MEMORANDA IN SUPPORT OF SECRETARY VANCE'S TRIP TO THE PEOPLE'S REPUBLIC OF CHINA AUGUST 1977

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R00603A002900040001-9
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 53
• Document Creation Date: December 16, 2016
• Document Release Date: March 9, 2004
• Sequence Number: 1
• Publication Date: August 1, 1977
• Content Type: REPORT

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Memoranda in Support of Secretary Vance's
Trip to the People's Republic of China
August 1977
Cop
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I. THE INTERNAL SITUATION IN CHINA
II. THE HUA-TENG RIVALRY
III. CHINESE FOREIGN POLICY
IV. SINO-SOVIET RELATIONS
V. CHINA'S VIEW OF THE US
VI. THE CHINESE ECONOMY
VII. THE NATIONAL DEFENSE POSTURE OF THE PRC
VIII. CHINA'S ADVANCED WEAPONS PROGRAMS
IX. THE MILITARY BALANCE ON THE SINO-SOVIET
BORDER
X. THE PRC-ROC MILITARY BALANCE
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1. THE INTERNAL SITUATION IN CHINA
With the July plenum of the Chinese Communist
Party's Central Committee, Peking has moved to set
its internal house in order. The plenum marked the
end of a period of transition following the death of
Mao and the resolution of a number of troubling
political problems--a significant advance after a
period of considerable behind-the-scenes wrangling.
A sense of direction and purpose has been imparted to
Chinese political institutions and current problems are
almost certainly not as acute as those that have
agitated Peking and the provinces in the past several
years.
The second "rehabilitation" of Teng Hsiao-ping,
perhaps China's most experienced administrator,
establishes a triumvirate of leading officials who
seem generally agreed on broad policy issues, the
other members of this group being Party Chairman Hua
Kuo-feng and Defense Minister Yeh Chien-ying. But
problems of the distribution of power among China
leaders have still not been settled. Some degree of
additional contention is likely; it is impossible to
remove the consequences of 10 years of bitter political
struggle overnight or to adjust to the loss of two such
towering leaders as Mao Tse-tung and Chou En-lai easily.
Teng seems likely to replace Hua as Premier later this
year; he may already be in day-to-day charge of the
running of the country. A Teng "administration" will
probably be fleshed out at the 11th party congress--
which may well take place before Secretary Vance's
visit to China--and above all at a National People's
Congress, which will endorse a governmental program and
economic strategy, probably this autumn.
Economic and Party Building
The outlines of this program and strategy are al-
ready clear. Generally they are those set forth in 1975,
when Teng was last in power, and which were discussed in
some detail during the leftist-inspired criticism campaign
against Teng in 1976. This program has two central
features: strengthening the party machinery, and
pragmatically building the economic infrastructure
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so as to "catch up with the West by the end of the
century " Neither of these tasks is easy, and both
are obviously long-term undertakings. Much of the
preliminary spade-work in setting the parameters of
the program has already been undertaken, at a series
of "work conferences," even in advance of the recent
plenum. None of these meetings appears to have been
characterized by the deep political divisiveness that
was a hallmark of the period from the end of the
Cultural Revolution through the death of Mao, but they
have revealed differences of emphasis among China's
leaders and interest groups which could contain the
seeds of new--although probably controllable--disagree-
ments.
Party Problems
Strengthening the party machinery implies a return
to the authoritarian methods and values of the early
1960s, or even of the 1950s, when the Soviet "command"
style was in vo ue. Discipline is being emphasized,
and the somewhat ramshackle post-Cultural Revolution
party structure tightened. The fact that the upper
echelons of the party are now more philosophically and
ideologically compatible than was the case when the
"gang of four" and their close supporters were on the
scene should facilitate this process: factionalism,
both in Peking and in the provinces, has been reduced.
In fact, China's 29 provinces are in better shape
than at any time since the end of the Cultural Revolution
in 1969. All of the provinces have a clearly designated
chief, a situation that had not obtained in six years.
Nearly all of the provinces have undergone some re-
shuffling in their leadership groups since the fall of
the "gang of four" in order to strengthen the provincial
leadership and make it more responsive to direction from
Peking. Most of the new officials in the provinces are
veteran officials who share Peking's concern for disci-
pline and firm party control and are associated for the
most part with Teng or Hua. Teng's supporters are more
numerous.
Historically, however, emphasis on discipline and
tight control has invariably produced countervailing
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pressures and restiveness among those excluded from a
direct share of real power. Moreover, as power continues
to gravitate into the hands of experienced party bureau-
crats, two major fault lines in the structure of power
are likely to widen. The first of these cleavages is
the perennial left-right dichotomy. Leftists in the
upper levels of the party have been largely, although
not entirely, removed. At lower levels, however, they
still remain relatively numerous, although a distinct
minority and largely powerless. in a party of over
30 million members they must number in the hundreds of
thousands, if not the millions, and obviously cannot be
removed wholesale without massive purges which the Hua
regime seems disinclined to employ. They are likely to
remain a source of some friction and a focus of dis-
content.
The second cleavage is a generational one. With a
renewed emphasis on "experience," younger party members
are finding themselves increasingly excluded from
important decision-making posts. This problem is likely
to be solved only by the attrition through death of the
older, "revolutionary" generation which took part in the
Long March--a process already well under way.
Economic Construction
Even greater emphasis is being put on economic con-
struction, which in fact seems to be the centerpiece of
the new leadershi . Here again a return to the methods
and priorities o the early 1960s (when China was re-
covering from the disasters of the Great Leap Forward)
seems envisaged. But because Peking is working on
relatively narrow margins, as a result both of popula-
tion pressure on the land and China's comparatively weak
economic base relative to its size, economic choices are
particularly difficult and allocation problems acute.
Li Hsien-nien, the Politburo member who was in charge
of day-to-day governmental operations prior to Teng
Hsiao-ping's formal rehabilitation last month, has held
surprisingly frank discussions with foreigners in recent
months, describing wrangling over allocation of budgetary
and other resources.
Nevertheless, in a number of areas basic decisions
appear to have been made, an in others at least temporary
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compromises which may leave no interest group completely
satisfied seem to have been reached. Without such
decisions it probably would have been impossible to have
held last month's plenum. It is, for example, clear
that great emphasis will now be placed in development of
and training in science and technology--an area which
has languished since the onset of the Cultural Revolution
over a decade ago, but one which is obviously of central
importance in any determined and long-term effort to
modernize and develop the Chinese economy.
Emphasis on this area clearly implies a greater
willingness to acquire advanced technology and ancillary
know-how from abroad, and in fact leading Chinese officials
have stressed China's needs and interests in this regard,
especially in recent weeks. There are, however, almost
certainly residual political constraints on how far Pe ing
can pursue a program of imports from abroad, and these
constraints are reinforced by limited absorbtive capacity
in some technological fields as well as by a relative
shortage of hard currency. In 1975 Teng Hsiao-ping seemed
prepared to relieve the latter problem through oil sales
abroad, but growing industrialization has already begun
to sop up a significant portion of surplus Chinese oil
supplies.
The outcome of debate over the relative weight to
give agricultural development as against industrial
development is somewhat less clear. Since the failure
of the Great Leap Forward, primary emphasis has been on
agriculture, but in 1975 Teng Hsiao-ping appeared to
argue for relatively greater attention to industry,
especially in such basic fields as steel and coal pro-
duction. Discussion of this issue in the spring and
early summer was somewhat muffled, but Teng, who un-
doubtedly was influential behind the scenes even before
his "rehabilitation," can be presumed to have repeated
his earlier arguments. A shift toward a somewhat greater
emphasis on industry seems to be in place, but agri-
culture almost certainly still remains in first place.
The agricultural field is one with which Hua Kue-feng
has been closely associated.
