Balance of Trade The large Japanese surpluses in trade with China appear to be diminishing. 1973 trade showed a rough balance, and some Japanese observers believe that the trade balance night shift in China's favor in a few years. Given the Chinese leadership's penchant for balancing its trade on a bilateral basis, the new trend augurs well for a further expansion of trade. Economic Complementarity The complementary structures of the Chinese and Japanese economies offer a great potential for mutually beneficial trade. The Japanese attach particular significance to the fact that commercial exchanges are taking place in a wide range of economic activities. Most major Japanese firms are becoming involved in the China trade. Prices Disagreements over prices for manufactured goods and raw materials have tended to impede the expansion of commercial relations. While this problem is not unique to Sino-Japanese trade, Japanese businessmen have expressed particular concern about its effect on their trade with China. Taiwan While the normalization of Sino-Japanese relations provides a political basis for expanded commercial relations, the issue of Japanese relations with Taiwan will have an important bearing. Japan's diplomatic relations with Taiwan were severed in September 1972, while commercial relations continued. The important issue in the future is not Japan's commercial relations with Taiwan, which the PRC condones, but the Japanese Government's political relations with Taiwan. Even in the absence of formal diplomatic relations, there is a range of policies and actions that the Japanese Government may follow in deference to the Government of Taiwan that might impede further improvement in relations between Japan and the PRC. For example, great political significance was attached to Japanese Foreign Minister Masayoshi Ohira's announcement that the Nationalist Chinese flag emblem on Taiwan's China Airlines planes would no longer be considered as a "national flag." While the Japanese Government is unlikely to reverse this position, it could move toward an agreement to reestablish civil aviation ties to Taiwan, a move which seems certain to antagonize the PRC leadership. In general, any initiative by the Japanese Government that might be construed as supportive of Nationalist Chinese sovereignty will have a negative effect on Japanese-PRC commerical relations. The factional composition of the Japanese Liberal Democratic Party will be a key determinant of foreign policy initiatives toward Taiwan and the PRC. To the extent that the pro-Taiwan forces in the ruling party and in other politically significant groups are successful in improving Japanese-Taiwan political relations, Japan's commercial relations with the PRC might be adversely affected. Thus, despite the rupture of her diplomatic relations with Taiwan, the socalled Taiwan issue will continue to affect Japan's relations with Peking. REFERENCES 1. Nitchu Keizai Kyokai (Japan-China Economic Association). Chugoku no Boeki Kozo (The Trade Structure of China), 1974. 2. 3. Chugoku no Sangyo Kozo (The Industrial Structure of China), 1974. Chugoku Keizai no Doko to Tembo (The Trends and Prospects of Chinese Economy), 1974. 4. Nitchu Keizai Koryu no Rinen (The Ideology of Japan-China Economic Interchange), 1974. 5. - Nitchu Keizai Koryu no Genjo to Tembo (The Present State and Prospects of Japan-China Economic Interchange), 1974. 6. Chugoku Nogyo no Kiso Jijo (The Basic Conditions of Chinese Agriculture), 1974. 7. Chogoku no Kogyoka Seisaku no Gendankai ni okery Tokucho to Mondaiten (The Characteristics and Problems at the Current Stage of China's Industrialization Policy), 1973. 8.-- Keizai Kensetsu ni kansuru Saikin no Juyo Ronsetsu (Recent Major Articles on Economic Construction), 1974. 9. Hochu Keizaijin no tameno Sanko Shiryo (Reference Materials for Business Visiting China), 1974. 10. Chugoku Soran Heushu Iinkai, Editorial Committee of China Survey). Chugoku Soran: 1975 (China Survey: 1975), 1974. 11. Chugoku Keizai Kenkyu Geppo (Monthly Studies on Chinese Economy), November 1973; August, September, November 1974. 12. Nihon Boeki Shinkokai (JETRO). Seio Shokoku no Taichu Puranto Yushutsu (Plant Exports of West European Countries to China), 1974. 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 APPENDIXES 1. PRC Trade with Major Partners, Selected Years.. 2. Normalized and Actual PRC Exports to the United States, 1971-74. 631 637 3. Normalized and Actual PRC Imports from the United States, 1972-74- 638 A. Statistical Tables: A.1 PRC Foreign Trade, 1950-74 645 A.2 Commodity Composition of PRC Imports, 1966-73. 646 647 648 A.5 PRC Trade with Other Socialist Countries, 1950-74- 648 €49 651 I. INTRODUCTION 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. 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. 1 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 such 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. Overinvestment 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 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. |