BUSINESS WITH CHINA GROWTH OF ECONOMY WILL GOVERN SIZE OF TRADE

Press, Volume CXI, Issue 32801, 29 December 1971, Page 12

BUSINESS WITH CHINA GROWTH OF ECONOMY WILL GOVERN SIZE OF TRADE

(By I

COLINA MacDOUGALL.

reporting from Hong Kong to the "Daily Telegraph." London)

(Reprinted by arrangement)

No-one can be sure how the polii-”"! situation in China will lie resolved, but the continuing appearance of the Prime Minister (Mr Chou En-lai) is a reassuring sign that it is not likelv to have a drastic effect on current relatively liberal trade policies.

The twice-yearly Canton Fair, which ended in midNovember, was not affected at all by the leadership crisis. Business was brisk, though selling to China was not on as large a scale as both Japanese and Europeans had hoped. Some satisfactory British deals are in the pipeline, but the Belgians, alone of the Europeans, did well in machinery sales. The unusual pressure from visitors on hotel space altered the normal Canton pattern somewhat; for once, the Chinese were keen to speed up their selling to allow foreigners to leave and make room for the next batch. China’s sales may have outvalued purchases, as the Chinese seem to have held off buying, perhaps because of the coming foreign exhibitions in the country. Wider links

The Chinese have made a big effort to widen their trading circles over the past 18 months, and barring totally unforeseen circumstances, this seems likely to continue. United States estimates of China’s total world trade put 1970 s figure as high as 10 per cent above 1969 SUS42OOm compared with SUS3BOOm. Can this rate of increase continue through 1971 and beyond, or are the limitations of the Chinese economy such that it simply cannot sustain such an expansion? The impressive rise in 1970 is not too difficult to account for. It was, in fact, a reversion to a previous peak, that of 1966. Once the Cultural Revolution was tidied up it was a question of building up again to the previous level. Furthermore, by the end of the Cultural Revolution, the Chinese were critically short of some raw materials and sophisticated machinery. In spite of their do-it-yourself campaign, there were huge gaps which could only be filled from abroad. In 1970 they started to buy heavily, and as a result their imports rose by a United States-estimated 18 per cent over 1969, compared with a mere'2 per cent for exports. By the end of 1970 there were hints that the Chinese were concerned about this, and they began to cut back on buying. American sources suggest that they ended the year with a favourable trade balance, but only just. Cautious purchasing This year they have taken a much more cautious attitude to purchasing; the Japanese, for instance, came back from the spring Canton Fair disappointed to have done only SUSI7Om worth of business with a poor showing for exports. Last year the Chinese had a deficit of SUS3ISm on their trade with Japan, and although they could meet that with what

they earned from Hong Kong alone, it must have been sobering when taken in con-1 junction with their SUS22Om imbalance in exchanges with Canada and Australia. This year the Chinese are saving on wheat imports, which allows them greater expenditure elsewhere. They have ceased to buy grain from Australia, ostensibly for political reasons but probably because they no longer need it. This has turned last year’s deficit on Australian trade of SUSIOSm to a small surplus for 1971. The boost in exports in the 1 early part of the year was partly produced by a return to form in trade with Hong Kong, which has been sluggish in the last couple of.i years. Exports to Japan were also up in the first half of this year. With agriculture! doing better, the Chinese were able to sell more corn, foodstuffs, silk and other processed farm products. As the Chinese economy continues to expand, this [trend should last. The (Chinese will certainly want [to step up their exports

everywhere to pay for the goods which they are clearly planning to buy. Already they must be budgeting for the £2om Hawker Siddeley Tridents. Sales in S.E. Asia A new feature in China's trade strategy is its sales effort in the South-East Asian countries which were previously closed to it for political reasons, the Philippines, Thailand and Malaysia. China has sold 10,000 tons of rice to the Philippines, a commodity which has proved hard to get rid of since the Japanese began to produce their own surplus.

All three countries could prove to be outlets for Chinese manufactured products, with Peking buying, in return, the rubber, tin, palm and coconut oil which it can undoubtedly consume now that its industry is in gear again.

But the expectation seems to be that all this trade will be on a barter basis, so it will not help China to raise the funds for expensive Western goods. However, the Chinese are not behaving as if they were particularly short of ready money. Delegations have toured Europe recently, taking in France, Britain and the Scandinavian countries, while Peking has been host to groups from countries including Italy, Austria, Switzerland, Canada, Peru and Britain. Trade exhibitions are scheduled next year and the year after in China by half a dozen European countries including Britain. Besides the purchases of equipment already made, the

Chinese have inquired after a complete synthetic fibre plant j from Japan, which suggests a renewed interest in filling out the gaps in their own industry from abroad. Even so, it does not seem likely that China’s trade can continue to grow at a rate of 10 per cent or so. The Chinese economy simply cannot move that fast. Last year was exceptional when it was probably still taking us the slack left by the Cultural Revolution; a 5 per cent of 6 per cent increase for th( , current year seems muct more likely. Slow-down acknowledged l The Chinese themselves have implicitly acknowledged a slow-down in production by much lower percentage increase claims for in< si dustrial production this year, rand the harvest may be , | affected by uneven weather. ’ What the Chinese can I buy depends entirely on | how much they can sell, (since at present (though this (might change), they cannot I get long-term credit from any of their suppliers. Exchanges with new trading partners probably mean a thinner spread for the old ones, but it also means a highly competitive trading scene. The Chinese will be able to force down prices as they already seem to have done in the case of the Japanese fertiliser manufacturers, whose recent deal with China was concluded at prices below cost. The American entry into this arena would intensify this situation, though so far this prospect has not materialised. American companies in Hong Kong and Japan are eagerly exploring the possibilities, and it is quite feasible that in due course the Chinese might want United States transport equipment, farm chemicals or electronic goods. But even in the right political situation, the Chinese simply cannot commit themselves beyond their ability to pay, and it is the rate of growth of the Chinese economy that will govern the size of its trade.