THE SOVIET ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82R00025R000400030008-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 36
• Document Creation Date: December 16, 2016
• Document Release Date: January 4, 2005
• Sequence Number: 8
• Publication Date: January 12, 1964
• Content Type: BRIEF

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DRAFT DDI BRIEFING FOR
A'AHON SUBCOMMITTEE
THE SOVIET ECONOYY
1. Khrushchev today oust find little to please him when
he surveys the state of the Soviet economy.
A. The economy has in effect had a threefold
assignment: supporting an aggressive foreign
policy, including the arms and space races;
catching up with the US in industrial output;
and raising the level of consumption of the
Soviet people, The growth rate of the economy,
however, has not measured up to these tasks.
1. The developing difficulties of the economy
now have been brought to a head by the
disastrous harvest of 1963.
B. The first four years of Khrushchev's leadership,
through 1959, were.a great success. The New Lands
and corn programs gave agriculture its first real
lift since 1937.
1. Economic growth in this period was made
easier by a reduction in vilitary spending
and in armed forces manpower in 1956 and 1957.
2. This was the period when Khrushchev began
raking those promises about catching up with
the United States in :,eat, i. ilk, consumer goods
and industrial production.
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C. Since 1959, however, the econor:y has slowed down
significantly. Difficulties appeared not only in
agriculture, but in all parts of the economy.
1. Industrial growth slowed down.
2. Tilore or: inously for Soviet prospects, investment
growth began to slow drastically.
II. We think a large part of the blame for the slowdown
falls on defense spending.
((Chart 1: Estiirated and Announced Defense
Expenditures, 1955-1963))
A. The first chart shows the trend in defense spending
since 1955. The upper line is our estimate of actual
defense expenditures.
1. After the decline in 1956 and 1957, spending
started upward again in 1956, as missile
systems emerged from the R&D phase into
production and deployment.
2. We calculate that between 1958 and 1963,
Soviet defense spending increased by
more than one third.
B. The lower line on the chart is the defense budget
announced by the Soviets.
1. The difference between the two lines is partly
a question of coverage. The announced budget,
for example, does not include atomic energy,
or research and development.
2. There is also, however, an element of
concealment. We estimate that total spending
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for i ilitary purposes began rising in l93b,
while the announced budget stowed no
appreciable increase until 1961.
((Chart 2: Estimated Defense Spending by
Type, 1956-1063))
C. The rise in defense spending cane r:ainly in
expenditures for develop; ent, procure.r,:ent, and
operation of equipment. The upper band on this
chart shows expenditures which were primarily
for personnel. You can see that they declined
until 1261, and since then have remained nearly
constant.
1. Conversely, the expenditures for procurebent,
R&D, and operations and raintenance have
risen much faster since 1958 than the total
defense spending.
D. The Soviet econowic problen, however, lies less
with the total defense spending than with the
defense drain on the key critical resources of
high-quality n'aterials and manpower. Our
estimates of the ruble cost of defense do not
adequately reflect this factor of the quality
of resources. A homely example ray illustrate
this point:
1. Military and civilian activities use zany of
the save types of trucks. When the finished
trucks are inspected, those without defects go
to the i.ilitary. The civilian econor:y gets the others.
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2. The same rule applies to the top levels in
manpower--the scientists, the engineers and
the technicians. Defense has first claim.
E. This military priority on critical resources
stems particularly from the changing "mix" in
military procurement which has accompanied the
development of advanced weapons systems.
((Chart 3: Advanced Weapons Procurement))
1. The procurement of conventional military
hardware declined sharply from 1955 through
1958, and has remained constant since 1959.
2. The portion of total procurement devoted to
missiles, nuclear warheads, and associated
electronics, however, has risen constantly.
From an insignificant share before 1955,
the cost of advanced weapons has grown to
two thirds of all procurement.
3. The rapid rise of these expensive programs
accounts in part for recent shortcomings
in industrial investment, especially in the
chemical industry.
4. Defense and associated research also monopolize
computers, hampering the program for modernization
and automation.
((Chart 4: US-USSR Comparative Annual GNP Growth))
III. The cost of the defense establslfln;ent and the defense
priority on investment and resources have had a marked
effect on the growth rate of the Soviet economy.
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A. During the 1950's, Soviet GNP grew at a rate
which fluctuated from year to year but averaged
an annual six percent for the decade -- roughly
twice the US growth rate.
