FINANCING OF COMMUNIST CHINA'S FOREIGN TRADE: MID-YEAR OUTLOOK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001100170001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: November 16, 2016
• Document Release Date: March 3, 2000
• Sequence Number: 1
• Publication Date: September 15, 1961
• Content Type: BRIEF

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CIA/RR-CB-61-50 S-E-C-R-E-T
CURRENT SUPPORT BRIEF
Copy No._ 2 f
15 September 1961
FINANCING OF COMMUNIST CHINA'S FOREIGN TRADE : MID-YEAR OUTLOOK
OFFICE OF RESEARCH AND REPORTS
CENTRAL INTELLIGENCE AGENCY
This report represents the immediate views of the
originating intelligence components of the Office
of Research and Reports. Comments are solicited.
This document contains information affecting the national defense of
the United States, within the meaning of the espionage laws, Title 18
USC, Sections 793 and 794, the transmission or revelation of which
in any manner to an unauthorized person is prohibited by law.
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4"l-sc
CIA./RR-CB--
CURRENT SUPPORT BRIEF
Copy No.
29 August 1961 0
CHINESE COMMUNISTS' FOREIGN TRADE FINANCING- MID-YEAR aUTW?K C
OFFICE OF RESEARCH AND REPORTS
CENTRAL INTELLIGENCE AGENCY
This report represents the immediate views of the
originating intelligence components of the Office
of Research and Reports. Comments are solicited.
W-A-R-N-I-N-G
This document contains information affecting the national defense of
the United States, within the meaning of the espionage laws, Title 18
USC, Sections 793 and 794, the transmission or revelation of which
in any manner to an unauthorized person is prohibited by law.
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FINANCING OF COMMUNIST CHINA'' S .FOREIGN TRADE.* MID-YEAR OUTLOOK
Communist China's response to the rapid deterioration of its bal-
ance of payment position since mid-1960 has involved a delicate juggling
of its international financial resources. China's extreme financial
stringency stems largely from poor harvests which have drastically cur-
tailed the agricultural products available for export while also necessi-
tating large-scale grain imports. The measures undertaken by the Chinese
to avoid depletion , of their foreign exchange reserves appear to be effec-
tive, but' despite these efforts, Peiping probably will have to draw on
reserves --including gold assets--in the magnitude of $55-80 million to
balance 1961 Free World accounts.
China's basic need in_1961 is to generate funds to pay for. grain
imports while maintaining a level of foreign exchange reserves suf-
ficient for contingencies,.and a level "k imports of essential commodities,
such as petroleum and fertilizers, sufficient . for, the operation of the
economy. On the basis of current contracts, China's foreign exchange
costs, including,freight, for 1961 grain imports, amount to an estimated
$350 million, of which about $230 million is payable this year. China's
first series of wheat Imports, contracted before March 1961 and amount-
ing to about $160 million, were on cash basis, probably reflecting an
estimate by the Chinese of?what they would be able to finance without
adverse effects on ,other. programs; . As the prospects of a third. poor
wheat crop became apparent, additional grain imports became necessary
for the second half of the year, but credits were required to finance
the purchases. The second series of grain contracts total about $190
million, an estimated $120 million of which will be under credits fall-
ing due in 1962.
The basic and probably.most difficult response of the Chinese to
their financial difficulties has been to slash imports radically--a
response which impinges on development plans. The limited evidence on
Sino-Soviet trade plans for 1961 suggests that the level of trade prob-
ably. will. decline nearly one-third from last year's level of about
$1.7 billion, and Chinese imports from the USSR may fall by as much as
40 percent. The Chinese have cut imports from Western Europe to such
an extent that preliminary returns suggest this trade may be balanced
this year,in contrast to the usual Chinese import surplus, which in
recent years has been as high as $220-270 million. Substantial sales
of silver bullion have helped reduce the deficit. The Chinese appear
to be retaining a high degree of flexibility in many of their trade
commitments, probably in order to be able to adjust imports continuously
to the availability of.exports.
The Chinese are trying to maximize foreign exchange earnings by
maintaining large export surpluses with,a few areas, particularly Hong
Kong,'in order to generate the bulk of the Western exchange needed to
pay for grain. China's net earnings with these areas probably will
total at least $100-125 million. Foreign currency remittances from
overseas Chinese, which amounted to an estimated $55 million ifs 1960,
are being encouraged, but the available evidence suggests a drop this
year to perhaps $50 million, largely because some overseas Chinese are
sending food par.c61s instead of money. Peiping'.s plan to encourage the
overseas Chinese to lend money for fertilizer has not been to successful
so far. Other measures, such as small, short-term borrowings from Hong
Kong banks, possible limitations on external travel, and perhaps reduc-
tion of commercial staffs abroad yield only small sums of foreign ex-
change.
15 September 1961 CIA/RR-CB-61-50
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By mid-1961, the Chinese appeared to be falling short of financ-
ing their grain imports from current export earnings by about $55-80
million. A drain on China's reserves of this magnitude, while much
less than the estimated $140 million for 1960, would still be substan-
tial. Moreover, this projected drain of reserves may be optimistic
if the observed difficulties the Chinese are having in meeting export
commitments turn out to be more than isolated examples.
The tight-financial situation makes it likely that the Chinese
will exploit whatever bargaining devices they have available to ease
their position for the rest of this year, as well as 1962. With
Australia and Canada they are apt to link further grain purchases to
acceptance of Chinese goods or to extended credit terms. As a :Last
resort, China might be willing to seek a long-term loan from the USSR,
but only if faced with a considerable deterioration in its balance of
payments with the West.
The Chinese have made painful adjustments which probably will en-
able them to meet their financial obligations in 1960. Their apparent
success, however, has been achieved by postponing some payments until
1962. The Chinese may even be able to postpone until 1963 the pay-
ments associated with some wheat imports if the import surplus and
quantity and credit terms of wheat purchases in 1962 are no worse than
1961. The g-kikri in time, however', will require more delicate juggling,
for the Chinese face a continuing and probably increasingly stringent
financial situation with diminishing reserves.
15 September 1961 CIA/RR-CB-96 6/-6a
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15 September 1961 CIA/RR-CB-3@ tat-L-0
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