1

exports of raw materials as the U.S.S.R. has done with Japan in Siberia seem remote at present in light of current Chinese policy. In fact, Premier Chou En-lai has specifically disavowed any interest in this kind of arrangement. The recent Chinese diplomatic offensive and exchanges of trade delegations and trade fairs may help to open new markets, and the expanded foreign aid program should increase exports as these credits are drawn.

D. The Question of Long-Term Credits

In view of China's limited international reserves and export capabilities any sizable increase in imports would require the receipt of long-term credits. Such would be the case if China began the large scale importing of whole plants for the current 5-year plan. The receipt of long-term credits would be a marked departure from the current conservative financial policy. However, China has a good international financial reputation and if long-term credits were sought they would be available. West European countries have been willing to extend long-term credits for several years now and recently Japan has taken steps to void the Yoshida Letter, a commitment to Taiwan by the then Premier Yoshida to prohibit Export-Import Bank financing of Japanese exports to China.

APPENDIX

METHODOLOGICAL SUPPLEMENT: MERCHANDISE

TRADE OF CHINA

I. SOURCES

A. Non-Communist Countries

The raw data used to estimate China's trade consist of official trade statistics published by China's trading partners. Most of this data is compiled by the U.S. Department of Commerce in the Value Series and the Country-by-Commodity Series. The Directions of Trade, a statistical publication of the International Monetary Fund, contains information on the trade of some of the less developed countries whose volume of trade with China is too small to be included in the Commerce Department statistics or whose data is published with an extensive time lag. For countries whose trade data are not available, fragmentary press reports and items in such publications as the China Trade Report concerning trade agreements are used to estimate the volume of trade.

B. Communist Countries

Trade data for the U.S.S.R. and the East European Communist countries are available in their official statistics. Press reports concerning trade and aid agreements and published statements of government officials provide fragmentary information on which to base estimates of trade with Cuba, Albania, North Korea, and North Vietnam.

II. ADJUSTMENTS

A. Freight Charges and Leads and Lags

Since the trade data published by non-Communist trading partners normally shows imports c.i.f. and exports f.o.b., freight (including insurance) charges must be subtracted from the import figures to obtain the value of China's exports on an f.o.b. basis, and at the same time freight charges must be added to the partner's export figures to obtain the c.i.f. cost of imports to China. In addition, the partner's import figures are recorded at the date of receipt of the goods, which lags behind the date of China's actual export of the goods. Similarly, the partner's exports are reported before receipt of goods by China, and an adjustment

must be made for this lead. Consequently, the partner's export figures must be lagged and the import figures must be "led" forward in time to adjust these data to represent the proper timing of China's imports and exports. For example, Western Europe's December import data lags roughly 2 months behind the date the goods actually were exported from China, that is, Western Europe's December imports are actually China's October exports. At the same time, Western Europe's August exports are actually China's October imports.

The closure of the Suez Canal in 1967 introduced changes in the adjustments of freight and for leads and lags. There was a 2-week break in deliveries and subsequent delays in moving freight. The leads and lags increased from 1 to 2 months for some countries in the Near East on the Mediterranean side of the Suez Canal.

The adjustments to the current export data of China's trading partners used to obtain the value of China's calendar year (N) imports are:

1 The freight adjustment was 10 percent before 1967 and 13.5 percent in 1967 and 1968.

2 Separate adjustments have been made for grain imports from Australia, Canada, and Argentina that are based on actual freight charges in a given year.

3 Prior to the closing of the Suez Canal there was roughly a 1-month lead between the time goods were reported as exports to China and the time at which China actually received the goods as imports. The closing of the Suez Canal in June 1967 caused an immediate 2-week break in deliveries and a longrun change to roughly a 2-month lead. Goods shipped in June and normally adjusted to be shown as China's imports in July were not received until August. Thus, China's imports in July were recorded as zero for the following countries: Jordan, Malta, Syria, Turkey, Egypt, and other Near East countries on the Mediterranean side of the Suez Canal. As a result China's calendar year imports in 1967 were equivalent to 11 months of exports from these countires.