1. In the 1960's, however, the rate of
growth has fallen off. For the past
two years, it has been less than 2.5
percent, and below the rate in the
United States.
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B. Iuch of the wide fluctuation in the annual rates
of growth in the USSR reflects the fortunes of
Soviet agriculture.
1. For instance, 1956, 1958, and 1961 were
years of good harvests.
2. But 1962 was a bad year, and 19(53 was a
near disaster.
3. Thus, if the weather is average next year,
the harvest rt.ight be expected to put the
GNP figure back to a growth of 4 to 5 percent.
C. All -, the slowdown was not accounted for by
agriculture, of course. Investment and industry
also slowed down.
((Chart 5: Growth Rate of Investment
and Defense))
1. In this chart, we can see the surge of new
Fixed Investment growth in 1956 to 1959.
2. Then the resumption of growth in defense
spending, in 1958 and 1959, was followed by
a slowdown in investment to about 4 to 5 percent
in 1961 to 1963. Even industrial investmrent,
which had been growing at about 12 percent,
fell. off to about 4 to 5 percent at this time.
((Chart 6: Total, Civilian, and Military
Industrial ?roduction)
D. We can see the same co.petition between civilian
and military users within industrial production.
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1. Once again, this chart shows the civilian share
of production growing rapidly in the early years,
and slowing down in the later years.
2. The pattern of production of equipment--including
arcs--for the military is just the reverse.
3. Meanwhile, the growth rate for total industrial
production has dropped off from 8 to 9 percent
to a current rate of 6 to 7 percent.
V.. In spite of recent difficulties, the Soviet Union has
created a formidable defense establishment. This has
been achieved by decades of priorities and concentration,
first on industrial development, more recently on
advanced weapons development.
((Chart 7: Comparative Total US and Soviet
GNP and Components)
A. This chart of the end uses of total output in the
Soviet Union and the United States shows the
pattern of how the Soviets concentrate their
resources.
1. Total Soviet GNP in 1962 was less than half
that of the United States.
2. Soviet consumption was little more than
one third of US consumption--even less on
a per capita basis.
3. Total Soviet investment, on the other hand,
was fairly close to the US in absolute teras.
Furtherir:ore, in comparison to the corresponding
figures in the United States,invest)m,ent in industry
was r1uch larger both in percent and in absolute terips.
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Other than industry, the rest of total
investment goes into such items as highwayp
or commercial and housing construction, in
which the Soviets are considerably less
interested than is the West.
4. Education, on the other hand, is something
the Soviets look upon as an investment in
productive labor. Hence the Soviet educational
effort, out of half as largg a GNP,,ariounts to more
than two thirds of ours.
5. Finally, the Soviet defense effort--measured
in US prices and costs--was four fifths that
of the United States. I must add, however,
that whether you calculate in rubles, or in
equivalent dollar figures, there are always
factors which tend to make these comparisons
misleading to some degree.
VI. The end uses shown on the last chart do not include
Soviet military and economic aid programs. In
addition to helping its satellites, the Soviet Union
has given economic aid to some 25 non-Communist
underdeveloped countries, and wilitary assistance on
liberal credit terms to 13.
A. From 1954 through 1959, new extensions of economic
aid to non-Conrunist countries tended to increase
each year, exceeding $800 million in 1959. The
USSR seems to have tightened its criteria for
such aid in 1960 and 1961.
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1. By 1962, the figure was down to a low of
477 million. We estimate that last year
it arm~ounted to about :;9200 rmillion.
2. During the past two years new coirrm:itments for
Soviet military assistance outside the bloc
have also been cut back. Deliveries, however,
are maintaining a high pace, and new requests
are being fret.
B. Despite this recent retrenchment in Soviet economic
and military aid, the drawings against past commitments
are increasing.
1. Total economic and military commitments to date
outside the bloc are about $6.1 Billion.
a) Of this, snore than $2 Billion in economic aid
remains to be drawn.
b) There is also m much as $1 Billion outstanding
in military commr.itments, but this probably
will be covered largely by delivery of
equipment already in stock, posing no new
economic burden.
C. Soviet economic aid to Communist countries--including
Cuba and Yugoslavia--has amounted to more than $4.6 Billion
over the past decade. It fluctuates widely from
year to year.
1. The value of Soviet military assistance to
Communist countries is difficult to measure on the
basis of available information. It includes an
estiirated $500 million for Cuba in the past iqur
years.
