CAPITAL INVESTMENT IN THE CHEMICAL INDUSTRIES OF THE SINO-SOVIET BLOC 1951-55

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01093A001100130010-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 45
• Document Creation Date: November 9, 2016
• Document Release Date: July 16, 1999
• Sequence Number: 10
• Publication Date: September 21, 1956
• Content Type: REPORT

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PROVISIONAL INTELLIGENCE REPORT
CAPITAL INVESTMENT
IN THE CHEMICAL INDUSTRIES
OF THE SINO-SOVIET BLOC
1951-55
CIA/RR PR-149
21 September 1956
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
CLASS. CHANGE TS S (,)
NEXT PtEYIEW DATE: 2 9
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This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Sees. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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PROVISIONAL INTELLIGENCE REPORT
CAPITAL INVESTMENT
IN THE CHEMICAL INDUSTRIES OF THE SINO-SOVIET BLOC
1951-55
cIA/RR PR-149
(ORR Project 22.862)
NOTICE
The data and conclusions contained in this report
do not necessarily represent the final position of
ORR and should be regarded as provisional only and
subject to revision. Comments and data which may
be available to the user are solicited.
Office of Research and Reports
S-E-C-R-E-T
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FOREWORD
This report is the result of a preliminary investigation of
capital investment in the chemical industries of the Sino-Soviet
Bloc during the 1951-55 period. The information available does not
permit derivation of estimates of annual capital investments in the
chemical industries of any of the countries of the Bloc except East
Germany. The quantitative data given, therefore, are 5-year aggre-
gate figures for the Bloc as a whole and for the various countries
of the Bloc. These aggregates, and the ruble valuations to which
some of them are converted, were derived by an experimental method-
ology. Both the data presented and the methodology used are sub-
ject to correction as new information becomes available.
In general, the estimates given in this report are tentative.
Only those data taken from published CIA reports may be considered
CIA estimates.
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CONTENTS
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I. Introduction . . . . . . . . . . . . .. . . . . . . . . 3
A. Significance of Capital Investment in the Chemical
Industries of the Sino-Soviet Bloc . . . . . . .
B. Components of Industrial Capital Investment . . . . .
C. Gross and New Capital Investment . . . . . .
D. Sources of Capital Investment Financing . . . . . .
II. Amount of Capital Investment . . . . . . . . . . . . . .
A. Extent of Effort . . . . . . . . . . . . . . . .
B. Relative Extent of Effort, by Country . . . . . . . .
9
12
III. Distribution of Capital Investment . . . . . . . . . . . 15
IV. Share of Equipment . . . . . . . . . . . . . . . . . . . 17
V. Capital Investment Policy in the Chemical Industries
of the Sino-Soviet Bloc, 1956-60 . . . . . . . . . . 19
A. Priority Sectors . . . . . . . . . . . . . . . . 19
B. Increased Emphasis on Replacement . . . . . . . 20
C. Future Coordination of Investment Planning . . . . 20
Appendixes
Appendix A. East German Capital Coefficients Used in Current
Investment Planning . . . . . . . . . . . . . . 23
Appendix B Methodology . . . . . . . . . . . . . . . . . . 25
Appendix C. Gaps in Intelligence . . . . . . . . . . . . . . 35
Appendix D. Source References . . . . . . . . . . . . . . . 37
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Page
1. Average Annual Capital Investment in the Chemical
Industries of the Sino-Soviet Bloc, 1951-55 . . . . . . 10
2. Derivation of Ruble Estimates of Annual Average Capital
Investment in the Chemical Industries of the Sino-Soviet
Bloc .......................... 34
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CIA/RR PR-149 S-E-C-R-E-T
(ORR Project 22.862)
CAPITAL INVESTMENT
IN THE CHEMICAL INDUSTRIES OF THE SINO-SOVIET BLOC*
1951-55
Summary
During the 5-year period from the beginning of 1951 to the end
of 1955 the chemical industries of the Sino-Soviet Bloc received
almost 10 percent of total productive capital investment in all Bloc
industry. Capital investment in Bloc chemical industries during the
period amounted to about 36 billion rubles,** roughly equivalent to
US $1.8 billion to $2.6 billion.*** During the same period, capital
investment in the chemical, rubber, and allied industries of the US
was about $7.2 billion. In 1955, capital investment in the chemical
industries of the Bloc amounted to the equivalent of about $530
million. In the same year, capital investment in the US chemical
industry was about $1.1 billion.
During 1951-55, about 70 percent of the capital investment in the
chemical industries of the Sino-Soviet Bloc was concentrated in the
USSR, a larger share of the investment than would seem warranted by
the Soviet share of total Bloc production of chemicals. As coordina-
tion of Bloc-wide investment planning increases, this discrimination
in favor of the USSR may decrease. Investment in the more under-
developed countries of the Bloc now promises a higher return on the
investment ruble.
Of the total amount of capital investment allocated to the chemi-
cal industries of the European Satellites during 1951-55, about 75
percent went to Poland, East Germany, and Czechoslovakia -- a share
* The estimates and conclusions contained in this report represent
the best judgment of ORR as of 1 February 1956.
** This figure includes 18 billion to 20 billion rubles allocated
to equipment for replacement and for additions to productive capacity.
It does not include 9 billion rubles allocated to nonproductive in-
vestment -- funds allocated to industrial housing and to social-
cultural-educational facilities administered by the chemical industry.
** This dollar equivalent is derived from a tentative ratio of 14+
to 20 rubles to US $1. All dollar values are given in US dollars
throughout this report.
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of investment smaller, relatively, than the share of those three
countries in Satellite production of chemicals. The underdeveloped
chemical industries of Rumania, Bulgaria, and Hungary received the
remaining 25 percent of the Satellite investment.
Communist China made significant progress in the expansion of
the chemical industry during 1951-55, particularly during 1954 and
1955, and that expansion required large allocations of capital
investment. The growth of the Chinese Communist chemical industry
is dependent on equipment imported from other countries, of the
Sino-Soviet Bloc. This dependence reduces, in effect, the supply
of equipment available for the expansion of the chemical industries
in the exporting countries.
In these last 2 years of the 5-year period, there has been
evidence of an increasing shortage of chemical equipment in the
Sino-Soviet Bloc, particularly in the USSR, Czechoslovakia, and
Hungary. The apparent need for the replacement of obsolete and
obsolescent equipment, added to the requirements for equipment
in new facilities, may increase the strain on the Bloc supply of
chemical equipment during the 1956-60 period.
During recent years the distribution of capital investment
in the chemical industries of the-Sino-Soviet Bloc has been
governed by certain objectives, objectives which have varied
in relative importance from year to year and from country to
country. These objectives are increased production of heavy
industrial chemicals, exploitation of domestic chemical raw
materials, independence from the Free World, increased produc-
tion of explosives for defense, and adequate production of
chemical fertilizers. Of these five objectives, production of
chemical-fertilizers appears to have been given high priority
in 1955. The USSR plans to invest 20 billion rubles in the
expansion of production of fertilizers from 1954 through 1963,
and Poland, Hungary, Communist China, and North Korea have
planned large increases in production. Expanded production of
chemical fertilizers requires the expansion of facilities for
the production of ammonia and nitric acid, both of which are
vital to the manufacture of military explosives as well as agri-
cultural fertilizers.
Continued development of the chemical industries of the Sino-
Soviet Bloc is necessary to the development of a heavy-industry
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base capable of supporting the economic and political aims of the
Bloc. The program of capital investment in the chemical industries
during 1951-55 supported a high rate of growth in production. It
is probable that future investment will provide for a continuing
rate of expansion in the Bloc production of chemicals significantly
higher than the current rate of expansion in US production.
A. Significance of Capital Investment in the Chemical
Industries of the Sino-Soviet Bloc.
In the countries of the Sino-Soviet Bloc the chemical indus-
tries have been growing at a faster rate than industry as a whole.
This phenomenon is not peculiar to Communist countries; similarly
rapid growth has characterized the chemical industry throughout the
world. In order to analyze the future capabilities of the chemical
industries of the Bloc, the causes of growth must be studied in detail.
Capital investment is a major factor in economic growth.
A Polish text states that "75 percent of the rise in the productive
capacities of nearly every major branch of the chemical industry
occurs as a result of investment activities." /* A discussion of
the Czechoslovak First Five Year Plan (1949-53") states that "the
plan for capital investments is one of the most basic component
parts of the whole economic plan, because it determines the tempo
and direction of economic development and simultaneously the height
of the living standards of the population." J
Information concerning both the amount of capital investment
and its structure is important to economic intelligence. Analysis
of this information may indicate the establishment of an industrial
policy or the existence of significant changes in policy. Estimates
also may be made concerning the availability or the shortage of
capital equipment and the capabilities of the construction industry
in the chemical field.
