OIR CONTRIBUTION TO SE 37: 'PROBABLE EFFECTS ON THE SOVIET BLOC OF CERTAIN COURSES OF ACTION DIRECTED AT INTERNAL AND EXTERNAL COMMERCE OF COMMUNIST CHINA'

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79S01011A000900010015-4
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 27
• Document Creation Date: December 9, 2016
• Document Release Date: July 10, 2000
• Sequence Number: 15
• Publication Date: February 20, 1953
• Content Type: SE

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DEPARTPZNT OF STATE
OIR Contribution to SE 37t "Probable Effects on the Soviet Bloc of Certain
Courses of Action Directed at Internal and
External Commerce of Communist China"
2.5 1953
February 20, 1953
Controls on Trade With Communist China. (ORR)
II, Effect of Present Controls on Communist China
A. Effect on Communist China's Foreign Trade /rL_jVEi L.i_?
1. Trade with Non-Communist Countries
a. ;g ports
Ga
The value of the goods imported from non-Communist countries by
Communist China after June, 1950 rose to a peak in the first half of 1951
but then dropped sharply during the second half of 1951, when trade controls
became more stringent, and have remained at a relatively low level through
1952, These imports are estimated at 0382 million in the first half of 1951,
$148 million in the second half of 1951, and y$135 million and $155 million
respectively in the first and second halves of 1952.
The volume of imports from non-Communist countries fell from
746,000 tons in the first half of 1951 to 242,000 tons in the second half
of 1951, and then rose to 270,000 tons in the first half of 1952 and 330,000
tons in the second half of 1952. The rise in tonnage as opposed to the
relatively stable value of these imports in the last 18 months reflects the
increased import of such bulky commodities as ammonium sulphate and heavy
industrial chemicals*
The decline in imports occurred largely in categories of goods
which most non-Communist countries control, notably metals and machinery,
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and crude rubber, (In the ease of crude rubber, imports have continued to
arrive principally from Ceylon.). Durjg ths i8 months ending December 1952,
raw cotton accounted for one-quarter, and crude rubber, pharmaceuticals,
fertilizers, dyestuffs, and heavy industrial ohemioals for one-half of Com-
munist China's imports from non-Communi-et ontatries.
If metals and machinery
are excluded? the level amd pattern of imports in 1952 were roughly the same
as in 195Q* But imports of metals and machinery amounted to 0125 million in
1950 as compared with only 15 million in 1962.
be Expprt8
Foreign exchange earnings from exports to non-Communist countries
have declined steadily since their peak in the last half of 1950. These
exports are estimated at $400 million in 1950, $335 million in 1951, and
$270 million in 1952,
The volume of exports to non-Communist countries in 1952 is
very roughly estimated at 1,7 million tons (2.4 million tons in 1951),
consisting largely of low-value bulky items such as coarse grains and soy
beans.
Exports have been adversely affected by the loss of the U.S.
market and by the exclusion of foreign traders and foreign banking, insurance,
and other commercial faoilities,
With the loss of markets (principally that
of the U.S.) for specialized items such as Lung oi14 bristles, egg products,
and handicrafts,, Communist Chinaos exports to non-Communist countries have
increasingly been limited to foodstuffs for Hong Kong and Malaya and grains
and oilseeds for South Asia and Western Europe.
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2. Trade With the Soviet Bloc
a. Imports
On the basis of Chinese Communist data, imports from the Soviet
Bloc rose from $110 million in 1950 to nearly $1 billion in 1951. It appears
reasonable to assume that imports in 1952 remained at roughly the same level
in 1952. (Recent Chinese Communist data indicate that total trade (imports
plus exports) with the Soviet Bloc in 1952 amounted to almost $1.5 billion.
Assessment of imports at $l billion and exports at 6'500 million appears
reasonable, although to a large degree arbitrary.)
Imports in both 1951 and 1952 consisted largely of military
equipment and of commodities unavailable from non-Communist countries,
notably petroleum, vehicles, machinery, metals, and metal manufactures.
