China's Economic Relations with the West and Japan, 1949-1979 Grain, Trade and Diplomacy (Routledge Studies on the Chinese Economy)

China’s Economic Relations with the West and Japan, 1949–79

Farm and business lobby groups played a vital role in the erosion of the American-led trade embargo against China from 1949 to 1979. In this comprehensive study, based on recently declassified primary source material, trade negotiations and agreements are examined and a detailed account of developing economic links between East and West is provided. Developing economic relations and tensions with US policy are discussed in the context of PRC and Western economic and agricultural problems, Beijing’s development strategies, Sino-Soviet relations and the backdrop of war in Asia. The story starts with regional grain shortages as a result of Mao’s self-sufficiency policies. Washington was unable to convince its allies to block politically influential private and semi-official trade promotion organizations from undermining stringent trade restrictions aimed at preventing China’s economic development. Mitcham also charts the rise and fall of the Great Leap Forward and China’s eventual recovery, capped by rapprochement, the re-opening of important diplomatic and trade relations and Beijing’s readjustment policies. By the late 1970s, with the Cultural Revolution having run its course, the stage was set for the rise of the Chinese economic engine, and a shift in economic thinking that continues to have repercussions both within the PRC and around the world today. For historians, economists, political scientists, government officials, business representatives and others with an interest in Chinese economics and history, China’s Economic Relations with the West and Japan will be essential reading. Chad J. Mitcham is a London-based writer and researcher. He received his PhD in History at the School of Oriental and African Studies, University of London. He has studied and worked in several countries.

Routledge Studies on the Chinese Economy Series Editor Peter Nolan, University of Cambridge Founding Series Editors Peter Nolan, University of Cambridge Dong Fureng, Beijing University The aim of this series is to publish original, high-quality, research-level work by both new and established scholars in the West and the East, on all aspects of the Chinese economy, including studies of business and economic history. 8

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Economic Growth, Income Distribution and Poverty Reduction in Contemporary China Shujie Yao

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China’s Economic Relations with the West and Japan, 1949–79 Grain, trade and diplomacy Chad J. Mitcham

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4

5

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China’s Economic Growth Yanrui Wu

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The Employment Impact of China’s World Trade Organisation Accession A.S. Bhalla and S. Qiu

China’s Economic Relations with the West and Japan, 1949–79 Grain, trade and diplomacy Chad J. Mitcham

First published 2005 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group

This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” © 2005 Chad J. Mitcham All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested

ISBN 0-203-56131-7 Master e-book ISBN

ISBN 0–415–31481–X (Print Edition)

For my parents, my late grandmother, my wife Sue Thompson and my teachers, especially the late Professor R.B. Smith, Professor Robert F. Ash, Professor Man Kam Leung and Professor T.D. Regehr.

Contents

List of illustrations Foreword Acknowledgements List of abbreviations and acronyms used in text Introduction Statistical note

ix xi xiv xvi xix xxii

PART I

1949–August 1960 1 Grain imbalances, CHINCOM and China’s evolving economic and foreign trade strategy, 1949–June 1957 2 China’s ‘Great Leap’ famine, ‘test purchases’ of Western grain and return to ‘readjustment’, July 1957–August 1960

1

3 27

PART II

September 1960–September 1962

49

3 Chinese–Western grain trade diplomacy: credits and famine relief, September 1960–August 1961

51

4 Aircraft, grain and the Kennedy Administration’s China policy debate, September 1961–September 1962

70

PART III

September 1962–July 1964 5 Japanese–Western China trade competition: POL, chemical fertilizer, equipment and technology, September 1962–August 1963

91

93

viii

Contents

6 China market rivalries intensify: Washington and Taibei’s response, September 1963–July 1964

112

PART IV

August 1964–October 1965

137

7 The ‘Third Front’, Vietnam and China’s foreign trade, August 1964–February 1965

139

8 Vietnam escalation and the non-strategic China trade: Washington’s position reconsidered, March–October 1965

154

PART V

October 1965–79 9 Cultural Revolution delays: steel complex negotiations and US–allied trade policy, October 1965–November 1966 10 Emergence from Cultural Revolution: trade negotiations resumed, US trade controls relaxed, November 1966–79

175

177 196

Conclusion

216

List of abbreviations in notes Notes Bibliography Index

220 222 256 271

Illustrations

Map 2.1

PRC’s wheat, rice and other major grain sown areas

29

Tables 1.1 1.2 1.3 2.1 2.2 3.1 3.2 4.1 4.2 5.1 5.2 6.1 6.2 7.1 7.2 8.1

Total annual PRC grain output, trade and government stockpile, June 1952–July 1957 PRC’s annual cereal imports, 1950–7 PRC’s annual foreign chemical fertilizer imports, 1950–7: total and by country/organization Total annual PRC grain output, trade and government stockpile, July 1957–May 1961 PRC’s foreign chemical fertilizer imports, 1957–60: total and by country/organization PRC–Western cash grain contracts: 20 September 1960–27 February 1961 PRC–Western credit grain contracts: April–August 1961 PRC–Western credit grain contracts: October 1961–26 March 1962 Proposed ITC–PRC/North Korea grain agreements PRC–Western grain contracts: September 1962–August 1963 Initial major PRC–Japanese equipment contract, August 1963 Major PRC equipment contracts with Western and Japanese firms: November 1963–July 1964 PRC–Western grain agreements and contracts: November 1963–July 1964 Major PRC equipment contracts with Western and Japanese firms: August 1964–February 1965 PRC–Western grain agreements and contracts: August 1964–February 1965 Major PRC equipment contracts with Western and Japanese firms: March–September 1965

8 9 20 41 43 53 63 73 76 96 109 118 128 142 145 156

x

Illustrations 8.2 9.1 9.2

10.1 10.2 10.3

PRC–Western grain agreements and contracts: March–September 1965 PRC–Western grain agreements and contracts: October 1965–December 1966 Major PRC equipment contracts with Western and Japanese firms: October 1965–December 1966 PRC–Western grain agreements and contracts: 6 December 1966–79 Annual PRC cereal, wheat, rice and maize imports: 1958–80 PRC’s total annual foreign chemical fertilizer imports: 1966–80

159 179 180 200 202 203

Foreword

A famous Chinese slogan proclaims that ‘agriculture is the foundation of the economy; grain is the cornerstone of that foundation’. It was originally coined in the aftermath of the Great Leap Forward and the subsequent great famine of 1959–61, which accounted for the lives of up to 30 million Chinese farmers – the worst famine in human history. The terrible events of those years have had a profound influence on China’s subsequent economic policies, even down to the present day. Not least, the memory of what happened at the end of the 1950s was central to Deng Xiaoping’s thinking about economic structural reform and thereby helped shape the distinctive approach towards reform that characterized China’s development efforts after 1979. Perhaps the most lasting direct legacy of the crisis of 1959–61 has been the Chinese government’s subsequent insistence that China should maintain ‘basic’ grain self-sufficiency. Indeed, one of China’s most remarkable economic achievements since it was forced, in 1961, to revert to the status of net grain importer is that the purchases of foreign grain have never exceeded 5 per cent of domestic cereal production. More questionable, in view of the increasingly serious arable land constraint that China has faced, is whether the policy of self-sufficiency has made economic sense. China’s abundant resource is labour, and economic logic would appear to demand a rise in cereal imports alongside a shift in the focus of farming from grain cultivation towards more labour-intensive – and higher-income – activities. The force of this argument is underlined by the existence of a least 130 million surplus farmers living in the Chinese countryside – many of them facing severe poverty. The official response is that geo-political concerns increase the possibility of China becoming more dependent on foreign supplies of such an essential good as grain. Only in recent months, and in the wake of four successive dismal harvests, does it look as if the government in Beijing may finally be about to acknowledge the necessity of lowering its grain self-sufficiency criterion to a level more consonant with its resource capabilities. The tortuous route that connects Maoist policies of the late 1950s to key rural social and economic issues confronting a very different Chinese society and economy today is still imperfectly understood. One of the most valuable aspects of Dr Mitcham’s remarkable study of China’s trade diplomacy during the Mao period is the light that it throws on the nature and sources of such continuities.

xii

Foreword

In so doing, it offers unique insights into some of the key influences on China’s economic and political trajectories in both periods. Through his painstaking use of hitherto unused official and personal archival materials, Chad Mitcham shows how the emergence, during the mid-1950s, of increasingly serious problems in agriculture encouraged China to explore the possibility of purchasing grain from Western suppliers. Against the background of a strict American trade embargo against China, this initiative was the source of considerable political tension between the governments of the US, Canada, Australia and some West European countries, although Mitcham suggests that well before the onset of famine Washington may have viewed the worsening food situation in China as a way of bringing political pressure to bear on Beijing. His analysis also highlights cleavages within the Chinese leadership that were associated with differing views on the acceptability, or otherwise, of opening and extending trade relations with the West. From 1961 until the end of the Mao period, China was consistently a net importer of food grains. The ramifications of this change in trading status went beyond the boundaries of this single commodity. As Mitcham demonstrates, by 1962 Mao’s idiosyncratic views on development had been superseded by the more orthodox – dare one say, sensible – views of Liu Shaoqi, Deng Xiaoping, Zhou Enlai and others. Thus, the pragmatism of these advocates of increased cereal imports from the West was extended to other products, reflecting their belief in the potential gains from overseas purchases of a wide range of goods – oil, steel, petrochemicals, chemical fertilizers, etc. – needed for agricultural and industrial growth. It is of course undeniable that the withdrawal of Soviet aid to China in the summer of 1960 was another factor that pushed the Chinese government towards increased trade with the West (including, by 1962, Japan). But one of the virtues of this study is the evidence it provides of a desire by several Western governments to engage with China well before 1960. It is true too that during the most radical phase of the Cultural Revolution (1966–9), most of the original advocates of expanded trade with the West were castigated as ‘capitalist roaders’. But except for this brief period in which China shifted towards trade autarchy, since the early 1960s China has consistently emphasized the important role of foreign trade as an engine of growth. As befits a former student of the late Ralph Smith, Dr Mitcham’s study includes rich comment on the impact of the Vietnam War on trade, diplomacy between China, the West and Japan. For China, the ‘Gulf of Tonkin incident’ (August 1964) was undoubtedly a watershed: not only did it elicit anti-American speeches and mass demonstrations in Beijing, and the publication of hostile editorials; in addition, and more importantly, it encouraged Mao Zedong to put the economy on a war footing, and thereby prepared the way for the establishment of a ‘Third Front’ deep in the western interior of China. However, during 1964–5, trade between China and Western European countries continued to prosper. Moreover, despite its increasing involvement in Vietnam, but aware of Chinese preoccupations with the Soviet military threat, even Washington sought to woo Beijing by lifting travel restrictions of Americans wanting to travel to China and rescinding its foreign

Foreword xiii assets control regulations. Even under the John F. Kennedy and Lyndon Johnson administrations there was evidence of growing flexibility in American government policy vis-à-vis China. Under that of their successor, Richard Nixon, efforts to normalize bilateral diplomatic relations assumed unprecedented priority. Chad Mitcham’s book transcends disciplinary boundaries. I find it difficult to imagine that there is anyone – modern historian, economist, political scientist, foreign relations analyst – who will fail to benefit from its rich and detailed analysis. It is based on the tireless pursuit and careful examination of research materials in archives the world over, backed up by personal interviews and the reading of secondary sources of even the slightest possible relevance. The result is a book of superb scholarship and insight that deserves repeated reading. Its coverage is truly encyclopaedic, the analysis and comment are balanced and objective, and the arguments are compelling. It will surely be a standard work of academic and professional reference for many years to come. Robert Ash Professor of Economics with reference to China and Taiwan School of Oriental and African Studies University of London May 2005

Acknowledgements

This book is based on over thirteen years of my research and could not have been completed without the help, support and encouragement of many people. Specifically, I wish to thank my doctoral supervisor at the School of Oriental and African Studies (SOAS), University of London, the late Professor Ralph Bernard Smith and Professor Robert F. Ash, supplementary co-supervisor of my PhD dissertation, for their kindness, patience, suggestions and encouragement; Dr Ang Cheng Guan, Dr Kate Darian-Smith, Max Forsyth-Smith, Dr Ilya Gaiduk, Alvin Hamilton, Dr David Lowe, Professor Peter Nolan, Professor David Shambaugh, Dr Odd Arne Westad, Professor Zhang Shuguang, Professor Beryl Williams, Miss Judith A. Stowe and Professor Kaoru Sugihara. Professor Man Kam Leung who introduced me to Asian studies at the University of Saskatchewan and has always encouraged and supported my endeavours; T.D. Regehr my MA thesis supervisor at the University of Saskatchewan; Professor W.A. Waiser of the history department there. The John F. Kennedy Library Foundation, the Lyndon Baines Johnson Foundation and the Dwight D. Eisenhower Foundation for providing me with generous research grants, and the archivists of the Kennedy, Johnson and Eisenhower Presidential libraries for their assistance. Elsewhere in America, staff of the (US) National Archives at College Park, MD; the Hoover Institution of War, Revolution and Peace, Library, Stanford University; J. Hugh Jackson Business Library, Graduate School of Business, Stanford University; the Boeing Company Historical Archives; the Library of Congress; and Grace at the Central Intelligence Agency for providing maps. President Kostas Skandalides of the International Writers’ and Translators’ Centre of Rhodes and his staff for inviting me to work on this book at their excellent UNESCO-sponsored facility. Additionally, in Australia, Canada, the UK, Hong Kong and Macau: archivists of the National Archives of Australia; the National Library of Australia; the Noel Butlin Archives Centre, Australian National University; as well as several current and former Australian Wheat Board officials; staff of the National Archives of Canada; the Library of Parliament; the Canadian Wheat Board Library; the Diefenbaker Centre; and the David Lam Centre; staff of the (UK) National Archives; the British Library’s newspaper library and the British Library of

Acknowledgements xv Political and Economic Science (LSE); staff of the Chinese Chamber of Commerce Library, the Hong Kong Business Registry Office and of the Hong Kong University Library’s special collections; and Director Jorge Manuel de Abreu Arrimar, Biblioteca Central de Macau; Directora Maria Helena Evora, Arqiuvo Historico de Macau, Instituto Cultural de Macau. While not relying on oral source material in formulating my conclusions, my general understanding of available written research material has benefited from help provided by various individuals, some of whom are acknowledged in the interviews and correspondence section in the bibliography, previously or currently with government, private business, the media or the church. My sister Dr Stephanie Mitcham and her husband Dr Patrick Sexton and friends who have helped, especially Mrs Gladys Steeves, Dr John Murray, Teresa Maini, Zhou Yiping, Laurie Landry and Vernon Bevan. Finally, my wife Sue Thompson for her love, encouragement, advice, frankness and patience while I was writing this book.

Abbreviations and acronyms used in text

AID ANGB ANIC AWB BCPIT CAAC CCP CCPIT CEROILFOOD CHICOM CHINATEX CHINCOM CIA CIRECO CITIC CNIEC CNTIC COCOM COFACE COSCO CROCP CTB CWB DEA DPI DTC ECGD EEC ENI Ex–Im Bank

Agency for International Development (US) Argentinian National Grain Board Azienda Nationale Idrogenajione Cumbustibili – an ENI Subsidiary (Italy) Australian Wheat Board British Council for the Promotion of International Trade Civil Air Administration of China Chinese Communist Party China Council for the Promotion of International Trade China National Cereals, Oils and Foodstuffs Import and Export Corporation A US government term for Chinese Communists China National Textile Import Export Corporation China List (a.k.a. ‘The China Differential’) of COCOM Central Intelligence Agency (US) China Resources Company China International Trade Investment Corporation China National Import–Export Corporation China National Technical Import and Export Corporation Coordinating Committee of the Consultative Group Compagnie Française d’Assurance pour le Commerce (French Government’s Export Credit Insurance Agency) China Ocean Shipping Company Committee for a Review of Our China Policy Commonwealth Trading Bank (Australian) Canadian Wheat Board Department of External Affairs (Australian/Canadian) Department of Trade and Primary Industry (Australia) Department of Trade and Commerce (Canada) Export Credit Guarantee Department (British) European Economic Community Ente National Idrocarburi (Italy) Export–Import Bank (Japan)

Abbreviations and acronyms xvii FACR FE FFYP FO FRG GLF ICE ICI ICP INR ITC ITT JASEA JCEIA JCOTLC JCS JCTPA JETRO JITPA JPC JSP L–D LDCs LDP L–T MAC MACHIMPEX MFN MHI MINMETALS MITI MN MOFT NATO NITREX AG NPC NSC ODW ONIC Patronat PKI PL 480

(US) Foreign Assets Control Regulations Far East Bureau (US Department of State) First Five Year Plan (PRC’s) Foreign Office (UK) Federal Republic of Germany Great Leap Forward (PRC’s) Italian National Foreign Trade Institute Imperial Chemical Industries (UK) Italian Communist Party Bureau of Intelligence and Research (US State Department) International Trading Corporation (Seattle, Washington) International Telephone and Telegraph Corporation Japanese Ammonium Sulphate Export Association Japan–China Export Import Association Japan–China Overall Trade Liaison Council Joint Chiefs of Staff (US) Japan–China Trade Promotion Association Japan External Trade Promotion Organization Japan International Trade Promotion Association Japan Peace Committee Japanese Socialist Party Linz–Donawicz Less Developed Countries Liberal Democratic Party of Japan Liao–Takasaki Trade Memorandum Military Affairs Commission (PRC) China National Machinery Import and Export Corporation Most Favoured Nation Mitsubishi Heavy Industries Ltd China National Metals and Minerals Import and Export Corporation Ministry of International Trade and Industry (Japan) Canadian Manitoba Northern Wheat PRC Ministry of Foreign Trade North Atlantic Treaty Organization Nitrogen Chemical Fertilizer Export Cartel (West European) National Party Congress National Security Council (USA) Ostausschuss der Deutschen Wirtschaft (the Eastern affairs committee of West German industry) National Cereals Office (France) Centre National du Patronat Français Partai Komunis Indonesia/Indonesian Communist Party Public Law 480 (US)

xviii Abbreviations and acronyms PLA POL PRC PSI RCAP ROC SBTC SEATO SFYP SINOFRACT SNAM-Progetti S/P STC TEC TFYP UK UN US USDA

