II. Trends in PRC Foreign Trade 618 III. Commodity Composition of PRC Foreign Trade- 621 628 V. United States-PRC Trade.... VI. The Outlook for PRC Trade Growth__ 635 641 TABLES 1. PRC Trade with Major Partners, Selected Years.. 2. Normalized and Actual PRC Exports to the United States, 1971-74. A. Statistical Tables: 631 637 638 APPENDIXES 648 649 A.4 PRC Grain Imports, 1961-74.. A.5 PRC Trade with Other Socialist Countries, 1950-74. B. Methodology and Data Used in Estimating Normalized Flows of United I. INTRODUCTION 651 In quantitative terms the People's Republic of China (PRC), despite its large size, is not a major trading nation. Chinese exports never exceeded 2 percent of world exports. The ratio of total trade to China's gross national product is about 5 to 6 percent. In terms of trade per head of population, the value for China is some $14, one of the lowest in the world for any major nation. In spite of the smallness of its value, foreign trade is an important policy instrument used by the PRC for the pursuit of her overall political and economic goals. Being a state monopoly within the Chinese command economy, foreign trade has become a significant ingredient in China's development program to transform itself into a modern industrial state. Specifically, foreign trade in China has played the following roles. Foreign trade has constituted for China an important means of facilitating and accelerating modernization. China does not have all the facilities to produce the wide variety of machinery and equipment needed for modernization. Some industrial materials were either not available in China, or available only in insufficient quantities. Foreign trade helps provide the necessary capital goods. Imports of these *I am grateful to R. E. Batsavage, David Denny, and Helen Raffel for reading the manuscript and making valuable suggestions for improvement. 51-174 O-75-40 goods, moreover, have given China an important channel of access to modern technological know-how. The importation of specialized machineries and complete plants, some of them installed by foreign technicians, accelerate the process of technological diffusion. Foreign trade has also provided a means of compensating for shortfalls in domestic production. The importation of agricultural products from the West since 1961 is a case in point. In addition to economic considerations, the conduct of foreign trade in the PRC has been influenced by political and ideological factors.1 Many examples can be cited, the most notable one being the "lean-to-one-side" policy of the 1950's and the subsequent decline of Chinese trade with the Soviet Union and Eastern Europe following the Sino-Soviet rift. This paper presents a general survey of the trend, commodity composition, and direction of PRC foreign trade in the past quarter century with an emphasis on recent years. One major development in recent PRC trade has been the resumption of commercial relations with the United States in 1971 and a rapid expansion of bilateral trade in subsequent years. United States-PRC trade, therefore, will be treated in some length. Finally, the prospect for the expansion of PRC trade in general, and with the United States in particular, will be discussed through an examination of PRC economic and trade policies and its specific policy toward imported technology and equipment. II. TRENDS IN PRC FOREIGN TRADE Foreign trade data from Chinese sources are scanty. Only a small number of figures of an aggregate nature were published in the 1950's, and a few more, mostly percentages, in the early 1970's. Estimates of PRC foreign trade, therefore, will have to be made from its trading partners' statistics. Several estimates are available. This paper is based on a U.S. government estimate; its earlier series appeared in two previous volumes on the PRC economy submitted to the Joint Economic Committee in 1967 and 1972, respectively.3 This estimate, like other independent estimates, provides data only in current dollars. Since these data include price fluctuations, they do not reflect truly trends and changes in commodity composition and geographic direction. The problem becomes especially serious for the data estimated for the early 1970's due to revaluation of world currencies and worldwide inflation. Without appropriate adjustments the data would overstate greatly the year-to-year growth since 1970. It would be ideal if the whole analysis could be based on detailed data 1 Chinese economic planners in making a decision must consider not only both immediate and long-term economic advantages to be derived from it, but also its political and ideological impacts. In dealing with trade matters, however, they tend to become flexible and pragmatic. In some cases where economic advantages are of overriding importance, political and ideological considerations are waived and the Chinese show no hesitation in coming to terms with realities. 2 See Robert F. Dernberger, "Prospects for Trade between China and the United States," in Alexander Eckstein (ed.), China Trade Prospects and U.S. Policy, New York: Praeger Publishers, 1971: Alexander Eckstein, Communist China's Economic Growth and Foreign Trade, New York: McGraw-Hill Book Co., 1966; and Feng-hwa Mah, The Foreign Trade of Mainland China, Chicago and New York: Aldine-Atherton, 1971. There are discrepancies among various independent estimates stemming from differences in sources, in coverage and in handling of such problems as double counting, valuation, currency conversion ratios, and c.i.f. adjustments. 