* For serially numbered source references, see Appendix D.
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1. Amount of Capital Investment.
In the short run there may be a direct relationship be-
tween the amount of capital investment and the increased production
of a particular industry.* Where this is true, information concern-
ing a proposed investment program would permit estimates of the
volume of production at the end of the investment period. The
validity of this type of analysis, however, has not been fully estab-
lished for the chemical industry, although capital coefficients have
been employed in East German planning. Also, available information
on capital investment in the chemical industry usually concerns the
whole industry and is not broken down by category. This introduces
a problem because the industry is heterogeneous.
For the chemical industry as a whole, the ratio of capi-
tal investment to increased production is likely to be unstable over a
short period. This instability would be the result of volatile shifts
of investment to different processes which are based on different ma-
terials and produce a different schedule of final products compared
with those of the preceding period. The chemical industry is both
complex and dynamic.
Nevertheless, analysis of the amount of capital invest-
ment in the chemical industry as a whole provides measures of the
importance. and cost of expansion of _production planned for that in-
dustry. In addition, knowledge of the total investment in that
industry provides a means of assessing the importance of individual
investment projects within the industry or its component sectors.
In the postwar years,-for example, a large share of over-all in-
vestment in the chemical industry has gone into expanding production
of chemical fertilizers.
Ultimately, detailed analysis of the amount and distribu-
tion of capital investment in the chemical industry may produce evi-
dence useful in evaluating expansion in fields related to Sino-Soviet
military capabilities, such as the fields of explosives, nuclear energy,
chemical warfare, and bacteriological warfare. Estimation of the
over-all scale of investment in the chemical industry is a_preliminary
step in such analysis.
This relationship is frequently called a "capital coefficient."
See Appendix A.
See V, A, p. 19, below.
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2. Replacement and New Investment.
Capital investment in any given period consists of capital
replacement and new additions to fixed assets. Until recently, the
emphasis in the USSR has been on new additions. When the chemical
industry was relatively new, replacement* of depreciated assets was
slight in relation to the value of the new plants being erected.
Later, replacement was minimized deliberately.** Amortization
allowances were set low. Few steps were undertaken to reduce the
higher costs of production resulting from the use of obsolete or
obsolescent facilities. Policy declarations for the Sixth Five
Year Plan (1956-60) of the USSR indicate that this situation will
be changed, and there is already substantial evidence that the
entire Sino-Soviet Bloc will attempt to devote more capital invest-
ment to the replacement of inefficient facilities during 1956-6o.mmm
A shift in the structure of capital investment probably
would affect the rate of expansion of the chemical industry. This
problem will be further discussed in Section V.)()()(*
3. Investment Policy.
Capital investment policy in the Sino-Soviet Bloc, as
established in the Five Year Plans, the annual State Economic Plans,
and the annual budgets, is a potential indicator of intentions,
especially if the annual capital investment plan for a given year
differs significantly from the scale of investment projected in
the long-term plan. The use of investment data as indicators of
intentions, however, applies particularly to data for total capital
investment and for total industrial capital investment. Official
announcements rarely give enough data on capital investment in the
chemical industry to disclose significant variations in policy.
Such data as are available for capital investment in the chemical
industry are a major source of determining which products may be
emphasized in future expansion of the industry.
* The term replacement as used in this report must be distin-
guished from the reconstruction of war-damaged assets.
** The apparent policy was to keep old equipment running even after
new equipment was installed and in operation. Such a policy ignores
the high cost of operating outmoded equipment.
See IV, p. 17, below.
P. 19, below.
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L1. Supply of Equipment and Fulfillment of Construction Plans.
In the-past, several European Satellites have found their
plans for expansion of the chemical industry impeded by shortages of
equipment or by inadequate performance by the construction industry.
Such hindrances may be of key significance, and, in many cases,
analysis of investment data may help detect their existence.
B. Components of,Industrial Capital Investment.
Industrial capital investment consists of the additions to
the material assets of industry within a specific time period. Indus-
trial capital investment in the USSR includes the value of construc-
tion materials and construction labor used in building necessary
structures and preparing the sites, the value of the equipment pur-
chased, and the cost of its assembly.
In the Sino-Soviet Bloc, about 15 to 20 percent of the total
industrial capital investment in a given year is for "nonproductive
investment."* In the USSR the construction of industrial towns for
plants not located in established communities causes nonproductive
investment to be large. In East Germany, however, a larger per-
centage of plant construction is in established communities, and
the requirements for housing construction out of the industrial
budget are correspondingly smaller.
C. Gross and New Capital Investment.
In the countries of the Sino-Soviet Bloc, announced data on
capital investment include major categories of expenditure for the
replacement of obsolete or obsolescent equipment.* In an industrially
developed country such as Czechoslovakia, as much-as one-third of
gross industrial capital investment covers replacement, J J which
leaves only two-thirds of gross investment as investment for new
productive facilities.
* The term nonproductive investment as used in thisreport in-
cludes investment in workers' housing, health facilities at the plant,
sports facilities for workers, and cultural facilities.
Repairs to capital assets are usually financed from enterprise
resources, such as the retained share of the amortization deductions,
and are not included in the capital investment plan. They were re-
moved from the capital investment plan in the USSR in 1937 and in
Poland and Czechoslovakia in 1950 and 1951.
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In the USSR, according to the Second Five Year Plan (1933-37),
74+ percent of total capital investment in the chemical industry in
the Peoples Commissariat of Heavy Industry was intended for new in-
vestment, implying that 26 percent was for replacement. J According
to the 1954 plan for capital investment in the Chemical Area of the
East German Ministry for the Chemical Industry, only one-third of
the total was intended for new investment, and two-thirds was destined
for replacement. / In countries which have been industrialized
recently, such as Bulgaria and Rumania, replacement of depreciated
capital is small relative to total investment.
From preliminary statements on the 1956-60 Five Year Plans,
it is clear that although a high rate of gross capital investment
(including replacement) will be maintained in the Sino-Soviet Bloc,
a higher proportion of investment will go to the modernization and
renovation of existing plants and equipment. The proportion of new
capital investment will decline. Rumania and Bulgaria will be ex-
ceptions to this change in emphasis and will maintain a high rate
of net capital investment. Neither country yet faces an extensive
depreciation problem.
D. Sources of Capital Investment Financing.*
In countries of the Sino-Soviet Bloc, more than 90 percent of
capital investment is governed by the Capital Investment Plan of each
country. This plan is a specific component of the State Economic
Plan. Investment outside of this plan consists of certain categories
of small, decentralized expenditures and larger expenditures by
kolkhozes or similar agricultural organizations. Such extraplan
investment is insignificant in the chemical industry.
The state budget of each country is now the major source of
funds for investment under the Capital Investment Plan. Other funds
are supplied from the "own funds" of enterprises. Generally, these
"own funds" consist of retained profits directed to capital invest-
ment; amortization charges directed to capital investment rather
than to capital repair; and funds, minor in importance, known as
"mobilization of the internal reserves" of the enterprise. During
the Soviet Fifth Five Year Plan (1951-55), the extent of "own funds"
financing in the USSR was exaggerated by a bookkeeping trick. General
* Data in this section refer to total capital investment, not to
capital investment in the chemical industry only.
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price and wage reductions whichaffected the cost of capital invest-
ment were not considered as lowering the value of planned investment
but rather were considered as a source of "own funds" capital to
finance the planned scale of investment. This practice does not
seem to have been followed in the European Satellites. In both the
USSR and East Germany, reductions in the costof construction be-
cause of more efficient work are considered as a source of-invest-
ment capital, although this is true only in a bookkeeping sense.
In the European Satellites, 15 to 20 percent of the financing
of the Capital Investment Plan comes from sources outside the budget.
In the Soviet 1955 plan, 34.6 percent was to be financed from non-
budgetary sources. This figure, however, was inflated by the in-
clusion of the total value of the price reductions of January 1952. 7/
The 1956 Soviet plan contained the more realistic figure of 26.4 per-
dent. 8 Because of a change in the price basis for evaluating
capital investment, no price reductions were included under "own
funds" financing.- Although Communist China also has the same non-
budgetary sources of financing, neither profits nor amortization
payments contribute significantly to capital investment, and 96.7
percent must come from the state budget. J
Before 1951, capital investment in Poland was progressively
centralized, and private investment was progressively reduced. To
this end, capital investment financing was concentrated in the state
budget. In 1951, 94.8 percent of the financing came from the bud-
get. 10 In the 1955-plan, however, only 78.1 percentof the indus-
trial capital investment wasexpected to be budgetary, / reflecting
an increasing emphasis on the retention of enterprise profits and the
use of a significant share of the amortization payments as a source
of financing.