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Civilian Versus Military
Even more difficult allocation problems almost
certainly continue to exist with regard to the civilian
and military sectors of the economy. Public debate on
this issue was quite sharp throughout the first half of
this year, highlighting the third major line of cleavage
in the Chinese body politic--that between civilian and
military institutional interests. Differences on this
issue may well have been exacerbated by the fact that
the military establishment played a large part in over-
throwing the "gang of four," and therefore felt itself
to be in a position to demand a greater portion of the
budgetary pie. Some temporary accommodation probably
was reached prior to the July Central Committee plenum,
although it is unlikely that the issue has been settled
permanently. This compromise seems to-call for alloca-
t-igns to the military at a rate proportional to current
budgetary distributions, although this "current" rate
may already reflect a small decrease in the sums allotted
e militar
This issue has already involved the top leaders of
the regime, and is likely to continue to do so. Hua
Kuo-feng was an early advocate of maintaining a cap on
military spending, particularly in the period immediately
following the fall of the leftists last autumn. Prior
to the recent plenum, however, Hua was to a considerable
degree dependent on military support as a primary source
of political strength, and probably not in a good position
to press his case. Li Hsien-nien, the regime's chief
economic expert, has long been an advocate of balanced
economic growth, which requires primary budgetary attention
to the civilian sector. The position of Teng Hsiao-ping
is somewhat more equivocal. He too is an advocate of
balanced growth, but in 1975 he drafted an ambitious
program of military modernization which combined a degree
of administrative pruning (and consequent savings) with a
considerable outlay for conventional weapons. Teng seems
to have the confidence of a considerable portion of the
military establishment, and thus is ina good position to
work out any necessary compromises. Significantly, the
recent plenum restored him to the post of PLA chief of
staff, thereby placing a civilian in a crucial military
slot.
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Military Fissures
Although most military leaders can be assumed to
desire a relatively large budgetary allotment for the
PLA and to jealously guard the prerogatives of the
military establishment in general, this pivotal in-
stitution is as divided as is the civilian sector.
Differences in viewpoint divide severely professional
soldiers from those who believe the military has a role
to play in politics, and those who stress technical com-
petence and weapons modernization from those who emphasize
morale and motivation of the individual soldier. Personal
rivalries, some of them exacerbated by the factionalism
of the Cultural Revolution--a problem that also obtains
in the civilian party--also exist. Of the four active
full members of the Politburo from the military, two
strongly supported him. One of these, the commander
of the Canton Military Region may have played a crucial
role in Teng's "rehabilitation."
Political Legitimacy
None of the problems outlined above
most are the legacy of the long years of
turmoil that began with the Cultural Rev
is new, and
political
olution. In
fact, at the recent plenum, the new leadership moved
some distance toward solving the new and central problem
that was a direct outgrowth of the death
of Mao and of
the purge of the "gang of four"--that of
its own
political legitimacy. Hua Kuo-feng has
been able to
claim that Mao annointed him for the succession before
his death, but this claim has in large part rested on a
single rather ambiguous remark Mao made in the last
year of his life. The party Central Committee--a body
elected while Mao was still alive, albeit purged of
its leftist membership--has now confirmed him in the
post of party Chairman, an act which finally legitimizes
the semilegal "coup" of last October. Moreover, Hua
has considerable control over the Maoist legacy through
his role as editor of the "collected works" of the Great
Helmsman. The usefulness of this role can be seen in the
recent emphasis which propaganda has placed on statements
of the late leader which date from earlier, more construc-
tive phases of his political career, rather than on
those dating from his erratic and dogmatic last years.
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Much of the baggage of those later years is an
embarrassment to the current Chinese leadership, with
its relatively pragmatic outlook and its emphasis on
economic construction rather than mass agitation.
For purposes of unity and continuity--and possibly
to avoid charges of de-Maoification--attention is
given to certain aspects of the Mao legacy. However,
comparatively little was said about the late leader
at the recent plenum, a circumstance that is likely
to be repeated at the upcoming Party Congress, when
ertwhile victims of the Cultural Revolution are likely
to be elected in fairly large numbers to the new
Central Committee. The plenum did, however, handle
the ambiguous Maoist legacy with considerable adriot-
ness in its treatment of Teng Hsiao-pings's "rehabilita-
tion." The meeting chose formally to reinstate Teng
to all his former posts, rather than simply declaring
the leftist-inspired purge of Teng in 1976 null and
void; it thus avoided a direct repudiation of the late
leader, who was on record endorsing the purge.
The Power Equation*
The action of the plenum does not completely dis-
pose of problems connected with the controversial Ten g,
however. Teng's return to power--for an unprecedented
second time, and at a pace faster than that apparently
envisaged by Hua Kuo-feng last spring--speaks eloquently
of the wide support he enjoys in the middle and upper
levels of the party and military bureaucracies. Momen-
tum seems to be running with Teng; his power appears to
be growing, while that of Hua has relatively declined.
If Teng gains the premiership at the upcoming National
People's Congress, he will succeed to a post now held
by the Chairman himself. Indeed, Hua is now both Chair-
man and Premier precisely because Teng, who seemed
certain to gain the latter and possibly to succeed to
the former post, fell to leftist pressures a year and
a half ago--a fact which few in China seem to have for-
gotte
* A detailed interpretation of the Hua Kuo-feng - Teng
Hsiao-ping rivalry follows in Section II.
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Of the four Politburo members who comprised the core of
opposition to Teng's early return to power, three at
least played a part in his downfall in early 1976. They
all appeared to fear the consequences of Teng's return
for their own positions . Hua himself of course also
had ample reason to delay.
Through the first half of 1977, Hua played this
difficult situation with considerable adroitness.
Despite public and private agitation for Teng's early
return, he managed to have the issue postponed at a
party "work conference" last spring and subsequently
attempted to repeat Mao's classic tactics of balancing
between opposing forces by patronizing the Teng oppo-
sitionists throughout the late spring. Hua was unable
to capitalize on this situation, however. Ministerial
and provincial appointments appear to go almost ex-
clusively to individuals with close ties to Teng. The
current, abbreviated Politburo Standing Committee con-
sists of Hua, Yeh Chien-ying, and Teng--the latter two
both party elders with similar outlooks who have shared
similar experiences over many years. The upcoming Party
Congress is almost certain to add Li Hsien-nien, a man
of similar background, in the fourth position; while
other, younger men will probably also be added. There
is still a strong likelihood that Hua will be at least
partially hemmed in by strong minded party elders who
have closer ties among themselves than with the new
s3hai.rman .
1 -
The problems inherent in this situation are po-
tential. In the shorter run the results of the recent
plenum suggest cohesion rather than division. The fact
that a way has been found -to bring Teng back into the
leadership in a manner that does minimal damage to Hua
and perhaps to others who opposed the controversial
administrator's return indicates that compromise rather
than the confrontations of the recent past has a strong
attraction to China's present leaders. Moreover, there
are still a number of factors working in.Hua's favor.
The actuarial tables are one such factor Hua is
significantly younger than the party leaders who surround
him His political suppleness is also helpful, as is
the apparent fact that he has not made strong and implacable
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enemies. Above all, the country is weary of incessent
political infighting, a sentiment shared by much of
the party's leadership. Several of these points were
touched on by Yeh Chien-ying in his 1 August Army Day
speech. Yeh, who is not only formally the number-two
man in the regime but is genuinely respected by nearly
all elements in the complicated political equation, has
shown special concern for political stability and unity.
He appears to have spent much of the past year attempting
to heal political wounds both in the military and in the
party. Yeh is 79, however, and in uncertain health.
There is no replacement for him of similar stature on
the horizon.
