CHINA: THE YEAR IN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00114R000200130001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 27, 2016
• Document Release Date: May 22, 2012
• Sequence Number: 1
• Publication Date: March 31, 1987
• Content Type: MEMO

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Central Intelligence Agency
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DIRECTORATE OF INTELLIGENCE
Summary
Buffeted by political and economic problems--many of their own
making--China's reform leaders faced a crisis as 1986 drew to a close.
Party General Secretary Hu Yaobang and some of his allies in particular
overreached themselves last summer and fall in pushing political reform
and challenging the conservative old guard. By encouraging a more open
debate on political reform in the media, they unwittingly inspired
thousands of college students and workers to take to the streets of
Shanghai and several other cities in December to demonstrate in favor of
greater democracy. The demonstrations triggered a conservative backlash
that contributed to Hu's fall from power in mid-January. At almost the
same time reformers began to encounter increasing economic problems
(pent up inflationary pressures, a ballooning state budget deficit, increasing
state enterprise losses and a foreign exchange shortage) that have forced
Chinese leaders to slow the pace of reform and have generated strong
pressures from conservatives to retrench further.
This memorandum was prepared by Office of East Asian
Analysis. Information available as of 31 March 1987 was used in its preparation.
Comments and queries are welcome and may be directed to the Chief, Political
Assessments Branch, China Division, OEA,
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Titus far, the heightened infighting between reformers and
conservatives has not spilled over into the conduct of China's foreign
policy. Indeed, Beijing probably will continue to seek better relations with
both Moscow and Washington with the aim of enhancing China's security
and bolstering its modernization drive. In response to Gorbachev's efforts
to court Beijing, the Chinese increased political as well as economic
contacts last year with the Soviets, and even agreed to resume
Sino-Soviet border talks that had been suspended since 1978. But on
balance, China continues to maintain friendlier relations with the United
States, exemplified by deepening military ties which included last fall's US
naval port call to China--the first since the present government took
China's reformers were riding high early last year after scoring a number of
impressive victories over their conservative opponents. But a combination of political
miscalculations and economic problems have subsequently sapped the political strength
of the reformers and slowed the pace of reform. The early hopes of some of the most
progressive reformers that major political reforms would be undertaken have evaporated
in the face of strong resistance from party elders and the fall from power of Party
General Secretary Hu Yaobang.
Friction between conservatives and reformers mounted throughout 1986 over a
broad range of issues--political reform, ideology, economic policy, succession
arrangements, even dispensing patronage jobs. During the spring, reformers appeared
to be in firm control. A massive propaganda campaign encouraging open debate on
political as well as economic reform led to the discussion of a number of radical ideas
in the Chinese press--even suggestions that Marxism was no longer a suitable guide for
China's moderanization drive. Conservatives also became the target of a campaign
against corruption that reformers controlled and used to threaten their rivals.
The period of reformist dominance was brief, however, and signs of a
conservative counterattack began to appear by early summer. Discussions of political
reform began to appear less frequently and those that appeared were watered down.
We believe the reformers overreached themselves, miscalculating the strength of the
conservatives and badly underestimating the alarm and opposition that aggressive
reform policies would arouse. The crucial miscalculation apparently occurred in late
summer, when Hu Yaobang pressed Deng and other party elders to step down, and
Issues of both policy and power separated the two camps:
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? Party col~trol was at the heart of many specific policy quarrels. Conservatives
feared, and we believe convinced Deng, that reform proposals threatened the
party's dominance and even its ability to guarantee political and social stability.
? Ideology became an increasingly contentious area, with conservatives arguing
that some reformist suggestions, for example ownership reform in industry, not
only would weaken party control but were an unacceptable departure from
socialist doctrine.
? Disagreements over succession arrangements heated up as Deng lost
confidence in the younger leaders. Party elders, reluctant to give up their
positions, worked to persuade Deng that it would be unwise for him to step
down.
? Personnel appointments were also a source of friction; conservatives resented
Hu's success in monopolizing patronage and freezing out their supporters.
Conservative criticism of reform policies was given a boost by two events. First,
reformers encountered a number of problems in the economic area--inflation, a growing
budget deficit, foreign exchange shortages--that forced a slowdown in implementation
of economic reforms. Some of these problems conservatives had warned against, which
lent weight to their arguments that reform has moved too fast and it was time to
retrench. Second, the student demonstrations in December that were encouraged by
the liberal rhetoric of the spring aroused fears of instability. Hu Yaobang's tolerant
attitude toward this dissent added to conservative dissatisfaction with him--and also to
Deng's loss of faith in his protege. Hu
was criticized and finally forced to resign, Premier Zhao Ziyang was chosen Acting
General Secretary to replace him.
Since Hu's fall, there has been a marked conservative shift in China. We believe
the decision to oust Hu was Deng's and he did not act under duress, but it is clear that
conservative elders have regained considerable power. This is demonstrated not only in
the emergence of traditionalist themes in propaganda, but also in growing conservative
influence over personnel appointments, party matters, and even economic policy. Deng
and Zhao appear to be working to limit the effect of the conservative backlash on core
economic reforms, but the new strength of the conservatives was recently demonstrated
when they blocked a move to increase the authority of factory managers at the expense
of the party committees. With Hu out of office only two months, new power alignments
are still unclear and probably in flux. We look for the next several months to be a
period of political tensions and jockeying for power as all sides prepare for a scheduled
party congress in October.
Foreign Policy
As long as Deng Xiaoping remains in charge we do not expect any sudden,
dramatic changes in the thrust of China's foreign policy. Deng and Zhao in fact have
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already gone to some pains since Hu Yaobang's ouster to reassure Western
governments and investors on that score. In general we believe China will continue to
tout its "independent foreign policy" line while seeking better relations with both
Moscow and Washington. However, some adjustments could occur, particularly in the
open door policv, as a result of the resurgence of conservative influence in the Chinese
leadership.
