I. Changes in China's Balance of
A- Strengthening of China's International Payments
-
3. deterioration of the Balance of
C Revival of the Balance of
II- Financial Relations with Cccnnunist and Free Itorld
III. Curtailaent of External
IV.
Appendix A. 2alance-of-?ayr.ents
Appendix 3.
Appendix C. Source References
Tables
'- Ccr.-ur.Ist China: Direction and Balance of Foreign Trade,
Annual Averages for Selected
2. Csnnunist China: Sundry of the Balance cf Payments,
Totals, and
3- Comunist China: Ir.variational Financial Resources,
7ot . .
^- Co=unlst China: Ket Capital Imports,
>. Ccnnuniat China: 3alance of Paymeata,
6. Ccr-ur.ist Chins: ar.ee of Payr.er.ts with the Free
s-
T- Coranunlit China: Balance of Paynents vlth Cenounist
Countries,
China: Direction of Foreign Trade: alance-
of-Payments View,
China: Direction of Foreign Trade, in Yuan,
China: Direction of Foreign Xrade, in Dollars,
of Chinese Ccesunlat Trade with th* USSR and
with the Free
12- derivation of Chinese Coeaauniat Trade with the Eastern
European CoocLuiist
13. derivation of Chinese Comnuniat Trade with the Far
Eastern Comr.ur.ist
CosauAltt China: Trade with
China: Direction of*
ii. derivation of Chinese Coccunist Trade with the Free
China: Trade vith the Soviet Bloc
'.2. dorx-unist China: Trade with the Far Eastern Coccunist.
Countries,
r.ist China: Trade with Cuba,
= TWMftlt* China: Freight Coats on Overland laports from
the Eastern European Cocanunisti
21. Cansunist China: Payoents of Free World Foreign Exchange for Shiopiag Costs in the Coastal Trade,
38
ss. Csuv-.usist Caloa: Personal Remittances froa Overseas
dhir.esa,
- iv
Following Pace
Figure 1- Cor.-unist China: International Payments and Receipts, Annual Averages for
Selected
Figure 2. Communist China: PercentageInternational Payments and
COMMUNIST CHINA'S
Summary
The wide swings in Communist China's economic fortunes9 nave heen the major influence on the course of its international he rapid growth of lhe economy provided an upsurge in exports, which, supplementedreillion dollars in long-term foreign aid and almost another billion in remittances froa overseas Chinese, helped China meet its expsr.ded requirements for foreign machinery and raw materials. In contrast, the "leap forward" debacle) caused imports quickly to outpace exports, resultingharp rise in short-tern foreign indebtednessecline in China'sreser/es. The country's difficulties intsobligationsers compounded by the growing Sino-Soviet dispute and by agricultural failures, which led to the purchase ofillionf Free World wheat annually beginningThe deterioration of China's international payments position nevertheless was almost halted, largely by virtueeep slash in inports from CoEKunistnd by new infusions of foreign credit.
hina's international financial position began to improve, as the gradual recovery of the economyevival of exports and the Chinese leadership continued to restrict purchases of machinery and raw materials from both the USSR andest. he enddard-currency reserves stood at moreO million, and China's clearing deficits with3 and last err. Europe had been alr.ost Moreover, byarge export surplus with theach year, the Chinese were able? tc finish repaying their billion-isilar debt to.
* Ihis repc-rt was produced by the Office of research and Fecorts; the estimates and conclusions :epresent the best judgment of thearch
Tonnages are given ir. metric The term Communis* countries as used ir. this report includes the VSS?., the Eastern European Communist countries {Albania, Bulgaria, ;iech3 3lcva>ia, East Oermany, Hungary, Poland, anduba, Yugoslavia (unless otherwisend the Farunist countries (Mongolia, North Korea, and Xortfc Vietnam.}- Thes includes the US3F. and the Eastern European Ccmn'xnist
han China's Free World trade .surpassed its trade with Communis" countries for the first tinei the Chinesehave turned to the nest for credit to help finance heavy imports of grain and growing purchases of capital equipment, fertilizer, ana other goods. Sc far. China has sought only short and madinr.-term
T
n China's Balance of Pnys.gr.ts
The balance of paymentstandardized accounting stateaent whichountry's foreign econonic transactions and discloses changes in patterns of financing trade, in currency holdings, ln foreign debt, and in other Indicatorsountry's international financial position. , China's balance of payments underwent dramatic changes which reflected shifts in the country's internal economicand the impact of its deteriorating political relations with the USSR and Communist Eastern Europe.
To pay for its inports as well as tonail foreignreserve and tooreign aid program, China has relied on commodity exports, foreign credits, and overseas remittances. It derives very little froir. the sale of gold or services or from interest (sec Exports have been by far tbe dominant source ofreceipts, accounting for roughly three-fourths of total receipts each year during Foreign credits have provided an important supplement to export earnings. In th*s, long-term credits froa the USSR supplied the essential capital for China's rapid Sinceowever, the country's growingfrom the USSR and its urgent requirements for Western grain have caused the Chinese to turn to the West, rather than to the Communist countries, for credit. Western credits, however, have beenhort-term character. The third important source of international receipts, remittances from overseas Chinese to theiron the mainland, brought in an average of $flO million each yearo finance ar. import surplus in China's Free World trade.
A. Strengthening of China's International Payments
During its first eight years under Comnur.ist, China strengthened its international financial position by accumulating substantial foreign exchange reserves (see 5ta:ting with almost no International financial resourceshe country built up its foreign exchange reserves to5 million by the end* This task was accomplished with the help of long-term credits froa th*ut at the sane time China was rapidly expanding imports andoreign aid program.
Possibly two-thirds of its foreign exchange (currency and gold) reicr/ei were accumulated by expropriating private holdings and by monetizing the small amount of domestically produced gold. Theincrement to thes* reserves represented net earnings or. transactions with other countries. Altogether, foreign currency and gold reserves**
Changes in hard-currency holdings are assumed to account for almost all of th* item Errors and emissions 'net) in China's balance of pay-rents with the Pre* World. ** Text continued on p. 6.
Cable 2
Comunist China: Summary of the Balance of PayaetiU Totals.t
HiUion US $
Free Uorld
(net)
Merchandise trade balance Freight and Insurance Overseas remittances Other transactions (net)
Capital and monetary gold (net)
Credits aad grants extended
t drawings
Credits received
Craving3 Hepayrter.ti
Transfer ofet-ovr.ad assets
Expropriation of convertible
rurrencles Other transactions (net)
Errors ind orussions (net) b/
jo?
1.0
23
2fi
3
19U
Ut5
account (net)
Merchandise trade balanci Freightnsurance Overseas remittances Other transactions (net)
292
TO
107
Footnotes follow on p. 5-
S
Table 2
Ccccnunist China: Summary of the Balance of Payments Totals,Continued}
Million US $
FreeCountries
Credit
Capital aad monetary gold (act)
Credits and grants extended
Net
Credits received
Other transactions
Errors and omissions (net) b/
Current account
Merchandise trade
freight and
Overseas
Other transactions
Capital and monetary gold
Credits and grants extended
Us-
Credits received
Other transactions
Errtrs and omissions (net)
This transfer was financed by Soviet credits (see Appendixelow).
b. Assumed to be changes in foreign currency balances (Free World) and :Iearing balances (Communist countries).
During this period, merchandise importslargely capital goodsncreased by aboutercent annually, free more0 millior.0 to nearly| billionV, and averaged2ear." Even considering the low level of tradehis increase was an achievement surpassing the rate of import expansion of most of the less developed countries of the Free World. Current imports could have been even greater had China not used some of its export resources to provide long-term economic assistance to other countries. From the beginning of the aid program* to the endhina provided, mostly to other Communist countries,illion in both goods and foreign currencya total volume of credits and grants which compares favorably with that provided by all but the two leading industrial powers of the world.
Three factors were largely responsible for this strengthening of China's international payments position. Foremost was the regime's
* O'nless otherwise indicated, data in this report are presented in or ierivei from the global and regional tablts of China's balance ofinhroughp.elow) and rrom the supporting tables lnp.elow).
