The astounding shifts in international relations concerning mainland China, the United Nations and the United States in the last year and a half have led to some surprising beliefs and theories in world capitals and trading centers in the same short period of time. These all added up to what might be labeled a honeymoon atmosphere in which enemies seemed to be friends, competitors to be partners and arguments to be agreements. While it may take considerably longer to unravel the yarn of some of these beliefs and theories, at least one of them—that surrounding mainland China—will undoubtedly unfold itself very quickly.
Peiping's maiden speech in the United Nations last year put more than a few political observers on notice that any preconceptions they held about the Chinese Communists might soon be sorely tested. Rather than joining in the platitudes abounding about its recent attainment of membership in the world body, the Peiping delegation delivered what most commentators agree was a tough, hard-line speech in which the United States, Russia, the Vietnam War and the Middle East all received an unusual public scathing.
The net effect of the speech might well be that some previously ignored questions will now be asked. Many have believed that Red China's absence from the world scene for the last two decades had been important in a negative way and that something great would occur in world affairs once it began to participate in them. Others believed that an expansive market had been awaiting them and their wares for the last 21 years and that now, or soon, it would be open and free for the taking. International shipping firms have been trying to negotiate charters, berthing rights and so on, and airlines have been negotiating for landing rights and passenger and freight franchises.
But what is being ignored is that Peiping (despite the obvious exception of its exclusion from the United Nations) has chosen its isolation, has selected its friends and enemies and selected its trading partners. None of these has been forced on the Chinese Communists. What must now be realized is that Peiping will continue to select friends, enemies and trading partners and will be no more of a pawn of the wishes or vagaries of others than it has been in the past.
One question to pose is the motive of many nations rushing to recognize Peiping and what this rush means. A review of the reasons for the haste for recognition in the last year or so reveals some interesting hopes and realities. Economics seems to loom largest in the greedy eyes of many, but very likely will serve to bring the heaviest disappointments for all but a select few.
Centuries of myth caused many nations to dream about great wealth from a vast market among the populous Chinese of the mainland. Russians, Germans, British, Japanese and Americans were so drawn by such dreams that they virtually pried open the country with gunboats and "treaties" and helped precipitate much of the misery that has fallen on China in this century. Indeed, two of them, Russia and Japan, came to blows over the spoils in the war of 1904-5.
The dream seems to be yet alive and the belief now is that there is a huge market of 750 million consumers waiting to spend their hoarded yuan on various and sundry articles of foreign manufacture. The fact is that there is no such market at all. If numbers were all-important, then India with its 540 million people would be only a slightly less desirable object of attention. Or the 27 other countries of East, South and Central Asia whose peoples outnumber mainland China's by at least 10 per cent, would be slightly more desirable. But, strangely, the extreme poverty of these peoples and their consequent market potential are never connected with the mainland's lack of wealth and market potential. The mainland peasant earns less than US$100 a year and the factory worker less than US$200. These are not important consumers and are not likely to become so in the next several decades. Peiping's centralized regime has made other plans for its revolutionary, ascetic—and above all—socialistic society.
Red China is aiming at self-sufficiency in all aspects of its economy. The fourth five-year plan begun in 1971 follows what was, by Peiping's own reports, at least, a successful third five-year plan, and promises to continue implementing Mao Tse-tung's failing formula for socialist success. "Take agriculture as the foundation and industry as the leading factor" is the byword.
The doctrine is not new. It was first enunciated in 1958 but scored a solid failure with the "great leap forward" and three disastrous harvests in succession. Then, in 1970, it managed to push the economy to a 10 per cent gain over 1969, or so it was claimed. The omnipotent central planners set up moderately paced decentralized projects to allow development at local levels, and the result has been thousands of small provincial and communal factories. The cycle is apparent! The 80 per cent of the population still toiling at planned and controlled farming has been able to produce enough goods to sell, and then "buy" back, on the controlled markets. The regime has thereby gained enough capital to generate thousands of labor-intensive factories. These factories manufacture supplies of farming tools and equipment, chemical fertilizers and minor consumer goods in limited quantity. The tools, and increasing but still scant mechanization, are intended to allow more time and energy to work on irrigation and electrification projects, which according to the formula will increase the efficiency and output of agriculture. If surpluses are thus reached, further capital is obtained and the cycle is repeated.
