UNDER SECRETARY ARMACOST'S MEETING WITH VICE PREMIER YAO YILIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP93T01142R000100240022-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 7
• Document Creation Date: December 23, 2016
• Document Release Date: December 1, 2011
• Sequence Number: 22
• Publication Date: March 19, 1985
• Content Type: CABLE

Declassified in Part - Sanitized Copy Approved for Release 2012/04/23: CIA-RDP93T01142R000100240022-3
11 NTIAL
NIO/ECON
INCOMING
PAGE 001
TOR: 191615Z MAR 85
00 RUEAIIB
ZNY CCCCC ZOC STATE ZZH
STU3473
00 RUEHC
DE RUEHBJ #5506/01 0781008
ZNY CCCCC ZZH
0 190959Z MAR 85
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6383
INFO RUMTBK/AMEMBASSY BANGKOK 6180
RUEHMO/AMEMBASSY MOSCOW 7295
RUEHUL/AMEMBASSY SEOUL 5012
RUEHKO/AMEMBASSY TOKYO 7718
RUMJNG/AMCONSUL HONG KONG 2482
BT
EXDIS
POLTO 32
E.O. 12356: DECL: OADR
TAGS: PREL, OVIP (ARMACOST, MICHAEL HI, US, CH
SUBJECT: UNDER SECRETARY ARMACOST'S MEETING WITH
VICE PREMIER YAO YILIN
2. SUMMARY:
- GIVEN VICE PREMIER YAO YILIN'S ECONOMIC
RESPONSIBILITIES, UNDER SECRETARY ARMACOST'S
ONE-HOUR MEETING MARCH 18 WITH HIM WAS DEVOTED LARGELY
TO CHINA'S AGRICULTURAL REFORMS AND INVESTMENT POLICY.
THEY ALSO DISCUSSED RELATIONS WITH THE SOVIET UNION.
YAO CITED FIVE MAIN FACTORS AFFECTING RECENT
AGRICULTURAL DEVELOPMENTS: (A) THE ADOPTION OF
THE HOUSEHOLD RESPONSIBILITY SYSTEM; (B) ACHIEVEMENT
OF SELF-SUFFICIENCY IN GRAIN PRODUCTION, ALTHOUGH
HE PREDICTED THIS SELF-SUFFICIENCY WILL BE ONLY
TEMPORARY; (C) THE READJUSTMENT NOW TAKING PLACE
IN AGRICULTURE; (D) THE SURPLUS AGRICULTURAL WORK FORCE;
WHICH IS BEING CHANNELED TO NONAGRICULTURAL PURSUITS
SUCH AS MINING; AND (E) THE STILL-LOW LEVELS OF
MATERIAL WELL-BEING OF THE MAJORITY OF AGRICULTURAL
HOUSEHOLDS. ON CHINA'S INVESTMENT POLICY, YAO SAID
THAT THE U.S. HAS AN IMPORTANT ROLE TO PLAY; CHINA
PLANS TO REWARD COMPANIES TRANSFERRING HIGH LEVELS
OF TECHNOLOGY WITH INCREASED ACCESS TO THE DOMESTIC
MARKET. THE ONLY AGRICULTURAL AREA WHERE CHINA
AND THE U.S. MIGHT BE COMPETITORS OVER THE LONG TERM
WAS PROBABLY COTTON.
3. TURNING TO SING-SOVIET RELATIONS, YAO SAID THERE
HAD BEEN MAJOR PROGRESS IN TRADE AND ECONOMIC
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RELATIONS OVER THE PAST YEAR. THIS WOULD CONTINUE.
HE CONFIRMED HE WOULD PROBABLY GO TO MOSCOW IN THE
SUMMER TO SIGN A LONG-TERM TRADE AGREEMENT IF THE
TWO SIDES REACHED AGREEMENT ON THE REMAINING ISSUES.
AS FOR POLITICAL RELATIONS, CHINA DOES NOT SEE SIGNS
OF VISIBLE PROGRESS ON THE THREE OBSTACLES. THERE
IS NO PLAN TO ESTABLISH PARTY-TO-PARTY RELATIONS.
END SUMMARY.
