EAST ASIAN JOURNAL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP03T02547R000101140002-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 26
• Document Creation Date: December 20, 2016
• Sequence Number: 2
• Content Type: REPORT

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National
Foreign
Assessment
Center
East Asian Journal
Secret
Secret
EA EAJ 82-001
6 January 1982
Copy 2 3 4
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Conservatives in the party and the Army have won out over their liberal
counterparts as the party adopted a tough, new stance on cultural policy. (c l
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Recent decisions by the leadership have reaffirmed the consumer-oriented policies
of the past three years and reflect a heightened appreciation of the complexity of
China's economic problems.F I 25X1
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Weakening demand for its exports and an overvalued currency are at the root of a
faltering South Korean economy that had performed very well in 19K 1.F--] 25X1
China
Northeast Asia
Southeast Asia
Comments and queries regarding this publication mat? he directed to the Chic/ of'
Production, Office of East Asian Anal.tsis, 25X1
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China's Cultural Imbroglio
After a year of wrangling, party leaders have agreed
on a tough, nes' stance on cultural Policy one that
sNriters and artists seem determined to resist. In
attempting to develop an acceptable and effective
policy, party leaders Deng Xiaoping and Hu Yaobang
have been caught between the demands of two key
constituencies: liberals who seek a moderate policy
permitting greater freedom of expression, and party
and Army conservatives who argue for strict limits on
the arts.
The Attack on Writers
The party tightened its guidelines on the arts follow-
ing the December 1980 Work Conference, where
conservative leaders lashed out at writers who had
openly disputed the basic tenets of party rule during
the fall. Military leaders, including General Political
Department Director Wei Guoging, were incensed at
writers like Nanjing's Gu Ertan, who had urged
writers not to be afraid to question socialism and who
had called for an end to party interference in the arts.
At the conference, Deng warned writers that ques-
tioning the party's policies and actions would no
longer be permitted.
The military, supported by party conservatives, took
the lead in the postconferencc campaign to silence
outspoken critics. In late April, the Liberation .-lrnrt'
Dui/r (LAD), published a scathing critique of author
Rai Ilua and his filmscript "Bitter Love." The LAD
attacked the film for its lack of patriotism, its implied
criticism of Mao, and its indictment of the party for
the widespread suffering of intellectuals during the
Cultural Revolution.
Stunned by the LAD attack, which had been approved
in principle by Deng but had not been cleared with
the party's propaganda department where many op-
posed it, the party's cultural and propaganda a ara-
tus firmly supported dissenting, writers.
Deng's Predicament
The battle between these two groups has continued
unabated since the December 1950 \W ork Conference.
Deng Xiaoping, vkho has sought to reconcile the
demands of Army and party conservatives for a
tougher stance in culture with his earlier promise, to
intellectuals of relative freedom of expression, re-
mains in a difficult position. I Ic needs the support of
both groups to advance his economic and political
reform program. Thus, Deng has permitted criticiser
of some writers but has sought to restrain their more
zealous critics, stressing the importance of correct
"method" in dealing s%ith errant writers. He approved
the PLA's decision to criticize "Bitter Love after-
viewing the film himself, but rebuked the :Army for
the intemperance of the I,. 1I) article.
Although Deng has sought to assure intellectuals, ssho
were frightened and angered b\ the Pl A's attack,
that the party sill not abandon its earlier conunit-
ments to them, he is clearly upset about their refusal
to abide by party strictures. Deng is concerned most
of all that infighting betsseen liberals and conscrvu-
tives not interfere with the difficult policy compro-
mises that he has crafted since December I9SO. I Ic is
also concerned that the actions of writers will reflect
badly on Party Chairman Hu Yaobang, vsho has been
the leadership's spokesman on cultural affairs arid
who is already regarded with suspicion by the mili- 25X1
tars. Moreover, Deng and other party lc;idcrs are
aware that the controversies of the spring, replete k%itli
lurid reports in the Hong Kong press of feuding
among party leaders, project an image of political
instability to the world.
Secret
I. , I 1.1 ,P ` 00 /
6 Iallu irl l Ys'
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Initial efforts to secure compliance with the Decem-
ber line and to put an end to the bickering between
liberals and conservatives failed. After the Sixth
Plenum in June I98I, Deng once again took up the
issue: he rebuked military critics but reserved his
strongest language for liberals. In his speech, Deng
directed sonic of his harshest comments at writers
who despite party membership have pilloried the
leadership. According to the leftist Hong Kong press,
he singled out Ye Wenfu, whose poem "General, You
Must Not Do This" greatly angered military leaders.
Deng also criticized another poem in which Ye por-
trayed Chairman Mao meeting Hitler in the under-
world. Hitler shook Mao's hand and patted him on the
shoulder, telling him, "You did a good job."