** The "three-anti" (san fan) movement was directed against the "three evils" of corruption, waste, and bureaucracy tnong government workers. The "five-anti" (wu fan) movement was directed against th* capitalists, emphssiling th* Ave evils" of bribery of government workers, tax evasion, theft of state property, chesting on government contracts, and stealing ecanami: information from government sources.
tight control of the economy,ystem of strict and highly effective trade and foreign' exchange controls. Its pervasive control of economic activity enabled the leadership to channel domestic goods to export and to allocate export earnings to the purchase of capital goods rather than to increased consumption. Thus0mports of consumer goods grew fromillion to0 million, while imports of capital goods Increased by one and one-half tines, from less0 million3 billion during the same period. At the sane time, merchandise exports more than doubled, rising5 million0 to6 billion Second, China obtained free theong-term credits* billion. These credits were equivalent to aboutercent of China's total imports andercent of it3 imports fromuring this period. of large repayments beginning, however, the outstanding debt to the USSS em the end7 was onlyillion. Third, China absorbed foreign currencies from both domestic eni external sources.uch campaigns as the "three-anti" and "five-anti"hina is estimated to have collected on the mainlandillion of privately held foreign exchange, including gold. The countryO million in remittances froa overseas Chinese, an mount which vasthan sufficient to cover the deficit on the trade and shipping accounts with tht Free World over these eight years.
lBPE-T
B. Deterioration of the Balance of
The adoption of the "leap forward"8 suddenly reversed the progress that China had made ia strengthening its international payments position. The resulting deterioration of the balance of paymentsthe achievements of the previous eight years, as indicated ic Table 3-
8 tohina drew heavily on its foreignand clearing resources to finance its growing import requirements. Under the "leap forward" banner the pursuit of the maximal growth ln every sector of the econoay, along with an almost complete lack ofover imbalances in the rates of growth among economic sectors,isproportionate demand for imports. Merchandise Imports had grownearabout half as fast as exportsuring the first five-yearut now increasedate ofear, outpacing the growth of exports. During the first halforeover, imports probably grew even more rapidly thanhile merchandise exports registered little or no growth. China continued to have export surpluses8ut ln the first half0 en import surplus appeared for the first time
Primarily because of this widening gap between the growth of Imports and exports, China's gold and hard-currency reserves declined by0 million. The rapid growth of imports from the USSR caused China's cleering indebtedness to rise5 million. The decline in Western currency holdings was aggravated by the large volume of export resources earmarked for debt reoayment to the USS5.
The coUapse of the "leap forward" movement inoa-nelitd China to take prompt and vigorous steps to contain theof its balance of payments. Disruption of both agricultural and Industrial production had ledharp decline in exports. exports, which in normal years accounted for at least half of total exports, were hardest hit. China's response was to slash imports, especially froaee World. Imports froo this area in the second half0 were reduced by nearly one-fourth in comparison -with the first half; imports from Communist countries probably were reduced, although not as rapidly. Sales of silver were expanded fronlllion in the first half0illion ia the second half. These actions were not enough, however, tourther reduction in foreign exchange reserves during the latter halfcconpaniedontinuing rise in clearing indebtedness with Communist countries.
For the next two years, China continued to adjust its trade position to accommodate large Imports of grain while endeavoring to prevent further deterioration in it3 international reserve position. Exports fell offI but were maintained at roughly! level
JtWrZ-T
. Merchandise imports were ruthlessly cut1 and againesulting in export surpluses5 million1 and more0r. Large grain imports in these years vers accompaniededuction of more than one-half in imports of all othor commodities, which fell fromillion0 to0 millionhe lowest level
short and medium-term credits
Despite these adjustments ln trade, China still needed foreign credits to supplement export earnings (see n short-tern credits was obtained from the Free World to help0 million worthf grain imported during the two
was used to pay for other purchases in the Free World. Becausewere largely scheduledo lfi months, Chioa had paid off all but0 million of this indebtedness by the end
The USSR and the Eastern European Communist countries alsocredits to ease China's balance-of-paynents distress. The USSR6 million creditI to finance China's imports ofons of Cuban sugar on Soviet account. China alsoa long-term credit0 million from tbe USSRI to fund thef its accumulated clearing debt. illion of clearing indebtedness remaining at the end0 was settled1 through trade.* Some clearing indebtedness with the Eastern European Communist countries probably was funded or converted into long-tern creditsut th* amount of these credits is un>xown.
To ma at payments felling due1hina undertook extraordinary sales of precious metals- Sales of silver to Free World countries were lee raisedillion0 to morellllionn addition, Chinaworth of silver to the USSR for Free World currency. It also sold, through the USSR,illion worth of gold to theorld-**
C. Revival of the Balance of
Gradual recovery of the economy from the "leap forward" and its aftermath contributedmall Improvement in China's international financial position. Fragmentary data indicate that this improvement continued or the first time since the initiation of the "lea?hina was able to finance Its international obligations while neither drawing down its international resir/es nor curtailing its imports.
A surprisingly rapid rise of nearlyercent in earnings from merchandise exportsU enabled China to continue to expand imports and to replenish reserves as well as to reduce its international
* Gee Appendixelow. ** tatistical convention, silver sales are included in China'sof goods, hut gold sales are itemited separately.
indebtedness by0 miliion. Merchandise exports and imports both increased by5 million. International financial resources, mainly clearing balances, rose by more0 millionotal0 million at the end Holdings of Western currencies alone increased byillion in spite of sizable prepayments of grain credits.
ihuing these two years, China retired almost all of itsdebt with the Communist countries. 3 million merchandise export surplus with the USSR3* was sufficient to pay off ell its debtillion in kind still dueugar credit. Similarly, by the endhina had almost completely liquidated its remaining debt of0 million with nhe Eastern Europeancountries. China's indebtedness with the Free World increased, because of continued heavy drawings on credits for grain and capital equipment, from less0 million30 million inThese drawings are net of repayments to the Tree World amounting to aore thanmillion during this period.
Zm spite of these improvements, China's international financial position at the endk remained extremely tight. Holdings of Vesttrf. currencies and gold are estimated to have totaledievel substantially below thather, China'sorli trade was considerably smaller. old and hard currency reserves vere equivalent to China's total merchandise inports fror. the
li:hese reserves were equal to about one-third of
"H'f. ir.r' *
Incomplete trade data Indicate that exports continuedt quite as rapidly as. Imports, or. the?.rparer.tly increased more rapidly thanU. This risepossible by the completion ir. of China's debt repaymentsreleasing0 million in export resources, and
by China's! decision not to make prepayments on its Western grain treiiti These two factorsontinued expansion of imr.prts from the Free World and the further replenishment of China'sl reserves.
Indeed, the nost noteworthy feature of China's paymentsthe increased use of export earnings to build up reserves,
5 its holdings of gold and convertible currencies probably raie0 million0 million. oreover. Communist Thine made its first purchases of gold on the world market, which amounted5 million and were paid for in sterling. This exchange of sterling
e provision in the trade agreements for settlement of its Ty/lct Sloe clearing Imbalances with gold and convertible1 haa rarely used these resources in this manner; rather, it has uaci old and convertible currencies almost exclusively ir. making Free
for gold reflected not only the leadership's decision to diversify its International reserves,edge against the possible devaluation of sterling, but its =ore immediate concern over the deepening political and military crisis in Southeast Asia. The Chinese neverthelessto hold some sterling balances overseas.
II. Financial Relations with Coonunlat and Free World Areas
Communist China's financial relations with the Free Worlday much different from those with the Communist countries. Although generally preferring bilateraliso in its trade with other countries, China is forced to finance most of its Free World tradeultilateral basis with scttlcc-eot in convertible currencies. ew of the less developed countries, especially those with payment difficulties such as Burma and Indonesia, have concluded agreements for bilateral clearing accounts with China.