4. UNDER SECRETARY ARMACOST MET WITH VICE PREMIER
YAO YILIN FOR OVER AN HOUR ON MARCH 18. YAO YILIN
HAS MAJOR ECONOMIC RESPONSIBILITIES. AFTER AN INITIAL
EXCHANGE OF PLEASANTRIES AND A PHOTO OPPORTUNITY FOR
FOREIGN JOURNALISTS, UNDER SECRETARY ARMACOST NOTED
THAT THE WORLD HAD ADMIRED THE INCREASES IN PRODUCTION
IN CHINA'S AGRICULTURAL SECTOR. HE SAID HE WOULD BE
VERY INTERESTED TO HAVE YAO TELL HIM ABOUT THE POLICY'S
THRUST AND FUTURE DIRECTIONS.
5. YAO REPLIED WITH AN EXTENDED BRIEFING. THE MAIN
CHANGES IN AGRICULTURAL POLICY HAVE BEEN TAKING PLACE
FOR SIX YEARS. AT THE BEGINNING OF THE PROCESS, CHINA
WAS NOT VERY CONSCIOUS OF THE KIND OF CHANGES THAT THE
POLICY WOULD BRING ABOUT. CHINA LIBERALIZED AGRICULTURAL
POLICY BIT BY BIT. IT WAS ONLY IN 1983, WHEN THE
RESPONSIBILITY SYSTEM WAS ADOPTED THROUGHOUT THE
AGRICULTURE SECTION (WITH REMUNERATION RELATED TO
HOUSEHOLD PRODUCTION) THAT THE EFFECTS COULD BE SEEN
CLEARLY. ORIGINALLY, THE RESPONSIBILITY SYSTEM HAD
BEEN USED ONLY IN AREAS WHERE ECONOMIC CONDITIONS
WERE DIFFICULT. THERE WAS A SCARCITY OF FOOD SUPPLIES
IN THOSE AREAS ALREADY, SO THE CHANGE COULD NOT HAVE
MADE THINGS WORSE. ONLY ONE HUNDRED MILLION PEOPLE
WERE AFFECTED INITIALLY.
6. FOLLOWING ITS DRAMATIC SUCCESS IN THOSE AREAS,
THE RESPONSIBILITY SYSTEM WAS INTRODUCED IN OTHER
PARTS OF THE COUNTRY. IT WAS ADOPTED BY THE PEASANTS
THEMSELVES, WHO SAW IT WAS A GOOD SYSTEM. SOME
PEOPLE, HOWEVER, ASKED HOW THE RESPONSIBILITY SYSTEM
DIFFERED FROM THE SYSTEM CHINA HAD IMMEDIATELY AFTER
THE LAND REFORM PROGRAM WAS ADOPTED AFTER 1949. WHY
WAS PRODUCTIVITY HIGHER? YAO SAID THAT IN HIS
OPINION THE HIGHER PRODUCTION WAS NOT EXCLUSIVELY
THE RESULT OF THE RESPONSIBILITY SYSTEM. SUCCESS
ALSO HAD A LOT TO DO WITH CHINA'S INVESTMENTS IN
THE INTERVENING THREE DECADES. IN THE PAST, THERE
HAD BEEN A LACK OF FERTILIZER, LACK OF GOOD STRAINS
OF SEEDS, LACK OF IRRIGATION AND WATER CONSERVATION
PROJECTS AS WELL AS A LACK OF FARM IMPLEMENTS. NOW
EXDIS
POLIO 32
E.O. 12356: DECL: OADR
TAGS: PREL, OVIP (ARMACOST, MICHAEL H), US, CH
SUBJECT: UNDER SECRETARY ARMACOST'S MEETING WITH
CONDITIONS ARE MUCH BETTER. THE REASON WHY IN THE
PAST DECADES THESE INVESTMENTS HAD YIELDED NO
SIGNIFICANT RESULTS WAS DUE TO THE SYSTEM OF
PRODUCTION RELATIONS -- THE SYSTEM OF PEOPLE'S
COMMUNES RESTRICTED THE INITIATIVE OF THE PEOPLE.
AFTER ADOPTION OF THE RESPONSIBILITY SYSTEM, THE
INITIATIVE OF THE PEASANTS WAS UNFETTERED. THIS
INITIATIVE, BUILDING ON THE EARLIER INVESTMENTS IN
FERTILIZER, WATER CONSERVATION PROJECTS, NEW STRAINS
OF SEEDS, SCIENTIFIC FARMING METHODS, AND FARM
IMPLEMENTS HAS GREATLY ENHANCED THE FORCES OF PRODUCTION.