A Modicum of Compliance
Since the August conference, top leaders have stepped
up efforts to bring about closer compliance to the new
line throughout the party. In Beijing, Dengist party
theoretician flu Qiaomu castigated Bai Hua for
soliciting the support of intellectuals for "Bitter Love"
the previous spring. Senior cultural figures identified
with the liberals, including Zhou Yang and Acting
Minister of Culture Zhou Wcizhi, made self-criti-
cisms at an early September forum, and provincial
leaders who had resisted the new line in the spring
prominently endorsed it this fall.
Most important, the People's DailI, acknowledged in
an editorial published on 18 August that it too had
erred in supporting liberals last spring; the literary
Wen-vi Bao did the same in early October. Wenvi Bao
criticized "Bitter Love'' for its deleterious "social
impact"; the journal claimed that "Bitter Love"
contributed to youthful nihilism and the "doubt ev-
erything, negate everything" methods of the Cultural
These efforts have muffled but have not ended the
debate. Liberals, in particular, continue to resist the
new line, albeit not as openly as in the spring. They
have been able to marshal the quiet support of some
provincial party first secretaries, including Guang-
dong's Ren Zhongyi, who has told party cadre that he
is opposed to the new policy. Moreover, IN Qiaomu,
in a speech that has appeared recently in Hong Qi, the
party's theoretical journal, upheld the new line but
criticized some aspects of Mao's "Talks at the Yanan
Forum on Art and Literature," which conservatives
regard as the cornerstone of orthodox cultural policy.
Conservatives, too, have resumed their attacks on
writers. Despite Deng's injunction to exercise tact in
criticizing writers, the LEAD continued to employ
virtriolic and inflammatory language, accusing Ye
Wen fu of launching "screaming bayonet attacks" on
China and declaring that his work was "unbridled
calumny" of the socialist system. Moreover, conserva-
tives have challenged party theoretician flu Qiaomu's
assertion that Mao's literary policy was badly flawed.
Army cultural czar Liu Baiyu declared at a literary
forum held days before flu gave his speech last
August that Mao's "Talks at the Yanan Forum'' were
entirely correct. More recently, party leaders in Zhe-
jiang Province have disputed Hu's contention that
literature should not be subordinate to politics.
Outlook
In contrast to the past three years, when the tough-
ness of' party policy toward intellectuals waxed and
waned in a cyclical manner, the top leadership now
seems united on the need to draw the boundaries
defining orthodoxy much more tightly and to hold to
them. Party leaders have indicated that writers, par-
ticularly those who are party members, will be disci-
plined if they do not adhere to the more orthodox
notion of "upholding the four basic principles," that
is, no questioning of socialism or the leadership of the
party. Recent articles in the national press demon-
strate that the party dictum of "emancipating the
mind," cited by liberals in support of their positions, is
now limited to economic problem solving.
Revolution.
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Secret
The vehemence of liberal resistance continues to
surprise party leaders. Writers like Bai Hl-1a, Liu
Binyan, Wang Mcng, and others have served notice
that they will not back down in a confrontation with
their critics and that they will resist policies that
threaten their new freedoms. Moreover, the support
for liberal policies among some propaganda officials
and provincial leaders also suggests that the writers
will continue to press their case.
Continued controversy further complicates Deng's
relations with party conservatives and provides his
opponents, particularly those in the military, with
grounds to attack his unorthodox economic policies as
well as his personnel choices
Despite the efforts of Deng, Hu, and other top
leaders, cultural policy will remain a source of conten-
tion in the party and in Chinese society. Whereas
senior leaders have reached an agreement on the need
fur a tougher stance toward intellectuals, opinion
remains deeply divided at the middle and lower levels
of the party. The skirmishes of the last year, more-
over, have heightened the tension that has always
existed between liberals and conservatives in the
bureaucracy. Party leaders are justifiably concerned,
too, that fractious disputes over cultural policy could
mar or even delay important meetings set for this
year, such as the 12th Party Congress, and complicate
efforts to reach compromises on other issues.
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Secret
China: Correcting the Course in
Economic Policy
As a prelude to 1982, the Chinese leadership has
reaffirmed the consumer-oriented policies of the past
three years and has ordered slight adjustments to deal
with current economic difficulties. At the December
sessions of the National People's Congress, the leader-
ship rejected arguments for further reductions in
investment and resisted pressures for significantly
raising the priority of heavy industry. For the time
being, Beijing appears willing to accept another bud-
get deficit this year and an uncomfortably high rate of
inflation as part of the price that must be paid for
continuing the economic readjustment. Further, the
leadership now seems to be following consensual
policies that recognize the complexity of economic
problems and reject the dramatic, single-solution ap-
proaches that have marked Chinese economic policy
for most of the past three decades.
Beijing Reviews Its Problems
The decision to continue current economic policies
with only minor adjustments came after a series of
national conferences in late 1981 in which a number
of government actions came under fire. Conferees
generally supported consumer-oriented programs as
well as the fight to end inflationary deficit spending.
But a sizable minority, perhaps even a majority,
criticized the massive investment cuts (adopted earlier
in the year to close the growing budget gap) as too
harsh and misguided. Some funds were subsequently
restored, but the 30-percent reduction in investment
spending sent shock waves through the economy. In
practical terms the cuts meant drastic reductions in
planned output from factories producing investment
goods.
