CHINA: QUARTERLY ECONOMIC REPORT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000401470001-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 11
• Document Creation Date: December 22, 2016
• Document Release Date: June 11, 2010
• Sequence Number: 1
• Publication Date: September 15, 1983
• Content Type: MEMO

CONFIDFNTTAI .'. A
Central Intelligence Agency
)001-7
7
DIRECTORATE OF INTELLIGENCE
15 September 1983
MEMORANDUM FOR: Recipients of China: Quarterly Economic Report
FROM Chief, China Division
Office of East Asian Analysis
SUBJECT China: Quarterly Economic Report
1. The attached memorandum provides ?a quick fix on current
trends and prospects for China's economy. The tables provide
data on key economic indicators and are convenient for reference
and use in briefings.
2. We welcome suggestions for improvements.
Attachment:
As stated
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CONFIDENTIAL
Central intelligence Agency
Washington. D. C. 20505
DIRECTORATE OF INTELLIGENCE
15 September 1983
CHINA: QUARTERLY ECONOMIC REPORT
Second Quarter: Fiscal, Monetary Problems Emerge Amid
Continued Investment, Heavy Industry Boom
Summary
In the second quarter, Beijing continued to complain that
investment spending was out of hand and that local projects still
were diverting construction resources from high-priority
infrastructure projects. Heavy industry growth once again
outstripped light industry, although the latter recovered
somewhat from its first quarter doldrums. Budget data, though
spotty, confirm that Beijing may be headed for an uncomfortably
large budget deficit, and other information indicates excessive
money supply growth. Agricultural output is acceptable, even
though there was severe flooding this summer. We expect that
China will fall far short of its plan to boost imports by 40
percent this year and that it will have another large trade
surplus, increasing its already substantial foreign exchange
reserves.
Energy, Transport Projects Delayed
Throughout the second quarter, the government complained
that top-priority energy and transportation projects were being
held up by shortages of construction materials, siphoned off by
large numbers of local projects. As a result of government
jawboning and new control measures, investment growth did slow
marginally in the second quarter. At mid-year, capital
This memorandum was prepared by
Analysis, Directorate of Intelligence. Comments and questions
are welcome and may be directed to the Chief, Domestic Policy
the China Division of the Office of East Asian
Branch
EA M 83-10180
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construction was running 17 percent above first-half 1982, down
from 21 percent in the first quarter. (The 1983 plan calls for
an 8 percent drop.) In particular, investment from retained
earnings--that pool of funds outside government control--grew by
only 5.6 percent in the second quarter, compared with 17 percent
in the first. Sectors where spending grew most rapidly in Jan-
Jun were energy (up 34 percent) and transportation (up 68
percent).
Budget Deficit Growing
Since the large budget deficits of 1979 and 1980, Beijing
has succeeded in keeping them at more manageable levels. Data
for first-half 1983, however, signal a rising deficit. In Jan-
May, budget revenues rose a scant 0.1 percent compared with the
1982 period, against a planned 9.6 percent increase for the
year. At the same time, expenditures seem to have increased at
close to the 10 percent called for in the budget.
Industry
Industrial output in the second quarter grew at a 10.4
percent rate over second quarter 1982, a marked increase over the
6.9 percent of the first quarter. Growth for the first six
months was 8.8 percent, twice the 4-percent rate specified in the
annual plan.
In heavy industry, where production grew by 11.7 percent in
Jan-Mar, growth accelerated and reached 12.2 percent for the
half. The annual plan calls for a 3.9 percent increase. The
largest halfyear increases came in investment goods: cement up
14 percent, mining equipment up 49.2 percent, power-generating
equipement up 81.2 percent, machine tools up 24.2 percent, hand
tractors up 50.8 percent, and motor vehicles up 18.3 percent.
Steel production increased at a rate (6 percent) greatly
exceeding the plan (zero percent). Energy production was up a
bit over 5 percent in the second quarter, approximately the rate
achieved in the first quarter.
In spite of the unwelcome diversion of resources from light
to heavy industry, light industry turned in a very respectable
8.1 percent growth rate for second quarter 1983, raising the Jan-
Jun increase to 5.4 percent. The plan calls for 4.1 percent
growth. Textile output regained momentum after a relatively poor
first-quarter.
Through the end of May, quality and cost indicators showed
little, if any, improvement. Of 75 indices of quality, 19
percent declined in the Jan-May period, a slight worsening of the
situation in Jan-Feb 1983 when 16 percent showed declining
quality. Also, in Jan-May, 70 percent of the 105 indices of
energy and raw material usage showed signs of improvement, up
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slightly from the 67.5 percent in Jan-Feb. Industrial costs,
targeted to drop 2 percent in 1983, actually rose 1 percent in
the first six months.