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D. In spite of the general economic slowdown, the
reduced level of new foreign aid corramitments
probably does not stem from any inability to
spare the moderate amounts involved.
1. Instead, we think that past experience now
has led the Kremlin to take a less enthusiastic
view of whether generosity to underdeveloped
countries will pay off in political gains.
2. There are also, of course, political and
psychological inhibitions against granting
large-scale foreign assistance at a time
when some domestic programs are being
curtailed.
((Chart 8: US and Soviet Population and Employment))
VII. Before I turn to the specific subject of agriculture,
I want to mention the related factors of assignment
of manpower, and the Soviet diet.
A. About 42 percent of the Soviet labor force is
engaged in agriculture, but these 49 million people
produce only about three quarters as much as the
6 million Americans engaged in agriculture.
B. Soviet industry and US industry each employ
just under a quarter of the labor force, but
in the Soviet case this means half again as
many workers for a much smaller output.
C. The sectors squeezed in the USSR are trade and services.
((Chart 9: Composition of US and Soviet Diets.))
VIII. The composition of the Soviet diet is also significant
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A. The average Russian gets almost as many calories as
the average American--considerably more if you include
the Soviet consumption of alcoholic beverages, which is
about three times as high as in the United States.
1. Only about a quarter of the Soviet diet, however,
consists of the high-quality foods--livestock
products, vegetables, fruit and the like.
2. Grains and potatoes make up about 70 percent
the Soviet diet, compared to about 30 percent
of the American.
B. A diet which is so heavily concentrated on grain
magnifies the effects of a short grain crop.
1. There is less feed grain for livestock. We already
have considerable evidence of distress slaughtering.
2. Customers are being limited to two loaves of
bread per purchase, flour is disappearing from
the stores, and factory cafeterias are either
reducing or eliminating the free bread usually
served with meals. Brown bread is being
substituted for white. (The higher milling
rate of the brown bread means that more of the
cereal grain is used in bread, and less is
left for animal feeding.)
IX. When the Communists first came to power in Russia, they
inherited a generally favorable agricultural situation.
Russian farms could produce enough food to leave a
substantial surplus for export, paying for needed
imports of machinery.
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A. That surplus is no x ore. In the rush to develop
heavy industry, agriculture was neglected in the
distribution of investi ent funds
((Chart 10: Total and "Per Capita Agricultural "reduction))
B. Khrushchev's New Lands, half in Siberia and half
in Kazachkstan, boosted lagging food production
temporarily in the mid-1950's.
1. In 1956, production was already some
30 percent above 1953; by 1958, it was
50 percent higher.
2. As successive crops used up the original soil
fertility and r;.oisture of the new acreage,
however, output fell off. Very little
progress in total output was ~.ade frog
1958 to 1962.
3. The severe 1963 drought, not only in the New
Lands but in the traditional fari:.ing areas,
reduced total output below 1958, and per
capita production below 1056.
L. As a result, the Soviet Union has had to beco e
an irporter of grain. To date, nearly 10 illion
tons have been contracted for, to be delivered
before July.
C. Khrushchev has launched a z.assive develop:ent
pro;ra~ for the cher ical industry, in an effort
to solve the long-run proble;. of food and fiber
supply as well as to 1, odernize industry.
1. The prograr:l calls for tripling output of
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2. The direct Y' a`~t"it the agricultural problei
is to co~e from, an increase in fertilizer
production. The present 20-iillion-ton
annual figure is to reach 70 to 80 r illion
tons by 1970.
3. Annual production of plastics is to rise
fror 600 thousand tons in 11,7;63 to 3.5 to 4 million
in 1970, end the present synthetic fiber output
of 300,000 tons is supposed to be four to five
tires as great.
D. If the prograr, is carried out as planned, investrr ent
in the chemical industry will rise fror~n 10 percent
of industrial investr:exit in 1963 to 18 percent in
1970.
1. Altogether Khrushchev wants 42 Billion rubles
invested in the chemical program,. over the
next seven years. At the official rate, this
amounts to $46 Billion. Frankly, we believe
the program Khrushchev has outlined would call
for a r.uch greater investment than the equivalent
of $46 billion dollars.
2. The Soviet Union has already been irporting
substantial quantities of chemical equipment.
If Khrushchev's new goals are to be met,
equipment imports from the West for the
chemical program are going to have to amount
to $2 Billion or more---another substantial
burden for gold stocks or export earnings.