ONF I DENTI AL
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7. THE SECOND POINT IS THAT CHINA HAS NOW BECOME
SELF-SUFFICIENT IN FOOD GRAINS. CHINA HAS A SMALL
SURPLUS, AND HAS EVEN MADE SOME EXPORTS. BUT THIS
SURPLUS WILL ONLY BE TEMPORARY. THAT IS BECAUSE
CHINA IS STILL PRODUCING ONLY ABOUT 400 KILOS OF
GRAIN PER CAPITA. IF CHINA LOOKS AT ADVANCED
COUNTRIES AND COMPARES THE LEVEL OF GRAIN CONSUMED
PER CAPITA, THEN THE PRESENT LEVEL OF PRODUCTION
IN CHINA IS NOT ENOUGH TC IMPROVE THE LIFE OF THE
PEOPLE, AND INCREASE THEIR INTAKE OF ANIMAL PROTEINS.
TODAY'S SURPLUS IS A SURPLUS AT A LOW LEVEL OF
CONSUMPTION. THIS PHENOMENON WILL DISAPPEAR IN A
FEW YEARS. PEOPLE SHOULD NOT THINK THAT CHINA HAS
BECOME A LONG-TERM GRAIN EXPORTER.
8. THIRD, CHINA'S AGRICULTURE IS IN THE MIDST OF
AN ADJUSTMENT PROCESS. IN THE FUTURE, AREAS SUITABLE
FOR GRAIN WILL BE DEVOTED TO GRAIN. AREAS
SUITABLE FOR FORESTRY, WILL BE DEVOTED TO FORESTRY.
LIKEWISE WITH CATTLE PRODUCTION. THIS PROCESS OF
ADJUSTMENT WILL TAKE A FEW MORE YEARS. DURING THIS
READJUSTMENT PERIOD THE GROWTH RATE OF GRAIN PRODUCTION
WILL SLOW DOWN, WHILE THE PRODUCTION OF OTHER
AGRICULTURAL COMMODITIES WILL INCREASE.
9. FOURTH, IN TERMS OF THE LABOR FORCE ENGAGED
IN AGRICULTURE, IN PROPORTION TO TOTAL AVAILABLE
ACREAGE, THERE IS A LARGE LABOR SURPLUS. EVEN UNDER
THE PRESENT CONDITIONS, WHEN DEVELOPMENT OF THE FORCES
OF PRODUCTION STANDS AT A RELATIVELY LOW LEVEL, WITH
LITTLE MECHANIZATION INVOLVED, FULLY A THIRD OF
THE AGRICULTURAL WORK FORCE IS SURPLUS. IN THE
PAST, PEOPLE DID NOT SEE THIS SURPLUS. NOW PEOPLE
ARE WORKING FOR THEMSELVES. THEY ARE WORKING
HARDER, AND THE LABOR SURPLUS IS THEREFORE MORE
NOTICEABLE. THAT IS WHY CHINA HAS TRIED TO SET UP
SMALL SIDELINE PRODUCTION UNITS IN RURAL AREAS.
IN SOME PLACES, THESE SMALL PRODUCTION UNITS ARE
DEVOTED TO MINING. AMBASSADOR HUMMEL, WHO HAS
VISITED SHANXI, KNOWS THAT THE EFFORTS THERE ARE
CONCENTRATED ON COAL PRODUCTION. ALMOST EVERY
VILLAGE HAS OPENED A COAL PIT OR TWO. EVERY
PEASANT IS A MINER. THAT IS ONE REASON WHY THE
ARE GETTING BETTER OFF FASTER IN SHANXI.
10. THIS HAS BROUGHT ABOUT GREAT CHANGES. IN THE
PAST, COAL WAS IN SHORT SUPPLY; NOW, THE SCARCITY IS
NOT SO SERIOUS. THIS HAS CREATED CONDITIONS FOR
DEVELOPMENT OF INDUSTRY. OF COURSE, THE RECOVERY
RATE IN THESE SMALL OPERATIONS IS MUCH LOWER THAN
IT IS UNDER HIGHER MECHANIZATION, BUT CHINA IS
RICH IN COAL. THERE IS NO WAY TO SAY WHAT THE
DEMANDS FOR COAL WILL BE IN ONE HUNDRED TO TWO
HUNDRED YEARS. THEREFORE, EVEN THOUGH THE RECOVERY
RATE IS LOW (AND THERE IS SOME WASTE) THIS IS NOT
A SERIOUS PROBLEM.