People’s Liberation Army (PRC) Petroleum, Oil and Lubricant Products People’s Republic of China Partito Socialist Italiano (Italian Socialist Party) Rice and Corn Administration of the Philippines Republic of China (Taiwan) Sino-British Trade Council (UK) South-East Asia Treaty Organization Second Five Year Plan (PRC’s) PRC’s Chartering and Shipbuilding Corporation Societa Nationale Metanodetti-Progetti (ENI subsidiary) Policy Planning Council (US Department of State) Standard Telegraph and Telecommunications Toyo Engineering Co. Third Five Year Plan (PRC) United Kingdom United Nations United States of America United States Department of Agriculture

Introduction

. . . there can be no understanding the actions of any one global power without reference to the debates and uncertainties of its adversaries. One would not, after all, try to write the history of a game of chess, move by move, recording and analysing only the moves of ‘black’. (R.B. Smith, in An International History of the Vietnam War (Volume I): Revolution Versus Containment, 1955–61, 1983) Multinational scholarship of the kind required for enquiry into a subject like the grain trade is still in its infancy. The focus of historical research still seems to be on individual countries and their rulers rather than the world and its resources. [. . .] not that scholars have necessarily been derelict in their pursuits. Rather, the world and the way we look at it has changed faster than the scholarship. (Dan Morgan, in Merchants of Grain, 1979) It is no denigration of the Nixon–Kissinger achievement to suggest that the China policy initiatives of 1969–1972 did not in fact spring full-blown from the Republican presidency. Some seeds were sown in the previous decade . . . (James C. Thomson Jr, in ‘On the making of US China Policy, 1961–9: a study in bureaucratic politics’, The China Quarterly, April–June 1972)

This book examines in detail, and from a new perspective, a topic which has previously received too little attention. It is based on my research and analysis, from a multilateral perspective, of a wide range of declassified American, Australian, British, Canadian and (translated) Chinese government material from private and government collections throughout the world. It illuminates the crucial role that resources, commodities, business and trade diplomacy played not only in the People’s Republic of China’s (PRC) domestic conflicts, decisionmaking, economic development and dealings with foreign countries, but also in American relations with the major powers and especially the erosion of the United States (US)-led trade embargo against China between 1949 and 1979. It also emerges that because of the continuity of the Chinese Communist Party (CCP) government’s ‘readjustment’ and associated foreign trade policies during key phases between 1949 and 1979, this period was much more important to the

xx

Introduction

PRC’s post-1978 economic and political development than previously thought. Especially now, as the PRC begins participating fully in the World Trade Organization, it is timely and useful for the international community to understand more clearly the significance of the PRC’s first thirty years of economic development and international trade relations. Most previous research assume that from 1949 to the early 1980s Western and Japanese ‘China trade’ strategies were almost entirely shaped by US government policy, which, in turn, was determined by strategic concerns. This earlier research suggests that – apart from the success of the pro-Taiwan/Republic of China (ROC) ‘China Lobby’, during the 1950s and early 1960s, in pressuring Washington not to reduce its controls on trading with China or vote for the Beijing government’s admission to the United Nations (UN) – only in the early 1980s did the efforts of private ‘lobby groups’ begin actively shaping Western and Japanese ‘China policy’. However, by concentrating on key Sino-Western/Japanese trade negotiations and agreements, this book reveals that pro-China trade, farm and business lobby groups/trade promotion organizations played a leading role in the erosion of the American-led trade embargo against the PRC between 1949 and 1979. The development of these economic relations, contrary to official US policy and wishes of the ‘China Lobby’, are discussed in the context of the economic, especially grain, problems of the PRC and Western-aligned nations, Beijing’s development strategies, Sino-Soviet relations, and the Korean, Sino-Indian and Vietnam conflicts. During the 1950s paramount PRC leader Mao Zedong’s insistence that his country become self-reliant through rapid development resulted in worsening regional grain shortages, necessitating increased trade with the West and Japan. Sensing impending disaster, influential CCP officials with strong pre-1949 business ties in non-Communist countries began orchestrating a ‘readjustment’ based on reduced industrialization targets, the gradual lessening of Beijing’s near complete economic dependence on Moscow, the purchase of ‘state-of-the-art’ Western and Japanese equipment, complete industrial installations, related technology and technical support, as well as the return to the pre-1949 Chinese policy of importing Western grain. This ‘readjustment’ was accomplished largely through politically influential affiliated private and semi-official Chinese–Western/Japanese trade promotion organizations – which transcended national, political and ideological boundaries and arose out of the Moscow International Economic Conference of mid-1952. Following the Korean War, the Eisenhower administration was increasingly unsuccessful at convincing America’s allies to maintain more stringent trade restrictions aimed at preventing the PRC’s economic development. Westernaligned countries only agreed to controls limiting the People’s Liberation Army’s (PLA) strength and blamed US government export subsidies for their mounting domestic agricultural surpluses and industrial overcapacity, thus strengthening their resolve to expand trade with China. By promoting competition among Western suppliers (and their ‘lobby groups’/trade promotion organizations) the Chinese subsequently won important political and economic concessions.

Introduction xxi However, any illusion that Mao’s Great Leap Forward (GLF) could be financed by Western trade was shattered in mid-1958 with the suspension of Sino-Japanese trade relations, developing problems in Beijing’s lucrative South-East Asian export drive and the PRC’s inability to balance its trade with individual Western countries. Not until early autumn 1960, with the collapse of Sino-Soviet economic collaboration and the realization that grain shortages and famine had become widespread since late 1957, was the GLF halted and the ‘readjustment’ resumed. The Chinese then engineered a remarkably rapid recovery by utilizing their vast buying power to exploit market fragmentation, surpluses and industrial overcapacity in the West and Japan to obtain grain, chemical fertilizer, industrial equipment and technology on progressively favourable cash and credit terms, which Washington maintained was foreign aid. Between 1960 and 1966, despite the Sino-Indian border war and Sino-American involvement in the Vietnam conflict, the US government failed to persuade its allies to curtail trade with China. The Sino-Western/Japanese ‘credit race’, the establishment of reciprocal trade/news offices and trade fairs facilitated economic relations. Resultant ‘China policy’ debate within the Kennedy and Johnson administrations and recommendations for a gradual easing of Washington’s ‘China trade’ controls were delayed between mid-1966 and 1969 by events in Vietnam and the most disruptive phase of China’s Cultural Revolution when ‘readjustment’ was again abandoned. However, in the early 1970s, practical economic and strategic considerations led the Nixon administration and CCP government to seek a rapprochement based on trade diplomacy. Beijing also gradually implemented a variation of ‘readjustment’, which by 1979 served as an important foundation of the PRC’s future economic reforms.

Statistical note

Figures appearing in this book have usually been converted by the author to tonnes from tons, long tons or bushels, and while reported as accurately as possible, they should be considered as approximations. Cereal statistics, especially, are probably inherently imprecise because the international grain trade tends to be both highly competitive and confidential. Also, because amounts sold under particular contracts, as well as total national annual grain sales and production were revised often, they were reported differently from year to year. Sometimes grain shipments under a particular contract were made over at least two crop years, resulting in uncertainty about where they appeared or should have appeared in annual reports. Cereal statistics are sometimes reported by calendar year (1 January–31 December), international grain trade data often by crop year (usually from 1 August to 31 July). Cereal statistics appearing in this book are in trade grain weight (i.e. husked grain) and in milled weight (i.e. fine grain such as wheat converted into flour). Both grain and chemical fertilizer figures (the latter unless stated otherwise is written in terms of ammonium sulphate) are from annual reports published by the UN and by government departments, agencies or marketing boards of the major grain exporting nations as well as from correspondence and reports of private traders and government officials held at Western archives and libraries.

Part I

1949–August 1960

1

Grain imbalances, CHINCOM and China’s evolving economic and foreign trade strategy, 1949–June 1957

In an article dated 16 September, 1949, Mao [Zedong] ridiculed . . . Secretary of State Dean Acheson’s ‘great hope’ that the . . . [CCP] would ‘not be able to solve its economic problems’. . . , that . . . [the PRC] would ‘remain in perpetual chaos’. . . and that the only way out would be to ‘live on (American) flour . . . [i.e. to] become a US colony’. (US government translation and analysis of World Knowledge (a.k.a. World Culture) article) The . . . [USSR] . . . occupies the first place, but . . . it is necessary to get ready to do business with . . . Germany, Great Britain, Japan . . . the US and other states. (Mao Zedong, in a telegram from Moscow to CCP Central Committee, 22 December 1949) [We] often repeated: [it is] better to have a slower rate of construction . . . this was different from . . . [Mao Zedong]’s guiding policy of more, faster, better and more economical. (Excerpt from Chen Yun’s ‘self-criticism’ at the CPC Central Committee working conference, Chengdu, from 8–26 March 1958) [By 1955–6 the PRC’s] agricultural production could no longer meet the needs of industrial development, particularly those arising from the expansion of heavy industry and the accompanying growth of the urban population . . . [serving] as a warning . . . for us to readjust the ratio between agriculture and . . . industry . . . The readjustment was not made . . . (Xue Muqiao, in China’s Socialist Economy, 1981) [The US government has] had a concept, shown in the legislation by Congress – that anything . . . help[ing] to strengthen the economy of the Soviet Bloc was helping them strategically, but the Europeans have never agreed with that. Their concept of strategic is only something that is directly relevant to military strength . . . (Douglas Dillon to a US Senate Committee Hearing, spring 1964)

1949–Autumn 1953 In mid-1949, as the People’s Liberation Army (PLA) consolidated its Civil War victory, Chinese Communist Party (CCP) leaders were already debating how to transform China into an industrialized power. The Chinese needed substantial

4

1949–June 1957

short-term support from abroad to import essential items required to achieve paramount CCP leader Mao Zedong’s vision, of economic self-reliance through rapid industrialization. The CCP decided that imports of industrial-related equipment and technology were top priority and that traditional methods, within a new institutional framework, would be sufficient to generate adequate agricultural growth to meet industrial targets. Essentially, the Chinese needed to export enough foodstuff, textiles and light industrial goods to pay for necessary material, equipment and technology imports. However, even when China’s pre-1949 Guomindong leadership encouraged direct foreign investments, imports of Western grain were indispensable in balancing domestic grain supplies. Since wheat was less expensive and possessed a higher protein content than rice, the Chinese imported foreign wheat and exported domestically grown rice. Currency earned from selling one tonne of Chinese rice could purchase over 1.5 tonnes of Western wheat. Imported to Shanghai and China’s northern coastal cities, wheat eased the burden on the domestic grain distribution system, on the internal transportation network, on producers in provinces with surpluses and on the ‘traditionally’ grain-deficient northern region. However, Mao continually warned against China becoming dependent on trade with Capitalist countries. In September 1949, just before the establishment of the People’s Republic of China (PRC), he emphasized that Washington hoped that the CCP would be unable to solve China’s economic problems and that the country would become dependent on American grain imports.1 Because foreign grain imports might be used as a diplomatic lever and ran contrary to his vision that China achieve ‘self-reliance’, Mao insisted that it would be ‘dangerous’ to rely on such purchases.2 Chen Yun – a dominant PRC leader and economic planner3 – agreed with the position of the Chinese Republic’s founder, Sun Yat-sen that China could meet its internal grain transfer and foreign grain export obligations without importing grain from abroad if it distributed grain ‘rationally’ and took adequate measures to increase domestic production.4 Yet, as the pace of construction increased during the 1950s, Chinese leaders became increasingly polarized when debating what was ‘rational’. Mao’s decision-making was influenced by officials favouring rapid industrial development, especially in heavy industry, and by others, led by Chen Yun and Foreign Minister Zhou Enlai, emphasizing that balanced grain distribution, increased agricultural production and maintaining an overall balance should be top priorities as China proceeded more gradually towards less ambitious industrial targets. After June 1949, as the US government encouraged its allies to help encircle, contain, and isolate the CCP, Mao decided that China lean towards the USSR for economic aid. Consequently, the PRC’s increasingly ambitious development plans during the 1950s relied heavily on Soviet loans, trade agreements, industrial equipment, related technology and technical support. Nevertheless, as early as April 1949, Mao and other Chinese leaders such as Zhou Enlai, and Chen Yi agreed that, although it might be impossible for the CCP

Embargo and grain imbalances 5 to have close relations with Washington, it could be useful for a CCP government to trade with America and its Western allies. Limited Sino-American trade ‘. . . could deepen mutual understanding . . . [possibly leading] to an exploration of diplomatic ties on the basis of equality’ and would discourage China from becoming dependent on the USSR and other Communist countries.5 Despite the official CCP position that politics and economics were inseparable, Mao maintained that in ‘. . . politics severity is necessary, in economics give and take is permissible’.6 In fact, on 22 December 1949, frustrated by treaty negotiations with Soviet Leader Stalin, Mao told the CCP Central Committee that the PRC needed to trade with other countries, including Britain, Japan, India and the US.7 Over the next thirty years, the Beijing government took a practical and opportunistic approach to its foreign economic relations by using trade to win political and diplomatic concessions. Ironically, Mao’s rapid development policies during the 1950s upset China’s ‘traditionally’ tenuous regional grain balances, forcing Beijing to trade more with the West and Japan. These capitalist industrial powers possessed large commodity surpluses, industrial overcapacity, more advanced technology and the ability to provide generous credit financing. To further their trade and political objectives, the Chinese utilized the vast concentrated purchasing power of their state trading corporations to encourage competition and division between the fragmented private business interests from various non-Communist market sectors. On 14 February 1950, a thirty year Sino-Soviet alliance was signed under which China obtained extensive Soviet economic and financial aid. Consequently, US government China trade controls, comparable to those applied against the USSR and Communist countries of Eastern Europe, were officially implemented in March 1950. The Coordinating Committee of the Consultative Group (COCOM) (a.k.a. ‘the Paris Group’), was created in 1949 under the North Atlantic Treaty Organization (NATO). Composed of fifteen nations – the US, Canada and West European countries, excluding Iceland – COCOM produced three regularly reviewed lists of embargoed items and attempted to administer uniform control of exports to the USSR and its East European allies.8 The US Treasury refused to issue export licenses for American business contracts with China and North Korea after the Korean War began on 25 June 1950. COCOM nations agreed in July to apply controls on China trade comparable to those implemented against the USSR and Eastern European nations. Chen Yun had already warned that China’s participation in the Korean War could delay domestic development. On 3 December, following China’s entry into the war, Washington introduced a complete embargo on trade with China, Hong Kong and Macau.9 However, as Washington pressed its allies to enforce more stringent controls on China trade, Sino-Western–Japanese trade diplomacy was already under way. Arising from the International Economic Conference (Moscow) in April 1952 were affiliated organizations in several countries for promoting international trade between nations with no formal diplomatic relations. On 4 May the first of these

6

1949–June 1957

semi-official organizations, the China Council for the Promotion of International Trade (CCPIT) and the British Council for the Promotion of International Trade (BCPIT), were founded. Many CCPIT members had close ties to Zhou Enlai and Chen Yun and had been influential trade union leaders, bankers and businessmen before 1949 when they worked with Western business representatives who also later became involved with CCPIT’s associate organizations abroad. Many CCPIT officials gradually emerged as leading figures in developing Sino-Western trade through CCPIT’s foreign affiliates. Following the International Economic Conference (Moscow), international economic and political developments worked in favour of CCPIT and their foreign and domestic associates. CCPIT chairman and leading PRC banking official Nan Hanzhen10 subsequently worked closely with Tokyo born Liao Chengzhi11 to develop the Sino-Japanese barter trade. The Chinese considered such trade advantageous because it would enable them to obtain essential items for domestic development without having to spend limited available currency. On 1 June 1952, Nan Hanzhen signed an initial private trade agreement with Japan which provided for £30 million in goods to be bartered before the end of the year. Although only about 5 per cent of this amount was traded because the Japanese refused to sell the Chinese embargoed items such as special steel, tin, locomotives, cranes and trucks, it enabled Beijing to obtain some essential items such as chemical fertilizer in exchange for coal. The agreement sparked greater Japanese interest in the Chinese market, placing Tokyo under pressure to re-examine its China trade restrictions. Meanwhile, in January 1950 Britain became the first Western government to ‘recognize’ the PRC, but this did not result in the full exchange of Sino-British diplomats. In January 1952, when Washington accused the British of exporting strategic goods to China, often on UK ships, Whitehall insisted that strategic goods were not involved and refused to implement shipping controls unless other nations followed suit.12 In September, when the China Committee of COCOM (CHINCOM) was established, it included the US, its Western allies and Japan and sought to prevent COCOM listed goods from being exported to China. CHINCOM also administered the China differential (a.k.a. the China list), embracing a wider range of embargoed goods than those prohibited under COCOM,13 and applying only to the PRC. The difficulties of maintaining the China differential became apparent almost immediately when the Chinese continued to obtain rubber, an embargoed item, indirectly from Britain through the USSR and from Sri Lanka after signing a five year rice–rubber barter agreement with Colombo on 4 October 1952. With international rice prices rising and rubber prices falling, Beijing made the most of this opportunity to expand its political influence abroad while Colombo was especially grateful to secure an inexpensive source of rice. Also while Western allies supported trade restrictions aimed at preventing the development of the PLA, they increasingly resisted Washington pressure to enforce controls aimed at limiting the PRC’s economic development. The US and its allies, led by Britain, disagreed over the definition of strategic when applied to

Embargo and grain imbalances 7 items with both civilian and military uses and/or items not directly related to military use. Thus, during 1952, Paris Group members agreed to an exceptions procedure under which COCOM member nations could permit the export to China of goods on the ‘Watch List III’ and, under special circumstances, items on the ‘China List’ which the exporting countries believed would be used solely for civilian purposes.14 After the Korean armistice on 29 July 1953, Washington continued to pressure its allies to oppose any reduction in the China differential, PRC admission to the United Nations (UN) and diplomatic recognition of the Beijing government. However, the international dispersal of new technology and machinery after the Second World War was contributing to overproduction and overcapacity in the agricultural, resource and manufacturing sectors of Capitalist countries. Because the US was the richest and most technologically advanced country in the world, Washington could afford to be selective when deciding which countries American interests could trade with. It provided generous subsidies to American producers who were blocked from entering a particular market. In contrast, US allies facing domestic production surpluses, overcapacity and American competition in non-Communist markets, began considering trading with Communist nations to balance their trade. Following Stalin’s death on 5 March 1953, Moscow agreed to continue providing Beijing with economic and technical support, but also appeared eager to develop trade with non-Communist countries. About that time, the PRC faced its first grain crisis, resulting in the depletion of the national grain reserve (see Table 1.1). The Central government maintained that hoarding and black-market sales, rather than actual shortfalls were responsible for grain shortages occurring in various parts of China during the spring and summer.15 Nevertheless, on 16 October, the CPC Central Committee adopted measures allowing the Central government to increase grain procurement, the size of the stockpile and the volume of foreign grain exports (see Table 1.1). However, residents of the traditionally grain deficient North who preferred eating wheat protested when the central government organized shipments of rice from the South to cover northern grain deficits. Thus, in autumn 1953, the Chinese government decided to import a small amount of foreign wheat to help meet demand. Competition among the major ‘traditional’ grain exporting nations, Australia, Argentina, Canada and the US was intensifying as record world grain surpluses developed. America’s rivals in grain exporting were eager to enter available new markets – those still untapped by the US through Washington’s growing multi-million dollar government subsidized surplus disposal programme. However, PRC government budgets did not allocate funds for purchasing foreign grain.16 Regardless, a large portion of China’s very limited ‘hard’ currency reserves were in sterling which, during the early to mid-1950s, Western nations were reluctant to accept as payment. China also possessed large trade deficits with many grain exporting countries – including Australia, France, West

⫹0.31 163.5 ⫹2.9

⫺0.45 160.6 ⫹19.7 0.0146 ⫹0.0145

0.0001 ⫹0.0001

1.55

n.a.