Beijing used the cutbacks to discipline inefficient
enterprises. Plant managers were told that if they
wanted to maintain production levels they themselves
must find customers for production in excess of
(greatly lowered) state plans. Many managers did so
by shifting product lines to consumer durables, for
example, and by improving existing products or re-
ducing prices. Others were less successful and had to
trim production, idling machines and workers. Pro-
duction was further depressed by the confusion caused
by the lack of detailed guidance. Because Beijing was
late in passing along production plans, many plant
managers waited far into the year to make the
required adjustments.
Managers resorted to tactics common within the
"socialist" system whenever quotas to expand or
maintain output, profits, and worker incomes become
difficult to meet. Production leaders allowed quality
to slip, surreptitiously shifted production to other
goods when higher profits could be earned, and
overlooked or illegally padded costs.
Other problems cropped up as a result of the unex-
pectedly sharp downturn in heavy industry. Because
nearly half of the state's total budget receipts come
from heavy industry, the slowdown there resulted in a
larger-than-anticipated decline in revenues. Increas-
ingly, Beijing had to shift its attention away from the
larger issues such as energy and the Sixth Five-Year
Plan to deal with these short-term, tactical problems.
By the end of September, as the decline in heavy
industry continued, policy discussions became more
intense. Three general lines of argument became
apparent:
? Further Investment Cuts. Some in the leadership
argued that, because the investment program was
still too large, further cuts were necessary to reduce
the budget deficit and counteract strong inflation-
ary pressures.
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? Increased Investment Spending. In contrast, propo-
nents of a high-investment, heavy-industry policy
maintained that the earlier cuts were too severe and
the planned shift in investment away from heavy
industry had damaged growth prospects. Invest-
ment, particularly in producer goods industries,
should be increased.
? Slight Adjustments, No Major Initiatives. Many
retained a belief that existing policies were essen-
tially correct but did require adjustments.
Zhao's Report to the NPC
The third approach prevailed and was reflected in
Premier Zhao Ziyang's work report to the congress.
He acknowledged difficulties but described them as
only temporary and cautioned against two erroneous
tendencies: pessimism about prospects for the mod-
ernization program and unrealistic expectations of
quick results. Zhao's guidelines for economic work
essentially reaffirmed Beijing's proconsumer policies
with their emphasis on agricultural development, light
industry, housing, and higher incomes for workers and
peasants. But Zhao also introduced significant new
elements:
? Investment spending will be raised, but most of the
increase will go for new and better machinery and
equipment for existing enterprises. To help carry
this out, the state will raise depreciation rates for
fixed assets and further centralize control of invest-
ment funds.
? To make better use of raw materials, energy, cap-
ital, and labor, Beijing will send out inspection
groups to examine enterprise management systems
and practices. Enterprises failing to meet new stand-
ards for productivity, consumption of raw materials,
and quality control within a given time period, will
be forced to suspend operations temporarily or close
down altogether
In his speech, Z,hao also made it clear that Beijing
intends to continue to pursue economic reform, but in
a cautious way that would cause minimal economic
disruption. Nevertheless, he also announced a policy
that potentially could be very disruptive. /hao said
that because the State Council was determined to
\ational income
s 7
3
4
Industry (gross value) 1,
5.7
3
4
Light
184 1
7
Iteavs
1.4
>
Agriculture (gross value)
1_7
4
4
In current prices.
In constant prices.
remedy the intolerably low efficiency resulting from
an overlapping and overstaffed bureaucracy, it had
decided to restructure and streamline the government,
beginning with the departments directly under the
Council itself.
The Economy in 1981-82
Zhao pointed to a number of economic gains in 1981
? Despite severe flooding and drought, agriculture did
well. The grain crop, up by 7.~-10 million tons
according to preliminary estimates, may reach 328
million tons China's second largest.
? The budget deficit was reduced from 12.7 billion
Yuan in 1980 to 2.7 billion yuan.
? Growth in worker and peasant incomes continued at
near double-digit rates, as did retail sales.
? Preliminary data indicate a foreign trade surplus
that niay exceed $1 billion. By August, a growing
surplus had already boosted Chinas foreign ex-
change reserves to a record $4.9 billion, almost
double holdings at the end of 1980.
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still, /h;ru s yarning about unrealistic expectations
reflects the leaderships considerable disappointment
sith economic performance in 1981:
? I he planned decline in hens industrial production
hampered efforts to eliminate the budget deficit and
to reduce Unemplo\ment.
? ~ggrasated Lis absenteeism and lax sork habits,
productivity shossed little or no gain.
? I or hutch of industry, product qualitn declined as
ray-material consumption and unit costs rose.
? I he rate of inflation, although falling, remained
uncomfortably high at around 10 percent.
Iei_iing s relatiscls quick response to its difficulties
should yield disidends in 1982. heavy industry, in
paurticular. should cease being the major problem that
it say last scar and resume a steady but loss rate of
grossth. i his mad, hossever, create other problems.
nergs shortages sere less noticeable in 1981 largcln
because hcas industrial production ssas down. This
sc;tr, ts hcasy industr\ resumes grossth, Beijing prob-
ably sill face ssursening energn allocation problems.
