SINO-SOVIET BLOC ECONOMIC ACTIVITIES IN UNDERDEVELOPED AREAS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80B01676R004200120011-3
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: December 15, 2016
• Document Release Date: July 11, 2003
• Sequence Number: 11
• Publication Date: March 5, 1956
• Content Type: REPORT

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BIWEEKLY REPORT
SINO - SOVIET BLOC
ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS
Number 2
5 March 1956
PREPARED BY THE WORKING GROUP
ON SINO-SOVIET BLOC ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS
ECONOMIC INTELLIGENCE COMMITTEE
SECRET
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NSC review(s) completed.
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THIS MATERIAL CONTAINS INFORMATION AFFECT-
ING THE NATIONAL DEFENSE OF THE UNITED STATES
WITHIN THE MEANING OF THE ESPIONAGE LAWS,
TITLE 18, USC, SECTIONS 793 AND 794, THE TRANSMIS-
SION OR REVELATION OF WHICH IN ANY MANNER TO
AN UNAUTHORIZED PERSON IS PROHIBITED BY LAW.
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CONTENTS
Page
1. Summary of Events, 15-27 February 1956 .. . . . . . . I
II. Background Notes on Items of Special Interest . . . . . 2
A.. Offer of Soviet Aid to Lebanon . . . . . . .. . . . 2
B. Ceylon Rice-Rubber Agreement with Communist
China . . . . . . . . . . . . . . . . . 3
C. Sino-Soviet Overtures to Pakistan . . . . . . . . 5
D. Chinese Communist Trade Agreement with India . . 6
E. Sino-Soviet Bloc Trade Agreements with Portugal 7
F. Progress of Soviet Credit to Afghanistan . . . . . 8
G. West German Participation at the Leipzig Fair . . 10
III. Other Significant Developments
A. Technical Aid . . . . . . . . . . . . . . . . 11
B. Industrial Installations . . . . . . . . . . . 11
C. Trade Missions . . . . . . . . . . . . . . . . 12
D. Trade Agreements .. . . . . . ... . . . . . . . 13
E. Credits Extended . . . . . . . . . . . . . . . 13
F. Transportation Agreements . .. . . . . . . . . . 14
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SINO-SOVIET BLOC ECONOMIC ACTIVITIES
IN UNDERDEVELOPED AREAS*
1. Summary of Events, 15-27 February 1956.
During the second half of February 1956, the most significant Sino-
Soviet Bloc efforts to expand economic relations with underdeveloped
areas of the Free World were the offer of Soviet technical assistance to
pro-Western Lebanon, the proposal that Pakistan and the USSR exchange
trade missions, and the negotiation of a trade agreement between India
and Communist. China.
Countries of the Sino-Soviet Bloc concluded a total of 9 trade agree-
ments wi.th.Portugaland Yugoslavia which provided for a substantial ex-
pansion o.' trade between those two countries and the Bloc.
In the Middle East and in South Asia, the Bloc was reported to have
agreed to,build and install several complete industrial plants -- Hungary
to construct a power station in Egypt, and the USSR to provide irrigation
and telebhone facilities in Kabul, Afghanistan, taking over a contract
which previously had been awarded to West Germany.
In the Far East, Communist China for the first time contracted for
the installation of a complete industrial plant in a non-Bloc country --
a textile mill in Burma. A. notable feature of the proposed trade agree-
ment between India and Communist China was the offer by Communist
China to supply steel, cement, and soda ash.
In South America, trade delegations from Poland, Hungary, and
East Germany are negotiating in Santiago for expanded Bloc trade with Chile.
* Although the main emphasis of the Biweekly is on economic activities
of the Sino-Soviet Bloc in underdeveloped areas of the Free World, sig-
nificant Bloc activities of this nature in areas not considered under-
developed'also will be discussed.
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II. Background Notes on Items of Special Interest.
A. Offer of Soviet Aid to Lebanon.
The Soviet Minister to Lebanon called on President Chamoun
on 22 February and reportedly offered general, large-scale technical
assistance in four fields of major interest to the Lebanese Government --
road construction, irrigation, transport, and communications. The
USSR would accept Lebanese products in payment over an extended period.
