Commodity Credit Corporation in financing their purchase of U.S. agricultural products. There is no question, however, that without recourse to U.S. Government loan and loan guarantee programs, American firms will be at a competitive disadvantage. Yet, the Trade Act of 1974 precludes the use by China of ExportImport Bank loans unless a Presidential waiver is made concerning Chinese emigration practices and unless a Sino-American trade agreement is negotiated. The President's recent decision to recognize the PRC brings closer to reality the possibility of removing this barrier to enhanced commercial relations. Resolution could also result in the extension of most-favored-nation (MFN) tariff treatment to Chinese products by the United States. Unresolved claims and assets questions (see p. 32) currently preclude direct banking, shipping and airline connections and the exchange of trade exhibitions. All of these commercial barriers will have to be removed if the United States is to maximize its trade with China. The best prospects for American industrial exports to China are in iron ore technology, non-ferrous minerals technology, agricultural machinery, petrochemical and subsidiary industries, cargo trucks and components, hydroelectric generating equipment, and medical equipment. U.S. products enjoy a good reputation and this fact coupled with the Chinese desire for the highest technology available should enable U.S. business to penetrate the market. Further, the dollar devaluation has helped U.S. firms, especially chemical industries, to compete with the Japanese. The brightness of U.S. export prospects carries with it the possibility, or perhaps inevitability, of Chinese complaints about the imbalance of the trade. China is acutely aware of its need to increase exports, including exports to the United States, in order to finance its ambitious modernization goals. Basically, it is in our common interest to have the Chinese increase their presently small volume of sales to the U.S. market. The Chinese could probably improve their position significantly if they took serious steps to alleviate some of the problems faced by U.S. importers (late delivery, unsuitable packing, etc.). Also the Chinese must increase the supply of products for export, notably non-ferrous metals and certain animal by-products that are in demand in the United States. Although one sale of PRC petroleum has been made to the United States, it is likely that most PRC oil exports will be to her Asian neighbors for the foreseeable future. PETROLEUM RESERVES China's relatively unexplored mineral rich areas represent a potentially rich export earner and an important source of mineral supplies. Hydrocarbons abound but estimates of Chinese crude oil reserves vary widely. The most likely correct sources are: A. A. Meyerhoff & Williams (1976 revisions of an earlier analysis of Soviet geological appraisals). Oil & Gas Journal (December 1977) -- M. J. Terman (U.S. Geological Survey) 9.5 billion metric tons total reserves (5.4 onshore, 4.1 offshore). 2.7 billion metric tons, estimated proven reserves (economically recoverable). 5.5 to 6.9 billion metric tons total reserves (4.1 to 4.8 onshore, 1.4 to 2.1 offshore). Of course, shale oil resources are unknown and natural gas reserves are vast but uncertain. Geological evidence has been mounting that offshore Chinese waters contain plentiful oil reserve. But political disputes over the rights to those waters and the ready accessibility of existing oil supplies stood in the way of active development. Apparently, the pragmatists now governing China are ready (on certain conditions) to let western oil companies help them tap these crude oil fields. Discovering and developing oil in the East and South China Seas may offer the best present hope for stabilizing the world's energy costs and also for moderating Southeast Asia's cycle of poverty. The West needs independence from Middle Eastern oil. Moreover, if the opportunity to cooperate with China and its neighbors in petroleum exploration helps break down the geographical and cultural barriers that have so long bedeviled relations between Asia and the West, the cause of international tranquility will be well served. Chinese crude oil production continues to rise, and in 1977 reached 84 million tons, with 1978 production expected to be 100 million tons. Offshore exploration continues, primarily in the Pohai Gulf. Further, new onshore deposits have been discovered in the country's far westsouthern Sinkiang and Chinghai's Tsaidim basin. A new high-yielding north China field, with potential to rival Taching, China's largest, is located in Jenchiu, about 120 miles south of Peking. Refinery expansion continues at Canton, Chinshan (near Shanghai), Liaoning, Peking, and Tientsin. Construction of new deepwater wharves continues and two deepwater terminals, capable of berthing 100,000 deadweight tons (dwt) tankers (Talien) and 50,000 dwt tankers (Huangtao) have recently been completed. Of course, much of Chinese crude oil will be needed to fuel industrial modernization and the level of exports is therefore uncertain. China may experience limited export opportunities, however, given potential domestic demand and refining capacity problems. If substantial portions of Pohai Gulf oil is consumed