Consumer issues sill also be a major concern for
Bening. During 1979-8I, budgetary spending on var-
ious con,,umer-related programs totaled 92.s billion
s uan, or ~q percent more than the planned total of 60
billion scan. One sa) to trim spending in these areas
is to reduce consumer subsidies bs raising retail
prices, and in \oscmber, lust before the APC opened,
the government announced price hikes for high qual-
itv tobacco and alcohol products. .his action generat-
ed ss idcspread rumors of further hikes and resulted in
panic buy big of such staples as grain and cotton cloth.
Chinese officials hase denied that there sill be fur-
ther price hikes, and panic buffing scenes to base
subsided. If subsidies continue to threaten budgetary
balance. hoseser, Beijing may be tempted to ten
another round of price hikes
In similar fashion, sock bonuses h.ise surged during
the last tso \ears, whereas labor pnuluctisit\ his
grown ver\ little. In \osember. Beijing issued eery
guidelines aimed at restricting the si/c of bonuses ;end
linking them more directly to cork Mort, I he nets
ures required to do this higher sock quotas ssith
penalties for nonfulfillment may cause lddition;ll
tensions between sorkcrs and ntanagentcnt, pet
h.tps
giving rise to more os ert forms oI' ss orker unrest
The slow-grossth scenario /hao sketched leases Bei-
jing with little cushion against exigencies. Restructur- 25X1
ing the econontn is more difficult during ;t period of
story grossth because of intense competition for the
few additional resources becoming assailable each
sear. Plans to generate grosth bs more efficient use
of resources also place a high prentiuni on efficient
management all eytrcmcls scarce resource in (hin;t.
The ('Meese have made considerable progress since
1976 putting into place a bureaucracy that incrc;tsing
In can make and implement informed economic poli-
cies. But as 1981 shored once again. the scope of the
task then face and their inability to predict the impact
ofpolice initiatives mean that it sill take several more
}ears before the econont\ is capable of sustained rapid
grossth. /hao sans this swill occur no sooner than the
1990s, and there seems little reason to challenge that
assessment
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South Korea: Economic Recovery
Stalling
Iollmking a strong showing in the first three quarters
of I e>8 I, the South Korean economy is slumping at an
inopportune time for the Chun government. Export
growth, which had fueled recovery, is faltering as a
result of xveakening demand in the developed coun-
tries and an overvalued South Korean currency. The
dimming economic outlook coincides with rising stu-
dent-government tensions and increasing dissatisfac-
tion %kith Chun among intellectuals and religious
groups. Continuing weak economic performance in
1982 could intensify public criticism of the govern-
Lvport rolunn' in,reac,el IN
percent
? Advance was broad based,
led bN ships, machinery,
textiles
? Most success was in I D(
markets, especially Africa
and South America
Prnate consumption r a 4
fer, ent
Increased emplovnent off-
set decline in real wages
? Consumers spent more on
electrical appliances while
cutting back on food
Private im'esfmcnt declined
5 pert ent
? Capacitc utilisation re-
mained low
? Business confidence failed
it) recover
meat
Economic Readjustment
South Korea is going through a difficult adjustment
period stemming from overstinmulation of the economy
during the late I 970s. 13y 1978, expansionary govern-
ment policies and a headlong rush into heavy industry
had created serious bottlenecks and an acceleration in
inflation. The result was a serious erosion in competi-
tiveness. The loss in export strength, combined with
government stabilisation policies introduced in April
1979 and the runup in oil prices, brought the fast-
growing Korean economy to a halt in mid 1979. In
1980 the economy plummeted; real GNP declined 6.2
percent %~hile wholesale prices increased 39 percent. A
disastrous agricultural performance and the disrup-
tions caused by the political transition after Pak's
assassination exacerbated the slump.
Rcaliiing that the unchecked expansionary policies
during the mid-1970s were largely responsible for the
country's economic difficulties during 1979-80, Seoul
has maintained more restrictive policies over the past
two years. The government put top priority on slowing
inflation s hilc aiming for moderate GNP growth, a
gradual reduction in unemployment, and it manage-
able current account deficit. The growth in the money
supply xvas reduced from 16 percent in 1980 to 3
percent in 1981, and depreciation of the won relative
Inflation elee lmrd in
per, en!
? Import price increases
duct ed
? \1 age increase, niodcr:ucd
? %1ones supply groNth
slob ed
I netrtplorma'ru lr!1 ne 4 '
per, etu
? I xpirt-oriented firms in
creased pa rolls most
Curran a,,nunt deli ii dc
lined to 5 s ! Killion
? I racer deficit narro%%cd
utitle scruice, deficit rose
to the dollar was held to 6 percent. Seoul kept a fairly
tight grip on fiscal expenditures although the govern-
ment deficit widened because of lagging revenues.
