooc
T
Uon had not Increased sufficiently torowing population, repay the Soviet credits, finance current Imports, and provide capital for rapid Industrial development. China's leaders apparenUy concluded that they could meet thetr economic problems onlyadical departure from Soviet techniques of economic development. Deciding to rely chiefly on manpower, their only readily available surplus resource, they suddenly and summarily organized the peasants innto hugewere to regulate every phase of produc-Ure activity ln the rural areas. At the same time tbey embarked on an all-out, frenetic drive for Industrial and agricultural development under the banner of "the great leap forward."
This sharp divergence from the Soviet model was part and parceleveloping Sino-Soviet disputeroad spectrum of military, economic, diplomatic, and Ideological questions. Byheleaders had apparenUy become convinced that the USSR did not Inland to satisfy Chinese desires respecting advanced weapons,development, and great power status. They Initialed sharp new departures not only in economic development but In military programs, what was particularly galling to the USSR was Peiping's growingasscrtiveneaa. Communist Chinese leaders became increasingly critical of Moscow's international policies. By the end0 the USSR had responded by withdrawing most of its technicians, Soviet deliveries were declining sharply, and the rift between China and the Soviet Union had become wide and deep.
Communist China hastaggering price for there assertions of Chinese political and economic Independence and the decisions of its leaders to force the rapid emergencereat new China bymeans. The new Chinese theories of development created economic and psychological chaos. The drastic reduction of Soviet cooperation critically Increased the regime's difficulties, and led to technicaland disorganisation In industry and drastic setback to Peiping's modern weapons program* By tbe endhe nation's economy was generally no further along than It had beer, at the endhe Chinese people have spent five strenuous, painful years on aAnd whereas the regime bad8reat reservoir of respect and popular support, it now has to calleary and disillusioned people to more the country forward.
The past several months hate shown signs of Improvement, Tbe food situation eased somewhat In the summeresult of belter weather, agricultural decentralisation, and an Increase In private plots and "freehere hasise in the production of agricultural support goodsools, pumps, andhese developments, and others such as the one-sided victory over Indian forces on tbo Himalayan border, appear to have improved popular morale somewhat and have probably reduced the diaslucnce potential
leaders haveood of aomethey admit lo having get ovenunbltloue goeki anderrors, Ihey evince no doubla about tea validity ofor tbe comctaeat of thetr toterpretatton of IL Tbeymajor blame for past disaster! upon cadre errors,weather, and Soviet sanctions. Thty believe that by aurvlTinjthey have demonstrated the soundness of thtlr regime.China can now recover on Ita own. tbey apparently believe,tha need to rely on external ski fron an
IL PROSPECTS A. MHrjI
leadership elite ot the Chinese Ccrnmunlai Party has nottha crises of tbe past five yean unscathed.3 thaDefense and tha Armed Forces Chief of Staff were removedandew otbar key figures appear to havequietly Into lheumber of provincial Flrntand other middle-level officials bare lost thetr >oba At>rrls of tbe parry there hatccatoWable Increaseotable loss or dan.
B. The regime nevertheless remains under the control of essentially the same group of Long-March Tetcrans who have led Chinesesince the* Ultimate power still rests with Mao Tae-tung, although basic declPoni are rjrobabty reached by leadershipIt Is unlikely that the composition of the leader group will be seriously altered during the next two years or so, although the actuarial odds will be Increasingly against thisall of whom are in their afra. if Mao, who will behis year, should die, be would probably be tnocewWI by Liu Shao-ch'l, the present Chairman of tbe government and Mao's designated hair, but Lie would not enjoy Mao't prestige and pre-eminence over lut colleague*.
Chinese Communist repine will almost certainlyadhere to Its own brand of communism end to remain veryTbe character and direcUon of Its ooraeeUc policies overtwo yean are, however, less certain. Beginninghave relaxed pressures and controls and removed many offeatures of tha commune and "great leap forward"tht past few months they have begun to Intensify ponMcalcontrols aimed at Increasing central direction of the economyprivate activities. This recent behavioruestionextent to which Ihey may reverse over tha nest few yean thaand pragmatic courses which have helped alleviate theof Peiping's earlier policies.
time Uui signal that the regime Is, for the moment at least, intent upon returningystematically planned economy. The one big deviation from standard Commun'.fi practice Is tbe order of priority for planning and Investment: first, agriculture and those branehca of heavy industry which support agriculture and national daunts; then light industry; and finally Industry In general. Thiselalsd recognition that greater agriculturalu nsosassry to enable China to feed its people and that thisrerequisiteigorous and rapidly growing heavy ladottry.
n any event, the outcome of the race between growth mproduction and growth In population will ba constantly in doubt Inopulation itood alillion above the 1W7 level, while gram production bad no more than regained the 1U7 level To succeed In sericultureeriod of years. Peiping must not only minhnae the depressing effects of coUectlTlzauon and lowered Incentives butproduction with increasing amounts of fertiliser, Improved teed, better disease and Insect control, batter water conservancy, and more modem tools and techniques. It takes Ume and money to develop these resource* and utilise them effectively In the meanwhile, tbe critical factor may well prove to be Peiping'*of theThe put loo* la not bright In this respect Communistmanagement hu demonstrated itself In China, as elsewhere.
