COMMUNIST CHINA'S 1956 TRADE AND THE TRANSPORT INVOLVED

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CIA-RDP61S00527A000200020006-8
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18
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November 16, 2016
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July 10, 1998
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6
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REPORT
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. Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 Draft Contribution to EIC?R1.S6 CCMUNIST CHINA'S 1956 TILDE AND THE, TRANSPORT INVOLVED VI. Developments at End of 1956 and During 1957 A. Impact of Suez Canal Closure on Comrlunist China's Trade and Transport 1o Shipping Probably the most sign3.fitant development affecting shipping engaged in Chinese Communist foreign trade in 1956 was the closing of the Suez Canal at the end of October. Even under normal conditions, the inadequacy of shipping is a serious wealcess in the overall Sino.Soviet Bloc supply system,, especially for Conimun-..:;t China,, about half of whose foreign trade is seaborne. 1I/ The Bloc utilizes only a small part of its relatively limited total merchant fleet capability to carry its foreign trade. As a result, it must c1iarter a large: amount of non-Bloc tonnage each years / Chinas whose small merchant fleet operates almost exclusively between its coastal ports, is particularist dependent on non-Bloc shipping to convey its seaborne international trade. Normally, over 80 percent of the number of vessels carrying commodities to and from China are of non-Bloc registry. 2/ With somewhat less than half of China's seaborne trade conducted with Western Europe and the European Bloc, the prolonged closure of the Suez Canal emphasizes some of the important limitations in extended trade routes as avenues of supply. Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 Approved For Release 2000/05/22 CIA-RDP61 SO0527A000200020006-8 ao Disruption of Shipping as a Result of the Suez Canal Closure Chinese trade with Western Europe, which accounted ft oto be filled in later] percent of the total volume in 3956 and virtually all of which moves by sea, seemed likely to be most seriously affected by the closure of the Canal. Although considerably less in volume, Sino.. Satellite trade would be likely to suffer also, since about tutee-quarters normally moves by sea. _V The interruption of shipping between Europe and Asia compelled the use of much loner alternative sea routes for trade between these areas. Bunkering was difficult as rerouting became wide- spread and bunker ports became congested. Moreover, the maintenance of the flow of commodities over extended sailing distances greatly increased world shipping requirements. As a result, the tight ship charter market created when Egypt nationalized the Suez Canal in mid-1956 became in- creasingly restrictive and shipping costs rose steeplyo 1) Rerouting of Vessels The closure of the Suez Canal interrupted traffic on the shortest sea route between Europe and the Far East. Vessels engaged in Chinese Ccmmunist trade and normally using the Canal had to choose between the Panama Canal or the Cape of Good lope routes. The use of either meant a significant increase in sailing time and drastic revisions in delivery schedules. For the most part ship owners found it more advan. tageous to use the Cape route, with few vessels bound for China using the Panama Canal, mainly those whose itineraries included West Coast US ports. As a result, voyage time between Europe and Communist China became a third or Approved For Release 2000/05/22 CIA-RDP61 SO0527A000200020006-8 Approved For Release 2000/05/22 : CIA-RDP61S00527A000200020006-8 mire longer, For examples the disttnce between Hamburg and Shanghai is 109785 nautical miles via the Suez Canal; around Africa the distance is about 149150 nautical miieso The time and distance differentials between Mediterranean or Baltic Sea ports and China became even greater, 2) Tightenin Ship Charter Market The extension of voyage time for vessels carrying a sizeable segment of world trade greatly increased the need for both tankers and cargo vessels., thus aggravating a charter market that had been tightening since the Suez Canal was nationalized on 26 July 1956e Overall tonnage offerings in October, prior to hostilities in Egypt., were barely able to cope with traffic demands V Hosti Sties in Egypt made it even more difficult to find vessels, especial1y for the Far Easta Some liners serving the area were rerouted to other trades and many cargo vessels previously available for charter on a one--',.rip basis were withdrawn, The impact on shipping between Europe and the Far East in general is best illustrated by the freight rate increases of 15 : t pnt in early November and 17.5 percent on 1 February 1957 whichwere i nu red by traffic between these areas. To these additional costs, as well: as another rate increase which probably occurred in March,,, must be added increased insurance premiums. 