Britain And China BIG INCREASE IN BRITAIN’S EXPORTS THOUGHT PROBABLE

Press, Volume CIII, Issue 30610, 28 November 1964, Page 14

Britain And China BIG INCREASE IN BRITAIN’S EXPORTS THOUGHT PROBABLE

I By

“Lynceus"

of the ''Economist")

(From the "Economist” Intclliocnce Unit*

Are the chances of a big step-up in trade with China really’very great? We have become so accustomed to Communist counti ics t hot and cold over trade with the West that scepticism is hardy surprising. On the other hand ‘’doubling Thomases” are not the men to mid expo orders.

It is certainly not enough for a Western businessman or politician, just back from a trade jamboree in a Communist country, to tell the world that he is sure that his hosts mean business—even when the speaker is a British Cabinet Minister like Mr Douglas Jay, just returned from the successful British Trade Fair in Peking and the first British Cabinet Minister ever to visit Communist China. On this occasion, though, there are some reasons for thinking that Mr Jay’s expectations are not simply the optimistic result of official entertaining. Third Trade Fair Certainly the British have hopes of this market: this is their third venture in China this year. Earlier displays concentrated on scientific instruments and mining and construction equipment. Now they have just had a general trade fair. They must surely think they are on to something big if they are paying as much attention to a market so difficult to get at. The main factor underlying British hopes is the shift in China’s foreign trade policy that sprang from her quarrel with the Soviet Union. Although it now looks as if the new British leaders will try to woo back their Eastern neighbours—indeed, the quarrel is given as one reason for Mr Khrushchev’s fall —it is difficult to imagine China ever again become as dependent on trade with Russia as she was before 1960, the starting date of the differences. Russian technical assistance had until then been a crucial force in China’s expansion and its sudden withdrawal, in mid-1960, was a severe blow. Output Of Foodgrains Moreover, this sudden withdrawal coincided with a bad time for Chinese agriculture. The only choice for China was to concentrate more on agriculture and to look more and more to the West for industrial supplies. With a population estimated in excess of 700 million and expected to exceed 1000 million by 1981 it is not to be wondered at that the Chinese authorities are now so pre-occupied with agricultural development, in particular an expansion in the output of foodgrains. Backing up the drive for increased farm output, the

emphasis in industrial de-| velopment has shifted dramatically from heavy industry such as iron and steel to the industries producing agricultural requirements. At the same time there has been a drive to develop the textile industry with an eye to exports to pay for China’s huge requirements of capital goods. Since the breach with Russia, the Chinese leaders havei been shopping more extensively in the West. The large wheat purchases have been followed by orders for complete industrial plants from the West, chiefly for the chemical and fertiliser industries. Up to the end of October China had bought 11 such plants, involving about £45 million: Italy is supplying three. Britain and the Netherlands two each. Russia Leaves Gap Exactly how far China’s trade with the West will grow will depend on her foreign exchange earnings. It is estimated that the loss of Soviet trade left a supply gap of around £2OO million a year. In addition, the debt repayments to Russia are now coming to an end and this should release further funds. The handsome trade surplus with Hong Kong, in the region of £lOO million a year, is also a sign of China's future buying strength. The sponsors of Britain's fair were hopeful that British exports to China could be increased eightfold, or rise to, say, £lOO million.

But the actual amount of foreign exchange which China will have to spare for imports from the West will inevitably depend on each year's harvest. In some years recently, for example, China has exported £5O million worth of rice, but at the

same time imports of wheat have averaged £lOO million a year in the last five years. And one of China’s traditional exports, silver, has fallen away, as have shipments of non-ferrous ores. Strong Competition If China can achieve a favourable balance on its food trading account, what can be looked for now is an expansion of purchases from the West of all kinds of engineering products, agricultural machinery and above all heavy capital goods and complete industrial plants. The Chinese authorities are, of course, fully aware that capi; tai goods represent a buyers' market at present, with France and Japan competing most strongly with Britain. Japan indeed, has the natural advantages of proximity and knowledge of the market to add to its competitive edge in many fields —partially, it is still firmly believed, accentuated by hidden subsidies. Almost inevitably, export orders for the less developed areas are linked to satisfactory credit arrangements. So far, it is understood. China has not sought finance for more than the accepted five to seven-year period for capital goods. With Britain’s more flexible export credit arrangements these days, and especially if the Export Credits Guarantee Department is willing to back China as a sound commercial risk, the British exporter should be strongly placed to compete tn this area. But, generally, the prospects in this market look better than they have been for a very long time. They are likely' to stay that way. especially as long as China’s trading relations with Russia remain subdued.