11. GENERALLY SPEAKING, THE PEASANTS LIVING
IN THE RURAL AREAS ARE STILL NOT WELL OFF. ALTHOUGH
SOME HAVE BECOME RICHER, THESE ARE THE ONES WITH
SKILLS, GOOD EDUCATION, AND BETTER CAPABILITIES. THE
GREAT MAJORITY ARE NOT SO WELL OFF, YAO STRESSED.
12. UNDER SECRETARY ARMACOST THANKED YAO FOR THE
BRIEFING AND SAID HE WAS LOOKING FORWARD TO HIS
MARCH 19 VISIT TO A PRODUCTION UNIT OUTSIDE BEIJING
CONFIDENTIAL
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E.O. 12356: DECL: OADR
TAGS: PREL, OVIP (ARMACOST, MICHAEL H), US, CH
SUBJECT: UNDER SECRETARY ARMACOST'S MEETING WITH
TO SEE THE AGRICULTURAL REFORMS IN PRACTICE. HE
ASKED HOW THE UNITED STATES COULD BE HELPFUL TO
CHINA'S PROCESS OF MODERNIZATION. HE HAD FIRST MET
ARMAND HAMMER DURING HIS TIME AS AMBASSADOR IN MANILA,
AND UNDERSTOOD THAT HAMMER WAS INVOLVED IN THE COAL
BUSINESS IN CHINA. UNITED STATES BUSINESS WAS ALSO
INTERESTED IN SUCH AREAS AS COMPUTERS. HE ASKED
WHAT KIND OF ROLE THE UNITED STATES WOULD BE ABLE
TO PLAY.
13. YAO REPLIED THAT IN HIS VIEW THE U.S. HAD A
VERY IMPORTANT ROLE TO PLAY. CHINA'S DOMESTIC
MARKET IS BEING EXPANDED DRAMATICALLY. RIGHT NOW
THE DOMESTIC MARKET'S CAPACITY IS SMALL, BUT THAT
CAPACITY IS BEING ENLARGED. ALTHOUGH PER CAPITA
CONSUMPTION IS LOW, THE AGGREGATE IS A VERY LARGE
FIGURE AND EXPANDING VERY FAST. CHINA'S INDUSTRY
IS RATHER BACKWARDS, BOTH IN TECHNOLOGY AND IN
MANAGEMENT OF PRODUCTION. SO IN THIS SENSE THERE
IS MUCH THAT CHINA AND THE UNITED STATES CAN DO
TO COOPERATE WITH EACH OTHER. CHINA NEEDS TECHNOLOGY,
EQUIPMENT, AND SKILLED PEOPLE, BUT CHINA'S ABILITY
TO PAY IS LIMITED. THIS HAS RESTRAINED THE SCALE
OF COOPERATION, AND THAT IS THE MAIN DIFFICULTY
THAT CHINA HAS CONFRONTED.
14. UNDER SECRETARY ARMACOST SAID HE WAS GLAD TO
HEAR FROM YAO THAT THE MARKET SYSTEM WORKS. HE NOTED
THAT HE WAS INTRIGUED BY YAO'S COMMENTS THAT CHINA'S
GRAIN SURPLUS WAS A TEMPORARY PHENOMENON. SOME
AMERICAN EXPORTERS WERE WORRIED ABOUT CHINA'S
AGRICULTURAL EXPORTS. OUR VIEW WAS THAT COMPETITION
IS GOOD, BOTH FOR INDUSTRY AND FARMERS. WE WELCOME
IT FROM CHINA, ALTHOUGH WE WILL WANT TO MAKE SURE
THAT BENEFITS ARE RECIPROCAL. WE THEREFORE LOOK
FORWARD TO COMPETITION FROM CHINA RESULTING FROM
THE PRESENT REFORMS, NOT ONLY IN AGRICULTURE BUT
IN OTHER FIELDS AS WELL.