The Minister informed the President that the services of a six-man Soviet
survey team, which happened to be in Beirut, were available. The Presi-
dent expressed his thanks for the offer but made no further comment.
Of a total of US $5. 9 million allocated for public works projects in the
Lebanese budget for 1955,. about 75 percent was to be spent for highway
development and 19 percent for telephone equipment.
Lebanon is one of the most pro-Western of all the Arab coun-
tries, and President Chamoun has expressed his opposition to accept-
ance of Sino-Soviet Bloc aid. Several influential members of the Lebanese
parliament, however, are known to be willing to accept aid from any
source. It is possible that the President may not be able to prevent
acceptance of the Soviet offer.
The offer appears to be the first bona fide offer of economic
assistance to Lebanon by the USSR. The USSR, however, is not the first
Sino-Soviet Bloc country to offer economic aid to Lebanon. Both Czecho-
slovakia and Hungary reportedly have attempted to secure contracts for
the construction of several projects, all presumably on long-term credit
terms. Czechoslovakia, which has accounted for about half of Lebanon's
limited trade with the Bloc in recent years, has been the most persistent
in attempting to participate in Lebanon's planning and industrial projects.
In the summer of 1955, upon the return from Czechoslovakia of a delega-
tion of Lebanese industrialists headed by the Minister of National Economy,
the Minister is reported to have announced an agreement whereby the
Czechoslovaks would supply and install several light industrial plants on
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the basis of a 5-year credit. Another report in September 1955 stated
that Czechoslovak industrial consultants would be provided free of charge
to make industrial surveys recommending improvements to existing
plants and planning new industrial installations.
2. Lebanese Trade with the Sino-Soviet Bloc.
Since 1950 the trade turnover between Lebanon and the
Sino-Soviet Bloc has averaged only about US $5 million per year, about
2 percent of the total trade of Lebanon. In recent months, Bloc countries
have been attempting to increase their trade with Lebanon by negotiating
formal trade agreements and by establishing trade offices in Beirut.
Lebanon similarly has been endeavoring to increase its exports wherever
possible; hence, it would be inaccurate to imply that the initiative was
wholly on the Bloc side. In January, formal trade relations were estab-
lished with Communist China, Poland, and Rumania. Trade agreements
have been renewed with the USSR, East Germany, and Czechoslovakia.
These three countries and Hungary have trape offices in Beirut.
The principal appeal of the agreements with the Sino-Soviet
Bloc is that they hold promise of outlets for Lebanon's exportable surpluses
of citrus fruits. . Although her citrus exports have tripled since 1950, they
still account for only a small part (about 9 percent) of Lebanon's total ex-
ports, amounting to US $4. 5 million in 1954.
B. Ceylon Rice-Rubber Agreement with Communist China.
The Ceylonese government has agreed to allow Communist China
to send goods to Ceylon in part payment of the debt Communist China owes
to Ceylon under the rice-rubber agreement. Under the terms of the 5-
year agreement signed on 4 October 1952, any deficit owed by Communist
China to Ceylon is to be paid in sterling and/or commodities acceptable
to the Ceylonese. This is the first time the proviso permitting payment
in goods has been used. At the beginning of 1956, Communist China owed
an estimated US $25 million to Ceylon. Shipments of rice from Communist
China in 1956 will reduce this debt substantially; but Ceylon has agreed to
accept commodities rather than insist on sterling payments for at least a
portion of the remainder.
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The first shipment of Ceylonese rubber to Communist China
occurred in the autumn of 1951, and subsequent shipments culminated
in an agreement to exchange annually 50, 000 long tons of rubber at
premium prices for about 250, 000 tons of Chinese Communist rice at
prices favorable to Ceylon. It is estimated that the agreement enabled
Ceylon to make annual profits. of US $19. 7 million in 1953, and US $12. 3
million in 1954.
In 1952 the exchange was of definite economic advantage to both
countries. The UN embargo of May 1951 on shipments of strategic ma-
terials to Communist China had cut off the Chinese Communist supply of
rubber. Ceylon, a high-cost rubber producer, was faced meanwhile
with markedly declining rubber prices and the obligation to buy rice in
a tight, high-priced world market. In spite of the UN embargo and the
loss of US aid, Ceylon accepted the economic advantages of trade with
Communist China.