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5. The 01, estic phase of the cherical prograi. will
increase the cor.:petition for high-grade personnel
and resources being n;onopolized by the defense
and space progra,s.
4. If the Soviet Union is able to buy first-rate
equipx:ent in the West, erbodying the latest
cheiicals technology, that will go a long way
toward helping the Soviet Union to co,plete
this progra:w without cutting too deeply into
its defense needs.
X.. The' coi:bined need for grain and equips. ent ix, ports has
created a serious payi::ents problelr for the Soviet Union.
((Chart 11: Orientation of Soviet Foreign Trade))
A. This chart shows that the largest part of Soviet
trade is with the bloc. Trade with the industrial
West has grown rapidly, however. This creates the
payrents problem, because the USSR has usually
ir-aintained an export surplus in over-all trade,
but consistently runs a deficit in its trade
with the West.
((Chart 12: Coi position of In ports froi the `.Test))
B. As this chart indicates, the largest and '::ost
rapidly growing portion of ^uviet i1. ports frc
the industrial West consists of r..achinery and
equipn ent. This portion is c:cf key significance for
developing new industries such as synthetic fibers.
It is also the portion partly financed by W.sterri
I. edium-ter1:, credits over the last few years.
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((Chart 13: Soviet Exports to the West) )
C. Soviet exports to the West have also grown rapidly,
but not as fast as irzports. There is reason to
believe that exports will increase considerably
less rapidly in the future.
1. 9etroleun: has been the cost rapidly rising
export, but has leveled off over the past
two years.
2. i,:arketing difficulties and a slower growth
of exportable surplus rake it appear unlikely
that there will be another boo;, in ?OL exports
in the future.
D. Even if the Soviet Union has l+.oderate success in
restoring grain production, the rising grain deficit
in the satellites rakes it improbable that the
export of grain to the free world will resure in
the foreseeable future.
1. The rer.:aining exports--,dainly wood products,
r) etals, ores, and furs--jay grow, but do not
offer the prospect of rapid expansion.
E. The failure to generate enough exports to the West
to cover rising i::port needs thus i,eans an increasing
trade deficit with the West.
((Chart 14: Soviet Hard Currency : ayr,ients Deficit)
This deficit, together with shipping charges and
hard currency payr:ents to the rest of the world,
added up to a hard currency deficit of nearly $1 Billion
for the three
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and partly--starting in 1959---by rrediur,--term credits
fror the West. The credits shown on the chart are
annual credit drawings, not of repay;.ent and interest.
1. New credits have anr,ounted to about '300 illion a year
since 1961, but net credit has declined because of
rising repayi,:ents and interest.
2. If the Soviet Union should again get new credits
of $300 r illion in 1964, repayi ent and interest
would absorb all but `~l6 r, illion.
C. The payslents deficits for 1963 and 1964 will be rruch
larger than in 1962 because of the grain purchases.
These are going to have to be financed largely by
gold sales.
((Chart 15: Gold Production, Sales, and Stocks))
XI. On this chart you can see the steady reduction of the
Soviet gold reserve as a result of the hard currency
deficits.
A. Production has grown slowly, reaching a peak of
possibly $175 rillion in 1963. We have evidence
that it will be very difficult for the Soviets
to achieve any substantial further increase.
B. Sales, on the other hand, together with dor;.estic
have substantially
use of some $40 million a year
exceeded production since 1955.
C. As a result, the reserve stock has dropped from
nearly $3 Billion in 1956 to .'1.8 Billion. Payi._ent
for grain already on contract--not including any
fron the US,--will drrp the gold stock to about l.3 Billion
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D. With exports growing so slowly, an 1
stocks obviously approaching the i!''ini~,un, the
Soviet Union :-ust consider essential for
energencies, the only profit icing i.eans of
financing substantially larger i;,ports of
equOpa ent is an expansion of credit, especially
with longer repayment terns.
(pp 18-20 on satellites to be added)
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THE ECONOMY OF THE SATELLITES
I. The economic problems I have been reciting are
not confined to the Soviet Union. Similar
troubles have developed in all of the European
satellites.
A. These countries have imitated the Soviet
Union in stressing the rapid development
of heavy industry with highly centralized
planning.
B. Now they are plagued by the same basic
weaknesses:
1. A high cost of industrial growth;
2. Glaring inefficiency in collective
farming;
3. Drabness and lack of variety in con-
sumer goods; and
4. A lack of flexibility to adapt to new
technology and new types of products.