6.8c (June) 9.4 (December) ⫺3.6 (June) ⫹2.6 (December) 1.86

1953

10.4 (July)

1952

⫹0.2854

0.0300

166.1 ⫹2.6

⫺0.12

⫹0.1522

0.1822

180.2 ⫹14.1

⫹0.53

2.27

⫹4.2

⫹4.2 1.74

17.8

1955

13.6 (June)

1954

⫺0.033

0.1492

188.4 ⫹8.2

⫹0.42

2.69

⫹3.89 to ⫹4.2

21.69 to 22.0 (June)

1956

⫹0.0176

0.1668

190.7 ⫹2.3

⫺0.57

2.12

⫺3.2 to ⫺3.51

18.49 (July)

1957

Notes a Figures for December 1953–5 are based on Walker’s (op. cit., pp. 42, 80–3, 160) statistics for PRC grain stock changes between 1953 and 1957 (i.e. his estimates of regional grain imports and exports) and thus may differ from actual, as yet unreleased official national grain stockpile figures. b Figures for December 1953–7 are from Walker, op. cit., pp. 42, 80–3, 160. c Stockpile essentially depleted, in terms of the PRC’s large population. n.a. ⫽ not available.

Sources: Table composed by author from estimates and official PRC sources: Walker, op. cit., pp. 42, 80–3, 160; Liu and Wu, op. cit., p.128; Lardy and Lieberthal, op. cit., pp. xx, ix; CIRECO op. cit., p. 909; C.A. Carter and F.N. Zhong, China’s Grain Production and Trade: An Economic Analysis, London: Westview Press, 1988, p. 5.

Foreign grain exports Change in foreign grain exports Grain output Change in grain output Total foreign grain imports Change in foregin grain imports

Change in stocksb

Total stocksa

Year

Table 1.1 Total annual PRC grain output, trade and government stockpile, June 1952–July 1957 (in million tonnes)

Embargo and grain imbalances 9 Germany and Argentina. Although Beijing had large trade surpluses with Asian countries, particularly in South-East Asia, these helped repay debts to Moscow and cover growing trade deficits with West European countries. Nevertheless, in the autumn of 1953 the China National Import–Export Corporation (CNIEC) purchased approximately 15,000 tonnes of Argentinian wheat, hoping that the Peron government would reciprocate by sanctioning purchase of Chinese goods (see Table 1.2). Argentina thus became the first Latin American country to conduct direct, albeit limited trade (non-governmental only) with the PRC.17 By importing Argentinian wheat, Beijing could also irritate Washington.18 Yet, because the quantity purchased was comparatively small, it would not appear that serious grain problems were developing in China. About that time, another CCPIT official, Lu Xuzhang19 who became increasingly associated with policies advocated by Chen Yun and Zhou Enlai, was appointed director of the PRC Ministry of Foreign Trade’s (MOFT) third bureau, which handled trade with Western countries. Vice-Minister of Foreign Trade Lei Renmin – another Shanxi-born CCPIT official20 – and Shanghai flour/cotton mill Table 1.2 PRC’s annual cereal imports, 1950–7 (in tonnes; trade grain weight and % of total grain imports) Year Total cereals 1950 1951 1952 1953

67,973

Wheat

Rice

Maize

57,915 (85%) — — —

—

— 102 14,834 13,818 (93%) (Argentina) 1954 30,481 27,332 — (89%) (19,500 ⫹ Argentina) (2,000 ⫹ Canada) (2,000 ⫹ Australia) 1955 185,124 21,947 139,402 (12%) (200 Bulgaria) (86%) (20,000 ⫹ Canadian (800 Hong Kong) via Poland) (138,000 ⫹ Burma) 1956 151,594 22,963 116,541 (15%) (77%) (Canadian via Poland) (1,000 Bulgaria) (86,000 ⫹ Burma) 1957 169,477 50,701 107,700 (30%) (Canadian and (64%) (5,000 Bulgaria) French from 1957–8 (25,000 Cambodia) account) (81,000 ⫹ Burma)

— — — —

—

12,193 (7%) (2,000 Bulgaria) (10,193 Cambodia) 11,075 (5%) (4,000 Bulgaria) (7,075 Cambodia)

Sources: Table prepared by author from: CIRECO, op. cit., p. 944; statistics for PRC trade partners (except Canada and France in 1956 and 1957) from R.H. Kirby, ‘Agricultural Trade of the People’s Republic of China, 1953–69’ and FEER, 17 January 1957, p. 92.

10

1949–June 1957

tycoon and banker Rong Yiren became executives of the newly established PRC federation of industry and commerce. Then, on 29 October CCPIT and the union of the Japanese Diet members to promote Japan–China trade signed a second Sino-Japanese barter agreement. There was growing Japanese interest in the Chinese market and, this time, about 38 per cent of the £30 million maximum amount provided for under the agreement was traded.

Spring 1954–February 1955 Severe spring flooding in 1954 devastated crops in central and southern China. Consequently, the central government increased grain procurement from regions with surpluses to cover shortages, augment the national stockpile and export abroad to earn currency. Although its total foreign grain exports were less than the previous year, it placed approximately 4.2 million tonnes of grain in the national stockpile (see Table 1.1). Grain producers again resisted government procurement by hoarding grain. Rapid development and associated migration to the cities caused excessive urban grain sales leading to severe regional food shortages throughout 1954.21 By mid-1954, as Mao pressed for more rapid domestic development, Chen Yun and Zhou Enlai realized that China’s grain distribution system was becoming much less ‘rational’. If this trend continued, the Chinese government might only avert disaster by substantially increasing domestic grain production and foreign grain imports. Although consumers in the grain-deficient North demanded wheat, Mao remained opposed to spending extra funds to buy significant quantities of foreign grain. Nevertheless, a Soviet source confirms that throughout the 1950s some Chinese leaders felt that the PRC should develop relations with the US and its allies to counterbalance Soviet influence.22 This would allow the Chinese access to Western grain on credit or on subsidized terms. Indeed, concerned by the degree of its economic dependence on Moscow in early 1954 – and attracted by opportunities presented by CCPIT and its foreign affiliates – Beijing gradually began reducing its trade deficit with Moscow and doing more business with Western and Japanese firms that were desperate to find new export markets. Chinese trade offers placed Western-aligned governments under great pressure from domestic business lobby groups, often the affiliates of the CCPIT. The UK government was especially vulnerable to this pressure because Britain’s postwar financial/economic recovery proceeded more slowly than that of other Western European nations. In early 1954, British firms, associated with the pioneering unofficial pro-China trade organization, the ‘48’ Group (a BCPIT affiliate), signed provisional contracts with the Chinese covering many items which could be exported if the CHINCOM controls were relaxed. Beijing also promised to place larger orders if the embargo was reviewed further.23 Meanwhile, Washington was concerned (since at least November 1953) that, because US trade policies were being blamed for falling rubber and tin prices,

Embargo and grain imbalances 11 Jakarta might remove its embargo on exporting rubber to the PRC. US President Dwight D. Eisenhower and Treasury Secretary G.M. Humphrey agreed that long-term efforts to maintain stringent controls on East–West trade would be unproductive. Instead, Eisenhower suggested that Western allies consider how best to advance their interests through trade with Communist nations. However, the US Defense establishment and Commerce Department, with the overwhelming support of the US Congress and the American people, firmly opposed Whitehall’s proposal that Western allies substantially reduce their trade restrictions. Although National Security Council (NSC) members agreed that Washington should not protest if Tokyo gradually relaxed its China trade controls – to the CHINCOM level, Eisenhower, aware of China’s food problems, thought that Sino-Soviet relations might be strained if Western aligned nations, especially Japan, were permitted to export more goods – which the USSR could not provide – to the PRC. He felt that such trade might be ‘. . . the best way to influence the Chinese people against their Communist government . . .’, but US Defence officials maintained that, if initiated, the Chinese would mainly purchase items for increasing the PLA’s capacity to wage war.24 Nevertheless, during April the US and British governments agreed to initiate a review, both at COCOM and trilaterally (France included), of the international control lists. Then on the 22 April, Burma (renamed Myanmar in June 1989 after falling under control of a junta) reached a three-year agreement with the PRC under which Rangoon (currently known as Yangon) agreed to purchase enough Chinese goods to balance Beijing’s purchases of up to 300,000 tonnes of Burmese rice. Beijing found Chinese–Burmese economic relations politically appealing because Washington had terminated its aid agreement with Rangoon in March 1953. In 1954, the Burmese and Thai governments had complained about Washington’s new multi-million dollar Public Law (PL) 480 grain disposal program,25 emphasizing that it disrupted traditional South-East Asian rice trading patterns and damaged their economies. Beijing probably diverted most of the rice they purchased from Burma to Colombo to fulfil PRC obligations under the Sino-Sri Lankan rice–rubber agreement. This arrangement undercut Burma’s own exports to Colombo, but it eased slightly and indirectly the burden on Chinese grain producers without drawing international attention to the PRC’s domestic grain situation. With Washington under growing pressure from its allies to reduce controls on the China trade, some Chinese leaders wanted to re-examine the possibility of improving Sino-American relations. An early Sino-American diplomatic breakthrough might provide Beijing with an inexpensive source of wheat and eliminate the possibility that a future PRC grain supply crisis could leave China with no alternative but to lose face by asking Washington for grain before the establishment of diplomatic relations. The Geneva Conference, convened in spring 1954, is usually considered a landmark in terms of the development of diverging US-Allied approaches to China. During the proceedings, American negotiators rejected a Chinese suggestion that a third party be appointed to handle a Sino-US exchange of detained

12

1949–June 1957

nationals on the grounds that, if accepted, it would be a move towards establishing diplomatic relations. Nevertheless, before the end of the conference, on 15 June, after the Chinese agreed to release six US civilian detainees, both sides agreed to hold subsequent talks.26 Although in June the Chinese initiated a propaganda campaign to ‘liberate Taiwan’, on the 17th Sino-British reciprocal chargé d’affaires representation was established, without full ambassadorial status to its representatives. The British government remained opposed to enforcing an embargo aimed at limiting economic development of Communist countries. While American officials almost unanimously opposed Whitehall’s proposal that eighty items be removed from the International Embargo List, Eisenhower told NSC officials during the summer of 1954 that, because of Western economic problems, Washington could not expect its allies, especially Japan, to reject Communist trade offers. He insisted that it was time to enforce what Washington and London agreed was ‘. . . genuinely strategic . . . [and] pare this strategic list down to its fundamentals’. On 16 August, the US government agreed to a reduction of the COCOM list,27 but the China differential increased because the modifications were not extended to CHINCOM.28 Nevertheless, Beijing could now acquire embargoed goods more easily by re-export through other Communist countries. Embargoed items purchased in COCOM member countries continued to reach the PRC via Hong Kong, Switzerland and Sweden (not ‘Paris Group’ members), contributing to Western and Japanese suspicion that they were maintaining more stringent controls on the China trade than were their allies.29 Also during the summer the PRC government made several appointments which helped smooth the way for improved Chinese–Western trade relations. Shanxi-born Bo Yibo was replaced as Minister of Finance by Li Xiannian and appointed Vice-Chairman of the State Planning Commission. Rong Yiren was elected Deputy for Shanghai to the First National Party Congress (NPC) and appointed Vice-Chairman of the city’s section of the federation of industry and commerce. Nan Hanzhen was elected deputy for Shanxi to the First NPC and became chairman of the Bank of China ( public shares)30 – which oversaw the balancing of the PRC’s foreign trade. The bank’s Hong Kong branch – vital to China’s international trade and currency operations – worked closely with its branches in Singapore, Malaysia and London and with the PRC’s state trading organizations, such as China National Cereals, Oils and Foodstuffs Import and Export Corporation (CEROILFOOD), China National Technical Import and Export Corporation (CNTIC), CNIEC and the China Resources Company (CIRECO), the latter’s Hong Kong affiliate. In early autumn the Chinese used the small amount of currency that was available to buy about another 27,000 tonnes of wheat from the Argentinians – whom they were still trying to persuade to reciprocate by purchasing PRC goods of comparable value. During a CCPIT-sponsored visit to China by Argentinian business representatives earlier that year, both sides had jointly announced their plans to expand Sino-Argentinian trade.31 However, the relatively small grain agreements

Embargo and grain imbalances 13 with Argentina and Burma did not resolve the PRC’s growing domestic regional food shortages and the demand for wheat in the North. Beijing remained unwilling to accept international aid. Twice during 1954, when the Geneva-based League of Red Cross Societies offered to organize international aid for China, the Beijing government insisted that it could cope on its own. Also noting that the Sino-Sri Lankan barter trade in rice and rubber continued, and not wanting to help strengthen the PRC economy and the PLA or give Western allies the impression that it was softening its China policy, in August, Washington advised against American relief being offered to Beijing. Nevertheless, CIA director Allen Dulles convinced NSC members that Washington should occasionally consider making such an offer because of the propaganda value it might have in non-Communist countries and among PRC citizens, if they learned of it.32 The beginning of the ‘Taiwan Straits Crisis’ on 3 September marked the start of a period of increased Sino-American tension. Yet, the strengthening of Japan’s pro-China trade lobby33 culminated on 22 September with the establishment of the official Japanese International Trade Promotion Association (JITPA), an official organization. Then in October, Norway extended full diplomatic recognition to China and the following month, Sino-Dutch relations were established at the chargé d’affaires level. By mid-November, China’s relatively poor agricultural performance and escalating development targets were undermining industrial performance under the First Five Year Plan (FFYP),34 leading Liu Shaoqi, Zhou Enlai, Chen Yi, Chen Yun and Deng Zhihui to recommend the dissolution of the Agricultural Producers Cooperatives (APC). Following the spring floods, the central government had purchased an additional 3.5 million tonnes of grain from the peasants, thus exacerbating regional shortages. During November and December all CCP members were preoccupied with grain purchasing and marketing problems.35 Washington was even more concerned than previously about Japan after Prime Minister Yoshida was replaced by Hatoyama – who obtained socialist support by agreeing to hold elections in March 1955 and favoured increased Japanese trade with the PRC and the USSR. In December Eisenhower urged the CIA to prepare an estimate analysing the net effect on Japan and North China/Manchuria if Japanese consumer goods were given greater access to the PRC in exchange for Chinese items required by Japanese industry and answering the question: would such trade promote democratic ideas in China? However, at least one NSC member was sceptical because it was the PRC trading corporations which distributed foreign imports among China’s citizens – who were not necessarily told where items originated.36

March–January 1956 A poor harvest in southern China in early 1955 contributed to the PRC’s second grain supply crisis, to which the CPC Central Committee responded on 3 March by issuing an emergency directive setting levels of grain production, sales and

14

1949–June 1957

purchases.37 The PRC’s overall grain output in 1955 established a new high and, to help finance the accelerating pace of domestic construction, Beijing increased foreign grain exports and the size of the national stockpile as a safety net (see Table 1.1). Under the increased burden, grain producers again withheld stocks, thus aggravating the already widespread grain shortages. In 1955 the central government had difficulty obtaining grain transfers from Guangdong province to help cover regional shortfalls in the ‘traditionally’ graindeficient northeast and responded by purchasing substantially more foreign rice than in previous years – a total of 139,000 tonnes from Burma. However, northern residents grew more upset about the rice shipments they were receiving and demanded wheat and soybeans instead. Just when it appeared prudent for the Chinese leadership to reduce its development targets, Mao’s landmark recommendation to the CPC’s National Conference in Beijing (21–31 March) that China should strive to surpass the leading industrial powers within a few decades, launched the ‘First Leap Forward’. During March, Washington told Taibei not to expect unqualified US support for defending Republic of China (ROC) – controlled offshore islands or for keeping the PRC out of the UN, while Secretary of State Dulles admonished ROC leader Chiang Kai-shek for threatening an imminent Guomindong invasion of China. However, the Task Force on Economic Defense Policy’s report to the Council on Foreign Economic Policy (CFEP) on 23 March recommended that the PRC should be kept under ‘. . . economic and other pressures . . . [that] add to the strains which ultimately lead to disintegration . . . [it] has undertaken heavy commitments . . . [probably] it cannot under present circumstances increase its resources fast enough to cover . . . [them] all. This kind of dilemma tends to lead to breakdown’.38 More pragmatic CCP leaders had already reached a similar conclusion and appeared to have responded to Mao’s growing impatience by instructing CNIEC officials to initiate more serious talks with Western and Japanese firms about purchasing power plants, heavy electrical equipment, scientific instruments, vehicles, locomotives, tractors, chemical fertilizers and basic raw materials. Prospects for China’s trade with the West and Japan were improved by the compromise, reached in 1955, between the US and its allies, providing ‘Paris Group’ member nations, discretionary powers to export some embargoed goods which did not increase the importer’s military potential.39 Although Beijing continued the trend begun the previous year of increasing purchases of Western and Japanese goods, it stimulated greater competition by increasing imports of Soviet products. Also around March, the PRC government made several more appointments which could facilitate Chinese purchases of Western grain and trade with nonCommunist countries. Shanxi native, Liu Xiwen was appointed deputy director of MOFT’s third bureau, Rong Yiren was elected member of the People’s Council of Shanghai and Xiao Fangzhou was appointed CCPIT secretary general. Lu Xuzhang was also elected member of the Committee of Democratic National Construction Association – whose 150 members had been mostly business and industrial leaders who had helped engineer economic expansion in the 1920s and 1930s.