More recently the rice-rubber agreement with Communist China
has become an economic burden to Ceylon, as a result of the increased
availability of rice from traditional Southeast Asian sources and the recovery
of world natural rubber prices. Thus, in 1953, Ceylon signed an agree-
ment with Burma under which 200, 000 to 600, 000 tons of Burmese rice
would be made available each year for the 4-year period from 1954 through
1957.
By the end of 1954, as a result of the two agreements, Ceylon
had a surplus of approximately 100, 000 tons of rice. Ceylon attempted
to .resell some of the rice in Hong Kong and Japan. In addition,the previous
price advantage which Ceylon had derived from the exchange was reduced
by the rise of world rubber prices in 1955 above the prices offered by
Communist China. During 1955, Communist China paid varying premiums
for rubber in accordance with changing world-market prices. As a result
of these unexpectedly high world rubber prices, however, the value of
Ceylon's exports to Communist China was greater than the value of Chinese
exports of rice to Ceylon.
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Ceylon has agreed to accept 7, 000 tons of white sugar from Com-
munist China in partial settlement of the debt. This sugar was obtained
by Communist China on a. barter basis from France. Other than this
transaction, there are no confirmed reports of commodities of a third
country being used as payment.
The rice-rubber exchange will continue in 1956. This fact may
explain, in part, Ceylon's decision to reduce 1956 rice purchases from
Burma from ZOO, 000 to 100, 000 tons.. In addition to the Burmese rice
which Ceylon received in 1955 under the direct agreement with Burma,
Ceylon also received 50, 000 tons of Burmese rice as a reexport from
Communist China,
C. Sino-Soviet overtures to Pakistan.
1. Communist China.
The official visit of both the Prime Minister and the Foreign
Minister of Pakistan to Communist China, in response to an invitation ex-
tended earlier by Chinese Premier Chou En-lai, now has been tentatively
set for some time in April 1956. Except for the generality that a "visit
of this nature would help to better understanding between the two coun-
tries" expressed by the Pakistan Foreign Minister, no details of the
scope of the visit have been disclosed. It is known, however, that both
are very interested in assessing at first hand Communist China's economic
progress and, more particularly, the status and treatment of Mohammedans
as a religious minority under the Chinese Communist regime. In view of
Communist China's continuing purchases of raw jute from Pakistan, it
seems probable that a trade agreement between th!e two countries will be
proposed by the Chinese, (Since July 1955, Communist China has pur-
chased 136, 000 bales from the current crop and a further purchase of
from 40, 000 to 50, 000 tons for shipment in March and April. was announk.ed
on 30 January 1956. )
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2. USSR.
The US Ambassador in Moscow has reported further progress
in the negotiation of a Soviet-Pakistan trade agreement: a Pakistan trade
mission is to visit the USSR, and a Soviet mission is, in turn, to go to
Pakistan to consider possibilities of reciprocal trade.
3. Czechoslovakia.
Following the completion of a trade agreement with Poland,
Pakistan is now in the process of negotiations with Czechoslovakia. The
Czechoslovaks' willingness and readiness to strengthen trade relations
with Pakistan was emphasized publicly by the Czechoslovak envoy in
Pakistan, Eric Brazda, in a speech on 15 February in which he said that
Czechoslovakia was ready to provide Pakistan with a variety of agri-
cultural and industrial machinery ranging from sugar mills to cement
factories and other installations.
D. Chinese Communist Trade Agreement with India.
Communist China's apparently unsolicited offer to supply 50, 000
tons of steel and undisclosed amounts of cement and soda ash to India has
spearheaded negotiations for a new trade agreement. The Indian Secretary
of the Ministry of Commerce and Industry, commenting to US Embassy
officials about these negotiations, stated that India's desperate need for
steel to fulfill the Second Five Year Plan makes it difficult, if not impos-
sible, for India to turn down the Chinese Communist offer. At the same
time, he recognized the political motivation behind the offer.
