CHINA-US: DIM PROSPECTS FOR FULFILLING THE LTA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000401810001-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 4
• Document Creation Date: December 22, 2016
• Document Release Date: August 5, 2010
• Sequence Number: 1
• Publication Date: November 8, 1983
• Content Type: MEMO

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
8 November 1983
CHINA-US: DIM PROSPECTS FOR FULFILLING THE-LTA
Summary
This year China will fail to honor the 6-million-ton minimum
grain purchase called for in the US-China long-term grain
agreement (LTA). US gain sales to China were cut in half this
year because of the textile trade dispute and cheaper supplies
from other grain-exporting countries. There is also growing
concern among grain traders that US sales to China in 1984, the
last year of the LTA, will fall below the agreed amount. Large
purchases from other exporters, record domestic harvests, and a
reported 1 million tons of grain stored aboard Chinese ships all
suggest China will not carry over any shortfall of 1983 purchases
Total Chinese purchases of US grain for 1983 now stand at
3.8 million tons, 60 percent wheat and the rest corn. Foreign
Minister Wu Xueqian recently stated that China will continue to
purchase grain during the remaining m?nt`ns of the year, but we
believe China will buy no more than an additional 1 million
tons. In any case, it would be impossible for China to take
delivery of the rest of the 6 million tons before the end of the
year. Embassy Beijing reports that, in early October, officials
in north China ports indicated that no increase in shipments of
US grain was expected.
The Chinese normally honor LTAs, even though they have told
US traders that they view them more as general purchasing
guidelines than firm commitments. This is the third year of the
This memorandum was prepared byl lof the China
Division of the Office of East Asian Analysis. It was
coordinated with the Office of Global Issues. Questions and
comments are welcome and may be directed to the Chief, Domestic
Policy Branch at telephone
M 83-10
G;.
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US-China LTA, and sales were well above the 6-million-ton minimum
in both 1981 and 1982 (totaling 16.6 million tons for the two
years). The only previous problem arose in 1981 when corn sales
were only 6 percent of total sales; the LTA calls for
approximately 15 to 20 percent of total sales in corn.
Problems with this year's sales began in late 1982 when
China stopped buying US grain because of record domestic harvests
and cheaper prices from other suppliers. Grain sales took on a
political dimension in early 1983 as difficulties arose over
textile quotas. After the textile issue was resolved earlier
this fall, however, many of the same economic factors which led
to the initial cutoff remained. The US drought further
complicated matters by driving up the price of corn.
The Chinese have apparently committed themselves to purchase
slightly more US wheat than has been officially registered.
the Chinese have been purchasing contracts
on the futures market through trading houses in order to conceal
coming physical deliveries. Traders are reluctant to discuss
this activity, but we believe such dealings are small and will
have little or no impact on 1983 deliveries or on 1984 purchase
levels.
Prospects for 1984
During the 15 November bilateral consultations, we expect
the Chinese to resist strongly making any commitment to purchase
the LTA minimum in the final year of the pact. International
grain traders are increasingly pessimistic that the United States
will be able to persuade the Chinese to add any shortfall from
1983 sales to the 6-million-ton minimum for 1984. Assuming US
sales of 6 million tons, China has 25X1
already committed itself to 12-13 million tons of total grain
imports in 1984, fulfilling its stated import plan. 25X1
The Chinese have also argued, both in 1981 and so far this
year, that purchases should be averaged over the four-year-life
of the agreement. Such reasoning could lead Chinese officials to
take an initial position that they need purchase only an
additional 3.6 million tons of grain in 1984 to fulfill the 24
million tons "stipulated" for the four-year LTA. 25X1
Good Chinese harvests are also discouraging imports. Last
year grain output jumped 28 million tons to a record 353 million
tons, and an even larger harvest is expected this year. In the
past, China imported grain even in years with good domestic
harvests in order to ease the strain on internal transport
systems supplying major coastal cities. But the recent increase
in grain production has filled much of China's grain storage,
making it more difficult to move imported grain out of the port
elevators. The full grain pipeline may have led to reports from
international grain traders that China currently has 1 million
tons of grain stored in vessels offshore. China's sizable
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merchant fleet and current low charter rates make offshore
storage an attractive option. The Chinese almost certainly will
deliver any offshore grain next year before it deteriorates,
F-- I
further dampening prospects for US exports.
China's absence from the US grain market does not appear to
be politically motivated. In fact, improved bilateral relations
may be encouraging additional sales. This fall, for example, the
Chinese twice purchased grain only days before the US Government
was preparing a demarche over their absence from the market.
These purchases probably were intended as assurances of China's
presence in the market and as a means to delay any response from
the United States. It is probable that small purchases will
made shortly before the 15 November consultations as well.
On the other hand, if the current countervailing duties case
on textiles is not resolved to China's satisfaction, it will
probably become an excuse for reduced purchases of US grain in
1984. The Chinese have claimed that US textile trade quotas
caused the shortfall this year.
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SUBJECT: China-US: Dim Prospects for Fulfilling the LTA
EA M 83-10226
1 - Emil P. Ericksen, Director INR/EC
Department of State
1 - Lorraine Takahashi, Office of Chinese Affairs
Department of State
1 - INR/EAP
New State
1 - David Peterson, Director Office of Intelligence Liaison
Department of Commerce
1 - William Triplett, Deputy Assistant
U.S. Trade Representative
1 - Don Nelson
U.S. Trade Representative
1 - David Schoonover, Director Centrally Planned Economy Division
Foreign Agricultural Service
1 - Charles Y. Liu, Leader PRC Section
U.S. Department of,Agriculture
1 - Alva Erisman, Grain and Feed Division
Foreign Agricultural Service
1 - David Laux, Senior Staff Assistant for China, Taiwan, and
Hong Kong
National Security Council
Central Intelligence
D/DDI
Exec. D/DCI
NIO/EA
D/NIC
D/OEA
C/OEA/CH
C/OEA/CH/FOR
C/OEA/CH/DEV
C/OEA/CH/DOM
C/OEA/CH/DEF
PDB
C/OEA/SDS
C/OEA/NA
C/OEA/SE
OCO/IMB/CB
CH/EA/
C/PES/DDI
OCR/ISG
OCR/EA
FRS
NIO/PEON
FBIS/NEAAD/CB/CE
Agency
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