TRADE WITH CHINA MANY HOPEFUL BIDDERS FOR A LIMITED MARKET

Press, Volume CXI, Issue 32588, 23 April 1971, Page 8

TRADE WITH CHINA MANY HOPEFUL BIDDERS FOR A LIMITED MARKET

(By

DEREK DAVIES,

Hong Kong correspondent of the "Financial Times," London)

(Reprinted from the "Financial Times" by arrangement.)

Friendlier relations with China have never necessarily meant a corresponding improvement in trade, a principle underlined by Britain’s experience over the last year. Diplomatic relations with Peking have steadily acquired greater warmth but two-way trade during 1970 showed a sharp drop.

Britain’s sales to China slumped from £54.5m in 1969 to £44.6m in 1970, while China’s exports to Britain dropped from £37.7m to £33.5m. The main British items were non-ferrous metals, diamonds, steel, iron and nonmetallic products.

Nevertheless, the recent visit of John Denson, Britain’s Charge d’Affairs in Peking, to London underlines Britain’s hopes of turning the' improved political climate into some more solid commercial advantage. Reports from the Chinese capital indicate that the Hawker Siddeley team at present in Peking has high hopes of concluding a contract for the sale of Trident aircraft which together with the four second-hand Tridents purchased from Pakistan International Airlines last year may form a fleet with which China may launch itself into international commercial operations. Britain’s commercial representation in Peking is being strengthened, the departing commercial First Secretary is to be replaced by two men. Chou’s feelers

The conversation between Mr Chou En-lai and John Denson shortly before the latter’s departure for London provided good grounds for hope that improved trade wifi follow improved political relations. Britain has never been able to reap full advantage from her prompt recognition of the People’s Republic in January, 1956, just three months after its establishment.

Chou En-lai is reliably reported to have told Denson that China was very ready to continue the process of improving relations but that the exchange of ambassadors was still prevented by Britain’s inexplicable policy of maintaining a consulate general in Taiwan and of voting for the "important question” motion in the United Nations, which Washington has so far used to bar China’s admission to the world organisation. It is also reported that Chou took favourable note of the recent release of 29 men sentenced in Hong Kong for offences committed during the 1967 disturbances (their terms of imprisonment were reduced by a reviewing board). If, as appears likely, Chou En-lai promised further improvement in Sino-British relations if the other 45 prisoners still in gaol receive amnesties then the Hong Kong Government can expect to be ider increasing pressure from the Foreign and Commonwealth Office to undertake further urgent reviews of prison sentences. The Hong Kong Governor, Sir David Trench, is known to take a very hard line on this |u->stion and it may be that London will have to wait until the arrival of the new Governor, Murray MacLehose (at :nt Ambassador in Copenhagen), before more flexibility can x be expected from the colony.

Trade fair

Britain’s China traders will undoubtedly be lobbying for a favourable British > response to Chou En-lai’s feelers, for their competitors are busy exploiting China’s new businesslike policies. Next year one of the Scandinavian countries is to mount a trade fair in China the first by a Western nation since the cultural revolution. Japanese representatives 1 have recently been to Peking and with unpre- ■ cedented swiftness concluded the annual negotiations for the renewal of the semiofficial “memorandum trade” —although the Japanese had to put their names to vigorous denunciations of their own Government’s policies. Japan already enjoys a huge favourable balance of trade with China which last year totalled (two way) about sB3om. A new agreement has inspired hopes in Tokyo that the total will rise this year to $lOOOm — about a quarter of China’s total external trade. However, Japan is certainly not willing, to grovel completely - to win Chinas commercial favours. Japanese traders are resisting Peking’s pressures to replace sterling with China s Renminbii (RMB) as the currency of settlement without firm guarantees from Peking or unrestricted convertibility of RMB balances. Tokyo is still dickering about awarding £hi-a preferential tariffs as a developing nation and Japanese textile interests are bitterly opposed to any suggestion that the Chinese should be given privileged access to the Japanese market. Nevertheless, the Japanese are in full cry for the China trade. Steel and automobile companies (Nissan and Toyota) are trying hard to persuade the Chinese to allow them to set up manufactoring or assembling , plants in China. Most signi- . ficant of all, the partly Gov-1 emment-owned Japan Airlines has decided to break its ■ political ties with Taiwan in the hope of capitalising on a lucrative route between Japan and China and j possibly beyond.

Canadian interest

The new Canadian Embassy in Peking is busily examining possibilities of selling other Canadian products to China in addition to the large annual sales of

wheat. This month, competition for British China traders emerged from an unexpected quarter—an aircraft dealer in the United States claims to b_ carrying on -serious negotiations on a possible' Chinese purchase of modern American jet aircraft. No export licence has yet been applied for. Privately, American officials admit that the domestic lobby to approve such a deal would be strong, the American aircraft industry being badly in the doldrums. The deal would involve a reversal of America’s hitherto blanket ban on the sale of strategic goods to China. Reports that Peking is also talking with the French about an aircraft deal which could include fighter planes enhances the suspicion that Peking is flirting with all major sources of jet aircraft merely to demonstrate to the Russians (from whom Peking intends to buy anyway) that they have no monopoly over aircraft supplies to China and that Moscow must bring its prices down. In fact, a cool analysis of the Chinese economy, despite its buoyant recovery from the tunnoil of the cultural revolution, does not present a very encouraging picture for would-be exporters to China. Official propaganda is, still heavily emphasising the need for economic self-reliance and the press and radio are stressing the need for China to develop its own technology and discouraging demands for imported industrial equipment. China's overseas commercial representatives have been told to concentrate on purchasing sophisticated equipment which can then be copied in factories at home. A good grain harvest has enabled China to postpone negotiations for Australian wheat, although there are indications that Peking is preparing for bad harvests this year following winter droughts. This may trigger off fresh demand for imported cereals while depressing China's purchasing power. Already Peking is

repeatedly instructing its officials of the necessity to cut the use of foreign exchange, probably reflecting increasing strains on her reserves. Aid to North Vietnam has been stepped up and this month’s statement that the Chinese people would not hesitate to make the greatest national sacrifice to aid Hanoi may foreshadow even larger expenditures. Aid commitments It has been estimated that last year Peking’s overseas aid commitments excluding aid to Vietnam totalled about sBoom. Surprisingly, over s2oom of this is going to Rumania, the rest to a variety of countries—from Tanzania and the Sudan to Pakistan and Ceylon. To this steady outflow of goods and cash must be added the aid to Hanoi, which if North Vietnam’s statements are any guide, could amount to another s4oom a year—an enormous strain on China’s resources. As more and more countries recognise China, even greater demands are likely to be made. Last month’s recognition of Peking by Nigeria, for example, could result in another aid programme.

But the knowledge of the limitations affecting China's purchasing capacity has never discouraged China traders, who have for generations dreamed of the profits to be earned from “lighting the lamps of China,” no matter how poor the 750 m may be. China has always encouraged such dreams —for the scramble to sell to Peking enables it to play off suppliers against each other and buy at rpekbottom prices. Perhaps China felt that last year’s trade figures meant that British traders were becoming discouraged—so Chou En-lai summoned John Denson to dangle before him the carrot of the solid commercial advantages which could be gained from a review of Britain’s China policy and the establishment of full diplomatic relations.