The offer of steel represents a distinct departure from the recent
pattern of trade between India and Communist China. _ Except for bulk pur-
chases of rice in 1951-52 and 1952-53, Indian imports from Communist
China have been very small in value (less than 1 percent of total imports)
and have consisted largely of such unfinished commodities as raw silk,
tung and china-wood oils, and newsprint.
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Indian officials in the Ministry of Finance discount the possibility
of trade between the two countries growing to significant proportions in
the near future but admit that such trade, if based on carefully selected
items of a scarce nature and supplied at competitive prices, might have
an impressive political impact and strengthen Communist China's foot-
hold in the Indian market.
E. Sino-Soviet Bloc Trade Agreements with Portugal.
The conclusion on 16 February of a semi-official trade-and-pay-
ments agreement between the Central Bank of Portugal and the German
Notenbank of East Germany marked the fourth such agreement that
Portugal has signed with countries of the Sino-Soviet Bloc in the last 6
weeks. Similar agreements were signed with Czechoslovakia on 21 January,
with Hungary on 3 February, and with Poland on 12 February.
These agreements, which were not concluded on a government-to-
government level, as Portugal does not have diplomatic relations with
Bloc countries, will govern trade during 1956. They are the first such
agreements to be concluded in the postwar period. The commodities in-
volved are similar to those traded in the past and include cork, wines,
cocoa beans, coffee, and superphosphates from Portugal in return for
machinery, land-transport equipment, glassware and ceramics, instru-
ments, and textiles from East Germany; railroad rolling stock, tractors,
'and coal from Polp.nd; and aluminum wares from Hungary. In the past,
Sino-Soviet Bloc imports from Portugal have far outstripped exports, and
it is possible that Bloc motivation in concluding these trade agreements
lay in the desire to pay for Portuguese imports in Bloc exports rather than
,in convertible currencies, as the Bloc countries have in the past.
Trade between Portugal and the Sino-Soviet Bloc has been rela-
tively small in value, accounting annually for 1.2 percent of total Portu-
guese trade since 1952. During 1955, Czechoslovakia.. replaced the USSR
as the largest Bloc trading partner of Portugal.
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Sales of cork (traditionally Portugal's chief export) to the Bloc
amounted to US $5. 9 million in 1954 and US $2. 9 million during the
first 6 months in 1955, representing 14 percent and 8. 9 percent,
respectively, of Portuguese exports of crude and manufacture-d cork.
Trade with the Bloc is thus of some importance to the Portuguese cork
market.
Motor vehicles and industrial machinery have been the primary
Bloc exports to Portugal, amounting to US $14Z,,'000 during the first 6
months of 1955. During 1954, however, wheat supplied by Czechoslovakia
ranked first -- amounting to US $283, 000. Coal from Poland was the
largest single item of Bloc export in 1952 and 1953.
Soviet exports to Portugal have been negligible. Recently, how-
ever, the USSR competed with the US and Brazil in bidding for the sale
to Portugal of 2, 000 tons of raw cotton which would be bartered for cork.
Portuguese authorities reportedly rated the Soviet cotton samples as the
best in quality, and they would prefer to barter wine rather than cork. If
the bid is awarded to the USSR, the transaction will mark the first sale of
cotton to Portugal by a Bloc country. Normally, Portugal meets its demands
for cotton by imports from its African colonies, which had a smaller-than-
average crop last year.
F. Progress of Soviet Credit to Afghanistan.
A variety of reports and rumors have been received as to the
nature of the projects the USSR plans to undertake under its US $100
million credit agreement with Afghanistan, signed on 28 January 1956.
The frequency of the reports indicates the widespread interest which
both Afghanistan and the USSR have in implementing the agreement with-
out delay.