However, there were some imports from the Bloc of items currently being
imported from the West, such as drugs, fertilizers, chemicals, and sugar,
Soviet Bloc shipments to Communist China by sea are estimated at
700#000 tons in 19521 as against 350,,000 tons in 1951. On the basis of
partial cargo data it is estimated that roughly one-fifth of this tonnage
in 1952 consisted of petroleum products, two-fifths of metals, machinery?
and other commodities controlled by the West. By assigning average values
per ton to each of the above categories, the value of seaborne imports from
the Soviet Bloc is estimated at approximately $200 million.
Deducting this value for seaborne imports from estimated total
imports from the Soviet Bloc of under l billion, leaves somewhat less than
1. Exclusive of approximately 50,000 tons of cargo picked up by Bloc vessels
in non-Communist countries and shipped to Communist China. This cargo has
been counted in Communist China's imports from non-Communist countries.
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$ 800 million as the estimated value of overland imports. Military equipment
undoubtedly accounted for a large part of these overland imports. In
addition, it is known that there were large commercial imports via the
Trans-Siberian railroad, including petroleum, motor vehicles, metals and
machinery.
The volume of these overland imports can only be estimated on.
a highly tentative basis. PC16 shipments are estimated at 700,,000 tons and
valued at X70 million. On the assumption of an average value of
500 per
ton, the volume of the remaining overland imports would amount to approxi-
mately 1,400,000 tons, Thus, the total volume of overland shipments in 1952
is estimated to be 2,1 million tons, In addition there may have been ship-
ments of materiel that were provided to Communist China on a grant or loan
basis and not included in the trade statistics.
b, Exports
On the basis of Chinese Communist data and other fragmentary
information, it is estimated that Chinese Communist exports to the Soviet
Bloc were $175 million in 1950 and $350 million in 1951. There is consider-
able evidence to indicate that these exports rose sharply in 1952 and for
that year they are very roughly estimated at $500 million. It is believed
that the Chinese Communists are attempting to increase their exports to the
Soviet Bloc in 1953, apparently in an effort to reduce their trade deficit
with the Soviet Bloc.
The volume of Chinese Communist exports to the Bloc that moved
by sea during 1952 estimated roughly at 800,000 tons and consisted largely
of grain$ soy beans, and ores.
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3. Summary
The changes in Communist Chinese foreign trade (by value) between
1950, which was the last year before the application of trade controls, and
1952 are summarized below:
(millions of U.S. dollars)
Bloc
1950
West Total Bloc
1951
West Total
Bloc
1952
West Total
Exports to:
175
400
575
350
335
685
500
270
770
Imports from:
110
415
' 525
985
530
1515
940
290
1230
Total Trade
with:
285
815
1100
1335
865
2200
1440
560
2000
In terms of volume Communist China's foreign trade in 1952 may be
summarized as follows: total seaborne imports amounted to 1,3 million tons
(700,000 tons from Bloc ports and 6OO OOO tons from the West) as compared
with overland imports of at least 2*1 million tons. (All overland imports
are assumed to come in from the Bloc; the relatively small volume of such
imports coming in by land from the West is, for present purposes, included
in the West's seaborne exports to Communist China.) The total volume of
Communist China=s seaborne exports in 1952 is estimated at 2.6 million tons
(1.7 million tons to the West and .8 million tone to the Bloc).
With due regard to the tenuous character of the data the following;
observations appear warranted:
a. Between 1950 and 1952, Communist China's foreign trade with
the Bloc increased very rapidly both in absolute and relative terms. In
1950 only 1/4 of Communist Chinats foreign trade was with the Soviet Bloc
while 3/4 was with the West. In 1952 these proportions were almost reversed:
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over 70% of the trade was with the Soviet Bloc and less than 30% with the
West. In the cage of imports alone this trend was even more markedi the
proportion of Communist China's total imports that came from the Bloc
increased from less than 20% in 1950 to over 7% in 1952.
be, Western trade controls undoubtedly were an important factor
contributing to these changes. However, the other factors would have tt.nded
to increase the level of Soviet Bloc exports to China irrespective of western
trade controls: (1) the shipment of Soviet military supplies for support of
the Communist war effort in Korea; and (2) the commitments for Soviet
economic assistance to Communist China that were contained in the Sino-
Soviet agreements of 1950,
c.. In aggregate terms the reduction in Communist Chinese imports
from the West between 1950 and 1952 has apparently been more than off set by
"commercial" imports from the Soviet Bloc. Curtailment of trade with the
West would appear to have been roughly offset by the increase in Soviet
seaborne imparts which do not appear to include military equipment. Anc
further imports of non-military goods came in over the Trans-Siberian Mil-
road.