In contrast, China's financial transactions with the Communist area are channeled almost entirely through bilateral clearing accounts. Although the agreements establishing the clearing accounts provide for 'Ming any imbalance in trade by increased shipments of goods or by transfers of convertible currency or gold, the latter option is seldom used. Usually an adverse clearing balance Is carried over to succeeding periods until the indebtedness has been cleared.
China has also entered Into several oultileteral oayaentsinvolving both Communist and Free World countries. hina, the USSR, and Finland enteredrilateral trade andarrangement. It proved to be unsatisfactory, however, and after one yeer China and Finlandilateral trade agreement.rilateral clearing transaction among China, Burma, and the USSRxrma settled the indebtedness on its bilateral clearing account with China by transferring to China an equivalent creditfrom its bilateral account with the USSR. In addition, China and individual Communist countries have occasionally used Free Worldto settle certain mutual trade and services transactions. For example, China used convertible currencies to purchase sizable quantities of steel products from Poland6 and possibly again.
OoosnaUt China's deteriorating relations with the USSR hove reversed the regional direction of its trade and capital transactions and have affected balance-of-payments management as well. In thes, -her. China and the USSR vere consolidating their mutual political and economic ties, China's trade with Communist countries rapidly expended while trade with the free World declined. Thus5 the Communist countries accounted for T* percent of China's total trade.* owever, Sino-Soviet ties have progressively weakened, and China has
- Trade data in this section vary somewhat from those used inecause the latter reflect balance-of-payncnts adjustments.
- 11
to an ever greater degree on the free Worldource or essential imports. In addition, China's bidarger role ln world affairs has led to its growing economic support for the less developed countries of the Free World. esult the share of the Free World in China's trade increased from roughly one-fourth5 to one-third
The Free World's role in Chinese trade grew especially rapidly0esult of the widening of the Sino-Soviet riftthe withdrawal of Soviet technicians in midyear and the urgent need for grain to fill the gap leftisastrous harvest. o't, trade with the Communist countries was halved while that with the Free World increased aboutercent. Infor the first timehe Free World accounted for more thanercent) of China's trade. U tha Free World share was nearly two-thirds. Thisof trade relations ledarked expansion in China's trade with Japan and Hong Kong. In the two, Sino-Japanese trade, which had been in the doldrums since the sudden deterioration in political relationsncreased by nearly three tines. Trade with Hong Kong, the primary market in tha Free World for Chinese exports, doubled during these two years. With the growing reorientation of its trade :rom the Soviet Bloc, where clearing credits wereo cover trade deficits, to tbe West, where each trir.Jiiction generally requires settlement in foreign exchange, China'se cautious and astute in managing its slim holdings of Western currencies.
dlrilarly, Communist China's capital imports have been affected by the shift In its political relations with the Soviet Bloc. 1 thehich had beer. China's only previous source of economic aid, acjlJtei the Chlr.=se byarge part of China's clearingz aad bymall credit to China for the purchase. Several European Communist countries probably also fundeds clesring debts at this time. Sincei, no farther aid has ceen extended to Chine by other Communist countries. Indeed,l or the first tire turned to the West for credits. Unlike th* ;redlts from Communist countries, however, those from the West hive croviied only short- and medium-term financing (of up toost of which was i8 months' credit toarge
; China's huge annual grain purchases* In thecs, China signed more than to contracts to purchase Wfjcera industrial installations, most of which have involved mediua-term credit. To date, China has drawn around $to million ofillion of industrial credits extended. Because of the-hort term of all tha Western credits received aowire being largely offset by repayments. Unless the Chinese seek
:r: tneTe credits are considered normal commercial credits ir. -'Crrade, th* Chinese authorities have not designated them as "for-
long-tern Western credits4 quest that vould probably be successfulthia situation is likely to prevail over the next few yeurs, and may worsen.
In contrast to tbe redirection of Chinese trade and of capitaltoward the Free World, China continues to channel its foreign aid chiefly to the Communist countries, especially those of Asia. Since the start of the foreign aid program in2 percent of China's foreign aid has gone to Worth Korea and North Vietnam together andercent to other Communist countries; onlyercent has been channeled to Free World nations. The predominant role of the Cocaeunist countries ln China's foreign aid prcgras Is likely to continue, inasmuch as these nations are the main areas in which China and the USSR are competing for influence.
Curtailment of External Indebtedness
A distinguishing feature of Communist China's balance of payments has been the rapid reduction of external indebtedness. 0hina received credits frost the Soviet Bloc totaling6 billion,4 billion in long-term Soviet credits0 atlilor. more in short-term clearing credits from the USSR and the Eastern European Communist countries. China begano repay these debts,esult of which total external indebtedness at the end5 aaour.tei to Just undillion (see Table M- Over the next five, China'3 aew borrowings from abroad jhranx toillion, comprising almost entirely anof clearing debts to the USSR and the Eastern European Communist countries. Because, however, repayments (excluding interest) on the Soviet long-term credits were much greater than borrowings, China's total foreign indebtedness was reduced byt0 million to lass2 billion at the end In effect, the clearing credits received during these yearsarge extent enabled China to fulfill its debt repayment obligations to the USSR. I (when It received Its lost credit from the USSR)hina repaid mora0 million of its debts to the Soviet aioc. Of0 million of short-tern (less than two years) credits received from theorld luring these years, only0 millionhe endk. Consequently, China's total foreignat that time hid been reduced to0 million. hina repaid the small remaining "sugar credit"illion to the USSR, and its overall indebtedness to the West acrheps increased
nightly.
V-ereas most industrialising countries today actively seek foreign financial assistance, the Chinese Communists from the beginning hav* ssj*rtedation should depend as little as possible on foreign capital to finance economic development and that, furthermore, this foreign capital should come from "friendly" countries. Such statements
Joatavtilst Ctalnhi CupilM
Million u:
0
Credit drawings
Total
rapay-
monta
Changes in clenrlnRb/
Net capital Imports
298
58
198 ?
117
8 O 2 2 0
-55
can be largely discounted as an attempt toirtue of necessity: given China's hostility toward the USSR and its weak balance-of-peyments positionis the Free World, it isnlikely that sizable long-term loans could bc obtained froa either source. With the emergence of the Sino-Soviet dispute, China began to accelerate its debt repayments to the USSR: hence this debt was liquidated efining "foreign debt" to exclude trade creditsncluding all outstanding debt to the Free Worldthe Chinese leaders were able to clada that they developed their economy without Western assistance.
IV. Prospects
In its earlier attempts to achieve rapid industrialization, Com-raunist China depended heavily on imports of Soviet capital equipment, technical aid, and industrializable part of which the USSR supplied on long-term credit. If the Chinese are toapid pace of industrial growth, they again will have to depend on imports. This time, however, because of the deepening Sino-Soviet rift, it is unlikely that they will seek assistance from the USSR. Instead, they will have to turn to the industrial West and Japan, wheremust be paid for largely in hard currency. China's capacity to import capital plant needed for industrial developmentherefore dependsts capability to expand exports, especially to hard-currencyts success ia checking the drain ofexchange caused by large imports of grain;ts willingness to seek sizable medium- and long-term credits in the Free World.
Although the Chinese will attempt to prceote exports of newthey probably will continue to rely largely or. their traditional agricultural products to expand export earnings. or example, their exports of nor.agricultural products increased by only
million, while total merchandise exports grew by5 million. In ijtii, agricultural products still accounted forercent ofrrorc:. Zven Industryotably the textile industry, which supplies roughly half of China's exportsdepends in large part on agricultural raw matsrials. Thus China's balance of payments will remain inextricablyo the fortunes of agriculture.
Substantial progress can hardly be made in correcting the food-copulatios Imbalance in the short space of five years. Therefore, the -rospects for expanding agricultural exports are, at best, uncertain. If fo.ii shortages becone acute, the acreage devoted to production of croc; for export and the number of animals slaughtered for food exports vlll shrink. The population will grow from anillioneginning of the plan period toillion at the end. To help feed this huge mass of people. Chine must continue to import or. the average atillion tons ofear, at aa annual cost of moreO million in hard currency. This sum is equal to approximatelyercent of China's earnings fron the Free World Furthermore, unless the domestic agricultural sector is buttressed
by imports of fertilizer and equipment for fertilizer plants,for Western grain may beccoe much greater.