4 Data for the Communist countries are not presented in their published statistics on a monthly basis. The official yearbooks provide only annual data. Consequently, no attempt has been made to adjust for leads or lags. In addition, Communist countries show imports and exports f.o.b. border. Thus, the import figures shown by China's trading partners do not need to be adjusted to obtain the f.o.b. value of China's exports. Because of lack of relevant data, the Communist partner's export figures also are not adjusted even though the cost to China might include freight charges for the imports. In the past, the U.S.S.R. accounted for the bulk of this trade and much of the volume was overland trade. Thus, China's imports, which were valued f.o.b. border, would involve additional freight charges as domestic costs in its own currency. Eastern Europe, however, now accounts for much of China's trade with the Communist countries, and a large portion of this trade travels by sea. Thus, China's imports probably should include some adjustment for freight charges.

Adjustments to import data of China's trading partners to show the values of China's calendar year (N) exports are:

1 Before 1967 freight adjustments were based on estimates of costs for individual commodities. In 1967-68 a flat rate of 13.5 percent was used which was based on average rates of about 10 percent before the Suez Canal was closed and on additional costs due to the canal closure.

2 Canada, Australia, and the United States report imports f.o.b. country of export. Since freight charges are not included in the import data of these countries, no freight chzrge adjustment is necessary to determine the f.o.b. value of China's exports.

3 Prior to the closure of the Suez Canal, imports recorded by these countries lagged roughly 1 month behind the date of export from China. Thus, China's June exports would normally appear in the July import statistics of the trading partner. The closure of the canal, however, caused a 2-week break in deliveries and increased the time lag. Consequently, China's June exports actually were included in the July and August imports of the partners. (The July figures were sharply reduced below normal levels.) Subsequently, China's July exports are assumed to appear as September imports of its trading partners, and this 2-month lag is expected to continue until the canal reopens. China's 1967 calendar year exports were thus equivalent to the import statistics of its trading partners for 13 months. After that, the statistics for 12-month periods with a 2-month lag corresponded to China's calendar year exports.

B. Other Adjustments

Two other major problems in deriving estimates of China's imports and exports are double-counting and unrecorded trade. Hong Kong re-exports of Chinaorigin goods are subtracted from Hong Kong's imports from China and counted as imports from China by the final recipients. Hong Kong has published statistics on re-exports by country since 1967 and estimates for 1965-66 were based on the later data. For example, though Taiwan and Panama report no trade with the PRC, re-exports through Hong Kong amounted to $1.7 million and $2.69 million, respectively, in 1970. These figures have been included as China's exports to the two countries in this paper. Re-exports to Indonesia, however, are apparently included in the semiofficial data reported by that country so they were not added to the reported data. There also appears to be a significant amount of re-exports of Chinese goods through Singapore. While the volume and destination of Singapore's re-exports of Chinese goods cannot be calculated with any degree of accuracy, it is believed that most of the re-exports go to Malaysia. Thus all of Singapore's imports from China are recorded as Chinese exports to Singapore/ Malaysia and official data for Malaysian imports from China are not counted.

CHINESE FOREIGN AID

By LEO TANSKY

I. SUMMARY AND CONCLUSIONS

Since 1953, the People's Republic of China (PRC) has made available a minimum of $5.6 billion of economic and military aid. More than 35% of this total was committed during 1970-71. Approximately $3.1 billion of the total extensions since 1953 have gone to Communist countries and $2.5 billion to Third World 1 countries. Drawings by aid recipients totaled about $3.7 billion at the end of 1971.