In Bulgaria the budget supplied 80.4 percent of the capital
investment financing in 1951 and 85.9 percent in 1952. 12 - In
Rumania, 77.5 percent came from the budget according to the 1953
plan, and in the 1954 plan only 61.6 percent was expected to come
from the budget. 13
The favored procedure for capital investment financing is
for an enterprise to draw on its "own funds" tothe maximum pos-
sible extent before drawing on authorized budgetary funds. A
substantial portion of capital replacement is therefore financed
from nonbudgetary sources, which, however, are still subject to the
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investment planning controls. On the other hand, a new plant under
construction has no "own funds" and must be financed almost entirely
out of budgetary funds.
In many cases, the term "own funds" is misleading. By law
a certain share of enterprise profits and of enterprise amortization
allowances must be set aside to finance capital investment. Generally,
these funds are paid to the Investment Bank of the particular country,
where they are available for authorized withdrawals. To the extent
that an enterprise does not conduct capital investment equal to the
funds it has remitted, it is financing capital investment in other
enterprises. In such a case, the Soviet term "own funds" acquires
a cynical aspect.
II. Amount of Capital Investment.
Information concerning the monetary value of capital investment
in the chemical industry provides an over-all measure of the ex-
pansion of the chemical industry in terms of construction labor,
construction materials, and additions to the inventory of production
equipment.
In comparing the relative scale of expansion among the countries
of the Sino-Soviet Bloc, the selection of the time period is particu-
larly important. The 19+6-50 period was one of unusual investment
patterns because of the postwar reconstruction. The 1951-55 period
is more representative and provides a useful base for analysis of
the 1956-60 plans.
A comparison of average annual capital investment in the chemical
industries of the Sino-Soviet Bloc during 1951-55 shows the relative
sizes of the investment programs of the countries of the Bloc. This
comparison is given in Table 1.*
During 1951-55 the average annual gross capital investment
in the chemical industries of the Sino-Soviet Bloc was approximately
9 billion rubles, or 45 billion rubles for the period. This figure
would be roughly comparable with US capital investment in the chemi-
cal, rubber, and allied products industries except for the inclusion
* Table 1 follows on p. 10.
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Table
Average Annual Capital Investment in the Chemical Industries
of the Sino-Soviet Bloc a/
1951-55
Billion Rubles
USSR
Poland
Czechoslovakia
East Germany
Hungary
Rumania
Communist China
North Korea
Bulgaria
Expenditure
6.30
0.92
0:50
0.x+7
0.25
0.23
0.09
8.96
a. For the methodology used to compile this table,-see
Appendix B. The figures given include nonproductive invest-
ment.
b. The approximate price level in rubles of July 1950 (see
Appendix B).
of nonproductive investment, which was one-fifth of the total. The
indicated total capital investment in the chemical industries of the
Bloc during 1951-55, excluding nonproductive investment, was almost
36 billion rubles.
According to the Manufacturing Chemists Association, capital
investment in the chemical, rubber, and allied products industries of
the US during the same period was about $7.2 billion. Unfortunately,
no over-all dollar-ruble ratio has been derived which can be applied
to the entire Sino-Soviet Bloc. Based on comparisons of the prices of
a few articles of comparable equipment, the ratio should fall between
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14 and 20 rubles to $1. This ratio would indicate a dollar value of
$2.3 billion to $3.2 billion for capital investment in the Bloc chemi-
cal industries during 1951-55. After deducting the one-fifth of in-
vestment which goes to housing and "social, cultural, and educational"
facilities and which is not normally included in similar US data, the
range would be $1.8 billion to $2.6 billion.
In 1955, capital investment in the chemical industries of the
Sino-Soviet Bloc was much larger in comparison with that in the US.
Although in 1953, at the height of the expansion following the Korean
War, the US invested more than $1.5 billion in plants and equipment
for the chemical industry, slightly more than $1.1 billion was in-
vested in 1955. On the other hand, the entire Bloc probably in-
vested about 10.5 billion rubles, possibly as much as 11.7 billion
rubles, for the same purpose in the same year.* Of this, 8.6 billion
to 9.4 billion rubles would have been for productive investment.
Using the same ruble-dollar ratios, the value of this productive in-
vestment would have been about $530 million.
The comparative effectiveness of the high rate of investment
in the Sino-Soviet Bloc is lessened by the high share of total capi-
tal investment which is invested in the construction of buildings and
structures. Unfavorable climate, relatively inefficient construction
techniques, and higher construction costs all inflate the cost of the
construction of buildings and structures. Therefore, although the
equivalent dollar value of capital investment (excluding nonproductive)
in the chemical industries of the Bloc may have been 48 percent of
US investment in 1955, increased production of chemical products would
have been less than is indicated by this ratio.**
* During 1951-55 the size of capital investment in the chemical in-
dustries of the Sino-Soviet Bloc increased at an annual rate of about
15 percent. If this rate of increase were constant, investment in
1953 would have approached the average investment for the period, and
investment in 1955 would have been about 30 percent higher than in 1953.
This is the basis for the maximum estimate of 12 billion rubles. Be-
cause increases in annual investment actually lessened somewhat after
1953 because of the "new course" and because of the normal pattern of
using the last 2 years of a 5-year plan to complete construction begun
in the earlier years, it is quite possible that investment in 1955
would not have been more than 11 billion rubles.
** This statement is based on the fact that expansion in productive
equipment has the most direct ultimate effect on expanded production
of chemicals.
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B. Relative Extent of Effort, by Country.
1. General.
The years 1951-55 were a period of transition from much
exploitation of the Satellite economies by the USSR to intensified
coordination of production and investment planning. Total capital
investment in the chemical industries of the European Satellites and
of Communist China and North Korea was about 30 percent of the total
for the Sino-Soviet Bloc and-1+3 percent of the total for the USSR.
Capital investment in Communist China and North Korea during the
period was less than 2 percent of the total for the Bloc, but large-
scale programs in these countries did not begin until 1953.*
The USSR was the favored location for chemical construc-
tion. Although the other countries of the Sino-Soviet Bloc received
-30 percent of the capital investment, they produced about 4+0 percent
of the chemicals produced in the Bloc. L4
The disproportionately low share of capital investment
allotted to the European Satellites indicates that for the 1951-55
period as a whole, chemical construction in the Satellites was not
given equal priority in Soviet planning with construction in the
USSR. Nevertheless, the program undertaken in the European Satellites
was extensive and has led to great increases in production of chem-
icals. This expansion is remarkable because it drew heavily on equip-
ment either manufactured in the USSR or furnished to the USSR by the
Satellites and potentially available for projects in the USSR.
Many recent statements by Communist leaders indicate that
future capital investment planning in the Sino-Soviet Bloc is to be
coordinated to a much greater extent. The patterns of investment will
be established by a division of labor among the countries; each country
will produce those items which it can best produce and which are of
utility to the Bloc and to the individual country. This was not the
deliberate policy of the 1951-55_plans, and achievement of these aims
can be evaluated only after the Bloc is well into the 1956-60 planning
period.
* Data in this paragraph are based on the following adjusted totals
for average annual capital investment: Sino-Soviet Bloc, 8.9 billion
rubles; USSR, 6.3 billion rubles; European Satellites, 2.4 billion
rubles; and Communist China and North Korea, 0.2 billion rubles.
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2. East Germany, Czechoslovakia, and Poland.
During 1951-55, slightly more than 75 percent of the capi-
tal investment in the chemical industries of the European Satellites
was concentrated in East Germany, Czechoslovakia, and Poland. This
concentration indicates underinvestment in these countries relative
to their scale of chemical production, which was about 92 percent of
the total in the European Satellites. 15 This was expected, how-
ever, because the chemical industries of these countries were rela-
tively well developed, and investments concentrated in the under-
developed chemical industries of Hungary, Rumania, and Bulgaria would
bring relatively high returns in increased production. Soviet tech-
nical assistance, which was concentrated in Hungary, Rumania, and
Bulgaria, was a major factor in the difference between the two groups.
East Germany is an example of retarded capital invest-
ment in the chemical industry. Large investments occurred because
of special conditions, the need to complete reconstruction, and
the need to be more independent of West Germany and other Western
countries. Nevertheless, the investment program was small in
relation to the revenues produced by the chemical industry and in
comparison with the expansion programs of Poland and Czechoslovakia.