3 Robert L. Price, "International Trade of Communist China, 1950-65." in U.S. Joint Economic Committee. An Economic Profile of Mainland China, Washington. D.C. U.S. Government Printing Office, 1967; and A. H. Usack and R. E. Batsavage, "The International Trade of the People's Republic of China," in U.S. Joint Economic Committee. People's Republic of China: An Economic Assessment, Washington, D.C.: U.S. Government Printing Office, 1972. valued in constant prices. In the absence of su h data, we use mainly the deflator series estimated by Alexander Eckstein to derive total export and import series in constant prices to show trends in real tems while data on commodity and country breakdowns remain to be expressed in current dollars.* Data on total turnover, exports, and imports for 1950 to 1974, valued in both current and constant dollars, are provided in appendix table A.1. Chinese economic development since the founding of the People's Republic has been characterized by fluctuations in domestic economic activity. These fluctuations were in general reflected in the foreign trade sector. In dollar terms, trade expanded steadily from 1950 through 1959 except for 1952 and 1957, in which volume fell slightly mainly due to a decline in imports. The "Five Antis" campaign, which interrupted economic recovery, and the Western embargo on strategic materials may have accounted for the decline in 1952. Överinvestment in 1956 and shortages of agricultural products were probably the most important causes of import curtailment in 1957. In 1958, the year of the Great Leap Forward, the volume of foreign trade rose sharply. This reflected a large increase in import demand for capital goods to support the Great Leap programs and a substantial rise in agricultural output, thus permitting exportation of more 4 The use of current-value data has less serious effects on changes in the commodity composition and geographic direction, both of which are shown in terms of percentage distribution, than on year-to-year increases in trade totals. Take the share of machinery and equipment in total imports in recent years as an illustration. The following table shows the real value in terms of 1957 dollars as a percentage of the current value for total imports and for machinery and equipment imports during 1969-73. The magnitudes of the effect of price changes on both are not appreciably different for 1969 through 1972. For these years, therefore, the use of current-value data does not appear to alter significantly the true share of machinery and equipment in total imports by the PRC. For 1973, however, the effect of inflation and currency revaluations appears to have been significantly greater on total imports than on machinery and equipment imports. The share computed from the current-value data tends to understate the relative importance of machinery and equipment in total imports in 1973, and overstate that of those commodities, the prices of which went up more than the average in that year. THE RATIO OF IMPORTS IN 1957 PRICES TO IMPORTS IN CURRENT PRICES IN Total imports-Appendix table A.1. Total imports in 1963 prices were converted to those in 1957 prices on the basis of Eckstein's import deflator series. Machinery and equipment imports-Central Intelligence Agency, "People's Republic of China: Foreign Trade in Machinery and Transportation Equipment Since 1952," Washington, D.C., January 1975. 5 For a discussion of changes in the level of domestic economic activity, see Arthur G. Ashbrook, Jr., "China: Economic Policy and Economic Results, 1949-71," in U.S. Joint Economic Committee, People's Republic of China: An Economic Assessment, 1972, pp. 3-51; and "China: Economic Overview, 1975," in this volume. For a discussion of the close relationship between trends in China's foreign trade and the levels of its domestic output, see Alexander Eckstein, "China's Economic Growth and Foreign Trade," United States-China Business Review, vol. 1, No. 4, July-August 1974, pp. 15-20. agricultural commodities. Trade volume reached a peak in 1959. Between 1952 and 1959, real trade volume rose at an average annual rate of 13.6 percent, outpacing the growth rate of gross national product." During the period 1960-62, the foreign trade data show a declining trend, reflecting the economic crisis which followed the Great Leap and the deterioration of Sino-Soviet relations. By 1962 trade volume appears to have declined to less than two-thirds of the 1959 peak level. Post-Leap economic recovery was accompanied by a gradual revival of foreign trade during 1963–66. However, 1966 trade volume was still below the previous peak. Foreign trade declined again though mildly in 1967 and 1968 under the impact of the Cultural Revolution. In these years the fall in industrial production, delays in transport, purges of those officials in charge of central economic planning and foreign trade, and Red Guard rampages against foreign embassies affected trade adversely. When the economy began to recover with the conclusion of the Cultural Revolution in the latter half of 1969, both exports and imports in dollar terms began to turn back upward while real imports continued to decline. Between 1959 and 1969, the combined volume of exports and imports declined by 10 percent in dollar value and 18 percent in real value in contrast to a rise in gross national product. 