The government put tight controls on prices charged
by monopolistic firms and, through an extensive edu-
cation and jawboning campaign, reduced the growth
in wages to about 20 percent in 198I .
percent
Getting Back on Track
Backed by the government's austere policies and
benefiting from an aggressive overseas sales effort,
the South Korean economy began to pick up in late
1980 and registered a stronger-than-expected perfitr-
nmance in 198 I. Real GNP increased an estimated 7
percent and unemployment fell slightly to 4.8 percent.
Even more encouraging, inflation declined to 23
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Other 7.1
Latin America 2.8
Africa 4.3
Middle East 9.7
United States 26.3
Asian LDUs 14.7
Japan 17.4
Western L:urope 17.7
aFstimatc
h projected
Non ,Manufacturers 7.7
Electronics 10.7
Iron and Steel 12.3
Textiles 26.9
Other Light Manutdcturcrs 21.5
Other heavy Manutacturcrs 211.9
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An extremely strong export sector was the leading
edge of this recovery. A 27-percent depreciation of the
won in 1980 enabled Seoul to regain markets lost to
its East Asian competitors in 1978-80. Private con-
sunmption, on the strength of increased employment
levels, provided an additional, albeit moderate, boost
to the economy. Private investment, however,
remained depressed. Capacity utilization stayed below
levels needed to encourage spending on new facilities
and business confidence failed to recover.
Outlook for 1982
Seoul had envisioned a continued strengthening of the
economy in 1982. Strong export growth was expected
to boost capacity rates and stimulate investment while
the government maintained its tight rein on the
money supply and spending. The end result, according
to Seoul's projections, was to have been real GNP
growth of 8 percent.
In recent weeks, however, the government has come to
realize that the growth projections for 1982 are
unattainable, and its statements have become more
cautious. The South Korean economy has weakened
in the past three months and prospects for any real
improvement in the first half of 1982 are dim. For the
year, real GNP growth will probably fall to about 5
percent with almost all the growth coming in the
second half of the year, economic activity will be
especially weak during the first quarter. Inflation will
drop below 15 percent, provided the government
maintains its austerity program.
The Factors at Play
The US economic slowdown will contribute to sharply
reduced export growth in early 1982; the United
States accounts for 26 percent of South Korean
exports. The pace of South Korean overseas shipments
began to slip in August and letters of credit have
fallen sharply in recent months. The Chun govern-
ment's policy of keeping the won closely tied to the
appreciating dollar in 1981 has compounded the
problem by reducing the competitiveness of South
Korean products. On a trade-weighted, price-adjusted
basis, South Korea's exchange rate appreciated 14
Prospects for sales in developed-counts markets over
the next six months are especially poor. Demand for
manufactured goods is slowing in the United States
and Japan, and protectionist pressure is mounting in
Western Europe. The flexibility and aggressiveness of
South Korean entrepreneurs, however, should enable
Seoul to continue to expand its markets in the Third
World. A record $10 billion in construction contracts
garnered in 1981 in the Middle Fast, Africa, and
Southeast Asia will ensure strong demand for South
Korean construction materials in these ntarkets~
Investment spending will probably remain depressed
through at least the first half of 1982. Inventories,
which had been reduced to normal levels, are again
increasing and the improvement in capacity utiliza-
tion rates has been reversed. Businessmen have re-
mained skeptical about the durability of the recover,
and the recent slump in exports has bolstered that
feeling. According to a recent business survey, only I I
percent of the respondents are optimistic about busi-
ness prospects over the next several months. Iligh
interest rates and weak sales have caused several large
firms to go bankrupt over the past two years and cash
flow problems are widespread. Even in areas Mhcre
sales have been strong, such as shipbuilding, where
South Korea boosted overseas orders by 02 percent in
1981 and ranked second only to Japan in winning new
orders, profit margins appear to be extremely low F
The well-defined government business relationship
that existed during the Pak years has yet to be
reestablished under the Chun government, and a
recently announced reorganization of the bureaucracy
has further unsettled both domestic and foreign busi-
ness confidence. Economic functions have been shift-
ed from the once powerful Economic Planning Board
to the more conservative Ministry of Finance, and the
number of senior-level officials has been reduced.
Businessmen are concerned about the short-term dis-
array caused by the reorganization and the possibility
of a longer term deterioration in the county 's eco-
nomic policy making apparatus
percent between January and August.
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One bright shot is consumer spending, which should
provide a small boost to the economy. Despite govern-
ment efforts to hold increases to 10 percent, wages
%N ill probably increase about 16 percent next year.