Agriculture
Cool, wet weather reduced the early rice crop in central and
southern China. The second quarter also saw serious flooding in
central and eastern China, but Beijing announced in July that the
flood waters had abated and that damage, while serious, was not
as bad as portrayed in Western press reports.
Foreign Trade
Chinese customs data for Jan-Jun show a 1.0 percent ecline
in imports and a 6.5 percent decrease on the export side. Of
greatest interest in the second quarter was China's continuing
unwillingness to purchase US grain, an important factor in the 24 25X1
percent drop in Sino-US trade in Jan-Jun. China's imports from
the US were down 39 percent; exports declined 2 percent. 25X1
Elsewhere in the Economy:
Retail sales: Spurred by a 2.6 percent increase in
nonagricultural employment and a 6.9 percent rise in total
sales of consumer goods grew by 10.7 percent in Jan-Jun.
wages,
Transport: Performance in the first half was slightly ahead
of plan, with rail freight volume up 3.8 percent over 1982.
Freight handling at major coastal ports was up an impressive 7.4
percent.
Construction: Total floor space under construction was up
by 3.2 percent compared with Jan-Jun 1982. Housing construction,
however, which accounts for over half of the space being built,
fell by 2.4 percent. And completions ("total floor space
completed") fell for both housing (down 4.5 percent) and other
buildings (down 3.0 percent)--probably attributable to shortages
of building materials.
Inflation: Strong investment and consumer demand, a large
increase in currency in circulation, and the government's widely
publicized complaints about rising construction costs make it
clear that inflationary pressures remain strong and that prices
are rising at higher-than-average rates.
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*Growth rates are in dollar terms. Chinese customs data are
on a FOB-CIF basis, and for other reasons differ from trading
partner data used by CIA. Consequently, these percentage
increases should not be applied to statistics in the accompanying
table. 25X1
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Midyear through 1983, the economy hears a striking
similarity to conditions that led Beijing to retrench drastically
in 1981. Particularly nettlesome problems in 1983--only the
first of which appeared in 1981 and 1982--are historically high
investment rates, a growing budget deficit, and excessive
monetary expansion. The Chinese press has noted the resemblance
to the earlier period and specifically raised the spectre of the
1981 retrenchment. All public statements suggest that Beijing
believes such a strong remedy is undersirable. We believe the
corrective measures will fall short of retrenchment, and may ease
but will not remedy the problem. 25X1
Beijing recently has acknowledged that the goal of cutting
investment by 8 percent is unattainable, but has asked that this
year's level not exceed last year's. We believe this still is
too optimistic and project that investment easily will exceed
last year's level. This will contribute to a continuation of
unbalanced industrial growth. We also believe that the planned
budget deficit 3 billion yuan--will be exceeded for the first
time in 3 years, probably by a significant amount. If the
government is not able effectively to control currency creation
by ye d Beijing may have to resort to measures they used in
1981. re~n- 25X1
Over the next few months, we expect to see:
-- Nigher-than-planned industrial growth based on both strong
investment and consumer demands. Producer goods
production may slow if Beijing succeeds in reducing
investment spending; the output of consumer goods may hold
at the 8 to 9 percent growth displayed in the second
quarter, especially if a slowing of producer goods output
results in improved supplies of energy, raw materials, and
transport for consumer goods industries.
-- Shortages of construction materials that will hamper
progress on important energy and transport projects, even
if investment continues to taper off.
-- Rising industrial costs that will make it difficult to
increase budget revenue and avoid a larger deficit.
-- Strong inflationary pressures, based on investment and
wage growth, and on an expanding deficit financed in part
by increases in the money supply.
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Foreign Trade
We see little likelihood of China's imports rising by the
planned 40 percent , even if Beijing honors the US-China grain
agreement. Consequently, we believe that China will experience
another current account surplus this year: about $3 billion in
trade and another $500 million in net earnings from invisibles.
We expect China's foreign reserve position by yearend to be about
$15 billion, up nearly $4 billion from yearend 1982.
*In dollar terms; 25 percent in yuan terms.