n industry there buodest Improvement in pericrmance In recent months, according to the icsmty evidence available. Thestress on quality controls, cocedlnaUon amongnd the gearing of output to actual needs will. If continued, probablyounder, more rational basis. The need far goods IolncenUves lornd Items for export has Induced Peiping to give light Industry priority over those branches of heavy industry that do not directly support agriculture or national defense What Is neededarge increase in light industrial prcCucUon Is not so much new Investment as reacUiaUon of presently Idle capacity; this, In turn,on increased supplies of raw materials from agriculture.
he margin between success and failure wll) remain so sum, and the variables so great, that any estimate of Communist China's overall economic future must be general and tentative. If the regime continues to pursue retatlvefy moderate and rational policies and If ft hasgood luck with the weather, the Communist Chinese should enjoy conUnued, though modest, recovery during the next year or so This will result largely from returning idle capacity to production, and it will probably be accompanied by improvement of product quality, more effect!v* coordination of th* allocation ofnd betterand repair of equipment Over the longer run, the Imponderables increase,ide range of developments le well within th* limits
Is national economic policy. The present order of economic priorities and the use of material Incentives to stimulate production run against the grain of Peiping's doctrine. Both the strong Chinese craving for "modernity" and the doctrinaire Communist compulsion toward rapid industrialization militate against lasting primacy lor agriculture. As soon as the Communist Chinese leaders Judge the agriculturalto be adequate, they will almost certainly shift their emphasis to industrial expansion, and they may do so prematurely. Moreover, torogram of general development entailing large capital expenditures would require re imposition of stringent controls over con-sump'Jon, distribution, and procurement of agricultural output. The regime may not be successful in Increasing its take from the hard-pressed countryside, and, even If it Is, the substitution of political pres-
for economic incentives could again
output
stimulate dissension against the regime. With this In mind,with the possibility of adverse trends in such other variables as crop weather and foreign economic relations, we believe that the regime's economic achievements are likely to fan short of the upper limit described In the preceding paragraph. Furthermore, itombination of unfavorable developments could result in economic stagnation which In time could critically erode the unity and strength of the regime.
C. AwHory*
IB- The modernisation of the armed forces, which was progressing steadily untilas practically ended, except for the continued introduction of radar and certain other electronic equipment, Noaircraft, submarine components, or other items of advanced equipment have been received from the USSR In the past two and one-half years, domestic produciion of fighter aircraft and submarines bus ceased, and Inventories are being reduced by deterioration and cannlbal-ization. During the depths of the domestic decline, the military forces suffered shortages of even routine items of supply, but this condition has apparently been alleviated in tbe past year. In general, tbe army has been less affected than the other services.
elpmg almost certainly Intends to achieve domestic production of all necessary weapons and materiel for Its armed forces. It has a
'et* forth Order ol Belli* ntum for Chinese cwnmnnlst sir, mvaJ, and (round forces.
kmc way wbefore reaching true goal, hovrever. The Chtoese at present are probably unable to produce evens entirely bvand it willomber of Tears before User can design and produce more advanced types of military aircraft. Indeed tfaey may nave chosen Instead to concentrate their limited resources on missiles. Their wholly domestic naval shipbuilding capacity is likely to beto surface ships of the smaller types during the next few years.
JO. Our knowledge of the morale of the fhlrwi Communistinimal. Prom Chinese documents we know that morale was low during the depth of the food shortageshen the troops were underfed and overworked and were distressed by the even greater suffering of Iheir famines. Measures taken to eaas tbe situation of the troops and to provide special rations lo their families appeared to improve morale beginning in the latter halfhe Chinese troops In the recent Slno-indlan border fighting displayed no Indication of poor morale. Air force and navy units have not been similarly tasted, iiowever, and the decreasing effectiveness of their equipment, along with the Inadequacy of training caused by fuel stringency and back of spare parts, may have towered morale tn these services.
dditionally, there have been problems at top command levels, where the military policy of the party was apparently, Defense Minister Peng Te-huai and the strengthening of security measures within the armed forces appears to have insured subservience to th* party.
eiping's military policy hat always been characterised by caution in underuUOng Initiative* Inck of superior power. Hence the decline in the relative effectiveness of its military equipment and weapons is likely farther to temper Pelplng's policy, especially In circumstances where it might confront C8 armed power or USequlpped Asian air forces. However, the Chinese Communist Army will continue lo be the strongest In Asia and toowerful backing for Chinese Communist foreign porkyo-8onet dispute will probably place additional CJernanQs on Chinese military dispositions and capabilities, since one of th* eon-sequences of China's newfrom the USSR will be the need toloser watch than previously on the long China-Russiathe Chinese stilldifficult"nsettled" question.
dOTioed Weapons* peiping appears determined touclear and ballistic missile capability, and In time It will almostdo so, though It Is not likely toilitarily significantunUI well beyond the period of this estimate In the snorter term,
(object will tw tnaled full* In the forthcomings-eJ,Chinas granted Weapon*"
secret^
lhe Chinese Communists probably hope lo produce tnd detonate adevicelep toward developing thai capability and tn thethat this would boost morale at home, strengthen the regime's claim to world power status, and inspire tear tn Its Asian neighbors. For sciime to come,imited effort ba the nuclear and missile fields will severely tax the regime's cconorelr and technical resources.
