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Eighty percent of China's energy is produced from coal, and coal reserves are estimated to be one-third of the world's total. Every prove ince has some coal. Like oil, coal remains largely unexploited and could eventually become a major export earner.

UNITED STATES-CHINA TRADE

As for U.S.-China trade, no direct commerce existed between the two countries prior to President Nixon's 1972 trip to Peking and for many years, U.S. policies sought to impose even a secondary boycott on such trade. The Shanghai Communique reversed this situation in these words:

Both sides view bilateral trade as another area from which mutual benefit can be derived, and agreed that economic relations based on equality and mutual benefit are in the interest of the peoples of the two countries. They agreed to facilitate the progres

sive development of trade between their two countries. With the opening of the door, a total trade of $96 million was realized in 1972, $64 million being U.S. exports to China. In 1973 U.S. exports totaled $740 million, primarily agricultural commodities, and imports from China were $64 million. It is estimated that 1974 trade totaled $930 million, comprised of $810 million in U.S. exports and $120 million in imports, with this nation second only to Japan in volume of trade with China.1

Although the 7 to 1 balance in the U.S. favor may drop to about 3 to 1, along with a decline in total trade in 1975, the ratio would still not provide a sound basis for mutually beneficial trade. The Chinese take the view that “the imbalance is understandable in the short run, but, in the long run, it won't do.” Imports from China are likely to increase from the current level but the principal items will continue to be such economically vulnerable consumer items as fabrics, bristles and works of art and crafts. A Chinese commercial delegation will visit the United States later this year to study prospects for expanding exports to this country. Many U.S. businessmen now attend the semiannual Kuang-chou (Canton) trade fairs, 350 in the fall of 1974. Appropriately, the U.S. contingent was second in numbers only to Japan's.

There have been problems in connection with U.S. exports to China, particularly in agricultural commodities. The Chinese have complained about the presence in U.S. wheat shipments of a fungus known as TCK wheat smut. Complaints have also been registered about the quality of corn and soybeans.

Unless new trade arrangements, such as the sale of advanced U.S. technological equipment for Chinese petroleum can be arranged, there is likely to be a major reduction in U.S.-China trade after 1975. If trade shrinks as anticipated, it will not be the result of a political decision by the Chinese. In part, it will result from the inability of the United States to absorb a larger volume of Chinese exports. It should be noted that the United States is not a traditional supplier of agricultural products to China and the great bulk of U.S. sales to China in the past two years has been of these commodities. Canada and Australia are apparently better able to fill this role and, in any event,

1 For further details see tables in appendix D.

China's own agricultural production is increasing rapidly. There are indications that the Chinese will discontinue purchases of U.S. grain after 1975.

China's exports to the United States have not received mostfavored-nation tariff treatment, a situation which aggravates to some degree the imbalance in trade. Chinese exports of toys, for example, have been subject to duties at a rate of 70 percent compared with 10.5 percent for most other nations; carpets 45 percent compared with 15 percent. The precise effect that most-favored-nation treatment would have on our trade with China is uncertain. Clearly, it will have very little impact on an imbalance of the current magnitude. The practical aspects, however, are not as important as the principle involved. Our policies in the 1950's acted to turn trade into a political instrument. In the process various laws were enacted to block and discriminate against trade with the People's Republic. Congress has now given the President authority to negotiate agreements to end this discrimination. Most-favored-nation tariff treatment is not a special favor; it has been a standard U.S. trading practice since the earliest days of the Republic. Failure to return to it at this time, whatever its economic effect, would amount to the continuance of a superfluous political irritant in Sino-U.S. relations.

The Jackson Amendment, relative to freedom of emigration, would appear to have little relevance to the Chinese-U.S. rapprochement. There is a considerable movement of people back and forth between the People's Republic and Hong Kong and then outward migration from the latter. China and Canada have reached an agreement which allows Chinese to join members of their families living in Canada and the possibility exists for a similar arrangement with the United States.

As for the question of frozen assets and blocked claims, there are private American claims against the People's Republic of about $197 million for property losses on the Mainland. Conversely, the Chinese claim that about $80 million in assets have been frozen in the United States since 1950. While this issue remains unresolved, it could constitute a substantial barrier to further normalization of economic relations. It precludes, for instance, direct banking and shipping relations and scheduled air service in the United States by China's airline, since Chinese property even temporarily in the United States could be subject to private legal attachment. Nevertheless, it should be noted that the Chinese do not appear overly concerned and are not now pressing for a quick solution. .

