COMMUNIST CHINA'S 1956 TRADE AND THE TRANSPORT INVOLVED

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP61S00527A000200020006-8
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: November 16, 2016
• Document Release Date: July 10, 1998
• Sequence Number: 6
• Content Type: REPORT

. 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