15. YAO REPLIED THAT COMPETITION IS GOOD, BUT
COMPETITION BETWEEN CHINA AND THE UNITED STATES WILL
NOT BE A COMMON THING. IF THERE IS COMPETITION IN
THE AGRICULTURAL AREA, IT WILL BE IN THE AREA OF
COTTON PRODUCTION. CHINA HAS A GOOD POTENTIAL FOR
MORE COTTON PRODUCTION, BUT RIGHT NOW CHINA IS TRYING
TO LIMIT PRODUCTION IN VARIOUS WAYS. IF WE DID NOT,
HE SAID, COTTON PRODUCTION WOULD DEVELOP EVERYWHERE,
AS CHINA HAS MANY AREAS SUITABLE FOR COTTON PRODUCTION.
16. UNDER SECRETARY ARMACOST SAID HE HAD NOTED THAT
CHINA MIGHT ALSO BE COMPETING WITH THE U.S. IN
SOYBEANS AND CORN. YAO REPLIED THAT HE THOUGHT THIS
WOULD ONLY BE TEMPORARY. AS ANIMAL HUSBANDRY
DEVELOPS, CHINA WILL HAVE TO USE MORE CORN
DOMESTICALLY, SO COMPETITION IN CORN WILL NOT BE
A MAJOR FACTOR. UNDER SECRETARY ARMACOST COMMENTED
THAT THERE WERE BIG ADVANTAGES TO HAVING LARGE
DOMESTIC MARKETS. IN THE PAST TEN OR FIFTEEN YEARS,
HOWEVER, BUSINESSMEN IN THE UNITED STATES HAD BEGUN
TO PAY GREATER AND GREATER ATTENTION TO FOREIGN
MARKETS. THE U.S. IS MORE AND MORE ACTIVE IN
THE FOREIGN TRADE AREA. AND THIS IS WHY MORE
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AMERICAN FIRMS ARE INTERESTED IN THE CHINA MARKET.
17. YAO SAID THAT CHINA WELCOMES AMERICAN INVESTMENT
IN CHINA. IF AMERICAN INVESTORS GIVE CHINA HIGH-LEVEL
TECHNOLOGY, CHINA WILL IN TURN GIVE THESE FIRMS
GREATER ACCESS TO CHINA'S DOMESTIC MARKET. IF ON
THE OTHER HAND THE TECHNOLOGY TRANSFERRED IS NOT
LEADING TECHNOLOGY, CHINA WILL INTRODUCE RESTRAINTS
AND LIMITATIONS ON ACCESS TO THE DOMESTIC MARKET.
CHINA'S PRINCIPLE IS MARKET ACCESS IN EXCHANGE
FOR TECHNOLOGY. THIS WILL APPLY TO EXCHANGES WITH
THE UNITED STATES, JAPAN, AND WESTERN EUROPE. HE
CITED THE EXAMPLE OF KODAK PAPER PROCESSING IN
FUJIAN PROVINCE, SAYING THAT AFTER LOOKING AT
KODAK, FUJI, AND AGFA, CHINA HAD CONCLUDED THAT
EXDIS
POLTO 32
E.O. 12356: DECL: OADR
TAGS: PREL, OVIP (ARMACOST, MICHAEL H), US, CH
SUBJECT: UNDER SECRETARY ARMACOST'S MEETING WITH
THE TERMS OFFERED BY KODAK WERE BETTER. IN THIS
REGARD, YAO CONCLUDED, CHINA TAKES AN UNBIASED
VIEW; CHINA LOOKS AT THIS COMPETITION IN THE
CONTEXT OF CHINESE NEEDS.
18. UNDER SECRETARY ARMACOST ASKED WHETHER CHINA
PLANNED TO ALLOW ONLY ONE FOREIGN FIRM IN EACH
AREA TO COME INTO THE CHINESE MARKET, OR WHETHER
SEVERAL FOREIGN JOINT VENTURES WOULD BE ALLOWED TO
COMPETE WITH EACH OTHER IN THE CHINA MARKET. YAO
REPLIED THAT IN MAKING USE OF FOREIGN FUNDS, CHINA
DOES NOT CONFINE ITS MARKET TO ONE COUNTRY. WHEN
THE TERMS OFFERED BY OTHER FOREIGN FIRMS ARE SUITABLE,
CHINA WILL MAKE USE OF THEIR INVESTMENT AS WELL.
