US-CHINA ECONOMIC RELATIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R001000430001-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 6
• Document Creation Date: December 22, 2016
• Document Release Date: November 2, 2010
• Sequence Number: 1
• Publication Date: April 11, 1984
• Content Type: MEMO

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
11 April 1984
US-China Economic Relations
Summary
commodity trade issues
dominate U - ina economic relations over the past
year.
fallout from the textile issue
depressed Sino-US trade. Largely the result of
reduced Chinese imports of US goods, two-way trade
dropped 15 percent to $4.4 billion. Beijing pointed
to US trade restrictions as the reason for cutbacks,
although market forces contributed heavily. In
spite of discord over trade, negotiations progressed
on several agreements th ld enhance the Sino-US
commercial relationship.
Trade probably will revive and US investment in
China is likely to expand in the wake of looser
export controls and the conclusion of the industrial
and technological cooperation accord. Textile trade
will continue to be an irritant since Beijing relies
on textile exports as a major source of earnings.
Although China has joined the Multifiber
Arrangement of GATT, it is not likely to seek full
GATT membership in the near future. Similarly,
membership in the Asian Development Bank will
probably be delayed until the dilemma of
simultaneous membership for China and Taiwan is
resolved.
This memorandum was produced by of the
China Division of the Office of East Asian Analysis in response
to a Commerce Department request. Questions and comments are
welcome and may be addressed to the author
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Trade in 1983
In 1983 the United States incurred an annual trade deficit
with China for the first time since 1977. US exports to China
dropped 25 percent compared with 1982 levels; imports slipped
nearly 2 percent. The deficit reached $300 million through
October but fell to $70 million by yearend because of a jump in
US exports during November and December.
The decline in US exports to China was particularly sharp in
wheat, textile fibers, and plastics. Lower prices depressed the
value of trade in many commodities, offsetting solid volume gains
in some, such as timber. Strong sales of capital goods and
finished manufactures were led by aircraft and measuring and
control instruments. On the other hand, total US imports of
Chinese goods stagnated in 1983. Imports of apparel, gasoline,
woven basketware, and industria teners increased while
fabrics and light oils slipped.
Frictions Over Commodity Trade
As in the past, Beijing pressed hard for higher levels of US
imports to balance bilateral trade. In 1983, however, China met
increasingly strong resistance to rapid growth in imports.
Because Beijing's exports cover only a narrow range of products,
attempts to increase sales have provoked antidumping complaints
and other actions designed to limit China's activities in US
markets.
China's economic reforms stimulated some of the trade
friction with the United States. Decentralization of trade
responsibilities and emphasis on profitability have thrust
factories and local trade organizations into international trade
activities with which they are often unfamiliar. The consequent
underpricing of some Chinese goods in world markets has resulted
in US antidumping investigations and restrictions on several
commodities, such as chloropicrin, potassium permanganate, and
gasoline. Beijing has given limited, grudging cooperation to US
antidumping investigators but still faults Washington for
restraining free trade. China is concerned that:
o It is being unfairly singled out.
o Broadening US restrictions will be imitated in other
markets, as is already the case in the European Community.
o Widespread constraints on textile sales will dampen export
earnings and undermine a key source of financing for
China's economic modernization.
Beijing gave substance to its objections beginning in
January 1983 when, after talks tv renew the bilateral textile
trade agreement failed and Washington imposed new controls,
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China: Highlights of Trade With the United States
Long-term grain
agreements signed
Cotton and synthetic
textile fibers sales
drop ~
Wheat sales
quadruple -
shipments surge ~I end
Wheat sales drop
then resume
Crude oil
shipments
US Imports
US Exports
Data from US Department of Commerce shows both
exports and imports on an f.o.b. basis.
3o1Bt8 2-M
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Beijing embargoed US cotton, soybeans and synthetic fibers.
Because China had adequate supplies of these products, the
.embargo probably had little significant impact on trade.
However, China also stopped buying US wheat--a major component of
bilateral trade--and turned to alternative suppliers. Following
the conclusion of a textile trade accord last summer, Beijing
gradually resumed purchases of synthetic fibers and wheat.
Nonetheless, grain deliveries in 1983 (3.8 million tons) did not
reach the minimum re uired under the Sino-US Long Term Agreement
(6 million tons).
Commodity Trade Prospects
Prospects for trade in 1984 are better because of the
improved political climate and the US economic recovery. Even
with continued good harvests and improved internal distribution,
grain sales could see moderate gains. They could rise
significantly in the event of a poor harvest or a Beijing
decision to accelerate improvement in the Chinese diet. Sales of
pesticides and fertilizers, especially phosphates, will robabl
continue strong to support agricultural development.
Among China's exports, Beijing will continue to rely on
textiles as a major source of earnings in spite of increasing
restraints by developed countries. Textiles will take on added
significance if Beijing decides to reduce oil exports in the face
of declining production and rising domestic demand. Textiles
aside, Chinese exports of other goods will face new obstacles if
US producers file antidumping or countervailing duty charges
following the example of the US textile industry last fall.
Beijing last month tightened foreign trade controls, partly to
better coordinate exports and reduce the number of these
disputes. Disagreements over levels of commodity trade should
not impede increased activity by US firms in China, however.
Investment and Other Ties
US investment in joint ventures, wholly-owned subsidiaries,
and other projects now totals about $500 million. China's
program to upgrade its industrial plants will provide additional
opportunities for US investment and will bolster US sales of
capital goods. Although the lack of a bilateral investment
treaty and delays in implementing a Chinese patent law may have a
chilling effect on some firms interested in investing in China,
most firms will be able to arrange contractually any necessary
investment or technology protection. The patent law will become
25X1 effective on 1 April 1985, but the neQOtiations to conclude an
investment treaty have broken down.
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The industrial and technological cooperation pact signed
during Premier Zhao's visit provides a framework to enhance US
involvement in China's industrial development. Opportunities for
US participation will be strongest in the en-ergy and
transportation sectors, which are Beijing's priorities. US firms
cooperating with China in coal and hydropower projects.
are already deeply involved in China's petroleum sector and
considerable pressure on Washington for GSP.
International Organizations
China will continue to join international economic
organizations. Now that China has joined GATT's Multifiber
Arrangement, it will begin to move toward formal GATT
membership. Under US law, joining GATT is the last major
requirement for China to be considered for Generalized System of
Preferences status. When Beijing does join GATT, it will mount
become involved in the Chinese political issue.
Beijing's quest for membership in the Asian Development Bank
(ADB) probably will drag on, although China would like it
considered at the ADB meeting in April. China could press for
admission at Taiwan's expense, thereby trying to force the United
States to openly support one or the other; but there are good
indications that China will not push if it may damage the Bank.
Most member countries are reluctant to let themselves or the Bank
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C(1NF T fIFNTI AL
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SUBJECT: US-China Economic Relations
Distribution:
Department of Commerce
1 - Jeffrey Lee, China Office East Asia and Pacific
Central Intelligence Agency
2 - DDI
1 - Exec. Dir/DCI
1 - NIO/EA
1 - D/NIC
1 - PDB
1 - D/OEA
1 - Ch/CH/D
1 - Ch/Prod
2 - OCR/ISG
1 - CH/DOM
1 - CH/DEF
1 - CH/FOR
1 - CH/DEV
5 - OCO/IMB/CB
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