5
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Quarters Annual
1982 1983 1982 1983
Chinese Chinese
II III IV I II Plan Actual Plan
in parentheses are percent change from previous vear)
Total Industry
143.77
136.24
148.71
138.29
158.61
538.9
557.9
580.2
(8.9)
(5.7)
(4.1)
(7.1)
(10.3)
(4.0)
(7.7)
(4.0)
Heavy Industry
72.09
69.51
72.73
69.33
81.27
254.0
276.4
287.2
(10.4)
(10.4)
(7.9)
(11.7)
(12.7)
(1.0)
(9.9)
(3.9)
Light Industry
71.52
66.73
75.98
68.96
77.34
284.9
281.5
293.0
(7.3)
(0.0)
(1.6)
(2.5)
(8.1)
(7.0)
(5.7)
(4.1)
Agricultural Production
240.4
256.6
266.9
(4
0)
(11
0)
(4
0)
Grain Production (Million tons)
.
333.5
.
353.4
.
N.A.
(2
6)
7)
(8
.
.
Energy Production
(Million tons
168.1
164.6
181.14
162.19
176.81
625.4
668.0
N.A.
coal equivalent)
(8.0)
(5.6)
(-5.2)
(5.2)
(5.2)
(-0.3)
(5.7)
Oil Production
26.06
25.44
25.28
25.88
26.33
100.0
102.1
100.0
(Million tons)
(3.5)
(0.6)
(-0.9)
(2.1)
(1.0)
(-1.2)
(0.9)
Production (Bil 1980 Yuan, except where noted; numbers
*Quarterly growth rates shown in the table may differ from the official growth rates cited in the text. The
difference is caused by unannounced revisions of data for earlier quarters by the Chinese State Statistical Bureau.
assume the quarterly industrial output value data are in 1980 prices, but they may in fact be in current prices.
Nevertheless, the growth rates represent real growth.
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 (Percent change from previous year in parentheses)
I II
Quarters
1982
III
1983
I 1980 1981 1982
International Trade
(Mil $US, f.o.b.,not seasonally adjusted except where noted)
and Finance
Total Exports
Total Imports
Trade Balance
Oil and Petroleum
Products Exports
Grain Imports
(Million t2ns)
Liquid Assets
Liquid Liabilities*
5547.8
(14.3)
4076.3
(-25.7)
1471.6
1196.9
(14.4)
3.209
(-4.7)
5460
(129.8)
3719
(-41.3)
5487.9
(4.6)
4135.7
(-3.7)
1352.1
1047.2
(-4.5)
4.165
(30.7)
7287
(90.7)
3697
(-38.3)
5612.3
(2.6)
3884.5
(-0.9)
1727.8
1303.5
(12.1)
3.954
(20.2)
9444
(139.9)
3724
(-37.4)
5571.4
(-7.1)
4043.8
(-5.0)
1527.6
1272.6
(-1.3)
3.656
(8.9)
11339
(124.6)
3745
(-21.3)
5204.4
(-6.2)
3998.0
(-1.9)
1206.3
1035.2
(-13.5)
4.643
(44.7)
12609
(130.9)
3991
(7.3)
18893.6
(40.4)
19179.8
(34.1)
286.2
4165.1
(84.5)
13.673
(26.0)
2545
21566.2
(14.2)
17959.1
(-6.4)
3607.1
4595.4
(10.3)
13.204
(-3.4)
5048
22219.6
(3.0)
16140.2
(-10.1)
6079.4
4820.4
(4.9)
14.984
(13.5)
11339
Exchange Rate (yuan/
dollar)
Japan - China Trade
1.8675
1.9310
1.9684
1.9227
.1.9941
1.5115
1.7183
1.9224
Exports to Japan
1299.9
1250.3
1250.6
1282.6
1145.0
4139.5
5031.9
5083.4
(24.8)
(4.0)
(-3.5)
(-14.0)
(-11.9)
(48.3)
(21.6)
(1.0)
Petroleum and Products
716.1
572.0
704.0
711.8
601.9
2159.4
2607.7
2703.0
(30.0)
(-1.9)
(0.1)
(-7.6)
(16.0)
(104.6)
(20.8)
(3.7)
Imports from Japan
848.6
888.2
839.6
923.5
871.0
5109.6
5076.1
3500.0
(-40.7)
(-34.0)
(-27.1)
(-19.5)
(2.6)
(38.8)
(-0.7)
(-31.1)
Trade Balance with Japan
451.3
362.1
410.9
359.1
274.0
-969.9
-44.2
1583.4
*Liquid assets are almost all foreign exchange reserves; liquid liabilities are mainly national bank liabilities.
In addition, the Chinese have some SDRs and IMF liabilities and 12.7 million ounces of god.