Embargo and grain imbalances 15 Then, in mid-1955 a CCPIT delegation was dispatched to Buenos Aires40 to determine whether the Argentinians would buy enough Chinese goods to enable Beijing to purchase more Argentinian wheat. However, since Argentina was in the final days of the first Peron regime, a Sino-Argentinian grain deal was out of the question. China’s foreign wheat import options were also diminished by serious grain production problems in the USSR, Czechoslovakia, East Germany and Poland, which all began importing Canadian grain on credit terms in 1955.41 At the Bandung Conference on 23 April, Zhou Enlai accompanied by Minister of Trade Ye Jizhuang42 told Asian and African leaders that Beijing wanted good relations with Washington and would participate in Sino-American talks aimed at reducing tensions in Asia. Three days later, the US government agreed to the talks on the condition that the issues of Taiwan and Washington’s refusal to grant diplomatic recognition to the PRC would not be raised.43 Lei Renmin, Nan Hanzhen and Lu Xuzhang’s trade delegation was in Japan at that time and on 4 May, the third Sino-Japanese trade agreement was concluded under which Beijing was to import mainly Japanese fertilizer, steel and machinery in exchange for Chinese agricultural products and minerals. Trade picked up as the Japanese began making frequent use of COCOM’s ‘exceptions procedure’ to export increasing quantities of steel products to China.44 During the first half of 1955, Beijing also substantially increased imports of French and West German equipment and metal, and the British government responded that summer45 by telling Washington that the China differential should be reduced. While visiting Washington in early July, U Nu, who had received Zhou Enlai after the Bandung Conference,46 offered to help facilitate Sino-American diplomacy. However, with America experiencing the first of three years of solid economic growth after the 1954 recession, Washington remained under Congressional pressure not to reduce the China trade controls. On 13 July Washington notified Beijing, through the British government, that it was willing to participate in Sino-American ambassadorial talks to secure the release of Americans still held in China. On 30 July, at the second meeting of the First Session of the NPC, Zhou Enlai expressed great hope that these talks would lead to a peace agreement involving the PRC, the US and Asian countries and result in trade between all countries. He added that the Chinese could only transform their economy through strength and unity within a peaceful international environment.47 Meanwhile, in June and July, Lin Haiyun and Lu Xuzhang were appointed Assistant Ministers of Foreign Trade while Lei Renmin continued to gain influence. At that time, with peasants continuing to withhold grain stocks from the government, Chen Yun and Zhou Enlai were preparing new measures on nationwide urban grain rationing, purchasing and supply which were formally adopted by the Seventeenth Session of the State Council on 5 August. Mao’s speech and report of 31 July, the day before the Sino-American ambassadorial talks opened in Geneva, was critical of what he felt was China’s slow pace of development. This was a great watershed in the PRC’s history as it

16

1949–June 1957

launched a high tide of collectivization resulting in almost all peasant households being incorporated into fully socialist collectives within one year. Suddenly, as China’s First Leap Forward continued, the Chinese government had abandoned its plan to achieve mechanisation before collectivization. During the autumn Mao also convinced sceptical, powerful domestic industrialists and businessmen to agree to transform all domestic enterprises into joint ventures, although they soon became resentful of CCP interference in the running of these operations. About that time the Chinese government also realized that it must soon import more foreign wheat to appease the northern consumers. However, its options were even more limited than they had been a few months earlier. The Peron regime was overthrown on 19 September and Argentina’s wheat exports were drastically reduced because total domestic wheat production in 1955–6 was about 2.72 million tonnes less than the previous year. In Western Europe, the extremely cold winter seriously damaged wheat crops, so that limited grain stocks were being depleted.48 International competition for rice stocks was intensifying and in July a three year Soviet-Burmese rice deal was reached, under which Moscow agreed to provide Rangoon with machinery. Nevertheless, Chinese officials realized that from mid-1955 onward, Western grain interests – hearing unconfirmed reports of grain shortages in the PRC – were very eager to sell part of their record wheat surpluses to China. On 1 August, just prior to the opening of the Sino-American talks, the Chinese announced the release of US airmen. While topics discussed during the first meeting included: the repatriation of civilian prisoners and Taiwan, by the 2nd, America’s negotiators gathered that Beijing expected Washington to respond to their prisoner release initiative by relaxing its trade embargo against China.49 Suddenly, about 20 October – after receiving an unofficial enquiry from Chinese representatives – a New York firm asked if Ottawa would license a 20,000 tonnes shipment of Canadian wheat/wheat flour to Shanghai.50 There undoubtedly remained considerable opposition within the Beijing leadership to purchasing Canadian or American grain directly from Western interests, but this enquiry was made just as the Sino-American ambassadorial talks at Geneva reached a critical phase. On 10 November US negotiators rejected a Chinese draft agreement on Sino-American diplomatic recognition and China’s UN membership bid, tabled thirteen days earlier, but Zhou Enlai remained determined to orchestrate a diplomatic breakthrough.51 In early December 1955, Whitehall had notified Washington that in January 1956, it would begin unilaterally reducing its China trade controls to the level applied to other Communist nations.52 British Prime Minister Eden was unable to convince the Eisenhower administration to agree to a relaxation of the trade controls during his visit to Washington in late January. However, at the NSC’s 274th meeting on 26 January Eisenhower asked CFEP to estimate the potential net dollar gain or loss to the US and allied economies if the controls on trade with the ‘Soviet bloc’ were abolished.53 Meanwhile, between November 1955 and April 1956, the Chinese purchased 30,000–45,000 tonnes of Canadian wheat (and a small amount of French flour)

Embargo and grain imbalances 17 from the Polish government. Poland had agreed to purchase approximately 380,000 tonnes of Canadian Manitoba Northern (MN)#5 wheat54 on credit terms in mid-1955 and in December was negotiating with Canadian firms for another 30,500 tonnes of MN#3 wheat – a variety which Poland had not previously purchased.55 However, China’s grain distribution problem remained unresolved.

January–June 1956 Grain rationing, introduced in August 1955, reduced China’s urban grain sales to a more reasonable level. This measure, together with a record domestic grain harvest in 1956, allowed the central government to attempt to improve its relations with the peasants and consumers by reducing rural grain procurement and, in early 1956, raising urban grain rations.56 By June of that year the national grain stockpile reached a record 21.69 million tonnes (see Table 1.1), but by early 1956, rapid collectivization and the First Leap Forward contributed to a pronounced increase in the rural and urban demand for grain, especially for fine grains such as rice and wheat. More than ever, the PRC’s grain output was insufficient to meet demand.57 The First Leap Forward had been enthusiastically supported by Zhou Enlai and Chen Yun – both of whom were instrumental in setting ambitious targets under the Twelve Year Draft Plan for Agriculture (40 articles) – which was formally adopted by the Supreme State Conference in January 1956.58 However, between January and April 1956, as the Sino-American Geneva talks reached an impasse, Zhou Enlai, Chen Yun, Li Xiannian and Li Fuchun, voiced opposition to progressively escalating domestic capital construction targets and associated waste and shortages and were gaining support for their proposal that China learn from the USSR’s mistakes and embark on an economic ‘readjustment’.59 This strategy involved China pursuing more gradual economic development and dramatically improving economic relations with the West and Japan in order to obtain grain, chemical fertilizer and state-of-the-art equipment and technology to raise agricultural production. As we will see, in 1956 Beijing was becoming disillusioned with its Sovietstyle development policies and aspects of aid that Moscow was providing. The PRC leadership was also displeased with Soviet leader Khrushchev’s speech to the Twentieth Congress of the CPSU in February 1955 on Stalin and the international Communist movement. Many years later the Chinese themselves admitted that this was a defining moment in Sino-Soviet differences.60 By about March, Mao had been persuaded that it was necessary to lower industrial targets substantially while establishing a better balance between industry and agriculture. This was an extremely important development as it meant that the Chinese leadership was officially rejecting the strategy advocated at the outset of the FFYP. This ‘readjustment’ concept was reflected in the Chinese leader’s 25 April speech ‘on the Ten Great Relationships’, one of the most significant ever given by the Chinese leader. It noted the shortcomings of Soviet and Chinese science/development and advocated a more flexible and balanced approach to the

18

1949–June 1957

‘industry first’ Soviet model previously favoured by Chinese policy. Mao added that China . . . must learn from the strong points of all . . . countries, including the advanced sciences and technologies of capitalist countries and their scientific management of enterprises . . . we must learn with an analytical and critical eye . . . [but] we must never copy them indiscriminately or transplant them mechanically.61 At the Leipzig Spring Trade Fair, Ding Kejian – a member of Nan Hanzhen’s delegation there, who was also a high ranking CNIEC official and top economic advisor to Zhou Enlai – told ‘48’ Group representatives that China required approximately 1.4 million tractors during the period covered by the ‘Twelve Year Plan for Agriculture’. Only some of these would be purchased abroad since tractors were on the COCOM list. However, UK tractor manufacturers were suffering from slumping sales and idle capacity and by March, Massey-Harris-Ferguson and David Brown representatives were negotiating in Beijing.62 At the NSC’s 281st meeting on 5 April, Eisenhower spoke out in favour of removing as many American trade restrictions as possible, encouraging Japan to trade with its neighbours including China and avoiding the disruption of ‘traditional’ trading patterns of its allies when disposing of US agricultural surpluses.63 Nevertheless, preoccupied with Congressional foreign aid bill debates, Washington was displeased when Whitehall stated that the British might become the first to use COCOM’s ‘exceptions procedure’ to sell the Chinese embargoed equipment. The French government also appeared willing to approve the export of French tractors to China through the same loophole. Besides, Beijing could obtain the equipment through re-export via the USSR.64 Thus, on 11 April 1956, the UK government announced the sale of sixty agricultural tractors to China. The British subsequently used the ‘exceptions procedure’ more frequently to sell the Chinese increasing quantities of metal, chemicals and equipment. At the NSC’s 282nd meeting on 26 April, it was agreed that Washington might find it more advantageous to tolerate Western-aligned nations’ use of the exceptions procedure of the CHINCOM than to participate in formal negotiations to reduce the CHINOM list because this might make allies more willing to embargo goods such as copper.65 About that time Nan Hanzhen, Lu Xuzhang and Ma Yinchu – a non-CCP economist and former director of the Bank of China who since 1955 had advocated decentralization in economics and gradual/balanced domestic economic growth based on agricultural development66 – were appointed members of the CCPIT’s foreign trade arbitration committee.67 The CCPIT readily accepted when JITPA and the Japanese Diet members’ union to promote Sino-Japanese trade proposed on 28 April that the third trade agreement between the two nations be extended for another year, beginning on 4 May. However, on 10 May when Japanese Prime Minister Ichiro Hatoyama told the Diet that he would approve a proposal that the PRC establish a trade mission

Embargo and grain imbalances 19 in Japan, Japanese Foreign Ministry officials opposed the initiative, emphasizing that it would be no different than recognizing Beijing diplomatically. Four days later, with the Chinese-Sri Lankan trade agreement up for renegotiation, the British government announced that it would utilize CHINCOM’s ‘exceptions procedure’ so that some rubber could be exported to China. Other South-East Asian rubber exporters, led by Malaya and Singapore, whose trade with China had grown rapidly since 1955, announced that they would also follow suit.68 This development threatened to undermine the Sino-Sri Lankan rice rubber barter trade, and Colombo’s eagerness to secure a second consecutive deal was a key factor in Sri Lanka’s 7 February 1957 decision to extend diplomatic recognition to China. About May 1956, Zhou Enlai and Chen Yun probably decided to persuade Mao, over the coming months, to reverse his earlier stand and sanction negotiations with Western traders for substantial quantities of grain. Regardless, the Chinese leadership agreed on the importance of increasing immediately the application of chemical fertilizer to stimulate greater grain output. A result of the cooperativization campaign proceeding well beyond the officially approved targets, was the dramatic decline in the pig population – previously a vital source of manure.69 Beijing had responded by increasing its annual foreign imports of chemical fertilizer from 365,777 tonnes in 1953 to 1.4 million tonnes in 1956 (see Table 1.3).70 Chemical fertilizer production worldwide expanded drastically during the 1950s and 1960s and overcapacity among Western producers was pushing down export prices. They were more receptive to expanding exports through unorthodox methods. The Less Developed Countries (LDCs) became increasingly important export markets, and, whereas they found it difficult to afford foreign chemical fertilizer, their state trading organizations possessed vast buying power, allowing them to promote competition among suppliers, drive down prices in the world markets and win political and economic concessions. Over two-thirds of the PRC’s total annual chemical fertilizer imports between 1949 and 1957 came from Western Europe where producers paid much more than the Japanese for shipping fertilizer to China. However, West European production costs were lower than those of the Japanese because their plants were larger and often utilized natural gas as a feedstock.71 Until 1956, firms from West Germany, Belgium (including Luxemburg and Japan) were the PRC’s most important sources of chemical fertilizer. However, in 1957, Beijing also began purchasing large quantities from Italy. Italian fertilizer, produced from abundant Po Valley, natural gas by Azienda Nationale Idrogenajione Cumbustibili (ANIC) (a subsidiary of the semiofficial Ente National Idrocarburi (ENI)), Montecatini and Edison, was relatively inexpensive. However, these imports were a heavy drain on Beijing’s limited currency reserves and under the FFYP, announced in mid-1955, the government planned to focus more on developing the domestic chemical fertilizer industry. By 1957 about 73 per cent of China’s nitrogenous fertilizer output came from two plants built between 1935 and 1937.

20

1949–June 1957

Table 1.3 PRC’s annual foreign chemical fertilizer imports, 1950–7: total and by country/organization (in tonnes) Year

OECDa

OECDa (%)

1950 1951 1952 1953

— — — 92,000 (Belgium– Luxemburg 57,000) (FRG 22,000) 24,000 (FRG 22,000) 361,000 (Belgium– Luxemburg 106,000) (FRG 236,000) 642,000 (Belgium– Luxemburg 264,000) (FRG 258,000) (Norway 1,000) 742,000 (Belgium– Luxemburg 292,000) (FRG 248,000) (Italy 154,000)

— — — 72

— — 1,000 30,000

— — — 23

117,963 198,739 215,097 365,777

18

108,000

82

658,906

66

171,000

31

830,110

66

318,000

33

1,357,845

74

246,000

25

1,236,021

1954 1955

1956

1957

Japana

Japana (%)

Total b

Sources: Table prepared by author from: a J.C. Liu, op. cit., pp. 54–5, 58–9, 66–7 (based on official pre-1958 OEEC, post-1958 OECD, Japanese government and Japanese Fertilizer Association annual statistics); b CIRECO, op. cit., p. 939. Notes Belgium–Luxemburg includes: Comptoir Belge de l’Azote. FRG includes: BASF AG, Hoechst AG, Ruhr–Sticktoff AG. Norway includes: Norsk Hydro. Italy includes: ENI, SEIFA (Montecatini–Edison subsidiary).