-1 his will allow real wages to move up slightly. In
addition, the bumper rice crop will provide rural
consumers with additional purchasing power 25X1
Seoul's Reaction
In an effort to restore the earlier vigor, the govern-
ment has taken a number of steps since November to
stimulate the economy. Interest rates have been re-
duced three times in the past two months, additional
financial support has been provided to the business
community, and the won has been allowed to depreci-
ate more rapidly since early December. The Chun
government has given no indication that it will aban-
don its anti-inflationary priority, however. Interest
rates have been lowered by only about 3 percentage
points, and Seoul remains committed to holding down
the growth in the money su Iy and to seeking wage
moderation from labor 25X1
Political Implications
The downturn in economic activity coincides with
rising student-government tensions and growing dis-
satisfaction with Chun among intellectuals and reli-
gious groups. The rapid economic expansion of the
Pak years is the yardstick bs which many South
Koreans are evaluating the government, and their
judgment of Chun will depend heavily on his ability to
get the economy back on track. The uncharacteristic
emphasis in the press on the gloomy economic pros-
pects for 1982 probably reflects Seoul's efforts to
lower these expectations. A slumping economy, nonc-
thcless, could make the public more sympathetic to
student criticism of the government. A downturn in
the economy in mid-1979 contributed to the political
instability in South Korea prior to Pak's assassination.
Serious dissatisfaction could at the very least force the
government to abandon its anti-inflationary policies.
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East Asian
Briefs
The Chinese are continuing to emphasize the manufacture of civilian goods in
military factories. Civilian production is expected to account for alnio,t 4 percent
of the total 198 I output from military plants as compared to only Ift percent in
1979 and 20 percent in 1980. The most publicized products include hievclcs,
sewing machines, electric fans, cameras, and radios. 1lilitar plants arc also
turning out such industrial items as mining and chemical equipment, machine
tools, earthmovers, and production-line equipment. Moreover, the Chinese claim
that 80 percent of' all military plants now produce some civilian good,.
With a smaller budget at its disposal, the militar has elected to reduce the
procurement of older model equipment and to emphasize the production of
selected modern weapons systems. At the same time, eypan,ion of the Lluantity ;rid
range of consumer goods produced by defense industries put; eycess capacity to
work and helps generate revenues needed fur the defense industry.
military factories also are helping to increase the availability of consumer goods
and earn hard currency from exports.
Vice-Premier Deng Xiaoping is planning to reorganize China's highest military
command the General Staff Department (GS[)) as the latest step in streamlin-
ing and modernizing the People's Liberation Army (Pt.A). the proposal would
consolidate four separate ground force commands within the GSI): the \rntored,
artillery, Engineer, and Railway Engineer Corps. -'lie GSD serves both as the
national headquarters for the ground forces and as the high command for all the
military services. The reorganization would adopt the Western model of equal
status for the ground, naval, air, and strategic missile forces as ~~ell as the capital
construction engineers. Deng's plan fur integrating the separate arms of the
ground forces also could improve the military's ability to conduct combined-arms
and joint-service operations.
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China: Change in the PLA High Command
Military Commission of the
Chinese Communi.5t Party
Central Committer
General Political General Staff
Department Department
Railway
Engineer
Corps
Engineer
Corps
with some of his economic and social reforms.
Grorral
Logistics
Drpartnv nt
CapitoI
Construction
Engineer Corp!;
Second Artillery
Corps
Some senior PLA officers, however, fearing a loss of influence or position, strongly
object to Deng's proposal. Many of these military leaders already are dissatisfied
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M
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Secret
Taiwan opened a "Free China Information Office" in Copenhagen in December,
bringing the number of its offices in Western Europe to 12. Taiwan continues to
make progress in building what it calls "substantive relations" with countries that
recognize Beijing. These offices, staffed by foreign ministry personnel and funded
by Taipei, take a variety of forms, depending on what the host government will
permit. Besides information offices, Taiwan also maintains trade and cultural
offices: in some countries, news or airline offices serve the same purpose.
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In addition to its 22 remaining embassies, Taiwan has 36 informal representations,
including nine in East Asia, six in the Near East, and seven in Latin America, as
well as those in Tokyo and Washington. Apart from providing trade and
commercial assistance and issuing propaganda, sonic offices also perform consular
functions, including the issuance of visas. Beijing, usually consulted by the host
government before Taipei receives permission to open an office, has never objected,
so long as the offices remain informal.
Ten West European nations have opened similar offices in Taipei, three of them
during 1981. Switzerland reportedly plans to open its office early this year, leaving
only Finland and Portugal with no offices whatever. Taiwan has only one embassy
left in Europe, in the Holy Sec.
Northeast Asia Japanese Outline Trade Surplus Policy
Tokyo's recently announced policy to promote imports will have only a marginal
impact on Japan's expected huge trade surplus in 1982. The package includes:
? An acceleration of tariff cuts agreed to in the Tokyo Round.
? Subsidies for raw material stockpiling even though Japanese companies probably
would have rebuilt inventories anyway.
? $330 million in funds already in the budget for increased oil reserves.
? A maximum of $500 million in foreign currency loans for emergency imports on
the condition that the yen appreciates.
? A reported $90 million could be available to purchase foreign grain to be used as
The plan also makes some vague promises for long-term solutions to the trade
problem, such as improvements in import inspection procedures. Details of these
proposals are expected in late January but will not include substantial changes in
Japan's agricultural quotas.