0.fteJdioni
e believe that Peiping's continued willingness to challengeleadership in spite of the coca and risks Involved ta basedon the following elements:
onviction that Moscow's policies are Inimical to Communist China's national Interests, and ln particular that Moacow wishes to retard or prevent Communist China's developmenteading world power. The Chinese Communist leaders see Moscow's imwimrgr.ess to confront the US as Involving the postponement of such national goals as the seizure of Taiwan. These differences are compounded by the xenrxjboblc ernooons inherent lo the Corneas racial. naOocallsUc. and cultural pride and practices
etermination that Peiping must be accepted at an equal partner ln the formulation of Bloc policies.
onviction that Moacow It becoming Incrcaalngly revlslorust and bourgeois, abandoning classic revolutionary goeM and destroying the mlUtancy of the world Communist movement. The Chinese areoutraged at what they interpret as attempts to tempo?ire with the US arch-enemy.
onviction that In the present historical stags the victory of cor-munispi will be woo chiefly In the anderfisveloped treat of the wond. and that the militant -path of Mao Tse-tung- provide* the beat blueprint Tor the struggle ln these areas.
onviction that Moscow's "revisionist" policies are unacceptable to significant elements In olher Communist parties (particularly those parties out of power) and even In the Soviet Party Itself. Thii factor, together with rettlveness In many parties to Soviet domination,nurtures tht conviction of the Chinese Communist leaders that they wIU inevitably prevail
he present fflno-Soviet reiaUocstirp can ba characterised as one of de facto break. The two regimes have long been at oddside range of issue* Party and state contacts between them are rruntmtl. Tbey are engaged in compeUUve paoeerytlthtg within the worldmDvement. During the past year, polamlet have becamebitter and explicit. There are even tome indications oftensions along the Chinese-Russian borders.
Nevertheless, both parties have been at pains toormalach continue* to preach th* unity ot thenleric* to throw on th* ether the blame for the disunity now apparent; both parties wish toituation which mightormal renunciation of the alliance and to avoid the onus for having forcedreak If it does In fact ensue. Theyutual concern for the advantagesormal break would give their common enemies, and for the damage II would do the worldmovement. Additionally they wish. In view of their long common border, lo keep scene Haiti on hostility. Both sides probably hope that eventually, perhaps after the departure ot the rival leadership, the other will see reason and make the critical concessions necessary tounity.
Bilateral sinc-Sovtei discussions of differences may take place In the Immediate future, but In any discussions thai transpire the Chinese are likely to be truculent and asset Ure. Mcacow will endeavor to tem* porae andramatic and adverse denouement of th* Sino-Soviet conflict, but will feel obliged to react forcefully If pushed hard enough.ormal break Is possible. It la also possible that at any time negotiations may resultemporary damping down of the public aspects of the dispute, but the fundamental issues will persist Slno-So-riet relations will continue to be plagued with tensions that will lead to continuing estrangement and have correspondingly adverse effects for Bloc and International Communist unity.
practical effects of tbe dispute on Coram unlet China wmto be serious. Chinas Industrial plant and militarycontinue to suffer from lack of Soviet cooperationnow make up about hah* of Chinas imports from thea further cutback hats,n aviation fuel and highwouldime seriously reduce Pelplng's militaryA cutoff of spue parti for Soviet equipment would alsoboth military and Industrial progress. New foreign andof supply could, however, probably be developed. In somerapidly.
eonhuOon ha*aaeaaraentt of thebreak* and of il* consequence* Tnl* caper tacks to mat* th* fOIJowWg dlauiwuon*:
line* at least IBM; thl* wee /arto break (paragraph SS).
1 Moatf whether orino-Soviet break will occur have be clre-tea in our view, to what should beormal break.ora break could take marcnlike the Bovkt-YueoiU. altiiation of IS there is, technically, no International Communist cedy fromCP, or the CPBU. There could, however,everance Of paiij relation1 formal and >oeclflc denunciation ipoalblr emanating from separate 1bten Uonnl Communistr any elrcurattOBcea In which at least on* the protagonist* stele* ofnelallyormal breakii*.
Continuing estrangement will almost certainly cause Khrushchev increasing embarrassmenl within the CP8U, and also lead to morelor adherents and Influence throughout the world CornmuruSt movement, with China tending Increasingly to assert Itselfival center of truth, authority, and example. Pelping already appears to have displaced Soviet Influence In North Korea, North Vietnam will continue to attempt to profit from tttut It appeara to be drifting toward Pelping. In Cuba, tt Is likely that the Chinese posture encourages Castro to reject Soviet advice which conflicts suh his own predilections Pelping win press its campaign to win over the leftist militants throughout non-Communist Asia, Africa, and Latin America, lining up the ad hoc support of parties where it can and settling for splinter factions elsewhere,rasll. Further Chinese gains areIn the Japanese and Indonealar. Communist parties, at the expense not only of pro-Soviet factions but of Soviet interests and Influence in those countries. We definitely do not expect the balance In lhe world Communist movement to shift to Pelping ln tha next twoperhaps, ever.
