REQUEST TO SPEAK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88M00338R000100070011-1
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: August 17, 2011
• Sequence Number: 11
• Publication Date: July 8, 1986
• Content Type: MEMO

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8 July 1986
MEVI11ANDW FOR: Associate Deputy Director for Intelligence
Director of Global Issues
Chief, Economics Division
Chief, Development Issues Branch
Development Issues Branch, Economics Division
Office of Global Issues
SUBJECT: Request to Speak
1. I request permission to give an oral presentation on China's role in
the international economy at a small private conference organized by the
Office of Technology Assessment under the United States Congress. The
presentation will be given on 28 July in the context of a meeting to discuss
"China's Course to the Year 2000." I have addressed similar conferences in
past years on this topic and have encountered no publicity problems.
2. This conference will provide a valuable forum for making contacts
with members of the United States policymaking community. The conference will
consist of ten to twenty US government employees and two or three individuals
from outside the government.
3. None of the material to be used in the presentation is classified.
No press personnel will be invited.
4. I will be identified as an Agency employeee
but will make the standard disclaimer indicating that the views expressed are
my own and not necessarily those of the agency or the US Government.
AIMINISTRATIVE - INTERNAL USE ONLY
STAT
STAT
STAT
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SUBJECT: Request to Speak
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Date
STAT
STAT
14 JUL 1986
irec or-o Global Issues Date
Approved:
.jv Associate Depu Director of Intelligence Date
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ADMINISTRATIVE - INTERNAL USE ONLY
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SUBJECT: Request to Speak
OGI /E?/DI
8 July86,
Original - Addressee
1 - D/OGI
1 - OGI/Security
1 - EDI Registry
1 - Office of Legislation
1 - OS/EAB
1 - OGI Adnin
1 - Originator
ADMINISTRATIVE - INTERNAL USE ONLY
STAT
STAT
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UNCLASSIFIED
CHINA AND THE WORLD ECONOMY
I. China's Economic Expansion in Global Perspective
A. China's "Open Door" Policy
1. Beijing's Shift from Policy of Self-Reliance to Open Door
has resulted in Export Growth Three Times the World Average
2. China's Share of World Trade is Still Not Commensurate with its
Share of World Output
B. Sources of China's Past Export Growth
1. China Began Export Drive From Small Share--No Threat to Anyone
2. Growth in World Demand for the Commodities China Exported was
Not a Major Factor
3. China's Increasing Competitiveness Accounts for Two-Thirds of
Export Growth
a. Lowest Labor Costs--Rapid Growth in Labor Force
b. Improvements in Quality
c. Expanded Marketing Networks
d. Low inflation rate
e. Rapid increases in Productivity
C. Potential For China's Future Export Growth
1. China's Export to GNP Ratio Remains Below Normal for Country
of China's Market Size, Per Capita Income, and-Physical.
Accessibility--China Could Profit by Doubling Share of Trade
2., China's Domestic Economic Productivity Remains Among the Lowest
in World
a. China Uses almost Twice as Much Energy Per Unit of Final
Product as the rest of the World
b. Inefficiencies Abound in terms of Converting Resources into
Final Goods
c. Economic Reforms and Growing Foreign Investment will
Greatly Improve Productivity, Leading to even greater
Capacity to Expand Exports
3. Restraints on Export Growth
a. Antiquated Transport System increases costs of expanding
trade with Interior Provinces
b. China's Exports are skewed towards Asia because of
continuing lack of international marketing mechanism
c. Lack of Incentives to take risks to develop new products or
new markets
d. Lack of Concern for Buyer's Needs as a result of operating
for years in a supplier's market (consumers had no choice
but to take what was offered)
e. Overvalued exchange rate
D. China's Trade Plans
1. The Chinese have never announced their long range trade plans
a. China's goal for domestic production calls for quadrupling
output by the year 2000, implying a growth rate of 7.2
percent per year
b. In order to avoid concrete discussions of their trade plans
Chinese officials have alluded to their domestic production
goals as an indicator of the magnitudes involved
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UNCLASSIFIED
c. The Chinese may only have rudimentary long range trade
plans because they do not have a clear idea of future
import needs, export markets, or availability of financing
2. If China is to accomplish its long term economic goal
trade would have to expand at a much faster rate than the
domestic economy
3. Various trade agreements already signed plus occasional reports
of export targets for specific industries, ports, and provinces
suggest exports will grow at almost double the rate of the
domestic economy
a. An overall growth rate of 10 to 15 percent per year is
consistent with past trends
b. This is also consistent with the rate at which China has
increased its penetration of foreign markets, independent
of the growth in world demand
4. This projection assumes that China will maintain a cautious
"open door" policy and does not abandon it in favor of a
full-fledged policy of export promotion or to return to a policy
of import substitution and self-reliance
E. China's Trade Policies
1. Although China's trade policies have changed dramatically from
the autarkic years of Mao Zedong, contrary to much. opinion,
China has not pursued a totally open trade policy ala Taiwan or
South Korea
a. Beijing continues to restrict foreignors' access to goods
on the domestic market
b. Beijing has moved slowly on price reforms--a key condition
to further liberalization of trade
c. Beijing continues to maintain tight controls on foreign
exchange expenditures, the necessary result of an overvalued
exchange rate
2. Beijing is currently debating whether China should pursue a
policy of import substitution or export promotion
a. The debate stems from China's trade problems encountered
in the past year--a massive trade deficit, declining oil
prices, and declining terms of trade
b. China will have to give up increasing amounts of domestic
resources if it is to get the imports it needs to modernize
c. Because of the major domestic ramifications of the issue
the debate must be handled by China's political system
3. Initial indications are that China will try to push exports
even harder
a. China will hold oil exports at current levels rather than
cut back
b. All joint ventures--new and old--are now being required to
earn sufficient foreign exchange from exports to cover not
only their profit remittances but also their full import
costs
c. Beijing is issueing import permits only for plant and
equipment that produce goods for export--major
infrastructural projects that do not generate foreign
exchange are being cut
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UNCLASSIFIED
d. China's new willingness to take on substantial commercial
debt is a indicator of Chinese intentions to sharply
boost exports over the long run
II. Impact of China's Expansion on Other Countries
A. Major Growth Commodities
1. China's fastest growing exports in terms of market penetration
include a range of light industry products, some crude minerals,
some agricultural products, and petroleum based products.