From 1949 to 1957 the Soviets provided most, if not all, of the PRC’s imported units and related technology for direct ammonia synthesis. However, in 1956 and 1957 the Chinese blamed the delays in delivery and expense of Soviet chemical fertilizer equipment for the slow progress in the PRC’s chemical fertilizer industry. Apparently the central government’s ‘technology transfer’ was not adequately filtering down to small-scale rural-based enterprises on which PRC development plans relied heavily.72 Ministry of Chemical Industry officials openly ‘. . . criticised Russian design as too elaborate and uneconomical in terms of land and material’. To save currency and increase the speed of construction, in late 1956 the Chinese began experimenting with building their own synthetic ammonia and

Embargo and grain imbalances 21 urea units, but had problems manufacturing various components.73 Unable to produce significant quantities of these fertilizers cheaply, they became interested in purchasing comparatively inexpensive state-of-the-art equipment for producing ammonia from natural gas and highly concentrated synthetic urea from the West and Japan where deals were available following the onset in late 1956 of a postKorean War recession. The Chinese believed, incorrectly, as became evident in the 1970s, that the Sichuan Basin contained abundant high-sulphur-content natural gas reserves and wanted to use this resource to produce inexpensive ammonia and urea fertilizer. This would reduce their dependence on chemical fertilizer produced from coal (previously the key requirement for fertilizer production) transported from northern mines (China’s largest reserves), ease the burden on the transportation system and make more coal available for electrical generating plants. By utilizing the natural-gas-to-ammonia process, which ENI had pioneered to produce a comparatively inexpensive fertilizer, the Chinese could also use the gases from oil refining and steel production to produce ammonia fertilizer.74 The ammonia could be used to produce prilled (a.k.a. pelletized) urea which had a nitrogen content of approximately 46 per cent – while ammonia fertilizer was only about 20 per cent nitrogen rich. Prilled urea could also be easily handled and applied75 and retained its nitrogen content better than other forms of fertilizer, which in turn eased the burden on labour, transportation and storage. Although Chinese leaders were receptive to proposals aimed at dramatically increasing domestic production, they disagreed over the proper approach. Ma Yinchu insisted that it would be too expensive for the PRC to build many fertilizer plants at once.76 Because the PRC lacked the necessary technology, Chen Yun opposed plans to build many inexpensive, small and medium nitrogenous fertilizer production plants throughout the countryside. Instead, he recommended building up to five large-scale facilities (i.e. with at least 25,000–50,000 tonne p.a. capacities) and suggested that the output and quality of domestically produced special steels required for fertilizer production equipment be increased. Beijing still needed to spend about $3.2 million to import at least 10,000 of the 30,000 tonnes of various types of metal required to build a 50,000 tonne p.a. capacity complete chemical fertilizer plant. Chen Yun pointed out that it was a better long-term investment than buying grain because: With $3.2 million we can buy . . . [45,722 tonnes] of grain, and it will be consumed very soon. But if . . . [instead we] use this to buy the important materials for building . . . a factory that annually produces . . . [50,000 tonnes] of synthetic ammonia . . . the chemical fertiliser produced . . . will increase grain production annually by [500,000–600,000 tonnes].77

June–December 1956 The size of China’s national grain stockpile peaked in June 1956. In July, reduced procurement, increased domestic sales and a growing volume of foreign exports

22

1949–June 1957

resulted in grain stocks declining for the first time since 1953, and at an alarming rate. As grain distribution problems continued, the Chinese agreed to purchase 116,541 tonnes of foreign rice for delivery in 1956 – at least 86,000 tonnes of which came from Burma under their earlier agreement. The Chinese began tapping into Cambodia’s relatively small grain surplus on 24 April when both sides signed a trade and payments agreement. Prince Sihanouk was reluctant to commit Phnom Penh to work closely with the SouthEast Asia Treaty Organization (SEATO) despite offers of US aid. Secret Sino-Thai diplomacy led to an agreement – signed by Zhou Enlai and Thai officials on 21 June – under which Bangkok lifted its embargo on nonstrategic exports to China. In December 1955, Mao had urged Thai Prime Minister Phibulsonggram, who blamed US PL 480 grain shipments to South-East Asia for the reduction in prices received for Thai rice, tin and rubber exports to ‘traditional’ regional markets – not to participate in the SEATO pact, which Thailand had already signed. The Thai government had also reportedly taken an interest in the China trade to help finance its forthcoming reelection bid.78 At the Third Session of the First National Congress in Beijing (15–30 June) Zhou Enlai emphasized that, even without diplomatic relations, cultural and economic ties could be developed to improve relations with Japan and peacefully resolve the Taiwan issue.79 However, Beijing’s successful South-East Asian trade diplomacy was not helping its efforts to reach a breakthrough with the Americans at Geneva. Moreover, although the Chinese obtained greater access to South-East Asian rice surpluses, these fluctuated greatly and would be insufficient to meet demand if more serious Chinese supply crises developed. Following ‘the Pozan Uprising’ of 28 June, Poland suspended indefinitely its re-exports of Western wheat to China.80 Canadian stocks appeared to be China’s only potential source of wheat for the foreseeable future, but for political and financial reasons discussed earlier, there remained considerable resistance among Chinese leaders to making large direct grain imports from these countries. Yet, costs associated with Soviet intervention in Poland and Hungary during the second half of 1956 led Moscow to reduce its own economic targets and curtail its financial aid to Beijing. Then, in July or August the Chinese government was forced to grant the Guangdong authorities – following protests from the province’s producers and consumers – a complete waiver on their scheduled grain export transfers in 1956.81 Thus, when Zhou Enlai responded by warning the State Council meeting, between 3 and 5 July, that the Second Five Year Plan (SFYP) (1958–62) draft under review was ‘dangerous’, participants agreed that targets under the plan should be reduced.82 According to the Far Eastern Economic Review (FEER),83 during the summer, when the government was criticized for not making the best use of various individuals with extensive foreign trade experience, Ye Jizhuang said that this oversight was being addressed.84 As the grain problem came to a head, Beijing continued to create friction between the US and its allies through its effective efforts to undermine the Western embargo. In July, with UK economic difficulties continuing, including the domestic auto industry wrestling with growing surpluses, London sought

Embargo and grain imbalances 23 COCOM’s approval to sell the PRC three hundred and fifty British Landrovers. The US stood alone in opposing the transaction, although Japan and Canada abstained from expressing an opinion.85 Some Chinese leaders, led by Zhou Enlai, felt that it was time to consider initiating Sino-American trade discussions. On 6 August, with the ambassadorial talks in Geneva stalled, Zhou invited the Americans to send news representatives to China. Although the US rejected this offer, when the Geneva talks resumed on 21 August, China’s chief negotiator and Ambassador to Poland, Wang Bingnan, suggested that both sides discuss organizing bilateral contacts and presented the Americans with a proposed draft agreement on relaxing the China trade embargo. While Beijing appeared willing to work towards resolving these issues before focussing on more problematic ideological matters such as Taiwan, Washington rejected this initiative because the Chinese refused to renounce the use of force in Taiwan and continued to hold US citizens as prisoners.86 Also on 8 September, the PLA shot down a US-made high-altitude espionage aircraft (a U-2 operated by the ROC air force) – setting a precedent which would occur several more times over the coming years when Sino-American tensions appeared ready to moderate. At the CCP’s Eighth NPC (15–27 September) the SFYP – which called for reductions in administrative and military expenditure and gave priority to balanced economic development over ‘class struggle’ – was approved.87 During the proceedings, Chen Yi emphasized that peaceful international relations would help China reach its industrialization targets and stated that Beijing was willing to establish diplomatic relations with any country, including the US, which obeyed the Five Principles of peaceful coexistence. His remarks essentially reiterated Zhou Enlai’s comments of 28 June 1956.88 Also chemical fertilizer production targets were raised to 3–3.2 million tonnes for 1962 and, beginning in late 1956, officials of the Ministries of Chemical Industry (formed earlier in the year with the merging of the separate Ministries of coal, petroleum and electric power industries), MOFT and the First Ministry of Machine Building opened discussions with Western firms for chemical fertilizer equipment. Representatives of Shell, an Anglo-Dutch firm – which did not maintain an office in Taiwan and refused to do business with the ROC – and ENI, which under the leadership of founder and president Enrico Mattei had established itself as a thorn in the side of the major Western oil firms and the US government by offering oil rich LDCs comparatively favourable terms to help develop their oil and gas fields, were scheduled to visit China in 1957–8.89 Meanwhile, lucrative Chinese trade offers since July had created more Western and Japanese interest and competition in the China market, adding to tensions in US–Allied relations. Even by late 1956, CHINCOM delegates had begun discussing seriously the abolition of the China differential.90 On 3 October 1956, after Washington asked Whitehall and ‘Paris Group’ members to restrict using the exceptions procedure to prevent the trade controls from breaking down, the British Cabinet agreed to curtail its use of this loophole over the short term, particularly for goods previously on the COCOM list.

24

1949–June 1957

In light of the Suez crisis, the British were especially eager not to offend the Americans and risk jeopardizing their access to ‘dollar oil’. Nevertheless, the British Cabinet also decided to inform Washington that, owing to mounting pressure from domestic industrial interests and opposition members in the House of Commons, the more stringent controls on China trade could not be maintained indefinitely.91 Still, the Suez crisis, Soviet intervention in Poland and Hungary, concern about increasing Chinese involvement in Vietnam, the PLA’s construction of an airfield opposite Taiwan and the upcoming US Presidential election minimized the likelihood of a US government re-evaluation of the embargo in late 1956. At the State Council Standing Committee meeting between 20 October and 9 November Chinese leaders unanimously supported Zhou’s call for a reduced pace of economic construction.92 At the Eighth Central Committee of the CPC’s Second Plenary Session (10–15 November), Zhou Enlai and Chen Yun again criticized rapid development policies pursued in 1956 and Liu Shaoqi boldly warned leaders to ‘. . . draw lessons from the Polish and Hungarian incidents and other issues, pay attention to the development of agriculture and light industry and show concern for the people’s welfare’.93 While in Phnom Penh between 22 and 27 November, Zhou Enlai told US journalists that Beijing would still welcome a visit to China of US newsmen.94 However, Washington was already hardening its position towards the PRC following the signing on 6 November of a Sino-Indonesian economic agreement – covering the exchange of Chinese equipment, raw materials, cotton and silk for Indonesian oil, rubber, sugar and coffee – which threatened to draw the resource rich Indonesia even further away from Western influence. Much to the irritation of Western oil companies operating in that country in 1957, Jakarta established Permina – an army dominated state petroleum firm.

January–June 1957 In January 1957, the CCP five-man ‘Central Small Group for Economic Work’ was established, under the directorship of Chen Yun, to oversee economic administration.95 When the ‘Small Group’ immediately recommended a reduction in development targets, Mao spoke out in favour of Chen Yun’s analysis of the Chinese economy.96 That same month Zhou Enlai personally approved a SinoThai rice deal as ‘a goodwill gesture’ when negotiations in Beijing, shortly before Thailand’s general elections, stalled over the issue of price.97 However, South-East Asian rice surpluses alone were both unsuitable and insufficient to help balance supplies in China’s grain deficient northeast. Between June 1956 and July 1957 the PRC’s national grain reserves fell from 21.69 to 18.49 million tonnes, leading Chen Yun to warn that, if this trend continued, by 1961 stockpiles would be exhausted.98 Excessive urban population growth associated with rapid development remained a major cause of China’s grain problem. A pamphlet published in Beijing in March 1957, emphasized that the PRC’s current economic conditions were similar to those prevailing in

Embargo and grain imbalances 25 1953 and recommended that a national grain reserve of at least 50 million tonnes be maintained over several years so as to be prepared for unforseen accidents.99 To build such a reserve, when China’s national grain stockpile was contracting at the rate of more than 3.2 million tonnes a year, Beijing would have to reduce the pace of construction drastically, focus more on increasing domestic grain output and return, at least temporarily, to the pre-1949 strategy of importing Western wheat and wheat flour. With Mao still set on rapid development, Chen Yun and Zhou Enlai maintained that, in addition to foreign chemical fertilizer, equipment and technology imports, the Central government could lessen the burden on domestic grain supplies and stimulate production by reducing the urban population by several million while importing up to five million tonnes of Western grain annually, for the coastal cities, for three to five years.100 However, in early 1957, when the Chinese again enquired about purchasing foreign wheat, they still found their options extremely limited. It appeared unlikely that the PRC would be able to buy US grain after August 1956, when Dulles rejected Zhou Enlai’s invitation to send American news representatives to the PRC. However, the Eisenhower administration subsequently came under pressure to reverse its position. Realizing this, and still hoping to break the ice, on 17 February 1957 Wang Bingnan suggested a Sino-American exchange of news representatives, but Washington continued to focus on obtaining the release of the ten remaining American prisoners in China. However, Zhou Enlai’s foreign relations report to the Second National Committee of the Chinese People’s Political Consultative Conference (5–20 March) emphasized that, although determined to protect its sovereignty and liberate Taiwan, Beijing was willing to settle Sino-American differences through peaceful negotiations.101 The US economy continued to grow after the setback of 1954, but Washington became concerned when America began running a balance of payments deficit in early 1957.102 Also at that time, because of US–Allied disagreement over the scope of the China trade controls, concern about the future of Japan’s economic and political stability, and Eisenhower’s objective of reducing international barriers, CFEP prepared a policy proposal calling for a substantial relaxation of the Western China trade controls.103 About this time Washington recommended that its allies tighten their China trade controls. At that point Yugoslavian Ambassador Mi|unovi| in Moscow noticed that Chinese criticisms of the Soviets became more serious.104 Then on 10 April, Japanese PM Kishi Nobusuke105 said that it was time to establish Sino-Japanese diplomatic relations. Beijing had already begun to consider purchasing Canadian grain. In early 1957, after hearing rumours of worsening grain supply problems in China, Canadian Wheat Board (CWB) representatives had been dispatched to Hong Kong for discussions with CIRECO.106 Australian Wheat Board (AWB) officials were also waiting to see if the Chinese were interested in buying significant quantities of Western wheat. Also in April Rong Yiren was appointed deputy of Shanghai and Vice-Minister of Foreign Trade Lei Renmin continued to gain influence.

26

1949–June 1957

Although the Chinese still maintained that they did not plan to purchase foreign wheat, during the first week of May 1957 Chen Yun reduced urban food rations and increased prices for agricultural commodities, making more money available to peasants for consumer products. By this point the government was having increased difficulty in procuring enough grain for the rapidly growing urban population because, as the agricultural sector grew, peasants exerted pressure for more grain rations.107 Then, between 18 May and 30 June, CIRECO officials visited Canada to assess the Canadian market for Chinese goods and consider Canadian commodities available for export. During the visit CIRECO officials maintained that they were unaware of food shortages in China and that Beijing was not at that point considering purchasing grain. However, on 18 May, as the CIRECO delegation arrived in Montreal, China’s official news agency Xinhua reported on Poland’s recent credit trade negotiations and agreements with French, Canadian and American interests. British officials thought this probably reflected Beijing’s plans to dramatically increase trade with the West and Japan108 and considered it crucial that UK interests be able to expand trade with China promptly.109 Thus, on 29 May 1957, the British Cabinet – unable to convince the US government to agree to modifying the China trade controls – decided unilaterally to reduce UK controls to the level set for exports to the ‘Soviet bloc’. This decision, announced the next day in the House of Commons, effectively ended the China differential. The other COCOM nations, with the exception of the US, Canada and Turkey, responded by reducing their respective controls on exports to China. During the first few days of June, as the CIRECO delegation toured Canada, Chinese officials admitted to a Polish diplomat that Beijing was very unhappy about its almost complete economic dependence on Moscow and was considering ‘. . . a partial re-orientation of the Chinese economy away from some of its Soviet ties . . . .’110 However, PRC leaders sceptical of, or opposed to closer economic ties with the West and Japan may have become suspicious of Tokyo’s intentions towards Beijing when, during June, Japanese Prime Minister Kishi visited the ROC and the US and on the 5th said that he was not contemplating a change in Japan’s China policy.111

2

China’s ‘Great Leap’ famine, ‘test purchases’ of Western grain and return to ‘readjustment’, July 1957–August 1960

That the three years between 1959 and 1961 witnessed the most severe consequences of the . . . [GLF] strategy is not in doubt. There is, however, evidence to suggest that some areas began to experience famine conditions as early as 1958. (Kenneth R. Walker, in R.F. Ash (collector and ed.), Agricultural Development in China, 1949–1989: The Collected Papers of Kenneth R. Walker (1931–1989), 1998) I . . . accompan[ied] my husband to . . . [Beijing at CNIEC’s invitation] to discuss the supply of insecticides and chemical fertilizers to China by Shell. [B]efore . . . return[ing] to Shanghai . . . [we] thought [a CNIEC official] mentioned . . . [Zhou Enlai’s] personal approval of our trip to encourage my husband to obtain from Shell in London all the things the corporation wanted to buy . . . . [W]e went to London . . . [and the Hague in 1956–7 for] discussions with . . . [Shell’s] directors about trade prospects in China . . . [which] looked promising and British experts were invited . . . to China. But soon after . . . [returning] the Anti-Rightist Movement was launched . . . followed by the . . . [GLF]. . . . Everything had to stop. The . . . [Beijing] officials who were so enthusiastic could no longer make any decisions. Shell experts already on their way to China had to turn back. (Nien Cheng, in Life and Death in Shanghai, 1986) The 1958 cargoes . . . [ – CIRECO’s purchases of Canadian wheat – were] a trial . . . [which] convinced their principals at CEROILFOOD that the trade was sound. They therefore wanted to expand and continue it. (CWB negotiators’ report of CIRECO assistant general manager You Dunhua’s remarks, 24 February 1961)

July 1957–February 1958 From July to October 1957 PRC news sources reported that domestic grain production was not keeping up with growing domestic and export requirements.1 With the ‘Hundred Flowers’ campaign encouraging frank discussion, between 3 and 5 July Ma Yinchu’s report to the NPC and article in the People’s Daily, called for the government to take action to slow China’s rapid population growth.2 As the NPC continued on the 7th, Mao met commercial, industrial and academic leaders at Shanghai and found the non-Communist and the intellectual

28

July 1957–August 1960

representatives unsupportive of the movement against critics of government during the rectification campaign.3 That same day Henan Ribao reported that the Henan First Party Secretary, Ban Fusheng had criticized the Central government for requesting grain transfers from that province. Peasants were demanding and receiving increased grain rations which adversely affected urban grain supplies.4 About this time, Ye Jizhuang became Vice-Chairman of the CCP Central Committee’s finance and economic committee, while the deputy chief Zhu Rongji of the State Planning Commission made a speech questioning CCP rapid development policies. In July, Guangzhou news sources reported critical agricultural problems in Guangdong. Rural grain procurement was increasing to support rapid urban growth, especially Guangzhou’s, and as shortages worsened, the provincial government reduced the area sown with crops used for industrial purposes.5 Then in August, although Tao Zhu remained party secretary he was replaced as governor of Guangdong. A point of focus of a special meeting of the Political Bureau and Standing Committee of the Central Committee at Qingdao in July or early August, was Mao’s report on his meetings at Shanghai in early July. A People’s Daily editorial of 30 August warned that during ‘this coming autumn harvest, if we cannot contrive a way for the state to buy more grain, we are heading for a future full of troubles’.6 Indeed, as we will see, declassified Western archival material relating to the Sino-Western grain trade and China’s economy provides important new evidence to support Kenneth R. Walker and Robert F. Ash’s contention that China’s ‘Great Leap Forward’ (GLF) famine, which resulted in the deaths of between 20 and 30 million Chinese people, may have actually begun as early as 1957–8 – at least a year earlier than other researchers maintain.7 Recently released Chinese government statistics show that approximately 1.8 million abnormal deaths occurred throughout China in 1958.8 Contrary to the standard Western interpretation, the Chinese leadership implemented early, direct and fairly extreme measures to resolve the deepening food crisis. However, with leaders disagreeing over the appropriate approach, conflicting policies were often pursued simultaneously. Some leaders, believing that rapid development should continue, favoured a reduction in grain rations while encouraging people to consume more fine grain substitutes. Mao maintained that grain production could be increased by planting rice and other high-yielding cereals in the grain deficient North, even though residents there preferred wheat and the climate and soil were not conducive to rice production (see Map 2.1). Liu Shaoqi and other CCP leaders were later alleged to have vehemently opposed this policy which was introduced in mid-1956 and promoted in autumn 1957.9 Then, in August, Chinese officials, led by Chen Yun and Zhou Enlai, stepped up efforts to reduce the pace of domestic construction, increase the PRC’s trade with non-Communist countries and increase the quantity of preferred grains for domestic consumption by returning to the pre-1949 strategy of importing substantial quantities of Western wheat. Sino-Thai trade was increasing in August when Bangkok announced that it wanted to trade more directly, rather than participate in the usual unofficial trade

National border Agricultural regions Major rivers

7. Harbin Yining

9. Urumqi Shenyang

Kashi 3.