B. Economic Effects
During the last two years, the Chinese Communist regime made rapid
progress in economic reconstruction, particularly in the restoration and
expansion of its industrial capacity, and further strengthened its political
and economic controls (see "The Internal Situation in Communist China" in
OIR contribution to NIE-80). Economic expansion occurred despite the
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aurtailment of trade with the West. As is indicated by the analysis of Com-
munist China's foreign trade in the preceding section, the increase in
imports from the Soviet Bloc between 1950 and 1952 was greater than the
reduction in imports from the West. Without Western trade restrictions
Communist China's economic progress probably would have been greater than
it actually was and it certainly could have been accomplished at less cost
to the rest of the Soviet Blocs
The shift in trade resulting from Western trade controls has imposed some
burden on the rest of the Soviet Bloc. The rest of the Bloc was forced to
provide Communist China with some commodities that it normally imports or
which are in relatively short supply and experienced a net outflow of
resources as represented by the large active balance in its trade with Com-
munist China. The extent to which the ultimate burden of this outflow of
resources will fall on Communist China depends on the terms of delivery.
In the case of Communist China, Western trade controls have reduced its
net returns from foreign trade (prices for imports were higher and receipts
from exports were lower than they otherwise would have been). Communist
China probably encountered further difficulties because the level of imports
probably did not meet the increasing level of requirements and because, in
the case of some bottleneck items, deliveries were either delayed or could
not be made, and less efficient domestic substitutes had to be contrived.
1. Industrial Effects
The restriction of imports into Communist China as a result of
present controls has not curtailed industrial output. In fact, because of
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the greatly increased level of commercial imports from the Soviet Bloc and
the more effective use of available equipment ..and stocks in Communist China,
industrial output has expanded at a rapid rate. However, the inability to
obtain repair parts for certain Western equipment and the use of the
cumbersome mechanism of Soviet Bloc barter trade have probably hampered the
Chinese in achieving production goals and expanding industrial capacity.
2. Effect on Transportation (see O/RR Contribution)
The railroad transportation system of Communist China has steadily
improved in capacity and performance and now seems to be carrying more freight
tonnage than at any time in its history. The Soviet Bloc has supplied
locomotives, freight cars* rolling stock parts, and rails, which, despite
the losses in Korea, have apparently permitted the maintenance of existing
equipment and the continued expansion of the rail network, However, although
the Soviet Bloc.has supplied the railway materials necessary to offset
Western controls, such equipment is scarce in the Bloc and its diversion to
Communist China represents a burden which, depending on the terms of delivery,
has been borne either by the Soviet Bloc or by Communist China or by both.
(See O/RR Contribution.)
Imports from the Soviet Bloc of trucks and petroleum have permitted
a large expansion in highway freight movements, which has been important to
the current development of the Northwest region and in the development of
rural markets through "feeder" lines to the railways. However, motor vehicles
parts have been continuously smuggled at premium prices from Western sources
in contravention of controls, indicating that Soviet Bloc assistance has not
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kept pace with the growing Chinese Communist requirements and that
Western controls have imposed some cost on Communist China.
Coastal shipping has not been appreciably affected by Western
controls since most non-Communist countries permit their flag vessels to
operate in the Chinese Communist coastal trade. However, during the last
year the Chinese Communist demand for foreign coastal shipping seems to have
slackened; charter rates offered are reported to have declined by half in
1952, with the result that in recent months 10 coasters have been or are
being scrapped in Hong Kong and 5 additional coasters are reportedly
preparing to be scrapped. It is possible that an increasing part of
Chinese Communist requirements for river and coastal shipping capacity is
being met by their own fleet, which they claim to be 380000 GRT.