3) Dx*e;ring Difficulties Most vessels engaged in regular traffic are built to operate on particular trade routes, with consideration for obtaining fresh foods, fuel and water at certain ports along the uayo On the long- established route to the Far East through the Suez Canal there are many ports equipped to provide these necessities, Ports along the Cape of Good 3 Approved For Release 2000/05/22 : CIA-RDP61S00527A000200020006-8 Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 Hope route are neither so numerous nor sufficiently large to service efficiently large numbers of vessels diverted from the Suez Canal. Vessels using the route9 thereforee had to incur certain disadvantages,, in addition to those imposed by increased sailing distances. The diversion of China-bound vessels around Africa caused delays in bunkering of from two to eight days Regular tin s normally using the facilities on the west coast of Africa and at Capetown were given preferences while oirners of other vessels had to arrange for agents and negotiate bunker contracts, hanker facilities for Bloc vessels engaged in carrying strategic caramodities to China were even more limited inasmuch as Western bunkering regulations which norm ally apply to ports east of Suez were interpreted to cover r:>orts east of Capet~wn, 81 The irn_.a ct of buakkering ctifficulties on the Eloc is illus? rated by the report in December that Czechoslovakia expected to with- draw its vessels from the Chin "trade because of the impossibility of obtaining bunker facilit:r, e 1 on the route around Africa. 9 Moreover9 t1 USSR as compelled to bunker some of its vesse:is at sea from Soviet. tankers enroute to or from the Soviet Far East, As a result of the increased voyage time of 30 days per.round trip bettrreen Europe at d the Far casts operating cost for a standard cargo vessel in trade between these areas increased by about US U7 ,M) or approximately US ,',,)2,,900 a day. In one direction the increase ? .Told have hen about, US ~43,.5DO To cover the vxiditional costs of T:uel wages and supplies y ship owners raised freight rates -- the additional rate ,,4 IncreaDed Sh eppin; Costs Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 Approved For Release 2000/05/22 CIA-RDP61 SO0527A000200020006-8 applied to Chinese Communist import traffic routed via the Cape of Good Hope amounted to a minimum of US $620 per ton, _W As a result, it Is estimated that from November 1956 through April 1957 China incurred an additional expense of approximately US $3 million* for imports via the Cape of Good Hope. This is in addition to the general freight rate increase incurred after the Suez Canal was nationalized which amounted to about US per ton subsequent to July, 1956. The magnitude of the additional freight charges incurred by Communist China is not greats but with its own merchant fleet confined to coastal trades increased freight and insurance premiums must all be made in foreign currency* The maintenance of essential imports by sea around Africa, howevers would have placed little added strain on China9s limited reserves of foreign exchange,. 2, Effect of Suez Canal Closure on Camunist China's Seaborne Trade Although some ship owners began diverting their vessels around the Cape of Good Hope after nationalization of the Canal in July 1956, the major impact on shipping was not felt until the Canal closed at the end of October 1956, Merchant ship arrivals in China did not reflect the disruption of shipping until December 1956. Arrivals of Bloc and non. * Bloc and non-.Bloc vessels from Western Europe and European Bloc ports were assumed to be fully loaded, Their cargo volume was arrived at by multiplying GRT by 1,,5 and the result by US $4.2O to get the representative additional freight charges. Liner cargoes were based on 1955 statistics of average tonnage carried per line per ships to which the additional freight charge of US $b020 was appliedo -5- Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 Bloc vessels during the first four months of 1957 were appreciably less than in a similar period of 1956, with the greatest decline affecting vessels from the Soviet Far Eastq Japan and other countries of Asia, Ap.. parent],, therefore,, China's seaborne trade, both exports and imports., was somewhat less than would normally have been anticipated. The closure of the Suez Canal, however, seems to have been only one of several factors affecting China's seaborne commerce, Chinese exports to Western Europe and the European Bloc,, mainly iron ore9 soya beans$ and foodstuffs., doubtlessly were affected by the shipping shortage and increased freight races which prevailed after the closure of the Suez Canal,, but they were also reduced by domestic shortages of these commodities. On the other hand,- while the disruption of shipping and higher freight rates had some imp-?ict on China F s seaborne exports to countries south of Suezq the primary depressive influence apparently came from within China, Moreover,, with foreign exchange becomixzg scarce, the reduction of Chinese exports and concomitant lower earnings abroad, may in large part explain the decrease in seaborne importsp at least from the Free World., It also seems likely .chat imports from some of the European Satellites,, particularly Poland, East Germany and Hungary which apparently had not been meeting delivery schedules? were reduced by internal economic dizficultiesC a, Merchant Ship Arrivals in Commnist Chirp Arrivals in CoMnunist China since the beginning of 1957 have shown a definite downward trend, (See Table 19* Sov?.et Bloc and. non-Bloc Registered Shipping Arriving in Cyst China, Janua y April Table I follows on p, 19 a6m Approved For Release 209Mii1."