1. Beijing 8.

Chinese line of control Indian claim

Taiyuan 2. 10. Huang He River

Lanzhou CHINA

Lhasa

Xian WHEAT PREDOMINANT

5. Chengdu Chongqing

Kunming

RICE PREDOMINANT 4. Wuhan Chang Jiang River

6.

Shanghai

Xiamen TAIWAN

Guangzhou Nanning

Hainan Dao

Map 2.1 PRC’s wheat,a rice and other major grain sown areas. Sources: Composed by author from: ‘Agricultural Regions’, CIA map, 800635 (544065) 5–86; and V.A. Johnson and H.L. Beemer Jr (eds), Wheat in the People’s Republic of China, report no. 6, National Academy of Sciences, Washington, DC, 1977, p. 92. Notes 1 Late-ripening winter wheatb (Beijing region). 2 North China Plain winter wheat, sorghum, corn (Shandong, Hebei, Henan). 3 Late-ripening winter wheat (Southern Xinjiang). 4 Early-ripening winter wheat, rice (Chiang Jiang river valley). 5 Early-ripening winter wheat, rice (Sichuan). 6 Early-ripening winter wheat, double-crop rice (South China). 7 Spring wheat,c soybean, sorghum, corn (Northeast China). 8 Spring wheat (North China). 9 Spring and winter wheat (Northern Xinjiang). 10 High-plateau spring wheat (Qinghai). a The second most important Chinese crop. The North China plain region grew almost two-thirds of all the wheat grown in the PRC each year. The Central and Southern provinces produced almost 30 per cent of China’s total annual wheat output. b Sown in the autumn (mainly between 20 and 40 degrees latitude). c Sown in the spring.

30

July 1957–August 1960

via Hong Kong and suggested that Beijing establish permanent trade representation at the Thai capital.10 This was welcome news to those Chinese leaders eager to increase export earnings to pay for substantial quantities of Western wheat. In 1957–8 China’s foreign grain import options were again limited as other Communist nations continued importing grain and Australia, which suffered a poor harvest, even imported some Canadian wheat to supplement domestic demand. Nevertheless, France’s harvest was good and Canadian and American grain surpluses reached record levels.11 Although in a speech on 28 June, Secretary of State Dulles declared that Chinese Communism was just a passing phase, during the Sino-American talks at Geneva in early to mid-August 1957, both sides seemed closer to reaching an accord based on a PRC proposal for an exchange of news representatives. With reports of worsening Chinese food and economic problems at that time, Washington may have been attempting to influence the Beijing leadership’s policy debates by taking a slightly more flexible approach to the talks.12 In mid-August the US government was preparing to issue unrestrictive temporary experimental passports enabling representatives from several news organizations to be stationed in China for at least six months. However, it was unwilling to offer reciprocal visas to news representatives holding PRC passports. Washington also stressed that the offer did not reflect a change in the China policy of the US, but simply sought to have Americans better informed on conditions in China.13 However, around 26 August the Chinese rejected a related American initiative on news representatives and, at an ambassadorial meeting on 12 September, both sides indicated that talks on this issue remained deadlocked. Clarence Randal told the NSC’s 336th meeting on 13 September 1957, that it would be unfair to American business if the US government maintained unilateral restrictions on China trade. Yet, Secretary of State Dulles advised against relaxing the controls because this would send the wrong political and psychological message to America’s Asian allies who were attempting to prevent Communist infiltration14 Later, at the NSC’s 338th meeting on 2 October, Dulles suggested the possibility, outlined by Hu Shi at the UN, that uprisings like those in Poland and Hungary could occur in China and present the ROC government with the opportunity to return to the Mainland.15 Also on 12 September a CEROILFOOD (Shanghai) official approached the British firm Bank Line’s office in Shanghai to enquire about purchasing Canadian or Australian wheat and wheat flour.16 Bank Line – an affiliate of Cargill, the Minneapolis-based grain trading firm which had previously conducted most of its business in the US – was one of the few Western firms that the Beijing government had allowed to maintain an office in the PRC. Cargill had been interested in expanding exports to Asia since purchasing Kerr Gifford & Co. – a major American West coast grain trading company whose Asian business agent was Andrew Weir & Co. – in June 1953. Cargill’s 69-yearold president, Austen Cargill, had died suddenly on 24 May 1957, just when SinoWestern/Japanese trade appeared to be opening up and, although he was replaced on 13 August by Cargill MacMillan, the firm’s sales slipped in 1957. Thus, in

‘Great Leap’, famine and ‘readjustment’

31

September his brother, Cargill Chairman John H. MacMillan Jr scheduled a trip to Asia for early 1958 to investigate trade opportunities and to decide on a location for an official regional division headquarters.17 ‘Max’ Forsyth-Smith, the Canadian trade commissioner in Hong Kong, learned of the Chinese approach almost immediately from Bank Line’s Hong Kong director, and subsequently obtained approval from Ottawa and Beijing to lead a trade promotional delegation to Guangzhou, Beijing, Tianjin and Shanghai from 6 to 23 November 1957.18 Mao – who probably remained opposed to China importing Western grain – may have been unaware of the approach of CEROILFOOD (Shanghai) to Bank Line. If the grain import programme was to proceed, economic relations with the capitalist powers and South-East Asian countries had to improve. Thus, it was crucial that Sino-Japanese negotiations on a five year barter trade agreement (1958–62), scheduled to begin in October 1957, were successful. However, on 17 September, with Sino-Thai trade on the verge of opening up, Thai Prime Minister Phibulsonggram was ousted in a military coup. His successor, General Thanom Kittikachon severed official Sino-Thai trade relations, thus further limiting Beijing’s foreign sources of rice and making Western wheat imports imperative. Another result of this Thai decision was that Beijing lost a potentially large source of currency which might have helped it pay for such wheat imports – although Chinese exports continued to reach Thailand via Hong Kong. Nevertheless, on 19 September, the second five year Sino-Sri Lankan trade and payment agreement (1958–62) was signed. Then, on 27 September, CCPIT and Otto Wolff von Amerongen – owner of Otto Wolff AG and Chairman of the Cologne based semi-official East–West trade organization Ostausschuss der Deutschen Wirtschaft (ODW)19 [the Eastern Affairs Committee of West German Industry] – signed a one year trade agreement. It provided for Bonn to consider providing Hermes Export credit guarantees to facilitate Sino-West German trade. These agreements were finalized as the Third Plenary Session of the CPC was held (20 September–9 October), where many leaders called for less ambitious and more balanced economic development. On 24 September, Chen Yun emphasized to the conference the importance of achieving a proper balance between foreign exports, domestic procurement and rationing of grain. He also urged the immediate adoption of measures to develop the domestic chemical fertilizer and chemical fibre industries so as to help resolve China’s food and clothing problems. During these meetings the revised draft of the National Programme for Agricultural Development (1956–67) was approved in principle.20 Mao was already disappointed with China’s economic growth in 1957 when, on 7 October during the meetings, the Guangzhou authorities reported that their province had not met its modest agricultural production targets.21 This report, together with the successful launch of a Soviet Sputnik space satellite on 4 October, strengthened Mao’s resolve to launch a Chinese ‘economic/agricultural Sputnik’. Beginning as early as 8 October, PRC leaders tried altering the populace’s cultural bias against eating potatoes by suggesting that consuming more of this vegetable would reduce grain consumption and help feed the peasants.22

32

July 1957–August 1960

On 9 October, during the final speech at the Third Plenary Session Mao called for more rapid domestic development and a restoration of the position taken at the Second Plenary Session of the CPC, Seventh Central Committee on class struggle – a directive which CCP Party historians maintain enabled serious ‘leftist’ policy errors to occur.23 A Chinese State Council supplementary directive of 11 October reduced urban grain rations for 1957–8, greatly tightened overall controls on grain and flour supplies, and introduced the first ever flour rationing at Heilongjiang.24 Sino-Soviet relations had improved since the summer25 and on 15 October Moscow agreed to extend necessary aid for the PRC’s nuclear programme. Then, from 2 to 20 November Mao joined international Communist Party leaders in Moscow for the fortieth anniversary celebrations of the October Revolution. Following news that on 3 November the Soviets had successfully launched a second Sputnik satellite, Mao shocked Communist leaders in Moscow by announcing that China’s annual output of heavy industrial products would surpass Britain’s within fifteen years.26 He also told Khrushchev that Japan and West Germany represented the biggest threat to Communist countries – reflecting his displeasure with China’s increased trade with Capitalist countries and Japanese PM Kishi’s visits to South Vietnam, Taiwan and the US during the year. On 13 November, the GLF slogan was first mentioned in an editorial of the People’s Daily urging the Chinese to repudiate right conservative ideas and ‘make a great leap forward on the production front’.27 Meanwhile, on 6 November two days after Time published an article, ‘Red China Famine on the Way?’ a Canadian government trade delegation began its tour of China at Guangzhou. The Canadians were met there by Chen Feizhang of CEROILFOOD (Shanghai) who was visiting the autumn Guangzhou Trade Fair. Chen told the Canadians that his organization wanted to place a trial order for 1,000–2,000 tonnes of Canadian wheat through Bunge.28 Although Bunge was ‘traditionally’ an Argentinian-based firm – since mid-1946 when the Peron government gained power and effectively nationalized Argentina’s grain trade – it conducted a considerable amount of business from its New York office.29 That same day the Chinese queried Bunge’s Hong Kong manager about purchasing French flour.30 Bunge representatives felt that the Chinese wanted to obtain quotations for grain immediately so that CEROILFOOD (Shanghai) could conduct business independently at the Guangzhou Trade Fair rather than going through its headquarters once its representatives returned to Beijing.31 Indeed, when Forsyth-Smith’s delegation reached Beijing, officials at CEROILFOOD’s national headquarters told them that China did not need to import wheat. When the Canadians mentioned the interest CEROILFOOD (Shanghai) had shown, Beijing officials thought it ‘unlikely that Shanghai would be making enquiries without direct instructions from the Head Office’ although the Canadians ‘later discovered that the Branches of the Corporations . . . [had] a good deal of autonomy and . . . [could] import virtually any commodity without the prior consent or even knowledge of their Head Offices’.32 After all, the central government did not allocate budgetary funds for foreign grain imports anyway.

‘Great Leap’, famine and ‘readjustment’

33

Nevertheless, even if Mao had been unaware of CEROILFOOD (Shanghai’s) approach to Western interests, it was probable that he would hear about it when he returned from Moscow. After leaving Beijing, the Canadians went to Shanghai where CEROILFOOD officials enthusiastically confirmed that they would place a trial order for 1,000–2,000 tonnes of Canadian wheat. The Canadians got the impression that, if the Chinese were pleased with this initial shipment, they would import more Canadian wheat in 1958. Chen Feizhang contacted the Canadians again when they returned to Guangzhou before leaving China, telling them that CEROILFOOD (Shanghai) officials were negotiating deals with Bank Line and Bunge in Guangzhou so that the wheat contract(s) could be included in the final tally of business concluded at the autumn Guangzhou Trade Fair – scheduled for 15 October–15 November, but extended until the end of the month. On 23 November, before leaving Guangzhou, the Canadians also met Bank Line’s Shanghai representative who confirmed that the negotiations had been completed and the firm’s Hong Kong director was to sign a contract with the Chinese covering 1,000–2,000 tonnes of Canadian wheat.33 However, when Bank Line’s Hong Kong director arrived the following day, the Chinese told him that the signing of the deal needed to be postponed until about March 1958.34 This mysterious development occurred, almost certainly, because the Chinese leadership suddenly needed a complete review of its overall development strategy. On 20 November Mao had returned to China from the USSR eager to implement policies aimed at fulfilling the extremely ambitious prediction, which he had made in Moscow regarding Chinese industrial development. China’s SFYP would be placed in jeopardy without Western and Japanese trade35 and Beijing was intrigued that the British government, concerned about the recent and substantial reduction in the UK’s gold and currency reserves, was pressing the Paris Group to reduce the size of its embargo list. However, in November, following the signing of a Sino-Swedish trade agreement (on the 8th), Sino-Japanese barter trade agreement negotiations broke down when Tokyo refused to allow the PRC to establish a permanent trade mission in Japan. Between the autumn harvests of 1956 and 1957, 570,000 peasants had moved to the cities. Such rapid urban population growth,36 as well as excessive government investment, contributed to regional Chinese grain shortages. An article in the People’s Daily on 27 November 1957, warned that funds allocated for capital/ industrial construction would have to be used for food, housing and other services if the increase in China’s urban population exceeded the domestic economic growth rate37 – a position later associated with Chen Yun.38 Despite the deferral of Chinese–Western wheat negotiations, on 27 November the Chinese agreed to purchase 67 tonnes of devitalized wheat gluten from a small Canadian firm for $30,000. A Sino-Danish trade agreement was also signed on 1 December. However, Chen Yun and Zhou Enlai’s trade strategy was dealt a blow with the collapse of the Sino-American ambassadorial talks at Geneva on 12 December.

34

July 1957–August 1960

Then, in January the UK government, hoping to protect domestic industry and improve British–Japanese relations, imposed quotas on imports of PRC cotton and rayon piece goods.39 Furthermore, in January (11–22) China’s economic plan and budget for 1958 were the focus of the National/Provincial Party Conference at Nanning, Guangxi during which Mao criticized Zhou Enlai, Chen Yun and Li Xiannian for opposing his growth targets. Zhou, Li and Bo Yibo were encouraged to provide self-criticisms for their ‘errors’.40 In February Chen Yun was replaced as Minister of Commerce.

February–August 1958 Although China’s grain problem remained unresolved, Chen Yun, Zhou Enlai and others favouring importing foreign grain were still influential. Ding Kejian had become deputy director of MOFT’s general office. Suddenly about 4 February, L.C. Bu, CIRECO’s assistant manager – who had worked for the same Shanghai firm as Lu Xuzhang before 1949 and whose former business partner was currently running a firm in Canada, invited Bunge officials to Beijing to resume grain negotiations suspended in November. While emphasizing that there was no food shortage in China, Bu maintained that he had persuaded CEROILFOOD officials to purchase 20,321 tonnes of Canadian wheat as a goodwill gesture.41 The resumption of these negotiations on 7 February was good news for John Diefenbaker’s Progressive Conservative government, which was campaigning for the upcoming Canadian federal election of 3 March (in which they were re-elected). It would be the second Canadian federal election in less than one year and the Progressive Conservatives were eager to maintain crucial support of prairie farmers by fulfilling their earlier promises to increase backing for farmers and reduce the record domestic grain surpluses by expanding exports to new markets.42 Nevertheless, a few days after Chinese–Canadian grain negotiations reopened, Beijing purchased 1,000 tonnes from a small French firm despite reservations about French grain /flour because of its higher moisture content than other foreign grain and consequent susceptibility to insect infestation when shipped through the tropics. China also had a large trade deficit with France, but, by creating the illusion that they might turn to the French to meet their import requirements, the Chinese hoped to improve their bargaining power with the Canadians. They were also negotiating with Jardine Matheson for South African maize. Chen Yun and Zhou Enlai’s trade strategy was bolstered on 5 March when CCPIT Chairman Nan Hanzhen and representatives of Japan’s Diet members union, Japan–China Trade Promotion Association (JCTPA) and Japan–China Export Import Association (JCEIA), signed the fourth ‘private’ Sino-Japanese trade agreement. Unlike the previous arrangement, this was a five year £200 million barter deal providing for annual increases in the amount of Japanese steel and chemical fertilizer exchanged for Chinese iron ore and coal. It also provided for the establishment of permanent reciprocal trade offices in Beijing and Tokyo (with diplomatic status and permission to fly the national flag) and for reciprocal commodity exhibitions to be held at Nagoya, Fukuoka, Wuhan and Guangzhou.43

‘Great Leap’, famine and ‘readjustment’