II. Until 1959-1960,over-a11 growth in the European
satellites was comparable to that of continental
Western European countries. During the last
three years, however, it has slowed down signif-
icantly in all of the satellites except Rumania.
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A. These over-all trends stem from a slowdown
of industrial growth, and stagnation or
even decline in agriculture.
(Chart, European Satellite Agriculture)
B. In agriculture, total production for all
of the satellites now is no greater than
it was in 1959, and very little higher than
in the base period 1955 to 1958.
1. In 1962 and 1963, virtually all the
satellites were below the production
level of 1961. The two most advanced
satellites, Czechoslovakia and East Ger-
many, have the poorest performances.
(Chart, European Satellite Industry)
C. The combined rate of industrial growth for
all of the European satellites has slowed
down from about 9 percent a year in 1958
and 1959 to a growth rate of 4.5 percent
in 1963.
1. This slowdown has been most pronounced
in Poland and--again--in the two most
advanced satellites, Czechoslovaka and
East Germany.
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D. The advanced satellites are revising their
economic plans along the same lines as the
Soviet Union--with emphasis on chemicals, and
on quality of production.
1. This raises the possibility of new colli-
sions between Soviet and satellite plans.
The USSR, for example, plans to obtain
one billion rubles worth of chemical equip-
ment from the satellites. These countries,
however, probably have their own plans
for domestic use of all the chemical equip-
ment they can produce.
2. Like the Soviet Union, the satellites are
also counting on importing extensively
from the West and are trying to increase
their exports to pay for it.
3. The need to raise the quality of export
production to a level which can be com-
petitive in world markets is giving rise
to many proposals for liberalizing the
economy--for abandoning the Soviet model
of a highly centralized economic admin-
istration. The Czechs are actively con-
sidering reforms. Hitherto among the best
Stalinists politically, the Czechs appear
as revisionists when it comes to economy.
(~j~ ~+ 20
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DRAFT DDT BRIEFING FOR
MAHON SUBCOMIITTEE
12 January 1964
COMMUNIST CHINA
AND THY DISPUTE
25X1
IT.
THE ECONOMY:
The information we have available paints a grim
picture of the internal Chinese scene. Recovery
from the recent years of economic disaster has
been very slow, and the small gains are matched
by growing problems.
A. The stagnant Chinese economy is not able at
present to feed and clothe the population
as well as it did in the 1950's.
1. Diplomats in Peiping report that the
Chinese are worried over continuing
population growth, in the absence of
any prospect for a substantial production
increase over the next few years. There is a
serious effort to develop a birth control program.
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B. The grain harvest in 1963 was only mediocre,
chiefly because of prolonged drought in
the south and severe flooding in North
China.
(Per Capita Grain Chart)
1. We estimate that 175 to 180 million
tons of grain were produced in 1963.
This compares with a harvest of 180
million tons in 1957, which was an
average year.
2. This disparity is more drastic than
it sounds. The population, now 718
million, has increased at a rate of
approximately 13 million per year.
Thus China probably will have a slightly
smaller harvest, but some 77 million
more people to feed, than in 1957.
3. Food imports will again be needed in
1964 to maintain present levels of con-
sumption. These are already 10 to 15
percent below the level of 1957.
4. The regime's higher priority for agri-
culture is having little immediate im-
pact. Any effective program for agri-
cultural recovery will require signifi-
cant investment and technical improvements
over a long period.
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((Chart, Industrial Production)
C. Industry in China has given recent Western visitors
an impression of great technical difficulties,
wasted manpower, and much idle capacity.
1. Aerial photography shows most industry is
producing at little better than 1957 levels.
2. The "Great Leap Forward" almost doubled Chinese
industrial production in three years, but the
entire gain was lost in the abrupt collapse. Since
then, the index has barely moved upward.
3. Any further development of modern complex industry
will require imported machinery and technology.
((Chart, Chinese Communist Foreign Trade))
D. Peiping's trade with the Soviet bloc dropped more than
65 percent between 1959 and 1962, from $2.9 Billion to
$1.1 Billion. Last year it was down to about $900
million. Trade with the Free World, mainly Chinese
food imports, has exceeded trade with the bloc for
the past three years.
1. Chinese shopping tours of European and
Japanese markets have resulted in few
purchases other than food grains.