Peiping may attract enough adherents in tha underdeveloped areas of the world to cause the Soviets toomewhat more militant public pasture In Ihese areas, in an effort to outbid the Chinese for the support of selected revolutionary movements and to provetrue Marxist Leninists However,R1 actions In the Far Rest (as elssrwhare) will almost certainly continue to spring principally from conKderaUons of Soviet security and ln tercets, not tha status of relations with Pelping. Indeed, even if thereormal Sino-Soviet break, the USSR would almost certainly Intervene In any US-Chinese hostilities which threatened toon-Communist regime in China along the USSR's borders
E. Foreign Affairs
Is engagedtruggle with Moacow for Influence Inparties of the underdeveloped nations of Asia, Africa,America The Chinese Communists better* lhat they artto lead this major portion of the world's peoples Intoof thetr own experience, their correct Interpretation of Marxismand their statu*onwhlte, noa-Kuropean people who
have been vie Urns of Imperialism. According to Peiping's reasoning, when these nations are brought intohe Western
eprived of their captiveill ba unable to retain
their pceluons of power, and socialism will triumph.
eiping recognises that thisong-term objective which atit lacks the capability to bring about. It can provide very littleaid to Communist revolutions except In countries on which itaosimited and somewhat opportunistic policy
Is followed, with the aim of reducing lhe OS and Western presence ln Asia end (with keen priority} the rest of the underdeveloped world
eiping's foreign policy objectives can be roughly distinguished by tha amount of risk the regime Is prepared to take to carry them out. The obvious Ant rank objective la the preservation of the regime and the protection of its cxltUng boundaries Por these purposes Pelping Is willing to go to war, almost regardless of the odds. If US or SXATO troops approached Its borders through Laos or Xorth Vietnam, Pelping would almost certainly be ready to commit Its forces openly, unless In tbe particular circumstances It saw greater advantage ln more covert military operations. The acquisition of Taiwan falls In the second rank offor whichuUy prepared to oat overt military fata, but only when the prospects of success are Judged to be high. To achieve this goal, Pelping is prepared to run fewer risks and It particularly anxious to avoid direct conflict with tht US. Pelping almost certainly will not attempt to seise by military force either Taiwan or any of tht major offshore Islands which it believes tha US would help Taipei to defend.
or ita broader and longer range goals of spreading communism throughout the underdeveloped world, Pelping It probably not prepared to accept any substantial risk, although It must be noted that Peiping lends to estimate the risks Involved in supporting "wars of national tlberaUon" much lower than does Moscow Pelping apparenUy doss not Intend to undertake overt conquests of foreign lands in Ihe name of communism, but Intends to let Indigenous revolutionaries do theand theetplng Is prepared to train foreign natlonala in guerrilla and political warfare, and wIU back revolutionaryto the extent of Ita limited carwhlHUee with equipment, funds propaganda, and support bi international affairs.
eiping's approach to world aflairs Is strongly Influenced byrationalism Chinese nationalistic; feelings have been an asset to the regime domestically and have shaped certain courses of foreign policy quit* apart from, and swr.eUrr.es contrary lo, toe Interests of eomrnu-niim. The Slno-Indlan confrontation In th* Himalaya*ast in point Here, Chinese naUonal Interests and motivation* took precedence over the interests of the Indian Communist Party.
Js During the next two years, Pelping will remain active InAsta. In Laos, Pelping will continue to encourage and aid North Vietnamese and Pathet Lao efforts to dominate the country. There itommunist Chinese pretence In the country, and the nucleushlnese-oullt road network It designed to increase ties to mainland China These roads could also facilitate the movement of Chinese troop* If an eruption of fighting in Laos wert to bring US or SKATO forces into tbt tree. Pelping win encourage and support subversive
activities In Thitiliiml. and will probably try to exploit racial and other tensions In the emerging Federation of Malaysia. In some parte of southeast Asia, Ihe overseas Chinese provide an Instrument for Peiping, but they are unpopular In (he boat countries and In many areas appear lo be less responsive than formerly to Peiping Pelplng's long-range goals siinost certainly envisage the gaining of dominant Influence over the area and Use exploitation of Its economic riches.
Communist Crime's policies toward He two greatest Asiantrails and Japan, are likely to continue along approximately the present lines through the next two years or so. The Chines*leader* wrote off Nehru some Qme agoourgeois nationalist whoae usefulness to them has passed and who therefore need no longer be courted. They now are *iming to diminish India's stature as an alternative model of development and to undermine II* statuseader of the nonallgned snd Afro-Asianhey almost certainly bare no Intention of invading India beyond Chinese-claimed territory during the next two years, though they will respond vigorously to anything theyrovocation. In any case they wUI carry on apolitical campaign against the Indian kadership. In Use ease of Japan, Peiping wUI timultancously strive to gain dominant influence tn theommunist Party; nudge the Socialists and other leftists Into more roBltant and anU-UB courses: bid for Japanese businessmen's support, by dangling trad* prospects before them; woo th* Jsnanese public with propaganoa and pee^ae-to-people dlpkraaey; and demand recognition from th* existing Japanese Ooremment
Communist China will coo unite to exert considerable Influence in Asia, almost regardless of developments tn Its domestic and foreign policies. The deproieed conditions of life In China have somewhatthe image of China held widely in Asia. However, this effect will probably prove short-lived, especially If mainland China regain* some of Its former economic momentum More important, fear ofChina will almost certainly continue and may grow. Even now, the policies of several Asian countries, especially Burma and Cambodia, are conditioned In Important measure by desire not In provoke Peiping.