35

Then, between 10 March and 21 July 1958, Beijing reversed its policy of importing mainly rice to cover domestic shortfalls. Although China remained a net grain exporter throughout the 1950s, from 1955–7 rice accounted for 64–86 per cent of its foreign grain purchases. However, in 1958 when the volume of China’s grain imports reached a new high, ten cargoes of Canadian wheat – totalling about 117,000 tonnes and weighing 8,000–15,000 tonnes each – as well as much smaller amounts of South African maize (at least 20,000 tonnes) and Australian wheat (12,000 tonnes) accounted for 86 per cent of its foreign imports.44 The first three contracts – for Canadian wheat and South African maize – were signed while Mao attended the CPC Central Committee working conference at Chengdu, Sichuan between 8 and 26 March, where he criticized those opposing rapid domestic development. In Hong Kong on 10 March CIRECO signed a contract with East Asiatic Co. (BC) Ltd – the Canadian subsidiary of the parent Danish trading firm – to purchase for registered sterling a shipment of Canadian wheat. East Asiatic had taken over Bunge’s negotiations with the Chinese in late February after Washington pressured the New York office of the Argentinian firm not to sell grain to China. Next, Dodds Stewart & Co. Ltd, Vancouver – the Canadian affiliate of the London (England) subsidiary of the Paris-based international grain trading firm Louis Dreyfus Co. – signed a contract in Hong Kong on 24 March to sell CIRECO (for convertible sterling) a second cargo of Canadian wheat. Louis Dreyfus, New York, which officially handled the multinational’s North American operations, had already been pressured by Washington not to export grain to China. Dodds Stewart had taken over the negotiations from the British firm, Ralli Bros. Ltd – which had refused to accept payment for the grain in transferable sterling – and agreed to provide the Chinese with contacts to help them increase their exports to Canada. Then, on 26 March Cargill signed a contract in Hong Kong to sell CIRECO, for convertible sterling, a third shipment of Canadian wheat. In March, when John H. MacMillan Jr met with Forsyth-Smith in the British colony, he was enthusiastic about Hong Kong as a potential headquarters for Cargill’s Far East division and as a base for participating in the grain trade with China.45 Growing American interest during 1958 in the China trade resulted partly because of a substantial decline in US exports following a reduction in European purchases of ‘dollar oil’ after the Suez crisis and increased investment in the European Economic Community (EEC). In that year America ran a balance of payments deficit and holders of dollars began exchanging the currency for gold. Nevertheless, MacMillan’s enthusiasm proved premature as Washington pressured Cargill not to complete the transaction, thus forcing the US firm to turn the deal over to James Richardson & Sons Ltd of Winnipeg. Then on 31 March Dodds Stewart and CIRECO concluded another contract in Hong Kong for the sale of a fourth cargo of Canadian wheat. The signing of these contracts preceded the Ministry of Agriculture’s conference in Hebei, from late March to early April, where a plan was introduced to increase wheat production in the major winter wheat-producing provinces

36

July 1957–August 1960

(Hebei, Henan, Shandong, Shanxi, Shaanxi and Gansu) in 1958 by 25 million tonnes – up 50 per cent over 1957. With limited currency available, the Chinese were eager to conclude subsequent grain deals on barter terms – conditions which Western interests had previously been unwilling to agree to. However, a new development threatened to derail the all important (in terms of Zhou Enlai and Chen Yun’s trade strategy) Sino-Japanese trade. On 13 March, Taibei suspended trade relations with Tokyo to protest the development of Sino-Japanese economic trade relations. Xinhua reported on 1 April that, because Japanese Prime Minister Kishi had responded by assuring Chiang Kai-shek that the Japanese government would not recognize the PRC diplomatically, Tokyo remained hostile towards Beijing. Meanwhile, at the NSC’s 356th meeting on 28 February, participants decided that Washington should agree to a general reduction in the multilateral controls on trade with Communist countries in order to maintain an effective multilateral embargo on items ‘. . . having a clear military application or involving advanced technology of strategic significance not available to the Sino-Soviet bloc’. The NSC also asked the CFEP, in light of the above decision, to review current US economic defence policy. On 24 March COCOM began reviewing its embargo list which, despite continued resistance from Washington, led to the abolition of the ‘Paris Group’s ‘quantitative’ and ‘surveillance lists’. The latter was replaced by a ‘watched list’ of considerably smaller scope. A very wide range of items which the Chinese needed were removed from the ‘embargo list’, including civilian aircraft, aircraft engines, kerosene, vehicles, ships, oil exploration and refinery equipment, small rolling mills, compressors and blowers.46 Also, prior to the end of March, CIRECO signed contracts in Hong Kong to purchase at least two 10,000 tonnes cargoes of South African maize from Jardine Matheson Ltd (for convertible and registered sterling) who had also agreed to help Beijing market Chinese goods in South Africa. In early April, the Maple Leaf Milling Company, a Canadian Pacific Company subsidiary, signed a contract with China National Textile Import Export Corporation (CHINATEX) Shanghai to exchange 254 tonnes of Canadian flour for 250,000 yards of Chinese grey cloth (for flour bags). Maple Leaf had completed the deal after Robin Hood Flour Mills’ parent company – the New York-based International Milling Co. – was pressured by the US government not to become involved in the China trade.47 In April, after leaving Chengdu, Mao visited Chongqing, Wuhan and Guangzhou before returning to Beijing on the 27th, where he remained from May to August.48 Shortly after Mao left Guangzhou, CEROILFOOD, hoping to obtain better terms of trade by encouraging competition among suppliers, opened more grain negotiations at the Guangzhou Trade Fair. From 10 to 12 May, the Chinese signed three contracts with Louis Dreyfus Co. (London) to purchase approximately 11,000 tonnes of Australian wheat for cash.49 However, after a poor harvest in 1957–8, the Australians could not offer the Chinese much more grain. Besides, the PRC had had a large and widening trade deficit with Australia since 1956.

‘Great Leap’, famine and ‘readjustment’

37

Furthermore on 10 May Chen Yun and Zhou Enlai’s trade strategy suffered a crippling blow when Beijing suspended trade with Japan in response to the Nagasaki Flag Incident. Nevertheless, China’s South-East Asian export drive was still gathering momentum, and Sino-Indonesian economic ties continued getting stronger following the failure of the CIA-backed rebellion against the Indonesian leader Achmed Sukarno in May. Still, the Chinese needed to buy much more foreign wheat. A Reuters report from Beijing on 13 May quoted a PRC Ministry of Agriculture official as saying that ‘wheat is generally coming up very well. But roughly 10–15 per cent of the crop is not up to standard and this is a serious problem’.50 Suddenly, the Chinese began having more success at negotiating grain contracts under which the seller agreed to help them sell textiles and light industrial products. At the Guangzhou Trade Fair, from 15 to 26 May, CEROILFOOD officials arranged purchases of a fifth, sixth and seventh cargo of Canadian wheat (for convertible sterling) from Dodds Stewart and Hall Bryan Ltd – the Canadian agent of the Swiss-based major international grain trading firm André & Cie S.A. which was known for making unorthodox deals. On 3 June CIRECO signed a contract, in Winnipeg, with K.A. Powell (Pacific) Ltd to purchase (for convertible sterling) an eighth shipment of Canadian wheat,51 and on 16 June, a Canadian DEA’s report on the first re-evaluation of Canadian China policy since the Korean War recommended that Ottawa gradually move towards diplomatic recognition of the PRC government through increased unofficial contacts – especially in trade relations. The Diefenbaker government, under sustained pressure from prairie farm groups, remained eager that Canadian wheat continue to be exported to China.52 However, during the summer of 1958, firms in Shanghai, the port where Canadian grain was arriving, were seriously affected by Ottawa’s anti-dumping legislation against Chinese textile imports (especially cotton goods).53 The Second Session of the Eighth National Congress of the CPC in Beijing (5–23 May) adopted the policy of ‘going all out’ to reverse China’s backward economy as soon as possible ‘in disregard for the objective laws governing economic development’.54 During May, Chen Yi was appointed PRC Foreign Minister and replaced as mayor of Shanghai by Anhui-born deputy Ke Qingshi. Zhu Rongji was removed from the CCP after being accused of being a rightist. Zhou Enlai, who along with several members of Chen Yun’s ‘Central Small Group for Economic Work’ opposed rapid economic development policies, continued losing influence. Yet, their trade strategy still had not been completely derailed, since on 4 June a Sino-Norwegian trade agreement was signed. Nevertheless, while Mao, on 9 June, rejected Zhou’s offer to resign the next day, the ‘Central Small Group for Economic Work’ was replaced with the ‘Central Financial and Economic Group’. Although still headed by Chen Yun, the new group was granted only advisory powers. Mao, influenced by overly optimistic agricultural reports from the East China Region, told Bo Yibo at a meeting of top economic officials (including the

38

July 1957–August 1960

recently downgraded Chen Yun) on 18 June that China’s grain problem had been solved.55 The following day officials of the East China region called for a ‘Great Leap’ in agriculture and raising per capita grain output from 500 kg to the unrealistic level of 750 kg (China’s per capita grain output in 1998 was only about 410 kg).56 However, the Chinese were probably concerned because during June, Khrushchev suggested to Eisenhower that the volume of Sino-American trade in non-strategic goods increase. Washington was only interested in such trade on an unofficial basis – to help ease balance of payments problems and reverse the outflow of gold stocks. Ding Kejian’s article in Peking Review on 15 July promoted the benefits of China negotiating ‘Long-Term Trade Agreements’ with both Communist and Capitalist countries. Ding stressed that the PRC would continue to develop trade relations with Capitalist countries out of mutual economic benefit and to promote world peace.57 On 15 and 21 July, with Mao in Beijing awaiting Khrushchev’s secret visit, CIRECO signed contracts, in Winnipeg, to purchase the ninth and tenth shipments of Canadian grain – from McCabe Grain Co. and Hall Bryan Ltd. However, these contracts were China’s final purchases of Western grain in 1958. Beijing had suddenly suspended negotiations for an eleventh cargo of Canadian grain.58 CIRECO officials subsequently told the Canadians that China would not be buying more foreign grain soon and that Canadian traders should concentrate on trying to sell the Chinese commodities such as metal and chemicals.59 On 22 July, the day after, the first wheat deal was concluded and as the GLF gathered momentum, Xinhua published excerpts from the Chinese Ministry of Agriculture’s crop report, which said that the 1958 harvest was ‘Unprecedently Good’ and that wheat yields per hectare were 71 per cent higher than in 1957.60 Thus, in early August, when Mao visited a part of rural Hebei which had reported a massive increase in grain production, he told the peasants they could consume wheat and preferred coarse grains instead of potatoes.61 Soon Chinese government estimates for total grain production in 1958 exceeded 300 million tonnes, about 90 per cent more than in 1957. The enlarged conference of the Political Bureau of the Party Central Committee at Beidaihe (17–30 August 1958) responded by recommending that China focus on industrial development rather than agriculture.62 Exaggerated output figures also led the Chinese to begin exporting premium grade rice to Malaya and Singapore, which were Thailand’s traditional rice export markets, at prices 25 per cent lower than those offered by Thai traders.63 The perceived boom in agricultural production probably contributed to Beijing’s decision to authorize the PLA’s shelling of offshore islands held by KMT forces. Zhou Enlai and Chen Yun’s ‘readjustment’ trade strategy suffered a further blow during August when the UK government expanded quota restrictions on PRC imports introduced in January to most textile items. During 1959 these quotas were extended to an even wider range of PRC imports.64

‘Great Leap’, famine and ‘readjustment’

39

September 1958–December 1959 In September Chen Yun was placed in charge of the newly established State Capital Construction Commission, a body created to oversee China’s rapid development strategy – especially steel production. Despite Chen Yun’s reservations about the GLF,65 steel was crucial to the domestic chemical fertilizer industry which he was keen to develop. Chen’s doubts were probably fuelled by unconfirmed accounts in 1958 that domestic harvest reports were exaggerated and that grain was in short supply in some regions. Partly because Chen had been in charge of warehouse inspection and material allocation since early 1950,66 probably few people had a more accurate picture of the PRC’s grain stocks than he. Suddenly, on 6 September, just as it seemed that the Chinese might have to resume importing Western grain, Beijing suggested to Washington that the Sino-American ambassadorial talks be reopened. Then on 8 September, as the Chinese and Americans awaited the resumption of the talks at Warsaw on 15 September – moved from the previous venue at Geneva – officials associated with K.C. Jay (a.k.a. K.C. Choi or Xie Qizhu), an assistant manager of the Hong Kong branch of the Bank of China, made a formal enquiry of the Macau government about obtaining the preferred importation licence for the lucrative Macau–Hong Kong gold trade. Jay later emerged as a key figure in financing Beijing’s purchases of foreign grain.67 The Macau government – eager to replace its gold import licencees because it felt that not enough of the vast profits from the trade were reinvested in the Portuguese colony – was immediately interested in Jay’s proposal.68 The Chinese officials’ enquiry occurred just as the PRC faced new and potentially serious trade problems. The West Germans had not imported the maximum quantities of goods provided for under the Sino-FRG trade agreement and it was not renegotiated when it expired at the end of September. Also, although by 1956 about 66 per cent of the PRC’s South-East Asian capital investment was in Malaya where 44 per cent of the population was Chinese,69 the lucrative Sino-Malayan trade, ran into difficulty on 1 October when Kuala Lumpur announced that domestic importers of Chinese textiles would have to obtain special government permits. Sixteen days later it banned imports of various Chinese textiles and restricted imports of other goods from the PRC. Then, at the end of October the Bank of China was forced to close its branches in Malaya (the only foreign bank branches there) following Kuala Lumpur’s decree prohibiting foreign banks from operating in Malaya.70 This probably left Beijing more dependent on individuals like Chen Ming, who had emerged as a key ‘fixer’ for the PRC’s Ministry of Foreign Trade and Bank of China, since emigrating from Malaya in 1938 (aged 19) to keep its South-East Asian export drive running. Although, during 1959, as the GLF proceeded, Jay and his associates suspended talks with the Macau government.71 Meanwhile, by 2 October Mao had received reports of starvation at Anhui, and from 13 to 17 October, he investigated areas in northern China near Beijing – including Tianjin. On 16 October, as Mao expanded consultations with local officials,72 CEROILFOOD (Shanghai) asked Bank Line representatives in that city for James Richardson & Sons’ cable address. While the Chinese emphasized

40

July 1957–August 1960

that they were not planning to purchase more Western grain soon, after further prompting they conceded that ‘one could never be sure about such things’.73 By late October, Mao thought that production targets, especially for steel and grain output figures might be too high. Although he continued to promote overly ambitious development at the First Zhengzhou Working Conference held from 2 to 10 November, he also began attempting to ‘cool down’ the GLF. Bo Yibo later remembered that Mao had told the conference that ‘in Shanghai and Wuhan there is nothing to eat’.74 About that time Mao instructed Ambassador Wang Bingnan not to offend the Americans during the Warsaw Talks.75 At the Wuchang Conference, held between 21–27 November, a drastically inflated grain production figure of 375 million tonnes for 1958 was reported. Chen Yun responded in early 1959 by conducting an investigation in Henan, but was unable to obtain adequate information from local cadres. Chen knew, however, that the size of the national grain stockpile had contracted steadily since mid-1956 (see Table 2.1). Since late 1958, the Chinese had dramatically increased grain and agricultural exports to earn currency to pay for the growing volume of equipment and materials required to finance the GLF.76 Chen responded by warning the ‘Central Finance and Economic Group’ that domestic grain shortages would not be remedied by current policies. However, by then Chen Yun and Zhou Enlai lacked the authority to change this situation. In early 1959, when PLA commander Peng Dehuai visited his home in Hunan, he found conditions were very different than reported – people were almost starving. He responded by warning the Central Committee that production figures were inflated.77 Then, in April, State Statistical Bureau chief, Xue Muqiao, a supporter of many of Chen Yun’s policies,78 advised the Bureau’s meeting in Beijing that the exaggeration and falsification of statistics must stop.79 In late 1958, as the PRC’s State statistical system collapsed and the central government received falsified reports and figures from throughout China, the Beijing leadership was preoccupied with foreign affairs. At that time the PRC was increasing its economic aid to North Vietnam80 and on 10 March 1959 the PLA brutally suppressed an uprising in Tibet which by mid-August initiated the Sino-Indian conflict. Further, in early 1959, the Chinese became increasingly concerned about the situation in Laos. Because of the collapse of Sino-Japanese trade relations, Chen Yun had endorsed Renmin Ribao articles in early 1959, calling for China to rely more heavily on Soviet aid, a position which Mao disapproved of. On 8 August 1958, the Soviets had agreed to help build and expand various Chinese industrial plants including metallurgical and chemical fertilizer production installations. Under a Sino-Soviet economic cooperation agreement signed on 7 February 1959, Moscow agreed to help Beijing construct 78 more large industrial projects between 1959 and 1967. However, Sino-Soviet economic cooperation was later said to have been almost completely suspended in 1959.81 Nevertheless, from April to early June, after conducting investigations in rural China, Peng Dehuai visited Eastern Europe and the USSR.

‘Great Leap’, famine and ‘readjustment’

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Table 2.1 Total annual PRC grain output, trade and government stockpile, July 1957–May 1961 (in million tonnes) Year

1957a

Total stocks

18.49 (July) ⫺3.2

Change in stocks Foreign grain exports Change in foreign grain exports Grain output Change in grain output Total foreign grain imports Change in foreign grain imports

1958a

1959a

1960a

a

a

a

a

a

a

1961a 7.5a ⫺10.99a

2.12

2.93

4.22

2.76

1.38

⫺0.57

⫹.81

⫹1.29

⫺1.46

⫺1.38

190.7

193.5

165.2

139.4

143.2

⫹2.3

⫹2.8

⫺28.3

⫺25.8

⫹3.8

0.1668

0.2235

0.0200

⫹0.0176

⫹0.0567

⫺0.2035

0.0660

⫹0.046

5.80

⫹5.734

Sources: Table composed by author using both official PRC information and estimates from the following sources: Walker, op. cit., pp. 42, 60, 80–3, 160; Liu and Wu, op. cit., p. 128; Lardy and Lieberthal, op. cit., pp. xx, ix; CIRECO, op. cit., p. 909; Carter, C.A. and Zhong, F.N., China’s Grain Production and Trade: An Economic Analysis, London: Westview Press, 1988, p. 5. Note a August 1957–May 1961: Central government grain reserves fell by ⫺10.99 million: or by ⫺0.250 million per month (i.e. about ⫺3.0 million per year).