-iiiiiitRDP61 S00527A000200020006-8 Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 19570) The average monthly gross register tonnage (GET) of all arrivals in Chinese ports during this period was slightly less than 173,0009 or 90,900 below the average GRT of arrivals in a similar period in 1956a. The 16 percent decrease in arrivals for the first four months of 1957 compared with the first 1 mcnths of 1956 is especially significant when it is considered that,, based on experience since ]9529 a sizeable increase would normally have been anticipated, The increase in the average monthly GRT of arrivals during January-April 1956 over a like period in 1955 was 32 percents a trend which continued through October 1956, If it is assumed that a similar pattern would have prevailed in L9579 the total decrease in arrivals in China during January April probably amounted to about 35 to 10 percents That is9 arrivals would be expected to average 710,000 GRT a month., when in fact the average was only' about 1739000 (?.T0 Table 2*9 Average Monthly Gross Tonnage of Soviet Bloc and Non-Bloc Registered Ships Arriving in Communist China9 January-April 19551957, illustrates this decline in shipping engaged in China trade, The downward trend in arrivals prevailed among Bloc as well as non-Bloc vessels., although the former shorted the greatest relative decline, most notable is the fact that no Bloc tankers arrived in China in the first four months of 1957 compared to three in a like period of 1956,, while Soviet tanker arrivals at Vladivostok., some with petroleum for overland shipment to Chinas were reduced to one., compared to 16 in the first four months of 19566 The average monthly (RT of Bloc-flag vessels arriving in China during January-April 1957 was only 61 percent of the err ivaiss in a similar period in 19564 The proportion of non -Bloc vessels Table 2 fol3.ows on po 21 Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 in China trade increased substantially -- 86 percent in 1956 compared to 81 percent in 1955. a However, this continued a trend evidenced early in 1956 and maintained throughout the year, when the proportion of Bloc vessels involved in China trade.began to decline. In part, this is believed to reflect an increase in ner services between Europe and the Far Fast. While arrivals. in COMmmist China in early 1957 were considerably less than could nozmally be expected from each ,,iajor area trading with China, it is noteworthy: that the greatest decrease in average monthly CUT was evidenced in arrivals from the Soviet Far East, Japan. and other Asian countries which actually declined considerably over the prd.Vious year. On the other hand, arrivals in China during the first four months of 1957 from areas north of the Suez Canal -- Western Europe and the European Bloc which were most seriously inconvenienced by the necessity of re- grouting vessels around the Capey..showed a slight increase over a s period in 1956. Table 3*, Origin of. Soviet Bloc and Non-Bloc Registered Shipping Arriving in Communist chinas January-April 1956 and 1957, illustrates this. trend, b Reasons for Decrease in Merchant Ship Arriva1s..in Coi iunist Cin. The decline of China's seaborne trade reflected ?n decxea.~edarrivals9 apparently cannot be explained as the result of the, closure of the Suez Canal. It is quite certain that the world-wide shipping Table-, ? ows on p. 22 Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 shortage and consequent increase in freight rates have been iiiportanL factors influencing the overall darmward trend in merchant ship arrivals in Communist China., There have been n nerous repay indicating that cargoes to and from China have ben delayed b the dislocation of shipping o ince the end of Noveri 1 r 19 oa For example., s h.~pments of iron o e to East Gem-. ny 151 and coal deliveries to Pakistan L6/ have lagged because of the scaxac.i.ty of shipping4 siloreover,, the unavai:tability of shipping has prevcnteci Chins, fr:. obtainizy.y desired :imports such ~;ts feet .zer from West uxopeayn t:~?add / partr~ea.?s a 21/ Other fa c tors., horever p probably have had an equal. r. derresskve influence on Ci _:~a~s seaborne t~?, de:a thy; s er it is dif f`g t to understand the sign .fic,?ant reduction in arri orals from a cast of the Suez iarsa1~ most not?.t,3ly Japaxnn0 The Japanese aare3w as other ountx- es of Asia and the Par East.' must certainly have gained a price advantage for mz-zV- co iod= tl es in the Chinese market over Ear'opea s cciipetitors as a3 result of the general f2.eight rate i ior-ia>.es 2?!ff,.,ctthg the latter.. A.P. i..ncreasa in tfiit3c "'ese? exports to China of such S ?ii7:ftnodit pie ley. as st eiji :reach: nar vehicle ;? -And -Eart;i li ,e r ,, all nCiy'f allyy $upp5J.ed r x~a ail ceu:r`::,z:~es3 would -t,herefoxe have been anticipated,, are. actually occurred for most of these c; o to* i.ties during the last two :mon~.hs of :?9560 318/ During the first q 21 ~., ter of 195T, hmnever, J ~apanese exxp ort, o, to Ch:3_na in tems, of value drreplped to almost. half their value in the I-a,-,t quarter of 191--6 'from E 7C,9 ri?:Cleft to US i oC! iiit '.ioi) :t9 3 is ,ev '!r R2?r'x f G~e.e tJ3+. the Wiener,' .. Ma~tus of p.L ` V3iT1 in cnlrwk,,V i v eh-J'-n& and ~"& INCC i discussions in Paris in MAy- and Approved For Release 2000/05/22: IA-RDP61 S00527A000200020006-8 Approved For Release 2000/05/22 : CIA-RDP61 SO0527A000200020006-8 June 1957 have sign. 'icantly affect Chin& s seaboraae imports, Defects in industrial p1anrairg in 1956, in x-ge part involving ova investanenu in some sectors of the econ v, led to the need for "suitable retrenchment" in I957 tm 2t~ During 1957- it was Announced. Chins e s construction program will be considerably smaller than :U 19.56 , investment %rill be li_rait;ed to about one-third of total goverment revenues compared with some. )45 percent in 1956, 21_. inter.~al and e :cer_IMI economy drives have also been uan,d