Establishment of a metallurgical industry drew heavily on invest-
ment capital, and the chemical industry was one of the industries
which suffered from this emphasis. L6/ Although East Germany has
had to devote a comparatively low percentage of investment to non-
productive investment such as ministerial financing of industrial
housing, a very high percentage -- almost two-thirds -- of capital
investment in the chemical industry goes to replacement. A sub-
stantial part of investment, therefore, goes to maintain the present
level of production.
In spite of the smaller size of the chemical industry of
Poland, capital investment in the Polish chemical industry was al-
most double that in the East German industry.
Gross capital investment in the chemical industry of
Czechoslovakia appears to have been about the same as in the East
German industry. Production in Czechoslovakia is considerably
smaller than in East Germany; expenditures in Czechoslovakia, there-
fore, will result in a higher percentage rate of growth than in
East Germany. Poland has greater production of chemicals and
greater capital investment than Czechoslovakia and should maintain
its lead over Czechoslovakia in the production of chemicals.
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3. Rumania, Bulgaria, and Hungary.
Rumania, Bulgaria, and Hungary possess abundant but under-
developed chemical resources. In Hungary, expansion has been mainly
in production of chemicals which would help its agriculture, and much
of the expansion has been in areas distant from the heavy concentra-
tion of production of chemicals in the Budapest area.
Expansion of the chemical industry in Bulgaria has been
gigantic in comparison with the previously almost nonexistent -chemi-
cal industry but insignificant relative to over-all expansion in the
Sino-Soviet Bloc. Replacement is still an insignificant item in
capital investment in Bulgaria.
Expansion in Rumania and Hungary is on a comparable scale
and is significant even in comparison with the programs of East
Germany and Czechoslovakia. Future plans for expansion in Rumania
indicate a major investment effort. In both countries, new invest-
ment is the major component of the total capital investment in the
chemical industry.
4. Communist China and North Korea.
With its First Five Year Plan (1953-57), Communist China
launched a major expansion program in the chemical industry. The
7 fertilizer plants which are to be constructed or begun -- 5 nitrog-
enous fertilizer plants and 2 phosphorous fertilizer plants -- indi-
cate the size of the program.
In 1955, capital investment in the chemical industry of
Communist China probably was about 400 million to 450 million rubles,
about 4 percent of total investment in the chemical industries of the
Sino--Soviet Bloc. In the same year, investment in the chemical indus-
try of East'Germany was about 550 million rubles. The amount of in-
vestment in China, therefore, was about 75 percent of that in East
Germany, and a much higher percentage went to new investment. It
can be seen that the Chinese Communist expansion program would be
a burden on the strained chemical equipment industries of the Bloc
because China can manufacture little of the equipment required.
Chinese investment activities in the chemical industry probably will
have to be accelerated, and the full strain of the program on
Bloc resources is yet to be seen.
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A similar analysis gives an estimate of capital investment
in the chemical industry of North Korea, which is about one-tenth as
large as the program in Communist China and smaller than the program
in Bulgaria. The program in North Korea is directed almost entirely
to reconstruction of war-damaged plants and is dependent on other
countries of the Sino-Soviet Bloc for equipment. It is doubtful
that one-half of the war damage to the chemical industry (10-billion
won, or more than 300 million rubles) could be repaired even by the
end of 1956. 18/
III.. Distribution of Capital Investment.
Determination of the aggregate size of capital investment in the
chemical industry has intelligence applications for some problems,
and examination of the. distribution of capital investment is sig-
nificant. Information about the products or groups of products that
are receiving priority in the use of investment capital and the
reasons for their priorities is useful. Although detailed analysis
is possible only in studies far more intensive than this memorandum,
some examples of such analysis can be given.
In a planned economy the distribution of capital investment
ultimately reflects priorities assigned on the basis of policy de-
cisions. An official Czechoslovak analysis gave five of the major
criteria which governed investment in the chemical industry of
Czechoslovakia. 19/ These criteria seem to apply to the investment
programs of all the countries of the Sino-Soviet Bloc, with the
relative emphasis varying according to the particular circumstances
of the country. The five criteria are increased production of heavy
industrial chemicals, exploitation of domestic chemical materials,
independence from the West, increased production of explosives for
defense, and adequate production of fertilizers.
The chemicals essential to the buildup of heavy Industry and
to the development of economic strength are ammonia, sulfuric acid,
caustic soda, chlorine, calcined soda, and many others. Exploitation
of domestic chemical materials involves development of the chemical
mining industry and development of resources such as salt, potash,
phosphorite, and gypsum. To become independent of the West, it will
be necessary either to produce or to import from other countries of
the Sino-Soviet Bloc those essential materials which have been im-
ported from the West.
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The impact of this pattern of development can be seen in the USSR
in data pertaining to the First Five Year Plan (1928-32). L0 J* In
the plan year 1928/29, basic chemicals received 49 percent of the
total capital investment in the chemical industry; in 1931, 59 per-
cent. In 1928/29 the chemical mining industry received 4- percent
of total investment. In 1932 it received 11 percent.
One of the more significant aspects of capital investment in the
countries of the Sino-Soviet Bloc since World War II has been the
emphasis on expansion of the chemical fertilizer industry. This indus-
try is the only sector of the chemical industry which is covered by
all five criteria for investment. It involves expansion-of produc-
tion of heavy chemicals such as ammonia and sulfuric acid. The pro-
gram is based on resources of the Bloc and is designed not only to
create adequate supplies of fertilizers independent of imports from
the West but also ultimately to attain independence of the-food
supplies of the West. Finally, the ability of certain types of fer-
tilizer plants, especially nitrogen plants, to make materials needed
for -explosives gives them the priority of defense.
In the USSR, 50 percent of the capital investment in the chemical
industry during 194.6-50 was intended for reconstruction and construc-
tion of new plants for production of mineral fertilizers and insec-
ticides. 21 -In 1955 the Soviet government proposed a 10-year, 20-
billion-ruble program for the construction of new plants for produc-
tion of nitrogenous, potassium, and phosphorous fertilizers during
1954-63. 22 The USSR did not meet production goals for production
of synthetic fertilizers in 1955, a fact which indicates grave prob-
lems in its expansion program.
In Communist China a major feature of the 1953-57 plan is commence-
ment of construction of-5 nitrogenous -fertilizer plants and 2 phosphate
fertilizer plants. 23 A Hong Kong periodical states that two-thirds
of all state investment in chemicals will be devoted to chemical fer-
tilizers. 24+
North Korea has accelerated capital investment in production of
chemical fertilizers, which had already received top priority in the
Three Year Plan (195+-56). 25 Reconstruction of chemical fertilizer
plants is to receive a larger amount in 1956 than total investment in
the chemical industry received in 1955. 26
* Data given in this paragraph are from a single statistical source
and are fully comparable in terms of the classification used.
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In Hungary the Kazincbarcika Fertilizer Plant has accounted for
a major portion of construction in the chemical industry during the
last 5 years. Nevertheless, 2 months after the completion of the
plant the Chairman of the Council of Ministers declared that Hungary
must increase its synthetic fertilizer capacity at a higher rate
and also must build another new plant. 27
In Poland, one-third of the capital investment in the chemical
industry in 1950 was intended for expanded production of synthetic
fertilizers. 28 In late 1955 an official journal declared that it
was the chief task of the chemical industry to expand production of
synthetic fertilizers and plant protection agents (insecticides and
fungicides). To attain this end, it was necessary to expand three
major plants and to build new ones. 29
As the resources of the chemical industries of the Sino-Soviet
Bloc become more adequately developed, some significant shifts in
the pattern of capital investment are likely to occur. Increasing
emphasis on development of organic synthesis production has been
noticeable in recent years. This sector provides the basis of much
of the plastics industry and of many intermediate products impor-
tant to a modern economy. Because of the urgent need to increase
agricultural production in the Bloc, emphasis on expansion of pro-
duction of fertilizers will continue.
IV. Share of Equipment.
The value of equipment represents about 40 to 45 percent of the
total annual capital investment in the chemical industries of the
Sino-Soviet Bloc.*
The Soviet equipment category includes instruments, equipment,
machinery, and initial office supplies for new plants. Equipment
costs are carried exclusive of the cost of assembling the equipment
at the construction site. 30 Assembly costs are included in the
investment category "construction-assembly work." In the US, many
contracts include the cost of the assembly of major pieces of equip-
ment in the total equipment cost. Therefore, .depending on the
nature of the data, there may not be strict comparability between
figures on equipment cost in the US and the USSR. Soviet data are
understated by the complete exclusion of assembly cost.
Percentages apply to data including nonproductive investment.