CHINA WILL NOT LIMIT ITSELF TO ONE FOREIGN SOURCE,
EITHER, AS THE CHINA MARKET IS TOO LARGE.
19. UNDER SECRETARY ARMACOST SAID THAT HE HAD HEARD
THAT YAO MIGHT BE VISITING THE SOVIET UNION IN THE
SPRING. HE SAID HE WAS FAMILIAR WITH CHINA'S
POLICY IN RELATING IMPROVEMENT IN POLITICAL RELATIONS
TO SOVIET ACTIONS ON THE THREE OBSTACLES. THE U.S.
HAS SEEN SOME EVOLUTION IN CHINA'S POLICY, AND HAS
NOTED A HINT OF FUTURE CHANGES IN THE POLICY WITH
REGARD TO PARTY-TO-PARTY RELATIONS. HE ASKED YAO
WHAT FUTURE STEPS MIGHT EVOLVE, AND HOW HE SAW THE
RELATIONSHIP GOING. YAO REPLIED THAT SINO-SOVIET
TRADE RELATIONS AND ECONOMIC CONTACTS HAVE PROGRESSED
SINCE LAST YEAR. THE REASON IS THAT THIS CONFORMS
TO THE NEEDS OF BOTH COUNTRIES. CHINA HAS A LONG
COMMON BORDER WITH THE SOVIET UNION, AND IT IS
CONVENIENT TO TRANSPORT GOODS TO THE SOVIET FAR
EAST BY RAIL THROUGH MONGOLIA OR THROUGH OTHER
POINTS. EXPORTS THROUGH PORTS SUCH AS DALIAN
TO VLADIVOSTOK ARE ALSO CONVENIENT. THE ROUTES
ARE FAIRLY CLOSE. THE OTHER MAIN REASON FOR GROWTH
OF TRADE IS THAT THE COMMODITIES THE TWO COUNTRIES
SUPPLY EACH OTHER ARE RELATIVELY COMPLEMENTARY. THE
SOVIETS NEED COTTON CLOTH, TEXTILES, AND LIGHT INDUSTRIAL
PRODUCTS, AND FOOD SUPPLIES FOR THE SOVIET EASTERN
REGION. CHINA CAN SUPPLY THESE. THE SOVIETS CAN
SUPPLY LUMBER AND MACHINERY. THEREFORE, IN VIEW
OF THIS FACTOR, TRADE WILL CONTINUE TO GROW.
20. ON THE POLITICAL LEVEL, YAO SAID THAT CHINA
DID NOT SEE SIGNS INDICATING VISIBLE PROGRESS
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BETWEEN THE TWO SIDES. CHINA HAS AN INDEPENDENT
FOREIGN POLICY. THE SOVIETS DO NOT WANT TO SEE
AN INDEPENDENT POLICY BEING PURSUED BY CHINA.
THEY WANT CHINA TO BE PART OF A "BIG FAMILY" AS IT
WAS IN THE 1950'S. THIS IS UNACCEPTABLE TO CHINA.
CHINA HAS MADE IT CLEAR TO THE SOVIETS THAT THE
THREE OBSTACLES CONTINUE TO EXIST. THE SOVIETS
HAVE NOT INDICATED A WILLINGNESS TO DISCUSS THEM.
SO POLITICALLY CHINA HAS NOT SEEN SIGNS INDICATING
VISIBLE PROGRESS. AS FOR PARTY-TO-PARTY CONTACTS,
CHINA HAS NO SUCH CONTACTS AND DOES NOT PLAN TO
ESTABLISH THEM. YAO SAID HE PLANNED TO GO TO THE
SOVIET UNION IN THE SUMMER OF 1985, AS IT LOOKS AS
IF THE TWO SIDES WILL CONCLUDE A LONG-TERM TRADE
AGREEMENT. IF THE NEGOTIATIONS ON THE AMOUNT OF
TRADE PROVE SUCCESSFUL, HE WILL ATTEND. IF NOTHING
COMES OUT OF THESE NEGOTIATIONS, THEN HE MIGHT NOT
VISIT. AS OF THIS POINT, HE SAID CHINA COULD NOT
SAY THAT THE NEGOTIATIONS WOULD DEFINITELY ACHIEVE
SUCCESS. THE SOVIETS HAVE NOT YET REPLIED TO SOME
QUESTIONS CHINA HAS PUT TO THEM.