Both Afghanistan and the USSR are reportedly interested in im-
proving communications, roads, airports, and telephone systems and in
constructing hydroelectric plants. The roads in Afghanistan are notori-
ously bad, and in places, particularly in the north, they are impassable
for some months of the year.., Trade of the most basic importance is
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delayed by necessary circuitous routing. Afghanistan?s continuing dis-
pute with Pakistan has made the government particularly conscious of
its vulnerability to a trade blockade from the south. Since the conclusion
of the Afghan--Soviet transit agreement the government of Afghanistan has
requested that certain imports from the Free World be shipped by way
of the USSR. The USSR has responded with special facilities for speeding
delivery of freight shipped through its territory. Among the proposed
projects that have been reported are road construction from Kunduz to
Pul-i-khumri and improvement of port facilities at Qizil Qala, including
gasoline storage, warehousing, and an auto repair shop. (Qizil Qala is
an important transit point on the Oxus River boundary, and some of this
work is already in progress. )
There have been several reports that the USSR will undertake
the construction of an irrigation dam at Barikao. In addition the West
German Legation reported to the US Embassy at Kabul that the USSR
will take over the second phase of the Sarobi hydroelectric project which
has been thus far an exclusively West German operation.
The US Embassy also has reported as reliable information an
Afghan cabinet decision to cancel the Siemens contract for constructing
a short-wave radio station and long-distance telephone facilities. This
work is to be done by the USSR as part of the credit agreement. Thus
far unconfirmed is a report that the USSR will construct-a military air-
port about 40 miles north of Kabul.
In addition to the US $100 million credit, the USSR is reported
to have offered a loan of US $12 million to the Afghanistan Textile Com-
pany. Neither the terms or objectives of this loan are clear at present,
but it would appear to offer a field for Soviet penetration into the Bank-
i-Me.lli complex of projects and operations and the possible supplanting
of German and Austrian technicians by Soviet technicians.
The influx of new Soviet personnel into Afghanistan, anticipated
in implementation of the agreement, has not really begun, but 15 new
Soviet technicians arrived in mid-February,. 2 Czechoslovak engineers
already are installed in the Ministry of Public Works, and office space
is being prepared for the arrival of additional Soviet engineers.
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The cooperation of the Afghan government in providing facili-
ties for preliminary Soviet survey teams has been extensive and no
doubt reflects interest in speeding the work. In this connection it is
reported that all road and bridge plans and blueprints in the Ministry
of Public Works have been turned over to the Soviet engineers.
G. West German Participation at the Leipzig Fair.
Reports from the Spring Fair at Leipzig, East Germany, indicate
that West Germany, with 1, 589 exhibitors, is the largest non-Bloc par-
ticipant. Most of the major West German industrialists are represented,
many exhibiting at the Leipzig Fair for the first time since World War II.
This large measure of West German participation - - France,
with 291 exhibitors, is in second place among non-Bloc participants --
should not be viewed as abnormal or as presaging a major expansion of
trade with the Bloc. In the Spring Fair of 1955, there were even more
West German participants -- 1, 662 as compared with 1, 589 in 1956. It
is reported, however, that approximately 400 West German concerns
were refused space at the present Fair. At the Fall Consumer Goods
Fair at Leipzig in 1955, there were 1, 279 West German participants,
and at the Fall Fair in 1954 there were 929.
The possibility of increased trade with the Bloc is not the sole
attraction of the Leipzig Fair to West German businessmen. The Fair
attracts many foreign visitors, including delegations from many of the
underdeveloped countries, and therefore offers the exhibitors the oppor-
tunity to display their products before most of the world. The attitude
of an official of Krupp, one of the largest of the concerns participating
at the Fair for the first time since World War II, may be representative.
He reportedly stated that "all of our competitors from West Germany are
here at the Fair, and we don't want to stay behind. "
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III. Other Significant Developments.
A. Technical Aid.
1. Offers.
East Germany has offered to train 100 Egyptian trade-school
boys for 11 months. The Egyptian Ministry of Education reportedly plans
to accept the offer.
2. Acceptances.
a. Egypt-East Germany.
Reports from East Berlin indicate that the Siemens
interests will set up chemical laboratories in Cairo and that East German
-experts in sugar refining will soon visit Egypt to aid in constructing a
sugar factory.
b. India-East Germany.