Impact on Foreign Affairs
Neither the uncertainties of the past 10 months
regarding the distribution of political power nor the
transformation of domestic policy have had significant
effect on Chinese foreign policy, although, as noted
above, both imports of foreign technology and foreign
trade in general are likely to increase. opposition
to the Soviet Union is the strongest and least blemished
.-aspect of the Maoist legacy. From time to time over
the past several years there have been hints in Chinese
propaganda and elsewhere that at least some Chinese
leaders would welcome a less bellicose policy toward
Moscow; if such a group exists, it has had no observable
effect on Chinese policy in the past ten months. In
some respects relations with the Soviets have actually
declined since Mao's death. In fact, any change in
attitude toward Moscow, which would have considerable
internal as well as international repercussions, may be
an issue of such divisiveness and volatility that no
Chinese leader wishes to address it at this time. China's
attitude toward the United States during this period has
apparently been almost entirely a function of its per-
ception of US foreign policy, particularly with respect
to the USSR and to China itself. There are some indica-
tions that the Chinese may have wished to set their
domestic house in order the better to deal with any
decisions that may have to be made in the wake of
Secretary Vance's visit. They may also have wished
formally to restore Teng Hsiao-ping, who was the
principal Chinese negotiator in the Sino-US talks of
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1974 and 1975, to power in time to provide some con-
tinuity to the discussions. Finally, it is possible
that, following the changes and uncertainties of recent
:months, the new leadership may hope for a foreign policy
"success" to bolster its image and sense of legitimacy
at home.
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II. THE HUA-TENG RIVALRY
The death of Mao Tse-tung in September 1976 has
left the Chinese leadership with an unresolved succession
problem centering on the distribution of power between
Hua and Teng Hsiao-ping.
Hua could not have claimed Mao's mantle had Teng
not been ousted from power in January 1976 largely
through the efforts of the left. Thus, the purge of
the "gang of four" in October 1976 not only challenged
the legitimacy of the move against Teng but, by ex-
tension, cast doubt on whether Hua rightfully belonged
at the top. There were indications that after the
purge'of the leading leftists, Teng's supporters began
to move almost immediately to lay the groundwork for
his return. Hua's supporters were equally quick to
launch a defensive propaganda effort aimed at separating
Hua's rise from Teng's fall by making it appear that
Mao had tapped Hua well before Teng's troubles began.
Hua, aware of the threat to his position posed by
a rehabilitated Teng, worked adroitly to diminish that
threat. In the immediate aftermath of the purge of the
"gang of four" Hua appeared to be a captive of the
party's right wing, including the military, which had
remained loyal to Teng. Since then, however, Hua has
worked to develop a centrist position more independent
from pro-Teng rightists such as Defense Minister Yeh
Chien-ying and Vice Premier Li Hsien-nien and to cul-
tivate the image of a man in the center of the political
spectrum who saw beyond personal political rivalries
to the major policy questions facing China. At the
same time, he did not actively oppose Teng's return
but did seek to delay it long enough to consolidate his
own position, in part by attempting to build up others
in the leadership with centrist credentials who shared
his reservations about Teng.
These efforts, however, fell short of achieving
the intended results, and Hua still lacks the kind of
independent, influential power base enjoyed by Teng.
It is Teng's position, not Hua's, that has been
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strengthened by recent appointments to posts in the
provinces and national government. Moreover, the
restoration to Teng of all of his former positions
at last month's Central Committee plenum gives Teng
a wider array of important posts in the military,
party, and government than any other top leader in-
cluding Hua. The question of the premiership, a
post Hua now holds, remains open. But the flow of
events suggests that Hua will not be able to retain
this position, which had been earmarked for Teng by
Chou En-lai as early as 1972.
Hua continues to serve in a crucial capacity as
a compromise "first among equals" and, as Mao's
designated heir, is a bridge between the Maoist past
and the legacy of Chou--upon which the current leader-
ship is drawing to legitimatize its policies of rapid
national development. The question now at hand is
whether present political arrangements will prove
durable enough to allow Teng and Hua to coexist over
an extended period. The manner in which the restora-
tion of all of Teng's former positions last month was
carefully balanced with the confirmation of Hua as
party chairman attests to the sensitivity of having
both in the leadership at once.
Important segments of the leadership apparently
were willing to risk any divisiveness Teng's return
could cause to gain his needed administrative skills
and wide-ranging experience. Teng is already in strong
position and this time there is no towering figure like
Mao or Chou to keep him in check. Over the longer run,
it seems likely that more and more power will end up in
Teng's hands and that Hua will have an uphill fight to
retain a significant political role.
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III. CHINESE FOREIGN POLICY*
There has been no major change in Chinese foreign
policy since the death of Mao and the overthrow of the
''gang of four'' last year. China remains preoccupied
with its opposition to the USSR, and this has led Peking
to stress state-to-state relations at the expense of
revolutionary rhetoric. In fact, Chinese foreign policy
has taken on a distinct ''enemy of my enemy is my friend'
cast as Peking retains relations with Chile, stresses
close ties with Iran, and invites out-of-office anti-
Soviet politicians such as Franz-Joseph Strauss and
Edward Heath to China for what are state visits in all
but name.
From China's point of view, this past year on balance
brought a somewhat more favorable outlook to its foreign
policy than the year before. In Northeast Asia, relations
with North Korea remain close and Peking has not let the
lack of progress on the Treaty of Peace and. Friendship
with Japan affect its important economic ties to Tokyo.
In Southeast Asia, China appears more optimistic than
a year ago about its relations with Vietnam. The Chi-
nese are also encouraged by trends in South Asia set in
motion by the advent of a less Soviet-leaning government
in India.
Peking's continued successful cultivation of better
state relations with Yugoslavia--to go with its cordial
ties to Romania--is a marked gain in Eastern Europe.
After two years of reverses in Africa, Peking is ex-
ploiting Soviet troubles to restore and expand its in-
fluence. The Chinese were encouraged by African regional
cooperation in quelling the Shaba invasion and by the
assistance some European states extended to Zaire.
Although China's influence in the Middle East is
quite limited, Peking is encouraged by Soviet losses in
Egypt and the Sudan. Always interested in Western Europe
as a counterweight to the USSR, Peking now looks forward
to increased trade both to firm up bilateral relationships
and to gain industrial imports and technology.
Problems persist in Chinese foreign policy, however.
There is continued stagnation in Peking's political relations
* Sino-Soviet relations and China's view of the United
States are handled in separate papers, which follows.
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with Japan. China has an abiding suspicion of Viet-
namese ambitions in Southeast Asia. The Chinese have
lost some influence in Ethiopia and are engaged in an
embarrassing ideological quarrel with Albania. They
are also worried about the possible effects of Euro-
communism on NATO. Despite these difficulties, the
Chinese view the world setting as having moved a bit
toward its advantages.
Peking's new leadership continues to put state
interests ahead of the demands of ideology. China
believes the US is the only nation with adequate re-
4ources to meet the Soviet challenge, and it will con-
tinue to woo the states of the industrialized ''Second
World'' of Western Europe and Japan and the economically
underdeveloped Third World to attempt to contain the
expansion of Soviet influence. Nevertheless, ideology
will make itself felt in such spheres as continued
support--mainly oral--for Communist insurgencies in
Southeast Asia and persistent claims to ideological
supremacy.
East Asia
Fear of opening up avenues for the expansion of
Soviet influence and of finding itself on the road to
-confrontation with the US has led China to prefer
stability on the Korean peninsula. China must per-
force give strong public support of Kim Il-song's
position on reunification and the withdrawal of US
forces from South Korea. Privately Peking indicates
.a desire for stability in East Asia and it apparently
,counsels restraint to the North Koreans. Chinese-
North Korean relations are close, but in large part
North Korea's ''tilt'' toward China is by default.
Kim would prefer a more balanced relationship among
North Korea, China, and the USSR. The Soviets, al-
though they are Pyongyang's major trade partner and
economic aid donor, do not appear in the mood to in-
crease significantly their assistance, despite North
Korea's urgent need for it. Peking's attitude to
events in Korea, however, will continue to be constrained
by fear of Soviet gains there at Peking's expense.