Exports of South Korean goods and services, including military equipment,
dominate Seoul's growing relationship with Tripoli. This year, South Korea
increased its sales in dollar terms to Libya more than to any country other than the
United States, and Tripoli is now Seoul's seventh-largest export market. Sales in
1981, primarily textiles and construction materials, probably reached $600
million, up from $174 million in 1980. More important, South Korea won about $3
billion in Libyan construction contracts in 1981 and has more than 10,000 workers
There is also a small but growing trade in military vehicles and uniforms, with
some of the latter probably being transferred by Libya to foreign subversive
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Diplomatic ties, upgraded to the ambassadorial level in 1981, facilitate the
grossing economic relationship. Though Seoul is interested in using these tics to
advance its diplomatic competition with the North, diverging political and
ideological outlooks of the two countries make a more substantial relationship
unlikely.
South Korea Making Gains With the Nonaligned Movement
South Korea may gain a better hearing within the nonaligned movement (NAy1)
as a result of Iraq's chairmanship of the movement from 198_' to 1985. Baghdad
invited Seoul, an increasingly important source of Iraq's militarN supplies, as an
observer to a NAM-sponsored conference of labor ministers that it hosted in mid-
December- the first time the South Koreans had attended a ministerial-level
NAM meeting. As conference host, Iraq could invite a nonmember nation to this
session as an observer, but North Korea a full member since 1976 and its
supporters would veto any formal attempt to make Seoul a permanent observer or
member. Seoul will continue to court individual NAM members to further its
economic interests and its diplomatic competition with P'yong>ang. South Korea
already has official tics with 64 of the 94 NAM members; Pyongyang has official
As part of an overall plan to meet the challenge of North Korea's superior armor
strength, Seoul is augmenting its forward armor forces at the expense of its
second-echelon reserves. Over the past several months, South Korea has deployed
one tank battalion each to four frontline divisions north of Seoul. l his redistribu-
tion will increase the capability of the ROK Army to meet localized break-
throughs, a threat that concerns Seoul because of North Korea's ncarly three-to-
one lead in tanks. The ROK Army's capability for neutralizing penetrations larger
than battalion size will be diminished, however, because the only remaining sizable
armor force in reserve is the Capital Mechanized Division, which cannot
simultaneously cover the two most likely avenues of attack
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Southeast Asia Thailand Shuffles Cabinet Again
The shuffle of 19 December gives Prime Minister Prem's coalition a slight
majority in the National Assembly and will help him defeat future challenges from
former Prime Minister Kriangsak's newly formed National Democracy Party. It is
the third cabinet shuffle since Prem took office in 1980 and probably will not sub-
stantially increase the regime's effectiveness.
Prem agreed to take the Social Action Party back into his government. The party,
Thailand's largest, withdrew 10 months ago after being implicated in an oil
purchase scandal. Nevertheless, other major parties in the Cabinet have retained
most of their portfolios, with Social Action members taking over positions at the
expense of nonpartisan technocrats and a few controversial figures. This politiciza-
tion of the Cabinet has already led to increased infighting among competing
coalition members and promises to draw their attention away from Thailand's
pressing economic and social problems
In an effort to lessen Lao dependence on Vietnam, the Thai Government is
considering opening a third trade crossing point along the Mekong River and is
planning further commercial initiatives. These moves follow from the Lao Foreign
Minister's visit to Bangkok in November. The two countries also agreed to set up
provincial consultative bodies and to cooperate more closely on refugee matters.
The Thai Army is also attempting to undermine Vietnamese control by supporting
cross-border insurgent operations into Laos, although the potential remains high
for serious military clashes that could abruptly reverse the warming trend in Thai-
Lao relations. Hanoi appears willing to tolerate increased trade between its client
and Thailand because it makes up for supply shortages the Vietnamese would be
hard pressed to fill.
Prime Minister Mahathir's visit to Singapore in mid-December restored an
amicability in relations that has eluded the two countries since their separation in
1965. He and Lee Kuan Yew resolved several bilateral irritants and agreed to try
to settle several others. Even before this, Malaysia's permission for Singaporean
Air Force overflights of Malaysian territory over the past year testified to a better
working relationship. Malaysia's lingering wariness of its ethnic Chinese and more
aggressive neighbor was reflected, however, in Mahathir's statement that Malay-
sia was still not ready to agree to joint military exercises on Malaysian soil.
An apparent difference over supplying arms to non-Communist resistance forces in
Kampuchea was downplayed by both Singaporean and Malaysian officials. They
attribute Mahathir's statement against supplying arms to Malaysian reluctance to
be as public about its intentions as Singapore.
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n d o n e- s
JAKARTA
a
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Indonesia's displeasure over Singapore's recent public initiative to keep a Kampu-
chean "loose coalition'' going may result in a downturn in their bilateral relations,
historically prickly in the best of' times. Indonesia is miffed because Singapore did
not request previous consultation before airing the proposal, especially since
Jakarta regards Singapore as too inclined toward a confrontational approach
toward Vietnam. Jakarta will express its pique by quietly torpedoing an embryonic
plan for bilateral use of the strategic Natuna Island group, which straddles the
South China Sea (see map on page 21(.
