The 50 leading U.S. imports from China for 1974 are ranked in order in table 5: 1973 is shown for comparison.

Shipments of the leading commodities in 1974 included cotton textiles, $25.6 million; tin. $9.4 million; gum rosin, $7.9 million; artworks and antiques, $7.8 million; and fish and shellfish, $7.1 million.

TABLE 5.-50 LEADING UNITED STATES IMPORTS FROM THE PEOPLE'S REPUBLIC OF CHINA, 1973-74

1 Based on an analysis at the 3-digit level using 7-digit information for clarification of commodity description. Less than $100,000.

Less than 0.1 percent.

Of the total exported to China in 1974, $664 million or 81.2 percent consisted of agricultural products; 1973 data are $625.1 million or 84.5 percent. Shipments of the leading agricultural commodities in 1974. included wheat, $234 million; cotton, $185.9 million; soybeans, $138.2 million; and corn, $95.7 million. Leading nonagricultural products in 1974 were commercial jet transports, $60.1 million; aircraft engines, $16.2 million; iron and steel scrap, $12.5 million; paper and paperboard, $7.1 million; and industrial process vessels and heat exchangers,

$6 million. It should be noted that in two commodity areas where significant shipments occurred in 1973, soybean oil, $17.9 million and aluminum, $3.4 million, no U.S. exports were recorded in 1974.

Major Sales to China

Since 1972 the Chinese have turned to the major industrialized countries for massive purchases of complete plants, major segments of plants, and the associated equipment and technology. The U.S. share in these transactions has been significant although not yet commensurate with our reputation and ability to supply and service such installations and equipment. Particularly noteworthy as an indicator of future possibilities for the United States in the China market are some of the transactions in the industrial sector for which contracts have been signed.

In the most visible evidence of the new commercial relationship, as a result of the purchase of 10 Boeing 707 jet transports and accessories for about $150 million, American aircraft are being flown on China's new international routes to Europe and Japan as well as on domestic routes. In the largest U.S. nonagricultural transaction to date, the Chinese have contracted with the M. W. Kellogg Co. of Houston for the supply of eight large ammonia plants, value about $215 million. The ammonia is to be used in the manufacture of urea for fertilizer. Deliveries of equipment for the first plant began in 1974 and is to continue in a regular program until all eight plants are complete. Kellogg technology is also embodied in ammonia plants being supplied by Japan.

Other important transactions have included automotive gear cutting equipment from the Gleason Works in Rochester; satellite earth stations from RCA and Western Union International; blast hole drills and power shovels from Bucyrus-Erie; very large off-highway trucks from Wabco; petroleum exploration equipment from GeoSpace Corp.; a petroleum drilling equipment from the Baker Trading Co., and others. Transfer of U.S. technology to China has occurred with Kellogg as already mentioned; with Standard Oil of Ohio, acrylonitrile know-how; Standard Oil of Indiana, polypropylene technology, and Atlantic Richfield-Engelhard, paraxylene process knowhow; and possibly others.

The Canton Fair

The Chinese Export Commodities Fair, started in 1957, is held twice annually, April 15-May 15 and October 15-November 15 in Canton (Kwangchow) about 90 miles from Hong Kong. Canton has always been the traditional point of contact between Western traders and Chinese merchants and remains so today, at least for exports from China. A major share of the PRC's import contracts are signed in Peking these days, but the Fair accounts for about 40 percent of China's annual export business: some Chinese purchasing is also done there. For many commodities, the Fair provides the best single opportunity to assess the PRC's export capabilities and market potential. The Fair is sponsored jointly by China's foreign trade corporations and takes the form of combining trade negotiations with the display of Chinese exhibits; no foreign commodities are shown. Attendance

at the Fair is only by invitation from the trade corporations or Fair authorities. In 1974, the Chinese opened a major new facility for the Fair and the key role it plays in marketing Chinese commodities for export seems assured. Late in 1974, the Chinese announced a special fair for carpets, the Chinese Export Carpets Fair, which was held in Tientsin from February 25 to March 5. Other special fairs occur from time to time.

Until the 1972 Spring Fair, Americans were noted by their absence at Canton, but in the six Fairs since then have enjoyed ever greater attendance and increased business. U.S. firms traded about $60 million in 1974 against $50 million the preceding year; most of the transactions were purchases by U.S. importers although some export business was done by visiting Americans. Estimated attendance has risen from about 245 Americans representing some 128 firms at the Fall Fair of 1973 to about 440 Americans representing some 275 U.S. companies either directly or through overseas affiliates, at the Spring Fair of 1975.

F. DOING BUSINESS WITH CHINA

Approaching the Market

In China foreign trade is a state monopoly controlled by the Ministry of Foreign Trade and conducted exclusively through a network of nine corporations in accordance with priorities established considerably in advance by the PRC's economic plan. The foreign trade corporations, having main offices in Peking with branch offices in major cities, are organized according to the commodities or services for which they are responsible.

The following is a listing of the nine corporations showing typical commodities handled by each:

China National Chemicals Import and Export Corp.-chemicals, rubber, petroleum, and fertilizers.

China National Native Produce and Animal By-Products Import and Export Corp.-tea, tobacco, spices, dried fruits and vegetables, fireworks, bristles, wool, hides, carpets, and living animals.

China National Metals and Minerals Import and Export Corp.-iron and steel products, nonferrous ores and metals, nonmetallic minerals, coal, cement, and other construction materials.

China National Light Industrial Products Import and Export Corp.-general merchandise of all kinds, paper, cameras, toys, building materials, appliances, leather products, jewelry, and handicrafts.