Concern about Soviet intentions also conditions
Peking's relations with Japan, but in the case of Tokyo
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there is an important economic element. China uses
every opportunity to inveigh against the development
of closer Japanese-Soviet relations. Peking used
the recent difficult Japanese-Soviet negotiations
over an interim fishing agreement to propagandize
against Soviet ''hegemonism'' and constantly at-
tempts to stir the pot by harping on (and supporting)
Japan's claim to four northern islands now under So-
viet control. Lately the Chinese have supplemented
these political maneuvers by initiating contact with
the Japanese defense establishment. Former high-
ranking and, in some cases, recently retired Japa-
nese military officers have been received by vice
Premier Chen Hsi-lien, a leading member of the party's
military commission. Peking tacitly endorses the US-
Japan mutual security treaty and the continued US
military presence in Japan.
Peking's major device to alter Japan's attempt
to balance its stand between the USSR and the PRC is
the proposed Sino-Japanese treaty of peace and friend-
ship. China's firm insistance on including an anti-
Soviet ''hegemony clause'' in the treaty continues
to be the main obstacle to its conclusion. The So-
viets have pressed the Japanese to reject the clause.
Tokyo has temporized on the issue, much to Peking's
irritation.
An additional problem in Sino-Japanese relations
is Tokyo's recent conclusion of an agreement with
South Korea on development of oil resources on the
continental shelf. The agreement conflicts with
Chinese claims in the area, and Peking denounced it
with unexpected vehemence.
The Chinese, however, have not allowed their dif-
ferences with Japan to affect significantly their
overriding interest in fostering good relations. Japan
is likely to remain China's number-one trade partner
and an important source of industrial imports. Peking
is interested in concluding a long-term trade agree-
ment that would exchange Chinese oil and coal for in-
dustrial goods. Due primarily to economic considera-
tions, prospects for an early conclusion of such an
agreement are slim.
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Peking seems more hopeful about prospects in
Southeast Asia than it was a little more than a year
ago. Then it feared the Vietnamese might serve as
the agency of Soviet influence throughout the region.
Events since then seem to have persuaded the Chinese
that the Vietnamese are determined to set an independent
course between Peking and Moscow. While China would
prefer Vietnam to be less involved with the USSR, the
new Chinese leadership appears willing to seek good
relations and not to focus on the problems between
-them. Peking also supports improved relations between
Washington and Hanoi.
Peking nonetheless does not want to see Hanoi
become a rival in its own right for influence in the
region. Despite irritation with Thailand for its
dealings with Taiwan, the Chinese still prefer stability
under the present Thai regime to instability which might
be exploited by the Vietnamese. At the same time, Peking
maintains links with the Thai Communist insurgents, partly
for fear they will be coopted by Vietnam.
China's relations with the Cambodian regime, al-
though occasionally embarrassing, remain close. Peking
last year encouraged Phnom Penh to develop links with
its ASEAN neighbors, but is now apparently resigned to
the Cambodians' policy of isolation.
The emphasis in China's policy toward the ASEAN
nations generally is on good state-to-state relations.
Indonesia has yet to restore relations with China,
but may do so in the coming year. Singapore will await
Indonesia's move before opening diplomatic relations.
The Chinese remain relaxed on the question of US forces
in the Philippines over the past 10 years. Burma has
been a special case in China's Southeast Asia policy
because of Peking's relatively strong support of Com-
munist insurgency there. Although that support has
been cut back, Peking is unwilling to abandon that
insurgency, despite highly visible efforts to improve
state relations with Rangoon through the recent ex-
change of high-level visitors.
Africa
After two years of retreat before the advance of
Soviet influence in southern and eastern Africa, China
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has recovered from its ''Angola shock'' and become more
self-confident and assertive. Slight deterioriation
in Chinese relations with Tanzania and Zambia has been
halted and ties with both countries appear firm and
cordial. The Chinese have attempted to take advantage
of recent Soviet setbacks in Sudan and Somalia and
are urging greater anti-Soviet cooperation among
wealthy conservative oil states and other Arab and
African governments.
China links the recent Soviet setback in the Sudan
to that in Egypt as setting an anti-Soviet trend among
the Red Sea states; and looks for strengthened regional
cooperation. To back this up, the Chinese have pro-
vided modest military assistance to Egypt and made
promises to the Sudan. But the Chinese position in
the Middle East is essentially uninfluential and is
keyed to the cultivation of good state relations, most
notably with Iran. Peking continues to voice support
for the Palestinians and provides some assistance and
training, apparently in an effort to avoid leaving the
field to the Soviets.
Peking's relations with the less pro-Soviet elements
of the Rhodesian liberation movement seem to be improving
after a year of confusion. The Chinese, however, are
conscious of their limited ability to influence the
course of events in Africa. Peking relies mainly on
political methods to counter the USSR, supplemented by
modest economic and military aid programs. Peking be-
lieves-that only the US--which they say has not done
enough--has the resources effectively to counter the
USSR.
Europe
Peking considers Western Europe a major element in
maintaining a power balance against the USSR. China
favors greater European unity against the Soviets, an
expanded West European defense effort, and continued
US involvement in the region through a strong NATO.
China also looks toward Western Europe as a source of
industrial imports and technology and is eager to con-
clude a trade agreement with the European Economic Com-
munity. A Chinese banking delegation recently visited
major West European financial centers in order to
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study institutions and practices which might be useful
in Peking's drive to increase trade.
Peking's response to Eurocommunism has been some-
what ambivalent. China derives satisfaction from the
nationalist element in Eurocommunism which puts the
West European parties at odds with the USSR.
Nevertheless, Peking remains suspicious of the Euro-
communist parties' continuing ties to the USSR, and
apprehensive that their participation in governments
in France and Italy would weaken NATO. In Chinese
ideological terms the Eurocommunist parties are defi-
nitely revisionist and Peking has spurned all over-
tures to enter into party-to-party contact. Such con-
tact would be particularly embarrassing to Peking now
when a burgeoning quarrel with Albania is undermining
Chinese pretensions to ideological leadership.
In Eastern Europe the Chinese preoccupation with
the Soviet Union has led to some remarkable develop-
ments. In its eagerness to seek allies among those
whose relations with Moscow are cool, Peking has made
extra efforts to continue and further develop good
relations with Belgrade, and Tito himself will visit
Peking at the end of August. The irony of Tito's
visit is that he was made China's whipping boy for
Soviet revisionism in the early 1960s when Peking and
Moscow first split. Having decided that Tito makes a
better partner than a bete noir, China has complicated
its already strained relations with Yugoslavia's long-
time enemy, Albania. China would not like its ideo-
logical dispute with Albania to grow, but because
Albania is unlikely to drift toward the Soviets in a
fit of anti-Chinese pique there is no pressing need
for Peking to attempt to make up to Tirana.
China's policy toward Romania remains one of
vigorously encouraging Ceausecu's independent foreign
policy. The cordial Sino-Romanian relationship, how-
ever, stands in marked contrast to China's frigid
relations with the rest of the Warsaw Pact members.
The Chinese view of South Asia grew significantly
brighter in the past year. The defeat of Indira Gandhi,
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whom the Chinese considered pro-Soviet, raised Chi-
nese hopes that India might move further toward a
truly nonaligned foreign'policy. The Chinese have
since privately expressed their pleasure with Prime
Minister Desai's refusal to lean toward the USSR as
his predecessor did. They are not so happy, however,
with his view that the longstanding Sino-Indian border
dispute must be resolved by Chinese initiatives be-
cause the Chinese were the ''aggressors'' in the 1962
border war. Peking sees Desai as blinded by an his-
torical Indian desire to seek hegemony in the region.
But this is an improvement, in the Chinese world view,
seeing India as a tool of Soviet hegemonism.