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The share of total capital investment in the chemical industry
going into equipment,has been determined from data on East Germany
and the USSR. In East. Germany, 50.3 percent of the total investment
went to equipment in 1951. 31 According to the First Five Year Plan
(1951-55) of East Germany, the share of equipment was to range from
56 percent in 1951 to 33 percent in 1952. The unweighted average for
the 5 years was 44 percent. 32
In the USSR, data on the composition of the fixed assets of the
chemical industry of the Peoples Commissariat for Heavy Industry in
1937 give the best picture of the relative share of chemical equip-
ment in capital investment. 33 In the fixed assets for 1937,
equipment was 45 percent of total productive fixed assets, or 36
percent of productive fixed assets plus nonproductive assets.*
By 1955 a trend toward increasing the share of total investment
devoted to equipment probably has brought the proportion up to that
of East Germany -- about 45 percent of total annual capital invest-
ment.
In 1954 and 1955 there has been increasing evidence of shortages
of equipment needed by the chemical industry. The USSR underful-
filled the over-all plan for production of chemical equipment in
1954, although a 14-percent increase over 1953 production was
achieved. 34 In 1955 the plan was probably underfulfilled more
seriously, because production during the first halfof the year
was only 5 percent above production in the same period in 1954. 35
In Hungary, Erno Gero, First Deputy Chairman of the Council of
Ministers, confessed in November 1955 that chemical production was
lagging "because our production of chemical equipment is lagging." 36
Shortages were hampering the expansion of the Czechoslovak chemical
fertilizer industry in 1955, all the more significant because of the
priority usually given to expansion in this field. Construction of
a nitrogen plant at Ostrava has been hampered by delays in the de-
livery-of equipment, as has been progress at a chemical fertilizer
plant at Lovosice.. 37
During 1951-55 the chemical industryof the USSR received 11 per-
cent of the total value of equipment delivered to industry, averaging
about 2.8 billion rubles** of an average annual industrial equipment
bill of 26 billion rubles. 38 During the same period, total expen-
ditures on equipment for the chemical industries of the Sino-Soviet
Nonproductive assets are considered to be 20 percent of total assets.
Forty-five percent of 7.6 billion. rubles.
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Bloc ranged from 18 billion to 20 billion rubles. In 1955 the total
bill for equipment probably was about 5 billion rubles.
V. Capital Investment Policy in the Chemical Industries of the Sino-
Soviet Bloc, 1956-60.
During 1956-60 there will be shifts in the sectors of the chemical
industries of the Sino-Soviet Bloc which receive priority in capital
investment, increased emphasis on modernization of facilities and im-
proved technology, and increased coordination of investment among the
countries of the Bloc.
A. Priority Sectors.
During 1956-60 there will be continued emphasis on the devel-
opment of chemical raw materials and on the expansion of production
of heavy industrial chemicals. Priority expansion of production of
chemical fertilizers will continue. There will be some shift in favor
of increased emphasis on expansion in the field of organic synthesis,
especially in plastics and synthetic fibers.
In East Germany the priority will be given in 1956-60 to
processing brown coal, expanding production of inorganic basic
materials, expanding production of plastics, and expanding pro-
duction of synthetic fibers. 39
In Czechoslovakia, expansion of production of heavy industrial
chemicals is to continue, but a shift is to begin toward the field of
basic organic synthesis. The shift is to become more pronounced in
the Third Five Year Plan (1961-65). In the Second Five Year Plan
(1956-60), new construction will expand production of nitrogenous
fertilizers, sulfuric acid, carbide, plastics, and synthetic fibers.
Production of synthetic rubber will be begun. 40
In Poland the priorities are to be in the fields of mined
chemical raw materials, chemical organic synthesis intermediate
products, synthetic fibers, plastics, rubber, and pharmaceuticals. ~+1
Zt/
In Hungary, chemical processing is to be favored in a shift
from the relatively expensive development of domestic chemical raw
materials. Production of fertilizers, plastics, and synthetic fibers
will be greatly expanded in the new Tisza Region Chemical Combine,
which will be the largest chemical project of the new Five Year Plan
(1956-60). )+2
zti
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In Rumania a very large expansion program is planned which
will continue the development of Rumanian chemical resources and
will intensify development of organic synthesis production. Ex-
panded production of chemical fertilizers, caustic soda, chlorine,
plastics, synthetic fibers, and synthetic rubber will be emphasized. 43/
In Bulgaria, plans call for expansion in the field of heavy
industrial chemicals and joint construction projects with the formal
aid or participation of other European Satellites. L4/
B. Increased Emphasis on Replacement.
Recent official announcements indicate that the countries of
the Sino-Soviet Bloc which have large existing facilities for pro-
duction of chemicals will devote a larger share of their capital in-
vestment to replacement of inefficient facilities. This is especially
true of the USSR, East Germany, Poland, Czechoslovakia, and -- to a
lesser degree -- Hungary. 4s
In the past,-replacement was handicapped by inadequate fi-
nancing and by a general preference for investment in new productive
units. Amortization rates were generally low, and as a rule a very
high percentage of the amortization deductions were not retained in
the plant itself for its own replacement needs but were returned to
the state. The state then used these sums for capital investment,
either replacement or new investment.
The neglect of replacement resulted inexcessive production
costs. Thenewest plants achievedlow production costs, but the
oldest plants were extremely costly to operate. The excessive con-
sumption of labor and materials in the older plants drew upon materials
which could have been used for new capital investment-and retarded
progress toward the Soviet economic goal of achievement of the maxi-
mum possible rate of economic growth.
C. Future Coordination of Investment Planning.
The Sino-Soviet Bloc presshas published many statements con-
cerning increased coordination of planning, including capital invest-
ment planning, to occur during 1956-60 among the countries of the
Bloc. L6/ Information now available covers primarily binational
planning of specific future projects. Bulgaria and Czechoslovakia
have been discussing joint construction of two new cellulose plants. 47/
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Hungary and Rumania will continue extensive cooperation which began
on the basis of improving exploitation of Rumanian methane gas
resources as a chemical raw material.
Strains on the aggregate supply of equipment needed for ex-
pansion of the chemical industries of the Sino-Soviet Bloc will
compel careful allocation of available equipment. There are already
evidences of shortages of equipment, and equipment is to represent
an even more important share of future capital investment in the
chemical industries of the Bloc. Careful planning of the alloca-
tion of equipment resources will mean the difference between success
and failure in realizing planned expansion, and even careful planning
will not achieve success if the chemical equipment industries do not
meet their goals. Imports of specialized chemical equipment and ad-
vanced chemical technology from the West will greatly facilitate
achievement of the planned goals.
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APPENDIX A
EAST GERMAN CAPITAL COEFFICIENTS USED IN CURRENT INVESTMENT PLANNING
East German planning officials devised a series of capital coeffi-
cients applicable to the 1955-60 expansion programs of the Main
Administrations of the Chemical Area of the Ministry for Heavy Indus-
try. These coefficients express the annual increase in production
resulting from an annual capital investment of 1 million East German
marks (DME), as follows:
Main Administration for Heavy Chemistry 1.43 million
Main Administration for General Chemistry* 2.06 million
Main Administration for Liquid Fuels 0.76 million
Main Administration for Potash and Non-
metallic Ores 0.35 million
Main Administration for Plastics 1.93 million
This information reveals that expansion in the production of liquid
fuels and in the mining of chemical ores requires the greatest amount
of investment per unit of additional output. Heavy industrial chemicals
and plastics require much less investment in relation to the additional
production which results. General chemistry gives the best value in
terms of additional output resulting from an investment mark, yet be-
cause of its consumer orientation, it is scheduled to receive the least
in additional investments. 48
* This main administration produces specialty chemicals and many
consumer chemicals such as soap and paints.
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APPENDIX B
METHODOLOGY
Table 1* presents the basic methodological problem of this re-
port, which was to find a means of assessing the relative size of the
capital investment programs in the chemical industries of the Sino-
Soviet Bloc for a recent period, preferably covering several years.
The 1951-55 period was selected for the reasons given in Section II.**
Because nine different currencies were involved, the use of a
common currency for comparison became a major problem. For several
reasons the ruble is used as the common currency in this memorandum.
First, recent currency reforms have defined the currencies of the
European Satellites in terms of rubles. Second, changes in the eco-
nomic structure have created cost structures*** throughout the Sino-
Soviet Bloc, with the possible exception of those in the southern
European Satellites, which are similar to the structure found in the
USSR. Third, use of the ruble basis makes it possible to use a ruble-
dollar ratio in calculating the dollar-equivalent value of capital
investment programs instead of using separate ratios computed for each
separate currency. Use of the ruble basis involves an assumption which
should be tested if possible, but it is believed that valid conclusions
can be drawn from this memorandum without awaiting the derivation of
capital investment ruble-dollar ratios for each country of the Sino-
Soviet Bloc.