Short-tera grain credits and atedlun-tern Industrial credits are expected to do little to relieve the pressure on China's hard-currency payments. epayments should about equal and may even exceed new drawings. Even if the Chinese decide to expand medium-terracredits sharply, they would postpone forew years the time when repayments would surpass new drawings, and, after that,would rise sharply. More to China's advantage would be long-term credits which vould defer repayments for ten years or core.
China has not sought long-tera credits from the Free World, chiefly because of the uncertainty of the leadership over the long-run Chinese payments position and especially over future requirements for Western grain. Should the Chinese reverse their position and seek long-term credits, there is little doubt that Western European countries and possibly Japan, in competition with each other, would make such credits available. China may wellodest volume of long-term credits, once its agricultural and export prospects become clearer.
Communist China's nuclear development program and its recently stepced-up military construction activities related to the hostilities ir. Vietnam will continue toigher priority than investment in industries that produce goods for export or export substitutes. harp escalation of the Vietnamese conflict, however, China's resources ire not expected to be somit ted as to seriously restrict Lta capacity to export or to absorb capital from abroad. For the time ceing it least, China's limited export capability and the need toarge part of its limited hard-currency receipts to buy Free World gr&ia 3eer. to be more immediate constraints on industrialization.
agcfst was/were missing Iron' Ihe original
j:
3 2 si
HI 1-
11
2
1
- h
!
lb *
i r
IjA ill fEnliijti
Hi iss/wereum the original
oix b
xlcti
Data from sources lr. Communist China have been used to thextent possible in preparing the estimates of Chine's balaBOt of pay-acr.ta. Because of the ambiguity or inadequate coverage of nost of there data, information from non-Chinese sources has been extensively uooi to supplement the Chinese source material. ew specific figure: ln this report can be tracedingle source, in most instances the data shown have been computed on the basis of information derived frss aore than one source. For this reason, source re Terences have Seer, linked to this methodological appendix rather than to the tabulated estimates.
Tne methodology for each category of international transactionias presented by region according to the iten number in those tables. For example, the methodology forn credits received froa th* Free World and from the Communist cour.trier will be found here undera) andespectively. In the case of merchandise tradeonmonetary goldreight and insurance on coastal shipmentsonvertiti* currency transactions with Communist countries and ruble receipt: :'rcr. the Free World, and changes in holdings of monetary gtii, ths methodology Is explainedlobal ratheregional basis.
Iten i. Merchandise Trade
Merchandise trade includes all commodity exports andalued or.. basis. For balanc*-of-payments purposes, severalmust be made in the foreign trade data, which are reported by th* Chinesend are derived from trading partner statistics. It is believed that China records Its foreign trade to show the country of destination and origin rather than the country ofand receipt end, furthermore, that its imports from the Free World are valued. baaia. There fore, two adjustments havemade in the Chinese foreign trade reports: the first, to place China's merchandise trade with theWorld on. basis, and theto represent China's trade by country of payment and receipt. This latter adjustment was made because reexports of Chinese goods by the Eastern European Communist countries averagedear3 In addition, the following merchandls* transactions probably were excluded from official trade data: the food packages that overseas Chinese in Kong Xong sent to China by parcel post; the aid goods that China provided Hungaryhe silver sold by China (for Free World currency) to the USSRI; and the Cuban sugar that China shipped to th* USSRU in part payment of
0 sugar credit. Such transactions have been added to theof trade as shown in Table 8.
The estimates of Communist China's foreign tradexe baaed on Chinese official data on foreign trade and the trade data of China's trading partners. Because China in recent years has suspended the publication of all trade data, estimates of its foreign trade8 have been derived excluaively froa the information of its trading partners. China's foreign trades derived from the data of its trading partners approximated the comparable Chinese data for this period; thus the estimate of China's trade based on trading partners' data can befully compared with the combined data of the earlier period.
nique report publishedommunist China gave the yuan value of total trade for each of the. Apart from this Information, the Chinese have released only fragmentary trade reports generally expressed in percentage terms. These data, together with data reported by China's trading partners, permit the calculation of the yuan value of China's trade with Communist and Free World coun- -tries. The resulting estimatesre presented in Table 9.
Conversion of the yuan values of China's tredento US dollars has been made on the basis of the following exchange rates: USuan in trade with Coanrunist countries and, in trade with the Free World, USuan4 yuanuanuan. This dual exchange rate system as between China's Free World and Coomunist trade is notby China but is derivedomparison of the yuan values of trade as reported by China with the ruble and dollar values of trade as reported by or estimated from the trade data of China's trading partners. China's reason for establishing this system ia not certain. Such factors as the greater stability of prices and the different com-aodity mix in trade with Communist countries compared with Free World trade, however, couldower value of the yuan in thetrade.* The dollar value of China's trade is presented in
Although China has reported exports and imports as shares of total trade (valued in yuan) for each year, the calculation of the dollar value of exports and imports from these data la frustrated by the axlstence of the dual exchange rate. Consequently, the import-export breakdown of the Chinese data on total trade in dollars has been**
-T
The use by the Chinese of what amountsultiple exchange rate system for converting into yuan the ruble and Free World currency values of trade is discussed in an earlier report. 1/ (For serially numbered source references, see Whereas that reportrlnal exchange rate system, data received after Its publication suggestimpler, dual exchange rate system was put to use. ** Text continued on
Table 8
Conounlst China: Direction of Foreign Trade: 'ayraonts View u/
t
.
"TRyu on> UnaUi insiy rmm
hum m$ iA j ft) rn -am Aof rr.- fH
m
wu
IM Vj
. uwfr
imUIHtl* Ftf-
" a ti1 in a ia a iu ii1! a lja
*IU Uh CmmiIH l ^
y
iiiSh 'ijj a g a th
tsuii A ffil HB* fc-"a i
npwftad bv Ik* CMatar or uvh IK-f .lii" ul iV*t ..
Mian 1TWMrim Im wiI. a).
L
aw II; Ik-
/
Tabic 9
CoKaunist China: Direction of Foreign Trade, in
Million Yuan
iv
-orld
European
Eastern
cj
a/
d/
d
c/
e/
e/
e/
e/
e
c/
e /
-
f/
h/
i,/
1/
=J
'J
tf
i/
h/
k/
k/
k/
k/
I/'
1/
tj
i/
1/
tj
1/
f/
i/
Data are taken or derived from Chineseieh apparentlyYugoslavia fron: the grouping "Socialist countries" in reporting the direction of Chinese trade.
with each Communist partner is assumed to be in theto the total trade with Communist countries
t. Residual-8- 2/
to beercent (see, where the shareatercent).
based on data of the trading partners.
.
m
a. la/
-
Communist Countries
Communist China: Direction cf Foreign Trade in reilars a/
yt
Trade
V
. Eur cue en ^
L
-
3^7
3eceuse of rounding, components cay not add to the totals b- Including trade with fugcsla'-'ia-
derived from the import-export dsta of China's trading partners. Z'r.tzt calculations are noted and explained in Tableshrough Ih and the results are summarized in
* Text continued on
Estimates of China's tradei are based on the trade data of China's trading partners. To reflect the value of trade as China would report it, the trade data of Free World countries have been adjusted for (a) time leads and lags in shipping, (b) shipping costs, (c) double counting,d) unrecorded transactions. On the other hand,ew adjustments have been required in the trade data of Communist countries because (a) the Communist countries present their trade data on. basis, (b) reexports of Chinese products by the Communist countries to the Free World almost completely disappeared during this period, (c) no shipping time adjustment is required for*
ii.