9 Trends in PRC foreign trade since 1970 seem to have been more of a continuation from those of the 1950's than from those of the 1960's. Both exports and imports have risen rapidly following the recovery from the disruptions caused by the Cultural Revolution. Machinery and equipment imports increased markedly in the early 1970's to meet the requirements for industrial expansion called forth in the Fourth Five-Year Plan (1971-75). Substantial increase in agricultural purchases also contributed to a rise in total imports in 1972 and 1973. Foreign trade was facilitated by China's more open posture toward the West following the ping pong diplomacy in the spring of 1971. Between 1970 and 1973 total trade once again rose faster than gross national product. Trade turnover in 1974 grew 39 percent in dollar value, but only 3 percent in real value. China's export expansion efforts in the past year encountered some difficulties caused by the worldwide recession and, perhaps to a lesser extent, by congestion in Chinese ports which led to delays in exports. At the same time, China's capacity to import large quantities of agricultural products and of machinery and equipment may have reached a plateau in 1974 since these massive imports, coupled with a slowdown in exports, probably resulted in a foreign exchange shortage. In an effort to reduce trade deficits for 1974, some imports were cut back during the final quarter of the year. Successive good harvests in 1973 and 1974 also permitted China to cancel or delay the importation of certain agricultural products scheduled for 1974. 7 Between 1952 and 1959, China's gross national product in real terms rose at an average annual rate of nearly 8 percent according to Eckstein's estimate, or 6.6 percent according to Ashbrook's estimate. (Ibid. ; and Ashbrook, op cit.) Between 1959 and 1969, gross national product in constant dollars rose by 40 percent according to Eckstein's estimate, or 20 percent according to Ashbrook's estimate. Eckstein (1974). op cit; and Ashbrook (1972), op cit.) 9 Between 1970 and 1973, real trade grew by 53 percent compared to an increase of 21 percent in real gross national product. III. COMMODITY COMPOSITION OF FRC FOREIGN TRADE The impact of domestic economic development upon the pattern of China's foreign trade becomes more evident when changes in the commodity composition of Chinese imports and exports are examined. The problem has been studied in some detail for the years prior to the mid-1960's by a number of specialists, notably, Eckstein, Dernberger, and Mah.10 In appendix tables A-2 and A-3, data are provided on the commodity composition of PRC imports and exports, respectively, for 1966 through 1973. These data and the findings for earlier years of other studies serve the basis for the following discussion. 1. Imports With respect to the commodity composition of Chinese imports, significant shifts took place in five major categories: (a) machinery and equipment; (b) metal and metal products; (c) mineral fuels; (d) chemicals; and (e) foodgrains. 11 A. MACHINERY AND EQUIPMENT The process of economic development in the PRC is clearly reflected in imports of machinery and equipment, which depend mainly on the level of domestic investment. In the early 1930's during which the ratio of gross investment to gross domestic product in China was 7.5 percent, machinery and equipment imports accounted for only 5 to 7 percent of total imports.12 During the industrialization drive of the mid-1950's in which the ratio of gross capital formation to gross domestic product amounted to 24 percent,13 the share of machinery and equipment in total imports became 20 percent in 1952, and rose to over 40 percent in 1957.14 The share reached a peak of nearly 48 percent in 1959 as the Great Leap programs led to a marked acceleration of investment in fixed capital.15 With the collapse of the Great Leap movement and the abrupt ending of Soviet economic assistance, imports of machinery and equipment dwindled to a low of about 10 percent of total imports in 1962.16 The share recovered gradually to 22 percent in 1966 owing to a steady recovery in investment and in the levels of economic activity as a whole. Thereafter, the share again declined for 3 successive years to 13 percent in 1969 as a consequence of the Cultural Revolution, to recover to an average of close to 20 percent in the early 1970's. In the last few years imports of machinery and equipment rose substantially. In dollar terms, they amounted to $855 million in 1973 and reached $1.7 billion in 1974, exceeding the 1959 peak level of $980 million by a considerable margin. In real terms, however, 1974 imports 10 For their estimates of the commodity composition of PRC imports and exports, see Eckstein (1966), op. cit.; Dernberger, op. cit.; and Mah, op. cit. 11 K. C. Yeh, "Capital Formation," in Alexander Eckstein, Ta-Chung Liu, and Walter Galenson (eds.) Economic Trends in Communist China, Chicago: Aldine Publishing Co., 1968. p. 511. 12 Calculated from the data given in Dernberger, op. cit., p. 213. 13 K. C. Yeh, op. cit. 14 Central Intelligence Agency, People's Republic of China: Foreign Trade in Machinery and Transport Equipment Since 1952, Washington, D.C., January 1975. 15 Robert L. Price, op. cit., p. 586. 16 Ibid. |