To bring about a basic readjustment of the price structure in
the Sino-Soviet Bloc, the USSR has effected a major currency reform
in all of the European Satellites except East Germany and Hungary.
In Poland this reform took place in 1950; in Rumania and Bulgaria,
in 1952; and in Czechoslovakia, in 1953. The conversion ratios used
in this report to convert costs in the old (prereform) currency
to costs in the new (postreform) currency are those used in a Soviet
source. 49/
The derivation of ruble estimates of annual average capital in-
vestment in the chemical industries of the Sino-Soviet Bloc is shown
in Table 2.****
P. 10, above.
P. 9, above.
The term cost structure is used in the sense of the relative
pricing of investment goods, agricultural goods, and consumer goods.
Table 2 follows on P- 34+.
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Total capital investment in the chemical industry of the USSR
during 1951-55 is estimated to have been 31.5 billion rubles* in the
costs of July 1950. The average annual investment was 6.3 billion
rubles.
A key to the derivation of this estimate was the statement
that the planned scale of capital investment in the chemical industry
during 1946-50 was to be equal to the total investment for the 3 pre-
ceding Five Year Plans. 50
Total capital investment in the chemical industry for the
period from 1928 to June 1941 was between .12.2 billion and 14 billion
rubles, on the cost basis of the individual Five Year Plans. From
1928/29 to 1932, 1.46 billion rubles were invested. 51 According
to the Second Five Year Plan (1933-37), 4.77 billion rubles were to
be invested in the chemical industry in the Peoples Commissariat of
Heavy Industry. 52 These plants constituted between 70 and 75 per-
cent of the productive capacity of the chemical industry; thus the
expanded investment total would have been about 6.5 billion rubles.
The average cost level of investment during the 5 years was about
that of 1933, which was the cost level of the plan figures; there-
fore, it makes little difference if current costs or plan costs are
used as the cost basis for total investment in this period. It is
probable that the plan was underfulfilled, and the lower level of
the range of estimate (5.2 billion rubles) is based on an assumed
20-percent underfulfillment. In the 1941 plan, capital investments
for the Peoples Commissariat of the Chemical Industry were scheduled
to be 1.176 billion rubles. There was little cost variation during
1938-41, so that the cost level probably is representative. The
Commissariat probably controlled 70 to 75 percent of the productive
facilities of the chemical industry, so that an expansion to a full-
coverage basis is required. In 1940, projected increases in the
scale of long-term capital investment had already been reduced be-
cause of the imminence of war; therefore, the 1941 plan level of
investment probably reflects the average annual level of investment
for the period from 1938 through the first half -of 1941. Adjusting
to a full-coverage basis and applying the planned level of investment
to 3-1/2 years, an estimated total capital investment of 5.6 billion
rubles is derived.
* This total includes an estimated 20 percent of nonproductive
investment.
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Based on these data, the Fourth Five Year Plan (1946-50)
called for an estimated total capital investment of 12.2 billion
to 14 billion rubles in 1945 costs.
According to data given by Khrushchev at the XXth Party
Congress, during the Fifth Five Year Plan, total capital invest-
ment in the chemical industry increased 80 percent over the cor-
responding total for the Fourth Five Year Plan. Because this
figure probably applies to investment in the Ministry of the
Chemical Industry, it must be adjusted upward to allow for faster
growth in investments in pharmaceuticals and coke chemicals be-
cause neither field is included in the Ministry of the Chemical
Industry. Accordingly, it is probable that investment in the
chemical industry as a whole doubled during 1951-55. The range
of estimate, in 1945 prices, is 24.4 billion to 28 billion rubles.
These figures should be inflated-.20 percent*.to the cost level of
July 1950 which was used as the plan costs of the Fifth Five
Year Plan (1951-55). Thus the range becomes 29.3 billion to 33.6
billion rubles, with 31.5 billion rubles as the best estimate of
total capital investment in the chemical industry of the USSR
during 1951-55.
Capital investment in 1953 probably was close to the average
annual investment during 1951-55, or 6.3 billion rubles. Total in-
dustrial capital investment in this year was about 90 billion rubles.
Investment in the chemical industry was therefore about 7 percent
of total industrial investment compared with a relationship of 7 to
11 percent for the period immediately preceding World War II.
2. East Germany.
It is probable that the First Five Year Plan goal Of 1.7
billion DNtE for capital investment in the chemical industry of East
Germany was not met.** A major effect of this failure was under-
fulfillment of the original production targets for 1955 (the 1955
* The inflation factor has been derived on the basis of the industrial
capital investment cost index given in 53/-
+* The First Five Year Plan, however, was defined in more compre-
hensive terms than subsequent information; hence there is some lack
of comparability. The pharmaceutical industry, for example, was in-
cluded in the First Five Year Plan but excluded from chemical in-
vestment data after 1953.
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annual plan, drawn up in 1954, projected a lower level of production
for 1955 than did the First Five Year Plan, so that these goals may
have been overfulfilled). Shortcomings in production of chemical
equipment in East Germany and diversion of large quantities of equip-
ment to other Sino-Soviet Bloc countries are prominent causes of
the failure to meet the plan goals for the chemic-al industry.
The year 1951 was characterized by administrative changes
which led to the issuance of two sets of plan fulfillments for the
respective organizations existing before and after the reorganiza-
tion. The plan for the original Main Administration for Chemistry
of the Ministry for Heavy Industry was 82.6 million DME, of which
73.2 million DME were realized. 54 The plan for its successor
organization, the Main Administration for Chemistry of the State
Secretariat for Chemicals, Stones, and Earths, was 144.6 million
DME,of which 132.6 million DME were realized. 55 The latter figure
includes an increased number of chemical plants but no nonchemical
plants. Soviet-owned corporations are not included in this total,
with the possible exception of some plants transferred in 1950 and
first picked up for planning purposes in the plans of the State
Secretariat for Chemicals, Stones, and Earths. Soviet capital in-
vestment excluded from the total probably was at least 100 million
DME.
In 1952 the plan for the Main Administration for Chemicals
was 170 million DME, of which 163.141 DME were realized. 56 Some
Soviet-owned plants were returned in this year, resulting in a one-
fifth reduction of the Soviet share of production of chemicals. If
capital investment was reduced accordingly, the total Soviet invest-
ment was about 80 million DME.
In 1953, after -several plan revisions and -a major reorganiza-
tion, it was announced that the capital investment in the new Chemical
Area of the Ministry for Heavy Industry totaled 247 million DME. 5-Y/
This figure is adjusted to include the investment in all the remain-
ing Soviet-owned chemical plants, which were returned to East German
ownership at the endof the year.
During 1954 there were two major plan revisions affecting
capital investment in the Chemical Area of the Ministry for Heavy
Industry. In March the plan was reduced from the earlier goal to
237.1 million DME. In May it was raised to 285.8 million DME. 58
Fulfillment was announced as 98.5 percent, presumably of the final
revised plan, and investment was 281.5 million DME. 59
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As of November 1954 the 1955 plan was 318.38 million DME. !LO/
The final economic plan was adopted unusually late, in May of 1955,
and no differing capital investment figure was indicated. Late adop-
tion of the investment plan probably contributed to the underful-
fillment. Investment in 1955, for instance, was 310 million DME.
The 1956 plan has been set at 385 million DME, on a pre-
liminary basis. 61 The total capital investment for the 5 years
of the Second Five Year Plan (1956-60) may be 2.7 billion DME,
according to preliminary information. L2/
The indicated total East German capital investment in the
chemical industry during 1951-55 is 1,314 million DME,* including
an estimated Soviet investment of 180 million DME in 1951 and 1952.
The annual average was 263 million DME.
Capital investment in the chemical industry of Czechoslovakia
from 1949 through 1953 was approximately 4.4 billion "new" crowns
(on a constant cost basis, possibly the related plan costs). This
was an annual average investment of 880 million "new" crowns. In
1954 and 1955 a total of about 1.9 billion "new" crowns was invested,
or an annual average of 0.950 billion "new" crowns.
The original First Five Year Plan projected capital invest-
ment in the Czechoslovak chemical industry of 12.8 billion "old"
crowns, based on 1948 prices, or 9.7 percent of total industrial
capital investment. 63 This figure excluded the plastics and
rubber industries. Adjusting the data to include the latter, the
chemical industry was to receive 11.2 percent of the total. When
the First Five Year Plan was revised in 1951, no new information
was released concerning capital investment, but because goals were
raised generally, the ratio of planned chemical investment probably
was not substantially changed.
In 1954 the total industrial capital investment during 1949-
53 was announced as 40 billion "new" crowns. L4/ Eleven percent of
* This figure is not fully comparable with the First Five Year Plan
goal, because of coverage differences and because of possible cost
level differences. Use of the figure in Table 2, p. 34, below, in-
volves assumption of no significant cost level changes during 1951-55.