2. The reluctance to buy reflects both the
tight foreign exchange position and
Chinese indecision on long-range planning
goals.
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E. There has been little evidence of long-
range planning recently.
1. The Third Five-Year Plan (1963-67) has
been largely ignored in Peiping announce-
ments.
2. There are three factors which complicate
planning decisions:
a) Unquestioned priority is given to
industries which support advanced
weapons programs.
b) There has been no relief of the
pressures on food supply generated
by the population increase.
Peiping faces the difficulty of re-
viviiig a stagnant economy.
F. Little improvement is in sight for any sector
of the economy.
1. In agriculture, China will have diffi-
culty even in keeping up with population
growth. A .rec:urrene.e of the 1960/61
food crisis, when rations generally fell
to semi-starvation levels, is entirely
possible.
2. Grain purchases in the free world will
almost certainly be necessary for many
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G. Economic distress is the cause of widespread
political unrest and disaffection.
1. China's peasants are sullen and apathetic.
2. Those living in the cities seem to be
better off than the peasants, but un-
employment is a serious problem.
3. Young people are disappointed at the
lack of job and study opportunities.
4 Discontent., however, has not reached a point which
would pose a serious problem for the regirre security
forces. At present the population sees no hope or
alternative, and is thus too apathetic to engage
in anything like a nnass uprising.
III. THE ARMED FORCES:
From 1950 to 1960 Communist China developed
the largest ground force in the world, the
fourth largest air force, and the fourth largest
submarine fleet. However, the modernization
of these forces has practically come to a halt
since the withdrawal of Soviet technical assist-
ance in mid-1960. This markedly reduces Peiping's
ability to confront US forces in Asia, or even
the Chinese Nationalist air force. Nevertheless,
Peiping's capability for military action against
its Asian neighbors remains high.
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A. The ground forces number more than 2.7 mil-
lion troops. These massive numbers are the
main element of Peiping's military power.
1. China's 162 combat divisions, however,
are poorly equipped even by World
War II standards.
B. The air force has more than 1,900 jet fighters
and about 325 light bombers. This is an im-
pressive number, but all are obsolete.
1. The most modern aircraft type Peiping
has in any quantity is the MIG-19, and
there probably are no more than 75 of
these.
2. The air force is not known to have any
air-to-air missiles,
C. China's -navy is a weak link in the defense
establishment. Its major vessels are four
old Soviet-built destroyers, four fairly
modern RIGA-class destroyer escorts built
at Shanghai, and about 28 or 29 submarines.
1. Of the subs, 21 are in the long-range
"W" class, also built at Shanghai.
IV. THE ADVANCED WEAPONS PROGRAM:
Relying heavily on Soviet help, the Chinese
embarked in the mid-1950s on an ambitious program
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to build their own nuclear weapons and guided
missiles. Only slow progress has been made
since June 1959, when Soviet assistance in the
nuclear field apparently was cut off.
A. We have seen no indications that China has
the capability to explode an atomic device
in the immediate future.
(Advanced Weapons Map)
1. Construction is continuing at the two
main atomic energy installations in
China--a suspect gaseous diffusion
plant at Lanchou and a suspect air-
cooled reactor at Paotou.
2. The preponderance of evidence indicates
that the gaseous diffusion plant is not
in operation.
3. We cannot tell for sure if the air-
cooled reactor is operating yet, but
there are signs that it started recently.
4. Once the reactor starts, it would take
at least two years to produce enough
plutonium to build a test version of a
nuclear device.
5. The gaseous diffusion plant would have
to be at least doubled in size before
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it would have the enrichment capability
needed to produce weapons grade U-235.
6. The latest available photography, taken
in late September, showed the start of
construction on what may be an additional
separation section for this purpose.
Because of Chinese technical limitations,
we expect it will be several years be-
fore Lanchou can achieve full-scale pro-
duction of weapons material.
7. Our last National Intelligence Estimate
on Chinese Communist advanced weapons,
approved last July, did not preclude
the testing of a Chinese nuclear device
in 1963 , but considered early 1964 the
earliest probable date. We feel that
Peiping's continuing technological
problems have very probably now pushed
this date into late 1964 and perhaps
even 1965.
B. Peiping is also making some progress in devel-
oping a missile capability.
1. A missile test range, built on the Soviet
pattern in the remote northwest, has
facilities for testing MRBM's and SAM's.