domestically and the refining capacity is not increased drastically, these limitations are probable. But Chinese officials, according to Japanese reports, predict oil exports to Japan of 50 million tons by 1990 and 100 million tons by 1995. Most immediate exports will come from Pohai Gulf and other areas of the continental shelf where Japan can assist China in joint development. Japan now draws crude from Taching in northeastern China. The major U.S. involvement will probably therefore be in advanced technology for deep offshore oil drilling. Representatives of Exxon, Pennzoil, Phillips Petroleum, Standard Oil, and Union Oil of California, have joined Energy Secretary Schlesinger in visiting Peking. Already American suppliers are selling rigs to China. Oil exports will become increasingly important in paying for the economic modernization of China. Japan has already agreed to pay $13.20 a barrel for 7.2 million tons in 1978. Yet, because many of the potential offshore oil fields are in the East and South China Sea where China, Vietnam, Japan, the Republic of Korea, Malaysia, and the Philippines all have conflicting claims. Linked to this territorial prob lem are international issues such as the law of the sea and maritime economic zones. One unresolved issue between Tokyo and Peking is the question of sovereignty over the Senkaku Islands and the Japan-Korea joint development zone in the East China Sea. The Japanese have officially accepted the Chinese explanation that the 1977 incursion of PRC fishing boats in the Senkakus was "accidental". Further, aside from the Senkaku Islands, China has no specific claims beyond its territorial sea. Rather, the PRC notes that jurisdictional boundaries in the Yellow and East China Seas have "not yet been delimited." Thus, although China has asserted claims to other islands (Paracels, Pratas, and Spratly) given the petroleum potential of the underlying seabed, these disputes are unresolved. Peking, however, has never recognized the right of Japan and Korea to establish a joint development zone without consulting the PRC. Despite the potential for trouble, however, it is unlikely that either side is interested in forcing the issue. The Chinese positions on law of the seas issues closely reflect the positions expressed by less developed countries. Thus China supports complete coastal state sovereignty, coastal state ownership of economic zones with a possibility of some sharing of management with adjacent landlocked states, and an international regime control beyond territorial seas. CONCLUDING COMMENTS Normalization has only opened the doors of Sino-American economic relations. The different tasks of institutionalizing economic cooperation is ahead. The rapid rise of United States-Chinese trade since 1971 is probably the most visible symbol of improved relations. Although China is unlikely to be a major commodities supplier to the United States, exports of petroleum and non-ferrous minerals could be valuable. As a market, China is a major purchaser of agricultural products and of high technology. This growth nevertheless will probably be gradual given current Chinese policies of repayment of debts in the short-term and the avoidance of economic dependence on any one nation. It would therefore be a mistake to exaggerate the size and pace of United States-China trade. However, there will be good opportunities for selected industries and trade relations will remain an important indicator of the development of mutual relations. Ideally the expansion of economic intercourse will add durability and strength to the political relationship. China's immediate goal is to satisfy the material aspirations of its own people. In doing so, it will be of some economic consequence in Asia, but will not immediately be a significant factor in the U.S. economy. However, by laying the groundwork for longer term trade relationships, the opportunities for expanded trade will be enlarged. CHAPTER 3 CHINESE DEFENSE POLICY: THE PEOPLES OVERVIEW OF ROLES, COMPOSITION AND DOCTRINE The Peoples Liberation Army (PLA) which encompasses the army, the navy, and the air force, is the world's largest military force, with a total strength of about 4 million men. The ground forces total some 3.5 million men or about 85 percent of the PLA's total manpower. The navy and air force, though significantly smaller, are the largest in Asia and the third largest in the world (see Table I). In addition, China maintains about 100 million parmilitary troops in its militia. TABLE 1.-Order of battle GROUND FORCES (DIVISIONS) Infantry (12,000 personnel and 30 tanks each). Artillery Border defense, garrison and internal defense.. 121 11 3 40 70 Bombers : TU-16 BADGER. IL-28 BEAGLE. Air defense fighters: AIR FORCE MIG-17 Fresco, MIG-19 Farmer (and a few MIG Fishbed) __. Tactical fighter bombers: MIG-15 Fagot and F-9 Fantan-- Source: International Institute for Strategic Studies, The Military Balance, 1978-1979. ROLES The deployment, composition and size of the PLA are dictated by its assigned roles. First priority is given to defending PRC territory. Ideally the PLA serves to deter direct aggression, but should deterrence fail, to defeat or stalemate any invasion. In addition, the PLA is an important element in maintaining internal security and engages, |