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this figure is 4.4 billion "new" crowns.* During 1954 and 1955, total
capital investment was about 43 billion "new" crowns. 65/ Of this,
about 40 percent went to industrial investment, if the 1955 rate is
representative, L6/ or a total of 17.2 billion "new" crowns. If the
chemical industry's share remained constant, the total investment in
the chemical industry for the 2 years was about 1.9 billion "new"
crowns, or an annual average of 0.950 billion "new" crowns.
4. Poland.
Information on capital investment in the chemical industry
of Poland is inadequate for a firm estimate. Fortunately, the
estimated effort appears to be consistent when it is compared with
those in other countries, in terms of actual plants underconstruc-
tion.
Capital investment in the chemical industry has been con-
sistently 10 percent of total industrial investment. This was true
in 1948 and 1949, 67 and the Six Year Plan (1950-55) displays the
same relationship. 78 According to the draft of the final law of
the Six Year Plan, investment in the chemical industry was to total
172 billion "old" zlotys, or 5.160 billion "new" zlotys, but still
on a converted 1948 cost level. This was 10.3 percent of the total
planned industrial capital investment. Data on capital investment
in chemicals in this instance include investment in the rubber in-
dustry.
It is important to note that industrial capital investment
has been much higher than projected in the Six Year Plan -- at the
expense of nonindustrial investment, since total capital invest-
ment has been fulfilling the plan. The acceleration of industrial
investment probably has been accompanied by an acceleration of in-
vestment in the chemical industry. Because of this, the estimated
1950-55 capital investment in the chemical industry of Poland was
5.5 billion "new" zlotys, on a converted 1948 cost basis, or an
annual average of 917 million "new" zlotys.
* The total industrial capital investment is ambiguous in coverage
in context. Nonproductive investments may or may not be included;
hence the same question applies to the derived total for investment
in the chemical industry.
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5. Hungary.
In the original First Five Year Plan (1950-54), the chemical
industry of Hungary (including rubber processing) was to receive 2
billion forints (1950 cost level) of capital investment. 69 The
planned total was later revised to 4.1 billion forints. 0 If the
investment program for the chemical industry lagged as seriously as
did the industrial investment program, total investment in the
chemical industry was between 3.1 billion and 4.1 billion forints.
If the midpoint of this range is taken as the best estimate, average
annual capital investment was 720 million forints.
6. Rumania.
During 1951-55 the chemical industry of Rumania was to re-
ceive 31.5 billion "old" lei in 1950 values. The rubber industry
was to receive an additional 3 billion "old" lei. J/ This total
of 34.5 billion "old" lei was equal to 1.725 billion "new" lei after
the currency revaluation. It is probable that this investment was
realized and would mean an annual average expenditure of 345 mil-
lion "new" lei at the 1950 cost level.
According to data released in conjunction with the Second
Five Year Plan (1956-60), capital investment in the chemical in-
dustry in the First Five Year Plan (1951-55) was 2.45 billion "new"
lei. 72 This figure is on a different cost basis, probably that
of 1955, and includes extensive investment in the paper and cellulose
industry not included in the estimated 1.725 billion "new" lei.
7. Bulgaria.
From 1949 through 1952, average annual capital investment
in the chemical industry of Bulgaria was 142 million leva. From
1953 through 1955 the average was about 177 million leva.
The First Five Year Plan (1949-53) is the basic source of
information on the period from 1949 through 1952. Although the
plan extended through 195,3, it was announced as having been com-
pleted in 1952.
The draft of the First Five Year Plan and the final law
of the plan differed in significant details. They agreed on the
planned aggregate scale of capital investment but differed as to
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the distribution of that investment. Only the draft contained in-
formation on investment in the chemical industry, and that information
is taken as the best estimate of planned investment. According to
the draft, approximately 6.48 billion "new" leva (162 billion "old"
leva) were to be invested in heavy industry. j Of this, 10.5 per-
cent, or 680 million "new" leva, was to be invested in the heavy
chemical industry. This total,however, applies to 5 years.
There is no reason to suppose that the heavy chemical indus-
try did not receive this ratio of investment; therefore, the ratio
is used to derive an estimate of the 4-year investment total from
announced data on the 4-year industrial investment total.
During 1949-52, capital investment in heavy industry_probably
was four-fifths of the announced total for industry, or 4.9 billion
"new" leva. 74 Investments in heavy chemistry would then be 514
million "new Yr- leva. It is probable that investment in the rubber
industry and in consumer chemicals (soap, cosmetics, and the like)
would be at least 10 percent in addition, making.the 4-year total
about 570 million "new" leva, or an annual average of 142 million
"new" leva.
From 1953 through 1955, total capital investment was about
12.8 billion "new" leva. Of this, about 48 percent was intended
for industry, a total of 6.14 billion "new" leva. Of 6.14 billion
"new" leva, 75 percent was for heavy industry, a total of 4.6 billion
"new" leva, and an estimated 11.55 percent was for chemicals and
rubber products, or a total of 531 million "new" leva. Thus annual
average capital investment in the chemical industry was to be 177
million "new" leva.*
8. Communist China.
Planned capital investment in the chemical industry of
Communist China is about 1.5 billion yuan for 1953-57, but progress
appears to be lagging. Investment probably will not exceed 1.3
billion yuan, or an annual average of 260 million yuan.
According to the First Five Year Plan, 75 the industrial
ministries are to receive 24.85 billion yuan for capital investment.
The Ministry of Heavy Industry, which controls the chemical industry,
is to receive 6.49 billion yuan. This ministry, includes the iron
* Data are based on plans, plan fulfillment reports, and budgetary
information.
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and steel industry, nonferrous metals, shipbuilding, construction
materials, and a substantial portion of the chemical industry. Of
these, the iron and steel industry probably would receive the
largest investment for such projects as Anshan. It is doubtful
that investment in the chemical industry would be more than 1.5
billion yuan. On the other hand, the chemical expansion program
is ambitious, including major projects such as 5 nitrogenous
fertilizer plants, so that the figure could hardly be less than
1 billion yuan. When the investment in chemical industries in
other ministries, such as the pharmaceutical industry, is con-
sidered, 1.5 billion yuan appears reasonable as an estimate of
the planned figure.*
9. North Korea.
Planned industrial capital investment in North Korea is
37.36 billion won for 1954-56. 76 Of this amount, an estimated
10 percent'would go to reconstruction of the chemical industry,
a total of 3.736 billion won and an annual average of 1.245 bil-
lion won.
* The estimate includes about 20 percent for nonproductive invest-
ment.
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S-E-C-R-E-T
Table 2
Derivation of Ruble Estimates of Annual Average C-apital Investment
in the Chemical Industries of the Sino-Soviet Bloc
,,
1953 Conversi7on
Ruble Value
Annual Average Investment a
to Rubles J
(Billions)
USSR (1951-55)
6.3 billion rubles
1.00
6.30
Poland (1951-55)
0.917 billion "new" zlotys
1.00
0.917
Czechoslovakia (1951-55) ^/
0.908 billion "new" crowns J
0.5556
0.504
East Germany (1951-55)
0.263 billion DME
1.80
0.473
Communist China (1952-57)
0.260 billion Yuan
1.707
0.444
Hungary (1951-55)
0.720 billion forints
0.341
0.246
Rumania (1951-55)
0.345 billion "new" lei
0.6667
0.230
Bulgaria (1951-55)
0.160 billion "new" leva d/
0.5882
0.094
North Korea (1954-56 Plan)
1.245 billion won
0.0333
0.04l
a. Estimates are derived in this appendix except as noted.
b. Ratios with the exception of those for China and North Korea are
given in source 77/.
c. Adjusted after consideration of 1949-53 and 1954-55 levels of
expenditure.
d. Adjusted after consideration of 1949-52 and 1953-55 levels of
expenditure.
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S -E-C -R-E-T
APPENDIX C
GAPS IN INTELLIGENCE
There are four major gaps in intelligence concerning capital in-
vestment in the chemical industries of the Sino-Soviet Bloc, as
follows:
1. Little information is available from the annual Capital
Investment Plans of the various countries concerning the extent of
capital investment in the chemical industry. Detailed information
must exist, but it is closely held. Its great importance lies in
its potential indications value, such as signaling shifts of in-
vestment in support of a mobilization program.
2. More data are needed concerning the extent of capital
investment in individual major plants, especially in the USSR.
3. There is need of a capital investment unit-cost deflator
for each of the countries so that real fluctuations in the extent of
investment may be studied without distortion from general cost move-
ments.