3. Other Economic Effects
The reduction in Communist China's net receipts from foreign trade
must be viewed as a deduction from the resources that otherwise would have
been available to the government. However, the government's fiscal
capabilities increased very greatly during the last two years, as is
indicated by available budgetary data. (See OIR contribution to NIE-80.)
Particularly notable in this respect is the fact that prices appear to have
remained relatively stable in 1952 despite the high level of government
expenditures for military and economic purposes.
The non-industrialized segments of Communist China's economy have
few requirements for the imported materials affected by Western trade con-
trols and have, therefore, been little affected by the embargo.
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0. i\iilitary Effects (Defense and O/RR)
D. Internal Political Effects
The Chinese Communists have used the Korean war as a pretext for
consolidating their political and economic controls. Western trade
restrictions have had only limited effect on the economy in view of Soviet
economic assistance but they have been cited by the Communists in domestic
propaganda as an additional indication of the implacable hostility of the
West.
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;II. Effects of a Total Embargo
A. Effect on Trade
1. Projected Trade in 1953 or the Theoretical Annual "Loss" of Imports
Assuming the continuation of present controls, it is estimated that
the total value of Communist Chinats imports from the west in 1953 will
remain at present levels. As compared with 1952, however, the composition
of imports is estimated to change as follows:
(1) Raw cotton imports are e:>peoted to decline in value from
,;,103 million to V50 million and in volume from 86,000 tons
to 50p000 tons, Prices are lower and domestic production
is increasing. F4a,rthermore, Chinese buyers in the Pakistan
market thus far have shown little interest in arranging for
raw cotton purchases in 1953.
(2) Imports of rubber are estimated to increase from v 22 million
to y 45 million, or the level called for in the Ceylon-
Communist China barter agreement.
(3) Imports of fertilizer are estimated to increase by 50 per-
cent in volume and value in view of Chinese Communist
efforts to increase production of industrial crops.
As a result of these changes the volume of imports from non-Communist
oountries in 1953 is projected at 660,000 tons as compared with 560,000 tons
in 1952.
Exports to the West in 1953 are projected to be the same as in 1952,
or 1.7 million tons valued at ;;274 million.
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2; Smug
It is unlikely that the present rate of smuggling could be increased
significantly inasmuch as a complete embargo would necessarily involve a
general strengthening of controls. Clandestine imports would tend
increasingly to consist of items of small bulk and high value, such as
drugs and motor vehicle parts, but the total volume may be assumed to be
about 40,000 tons, the level projected for 1953 under the assumption of
existing controls.
3, Trade with the Soviet Bloc
The rest of the Soviet Bloc could assume the entire burden of the
costs imposed by an embargo and supply to Communist China all of the com-
modities it otherwise would have received from the `.est. Such commodities
are available in the Bloc and transport facilities would not impose an
absolute limit on their shipment (see OAR contribution on transportation),
However, since the commodities China imports from the Test for the
most part are not critical to the Chinese Communist military and economic
program it is probable that the oosts of the embargo would be shared by
Communist China and the rest of the Soviet Bloc. It is estimated that the
the Bloc would supply all of the more essential commodities and in addition
would supply the remaining commodities to the degree that the burden thus
imposed on the rest of the Soviet orbit would be relatively small. On this
basis it is roughly estimated that the Bloc would supply virtually all the
iron and steel, machinery and metals, and drugs (which together would amount
to 32,000 tons valued at X45 million); most of the heavy industrial
J~jj
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ohemicals, dyes, and paper (110,000 tons valued at $27 million); and only
part of the crude rubber,ohemioal fertilizer, and miscellaneous commodities
(210,000 tons valued at X58 million). however, beoausa of the supply
situation within the rest of the Bloc, the increased transport costs
involved, and because in some oases the commodities-would be considered
less essential to Communist China, the Soviet Bloc would not compensate
for any of the raw cotton, gunny bags, and some miscellaneous commodities,
and would compensate for only part of the rubber and chemical fertilizer
that Communist China otherwise would have obtained from the West.