Despite Gorbachev's increased efforts to court Beijing, Chinese leaders probably
will continue for both economic and security reasons to seek closer ties with the United
States. Indeed, Beijing still regards the United States as an important strategic shield
against Soviet military pressure as well as a key market for Chinese exports and source
of investment capital and technology. No single element better illustrates the qualitative
difference between Sino-Soviet and Sino-US relations at present than the deepening
military ties between Beijing and Washington. Over the past few years senior Chinese
and US military officials have exchanged numerous visits. Last year was marked by
several particularly important events, including the exchange of visits by China's Chief of
General Staff and Secretary of Defense Weinberger. China also contracted to purchase
55 fighter avionics packages for $500 million and $2 million worth of artillery-locating
The resurgence of conservative influence, however, may have some influence on
Sino-US economic relations. Beijing, for example, could adopt a more selective
approach to joint venture schemes with Western firms as well as a more restrictive
policy toward allowing Chinese students to study in the West. The Chinese may also
turn more to the Soviets and East Europeans for some equipment and services, in part
to save scarce foreign exchange, and become more prickly in general on trade issues.
The conservatives could conceivably press for some retaliatory action, for example, if
the US Congress enacts strong protectionist measures that cut Chinese textile exports
to the United States--an increasingly important earner of foreign exchange in the wake
of declining oil prices. The conservatives could also seize on the sharp drop in new
foreign investment last year--US investment alone dropped by about half--to attack
some reform policies.
Paradoxically, impending streamlining of COCOM procedures for China--while
previously important politically as well as economically to reformers--probably will have
little impact. Short-term Chinese demand for Western technology in fact will probably
level off or decline because of China's present foreign exchange crunch and because
China is having difficulty absorbing the sophisticated Western technologies it already
has. In any event, the COCOM changes will not significantly increase the US share of
China's high-technology market unless accompanied by concessionary prices and/or
financing.
Meanwhile, we expect Sino-Soviet trade and scientific and technical exchanges to
increase. Trade in 1986 shot up to an estimated $2.4 billion and the Soviets have
agreed to renovate 17 Chinese factories and construct seven new facilities--most in
northeastern China--that probably will lead to several hundred Soviet technicians going
to China. Overall, however, the Soviet Union remains a distant sixth among China's
trading partners, well behind Hong Kong, Japan, the United States and West European
states which continue to account for over 80 percent of China's trade.
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Although the political dialogue has similiarly expanded to include border talks
(suspended in 1978), the Chinese continue to take a cautious approach to Soviet
overtures--in part to avoid alarming the United States and its Western allies as well as
Japan. As a result, they continue to emphasize the need for Moscow to adopt more
accommodating policies on the so-called "three obstacles"--Moscow's support for
Hanoi's occupation of Cambodia, the Soviet invasion of Afghanistan, and the Soviet
military buildup along China's northern border--which Beijing continues to define as
threats to its security. The Chinese remain particularly adamant that Moscow withdraw
its support for Vietnam's continued occupation of Cambodia. At the same time they
continue to provide support for the Cambodian insurgents as well as the Afghan rebels
as a means of keeping the Soviets and their allies in notice. The Chinese also continue
to press Washington to initiate a dialogue with North Korea in order to limit Moscow's
ability to exploit tensions on the peninsula.
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Subject: China: The Year in Review
Distribution:
National Security Council
1 - Doug Paal, Senior Assistant for China, Taiwan and Hong Kong,
Room 302, OEOB
Department of State
1 - Joan Plaisted, Deputy Director of Economic Affairs, Office of Chinese
Affairs (EAP/C), Room 4318
1 - William Newcomb, INR/EC/CER, Room 8448
1 - Tom Finger, Chief, INR/EAP/CH, Room 8448
Department of Commerce
1 - Jeffrey Lee, Office of PRC and Hong Kong, Room 2317
1 - Christine Lucyk, Office of PRC and Hong Kong, Room 2317
1 - Myna Stoltz, Country Policy Analyst, Office of East Asia and
the Pacific, Room 3820
3 - Betsy Hudson, Office of Intelligence Liaison, Room 6854
Department of Treasury
1 - Jonathan Hill, Office of East-West Economic Policy, Room 4426
1 - Douglas Mulholland, Deputy Assistant to the Secretary for
National Security, Room 4326
Department of Energy
1 - Douglas Faulkner, Room GA257, Forrestal Building
Office of the US Trade Representative
1 - William Abnett, Director of China Affairs, 600 17th Street N.W.,
Washington, DC 20506, Room 300
Department of Defense
1 - Major William J. Suggs, Headquarters, Department of the Army,
Office of the Assistant Chief of Staff for Intelligence,
Attention: DAMI-FII, Room 2A474, Pentagon
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Central Intelligence Agency
- DDI (7E44)
- NIO/EA (7E62)
- D/OEA (4F18)
- C/OEA/CH (4G20)
- OEA Production Staff (4G48)
- C/OEA/SDS (4G32)
- C/OEA/CH/IS (4G32)
- C/OEA/CH/EA (4G32)
- C/OEA/CH/PA (4G32)
- C/OEA/CH/TT (4G32)
- CPAS/IMC/CB (7G07)
- CPAS/ILS (7G50)
- C/EA~(5E 18)
- C/PES (7G 15)
- C/DO/PPS (3D01)
- LDA/AN/CH (1 H 18)
- Senior Review Panel (5G00)
- DCI/DDCI Executive Staff (7D60)
PDB Staff (7F30)
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