Table 12
derivation or chinese comunlnl trade with tlie eastern european caanunlst countries
(2)
"'including albania and excluding yugoslavia, some of the'dtltcrcnee hetucfin the vuluenonby china and us reported by the baulern european conrnunlul countries probably results i'rom tiumioiiu] movements ln trade and time logo ln tho recording of uiiu trade; hawwy, the bulk of die different* is accounted for by those chinese products which ore rcexpor led by |tm eon lorn european coeiuunlst- countriesever physically entering eastern europe. such qillw oaporto noved directly i'ron china tow^atern port, whence they were dispatched to the free wr.rld purelniao-. thuao exports ure ussuncd lohina as exports to the free ww id and by uh* easternountries anclitnn nnd exports lo the prcc world. eh, lliene1 lutrade wllh the eastern europeanos midetmtra-U-see
a. ubtractedoolunn 2.
5 subtracted fron vo>1ii-mi ).
from chinese dnlu whichnxn->rl surplnti '. nlllu-n.
from trade and flnntiejale*ut"i'n knrnnwuil illintrl*'p which illiicbm1export surplusm to hnve in in bid nil fxi million ini'-hi
Table 13
Dcrlvutlon ofwith the Fur hia torn Ctxenmlsl Countries al
(1)
Derived Trad*?
3/
Trade Reported by China S/
Korth. and HungoUu S/ =/
(5)
c/e/
Fxporta
on
1
Grant Baa la porta] 1/ ports
//
0/
IT Besed on cstlantcs of China's trade cu cow-rcinl anil
exports under Chinese credits and grants.
exports under Chinese credits end grants.
6csldunl of column J lensid 5- ldata suggest that trade with these countries increased illicitly each year trade rose more rapidly; butecline in trade with Mongolia slowed the ovcrnl1 growth*
trade with the For Rastern Communist countries can hi: calculatedn the sum2 and 3. , or. Cliinn restored mid expanded tin economy, ivtviv probablyalthough it amountedelatively smallhe aid goods which ChinaNorth Korea for Us war with South Korea and to viet Minn Percca In Vietmaa. Thuse aasumed to aawHint to uboui. yj percent or loiitl Lnvle nr. reportedClilim.
t. Half of the data In column U, on theption that coawrclal trade each yenr.
c- Half of the data insee footnote d) plus cnluwi
k. m/
l. nnouncedLctmloiiol11.
m. Miscellaneous irudu dnLn Indicate un rximiiiii'm nj*jrrci-tii'J'jY.
Table 14
isl China: Trade vlth
Year
from I'ufiCSiav trade data, adjusted for time leadshipping and for shipping costs. Chinese trade withnegligible.
Table 15
ConiEunist China: Direcricn of Trade
i-z
625
-7
01:
Exports Inrorts Extorts r:;
Trade with Yugoslaviaas been subtracted from China's trade with the Free World and added to China's trade with Communis-countries.
-
much of Sino-Soviet trade (that going bynd (a) data areto calculate the shipping tine adjustments for theshare of Chinese trade vlth the European Communist countries. ; the Ear Eastern Communist countries have only irregularly repor-ed their trade with China. Trade with these countries has been estimated from miscellaneous data on total and commodity trade, credit extensions sni drawings, and other financial transactions. Tne estimates of the io'lar value of China's tradere summarized in Tablend ars derived in Tables
Item 2. nonmonetary Cold
In accordance with conventional balance-of-payments procedures, gold reserves of China's monetary authorities are treated as if they are foreign assets, whereas gold held by the nonmonetary sector is treatedomestic asset, similar to merchandise. Consequently, domestic purchases of gold by the monetary authorities arc included in the balance of paymentsredit to "nonmonetary geld"ebit to "changes in holdings of monetary gold"that is, changes ir. gold reserves. Since the domestic transactions between the monetary authorities and the rest of the economy are mutually offsetting, the net balance of the two itemsnonmonetary gold and goldeflects solely international gold transactions.
Because the amount of domestically produced gold which is consumed by domestic industries is believed to be relatively small, the entire annual increment in gold production is countedurchase ofgold and an addition to gold reserves. The value of goldis based on the relatively few Chinese reports or. ths country's gold industry in conjunction with gold production data ofsCs- 3ecauss the Chinese Communists appeared to give as little attention to the gold industry06 as the Chinese Nationalists gave ins, gold production during these two periods is assumed to have been similar in magnitude. The total value of gold productions therefore estimatedillion. So production figures were announced owever, China reported that gold production was double that onsidering the failure Df the nonferrous metalsto achieve most of its production goals, is estimated to have been equal to the combined goals (l6 tons) announced for onlyf thsold-producing provinces in China. Thus the value of7 and8 would totalillionillion, China's increasing interest7 in raising theof gold and its success in doubling output8 suggest that0 it could have reached the peak level of gold output ofs. On this basis the value of gold production90 is estimatedillionillion, respectively. Because the collapse of the "leap forward" movement curtailed production in almost all fields, annual gold production in the four years that followed probably was lower thanillion produced0 and, accordingly, is estimated
-iflfc-T
Table 1c
hinese Ccsusur.ist Trade vith the Free Ve*
Pepcrted Shipping
by Ttsiunc OovbU
Year Par-srra aftl Laas ^ Ce^tlrj
crt;
-t v :
1
*
srt-
i
:
(;re-
wted to
trad*
_ :
ii to l:
;h* tis* dtffsrer.re tev.-ejr.an;Vi-i:r. For countries or -cttwa Sarop*.ir.triii.exports during iheor.ths endingctober inear
ndingebruary in the follow: sg year representn4lively, .'cr the calendar year. Similarly, for allaces, and Taiwan, foedjustments ire xport; during theTsr.th; JOach year and inport; daring the1rvea: representports ar* exports, respectively.
r. Adjusted avoid duplicating reexports recordedtrad* .rtta China Both by thssaiftiy Hosend the country Of origin or or final destination. fsoot: arebyisrjs ta Trffl-rii; vit-tr.es*rLes' reports* Isports frosng. Seexrortj cy Kor<n?resorted byng.
il. ASj-iated toor Cl.ir.es*or Free Worii'or dlr*;tta oUter cointri**were reported by the ire* Worii*i* otttr tr.an Chica.
u. Tr. uaiea ths trsde ststistics of China's ;re?trails partner! to arrive i'.i exports on. basis aod imports. basis cccparable withtr^de catasdurtloit aust be asde Tor theosts iEci^ded in the Free -ori:':ort5 fron China, and ar. addition nust be aade for the shipping costs <hlcE are cxbya its vidue of exports to China. Shipsir^ costsrla espcrts irs calculatedonstant percentage of the reported export value; or exports oi Western Europe, Latin Raerica, and Westernere the average voj-agess betveen one and tvo aonths)ercent for all other countries. ;or Freeorts. tne percentages areercent for Hcstero Europe, Latir. America, and Western Africaercent for all other cojntrie? ^ith the exception of Hong Kong, Maeao, and Taiwan. 3ecauserecent large purchases of grain have significantly affected the average shipping cost percentageshipping costs no- are calculated separately for China's grain iaports by applying aver see freight rates (for graia shipments to China} to ihe volisae of grain Imports; and the shipping costs on the renoming value of trade are cciCJlated oa the bests of the fabcve-staMd shipping cost percentages.
: i-
Trade
the
Bloc
l'S 3
peer.
Expor-s
.-1
Including Albania. The value of exportsl has been reduced by the value of reexports to theWorld estinacedillion,illion, andillion, respectively. Heexperts are believed to have been negligible since then. (For cethodoicgy. see)
Table IS
Concsunist China: Trade with the Par Eastern Communist Countries a/
vt-ar
US S
a"! Based on miscellaneous and incomplete trace aata of the Far Eastern Communist countries and information on the extension andof Chinese credits and grants. In the absence of clearing account data, commercial trade is assumed to have been balancedexports and imports. China's aid deliveries were largelyon the assumptiontraight-line drawing of credits and grants.
-
/
19
Communist China: ith CubaC-5U
9?
