ECONOMIC INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500140005-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 20, 2016
• Document Release Date: March 20, 2006
• Sequence Number: 5
• Publication Date: March 15, 1973
• Content Type: REPORT

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DIRECTORATE OF
INTELLIGENCE
Secret
Economic I ntelligence Meekly
Secret
CIA No. 7349
15 March 1973
Copy No. 3
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SECRET
Soviets Still in Market for US Machinery
Another Industrial Plant for China
US-Soviet Insurance Agreements May Stimulate Trade
India Hopes Foreign Aid Will Rise
Chinese Economy Stowed in 1972 The setback should be temporary
if agriculture has a good year.
International CJlonetary Developments EC members reach a
compromise agreement on a Community approach to the monetary
crisis.
iNorld Rice Market Tightens Further The rice shortage probably will
persist at leest until late this year.
East Asian Textile Boom Continues Hong Kong's, Taiwan's, and
South b'orea's textile industries did well last year despite 1/S import
restrictions.
Note: Comments end eries on the contents of this ubtication aro welcomed- They may be directed
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ECONOMIC INTELLIGENCE WEEKLY
Notes
Soviets Still in Market for US Machinery
The USSR Deputy Minister of Foreign Trade has saki that despite
large outlays for US grain there will be no cutback in purchases of American
machinery. Soviet orders of US equipment reached a record $465 million
last year. Most contracts were for machine tools and automotive equipment,
although large orders for tractors and grain-handling equipment also were
received. Additional sizable contracts for automotive equipment for the
Kama River truck plant are likely this year.
Another Industrial Plant for China
China's most recent purchase of a $30-million petrochemical plant from
Japan raises total plant purchases from the West so far this year to a record
level of almost $150 million. Other installations include three urea plants
from the Netherlands and two ethylene plants from Japan. Negotiations
are continuing for a broad range of additional plants, some involving US
technology.
US-Soviet Insurance Agreements May Stimulate Trade
Two recent US-Soviet insurance agreements should ease US
businessmen's apprehensions about the risks involved in dealing with the
USSR. One covers losses by US exporters from the cancellation of US export
licenses, Soviet order cancellations, and Soviet non-payment. The other
provides for a Soviet company to act as an agent for insurance written
ly a US firm to cover US property and investments in the USSR. In the
past, there has been little in the way of risk insurance underwritten by
US insurance firms, except for exports covered by Export-Import Bank
India Hopes )1{oreign Aid Will Rise
New Delhi's budget for the fiscal year beginning 1 April calls for a
19% increase in foreign economic aid to $880 million, belying the
government's stated intention to end its reliance on such assistance. New
Delhi will draw $12 million of aid previously provided by the United States,
compared with $61 million in the preceding year. Economic aid drawings
from the USSR are scheduled to increase from $21 million to $27 million.
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Net foreign aid probabl will total onl 300 mi'lion because of scheduled
large debt repayments. 25X1
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Chinese Economy Slowed in 1972*
Based on Peking's own candid admissions and other indicators, economic
growth slowed in 1972.
? Agricultural production declined by perhaps as much
as 5%.
? Industrial growth slowed to about 8%.
? GNP barely kept pace with the relentless 2%
population growth.
These growth estimates are necessarily rough-hewn because China discloses
only a few selected economic statistics.
Some slowdown had been expecte~! as the economy had already taken
up the slack created by the downturn during the Cultural Revolution
(1966-69). Tlie slowdown was greater than had been expected because
agriculture was hit by poor weather, industrial raw materials were in short
supply, and key construction projects lagged.
Peking, as a result, has found it necessary to make a number of
adjustments.
? The cotton cloth ration has been cut.
? Measures to conserve food have been strengthened.
? Increased emphasis has been given to mining.
? Controls have been tightened on local construction
projects.
China has shown a greater willingness to increase imports to support
agriculture and maintain living standards. Imports of grain, cotton, and other
farm products rose in 1972 and included the first purchases from the United
States in more than two decades. Chinese imports from the United States
reached a total of $60 million. In 1973, imports of agricultural commodities
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will be at or near record levels. Likewise, since the first of the year Peking
has contracted for six Wester,? plants worth almcst $150 million to expand
production of fertilizer and synthetic fibers.
Agriculture is the crucial element in China's economic future. Peking
gives every indication that it will try to ensure the forward momentum
of this key sector. With reasonably good weather, the 1972 setback should
prow temporary. The continuation of recent pragmatic economic policies
is alsc crucial if China is to feed and clothe its huge population and stilt
make p.~ogress in developing an industrial-technical ease, with its heav
orientation toward modern weapons development.