The change of government in Pakistan did not stir
a. ripple in Sino-Pakistani relations. Both sides were
quick to signal their intentions to continue close
cooperation. And in Bangladesh, the Chinese have in
the past year gradually moved to solidify their special
position through military and economic assistance.
Relations with Nepal and Sri Lanka remain cordial, and
in Afghanistan the Chinese seem resigned to wielding
little influence.
China pays relatively little attention to Latin
America. Peking concentrates primarily on cementing
and expanding its state relations in the area, hoping
to make gains at the expense of the Soviets and Na-
tionalist Chinese. Relations with Cuba remain strained.
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IV. SINO-SOVIET RELATIONS
Just as it was with Mao, hostility toward the
USSR is the driving for ce of his successor'
s foreign
~- --~--
policy.
--The Chinese still sense that they are confronted
with a long-term Soviet effort to "encircle"
China, in the first place politically but to
some extent militarily.
--They recognize that unlike the US--the receding
threat--the USSR has a permanent territorial
presence in the area, in Siberia and most notably
the Soviet Far East. Thus the political tensions
generated by Chinese self-interest in resistance
to Soviet containment efforts will not be easily
or quickly reduced.
Peking's strategy for dealing with the USSR as
China's "main enemy" is to apply Mao's dictum "to organ-
ize all the forces that can be organized" internationally
to oppose Soviet foreign policy actions.
--Peking asserts that it will maintain friendly re-
lations with practically any government which
opposes the USSR, regardless of its political
system. This pragmatic principle has been the
central factor in Peking's turn toward the US
and other shifts:
-In Europe, toward NATO countries;
-In the Middle East, toward Iran and Sudan and
even farther toward Egypt;
-In the Far East, toward Japan; and
-In Latin America, toward Chile after the Soviets
were expelled by the post-Allende government.
--The turn toward the US was perceived necessary
to keep China from being sandwiched between both
superpowers and to exploit contradictions be-
tween them.
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Thus the main purpose of the rapprochement with
Washington continues to be to use as much as possible
the international influence and military potential of
the US as a counterweight to the USSR globally.
--Mao's successors require such a counterweight
primarily to offset the strategic threat the
USSR poses to China's national security.
--They believe that the US role in NATO, by sus-
taining a strong force on the USSR's western
front, worries Moscow sufficiently to act as
a deterrent to Soviet pressure on the eastern
front against China.
--Primarily because the Soviet threat is per-
ceived to be a long-term matter, the successors
view the turn toward the US as a matter of
basic strategy rather than as a temporary,
tactical expedient to speed Washington's dis-
engagement from Taiwan.
For Moscow, the most sensitive aspect of Peking's
hostility is the possibility that it will lead to some
form of cooperation with Washington in threatening or
thwarting Soviet interests.
--The Soviets would interpret normalization as an
effort by Washington to firm up a Sino-US entente
against the USSR.
--In addition, the Soviets would be concerned that
full normalization might downgrade Taiwan as a
contentious issue between the US and the PRC.
--However, the Soviet leaders probably would avoid
responding to normalization by any intemperate
action which might intensify US-USSR frictions
and facilitate a US decision to provide Peking
with military-related technology and equipment.
The fundamental issues in dispute between Moscow
and Peking remain as far from resolution as ever. These
are Chinese fear of Soviet encirclement coupled with a
sense of military inferiority, historical disputes cen-
tering on territory, and the ideological struggle. As
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for the specific border issue where protracted nego-
tiations have been underway:
--Mao's successors continue to
for serious,
sions on the border issue is
sreasedesignatedl
of soviet troops fro this
uted" by Peking. Moscow rejects ects soviet
as "disp that any
l
demand, and it is unlikeo comply with it.
leader would be willing
the Chinese reject as insuf-
--For their part,
offer
ficient the soviet
border-rivernislandsneSe
control only certain --Recently, there has been some progress on minor
matters:
-An agreement to resume the river navigation talks, which had been suspended for three
years;
-A possible agreement to permit Chinese ves-
Amur to
sels to transit northward
drfrom theosland the pposite
Ussuri, around a maj
Khabarovsk; and
-Assignment of a Chinese rambassador to Moscow
one year
after more than
--However, there has been no
whichshaveobeenlheld
lk
t
,
a
stalemated border
in Peking since 1969 and are stalled over
larger issues.
Moscow
7
F owin M
j-Q ao's hatthisnsucces ors m9
ht be ebuffed.
ro has been r
p for any l t but it
bed
in to ameliorate the dispute party-to-party
_-Peking refused to re-establish were severed in 1966.
relations, which
--Soviet officials complained, following Deputy
Foreign Minister returnof uMoscowcin
late February after thre that the
tive border negotiations in Peking,
post-Mao leaders desire a continuation of the
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Sino-Soviet dispute for "political" reasons
and that it could be resolved fairly quickly
if the Chinese so desired.
--After a nine-month standdown in anti-Chinese
polemics in open media, Moscow resumed public
attacks on Peking in mid-May. The resumption
reflects the view of the Kremlin leaders that
Mao's successors, particularly Party Chairman
Hua Kuo-feng, are as anti-Soviet as Mao had
been.
There is no evidence of pro-Soviet sentiment
among the innermost circle of Mao's successors the
seven or eight ranking Politburo members). It is
reasonable to assume however, that the larger the
circle of successors is drawn, the more chance there
is for advocates of some form of improvement of rela-
tions with Moscow to be found.
--Thus much may depend on the stability of the
top leadership.
--The return of rehabilitated Teng Hsiao-ping to
the innermost circles indicates continuation
of China's anti-Soviet tilt.
The Chinese have not tried to use any hint of an
improvement in relations with the USSR to create pres-
sure on Washington to speed up the normalization of
Sino-US relations on Peking's terms.
--In fact, Mao's successors have refused to play
this game. They seem to have feared that the
Soviets would take comfort from it and that the
US itself might be impelled to move closer to
the USSR.
--Far from takin actions with the intention of
worrying Washington about a shift in the bal-
ance of the Sino-Soviet US triangle, they have
made a special effort to refute Moscow's claim
of improvement in Sino-Soviet relations.
--By indicating to Washington that they in fact,
have not moved closer to the USSR, they in-
directly have suggested that there is no reason
for the US to do so.
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The Chinese hope the US and NATO will conduct an
active policy of containment against the USSR.
--They have opposed not only US "retreats" (e.g.,
Angola), but also the SALT and MFBR negotiations
and the provision of the USSR with grain and
advanced scientific technology.
--They view Was_hington'sstatements on the issue
of human rights as a desirable source of US-USSR
friction, but they would respond with vehemence
if US officials were publicly to criticize
China's policy on the matter.
--They particularly have welcomed Washington's
reduced emphasis on the dominant importance of
Soviet-American relations and the increased
degree of competitiveness in American policy
toward Moscow.
--However, they prefer even stronger medicine--i.e.,
an escalation to a cold war atmosphere and a
virtual economic blockade of the USSR.
The Chinese are less concerned about the possi-
bility of an imminent Soviet attack than they were in
1969 and 1970.
--Armed clashes up to company-level in size such
as those which took place in 1969 have not re-
curred.
--They say that they will settle the border issue
with the USSR "through negotiations" and will
not resort to the use of force--an indication
that they fear provoking the Soviets into mili-
tary retaliation.
The prospect is for a continuation of high-profile
polemics, stalemate in the border talks, but possible
resolution of some border-river shipping problems.
--On the last point, both sides already have in-
dicated that resolution of "technical matters"
concerning shipping does not mean agreement on
ownership of disputed river islands or a change
in the overall hostile relationship.
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V. CHINA'S VIEW OF THE US
In Peking's calculations, four motivational fac-
tors are probably at work in its relation with the
United States. First, the US provides a strategic
counterbalance to the USSR and, in a general sense,
a connection with Washington tends to relieve Soviet
pressures on China. Second, through negotiations
with the US, China hopes to position itself so that
an eventual resolution of the Taiwan problem on terms
favorable to Peking can be achieved. Third, trade
with the US and the importation of certain items of
high technology from US sources are of economic benefit
to China. Fourth, the connection with Washington tends
to make China a "respectable" member of the international
community and makes it easier for Peking to play a
significant role on the international stage.