89
a. Compiled from Chinese and Cubanuthipping costs (which the Cuban sources apparentlyhich are estimated atercent of the value of imports. Cuban trade with China9 is included in the trade ofFree World with China.
illion annually In addition to purchasesomestically produced gold, Chine during the wu far,:s estimated to haveillion worth of privately hell gold as well as foreign
a) Freight and Insurance on Internationalr.t: (Free World!
Estimates of China's payments for freight and insurance or. 1 shipments are based on the assumption that all the rooi; Free World trade are transported ir. Free World vessels and thai the purchaser pays the cost of the transportation either directly or China has practically no oceangoing fleet and must use Free World ships and the ships of other Communist countries. Shirr,nd financial data suggest that China's ruble payments to vessels of other Communist countries transporting imports fron the Free World are roughly equivalent to its Free World currency payments to Free World vessels transporting goods from the Eastern European Communist countries . of the high costs of land transport across the USSR,imited amount of China's Free World trade neves by land-
Freight and insurance costs are estimated by geographical areaonstant percentage of the value of China's imports from each area of the Free World. For Western Europe, Western Africa, and North and South America, these shipping costs are estimated atercent of. value of China's imports. For all other countries, shipping costs are estimatedercent of. The results of this simplified method of estimating shipping costs when used for the three-yearave been found to be roughly comparable to estimates
jfJFE-T
derived free actual freight ratesrade data expressed la physical volume tens.
b) Freight and lrsurar.ee on International Sbitaaents iCommur.ist Countries j
China, like all other Communist countries, uses its own companies to insure in ports free other Cccmunlst countries. Although China places some reinsurance vlth other Communist countries, freight costs probably account for almost all of the shipping expenses that require international payments. Because the USSR, North Korea, Korth Vietnam, and Mongolia have contiguous borders vlth China and because theirare. the border, freight costs on imports from these countries are negligible insofar as the balance of payments is cencern-d. Although China incurs some freight costs for ocean shipments fro- them, such costs probably ere offset by earnings froa these countries' goods transiting China. Thus the main freight costs paid to other Communist countries arc incurred in trade with the European Communist countries and,ith Cube.
Freight costs on Chinese imports froa the European Communistare largely incurred on rail shipments across the USSR. These costs are eetinated in In addition,hina's payments for freight costs on its seaborne imports from these countries (as calculated by applying freight rates to the estimated volune of cargo) were largely offset by earnings froa tht China-Polish Ship Brokers Company, Chipolbrok (as derived from Polish reports of ocean shipping operations and earnings). Because of the"sharp decline in China's trade with the European Communist countrieshlpolbrok'B ships -have increasingly participated ln Free World trade and therefore produced small (net) earnings
China's imports of sugar froa Cuba hove incurred relatively large freight payments. Because China has used Free World ships almostthese payments have been in Free World currencies. On the basis of average freight rates -for sugar exports to China and theof sugar imported annually by China as reported in Cuban export statistics, these freight payments arc estimated as follows:
fear
Metric Tons)
Average Freight Rate 2kJ
Freight Costs
lior. US S)
'
the USSR on Chinese account.
-
Communist China: Freight Costs on Overland reports fron the Eastern European Communist
a/
Coats =/
Metric Tons)
IS :T
l.
0
-
Derived
the value of China's trade with the
iurnpefer.
countries, taking into account seaborne shipments, the estimated commodity-mix of overland trade, and price- Calculated on the basis of an average rail freight rate of per metric ton for transporting manufactured goodsoughly approximate geographical center of Eastern0 kilometers vest Of the Soviet-Czechoslovak border) to the Sino-Soviet
Freight and Insurance on Coastal Shipments
Payments in clearing rubles and Free World foreign exchange for shipping costs in China's coastal trade are estimated by applying an appropriate freight rate to the volume of goods carried by ships of other Communist countries (nainly thend Free World ships in this trade. Estimates of these payments are presented in
a) Interest Payments (Free World)
Because of vide variations in payment terms, China's intereston its borrowings from the Free World have been calculated for each contract. In the case of complete plant purchases, interest costs have been calculated by applying an estimated interest rate to the
-
A I- 'I
f i
-
-
Cl
-
i:
a
=f
c.
. i
0
-
-
fit* i*
HOC
C V
2m%
t
r
-
IO> -7
o j ctu r.
fiffli cjc
c- * fuoti
C-I i'
5
nj; c
"
B C
O fc.
->
o j:
>
*
=
"DO.-" U
ai
s: o
il - Cl
a-j
->
-*l- ca -i
I- cf- O
.-
D *
- O
ti
O .
Si
CCOwgOiOI-Sl-
c
> j
o Cxjso
average value of credits outstanding at the beginning o: trie yearthe end of the year. Although Western lenders generally havethe interest rates on credits extended to the Chinese,known rates suggest an average annual interest rate of shout29/ For other purchases financed by credits,
interest probably is paid at the tine the credit is drawn. these interest costs are calculated by applying the above interest rate, in accordance with the payment terns of each contract, to the value of shipments reported by each exporting country. f interest, arising because of China's sizable advance paymentsU, have beer, deducted fron these interest costs. The value of such interest refunds is calculated on the assumption that cretsy-.ir.t; were made on the average four months prior to maturity.
b) Interest Payments (Communist Countries 1
For methodology and sources, seehj.
a) Other Payments and Receipts (Free a'prld)
Other noncommercial payments and receipts, such as profits from foreign investments and travel income and expenditures, arc- assumed to be relatively ssail and essentially in balance- China'sstmsr.ts abroad have been largely concentrated In Kongd in the owr.jrsr.irew branches of the Bank of China in other countries. Inhe Chinese Communists have owned or controlled about Iknd they have increased their investments in other er.ternri-es which now number betweenetail storesscellir.rtu; companies like the China Travel Service and thescurcesny. Scant information suggests that investments and therefore -srr.ir.rs ir. all firms, including the banks, have been quite small. trade earnings from Hong Kong.* For example, the profit of the rink of China office was less than Si million Anotherpeculates that profitsof whichart accrue to thef Communist-owned or controlled retail outlets in Hong Kong amounted to aboutillion Partly because China has consistentlyarge number of foreign diplomats end businessmen to visit the country at its expense, its foreign exchange outlays for travelropaganda probably greatly exceed receipts and essentially offsetincome -
Accordingew York Times article, China's investment income from Hong Kong has made substantial increases each year
* Although this Office estimated that China's nontrade earningsoverseas remittances) from Hong Kongearhese earnings probably included foreign exchange earnings from Chinese exports to other countries but remitted through Hong Kong's banking channels (see below).
The reports on which this estimate obviously is based provideon China's total foreign exchange receipts from Hong Kong.y subtracting from this total the Chinese exports to Hong Kong and overseas remittances, the residual receipts (arbitrarily assumed to be largely investment income) can be calculated at about $pO million3 end more0 million But annual incomellion, evenpercent return on investment, implies total investments0 millionan amount that appears to be greatly ir. excess of known Chinese Communist investments in Hong Kong. It 3eems more likely that these residual receipts may in large part rep-reseat export earnings channeled froa other countries through Hong Kong to China and that they may therefore already be included in the merchandise account. In any case, however, it is difficult to explain the sizable fluctuations which have occurred in these receipts
5 (b) Other Payments and Receipts (Communist Countries)
An analysis of China's international accounts with the USSRthat Chinaade sizable payments in addition to the specific payments which have been estimated on current and capital account. Although the USSR10 million in Chinese clearing debts accumulatedhis sun apparently did not -over China's cumulative clearing deficit with the USSR, which probably amounted4 million at the end hina had0 million on current account, comprising an export0 million (after excluding imports of sugar financed by long-term credits) and is estimated to haveillion of other,earnings. This was more than sufficient to cover thedebt repayment6 million dueI and suggests that the :iffereneeillionwas used tolearing deficit
. of0 million funded clearing
debt. Although the additional earningsillion could have been used to prepay its long-term indebtedness, China reportedly did not :er.re such prepayments until the following year. Thus the total lumui&tive indebtedness on China's clearing account with the USSR at the end0 would have amounted^ million. Met cumulative yiyer.ts to the USSR which have been specifically estimated, however, total onlyillion,2 million unaccounted for. It is lik*iy that this sum represented payments for technical assistance andnoncommercial payments rather than capital expenditures - i assistance payments would thus represent payments for thef Soviet technicians other than those associated withst-built industrial installations, which have been recorded in the merchandise account.