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International Monetary Developments
EC members compromised to reach an ageement on a Community
approach to the current monetary crisis. Six -West Germany, France, the
Netherlands, Belgium, Luxembourg, and Denmark -will float jointly. The
United Kingdom, Ireland, and Italy will continue their independent floats.
UIC participation in the joint float foundered on London's
preconditions, including a guarantee of unlimited financial support by other
members in the event of a run on sterling. Although willing to make a
substantial contribution, Bonn decided London's price was too high. Paris
originally demanded UK participation. It hoped the weakness of the pound
would inhibit too rapid appreciation of the franc in a joint float, but settled
for a small German revaluation. Reaction to the float has generally been
favorable. Austria, Norway, and Sweden have decided to associate
themselves with the EC float, Switzerland is still undecided.
The EC will present its new plan to the enlarged Group of Ten in
Paris tomorrow. The Community expects that the US and Japan will
cooperate: Washington by agreeing to intervene to support tl~e dollar and
Tokyo by allowing the yen to appreciate further. Oii Tuesday, Tokyo
announced that it would hold its direct intervention to a minimum when
its exchange market reopens next Monday. The EC nations' own
intervention plans have not been spelled out, but they clearly plan a
controlled float.
Light interbank trading in Europe since official intervention ceased
in early March has not led to much change in exchange rates. Strengthening
of the dollar earlier this week may indicate, However, that money managers
and speculators will hold off on dollar sales, at least temporarily, when
official foreign exchange markets reopen next week. Indeed, a sharp fall
in Eurodollar rates on Tuesday indicates some dollar repayments L?y
borrowers who earlier used them to bu the stron )/uro can currencies.
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World Rice Mar! et Tightens Further
The world rice shortage will persist at least until this fall's harvest
in Asia.
? Viorld rice production for the entire crop year ending in
June is expected to fall 5% to 10% below the previous year,
largely because of the effects of last summer's erratic monsoon
on major Asian producers.
? Exportable surpluses from the Asian crop just harvested
are nearly all committed.
? The world price of rice, which last month exceeded $200
per metric tons (60% higher than a year ago), continues to
climb as demand remains strong.
Total world rice exports this year probably will fill short of 7 million
tons, compared with a peak of 8 million tons exported in 1972. The gap
between supply and demand will be even greater than last year, when
unfilled demand exceeded 500,000 tons.
o The United States, with possibly 2 million tons for sale
again this year, probably will be the wurld's leading exporter.
? Thailand probably will have a minimum of 1 million tons
available compared with last year's 2 million tons.
? Burma's rice exports are not likely to exceed 300,000
tons, down from 520,000 tons last year.
?Japan, which exported 500,000 tons last year, plans to
limit exports to about 350,000 tons of rice still available from
previous crops.
? China is expected to maintain anu may even be tempted
by high prices to exceeu the 800,000 tons exported last year.
The tightening world rice situation has' increased the demand for
cheaper substitute grains on the world market. notably whP:,t rnrn anA
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Taiwan, South Korea, and Hong Kong expanded textile expurts
substantially in 1972 even though sales to the United States grew only
rnoderately because of new restraints. Exports from Taiwan a~td South
Korea each increased by roughly 35%, reaching $860 million and $640
million, respectively. Hong Kong's exports rose 12% to $1.3 billion. The
gain for the three countries combined about matched that in 1971.
Rapid growth vas sustained through market diversificati-gyn. Dramatic
gains were made in sales to the EC, despite existing restrictions on textile
imports from Asia. Hong Kong bcosted its exports to the Community some
4~%, while Taiwan and South Korea doubled sales. In addition, all three
expanded exports to Australia; Canada; and other developed countries.
South Korea and Taiwan also registered big export gains in Japan,
which is steadily losing its once strong competitive position in textiles. If
the growth of South Korean sales continues in 1973, Japan will surpass
the United States as South Korea's leading textile customer. The increase
in Japanese purchases from South Korea consisted mostly of r:w silk and
intermediate clothing products.
The expansion and modernization of their te;:tile industries has helped
the East Asian countries to move into mc~e expensive product lines. The
process is expected to continue, and 'the outlook i'or East ~-sia's textile
industry is bright. The pace of expori expansion, however, will slow from
the very high rate of recent years.
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