Dialogue betskeen senior military officials from both countries had gradually
reached the point of active planning for joint military operations and sharing of fa-
cilities on the recently upgraded base. Some consideration had also been given to
expanding cooperation to the Malaysians as well, but if Indonesia decides other
ASEAN members are ignoring or sidestepping its views on Kampuchea it may
keep all neighbors off the Natunas.
To aver! a further worsening in the trade balance without slashing imports,
Jakarta will require foreign companies awarded government contracts valued at
$790,000 or more to export an equivalent value of Indonesian goods. Such
contracts have amounted to about $4.5 billion annually during the past few years.
Trade Minister Prawiro recently announced that successful bidders on major
government contracts will be given lists of Indonesian suppliers of processed
rubber, plywood, other wood products, pepper, coffee, and other items currently hit
by weak foreign demand, from which they can choose to meet the new export rc-
quirements.
Ixemptions will be granted to foreign companies engaged in joint ventures with
Indonesian partners, for contracts involving concessionary financing, and for local
purchases. The new policy could give Japanese firms an advantage over US and
European firms. The Japanese are partners in more joint ventures, and many
Japanese firms also have corporate ties to the giant Japanese trading houses, which
should make it easier for them to export Indonesian products.
In separate efforts that will hasten the promised normalization of Philippine
politics, two new opposition parties were formed last week: the Social Democratic
Party (SDP), led by a coalition of national assemblymen, and the Philippine
Democratic Party (PDP), led by opponents with ties to the opposition in the United
States. Both parties will seek accreditation in order to participate in forthcoming
local elections slated to be held before July 1921
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Secret
The two new parties underscore longstanding divisions among opposition ranks and
probably will do little to challenge Marcos's control at the local level. Marv
members of the opposition are probably hoping to use local elections to build a par-
ty structure and a grass-roots following that could reap dividends during the
legislative elections scheduled for 1984.
For the moment Marcos is paying lipservice to the formation of a strong
opposition, while clarifying the limits within which an opposition trill be tolerated.
Commenting on the formation of the new parties, Marcos in a pointed reference
to the PDP-said that the government would never sanction an opposition that
preaches violence and would only accept a "real and legitimate" opposition. The
question of party accreditation will be the next test of the President's willingness to
An agreement by Moscow in early December to buy $54 million worth of
Philippine coconut products during 1982 will temporarily solve Manila's problem
of managing surplus coconut inventories in this important industry. F:xports of
coconut products in recent years have led Philippine export earnings and provide
employment directly and indirectly for about a third of the labor force The nevk
deal with Moscow represents an increase of nearly 50 percent in Soviet purchases
of Philippine coconut products over 1981 levels but does not match the S74 million
bought in 1980. And because the international market for edible oils remains
weak, Manila's relief promises to be short-lived.
Australian Labor Group Endorses Uranium Exports
The recent endorsement by the executive council of the Australian Council of
Trade Unions (ACTU) could remove a major political constraint to the conntrn's
becoming a major uranium exporter. Australia has one-fifth of known world
reserves.
The action reflects a growing feeling among Australians that the economic
benefits of uranium mining outweigh the dangers of nuclear proliferation.
Uranium exports remain an emotional issue, however, and the decision could be
challenged and reversed by an ACTU conference in Februar
In 1978 the ACTU had endorsed the mining and export of uranium if the
government negotiated adequate safeguards agreements but reimposed its ban on
shipments a year later on the grounds that this condition had not been met.
Flouting of the ban by some unions involved in uranium production has permitted
a trickle of exports in the meantime.
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In a surprise move seen as a political gamble, Jakarta is cutting fuel subsidies and
raising domestic oil prices by an average of 60 percent. The World Bank and other
aid donors have been pressuring Jakarta to cut subsidies for over a year, but
observers had expected the Soeharto government to maintain artificially low prices
until after the general elections on 4 May. Stagnating oil revenues and a sharply
weakening balance of payments forced the move. Petroleum prices have been
frozen since May 1980 at roughly one-third world levels and will cost Jakarta $2.4
billion for the fiscal year ending March 1982, 10 to 12 percent of government bud-
get outlays.
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Calendar of
Coming Events
7 January
Third anniversary of the replacement of Pol Pot's regime by the I Ianoi-backed
People's Republic of Kampuchea
November 1978 to discuss bilateral defense cooperation.
14 January
US-Japan Security Consultative Committee meets for the first time since
11-14 January
US-Japan civil aviation talks resume in Tokyo.
discussions of Japanese support for United States in event of war in Korea.
mid-January
US-.Japan Facilitative Assistance Study Group holds first formal meeting to begin
I5-17 Januan'
20 January I
Japanese Diet reconvenes: deliberations on 1982 budget begin. ~~ 25X1
uled to be held for the first time since invasion of Afghanistan.
20-21 January
,Japan-USSR talks between senior working-level Foreign Ministry officials sched-
8-29 January
Fifth ASEAN-.Japan Forum meets in Jakarta.
Late January
High-level Japan-EC talks in Tokyo.
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Secret
Secret
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