A delegation of East German experts arrived in Bangalore,
India, on 19 February to inspect sitos and advise the local government on
the location of a raw-film industry. The team, in India at the invitation
of the Indian government, also will hold discussions with the Mysore ad-
ministration before returning to New Delhi for final discussions with the
government of India.
c. Yugoslavia-Bulgaria.
Bulgaria and Yugoslavia signed a 5-year scientific and
technical exchange agreement in Sofia on 10 February.
B. Industrial Installations.
1. Offers.
No new offers of specific installations were reported dur-
ing the period.
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2. Reported Acceptances.
a. Egypt,-Hungary.
Hungarian sources reported that after several months
of negotiations an agreement was signed in Cairo between Egypt and
Hungary providing for construction by Hungary of a power station similar
to that in Sztalinvaros, Hungary. The Hungarians commented that the
relatively early delivery date will impose some degree of strain on the
Lanz Engineering Works, the Klement Gottwald Electric Factory, and
the April Four Factory,
C. Trade Missions.
1. Czechoslovakia and USSR to Yemen.
The Czechoslovak trade mission visiting Egypt in mid-February
was reported about to proceed to Yemen to discuss a trade agreement be-
tween the two countries which would involve an exchange of coffee and
leather from Yemen for heavy machinery from Czechoslovakia. Mean-
while?five members of the Soviet trade delegation, who had been in Santa,
have returned to Cairo. Egyptian sources report that their mission was
a failure.
2. Poland, Hungary, and East Germany to Chile.
,Three trade missions from Poland, Hungary, and East
Germany reportedly were in Chile for direct conversations with the
National Foreign Trade Council (CONDECOR), The Nitrate and Iodine
Sales Corporation (COVENSA), and the Ministry of Economy. The local
press reported the sale to Hungary of 20, 000 tons of nitrate in exchange
for Hungarian goods of similar value.
3. USSR to Burma.
The Rangoon Embassy reported that a Soviet mission, due
in Burma in May, is to explore the possibility of supplying Burma with a
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steel mill, tractor and fertilizer factories, and other plants. This is
an expected implementation of the Nu-Bulganin agreement of December
1955, under which the USSR will supply technical assistance and some
equipment to Burma in exchange for rice, shipments of which may be
deferred if necessary.
D. - Trade Agreements.
1. Five Soviet Bloc Countries with Yugoslavia.
The conclusion of five new trade agreements between Ypgo-
slavia and the Bloc was reported during the second half of February. The
first trade -and-payments agreement between Yugoslavia and Communist
China was signed in Belgrade on 17 February, together with an agreement
for scientific and technical cooperation. The trade agreement anticipates
exports this year of 2. 5 million pounds sterling in each direction.
An agreement with Albania calls for the same volume of trade
as did the 1955 agreement (US $750, 000 each way).
A trade agreement with Bulgaria was signed in Sofia on 10
February, providing for US $4. 5 million of trade flowing in each direction
and also calling for technical and scientific cooperation. The volume of
trade anticipated is nearly double that scheduled for 1955.
Following the Czechoslovak-Yugoslav financial agreement
of 10 February, a protocol for an exchange of goods between the two coun-
tries amounting to US $26 million was signed on 16 February. The amount
of trade provided for in the agreement is about double the actual 1955 level.
A Yugoslav trade agreement with Rumania calls for nearly
85 percent more trade than did the 1955 agreement (which was only about
50 percent fulfilled).
E. Credits Extended.
The US Embassy in Belgrade has learned that the polish credit
extended to Yugoslavia in November, for the purchase of transport equip-
ment and machinery, amounted to US $20 million.
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F. Transportation Agreements.
1. Egypt-Poland.
An agreement regulating air services between Egypt and
Poland was signed in Cairo in mid-February. It provides for the inaugura-
tion of a regular air service between Warsaw and Cairo, to operate three
times a week at the outset.
2. India-USSR.
The details of establishing a direct maritime link between
India and the USSR are to be arranged by a delegation of Indian specialists
visiting the USSR. In mid-January the Secretary of the Indian Ministry
of Transport told a press conference that service between a Black Sea
port and India would be set up in accordance with a communique on eco-
nomic relations between the two countries issued in December. The
communique stated that both governments believed the organization of
such shipping services to be necessary.
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