This is based on China's comparative advantage in either
labor-intensive or certain resource-intensive lines
2. If China continues to penetrate markets at the same rate as it
has since 1976, by 1990 China would account for 3 percent of
world trade, and by 2000, 9 percent.
3. At 20 cents per hour, China's average wage rate is the lowest in
East Asia and one of the lowest in the world
a. Over the next five year plan (1986-1990) China must absorb
nearly 100 million workers into its labor force--the
equivalent of absorbing the entire US labor force
b. Competition from China will tend to drive wages down in
other LDCs
c. China's ability to attract foreign investment will be great
if Beijing can overcome some of the bureaucratic obstacles--
China could-drain foreign-investment from other needy LDCs
B. China's Major Markets
1. China's greatest market penetration has been in the Asian region
followed by the U.S., Brazil, Kuwait, and Jordan
2. West Europe has hardly been tapped
3. For most of these countries China only poses a threat in certain
industries--not across the board
C. China's Major Competitors
1. China's greatest competition will come from the NICs, not the
agricultural and resource oriented LDCs
2. In the area of light manufactures Taiwan and China stand
above all others in terms of expanding their market presence
3. India, Mexico, Argentina, Thailand, and Hong Kong among China's
competitors appear to have been most affected by China's
advances in third country markets
D. Countries Whose Export Industries are Most likely to be Hurt
1. A handful of LDCs depend on the same group of commodities
that China is targeting for a large share of their foreign
exchange earnings. These include some of the poorest countries
of Asia, Africa, and Latin America, as well as, Taiwan and
Hong Kong.
2. On the other end of the spectrum are Malaysia and Mexico,
which, although being major competitors, are not greatly
dependent on the same commodities for a large share of
foreign exchange earnings
a. With the recent drop in oil prices, however, Mexico
has just announced plans to expand production and exports
of the same light manufacturers, a policy which is bound
to drive Mexico into more intense competition with China
b. Among Developed Countries, Italy, New Zealand, and
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UNCLASSIFIED
Australia are most dependent on the same type of goods
that China exports-for their own earnings
c. China will only be competitive with US export industries
in corn, cotton, and a few other commodities, primarily
in Asian markets
E. China's Fastest Growing Imports
1. China's fastest growing imports consist primarily of industrial
supplies and capital goods, but in recent years a few consumer
goods--televisions in particular--have made large advances
2. Some traditional imports have declined substantially as China
switched from importer to exporter, e.g., cotton fiber,
soybean oils, crude chemicals, and metalworking machinery
3. Imports have always been much more volatile than exports,
making prediction of trade in the future more hazardous
4. China's import patterns actually appear closer to those of
the developed countries
a. China has a vested interest in keeping commodity prices low
b. China probably stands to gain most on the import side by a
01' e i - _P P.,..... L--_
III-Implications
A. The Balance of Winners and Lossers from China's Trade Expansion
1. For the global economic system as a whole there must be a net
gain for trade-to take place.. Asiin-every trade situation,
however, there will always be winners and loosers, and any
major advent, such as: China's entry, will be marked by some
severe dislocations.
2. In general, I believe the LDCs have most to loose from China's
expansion, and the DCs the most to gain. China's economic
interests are converging with those of the developed countries':
in particular, the Chinese see "free trade" as in their interest.
B., China's Potential to Disrupt the Global Trade System
1. The potential for disruption is greater the more centralized
China's economic system is
2. A more centralized system is able to:
a. Concentrate resources (subsidizing industries)
b. Link import and export decisions
c. Change policies abruptly, resulting in instability
d. Mask its intentions, making it more difficult to plan
UNCLASSIFIED
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