If it is assumed that these additional imports are carried by sea,
total seaborne imports from the Bloc in Bloc vessels would amount to
1,050,000 tons in 1953 as compared with 600,000 tons in 1952. (In 1952
Bloc vessels carried 650,000 tons including 50,000 tons of cargo from non-
Communist countries and non-Bloc vessels carried 100,000 tons from Bloc
ports to Communist China.) Since imports from the Soviet Far East may be
projected at 300,000 tons or the same level as in 1952, imports from
Eastern Europe would increase requirements for oargo space from 350,000 tons
in 1952 to 750,000 tons in 1953.
The requirement for shipping to carry this cargo from Eastern Europe
may be calculated at 2500000 GRT in 1953 as opposed to 120,000 GRT in 1952.1
In addition, it may be estimated that bunkerage controls would reduce the
cargo carrying capacity of these vessels by one-sixth, increasing the shipping
1, Assuming three round trips per year less 25 percent for time in overhaul.
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requirement to 290,000 GRT. The employment of this additional shipping is
believed well within the capabilities of the soviet and Polish merchant
fleets, so long as I1'estern ships remain available for charter to meet
loviet Bloc shipping requirements elsewhere. Moreover, some additional
shipments could be made overland if the Soviet Bloc were willing to pay the
costs involved.
An embargo would also result in a decrease of Communist Chinals
total exports and an increase in its exports to the Soviet Bloc. Because
of the increased transport costs involved and the nature of the commodities,
it is probable that it would not be worth while for the Communists to
divert to the European Soviet Bloc a large part of the 1.7 million tons
of commodities that Communist China now exports to the liiest and these
commodities would not be exported at all. However, the composition of total
Chinese Communist exports to the Bloc would probably shift toward items
that are higher in value in relation to their bulk. At a minimum, Communist
China could increase the value of its exports to the Bloc to an extent
equal to the projected increase in the value of Bloc exports to Communist
China. This would require some increase in shipments over the Trans-Siberian
railroad in addition to full utilization of the 1,050,000 tons of shipping
capacity carrying imports to Communist China.
3. Net Changes in Communist Chinars Foreign Trade
On the basis of the above highly speculative estimates, an embargo
would reduce the volume of Communist Chinats total imports by 300,000 tons
and the value by X130 million. This would represent a reduction of
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approximately 10 percent in both the volume and value of Communist China's
imports projected on the assumption of a continuation of present controls.
The reduction in imports would be concentrated among a few producers' goods,
principally raw cotton and crude rubber.
If the increase in the value of imports from the Soviet Bloc is
matched by an increase in the value of Chinese Communist exports to the
Soviet Bloc, Communist China's total exports would be reduced by :130
million or by more than 15 percent from the level projected assuming the
oont4X3118ti -n _t ioresent controls. The proportionate reduction in the
volume of exports would be greater.
B. Economic Effects
The reduction in imports resulting from the embargo would have some
adverse effects on Chinese Communist economic plans, principally with regard
to planned increases in the production of consumers' goods. The loss of
raw cotton imports would reduce available supplies of raw cotton in 1953 by
approximately 7 percent and this would preclude achievement of the planned
increase of 9 percent in cotton yarn output. Curtailment of rubber imports
would reduce the output of the rubber products industry by approximately
one-half and would be reflected principally in sharp reductions in domestic
output of rubber shoes and bicycle tires. The loss of gunny bag imports
would necessitate the increased use of substitute domestic fiber materials,
which are generally less adequate. The reduction of fertilizer supplies
would tend to limit the planned increases in the output of various industrial
crops notably cotton, sugar, and tobacco
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effect during the first year of the embargo. On the other hand, these
losses in output would in part be offset by the increased availability for
domestic consumption of some commodities that formerly were exported to the
Vest.
The loss of foreign flag shipping for domestic coastal services would
reduce coastal shipping capacity, but Chinese Co-- nunist shipping, which now
carries the bulk of this trade, and the North-south rail lines could absorb
the load now handled by foreign flag ships.
In aggregate terms the Chinese Communist economy would lose some gains
from foreign trade and the Chinese Communist regime would lose some revenue
based on these gains. While these losses would be significant they would be
minor in relation to the total national income and to total Chinese Com-
munist budgetary expenditures.
C. Military Effects
A total embargo would probably have no significant effect on the
capabilities of the Chinese armed forces.