Fear will also be tncreased by detonation of Communist China's first nuclear device, though the psychological Impact wU not ba as great as would have been the case cad th* Chines* detonation core*ew years ago. Initially at least, most Asian gorerrjn*nu will make new and most earnest inquiry Into OS mentions for tht; defense of east Asia and the western Pacific.
rwlplng's Intense anU-Amerxanlsm is deeply rooted both Indoctrine and In militant Chinese nationalism This altitude wUI almost certainty persist as long as toe present group of leaden remains In control, and there Is no reason tooftening by their suc
CONOMIC
I. ECONOMIC PERFORMANCE2
rie moderate economic pouclea adopted In tne winteran continued. Private activity in agriculture and In rural trade wai etlll peindttad. Major Industrial goala Included th* expansion of producUon to support sgnculture and the expansion of output in light Industry, handicrafts, and the roJntcg and timberra-phuli was placed on Improvement of quality, on coat reduction, onin output per worker, and oo batter care of equipment.
2 The communique Issued afterh Plenum cf the 8th Party Congress, which met seereUy ln Pelpinglhat lhe retrenchment and conaolldaUon prevailing12 wui be generally continued for the time being, but that sameup of discipline In economic affairs is considered necessary to direct and mobilise resourcesonditionore organisedeffort. To these ends, the party appears to have deckled (a) to retain recant em phases on more conservative management policies for Industry, policies which are similar to those that prevailedb) to retain the "leap forward" andt least as concepts; and (c) to permit no further retreat In collectivisation of agriculture, andorollary, to restrict private "capitalist" tendencies ln Ihe countryside.
information, either officially released orcontinues to be extrernely fragmentary. Official claim*tn some area* of productionefugee, diplomatic,report* indicate Improvement In the supply of aome foodsconsumernd weather data suggest slightly betterduring the year lor tbe countryholeit*together with Peiping's more optimistic outlook sincemoderaten extrernely drfflcult situation.Improvementerious problems still remain tn everyof an economy that probably ia no more productive than
A, AnricvJiwre
alight Increase in producUon of grain appeari tout01 levels which were abnormally low.of grain2 Is utlmated to have been on the general order
' Oarof output are based primarily oo weather data, although the piob*win* of somewhat larger acmes of fall aram crops and silently increased supplies of chemical fertilizer alec huve been taken Into consideration.
otillion met :tons harvestedhen the population ni aboutercent smaller. The average diet Inon-rurapUoo veer he* probably improved above that of the previous con-sumption Tear, largely as the reeult of increased production on private plots. The food situation remain* stringent, but no longer desperate.
he expected level of grain import* by China Inyear (July-June) suggest* lhat domes uc production and stocks are far from ersmfortabie. Contracts have already been signed forofillion metric tons of grain during the first sis months otthe amount Imported during the same rjeriode estimate that five million tone of gram will be Imported duringonsumption year. Thisillion tons lees than In the previous year but still amounts to about four percent of total food grain consumption. By comparison. China exported about one million tons of grain
he acreage planted to cotton2 was about hah* that plantednd the output was correspondingly only about halfons produced
ndustry
he Chinese Communists seem to have achieved moderate success tn industry. Comparedhere appear to have been increases in the output of priority goods such as chemical fertiliser, scene farmnd many types of right Industrial andproducts. Output per employed worts probably increasedalthough rn large part this resulted from laying off excess labor and thereby adding to the problem of unemployment. Technical and manag'ersonnel were accorded greater prosUge and responsibility. Problems of quality, coat, and maintenance of equipment easedbut fftm persist as obstacle* to Industrial effort*
The available evidence, which Is fragmentary, suggests that total Industrial production2 wu about equal to thatr roughly halfeak. Production of agricultural chemicals, some farm equipment and tools,umber of light Industrial products waa considerabry above the levelat production of th* machine building and textile Industries wis below thatroduction of steel and electric power may have been at roughly th* level
Shortages of food for Industrial workers, the Insufficient supply of agricultural raw material, and the regime's shift to priorities in favor of agriculture account for only part of the difficulties hi Industry Inth* Industrial teeter bas been serssefy damaged by theof the "leaphich produced neglect and abuse of squipment, shoddy constriction, and wasteful Imbalances in the capacity of Inter-
dependent enterprisesndustries. Greatly compounding all these problems was the withdrawal of Soviet technicians, the drop In Slno-Soviet trade, and the drying up of opportunities for study in the USSR and Eastern Europe, The cumulative effect of these handicaps has been serious.
Many Industrial plants are producing far below capacity, The reason [or this situation in light Industry is clear: the inability to obtain the rrecessary raw materials from agriculture. The explanation for idle capacity in heavy industry ia more complex. Some heavy industrialexample, aircraft, shipbuilding, truck, and chemical fertiliserproducing below capacity because of the lack ol spars parts, key components, raw materials, or technical expertise. These deficiencies exist in the plants themselves or In Industries supplying components and raw materials. In addition, the drastic cutback in the ln vestmentand lhe sharp decline In industrial output has lessened lhe need for baste heavy industrial Items such as steel, electric power,materials, and some types of machinery, in the industriesagriculture, however, especially the chemical industry, additional plant and managerial-technical personnel are sorely needed.