4. A ruble-dollar ratio is needed to convert the ruble
value of capital investment in the chemical industry to a contem-
porary dollar value.
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S -E-C -R-E-T
APPENDIX D
SOURCE REFERENCES
Evaluations, following the classification entry and designated
"Eval.," have the following significance:
Doc. - Documentary
A - Completely reliable
B - Usually reliable
C - Fairly reliable
D - Not usually reliable
E - Not reliable
F - Cannot be judged
1 - Confirmed by other sources
2 - Probably true
3 - Possibly true
4 - Doubtful
5 - Probably false
6 - Cannot be judged
"Documentary" refers to original documents of foreign governments
and organizations; copies or translations of such documents by a
staff officer; or information extracted from such documents by a staff
officer, all of which may carry the field evaluation "Documentary."
Evaluations not otherwise designated are those appearing on the
cited document; those designated "RR" are by the author of this re-
port. No "RR" evaluation is given when the author agrees with the
evaluation on the cited document.
1. CIA. FDD Translation no R-395, 30 Dec 55, p? 50. OFF USE.
Eval. RR 2. (tr from Radlinski, Antoni, and Niesiolowski,
Michal. Ekonomika przemyslu chemicznego (Economics of the
Chemical Industry), Warsaw, 1955. U)
2. Razumovoy, R.P., ed. Pervyy pyatiletniy plan razvitiya
narodnogo khozyaystva chekhoslovakii (First Five Year Plan
for the Development of the National Economy of Czechoslovakia),
Moscow, 1950, p. 136. U. Eval. Doc.
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25X1A2g 5.
6. Finansy i kredit stran narodnoy demokratii (Finances and
Credit of the.Countries of the People's Democracy), Moscow,
1954, p. 102. U. Eval. RR 2. (hereafter referred to as
Finansv i kredit)
3. Ibid., p. 137. U. Eval. Doc.
4. USSR, State Planning Commission. The Second Five Year Plan
for the Development of the National Economy of the USSR,
STATSPEC 7.
25X1A
13.
14.
8. Ibid., 28 Dec 55, p. CC 1 ff. U. Eval. RR 2.
9. Boldyrev, V.G., ed. Finansy kita sko narodnoy respubliki
(Finances of the Chinese People's Republic), Moscow, 1953,
p. 182. U. Eval. RR 2.
CIA. FDD Translation no 478, First Five Year Plan of the
People's Republic of China, 12 Oct 55, p. 8. U. Eval. RR 2.
10. Finansy i kredit (6, above), p. 47. U. Eval. RR 2.
11. State, Warsaw. Dsp 385, 22 Mar 55. U. Eval. RR 2.
12. Finansy i kredit (6, above), p. 47. U. Eval. RR 2.
CIA. CIA/RR PR-113, Unification of the Chemical Industry
in the Soviet Bloc, 11 May-55,, p. 2. S NOFORN.
15. Ibid., p. 35. S NOFORN.
25X1 A2917
18. North Korea. Trekhletniy narodnokhoz a stvenn plan KNDR,
na 1954-56 Three Year National Economic Plan of North
Korea, 195.-56), Pyongyang, 1954, p. 22-23, 45: and 60. U.
Eval. RR 2. (hereafter referred to as North Korea,T'rekhletniy)
19. Kucera, E. Chemicky prumysl, vol 4, Prague, 1952, P. 97-100.
U. Eval. RR 2.
20. Blinkov, D., and Burov, M.N., ed. Khimicheska a promyshlennost'
SSSR (Chemical Industry of the USSR), vol 2, Moscow, 1933,
P. 39 ff. U. Eval. RR 2.
21. USSR, Verkhovnyy Sovet SSSR. Zasedaniya verkhovnogo soveta SSSR,
stenograficheskiy otchet (Proceedings of the Supreme Soviet of
the USSR, Stenographic Report), Moscow, 1946, p. 129. U.
Eval. RR 2. (hereafter referred to as USSR, Verkhovnyy Sovet
SSSR. Zasedaniya)
22. Pravda, Feb 55. U. Eval. RR 2.
STATSPEC 23
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25X1A2g 24.
25. North Korea. Trekhletni (18, above).
26.
STATSPEC
28. CIA. FDD Summary no 20, Information on the 1949 and 1950
Ministerial Budgets in Poland, 18 Mar 55, p. 22-23.
OFF USE. Eval. RR 1.
29. Ibid., Weekly Economic Information Report on East Europe
=, 20.Oct 55, p. 37. OFF USE. Eval. RR 2.
30. USSR, Gosplan. Slovar'-spravochnik po sotsial'no-ekonomicheskoy
statistike (Dictionary Handbook for Social and Economic Statis-
tics), Moscow, 1944, p. 200. U. Eval. RR 2.
25X1A2g 32 .
33. Arakelyan, A.A. Khozraschet i is ol'zovani e osnovnykh
fondov promyshlennosti SSSR (Economic Accountability and
STATSPE?
. 35
36.
37.
38.
the Utilization of Fixed Capital of USSR Industry), Moscow
39. Die Wirtschaft, 10 Nov 55. U. Eval. RR 1.
STATSPEC1!o
41. Gospodarka planowa, Jun 55. U. Eval. RR 2.
STATSPEC 42.
43.
44.
45.
Lange, Heinz. "Wege zu einer besseren Analyse der Vorbereitung
and Durchfuehrung von Investitionen" (Ways to a Better Analysis
of the Preparation and Execution of Investments), Statistische
Praxis, vol 1, 1955, p. 137. U. Eval. RR 2.
46. Neuer Weg, East Berlin, 13th edn, 1955. U. Eval. RR 2.
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For a-Lasting Peace! For a People's Democracy!, 9 Sep 55-
U. Eval. RR 2.
Balkow, Julius. "Economic Cooperation in the Democratic
World Market," German Export, no 8/9, Berlin, Aug-Sep 55,
STATSPEC47 .
25X1 A2g 48.
. 6. U. Eval. RR 2.
49. Finansy i kredit (6, above), p. 38, note. U. Eval. RR 2.
50. USSR, Verkhovnyy Sovet SSSR. Zasedaniya (21, above).
51. American.-Russian Chamber of Commerce. Handbook of the Soviet
Union, 1936, New York, p. 166-176. U. Eval. RR 2.
52. Cooperative Publishing Society. The Second Five Year Plan
for the Development of the National Economy of the USSR,
1933-37, Moscow, 1936, English edn, p. 571. U. Eval. RR 2.
53. CIA. CIA/RR RA-2, Unit-Cost Index for Capital Investment
925-5 , 1 Nov 55, p. . C.
in the USSR, 1925-577-
54?
25X1A2g
55.
56.
57.
58.
59.
6o.
61.
62.
63. NIS 18, Czechoslovakia, sec 64, Jan 54, p. 64-39-
C. Eval. RR 2.
64. CIA. FDD Translation no 486, Results of the First Five Year
Plan ... in Czechoslovakia, 2 Nov 55, p. 22. OFF USE.
Eval.RR 2.
65. Czechoslovak Economic Bulletin, no 283, Prague, Apr 54.
U. Eval. RR 2.
25X1A2g
STATSPE
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25X1A2g
STATSPEc 6'
67. Alton, Thad Paul. Polish Postwar Economy, New York,
1955, p. 167. U. Eval. RR 2.
Pyat'let narodnoy Pol'shi, Moscow, 1951, p. 163. U.
Eval. RR 2.
68. CIA. FDD Q-418, 2 May 52. SUS ONLY. Eval. Doc.
69. Scweng, L.D. Economic Planning in Hungary Since 1938,
Mid-European Studies Center, 1951, p. 69. U. Eval. RR 2.
70. Dudinskiy, I.V., ed. Plany razvitiya narodnogo khoz a stva
stran narodnoy demokratii (Plans for the Development
of the National Economy of Countries of the People's
Democracy), 1952, p. 279. U. Eval. RR 2.
71. State, Bucharest. Dsp 194, 26 Dec 50. U. Eval. RR 2.
STATSPEG'2.
25X1A
73. Terpeshev, Dobri. Draft of the Bulgarian Five Year Plan,
Sofia, 1949. U. Eval. RR 2.
74. Konstantinova, F.T., ed. Vtoroy pyatiletniy plan razvitiya
narodnoy respubliki Bolgarii Second Five Year Plan for the
Development of the People's Republic of Bulgaria), Moscow,
1954, p. 25. U. Eval. RR 2.
75. CIA. FDD Translation no 478 (9, above), p. 8-9. U.
Eval. RR 2.
76. North Korea. Trekhletniy (18, above).
77. Finans i kredit above) p. 115. U. Eval. RR 2.
25X1A2g
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