The first of these elements is clearly the most
important. For Peking, the problem of Soviet inten-
tions toward, and of Soviet pressure on, China involves
basic considerations of the security of the state.
Peking believes that Moscow is attempting to "surround"
China and to choke it into submission; the US connection
makes this effort much more difficult for the Soviets
and, to the degree that Moscow must factor in a possible
US response in its strategic calculations regarding China,
direct pressures on the Chinese are reduced. Moreover,
China recognizes that, because the Sino-US connection
tends to disturb Moscow, certain aspects of Moscow's
relationship with the US in consequence become more
difficult and complicated and, to the extent that
Moscow must therefore focus its attention on Washington
rather than Peking, China is a net gainer. The Chinese
assume that the US, viewing the triangular relationship
from its own perspective, attempts to exacerbate Sino-
Soviet relations. As Chinese Foreign Minister Huang
Hua recently remarked, it remains to be seen who can
play the game better.
The second motivational factor--Taiwan--is of
lesser importance but still a major consideration for
China. For nearly two decades Peking has been unwilling
to incur the costs and risks of an attempt at military
"liberation" of Taiwan. It has, however, shown a
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continuing--and perhaps growing--measure of concern
that continuation of the present situation will
eventually result in legal as well as physical
separation. It may view the generational changes and
economic development of Taiwan as gradually "drifting"
the island away from the mainland. It is momentum
along these lines that Peking seeks to arrest, through
an agreement with the US, to strengthen its legal
position with respect to Taiwan and to weaken Taiwan's
long-run viability. This should not suggest that
the Chinese do not hope ultimately to acquire control
over Taiwan--they do. But this is a matter for the
longer term; the primary Chinese objective (relative
to Taiwan) in maintaining and if possible advancing
the relationship with Washington is to ensure that
this longer term aim remains valid.
In entering into the relationship with the US,
moreover, the Chinese appear to have assumed a cer-
tain flexibility with respect to the Taiwan issue on
the part of Washington. This seems to have been an
important element in the calculations China made in
1971-72, when the US connection was first being estab-
lished. It did not motivate the Chinese decision to
pursue the relationship with Washington in the same
sense that strategic considerations did, but it did
make decisions based on those strategic considerations
easier. This assumption has also colored the Chinese
assessment of the state of the relationship with
Washington. Peking has appeared to consider US
"adherence to the principals of the Shanghai communique"
--a code phrase for movement on the Taiwan issue--to
be an indicator of the relative interest Washington
places in its relationship with China.
The third motivational factor--economic benefit--
does not appear to have been a central element in
Chinese thinking, but its importance may well be
growing. From the early stages of the relationship,
Peking has seen the US as a potential source of ad-
vanced technology, some of which is not readily
available from other suppliers, such as Western
Europe or Japan. Given the recent movement of China's
internal policies toward greater emphasis on economic
construction, this factor is likely to become more
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important in Chinese thinking over time. But
economic considerations do not seem to drive Chi-
nese policy to nearly the extent that strategic and
political considerations do. In its attitude toward
Washington, Peking has fairly consistently permitted
political considerations to govern purely economic
considerations.
The final motivational factor--gains in interna-
tional "respectability" resulting from a closer con-
nection with the US--is probably of declining impor-
tance to China. Most gains in this area have already
been achieved. This factor may still be a considera-
tion, however, as China looks at Southeast Asia.
Peking wants to increase its influence there, and it
doubtless believes that local governments in the region
will find its efforts to gain influence less threatening
if China can at the same time maintain relatively warm
relations with Washington.
In the context of these general considerations,
China views US policy in three ways. The first focuses
on US international policy and strategic posture in
general, particularly as these affect the US competition
with the USSR. As Peking defines this issue, US will-
power in international affairs seems to be of paramount
importance. The Chinese tend to see this problem in
stark, rather simplistic, terms: is the US prepared to
stand up to Soviet pressures anywhere and everywhere?
The second focuses on the bilateral relationship be-
tween China and the US. Here Taiwan is the issue,
important but secondary to the PRC's strategic view.
In this area Peking attempts to judge how important a
factor Washington considers China to be in international
affairs. Finally, Peking also views Washington through
an ideological lens. Viewed from this angle, the US
is a capitalist power whose interests are basically
inimical to China's.
The first two of these viewpoints have been
dominant as China has looked at the US since the Carter
administration came to office. There is a wealth of
evidence indicating that for the past six months Peking
has been attempting to assess with precision US foreign
policy objectives and priorities on international issues
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in general and as they apply to the Soviet Union and
China in particular. It is clear that this effort
has not been easy for the Chinese, and that they have
had trouble sorting out what they seem to consider to
be a set of mixed signals. In general, the Chinese
appear to be heartened by indications that Washington
is prepared to allow the dialogue with Moscow deteriorate
rather than reach a series of quick (and as the Chinese
would view it, deleterious) agreements with the USSR.
They seem mildly impressed with new US arms procurement
efforts, although they remain skeptical about some as-
pects of US efforts in this area, and they have quietly
applauded some aspects of US policy in the Middle East
as well as the US approach to the problem of the Horn
of Africa.
Against these "positive" indicators, the Chinese
have appeared to array a number of what they consider
to be more negative aspects of US policy. They continue
to be skeptical about US willingness to "stand up" to
what they believe to be Soviet expansionist activities,
citing in particular the US attitude toward the recent
invasion of Zaire. They are equally skeptical about
the human rights campaign, which they feel fritters
away US attention which should be devoted to "more
serious" problems, masks US unwillingness to come to
grips with the "realitities" of Soviet power, and
complicates US relations with a number of other
countries. They consider the US position on the Indian
Ocean and US policy toward southern Africa also to be
unrealistic. Moreover, they have noted that firmer US
public attitudes toward the USSR have not resulted in
corresponding public pressures to pursue rapprochement
with China, and they may suspect that there may have
been a growth of undifferentiated anti-Communism among
the US public.
In the area of bilateral Sino-US relations, the
Chinese also consider the signals to be mixed. In
particular, they seemed to consider most of the in-
dicators of US China policy in the early days of the
administration to be negative. Peking was almost
certainly distressed that Washington set machinery
for recognition of Cuba and Vietnam in motion while
saying and doing little about Sino-US normalization.
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They were unquestionably concerned and upset about
frequent references to US interest in the security of
Taiwan on the part of leading US officials. Against
these early "negative" signals the Chinese have ob-
viously placed more positive indicators, such as US
reiteration of its continued adherence to the Shanghai
communique and, more recently, Secretary Vance's
speech of late June and the President's subsequent
press conference. The fact that Chinese officials
immediately noted in private conversation each of the
early administration references to the Shanghai com-
munique underlines the careful attention Peking has
been giving to the signals emanating from Washington.
None of the negative readings of US policy seem
to have caused Peking to alter its basic and well-es-
tablished judgments regarding Washington:
--That the US was a declining power slowly with-
drawing from forward positions in Asia, and
therefore no immediate threat to China.
--That US strength was still considerable, but
because Washington was on the "defensive"
internationally it had many interests in
common with China, particularly in opposing
Soviet expansionism.
There are some indications that this assessment was
reviewed and endorsed at a leadership meeting last
spring, when a decision may have been made to continue
to adhere to Peking's "three principles" regarding
Taiwan. Further review may have taken place immediately
before and during the recent plenum of the party Central
Committee, at which time a further decision may have
been taken to downplay Peking's previous insistence that
it would be "necessary" eventually to use force to
resolve the Taiwan issue. Such decisions, while
important, are essentially tactical; a fundamental
decision reassessing the entire basis of Chinese policy
toward the US is likely to be undertaken only if Peking
were to conclude that relations had turned distinctly
sour and that they were proving to be unproductive.