21. UNDER SECRETARY ARMACOST SAID HE UNDERSTOOD
THAT STATE-TO-STATE RELATIONS WOULD CONTINUE TO
EXPAND, AND ASKED WHETHER WE SHOULD ASSUME THAT
ECONOMIC RELATIONS WOULD BE ALLOWED TO EXPAND WITHOUT
REFERENCE TO POLITICAL ISSUES. YAO REPLIED THAT
POLITICAL AND ECONOMIC RELATIONS COULD BE SEPARATED
TO AN APPROPRIATE DEGREE, BUT COULD NOT BE
COMPLETELY SEPARATED. CHINA IS NOT INTENTIONALLY
EXDIS
POLIO 32
E.O. 12356: DECL: OADR
TAGS: PREL, OVIP (ARMACOST, MICHAEL H), US, CH
SUBJECT: UNDER SECRETARY ARMACOST'S MEETING WITH
PUTTING OBSTACLES IN THE DEVELOPMENT OF ECONOMIC
RELATIONS, BUT IF THERE IS NO PROGRESS ON THE
POLITICAL ISSUES, THEN THERE WILL HAVE TO BE LIMITS
ON THE DEVELOPMENT OF ECONOMIC RELATIONS.
22. TURNING TO BILATERAL U.S.-PRC MATTERS. UNDER
SECRETARY ARMACOST COMMENTED THAT HE UNDERSTOOD
THERE WERE BILATERAL TRADE PROBLEMS IN SUCH AREAS
AS TEXTILES AND CIVIL AVIATION, BUT THAT THESE
ISSUES WERE BEING WORKED ON BY OUR TWO SIDES. YAO
REPLIED THAT TWO-WAY TRADE HAS MADE MUCH PROGRESS,
AND THERE ARE GOOD PROSPECTS FOR FURTHER GROWTH.
THERE ALSO EXIST SOME OBSTACLES WHICH CALL FOR JOINT
EFFORT IF THEY ARE TO BE OVERCOME. IT SHOULD BE
EXPECTED THAT THERE WILL BE OBSTACLES IN TRADING
RELATIONS, AND THROUGH CONSULTATIONS WE CAN HOPE
TO MAKE PROGRESS IN RESOLVING THEM. UNDER SECRETARY
ARMACOST SAID THAT THERE WOULD BE MANY OPPORTUNITIES
FOR SUCH CONSULTATIONS IN COMING MONTHS, AS HE UNDERSTOOD
WE WOULD SOON BE HAVING MEETINGS OF COMMERCE, TREASURY,
AND SENIOR SCIENCE AND TECHNOLOGY OFFICIALS. HE
ADDED THAT PRESIDENT LI XIANNIAN'S JULY VISIT TO
THE UNITED STATES MAY GIVE US SOME DEADLINES TO
WORK AGAINST IN SOME TRADE AREAS. YAO SMILED AND
REPLIED THAT PRESIDENT LI'S VISIT WOULD "PROMOTE
OUR WORK." UNDER SECRETARY ARMACOST THANKED YAO
FOR THE MEETING, AND SAID THE UNITED STATES LOOKED
FORWARD TO WORKING WITH CHINA ON THESE ISSUES.
23. ATTENDING: U.S. SIDE: UNDER SECRETARY ARMACOST,
AMBASSADOR HUMMEL, DCM HOROWITZ, EXECUTIVE ASSISTANT
'~ONF I DENT I AL
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PENDLETON, POLCOUNS JOHNSON, POLOFF JOHNSON (NOTE-
TAKER), ECONOFF SPELMAN (NOTETAKER), INTERPRETER
BROWN. CHINESE SIDE: VICE PREMIER YAD YILIN,
AMBASSADOR-DESIGNATE HAN XU, AMERICAN AND OCEANIAN
AFFAIRS DEPARTMENT DIRECTOR ZHANG WENPU, USA DIVISION
DIRECTOR NI YAOLI, USA DEPUTY DIVISION OFFICERS
HUMMEL
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