China National Textiles Import and Export Corp.-cotton, silk, synthetic and manmade fibers, cotton and woolen piecegoods, and wearing apparel. China National Cereals, Oils and Foodstuffs Import and Export Corp.-oils and fats, poultry, meat, eggs, fresh fruit, fish, canned goods, sugar, wines, dairy products, vegetables, and grain products.

China National Machinery Import and Export Corp.-machine tools, engines, turbines, mining and construction machinery, transport equipment, machinery for the textile, chemical, rubber, and other industries, telecommunications equipment, and instrumentation.

China National Technical Import Corp.-importation of complete plants and technology.

China National Complete Plant Export Corp.-exports complete factories, works, and projects, usually, but not exclusively as part of an economic aid agreement.

3 Actually several Americans visited the 1971 Fall Fair.

Among the more important PRC trade-related entities are:

China Council for the Promotion of International Trade (CCPIT)—CCPIT, founded in 1952, serves as a liaison between China's trade corporations and the institutions of foreign trade in other countries. Its responsibilities include arranging economic and trade-related exchanges including Chinese exhibitions abroad and foreign exhibits in China. Through its Foreign Trade Arbitration Commission and Maritime Arbitration Commission, the CCPIT has responsibility for settlement of legal disputes related to foreign trade and maritime affairs.

China National Foreign Trade Transportation Corp.-arranges customs clearance and delivery of all import/export cargoes; arranges insurance. China National Chartering Corp.-charters foreign vessels and books shipping space required for Chinese import and export cargoes.

China Commodities Inspection Bureau-carries out inspection of imports and exports on behalf of the foreign trade corporations.

People's Insurance Co. of China-provides international trade and maritime risk underwriting.

Bank of China-is a subsidiary of the People's Bank of China responsible for all foreign exchange transactions involving the PRC.

China Scientific and Technical Association-with the CCPIT plays a role in arranging scientific and technical symposia in China. The association is responsible for planning scientific research and development and is charged with_organizing and controlling China's professional societies.

China Resources Co. (CRC)-acts as the principal agent in Hong Kong for a number of the Peking-based trade corporations.

Establishing Contact

It takes time and patience to successfully enter the China market, whether exports or imports are involved and whether large or small firms are involved. Prior to establishing contact, firms should give thought to the answers for the following questions:

Is the firm prepared to invest considerable money initially without assurance of an early return;

Is the firm prepared to negotiate the first transaction for 1 or 2

years;

Is the firm prepared to obligate the necessary senior talent and technical expertise;

Is the firm prepared to walk away from an unpromising negotiation at any time;

Is the firm prepared to resist offering concessionary terms in order to penetrate this market.

If some answers to these questions are negative, it may be prudent to rethink trying to enter this market.

Generally, the first step in establishing commercial contact is to prepare a proposal and send it to the foreign trade corporation in Peking having jurisdiction over the commodity involved. A successful proposal is likely to result in a request for more information, for reworking based on specifications supplied by the Chinese, or in an invitation to come to Peking and discuss the matter further. If the U.S. firm is buying Chinese goods, it would normally hope to receive an invitation to the Chinese Export Commodities Fair in Canton; requesting an invitation to the Fair is appropriate. In a few cases where the Chinese have an urgent requirement for a commodity, contact may be made directly with the American firm. It is preferable, but not essential, for the American firm to work directly with trade corporations rather than through agents.

The form of the initial proposal is important even though the ultimate decision to purchase or not purchase a specific commodity rests on the plan requirements of the Chinese economy, rather than on the attractiveness of a particular proposal. The proposal should be straightforward and sufficiently explicit and technically comprehensive to permit an in-depth evaluation of the products in question by

the Chinese.

The foreign trade corporation is the intermediary between the American firm and the Chinese end-user. For this reason, it is essential to provide up to 20 copies of the pertinent technical information to be forwarded to the end-users by the trade corporation. Depending on the products involved, especially in the case of high-cost capital equipment or complete plant, it may be appropriate to invite a technical delegation to visit similar plants and equipment in the United States.

If the Chinese are interested in a proposal, they can be expected to reply. However, it takes considerable time-often months for a proposal to be processed and assessed. No response probably indicates no Chinese requirement at the time. Firms convinced their products mesh with Chinese plan requirements should keep products and literature before the appropriate trade corporation. In general, it is advisable to follow up periodically with additional material and samples, especially with regard to any product improvements that would enhance the initial approach. It should always be remembered that the foreign trade corporations alone are responsible for negotiating contracts, not the end-user, although end-users will often be present during the discussions.

Negotiations

Negotiations with Chinese trade officials will likely be thorough and protracted and emphasize rigorous attention to detail. Such invitations are normally issued only to those firms in whose products the Chinese have a genuine business interest. Careful preparation for negotiations is a must and businessmen should expect to confront very astute bargainers.

Competition among foreign businessmen is keen, and the Chinese exploit this situation to extract the best possible terms. Contracts are usually not awarded on the bas. of open competitive bidding. Many factors, including price, enter into the decision. Chinese negotiators prefer hard, honest bargaining and have a distaste for hard sell tactics or being rushed; little salesmanship is involved. They are usually quite well versed on the American company and its product line and discrepancies during presentations are quickly noted. It is very important to include technically qualified personnel on the negotiating

team.

Depending on the commodities involved, the price quotes asked for by the Chinese are most apt to be f.o.b. U.S. port, thus enabling the Chinese to use their own charters and insurance. Most transactions in the China trade call for payment by letter of credit. It is prudent not to make a sacrifice price offer or take a loss just to get into the market, as the Chinese are apt to insist on the reduced price in future negotiations.