These unaccounted-for payments probably fluctuated roughly inIt r. to the volume of trade. Thushese (net)ld hive increased rapidly from perhapsillionear. During the first two years of the 'leapayments
nay haveeakillion annually. The Soviet withdrawal of technicians inrobably brought these payments to an end, so that for the whole0 payments are estimated to haveillion.
ecline in payments to the USSResult of the collapse of the "leap forward" and the intensification of the Sino-Soviet dispute, plus an increase ia transit receipts froa the USSR associated with the expansion of Soviet trade with Korth Koreaorth Vietnam, China'1 receipts fron the USSR probably exceeded paymentsI on. These additional receipts are estimatedinimusillion (proratedillion annually)I-6V esult, China's total receipts from the USSR during these four years are Just sufficient to cover che repayments on its long-term debt to the USSR.
In the case of the Eastern European Communist countries (excludinglmost all of the receipts and payments have been accounted for. he endk, China's estimated payments to these countries exceeded receipts by lessillion. This estimate is consistent with China's claim that Its foreign debts (apparently referring to tha clearing and long-tern debts with Communist countries) had been liquidated some time5 and with the few available statistics for trade between China and the Eastern European Communist countrieshichnail exportillion comparedillionith Poland after nine months
a) Overseasee World)
Although remittances to China from Chinese residing in foreign lands are inadequately reported, it is known that these transfers are almost entirely channeled through Hong Song. Hence the estimate of total overseas remittances that is derived froa Hong Kong banking data, sue-lamentsd by reports of foreign exchange received in connection with unilateral transfers in kind (see, is believed to coverall such transactions.
The value of remittances handled by Kong Kong banks is estimated on the basts of Bank of China remittance data reported annually and data on remittances handled by other Hong Kong banks For years otherhe share of the Sank of China in totalis assumed to be equal to its share
Beginningi, these traditional currency remittances wereby remittances in the Torn of fertilizer and food shipments. Ir. the case of fertiliser remittances, overseas Chinese have forwarded currency to the Sank of China in Hong Kong, which then arranged the delivery of fertiliserhe mainland recipient. The value of these remittances is available for every year. In the case of food shipments, which haveifferent pattern, the value of foreign currency earnings is not available. Consequently, foreign currency earnings from
Tabic 22
Communist China: Personal Remittances from Overseas Chinese
Miliion US S
Through the Bank of China in Hone Konn
Currency Remittances 2/
Remittances
Remittances from Overseas Chinese
3
...
"3
'.7
cy overseas Chinese through the Sank of Chinsercent of total currency remittances by over-
. This percentage was assumed tc hold true for other years as well and was used to estimate total currency remittances for those years.
e. Fertilizer remittances included in the totals are showns.
nti have been estimated on the basishe reported for-ei.s* currency earnings of China in Hong Kong net of trade earnings end othar overseas remittancesiscellaneous reports of customs and postage collections and food parcel purchases. These food shipments vere mainly cent by parcel post and have not beer, recorded ln Hong-.race statistics.
1 : (a) Financial Assistance for Covert Operations Abroad (Free World!
China's covert financial assistance abroad has been channeled ms.ir.ly to Southeast Asia and Japan, reflecting the traditional Chinese influence and interest in these areas. Covert activities in other
-
rfs-T
areas have increased with the Intensification of tht Sino-Soviet dispute, but assistance to then probably is still considerably leas thanil-lion annually.
Although such assistance generally hes been small, China Ir. some years has made sizable contributions to Communist elements in JaDan and Indonesia. hine reportedlypecial fund ofS5 million to finance subversive activities in Indonesia. 3Ji/ Chinese contributions to one Japanese organisation7 ware estimatedinimum5 Although other known contributions to Japanese organizations have been snail, total contributions to all such organizationsust have teen at leastillion. hina reportedly spent more thanillion to support the special astitrMty desonstrations in Japan. }jj
In addition, China has purchased large quantities of Southeast Asian currencies and US dollars ln the Hong Kong free market, apparently to finance insurgent movementsther covert activities in Southeast Asia tod other areas. Estimates of these currency purchases, which are rale by theang Bank, Hong Kong, are derived from reports of that bank's actual purchases and are supplemented by reoorts of financial transfers to it from the Hong Kong branch of the Sank of China. In view of the rather extensive reporting of these data, the total of the reportei transactions probably approximates the actual total value of these currency purchases 3ut, informationr* limited, and average annual currency purchases during this period ire estimated at aboutercent of the average annual purchases Estimates of currency purchases by theang Bank for covert iterationsillion, SIC millionmillionI; mil-ionillionillionV
a) Creditsrants Sxter.ied: "ravings (Jree World)
Isti-ates of drawing! are taken fromra'rflr.g3t, hovavar,r. reducedillion, whichunding5hinese clearing credit to Surma.
b) Credits and Grants -xter.ied: Prayings (Coaaunlst Countries)
Cravings by fill mil it countries against Chinese credits throughfairly reliably estimated from data on actual aid expenditures;that year, estimates of the drivings have been derivedreferences on aid and trade. China's budget reportsdrawings by alliesf drav-
: by Communist recipients was calculate! by subtracting fromtal the independently estimated drawings by Free "orld countries (seea)). The value of drawings9he summation of iitir.atej for each recipient Communist country, based on the reportedof credit extensions and related trade and eid data. Generally,
-
arir.ua! drawings are assumed to have seen equivalent to the value of the credit extension prorated over the effective period of the credit as announced- In the case of Cuba, China has agreed to fund the annual clearing credits. Thus drawings essentially represent the sura of China's expert surplus with Cuba plus shipping costs, of which all but an amount estimated atear have been paid for on Sino-Cuban clearings.
a) Credits and Grants Extended: Repayments (Free World)
Of credits extended by China to the Free World, only Indonesia has made repayments to date.
b) Credits and Grants Extended: Repayments (Communist Countries)
Hungary is the only Communist country known to have made repayments to China, and repayment terms have been reported for only one of the two credits that China extended to it On the assumption that the repayment terms of both credits are the same, Hungary would have been scheduled to make repayments in annuel installments of Because repayments of credits extended to Communistaily are not scheduled to begin until after drawings are ccr.tletei, credit repayments from other Communist countries are not yet
a) Credits Received: Drawings (Free World)
To finance many of its purchases of grain, fertilizer, andhe collapse of the "leap forward" movement, China obtained fron the "Free world special commercial credits with paymentoonths in the case of grain and fertilizer and upesrs ir. the case of machinery and equipment. The value of these credits has beer, calculated for each contract or transaction. Credits re reived cr. %Vii.r. purchases (estimated at0 million for the) are calculated by applying the stated credit terms per contract to the appropriate monthly or quarterly trade deta of eachcour.try. Fertilizer imports free Western Europe amountedctai ofillionnd probebly were financed in full cr. the basis of payments deferred for one year (with apparentlyxception, whichontract foronths). Japanese exporters of fertilizer provided limited creditshey5th of ammonium chloridemonth credit terms but exported lii million worth of urea on lSO-day credit terms. 3ecause less than h'Cf. rjr sS million worth, of the urea was exported in the first half of the yesr, net credits received against urea imports from Japanhe year amounted toillion. Other credits extended innclude the financing ofillion worth of Japanese agriculturalportcdmonth6 million worth, orercent,
vilj-panese steel products exportedear deferred -erms; and nearlyillion worth of 3ritish planes withscheduledears. everal credits were extended
million. Furthermore, Japan extended moreillion in short-term credits on its fertilizer exports to China'i.