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In this general framework, the Chinese response
to the Carter administration has gone through three
fairly distinct phases. The first was a matter of
"getting a fix" on the new administration; in this
period the attitude of the Chinese was generally one
of some bemusement, but they did watch carefully for
signs of how the administration would handle the
Soviets. The second phase focused primarily on
"setting the record straight" and responding to US
expressions of concern about the security of Taiwan.
Chinese statements, public and private, in this period
were quite rancorous, and frequently stressed the idea
that only through force could Taiwan be "liberated."
The central Chinese aim in this period appeared to be
to disabuse Washington of any idea that Peking might
subscribe to a non-use-of-force statement regarding
Taiwan. Chinese remarks during this period were
notable not only for their vigor and relative belli-
cosity, but also for an apparent disregard of their
possible effect on US public opinion in general and
on Congressional opinion in particular.
The third phase was a much more positive one, irn
which references to the "necessity" to use force faded
away. This phase began shortly before Secretary Vance's
speech on Asian policy, but became much more apparent
following that speech. In this latest phase Chinese
propaganda has frequently, and positively, highlighted
statements or actions by leading members of the US
administration.
This last, positive phase has rapidly shaded off
into a scene-setting exercise designed to provide a
context for Secretary Vance's visit. Chinese officials
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have commented at length on the visit.
Much of this discussion has been clearly meant to
"position" China for a variety of outcomes to the visit.
Thus, most officials have stressed that Peking does not
expect major and immediate results from the Secretary's
trip; this permits easy adjustment if the visit proves,
from the Chinese point of view, to be relatively un-
productive. Moreover, Chinese officials both at home
and abroad have frequently referred to the future
prospects of Sino-US trade, generally taking a positive
V -
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line on this subject. This has been particularly
+_-rutz of nffinialq in
icia s a roa
have E-573--H-
en a somewhat different tack, noting
that if the Secretary merely addressed issues such as
trade without tackling the central issue of Taiwan
little improvement in trading patterns could be expected.
On this central issue all Chinese have been con-
sistent in that they have stressed that China will ad-
here to its "three principles"--breaking of diplomatic
relations with Taipei, withdrawal of all US forces
from Taiwan, and abrogation of the mutual defense
treaty with the Nationalists. These officials, how-
ever, have also been consistent in noting that Peking
would have no objection to continuing trade and other
unofficial relations with Taiwan, and most have sug-
gested that Peking would be receptive to US proposals
that might help to improve bilateral relations.
Significantly, none has ruled out the possibility of
continuing arms sales to Taiwan. One in fact suggested
that Peking might see the maintenance of Taiwan's mili-
tary strength "as an element in the deterrent forces
countering expansion of Soviet influence in the area."
Several have also suggested that the PRC could show
considerable flexibility in countenancing the method
in which the US makes the treaty a dead letter. These
hints and assurances, of course, are designed to induce
the US to approach the negotiations in Peking in a
positive frame of mind. Indeed, Chinese officials in
China and abroad have expressed the hope that the
Secretary will bring "concrete proposals" for improving
relations, implying that the next move is up to
Washington.
the Chinese have made two public state-
ments of significance in recent weeks. The first, by
then senior vice premier Li Hsien-nien, was clearly a
response to the Secretary's speech on Asian policy;
this statement was notable because it stated Peking's
"three principles" publicly for the first time; it also
carefully eschewed any reference to the use of force in
"liberating" Taiwan. The second statement was contained
in a recent speech by Defense Minister Yeh Chien-ying,
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the second-ranking member of the Chinese hierarchy.
Following routine remarks on Peking's determination
to "liberate" Taiwan, Yeh noted that Peking hoped to
work with "compatriots on Taiwan" to this end.
This hint--it is no more than that--at the
desirability of negotiations with Taipei has been
echoed by other less authoritative Chinese sources,
and in fact as the theme that force was "necessary"
to resolve the Taiwan question has faded, the notion
of the desirability of direct negotiations with the
Nationalists seems to have begun to appear. The
pattern has only just begun to develop, but if it
continues it would-resurrect a theme that was particu-
larly prominent in the 1971-73 period, when the Sino-US
relationship was first developing.
However "reasonable" the Chinese wish to appear
prior to the Secretary's trip, they are likely in the
event to prove difficult and stubborn negotiators. It
is significant, however, that they chose to hold their
party plenum, which restored the veteran Teng Hsiao-
ping to prominence, prior to the Secretary's visit.
Several officials abroad have suggested that Peking
wished Teng to lead the Chinese negotiating team;
this seems a plausible ancillary reason for an event
which took place primarily as a result of domestic
considerations. Nevertheless, the Chinese may well
have thought it important to have their domestic
house in order prior to deliberations on important
foreign affairs issues.
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VI. THE CHINESE ECONOMY
The political upheavals and natural disasters in
1976 contributed to poor economic performance and fur-
ther delayed drafting an already overdue Fifth Five-
Year Plan for 1976-80. Both Mao Tse-tung and Chou
En-lai died and Teng Hsiao-ping was disgraced. Mao's
widow and her colleagues (the so-called "gang of four")
were arrested and charged with economic disruption and
attempting a coup. In addition, massive earthquakes
caused enormous loss of life (possibly half a million
dead) and great damage to industrial capacity.
Official reporting for 1976 is particularly dif-
ficult to interpret because of a lack of hard data and
the tendency by the new regime to dramatize the dif-
ficulties caused by the "gang of four". Nevertheless,
our estimates for 1976 indicate a slight gain in agri-
cultural output and a small decline in industrial pro-
duction. The net result was no growth in GNP.
Last year's performance contrasts sharply with the
estimated average rates of growth achieved during the
preceding decade--6 percent for GNP, 10 percent for
industry, and 2 percent for agriculture.
Industry and Transportation
After a good start in the first quarter of the
year, industrial output dropped as a result of political
unrest and later of earthquakes. The earthquakes in the
Peking-Tientsin-Tang-shan area in late July were par-
ticularly devastating. Some 20 to 30 percent of the
industrial output in this area--which accounts for about
10 percent-of the national total--may have been lost.
The greatest impact probably was on the coal industry.
China's largest coal mining complex--which produced
some 6 percent of national coal output and up to a third
of China's coking coal--was seriously damaged.
Steel output declined by several million tons in
1976, in part because of the effect of earthquakes and
in part because of labor problems associated with polit-
ical infighting and demands for higher wages.
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CHINA: GNP, Industrial Production, and
Agriculture Production, 1957-76
Index: 1957=100
0 i
1957 58 59 60
573567 7.77
k
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The earthquakes in the Tang-shan area, together
with several major earthquakes in Southwest China, also
had a significant impact on transportation through tem-
porary disruption of rail lines and the heavy demands
on the transport system to carry goods to the devas-
tated areas. Political factionalism was also rampant
in the transport sector, and overall performance was
probably down in 1976.
Output of crude oil increased by 13 percent in
1976, the second year of relatively slow growth. In
contrast, the 10-year average was some 20 percent. The
decline in 1976 was probably in part due to production
problems and in part related to failure to get commit-
ments from Japan for increased imports and to smaller
than expected domestic demand.
Agriculture
Agriculture performance in 1976 was a disappoint-
ment to China's new leadership. Total output of grain
probably was 280 to 285 million metric tons, about the
same as in 1975. Per capita output has increased only
marginally in the last 10 years.
Until late 1976, China drew down grain reserves to
avoid spending hard currency for new grain imports. As
the extent of the damage to fall-harvested crops became
known, however, purchases of wheat were accelerated.
Between November 1976 and June 1977, 11.5 million tons
were ordered for delivery through July 1978. Thus,
after dropping off in 1975-76, grain imports in 1977
will move back up to 6.7 million tons.