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(Percent change from previous year
Quarters
1982
I II III
U.S. - China Trade (Mil $US, f.o.b.,
Exports to U.S. 556.6 487.6
(47.0) (-0.5)
Textiles and Clothing 200.6 175.4
(39.6) (44.0)
Petroleum and Products 114.3 95.6
(412.6) (69.2)
Imports from U.S. 905.2 801.9
(-23.5) (18.1)
Grain (million tons) 1.968 2.564
(0.3) (90.9)
Textile Fibers 237.1 94.2
(-46.9) (-46.3)
Trade Balance with U.S. -348.6 -314.3
Aggregate Indicators
Population (mil on July 1)
Gross National Product (Bil 1982 $US)
GNP per capita (1982 $US)
State Budget (Bill yuan):
Revenues
Expenditures
Deficit (-) or Surplus (+)
in parentheses)
1983
I
not seasonally adjusted, except where
697.0 542.4 534.9
(29.6) (11.7) (-3.4)
261.4 188.5 246.5
(44.8) (11.1) (22.9)
214.7 173.1 90.4
(77.6) (84.7) (-20.9)
686.6 518.6 668.8
(-16.1) (-43.8) (26.1)
2.407 1.527 2.132
(-0.7) (-35.2) (8.3)
37.6 26.5 16.8
(-79.0) (-89.5) (-92.9)
10.4 23.8 -133.9
noted)
1053.3
(78.2)
354.6
(78.5)
134.7
(39.6)
3754.4
(117.8)
8.037
(101.2)
1016.4
(127.0)
-2701.1
981
(1.3)
271.8
(5.2)
277.1
(5.5)
108.5
(-1.6)
121.3
(-10.6)
-12.8
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1981 1982
1892.0 2283.6
(79.6) (20.7)
615.6 825.9
(73.6) (34.2)
293.5 597.7
(117.9) (103.7)
3602.8 2912.3
(-4.0) (-19.2)
8.084 8.466
(0.6)
(4.7)
1053.5
395.3
(3.7)
(-62.5)
-1710.8
-628.7
993
1008
(1.2)
(1.5)
280.0
300.7
(3.0)
(7.4)
282.0
298.3
(1.8)
(5.8)
109.0
110.7
(0.5)
(1.6)
111.5 113.7
(-8.1) (2.0)
-2.5 -3.0
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SUBJECT: China: Quarterly Economic Report
EA M 83-10180 25X1
Distribution:
State Department
1 - William Brown, Deputy Assistant Secretary, Bureau of
East Asian & Pacific Affairs
1 - Anthony Albrecht, Deputy Assistant Secretary, Bureau of
East Asian & Pacific Affairs
1 - Don Anderson, Director, Office of Chinese Affairs
1 - Howard Lange, Office of Chinese Affairs
1 - Philip T. Lincoln, Deputy Director, Office of
Investment Affairs
1 - Jon Danylyk, INR/EC Communist Asia
1 - Lorraine Takahashi, Office of Chinese Affairs
Department of Commerce
1 - Eugene Lawson, Deputy Assistant Secretary for
East Asia & Pacific
1 - Stephanie Green, Confidential Assistant to the Deputy
Assistant Secretary for East Asia & Pacific
1 - Robert Perito, Director, PRC and Hong Kong
1 - Nai-Ruenn Chen, International Economist
Department of Treasury
1 - Patricia Haas, Office of East-West Economic Policy
1 - Robert Fauver, Deputy Director, Office of
International Monetary Affairs
Other
1 - William Triplett, Director for East-West and Non-
Market Economy Countries, U.S. Trade Representative
1- Robert Murphy, Council of Economic Advisors
1 - Lieutenant General Lincoln D. Faurer Director, NSA
1 - 25X1
1 Dennis O'Brien, Deputy Assistant Secretary for
International Affairs, Department of Energy
1 - Charles Liu, Leader, PRC Section, Department of Agriculture
1 - James Tsao, International Economist, Research Division,
International Trade Commission
1 - Robert Emery, Senior Economist, Federal Reserve
1 - Colonel Jack Leide, Chief, DE-3, Department of Defense
Central Intelligence Agency
2 - D/DDI
1 - Exec. Dir/DCI
1 - NIO/EA
1 - NIO/Econ
1 - D/NIC
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1 - D/OEA
1 - Chief, China Division
1 - C/Production/OEA
1 - PDB
1 - C/SDS
1 - CH/DEF
1 - CH/DEV
1 - CH/DOM
1 - CH/FOR
5 - OCO/IMB/CB
1 - CH/EA/RR
1 - C/PES/DDI
1 - OCR/ISG
1 - FR/RR
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