b} Credits Received: Drawings (Communist Countries)
The USSR and some Eastern European Communist countries havecredits to China. Those extended by Eastern Europe werecredits, funded, for which no value has been reported. The total value of credits which China has received from the USSR is estimated to amount8 billion. Although these credits arein this report as part of China's "foreignhina apparently differentiates between short-term and intermediate-term commercial credits on the one hand and long-term developmental credits on the other. Thus when China speaks of its "foreign debt" it usually refers to the developmental credits receivedI. In their controversy with the USSR the Chinese refer to the so-called Korean War credits. China claims that the USSR is now demanding repayment of what were originally stipulated as grants. omparison of the respective credit information of China and the USSR suggests that these credits may total as much0 million, Ul/ but, insofar as can bethe imports which they financed have been excluded from China's trade data. (China's revision of its trade data in thes may reflect the expunging of the goods received under these grants from the trade data.) In view of the fairly complete budget and trade data, it is unlikely that other large credits existd above those reported.
hina had received4 million in Soviet long-term developmental credits. Although the Chinese reported that th? value of Soviet creditsillionillion at the exchange ratiouan it is likely that an additional creditillion was extended some timeyf This is suggested by Chinese budget data, which showedppeared tooreign loan repayment of this amounthis conclusion is further supported by an unofficial Soviethat total credits extended to China amounted4 billion. omparison of total repayments with total credits received (as reported by the Chinese) suggests either that this credit should be included or that China paid unrealistically high interest charges. According to budget data, no credits were drawn.
hina obtained two special interest-free credits from theR. The firstundinglearing debt0 million,by the end The secord credit covered Chinese imports of sugar from the USSR valued atillion In the Soviettrade statistics. The sugar loan was scheduled to be repaid in kindCC0ear454ear0
a) Credits Received: ee World)
According to all reports, China has made credit repayments either on schedule or in advance. Estimates of repayments, therefore, are based on the stated repayment terms of each contract, supplemented by the value of advance repayments. The value of the advance payments was reported 4 the value of these payments has been estimated on the assumption that most of the outstanding credits were prepaid by roughly three to 3ix months, as has been reported for the Australian credits
b) Credits Receives: Repayments (Communist Countries)
The Chinese have reported the total value of their debt repayments to che Communist countries, including interest charges. Chou En-lai stated that, of China's total foreign debt (principal plus interest) amountingillion,ercent had beer, repaid by the end4 and theillion was to be prepaid, apparently from1 expert Other Chinese reports indicate that the ir.tersst-free funded clearing debtI had been paid in full by the end The USSR has reportedons of sugar- as partial repayment of the sugar loan It is likely that0 tons were also en route to the USSR from Cuba one account, so thatillion of the sugar loanthef the first two scheduled annual paymentswould have hear, rapaic by the end Thus debt repayments8f2 million were payments against the principal.
This sum of debt repayments closely approximates the cumulative total of annual repayments derived from budget and trede data. y-.er.tsave been previously estimated on the basis of "hir.ssc budget For the earlierepayments were assumed to have represented interest charges only and vers calculated atercent of outstanding credits at the end cf ths preceding year pluspercent of drawings during the year. The vslite of the repayment2 was calculatedil-lion ir. interest in addition to theillion/rcjt payments' are calculated to have beenf outstanding credits and, beginningercent of outstanding credits (excluding the interest-free creditspcl). Thus total interest paymentsoountedillion. The debt repayment1 was assumed to have been slightly greater thann line with the gradual increase ins in the preceding five years. But for the following years,-repayments becane commonplace, debt repayments probably rose
* -toiujcillion prepayment of the foreign debt scheduledJ5 tame fret4 export surplus, it has been consideredayment
-tmfk-t
sharply in value and were in fact equal to China's export surplus with the USSR plus other net receipts. The value of the debt repayment0 millionis calculated as the difference between the reported total of debt repayments8 millionand thetotal of the estimated annual repayments8 million.
b) Transfer of Soviet-Owned Assets in China (Communist Countries)
5 the USSR transferred to China its assets in the Fort Arthur-Dairen area and in the Sino-Soviet Joint stock companies andredit, probably of equal value, to facilitate China's payment for them. The value of this credit, and therefore of China's purchases of foreign-owned assets, has been derived from China's reported totaless the estimated value of drawings against other Soviet credits. The value of these other drawings5 is calculatedillion on the following assumptions: (l) these drawings were0 million Soviet credit extended in4 credit was fully drawnrawings for the final two or three months4 amountedillion,he total reported credit drawingsillion67 5g/ represented drawings under4 Soviet credit. Inasmuch as credit drawings, according to budget data, totaled5 millionhe value of China's purchases of Soviet-owned assets (by subtraction) amounted0 million.
Itema) Changes in Clearing Account 3alances with theWorld
Estimates of changes in clearing account balances are basedariety of sources which provide information for most countries havingarrangements with China, including nearly all of the countries (Cambodia and Morocco excluded) that carryizable trade with China.ountries for which no information is available probably accumulate crly relatively small clearing imbalances, which may to some extent be offsetting. Countries for which clearing balances have been estimated are Surma, Ceylon, Finland, Ghana, Indonesia, Iraq, Syria, and the United Arab Republic Estimates of China's clearing balances with these countries are derived from trade data, actual clearing balance records, and reports of foreign exchange payments either through or outside the
- - our... rcr.cile trade vi.tr5 for some ?dur.-tries requires the assumption that the difference between the trade -'d clearing imbalances represents foreign exchange payments, although few such exchange payments have been reported.
1 (a) and (b) Convertible Currency Transactions with Communist
Countries
Istimates of convertible currency payments by Communist China to other Communist countries have been derivedolish report of a
-
Chinese convertible currency payment ofillion for Polish exports of iron ana steel products to Chinahe Chinese - credit extension to Hungaryillion in convertible currencyand numerous references to Chinese convertible currency payments for other commodity purchases and shipping services. (Convertible currency payments for freight costs on Cuban sugar shipments to China areinb)). hina sold silver to the USSR for convertible currencies amounting toillion. In recent years, China has also received some convertible currencies forshipping services, including an amount estimated atear from Cuba1 (secb)).
2 (a) and (b) Ruble Receipts from the Free World
urma settled its clearing indebtedness with China by transferring partlearing credit with the USSR to China's account with the Under this trilateral arrangement, Burma credited it3 clearing account with the USSR and debited its clearing account with China. China, in turn, debited its clearing account with the USSR and thuslaim against Soviet goods in place of an equivalent claim against Burmese goods.
Expropriation of Convertible Currencies
Because China's foreign exchange reserves were estimated to have increased from practically nothing to aboutillion0 5o/ at the same time that net earnings on international account probably were negligible (remittance receipts from overseas Chinese were essentially offset by an import surplus with the Freehe entire amount0 million has been assumed to be convertibleabsorbed from the private sector. Although this sum would have ;'ust covered the estimated deficit1 in its Free World accounts, China would havearger working balance of foreign exchange, which it may have obtained by collecting an0 -illion from the private sector It is known that in thesr.ists absorbed large quantities of Hong Kong dollars and other convertible currency which had beer, extensively used for many years by the native population in preference to the inflated domestic currency. In addition, during the course of the wu fan -ovsmenthina is estimated to have0 million in gold and other foreign exchange privately As goldreportedlyillion, the balance5 nil-lion vould represent convertible currency expropriations.
Iter, ij . Changes ia Holdings of Monetary Gold
For an explanation of the balance-of-payments concept and anof the amount of gold ourchased from the domestic sector, see Iter. 2.
China hss exported small amounts of gold, mainlynd Tn thes the government sopped up private holdings of gold, some of which were probably surreptitiously sold in Hong One report indicated that China sold aboutillion of gold in The relative scarcity of other reports of gold sales in contrast to the large number of similar reports of silver sales suggests that China sold little gold, possibly no more' million, to the Free World in thes. China's entire gold production, estimated to amountillion,was exported to the USSR. hina was again short of foreign exchange andillion of gold, which was sold by the USSR on China's behalf for convertibleegligible amount of gold was also sold by China to the United KingdomI.hina purchased5 million worth of gold; for the implications of this gold buying, see the text.)
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