D, Internal Political Effects
A total embargo would not appreciably affect the internal political
strength of the Chinese Communist regime.
E. Burden on the Rest of Bloc
A total embargo would increase the economic burden that Communist
China imposes on the rest of the Soviet Bloc. This burden cannot be
precisely estimated, but the following factors may be noted:
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a. The rest of the Soviet Bloc would, to a greater extent than
before, be exporting to Communist China many commodities
that it normally imports for its own use, and would be receiving
from Communist China commodities that are less essential to its
needs.
b, Available trade data, based largely on Chinese Communist sources,
suggest that in 1952 Communist China had an import surplus of
approximately J500 million with the rest of the Bloc, which is
presumed to have been financed for the most part by Soviet
grants or credits. 'While it has been estimated that under a
total embargo there would be no increase in the trade deficit,
this estimate does not take account of the probable increase
in transport costs which might be borne by the Soviet Bloc.
F. Long-run Effects
1. Economic Effects
The adverse economic effects of a complete embargo on output in
Communist China would probably decrease rather than increase with the passage
of time. The loss of cotton and other raw materials would be made up in
large part through the development of domestic production or of domestically
produced substitutes.
Chinese Communist plans for the continued expansion of heavy industry
would not be appreciably affected since such plans even now are dependent
almost wholly on imports of capital goods from the soviet Bloc and on
increased domestic production of capital goods. However, greater emphasis
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probably would be placed on the expansion of rail transport links with the
Soviet Union at some expense to other aspects of the development program.
2. Internal Political Effects
An embargo would not appreciably affect the internal political
strength of the Chinese Communist regime.
3. Effect on "lino-Soviet Relations
A total embargo would tend to increase the possibilities of Sino-
Soviet function. Under present controls, it is probable that the Chinese
Communists could make considerable progress in reducing their current trade
deficit with the Soviet Bloc. Under an embargo, their capabilities in
this respect could be reduced. Should the Soviet Union be unwilling to
continue over the next five years to provide Communist China with its
essential import requirements, if such shipments would in part have to be
made on a grant or loan basis, the adverse effects of an embargo on
Communist China would be increased. Under these circumstances, the Chinese
Communists might feel that their needs should be given higher priority.
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G. Factors Preventing Full Enforcement of a Total Embargo
1. As long as trade controls applied against the European Soviet
Bloc are less rigid than those applied against Communist China, it would
be impossible to prevent the transshipment of non-Communist goods directly
or indirectly from European Soviet countries. Such transshipment could be
stopped completely only if trade with the entire Soviet Bloc were embargoed.
2. Most Western countries are strongly opposed to a further extension
of trade and shipping controls against the Soviet Bloc. The political dif-
ficulties involved in extending such controls are particularly great in the
case of those countries in South and Southern Asia that pursue a "neutralist"
foreign policy and for whom trade with Communist China is of significant
economic importance.
IV. Blockade
A. Effect on Chinese Communist Trade
Whereas an embargo would operate only against non-Communist trade and
shipping, a naval blockade would interdict smuggling and Soviet Bloc sea-
borne shipments as well, thus restricting Communist Chinats imports almost
entirely to those which would be brought in overland from the USSR. If the
USSR did not increase its overland shipments to Communist China, loss in.
imports as a result of a naval blockade would amount to roughly 700,000 tons
of legitimate and smuggled imports from non-Communist countries plus 700,000
tons in shipments which would otherwise have come in by sea from Soviet Bloc
sources, the total value amounting to w49O million. Similarly, if overland
exports to the Bloc were not increased, 1.7 million tons of exports to
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non-Communist countries and .8 million tons of exports to Soviet Bloc
countries with a combined value of about 0350 million would be out off
by a naval blockade.