EXCHANGES

Since the breaking of the logjam in U.S.-China relations, educational and cultural exchanges have become a major factor in reestablishing the ties between the American and the Chinese people. On this point, the Shanghai Communique stated:

The two sides agreed that it is desirable to broaden the understanding between the two peoples. To this end, they discussed specific areas in such fields as science, technology, culture, sports, and journalism, in which people-to-people contacts and exchanges would be mutually beneficial. Each side undertakes to facilitato

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the further development of such contacts and exchanges. A total of some 8,000 Americans have visited China since 1972, most of them of Chinese descent.1 The United States has sent to China under

exchange arrangements specialists ranging from basketball teams. to University presidents, a total of twenty delegations in all from 1972–1974. Chinese groups visiting this nation have included the Shengyang acrobatic troupe, journalists, agronomists and physicians. These exchanges have made a significant contribution to better understanding and improved relations between the two countries. China appears satisfied with the level and scope of the exchanges at the present time but has not ruled out an expansion “if in accord with the requirements of each side ..."

As for tourism, at this point the demand is entirely one-sided. The Chinese Embassy in Ottawa and the Liaison Office in Washington have been flooded with applications for visits to China and, as indicated, only a very small number, primarily Americans of Chinese ancestry have received visas. There have also been some private visits by a variety of Americans-journalists, scientists, businessmen, educators and others. However, China shows no interest in tourism as a possible source of foreign exchange earnings. The only large group of Americans who have visited China in the category of tourists were those travelling to Kuang-chou (Canton), last Spring on the liners "France" and "Veendam," which stopped in Hong Kong for that purpose. China has very limited facilities such as hotels, interpreting services, automobile transportation, and other essentials of the tourist trade. While additional hotel space is being widely constructed, the expansion is primarily for handling Chinese travelers and foreigners who come to China for official or semi-official purposes. There is little indication that China is interested in tourism as a source of foreign exchange.

On two issues related to exchanges, the Chinese rule out visits by high-level Chinese officials to the United States and the establishment of permanent press offices because of the Taiwan problem. It was pointed out that there would be difficulties in sending over high-level officials because of the presence in Washington of the Ambassador from Taiwan." The Chinese also say that the presence of accredited news representatives from Taiwan in Washington makes it impossible for the New China News Agency to have newsmen permanently assigned here. When asked about this kind of conflict in press representation at the U.N., the Foreign Minister said that China's press mission had taken the matter up with Secretary General Waldheim and the Taiwan Chinese "press was put out.”

Cited as an example of how the Taiwan problem arises to inhibit the unfolding of U.S.-China relations was the controversy concerning the planned press preview of the Chinese Archeological Exhibition at the National Gallery of Art in Washington. “This,” it was pointed

1 One of these visitors was President Ford who, as House Minority Leader, went to China in 1972.

2 Lists of specialists from both countries and of the U.S. Members of Congress who have visited China under bilateral arrangements are shown in appendixes E and F.

out, “is only a small example. Until the Taiwan question is resolved, these issues will always crop up.” 1

SUMMARY

There has been progress since the Shanghai Communique in restoring ties between the Chinese people and people of this nation. We now communicate with each other officially through our respective Liaison Offices. The mutual learning process has begun anew with Americans visiting China to look, learn, and share their knowledge and Americans welcoming Chinese delegations of athletes, entertainers, scientists, and others. In a period of only three years, the United States has become China's second largest trading partner, although the trade is grossly imbalanced in terms of an excess of U.S. exports over imports.

The United States is no longer involved in fighting on the Asian mainland and other sources of frictions with China throughout the Pacific appear to have been eased. Small, but symbolic, steps in the direction of rapprochement have been taken, such as the repeal of the Formosa Resolution by the Congress.