But that 80 per cent of the mainland's vast population accounts for only 40 per cent of the country's net domestic product. What of the rest of the workforce that must contribute 60 per cent of the net domestic product? It powers the major industries, which are to make the final contribution to a self-sufficient mainland. Whether it can successfully do so and whether self-sufficiency will be achieved under such a formula are open to much questioning; in any event the formula does not allow for the notion of a free spending population.
On a less plebian level, there is a second dream in the economic sphere: that with recognition will come an automatic lifting of the bamboo curtain to non-Communist and Western trade—the assumption apparently being that thus far it has been Communist and non-Western. The reality is the opposite. In 1970, the latest year for which complete figures are available, 80 per cent of China's trade was with non-Communist nations. In 1969 it had also been 80 per cent, in 1968, 78 per cent, and in 1967, 79 per cent. These figures show an almost complete reversal from 1959, when Communist countries accounted for 70 per cent of mainland trade. The highest figure in recent years was 27 per cent in 1966.
There are practical reasons for this change. During the Korean War, Peiping's already slight trade with non-Communist nations ceased altogether. Russia and its East European allies stepped in with shipping, capital and consumer goods, and technical aid. But communistic brotherhood apparently ended in the marketplace, where expensive foreign products were paid for in cheap but precious raw materials—a rather non-ideological throwback to the days of the colonialists. When ideology caused its own problems, technical aid was withdrawn; goods became more expensive and less available and trade plummeted. Peiping then attempted to embark on its own industrialization program and fell on its face in the "great leap forward." That disaster disrupted the internal economy, drained inadequate capital reserves and prompted Peiping to seek trading partners in the world market.
Of direct relevance to these facts and figures are other notes unveiling the nature of the mainland's trade patterns, and by extension, its real economic interest in the non-Communist world and would-be trade partners. In the area of imports, Peiping has concentrated purchases in iron and steel, chemicals, wheat, nonferrous metals, machinery and machinery equipment. Large orders of steel and other industrial products have been placed at recent Canton fairs. All of these are undoubtedly designed to bolster the ability of Peiping's own industries, light and heavy, to supply the mainland's commodity markets. In fact, with an estimated 15 to 18 million tons of steel produced in 1970, Peiping is very likely looking to the time when it will be completely free of the need to rely on outside suppliers.
In the area of exports Red China has trod a different path. Its salesmen have successfully promoted the export of non-essential and customary goods such as foodstuffs, which accounted for one-third of exports in the last two years. Manufactured goods made up slightly more than a third and minor raw materials about a quarter of the total. Of particular note for both export and import analysis is the fact that non-ferrous metals were being bought by Peiping in substantially larger portions while sales to foreign traders were being slashed. The value of these metals has increased fivefold in recent years in international markets and could bring in needed foreign exchange. The conclusion of observers is that Peiping considers them important enough for its own industrial use to forego the cash intake.
Reports from trade fairs, government delegations and trade missions show what trading possibilities remain for would-be traders. The prospects exist, but for select, and only select, advanced nations with the right offerings. They include textile, agricultural and light industrial machinery, engineering equipment for plants and production, whole plants, heavy machine tools, railroad equipment, ships and shipping-related equipment and commercial vehicles. It is clear, then, that not all, and probably very few of Peiping's hopeful friends and traders will qualify in the queue awaiting to partake of economic offerings. If fortune is their aim, the disappointments will be great.