We believe that factories producing military equipment have been able barely to keep up with peacetime attrition an some iraparuint items of military equipment Production rates at some existing facilities may have recovered somewhat from the low levels. but except in the electronic field we believe that little or no headway waa made in the program to modernize the equipment of the armed forces. Almost certainly, no significant additions were made lo the capaclUes ofproducing conventional armaments.
It Is estimated that the total availability of petroleum products tn Communist China2 was slightly less thanhe last year for which there is reliable data, but supplies apparently were adequate to meet the essential needs of both civilian and military consumers, though on an austere basis. Of the total supply, aboutercent was produced domestically, as compared withercentChina, as far as is known, has not produced aircraft fuels exceptrial basis, and continues to rely on Imports from tbe USSR. The Chinese, however, have the capability of producing jet fuel, although such production would necessarily reduce output of ether petroleum products, and difficulties with quality probably would be encountered. China prolably does not have the capability to produce high-test aviation gasoline and certain high-quality lubricants
C. Foreign Trade
reduction in agricultural products available for export,ln Sino-Soviet relations, the cutback in investment,decline of industrial output have combined to lower China's total
volume of trade and to alter its direction and compositiontrade3 may have aroour.ted to aa lllUeUJioowith the USSR declined0 bUhon0 to pernape aa low aa MOO million tnof petroleumlmost all from the USSR, declinedmillion metric tons1illion tonsof aircraft fuels and high-quality lubricantshe levelhe regime is now concentrating on Import*and rawachinery and equipment importsercent0nhecommunistsog-term trad* agreement withthroughout the year were actively contacting Western suppliersproducts, but few deals of any sise or importance havea* yet. China's foreign exchange position remained tightbut the regime reinsured to meet Its obligations promptly
D. Trortpchaham
3 all forms of transportation to Communist China appeared to be operating at about1 level or lower, with the pcmbleof coastal shipping, which Is reported to have been mora active during th* latter part of the year. Although efficiency and capacity continued to be hampered by poor adminUtraUon, low worker morale, usufnesent and low-quality fuel, and lack of material* for rroUntariance, tte transport system kt apparently tapoorUng th* economy with less difficulty than in recant years, largely because decreased economichas greatly reduced demands on the system. The Impressive earlier program for extending China's transportation network, which was abandoned In Ihef the 'leapemained In abeyancexcept for construction on militarily significant road* In Yunnan and net, than we* utile eceutrueuoo3 on rnejor ralfwayt androduction of kcocDotrves, freight cars, and trucks remained at very low levels Maintenance and production of spare pert* for tranaportaUon equipment probably Improved little If atalL
Education ond fdiaci
n the fallh* regime drastically curtailed student enroll-rocnt at all levels and closed many substandard schools.esort, seme five million high school and cclleas-ievol students win thrown on the already saturated labor market. This has caused greatamong students and theirbe drastic decision to retrench wasifficult case far th* regime to make; It was proraably taken tourther dnrdautlon In the quality of education, but It may eventually lead to even greater dlsUhjsEonment and
have certainly been burned by the catastrophic failure ofleep forward" and will presumably be extremely chary ofepeUUon. The comrxaauon of the kadership's lop echelon remainsunchanged, however, and Ita record If sucheturn to radical, polIUcalry charged programs cannot be ruled out.eturn to auch programs will Increase ln the longer term if progress toward cherished goals appears to tag.
neveral high-ranking officials, Including four Politburo members, were appointed lo the Stale Planning Commission, which suggestsigh-level task force has been formed to drawhird Five-Tear Plan. The plan- when and If It appears, la tlkaly lo be moreoliucallanning document, for the uncertainties confronting the regime would seem to preclude detailed long-termIta goals are likely to be general and qualitative rather than specific, and tbe regime would probably view it as an importantfor attempting lo Inspire confloenoe, unify the country, andsupport
C Atanesatura
ll. The regime Intends to continue lo five priority to agric -itjit. and Pelping appears to be thinking in terms of an agriculturalprogram that will requireoears. Certain elements of this program seem reasonable and feasible for expanding farm output, such as the emphases on research and extension facilities, promotion offertilizer, electrification, and Irrigation. Other pronouncements calling for rapid mechanisation, strengthened collectivisation, and "politics leading economies" could lead lo advene effects on farmIhrough indexible management, lack of peasantoncentration on releasing rural manpower for industry.
if the reasonable elements in the leadership prevail,can be no speedy solution in agriculture. If Iricseasedchemical fertiliser and other inputs ar* to yield maximummust be accompanied by Improved varkrUaa of seeds andpractices Research andaai vice* (and. abovetrained technician* to man them) cannot be createdcan they be expected to bear fruit on any scale within leasdecade. Furthermore. It remains to be seen just how muchrecent steps toward centralization will have on the crucialpeasant Incentives.