In the broad sense, Peking extends aid to both areas for the same purpose to expand and consolidate its influence. As between areas, however, the motivations and tactics differ. The Third World is nonCommunist and less stable politically and contains a wide variety of interests vital to the West. Chinese aid to these countries has been dispensed in order to establish and expand Peking's influence, to purvey Communist ideology and support radical regimes, and to undermine Western and, in recent years, Soviet influence.2

The PRC's aid programs in other Communist countries were originally designed to strengthen friendly regimes and to cement political relations. As Peking's hostility toward Moscow increased, the purpose of the programs shifted-to undermine Soviet influence by offering political and economic leverage to receptive Communist governments. This objective underlies recent Chinese concentration on the more independent East European countries. Peking has continued to aid Albania, has extended aid to Rumania for the first time, and has attempted to improve relations with "revisionist" Yugoslavia. New Chinese aid commitments to North Korea and North Vietnam also are designed to strengthen Peking's influence relative to Soviet influence.

The cost of foreign aid-as measured by the net outflow of men, machinery, materials, and weapons-now runs at least $400 million annually, equal to about one-third of 1% of China's GNP. A large share of this outlay consists of semi-skilled construction workers who are in plentiful supply in China. Another large share, however, is represented by skilled personnel and by military goods, industrial materials, and simple machinery which could be used profitably in China. On balance, if the magnitude and outlays associated with foreign aid are weighed against the benefits, the costs of aid have been small relative to the political returns.

1 The terms Third World and less developed countries are used interchangeably in this paper and include the non-Communist countries of Asia, except Japan; Africa, except the Republic of South Africa; and Latin America.

2 Although the magnitude of Chinese economic aid to each area has been roughly the same, the discussion in this paper centers on Third World countries because the program there is more unique, has had greater political impact, and is of greater general interest.

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II. ECONOMIC AID TO THIRD WORLD COUNTRIES

A. Magnitude and Direction

Since 1956, the Chinese have extended almost $2.2 billion of economic aid to 28 less developed countries (LDCs) of the Third World. About 35% has been used. Nearly 55% of the total extended was made available during 1970-71 (see Table 1). Approximately one-half of the total aid committed since 1956 has gone to Africa. More than 40% has gone to Pakistan, Somalia, Tanzania, and Zambia. Almost one-fifth of the total is committed to a single project-the TanzaniaZambia (Tan-Zam) Railroad. About 10% of total Chinese aid has been grant aid, consisting largely of commodities, foreign exchange, and medical, educational, and cultural equipment. The remainder is in the form of long-term, no-interest loans.

TABLE 1.-CHINA: EXTENSIONS OF ECONOMIC AID TO LESS DEVELOPED COUNTRIES, BY AREA, 1956–71 [In millions of dollars]

The Chinese economic aid program has grown by fits and starts. The severe fluctuations in the annual level of new commitments have stemmed mainly from political developments both in China and in the Third World. The program can be divided roughly into four phases. The first period, 1956-60, was one of slow development and growth in which the Chinese and Soviets appeared to be pursuing parallel aims. Aggregate Chinese extensions during those years totaled only about $180 million and were provided to seven countriesCambodia, Ceylon, Egypt, Guinea, Indonesia, Nepal, and Yemen (then under the Imamate). Although the Chinese held that aid should be provided only to revolutionary and anti-Western regimes, few countries met that criterion at the time.

ACCELERATION AND COMPETITION, 1961-64

During the second stage, 1961-64, the magnitude and distribution of Chinese aid expanded rapidly. About $545 million was extended to 16 countries. Although the largest share was committed during 1963-64, the political groundwork for expanding economic relations was developed in the earlier years of the period. During these years, the emphasis of the Chinese aid program shifted to Africa-an emphasis that still obtains-as many new African states achieved independence and became receptive to Peking's overtures. About half of Chinese extensions in those years went to African nations, pri

& Not too much should be made of the low expenditure ratio. No country can implement project-type aid apidly in the LDCs. Moreover, sizable drawings cannot yet be expected on the large extensions of 1970-71.