One important but neglected fact of Peiping trade warrants notice: in the switch from heavy Communist to non-Communist trade in the past decade, the Chinese Communists' greatest lover-hater, Russia, has fared worst. Trade with that ideological competitor dropped from one-half of the 1959 total of US$4,000 million to 1.5 per cent of 1969's total of US$3,800 million, and another antagonist, Japan, has moved in. Japan, in fact, accounted for 16 per cent of the mainland's trade in 1969 and 19.2 per cent in 1970 (of a US$4,300 million total.) In 1971, two-way trade increased 9.4 per cent over the previous year. In absolute terms, this was a rise from 1970's US$822.7 million to US$899.7 million. Of this amount, Japan brought only US$322.2 million worth of goods and sold US$577.6 million worth, thus continuing a long-standing and very substantial trade balance in Japan's favor.
Japan's history of trade with the mainland is a story in itself. After grabbing Taiwan in 1895, defeating Russia in 1905 and acquiring Tsingtao Port following World War I, Japan exacted extensive concessions from a Chinese government still in the throes of a civil war. With Russia out of the scene from 1918 (because of its own Bolshevik Revolution and all that followed), Tokyo remained the strongest foreign power in China until 1945. With its power went tremendous trade advantages.
Japan sold industrial goods, consumer items and light industrial products and imported large quantities of iron ore, iron and steel, coal, tin, meat, food, timber, sulfur and phosphate rock. It also set up the "Greater Manchurian Empire," with coal mines and iron and steel combines and utilized the vast and cheap local labor pool. Until its greed and power finally succumbed to the Allied forces on August 15, 1945, Japan had indeed realized the old dream of a captive China market, with the added benefit of chained labor resources.
Now, however, Tokyo has to do more than a little waist-bending to re-enter that market. Its trade with Peiping is funneled through two strange and unprecedented channels. About 90 per cent of the trade is done through "friendly firms"—companies that publicly accept the Communists' political lines, which have at times denounced Japan as militaristic and expansionist. Many of these companies are actually front firms for major Japanese complexes and exist solely to conduct this trade.
The other 10 per cent of trade falls under the Memorandum Trade Agreement, a semi-governmental pact which is negotiated once a year. (Until 1968 a different and less harsh agreement handled this trade.) Memorandum negotiations have lasted as long as 40 days and entail rather stiff stipulations. In 1970, Chou En-lai issued his "four conditions," which have been applied to the letter on fertilizer and steel companies but less strictly with machinery and equipment suppliers. The conditions are that Japanese firms must not assist the Republic of China or South Korea through trade, must not assist either country through investments, must not assist the Allied war effort in Indochina and must not be affiliated with U.S. firms or subsidiaries.
Such seemingly degrading strictures, which essentially amount to security clearances and which must smart on the once proud and demanding Japanese visage, do not seem to have stifled Japan's aspirations. In February of 1972 it was learned that Tokyo's Ministry of International Trade and Industry was hoping to increase two-way trade to US$3,000 million in the next decade. The bases of this increase would be heavy imports of mainland natural resources—foremost of which are antimony, tungsten, magnesium, zinc and mercury-as well as imports of unspecified mainland products, and exports to the mainland on a credit sales basis. To obtain the natural resources, Tokyo apparently plans to institute "developmental investments," which would likely mean injections of funds and technical assistance to tap deposits now lying dormant. Mainland products to be imported for domestic consumption will remain unclear until they are actually traded since there is very little Japan needs in the way of domestic goods that it does not produce itself; at best this would seem to be a conciliatory concession designed to prevent the trade imbalance from becoming even more uneven. It is open to doubt whether Peiping will cooperate in these plans, particularly when it comes to giving out its valuable natural resources. But all indications up to the present day are that Peiping will continue to upbraid Japan's emperor, prime minister, political system, foreign policy, army and people while buying what it needs and selling what it doesn't. This peculiarity is a good indication of the maze of ramifications, economic and non-economic, of Red China's attempt to join the family of nations.
With 10 per cent growth in both gross national product and two-way trade in 1970, and estimated similar increases in 1971, the Chinese Communists will continue efforts of economic expansion. New trading partners will be sought and selected. But Peiping will do the selecting. While it is doing so, those countries lining up for trade or political contacts might do well to adopt a time-tested policy which reads simply: Make haste slowly.