D. Industry
emphasis oo industries producing goods forfor corssumers is Okeiy to continue for al least the next year orbranches of heavy industry that cannot now produce enoughthe requirements of the priority sectors of the economy are likely to
be allocated Increased resources for expansion of plant and technical competence. These are likely to Include mining, producers of chernlcals and machinery for agriculture, producers of some chemical rawfor light Industry, and Industries that will help to broaden Chinese technological capabilities. The latter group of industries wUI be needed toative capability foride variety (though notarge volume) o* complex machinery andmetals and chemicals, which in turn will be needed in theof chemical fertilizer industries and the production ofweapons and guided missiles.
rospects for resuming industrial growth are contlrgent onIn agriculture, if agriculture recovers, evenevelleas than the pet capita output attainedndustrialcould be pushed rapidlyear or two because (die capacity exists in many industries. Alter existing capacity Is put to use, bow-ever, growth in Industrial production vould slow down If presentwhich stress variety and quality rather thanretained. Yet If present goals are reversed, agriculture and, possibly, popularwUI suffer. In any event, the slogan or overtaking Great Britain Inoears In total production of basic Industrial Items la now dead. Similarly, the regime has dropped Its one-time goal of producingillion tons of crude steelnd probably would now be satisfiedt attained half that amount
E. Foreign Trade
Prospects for major increases In foreign trade are poor, partly because of Peiping's heightened desire for autarky. Present evidence suggests that Sino-Soviet trade3 will continue at no rnore than the low levellthough China plans to turn to theworld to replace some Bloc sources ol machinery, such purchases probably will be selective. Moreover, because of foreign exchangethe Chinese will probably seek to import technology mainly by Importing prototypes, including whole plants, io be copied In China. Yet the Chinese machine building industry Is too backward toa rapid buildup of industrial capacity.
Further disruptive effects on China's economy wouldomplete Sino-Soviet break, but tbe Chinese could recover from this break if they were willing to pay the economic and political costs of increasing their trade with non-Bloc countries. Of the total Chinese exports to the Soviet Blocillion could be sold in non-Bloc countries and anothermillion would represent Chinese debt repayments to the USSR, no longer required. The Chinese could Import from noo-Blcc countries all of the chemicals and metals Imported from tha Soviet Blocnd nearly all of the machinery and equipment, the POL, and the
industrial raw materials Japan wouldomplementary trading partner for the Chinese, although Western. Europe wouldeen competitor lor the Japanese. Large-scale diversion of Chinese trade from Bloc to non-Bloc countries would involve iolUal cost* lo the Chinese of developing new markets for thei export* and new sources for their imports, and would requlrv costly and time-cceisumlngto Western specifications for moat machinery Imports. More Important,iversion or trade would place restraints on Chinese foreign policy, Including the subordination of political goals In trade with Japan, and the willingness to supply technical data to foreign busineasrnen, to accept non-Bloc technicians ba China, and to sendersonnel outside the Bloc for training.
The outlook for trad* with Japan la obscure, in spite of the signingong-term trad* agreement ln1 Japan couldighly profitable market for low-price, bulky minerals such as salt, rnagnealte, coal, and Iron ore that are hard for China to sellBut erratic and unstable polilical relations have discouraged potential Japanese industrial users from regarding Communist Chinaource for large quantities of such product* Nevertheless, Slno-Japaneee trade has been rising slowly and may cootinu* to expand.
Pelping would probably wish toubstantial amount of foreign exchange tor future grain purchase*, but during this period Pelping Is obligated tooviet trade debt of0 million, and to pay nearly0 million ongrain credits and on eewettOsl food purchase commitments. These figures suggest little margin tor an Increase In to porta
f. Education ond Seiaeee
it has done much to correct damaging akeeasas Inof education and science, the regime now feces the difficulttask of stretching th* limited resources of the Intellectualto achieve Immediate productionsuch fields asot agrfcrullur* and the rncdemliauVQ of weapons. AtUrn* training and development programs of sufficient depthmust be undertaken to overcome China's backwardness acrossrange of disciplines. Communist China has Isolated Itselfcurrent scientific development throughout the rest of thaindirectly through scientific Journals.
ommarust China's isaearch and development effort still suffersary crtucal shortage of scientific and technical manpower In tha upper levels of competence end experience. Almost as critical is, the shortage of experienced scientists capable of Independent research but with abilities below those of the top rank; these are the men who form the main body of roses re hersature scientific community. On the other hand, China kt much belter supplied with persons trained
as technicians and highly specialized engineers. Chinareat need for such types and has used them In providing technical services to the economy, particularly in engineering development wort aimed at adapting foreign designsesses to conditions in China.
The total number of college graduates by Itself laover one minion, withn scientific and technical fields, lnclu/"ng medicine and public health. These figures in themselves, however, are not true indicators of China's research and development capabilities because the average quality of the graduates Is not high. Communist China Is believed to haveighlyscientists in research and development. Among the scientificand the main body of experienced scientists and technologists, thereseful degree of competence In practically all scientific and engineering fields. The regime thus bas the resources toeam of researchers competent to attach almost any objective, but not enough to man many teams eRec lively at the same time.
Tbe regimes new attitude toward research and training Isproducing an improved environment for research and development and should permit reasonably effective scientific and technologicalduring tho next few years.
G. Population
egardless of what approach the Chinese Communists may take to economic recovery In the next five years, the population pressure on food resources will continue toajor underlying problem. The rate of population growth averaged anercent fromlowed downercent In recent years, and probably will rise If average diets Improve. Marxist doctrine would make It awkward for tbe regime to push an all-out birth controlEven If this were not so, Peiping may feel It could do little to control the birth rate effectively, especially in rural areas where social beliefs are hard to change and medical services are poor. Since the springow-key campaign has been conducted in urban areas to encourage late marriages and family planning, but this policy will haveegligible effect on the national birth rate within the next decade.