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Several MRBM firings--one an apparent
failure--are believed to have taken
place since December 1961. Thus far,
however, the Chinese have apparently
not progressed far enough to initiate
a systematic flight test program.
2. A missile research-and development
center suitable for the development of
MRBM's is nearing completion near Peiping.
We have evidence that rocket engines
are being tested there.
3. Thus far, 14 surface-to-air missile
sites have been detected in all of
China--not a very impressive number.
a) Of these 14, only one, near Sian,
is known to 'have all of the equip-
ment necessary for firing a missile.
Another site at the Shuangchentzu
test range probably is also capable
of firing missiles. All of the other
sites contain little or no missile
equipment.
b) The continuing construction of sites
suggests that the Chinese are prob-
ably planning to produce their own
SAM's.
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C. In spite of China's industrial backwardness,
some progress must be expected in the advanced
weapons field because it is being given first
call on resources and because the Chinese
do have some first-rate. scientists.
1. Foreign Minister Chen I last October
declared that the first nuclear test
would take place "in several years
without fail."
2. Chen I also admitted that it might
take many years after the test to mass-
produce nuclear weapons and acquire a
sophisticated delivery system.
3. The Chinese are faced with enormous
technological problems and high costs
in carrying out this program. Point-
ing to these costs, the Soviets have
commented that the Chinese may end up
with neither an effective nuclear
capability nor trousers.
4. Taking note of this Soviet comment, Chen
I has said that the Chinese intended
to manufacture modern weapons, even if
they had to go without trousers.
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V. SINO-SOVIET DISPUTE:
The snide remarks the Soviets have made
about Chinese economic efforts reflect the
bitterness of their dispute. Peiping and
Moscow no longer see eye to eye on anything
except the final goal of bringing down the
Free World, and are engaged in a head-on bat-
tle for leadership of the world communist
movement. Relations at the party, economic,
military and even state level now are being
held to a minimum of cool correctness.
A. Both sides apparently are operating on
the assumption that the conflict between
them will be a protracted one.
1. Neither seems to have enough con-
fidence to force a final test of
strength at this time.
2. Neither appears willing to accept
responsibility for an act which might
cost it the allegiance of those for-
eign Communist parties whose internal
problems would be increased by such
a development.
B. In addition to the festering ideological
quarrel between the doctrinaire, militant
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Chinese and the more cautious and prag-
matic Russians, there are divisive con-
flicts rooted in national interests going
back to the Russian and Chinese Empires.
(Sino-Soviet Border Map)
1. The 4,000-mile Sino-Soviet border
has become a hot frontier. Serious
trouble began as early as 1960 and
has continued.
2. In the spring of 1962, the USSR en-
couraged the flight of some 60,000
Chinese nationals--ethnic Kazakhs
and Uighurs--from the region around
Ili, in Sinkiang Province, into the
Soviet Union and granted them asylum.
3. Peiping has since tightened security
in China's far west by sending in ad-
ditional frontier guards and troops,
and is engaged in tightening border
controls in Manchuria as well.
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C. Policy differences between Peiping and Mos-
cow over Taiwan and India have been major
friction points.
1. The Chinese have recently charged that
the USSR failed to provide real support
for China in the Straits crisis of 1958,
and that during Peiping's border war
with India in 1962 Moscow actually
sided with the enemy. Continued Rus-
sian aid to New Delhi has kept Chinese
resentment burning.
2. Russian cutbacks of technical and eco-
nomic assistance to Chinese economic,
military, and nuclear development, in
an effort to force Peiping into line,
have left deep wounds which are still
open.
D. On balance the US and the Free World have
thus far been gainers as a result of the
Sino-Soviet conflict.
1. The emergence of two centers of doc-
trinal truth has shattered the myth
of monolithic Communist solidarity,
sown confusion among the faithful,
and led to a further loosening of
bloc ties.
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a) Soviet policymakers are becoming
less able to impose their will on
unwilling Communist satraps without
taking satellite interests into
account. A recent and well-pub-
licized example is the successful
Rumanian resistance to Russian de-
mands that Bucharest should tailor
all its plans for economic devel-
opment to. fit the pattern of CEMA,
the Communist equivalent of the
OEEC in Western Europe.
2. Both the Soviet Union and China are now
occupied--almost preoccupied--with their
mutual hostility. This is levying de-
mands on time, money and effort which
five years ago went into other pursuits,
and no end is in sight.
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