A naval blockade would also operate against Communist China's coastal
trade. Although a blockade might not be very effective against local
inshore coastal shipping, it would virtually eliminate Communist China's
ocean-going coastal traffic. While a thorough analysis of this traffic
has not been made, the major coastal services include the followings
(a) the Dairen-Shanghai trade between the two major industrial areas of
China, carrying finished and semi-finished manufactures and processed raw
materials, (b) the Shanghai-Chinwangtao coal trade (this trade has
reportedly fallen off since 1951 to a rate of less than 400,000 tons a year
as a result of transport rationalization measures under which Shanghai
receives the bulk of its coal from the nearby Huainan and Poshan mines),
(c) POL tanker shipments from the Dairen refinery to Tsingtao and Shanghai
(these might amount to one-third or one-half pf total commercial POL
supplies estimated roughly at 600,000 tons),, (d) the Dairen-South China
beancake trade (there is a large demand in South China for beanoake
fertilizer where the leached soils give a larger response to fertilizer
applications than elsewhere in China), (e) the Shanghai-South China trade
(Shanghai has normally supplied South China ports with consumer goods manu-
factures in return for foodstuffs and raw materials),
Against the loss of seaborne trade projected above,must be balanced
the likely increases in trade with the Soviet Bloc by overland routes.
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Overland exports from the USSR to Communist China in 1953 under present
controls are projected at 2.1 million tons, or the level tentatively
estimated to have been shipped in 1952. This level of traffic represents
considerably less than the theoretical maximum capacity of the overland
routes which could be used to supply Communist China and the Chinese Com-
munist forces in North Korea; it is probable that, if the need were great
enough, these overland routes could carry,, in addition to their present
traffic, all of the cargo that would otherwise have come in by sea _-. making
a total of 3,5 million tons on the basis of the present projection. (See
o/RR contribution on Transportation). In this event, however, the cost
to the Soviet Bloc of supplying these commodities would be substantially
increased. Additional rolling stock would have to be diverted from other
railroads in the Soviet Union or a reduction made in the volume of commodi-
ties moving to the Soviet Far East. Moreover, the distribution of these
additional commodities within Communist China would require the diversion
of about 5 percent of Chinese Communist rolling stock from present traffic
(see O/RR contribution on Transportation), For these reasons, it is
estimated that Soviet exports to Communist China would be substantially
less than under a total embargo but that they almost certainly would at
least cover Communist China's essential import requirements.
In comparison with projected imports under current controls, it is
estimated that under a naval blockade Communist China would receive all of
the imports projected from the Bloc (2.8 million tons valued at X940 million)
but would receive less than one-sixth of the tonnage and less than one-third
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of the value of the imports projected from non-Communist countries
(120,000 tons valued at $90 million as compared with 700,000 tons valued at
$290 million). The commodities which would not be received would bet all
of the raw cotton, three-fifths of the rubber, all of the ammoninun sulfate,
one-half of the industrial chemicals, all of the paper, sugar, and gunny
bags, and four-fifths of the miscellaneous commodities (chiefly wool, rayon
and other non-essential commodities). In summary, overland imports from the
Bloc would increase from 2.1 million tons valued at $740 million to 2.9
million tons valued at X1,030 million.
Overland exports to the Bloc would also increase. However, because of
the increased costs of rail shipments it is tentatively estimated that only
$170 million of projected seaborne exports of $370 million would be carried
overland to the USSR in the event of blockade.
Under this estimate there would be no increase in Communist Chinats
trade deficit with the Soviet Bloc. However, the USSR would have to under-
write the increased costs of rail shipment; if the differential between the
costs of sea and rail shipment is estimated at X25 per ton, these costs
would amount to about 040 million on an additional 800,000 tons of imports
and 800,000 tons of exports.
B. Economic Effects
A naval blockade would have a greater effect on the Chinese Communist
economy than would an embargo. The interference with Chinese Communist plans
would be increased, additional strains would be place on internal transport,
and further gains from trade and further budgetary revenues would be lost.
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The sum of these losses would, however, be small in relation to Communist
China's total national income or total budgetary expenditures.
The reduction in imports of fertilizer and industrial ohomicals would
adversely affect plans to increase output of industrial crops and some
consumers' goods,
The blockade would also require the Chinese Communist rail system to
absorb an additional load amounting to about 5 percent of the carrying
capacity of the existing car park. Over half of this additional load would
represent increased overland shipments from the USSR. The remainder would
come from the part of the coastal trade for which rail lines offer
alternative routes. Some of the coastal track could not be shifted to rail
lines, with the result that the ports between Canon and Shanghai would be
particularly hard hit by the blockade.