ANNEX B
ORDER OF BATTLE TABLES
TABLB 1
AIR FORCES (Aspril IM1)
CCAF
TYPE Or TOTAL
FAOOT
Fighter (Day)
(MIO-lB)
Fighter (Day)
iMIQ-W)
Flghur (Day)
D (MIO-lTD)
(Day)
Attack'
3
ITU-3)
Bomber, piston
Bomber
(TIM)
Bomber, piston
Transport
i gafgastai
fighter (Day)
Fighter IDay)
D
fighter (Day)
Light Bomber
Light Bomber
Transport
Transport
Transport
Reeonnalssance
AIR PORCE PERSON!
Flgimt* rounded to nearest Bra.
'imited all-weather capability.
' Innit of SOFagots) It specially trained In groundAll FAGOT/PSescOi ire adaptable to groundutoor mngc and load-carrying characteristics.
TABU 2
M AVAL lKXtCVS (Alpril IM)
Old DtMlrojwrr^OstRDYr' Deslroytr
4 I
TOTAL
Soviet
wUt In 1MI. ivrunaEvthiUctJ tod
+
IS
OH
anIU Serve*m;nits
built
OT MTtiW)rt ftld fittffd far
wdec for Chintz frrt.t
uivJU.Pdgrv
^mpuMtil* dih* foe
Mlr^wrwri,
(OM)
J
time CJunw-tullv Mint Ukken
in IHO
USesttn.
Continued)
Larding Hup
ffUUtjrCr%n
LUisc Cnlt <LCM>
ovtr inktn over im
AddtUOeitJn vwrhftnt
obiotMc^i: usi,;
ft fltUd lortith refect huncr^iv
Qmt>to Crafl/Virtou*
aken ortr
In mi
l!t.
Allf vtw^JJ tor mW
dWigJL
UirUiod lo liulwrt patroi and k* craft
TOTALMOtfNia
TABLE 3
Q ROUND roiicu (Aipril IMS)
BTRSK0T3
Icianirj Si S)0
3 infaatry ritlaiiiui
llllery Nwlmenl
I UU-MMall Sun mtsiant (Ir. SSAT battalion Principal weapons;
H light and medium Colli artllltry plices
T iani HO light and medium mortars
Jl Ihfbl AA pUeei
It medium tanks
II atM-utapaPad aaaaort jom
Aiaasws * st saw
S aaaoralAfaaCrr regUnenl lraglnant Political waapona;eavr tanM
aill-propalied auault euniight and medium fieldpHeeiight aa ptecas il light and meaium morlara
Airborne Dhtstoas
Cavalry DlvWom
TOTAL LINEw
paid Artilleryt
S 7DM
a moo
0 99
or gun-howitzerA battalion
Principal weapons: IM plaoraBJ-ramight AA pfascaa
Antitank ttvaawas9
rwrknasta
M AS-nun lo lOS-mm AT
AnUatrcrali Urutm
Border Dafanw and KUtlart Internal Security DIvhMfli 3
TOTAL OROUND POltOE
NOTE: The Ground Forces are orsanlMd Intornueaumber oldivisions and cAher units
CENTRAL INTELLIGENCE AGENCY
DISSEMINATA NOTICE
I. ThH document mi dtuemnnted by ah* Central tnislltgenc* Agency. Thh copy ii 'or the infonnorton ond uie ol lh* recipient ond of penem under So I'unldldWneed io know both. Additionaldlitaminollon moy bo omhoriiod by Ihe following offictoti within iheir respective deportments
o. Director o' toialliganci ond Rateonsh, lor Ihe Deportmentlo
Dtfente- Intelligent* Ageney, (or iha OHtce of rhe Secretory of
Data***
Chief of Staff tor tnto-ligance, Deportment of the Army, for
the Depoftnwni of Iha Ann,
ChW of Novo! Oporot-wior the Decorlm.nl of
Ihe Novy
a. Auhtont Chief of Staff,SAF, for (he Department of the Af font*
for Intelligence, Jolal Saafi, for aha Joint Sioff
of Intelligence, AEC. hat the Atomic Energy Commitifen
Director, FBI, for the Federal Bureau ofOwactor of NSA, for the Horionol Secanty Agency
J. Awhienl Director for Control ffeference, OA, for any other Department or Agar*,
TKjhrt dctum.nl asoy baWttyect by burning in accordanceooollcoe%4ceurttyr returned lo the Central intelligent* Agencyf Central Oeferooco, OA.
hei thli datjm>ntji dTiicminotod ovoiieco, the overcooi rcclplanliHeriod not tn^aacaii of one yaor. At the ond of ihii period,thould elthei be oaMioyaaV^aturaed lo ihe forwanfaep agency, ori ho*.Id be requeued cf the lor^aW agencyoat il.ura
W till* of Ihh document when uied leporoteiy frcHjhoihovld be chu-tlfiedtTO* WFlftJiL ww ami.
While How* Notional Security Council Departaonl of State Daportnanl of Detent* Atomic Energy CornaeHafon Federol Bsraou of Inveitigotlon
Original document.
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