These steps have led to a plateau where we are now confronted with a last major hurdle to normalization, that is, the question of Taiwan. The Chinese view on both sides is that Taiwan is an integral part of China. That view is recognized by U.S. policy as expressed in the Shanghai communique. On that basis, the Chinese contend that the presence of U.S. military forces on Taiwan and U.S. defense and diplomatic arrangements with the Chinese authorities on the island is an unwarranted interference in Chinese internal affairs. We have not challenged that contention. As a matter of official policy, we have temporized. We have yet to face the Taiwan issue, but if full normalization is to return in Sino-U.S. relations, as it has in the relations of a hundred other nations with China, this issue will have to be met. As it is now, our official relations with the nation containing one-quarter of the world's people, are conducted by means of Liaison Offices in the two countries. They add up to something less than our formal relationship with a small country in Eastern Europe.

III. China's Foreign Policy The half-way house at which the Sino-U.S. rapprochment has stopped makes it difficult to relate the policies of the two countries at other points where they intersect, notably in the Western Pacific. In this connection, I made every effort to clarify my understanding of Chinese foreign policies especially with regard to other Asian nations.

JAPAN

Though there are great disparities in their economic situations, deep differences in socio-political systems and variances in attitudes toward

1 At the request of the National League or Famllies of American Prisoners and Missing in Southeast Asia, I raised one other point with Chinese officials. Called to their attention was the absence of information on Lt. Joseph P. Dunn, Petty Officer Reuben B. Harris, and Petty Officer Kenneth W. Pugh, who according to a League representative, were shot down near the Chinese border during the Vietnam war. I asked, as well, for China's assist. ance wherever possible in obtaining an accounting for missing Americans in that war. The Chinese were prepared to carry out an investigation if they were thought to be in China, “but if they are in North Vietnam or Laos this is not in the scope of our country, we cannot do anything."

certain international questions, Sino-Japanese relations have markedly improved since mid-1972. Despite memories of Japan's military and political role in China in the first half of this century, there appear to be no issues on a bilateral level which interfere with the development of normal relations between the two countries. The problem of Taiwan, for example, where Japanese economic interests are very extensive has been resolved as noted below in a manner acceptable to both. The Nixon initiative in opening the door to U.S.-China contact precipitated the visit to China in September 1972 of the Japanese Prime Minister, Kakuei Tanaka. There followed, promptly, the establishment of diplomatic ties between the two countries. In this connection, both governments made significant concessions. The Japanese recognized the People's Republic as the sole legitimate government of China and stated that it "fully understood” China's position that Taiwan was an inseparable part of the People's Republic of China. Whereupon the Japanese broke relations with Taiwan but have continued to trade and to maintain contact through an unofficial organization on that island. Subsequently, the Japanese signed several agreements with the Chinese, including an air transport agreement in April 1974.1 For its part, the People's Republic of China did not raise the question of reparations with Japan and has placed no obstacles in the way of continued Japanese trade with Taiwan where Japan has substantial investments.

The total trade between Japan and China reached approximately $2 billion in 1973.2 China is increasing its level of exports of petroleum to Japan. While the 5 million tons exported in 1974 will fill only a small part of Japan's needs, exports of crude are due to be increased over the next few years. How far they can go in meeting a significant portion of Japan's requirements is problematical. Whatever the size, however, they should prove to be an important earner of exchange for China, and, hence, a lubricant in the expansion of Sino-Japanese trade.

The current Chinese view of Soviet military concentrations along the border areas of Northeast China is that they are aimed primarily at U.S. forces in and around Japan and secondarily at China and Japan. Although the Chinese are basically opposed to the stationing of foreign troops in other countries, under present circumstances and conditions, the issue of the continued U.S. military presence in Japan is not being pressed. On the contrary, it is suggested that Japan and the United States should maintain close relations.

INDOCHINA

China remains critical of aspects of U.S. policy in Indochina, notwithstanding the termination of the direct military involvement in

1 The air transport agreement has been & source of some difficulty for Japan which acceded to the Chinese request that China Airlines from Taiwan not be considered as a carrier representing a state and that the flag marks of the aircraft belonging_to Taiwan not be recognized as representing a national flag. Japan's action caused the Talwan authorities to halt flights between Japan and Taiwan by both Japan Air Lines and their own China Airlines.

2 Recently, however, China asked Japanese suppliers for a delay in the delivery of 160,000 tons of urea fertilizer and 60,000 tons of ammonium sulphate which had been scheduled for November and December 1974. Additionally, China is reported to have asked a delay in payments for six months on a steel purchase from Japan which was to be delivered in the same period. These actions are in line with China's basic and long-standing foreign trade policy of attempting to keep some balance between purchases and sales.

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