C. Internal Political Effects
A blockade might encourage at least passive resistance to the regime.
At the same time it would provide the regime with a plausible excuse for
its failures and a new propaganda theme to mobilize popular support for its
policies. The net political effect within Communist China of a blockade is
not likely to be significant.
D. Effect on Sino-Soviet Relations
No change in existing paragraph 47 in SE-27.
E. Long-term Economic Effects
The adverse economic effects of a blockade on output in Communist China
would probably decrease rather than increase with the passage of time
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although the admustments required would be somewhat more difficult to make
than under a complete embargo. The loss of cotton and other raw materials
would be made up in large part through the development of domestic pro-
duction or of domestically produced substitutes.
Chi,ncse Communist plans for continued industrial development would not
be appreciably affected since such plans even now are dependent almost
wholly on imports of capital goods from the Soviet Bloc and on increased
domestic production of capital goods. However, it is probable that the
development of rail transport links with the Soviet Union would be speeded
up at the e p ense of other aspects of the development program. It is also
probable that because of transport and strategic considerations the develop-
ment of Manchuria and the Northwest would be given greater emphasis at the
expense of the areas of Central and South China.
V. Effects of Bombardment of Lines of Communications In Conjunction With a
Suggest first half of paragraph 49 in SE-27 be revised to read as
follows
Communist China is heavily dependent on certain critical rail and inland
waterways facilities for the execution of military movements and for the
maintenance of its industrial output. In Manchuria, which is more highly
industrialized than other sections of China, there is greater dependence
on modern transport, but the existence of a well-integrated and fairly
diversified rail net and a number of good highways has reduced the vulner-
ability of the transportation system. At the other extreme, in vast areas
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of rural China poor communications necessitate subsistence farming and
localized self-sufficient economies.
Paragraph 51 continues to be generally valid. Suggest adding new
sentence between second and third sentences of paragraph as followsa
Disruption of these lines could also impede the flow and distribution
within Manchuria of essential non-military imports and thus would under-
mine the regime's economic plans.
VI. Capabilities of the Chinese Nationalists to Blockade the China Coast
and to Conduct Air Strikes Against Inland Lines of Communication
(Defense)
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VII. Probable Communist Reactions to the Implementation of These Measures
A. Complete Embargo
A complete embargo on non-Communist trade with Communist China would
have no significant effect on Communist China's military capabilities and
only limited effects on its civilian economy. Such an embargo would
therefore probably have little or no influence, either as a deterrent or
a stimulant, on Communist military policies. The Communists would, how-
ever, probably launch an intense campaign of political warfare designed
to weaken the unity and resolution of the embargoing povwers4. This campaign
would probably stop short of new identifiable aggression, but mignt
include (a) efforts to precipitate strikes and internal disorder within
those lestern territories, (b) a show of military force on the borders of
Hong Kong, T&cau, Indochina, and possibly Burma and India, and (c) an
increase in technical and logistic aid to Communist rebels in Indochina
and possibly in Burma.
B. Naval Blockade
See OIR contribution to NIE 80, pp. 26-28. Add the following:
The Communists could also be expected to take the political warfare
measures noted above in the case of total embargo and might launch attacks
against bong Kong and 1Ufaoau. The likelihood of such attacks would be
increased if some of the blockading forces were based on Hong Kong or
relied on Hong Kong for bunkering and other services.
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C. Naval Blockade and Bombardment of Inland Communications
Paragraph 57 of SE-27 is still valid, but should be expanded to
include the following:
Imposition of a naval blockade and bombardment of inland conynunications
would cause the Communists to reappraise Western intentions. Whether such
a reappraisal would lead them to seek a negotiated settlement in Korea or
accept new risks in Korea, Indochina or elsewhere would depend on their
current global strategy.
D. A Naval Blockade and Air Bombardment by the Chinese Nationalists
A naval blockade and air bombardment by the Chinese Nationalists alone
would probably provoke the Chinese Communists to take quick retaliatory
action against blockading forces and against Nationalist bases on Taiwan.
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