Foreign Trade
China's foreign trade fell by about 10 percent to
$12.9 billion in 1976, the first decline since 1968.
Imports fell by almost 20 percent due in part to Peking's
efforts to redress previous large trade deficits; ex-
ports held roughly the same, although oil exports were
lower than in 1975. As a result, China's hard currency
trade balance moved into surplus, easing pressure on
its balance of payments.
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1965 66
573569 7-77
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US trade with China continues its sharp decline
from the 1973-74 peak when agricultural sales made the
US China's number-two trading partner. Last year, US
exports fell more than 50 percent. There were no US
agricultural exports and there was a sharp drop in ex-
ports of metals and machinery. US imports increased by
27 percent. For the first time since trade reopened,
the balance was in favor of China. US exports may fall
another 25 percent in 1977 while imports will rise by
about the same percentage.
The decline in trade reflects both economic and
political factors. Balance of payments considerations
and domestic economic and political disruption led to
cutbacks in China's overall imports last year. More-
over, until diplomatic relations are established, Peking
will likely continue its policy of limiting purchases
from the United States when alternate suppliers are
available. Ample world supplies have limited the US
share of China's large agricultural purchases this year
to some small sales of cotton. Interest in US technol-
ogy, however, remains high. An American firm will
supply the technical process in a recent contract for
a West German petrochemical plant sale. Oilfield equip-
ment sales continue and Peking has inquired about addi-
tional US fertilizer plants.
Economic Prospects for 1977
Economic prospects for 1977 are mixed. Chinese
officials regard 1977 as a year of readjustment to re-
store economic order and complete a draft of the long-
delayed Fifth Five-Year Plan (1976-80).
In industry, official claims have emphasized month-
to-month gains. With continued recovery, sizable gains
over 1976's poor performance can be expected. At the
same time, Peking has moved rapidly to restore order in
the railway sector, and performance in the first quarter
was the highest on record.
In agriculture, prospects are not good. Dry weather
in the North China Plain reduced winter wheat output--
perhaps by 10 percent or more below the 1976 crop. This
is not a major catastrophe--it could be made up by a
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CHINA: Imports of Grain, by Source
Million Metric Tons
1966-70
Avg
573570 7-77
77
(Prelim.)
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Cotton
Shipments
Begin
i
n
Gra
Shipments
Begin
Import Export
Controls Controls
Lifted Lifted
i n ni m
1871
573571 7-77
China
Buys
Aluminum
Fertilizer Plant
Deliveries
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good fall harvest--but it has aggravated the current
tight supply situation.
In foreign trade, 1977 will be a year of adjust-
ment with only moderate growth. Imports of grain, oil-
seeds, fertilizer, and steel will be higher. Exports
will probably make modest gains even though lack of
demand for China's heavy crude continues to hamper pe-
troleum sales. A new round of industrial plant pur-
chases will not begin before late this year and may be
delayed if additional agricultural imports become
necessary.
A Broad Consensus on Economic Policy
China's new leadership began its term in October
with economic issues high on the agenda. The present
leaders, including the recently rehabilitated Teng
Hsiao-ping, have revived the long-term modernization
program announced by the late Premier Chou En-lai in
January 1975 as the basic blueprint. Agricultural
modernization will continue to be given top billing
in the allocation of resources. With a limited amount
of cultivable land, China must increase yields by de-
veloping more productive seed strains and by increas-
ing the use of modern inputs such as chemical ferti-
lizer and insecticides.
In industry, Peking will devote more resources to
raising the level of technology and restoring balance,
particularly in heavy industry. The leadership has
focused on improving industrial management.and resolv-
ing such long-term problems as structural imbalances
in the steel industry and inadequate investment in
mining. Elimination of these imbalances and capacity
shortages will require some continuing imports of West-
ern industrial plants and other equipment.
The new leadership is aware of the importance of
scientific and technical work to its plans for moderni-
zation. It views most Cultural Revolution reforms in
education and research--which centered on worker,
peasant, and soldier participation--as hindering rapid
economic progress. These reforms will be carefully
modified, and qualified nonparty intellectuals will
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CHINA: Trends in Foreign Trade, 1970-76
Million US $
8,000
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probably be placed in responsible leadership positions
in the universities and research institutes. There
will be renewed stress on raising academic standards,
and the importance of political studies will probably
diminish.
Peking will look more closely at the modernization
of its national defenses. The pace of military moderni-
zation has been the subject of considerable debate over
the past several months. the civilian leaders would
prefer, at a minimum, a period of military belt-tightening
until problems in industry can be solved. A meeting of
the minds on these important issues has been and will
continue to be difficult to achieve, however.
Major Obstacles to Economic Development
Two major problems stand out as obstacles to success-
ful completion of the Fifth Five-Year Plan: the inability
of the central government to exert effective control over
provincial and county resource allocation, and labor un-
rest caused by worker dissatisfaction with wages.
A report prepared by the State Council by Teng
Hsiao-ping in 1975 sharply cirticized the inability of
lower level officials to carry out industrial planning;
widespread violation of state plans was cited as evi-
dence of the need for greater control over local resource
allocation. Reaching a consensus on the proper degree
of increased central control will require long and dif-
ficult bargaining with local officials who will resist
surrendering any of their authority.
Dissatisfaction among industrial workers has been
brewing for more than a decade over the lack of a signif-
icant wage increase. Government promises of wage reform
have never been fulfilled. Since 1974, strikes, slow-
downs, and absenteeism have occurred with growing fre-
quency.
The new government apparently has decided to take
some action on the wage issue. In recent weeks, a bonus
system tied to worker productivity has been tried in
selected factories, and a wage increase for certain
groups of workers is said to be scheduled for later this
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year. Peking, however, cannot afford to raise wages
by much. At the same time, government refusal to act
on the wage problem could seriously endanger planned
increases in productivity and dim growth prospects.
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VII. THE NATIONAL DEFENSE POSTURE OF THE PRC
China has the lar est conventional armed forces
in the world over 4 million men--and a small, but
growing strategic nuclear force.
China presently has no capability to pose a
direct military threat to the US, but could attack
US interests and bases in the Far East. Peking
identifies the Soviet Union as its most dangerous
adversary, and has arrayed about half of its armed
forces in a defensive posture to meet the Soviet
threat. Another third of China's forces is located
along the coast where Peking continues to perceive
a threat. Most of the remainder is located in central
China as a reserve force.
China's conventional forces are best situated
and prepared to fight a nonnuclear, defensive war
against the Soviets.
--To counter the Soviets' superior firepower and
mobility, the Chinese intend to employ distance
and terrain favorable to their defense. They
do not intend to give up territory easily, but
hope to wear down the Soviets as they attempt
to drive through successive lines of in-
creasingly stronger forces.
--They have a reasonable chance of stalemating
any Soviet conventional offensive before it
reaches Peking and the North China Plain.
--Chinese forces deployed along the coast could
repel any amphibious invasion that the Soviets
could presently mount.
If China's strategic forces failed to deter a
Soviet nuclear attack, China's nuclear warfi hting
capability would be no match for that of the Soviets.
Even so, with sufficient warning, Chinese nuclear
forces could destroy enough of the Soviet urban
support base in the Far East to make it difficult
for surviving Soviet forces to sustain military
operations.
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--They are seeking to acquire additional advanced
technology from foreign sources without becoming
dependent on those sources.
The sheer size of China's standing armed forces
compensates to some degree for their inadequacies.
Moreover, the vast mobilization potential of China also
would provide considerable resources during a war.
Ground Forces.
The Chinese army consists of approximately 3.5
million men organized into main, regional, and support
forces.
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Most of the ground forces' equipment is based on
older Soviet designs, but produced by China's arms
industry. Though unsophisticated by US and Soviet
standards, Chinese small arms, tanks, and artillery are
rugged, reliable, and generally adequate for their in-
tended use.
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