The Warsaw Talks had resumed on 19 May 1959, at the request of the Americans, and Chinese officials associated with gradualist policies based on the Western trade were gaining influence. In April Liu Shaoqi had replaced Mao as CCP Chairman although Mao remained in de facto control. Around that time Rong Yiren became a member of the Standing Committee of the CCP Central Committee. In June Chen Ming was appointed deputy director of the third bureau of MOFT whereas the title of deputy director of the finance and trade office of the State Council was added to Ye Jizhuang’s portfolio. The renewal of the Sino-Norwegian trade agreement on 5 June may have reflected renewed interest among Chinese leaders in expanding trade with Capitalist countries. Chen Yun and Deng Xiaoping’s decision to go on extended sick leave three days later probably stemmed from growing tension within the leadership over economic policy.82

42

July 1957–August 1960

Then, in late June Moscow broke its October 1957 scientific agreement with Beijing by refusing to provide China with an atomic device and related technical information. Between late June and early July 1959, as Soviet–American relations improved, the Chinese leadership learned that Khrushchev had criticized the GLF earlier in the year.83 On 14 July, as Mao reconsidered elements of the GLF strategy, Peng Dehuai wrote the Chinese leader a letter criticizing the GLF. During the enlarged meeting of the Political Bureau of the Central Committee of the CPC in Lushan (2 July–1 August) and the Eighth Plenary Session of the Eighth’s Central Committee (2–16 August), Peng Dehuai and others were censured as ‘rightist opportunists’ for opposing GLF policies. On 22 August, Zhou Enlai reasserted the importance of the role of government – as opposed to party organs – in criticizing the statistical failures of the GLF, but the following month Xue Muqiao was replaced as State Statistical Bureau chief, even though agricultural output statistics had been ‘revised downward’ during CCP meetings at Lushan the month before.84 Ambassador Zhang Wentian was recalled from Moscow and on 17 September Peng Dehuai was replaced by Lin Biao – who was opposed to a Chinese rapprochement with the West and Japan – as Minister of National Defense.85 Huang Kecheng, a member of Chen Yun’s ‘Central Small Group for Economic Work’ in 1957, was also removed as PLA chief of general staff. Nevertheless, that same month Luo Ruiqing was appointed deputy Minister of Defense and chief of the PLA general staff while Rong Yiren became vice-minister of the PRC’s textile industry. In the US attitudes towards the PRC were beginning to change. In June Congressman (Oregon) Charles Porter suggested that the opening of SinoAmerican business contacts might improve relations between both sides.86 Also on 8 September the PLA shot down a US-made high-altitude espionage aircraft (a U-2 operated by the ROC air force) – setting a precedent which would occur several more times over the coming years when Sino-American tensions appeared ready to moderate. In September 1959 the Conlon Associates report to the US Senate Foreign Relations Committee recommended that Washington’s China policy of ‘containment through isolation’ be replaced by one aimed at ‘exploration and negotiation’.87 However, as had occurred in September 1956 when Sino-American tensions appeared to be easing, on 7 October 1959 the PLA shot down a US-made high-altitude espionage aircraft (an RB-57D). It also appeared that troubles in Vietnam would continue escalating.88

January–August 1960 Between 1958 and 1960 China’s chemical fertilizer production capacity increased by a total of about 365,000 tonnes compared with an increase of only 140,000 tonnes between 1950 and 1957. Despite earlier warnings by Chen Yun and Ma Yinchu, during the GLF the Chinese attempted to build large numbers of small and medium-scale fertilizer production plants throughout the PRC. The scheme sought to develop regional self-reliance, avoid excessive bureaucracy, and raise the level of technology used by the peasants to create the ideal PRC citizen – ‘expert and red’.

‘Great Leap’, famine and ‘readjustment’

43

However, by December 1960 only eight of China’s twenty-seven small-scale plants were in operation and these did not work well. There were similar problems with medium-scale facilities. In 1958, the Chinese had started to build at least ten large-scale fertilizer production facilities, but these were without sufficient supplies and equipment. By 1960 not one of these plants had been completed.89 As the Chinese government became disillusioned with Soviet equipment and technical support its chemical fertilizer imports increased from 117,963 tonnes in 1950 to a record of nearly 2 million tonnes in 1958. Prior to 1958, Japan provided 22–31 per cent of China’s chemical fertilizer imports,90 but from 1959 to 1960, following the ‘Nagasaki Flag Incident’, over 98 per cent of these purchases were from West European firms. Although Belgium/Luxembourg and West Germany continued as major suppliers, Montecatini, Edison and ANIC suddenly became main suppliers as well (see Table 2.2). Table 2.2 PRC’s foreign chemical fertilizer imports, 1957–60: total and by country/ organization (in tonnes) Year

OECDa

OECDa (%)

Japana

Japana (%)

Totalb

1957

742,000 (Belgium–Luxemburg 292,000) (FRG 248,000) (Italy 154,000) 1,077,000 (Belgium–Luxemburg 414,000) (FRG 430,000) (Italy 150,000) (Norway 24,000) 1,068,000 (Belgium–Luxemburg 398,000) (FRG 202,000) (Italy 361,000) (Norway 24,000) 851,000 (Belgium–Luxemburg 251,000) (France 10,000) (FRG 232,000) (Italy 287,000) (Norway 7,000)

74

246,000

25

1,236,021

77

313,000

22

1,998,463

99

––

––

1,541,242

98

2,000

––

1,270,770

1958

1959

1960

Sources: Table prepared by author from: a Liu, J.C., China’s Fertilizer Economy, Chicago: Aldine Publishing Co., 1970, pp. 54–5, 58–9, 66–7 (based on official pre-1958 OEEC, post-1958 OECD, Japanese government and Japanese Fertilizer Association annual statistics); b CIRECO, op. cit., p. 939. Notes Belgium–Luxemburg includes: Comptoir Belge de l’Azote. FRG includes: BASF AG, Hoechst AG, Ruhr–Sticktoff AG. Norway includes: Norsk Hydro. Italy includes: ENI, SEIFA (Montecatini–Edison subsidiary).

44

July 1957–August 1960

After ENI founder and president Enrico Mattei’s ENI/Societa Nationale Metanodetti-Progetti (SNAM-Progetti) (ENI’s natural gas pipeline subsidiary) delegation went to the PRC in 1958, Beijing’s purchases of chemical fertilizer from ANIC increased from 20,000 tonnes in 1958 to 82,000 tonnes in 1959 and 50,900 tonnes in 1960.91 The Chinese found ENI one of the more attractive potential sources of equipment and technology for developing their chemical, natural gas and petroleum industries. Although the Italian Parliament was technically supposed to preside over ENI operations, Rome maintained that it had no effective direct control over the firm’s subsidiaries. Because of its controversial status and history, ENI was sometimes referred to as a state within a state.92 Meanwhile, despite Beijing’s massive expenditure on foreign fertilizer, China’s grain production in 1959 fell to the lowest level since 1953. In 1960 it fell even further. Yet, China’s grain exports increased dramatically from 1958 to 1960 causing the national grain stockpile to be depleted rapidly (see Table 2.1). About 4.8 million more abnormal deaths occurred in 1959, but the leadership was still unaware that famine had spread throughout China. Yet, in March 1960, the government, already concerned about China’s diplomatic isolation,93 received reports of starvation from various parts of Anhui.94 On 29 March Zhou Enlai responded by asking Anhui leader Zheng Xisheng to verify if these reports were exaggerated. Zhou conceded that isolated cases of starvation had occurred in every province in 1959 and reminded Zheng that Mao had recently urged Chinese officials to take starvation reports seriously.95 If the Chinese were considering purchasing American grain it would have been logical for them to approach Cargill again, but its 60-year-old president Cargill MacMillan, who favoured trading with China, became ill after Christmas 1959 and was permanently incapacitated after being released from hospital in mid-March 1960. Suddenly, on 5 April, the PRC government, previously unenthusiastic about C.J. Small – a Canadian Department of External Affairs (DEA) official stationed at the Canadian trade commission in Hong Kong – and Forsyth-Smith’s request to visit China to promote trade, decided to allow them to tour the country from 13 May to 8 June.96 Meanwhile, in February, the Australian government abolished its import licensing controls, allowing the Chinese greater access to this market. That same month Min Yimin – Rong Yiren’s long-time associate – was identified as deputy director, office of foreign trade under the People’s Bank. At the close of the Second Session of the NPC on 10 April, Zhou Enlai gave an unscheduled last minute report on China’s need to develop peaceful foreign relations and cooperation based on the five principles – a position which he had promoted in mid-1956.97 Anhwei-born PRC leader Wang Jiangxiang98 was very concerned about conditions in the PRC and wanted Beijing to improve relations with Moscow, Delhi and Washington so China could focus on famine relief and rebuilding the economy.99 The Chinese leadership continued receiving starvation reports from throughout the PRC and, on 28 May 1960, the CPC Central Committee issued the ‘Urgent

‘Great Leap’, famine and ‘readjustment’

45

Directive on Allocating and Shipping Grain’, admitting that in the previous two months grain transfers to Beijing, Tianjin, Shanghai and Liaoning were inadequate. Grain stocks there were nearly depleted and ‘Unless more grain was shipped to these places immediately, the situation would deteriorate’.100 About that time K.C. Jay resumed discussions, suspended in 1959, with the Macau government on obtaining the exclusive Macau–Hong Kong gold importation license.101 Then, on 7 June Tsao Lien-en – who prior to 1947 had been a high-ranking KMT Foreign Affairs official and owner of a Shanghai firm trading in Canadian wheat flour, newsprint, rubber and bristles throughout China and South-East Asia – approached CANDAIR Ltd, the Montreal-based aircraft firm, to ask if his firm (also based in Montreal after 1949) could represent the Canadian company in the PRC. Tsao, who was extremely disillusioned with the KMT government on arriving in Canada in 1947, now explained that Beijing was relying on Moscow out of necessity, not by choice. He then offered to help sell the Chinese goods such as Canadian uranium, aircraft, an aircraft production plant and wheat in exchange for Chinese goods.102 Although it would be several weeks until Sino-Western grain negotiations resumed, Tsao’s approach to CANDAIR Ltd occurred as ‘political appointees’ at the headquarters of the PRC’s state trading corporations were being replaced by officials having strong business backgrounds, many of whom were former influential Shanghai businessmen.103 The most important positions went to those experienced in doing business with interests in the non-Communist countries.104 In July Xie Shoudian, commercial councillor of the PRC embassy in London, returned to China to take up his new position as deputy director of MOFT’s export department. Xie who was also second deputy director of the Bank of China was considered by Western officials to be ‘. . . the man who really runs the Bank’. PRC economic problems were exacerbated by Moscow’s decision, announced on 16 July 1960, to withdraw, by 1 September, technical aid and support because of its increasingly bitter ideological dispute with Beijing. The Chinese immediately had to cancel more than 250 domestic construction projects. Shortages of equipment, components and other key goods previously supplied by the USSR soon developed. PRC civil and military aviation began suffering from serious shortages of crucial items – such as specialized petroleum, oil, lubricants (POL) and aircraft parts – which could not be produced domestically. Some planes were grounded and their parts removed to maintain a reduced number of operational aircraft, mostly of Soviet origin.105 In August 1960, the Chinese Payments Corporation instructed the China Civil Aviation Bureau (CCAB)106 to examine the possibility of purchasing Western aircraft for use on external routes.107 Although they waited until the autumn to approach Vickers, the Chinese were interested in buying the firm’s Viscount medium-range turboprop aircraft. The Viscount was Britain’s most successful ever civil aircraft but, since 1957–8, with the arrival of the jet age, its sales had fallen. British aircraft manufacturers were eager to export to new markets – especially those in which its major competitor, the US, could not compete. Fragmentation of the European aircraft production industry made it increasingly difficult for

46

July 1957–August 1960

Europeans to compete with American firms in available markets.108 Since 1956, aircraft accounted for approximately 9 per cent of British exports, but subsequent decreased military demand and the growth of America’s more highly subsidized aerospace industry left the British concerned about the future of the UK aircraft industry.109 However, it remained to be seen how Washington would respond if Whitehall granted approval for Vickers to sell Viscount aircraft to the Chinese. Although these planes were not on the COCOM list, communication and navigational equipment incorporated into them were. Also, some of this equipment was manufactured by the UK subsidiary of a US firm. Thus Washington might try and block the deal at COCOM or through US Foreign Assets Control Regulation (FACR). But even if it did not, the Chinese could only afford to buy the aircraft on credit – terms which Western countries had never previously extended to the PRC government. Meanwhile, the Beijing leadership began to acknowledge that the GLF had failed and that it was necessary to resume the readjustment, although excessive production targets for 1961 were not reduced. At the CPC Central Working Conference in Beidaihe, from 5 to 10 August, the ‘Directive on Mobilizing the Entire Party Membership to go in for Agriculture and Grain Production’ was formulated.110 In July and August 1960, after receiving further reports that serious famine existed throughout the mainland, urban grain rations were reduced by 1 kg per month as Zhou Enlai attempted to balance supplies.111 Even PLA food rations in various areas were reduced by up to one half.112 In August, Chen Yi and Zhou Enlai told Western officials and representatives that China needed international peace over the long-term, was seeking to resolve disputes through negotiation and wanted to examine the possibility of Asian Pacific rim countries, including the US and the PRC, reaching a mutual non-aggression agreement.113 In late August Li Fuchun and Zhou Enlai’s ‘new’ economic policy of ‘readjustment, consolidation, filling out and improvement’ was introduced.114 China was essentially returning to the readjustment strategy, abandoned in late 1958, based on gradualist development economic targets, an emphasis on increasing agricultural production and greater trade with the West and Japan. Also in late August the Chinese leadership ordered MOFT to gradually resume the ‘test shipments’, suspended in 1958, while it conducted further investigations into conditions and requirements in China. It was now essential to revive trade with Japan and Zhou Enlai told JCTPA director Kazuo Suzuki that, although Beijing preferred to negotiate a trade agreement with Tokyo, it would participate in special trade with firms designated as ‘friendly’ by CCPIT. Fortunately for the Chinese, Japanese chemical fertilizer producers were very interested in resuming exports of their products to the PRC. Chemical fertilizers were Japan’s most lucrative chemical export and, because of intensifying competition in export markets, Japanese ammonium sulphate fertilizer producers had formed the Japanese Ammonium Sulphate Export Association (JASEA).115

‘Great Leap’, famine and ‘readjustment’

47

Despite a slowdown in domestic fertilizer purchases, Japanese chemical fertilizer producers had increased production and were reducing prices to increase sales.116 By resuming imports of Japanese fertilizer Beijing could also embarrass Washington. Because of the growing balance of payments deficits and protests from US Congress and American chemical fertilizer producers, the US government was considering cancelling its annual International Cooperation Administration (ICA)117 purchases of this commodity from Japan. ICA purchases, re-exported mainly to South Korea, accounted for 40 per cent of Japanese chemical fertilizer exports.

Part II

September 1960–September 1962

3

Chinese–Western grain trade diplomacy Credits and famine relief, September 1960–August 1961

A key figure in the Chinese government’s historic decision to import grain from abroad was Chen Yun. In . . . May 1961, Chen argued that such imports were . . . essential . . . to relieve the ‘tense’ grain situation, stabilise the food market and lighten the burden on the peasants – though he added that financial and transport constraints dictated that an upper limit of five million tonnes be placed on such purchases . . . evidence . . . suggest[s] that Chen regarded the import of foreign grain as a temporary expedient, arguing that its positive incentive would restore domestic production within three to five years. (Kenneth R. Walker, in R.F. Ash (collector and ed.), Agricultural Development in China, 1949–1989: The Collected Papers of Kenneth R. Walker (1931–1989), 1998)

September–December 1960 The Chinese leadership’s decision in August 1960 to instruct MOFT to gradually resume purchasing Western grain through CIRECO resulted in the PRC becoming a net grain importer for the first time and over the long-term. The grain import programme was managed by Zhou Enlai until his death in 1976,1 and in the autumn of 1960 Ding Kejian, one of Zhou’s top economic advisors, was appointed CIRECO’s chairman and CEO. On 3 September, after the reduction in PLA grain rations in the previous month, CIRECO asked the CWB, AWB, Louis Dreyfus Co., Bunge, Gollin and Goy (Sydney) and Jardine Matheson (Hong Kong) about purchasing 20,000 tonnes of wheat. As the Chinese continued to evaluate conditions at home, negotiations for this transaction provided them with insights into foreign grain availability, quality, variety and prices and generated interest and competition among suppliers.2 Drought had lowered Middle Eastern grain production in 1960–1 and Western Europe’s total grain harvest was of a lower quality and approximately 2.7 million tonnes less than the previous year. Although French, Argentinian and Soviet grain stocks were somewhat smaller in 1960–1, record surpluses existed in Canada, the US and Australia and the governments of these countries were under growing pressure from domestic farm lobby groups to take action to reduce supplies. As in 1955, 1957 and 1958, initial Chinese enquiries in 1960 about purchasing foreign grain coincided with crucial Sino-American diplomatic talks. During

52

September 1960–August 1961

the hundredth meeting of the Warsaw Talks on 6 September 1960, the Chinese proposed linking the recognition of their claims to Taiwan to an agreement to exchange news representatives. However, with the US Presidential elections only weeks away, Washington, led by the Pentagon and State Department was perhaps taking the most pronounced anti-Communist stand since 1954. Thus, the Americans rejected the Chinese initiative, resulting in a lasting stalemate.3 As Sino-Western grain talks continued slowly, JCTPA director Suzuki began accepting applications from ‘friendly firms’, which included major Japanese banks, trading firms and ‘dummy companies’ (‘fronts’ for major Japanese firms seeking to hide their involvement in Sino-Japanese trade) interested in trading with China.4 Nevertheless, many Japanese businessmen remained cautious of trading with the Chinese, having suffered serious losses when Beijing suspended trade with Japan in 1958. Although the Chinese continued talking with CANDAIR in September 1960, about sale of 540 medium-range turboprop aircraft, the Canadian DEA felt that, even if a sale of these aircraft to China was approved at COCOM, such a transaction could damage US–Canadian relations.5 About this time the Chinese contacted Vickers-Armstrong (Aircraft) Ltd and Rolls-Royce about purchasing up to forty new Vickers Viscount 810 Series medium-range turboprops, related replacement parts and spare Rolls-Royce Dart 525F engines.6 British officials felt that a Sino-British aircraft deal might prompt Beijing to become dependent on Western firms for spare parts, maintenance materials and technical instruction and encourage a Sino-Soviet split. However, Sino-Western equipment talks were slowed over the following year as the Chinese used available funds for grain and other items required to resolve their crisis. During September 1960, with reports of food riots and famine conditions throughout the mainland, PLA food rations were reduced further. Because they were not getting enough to eat and were receiving grim reports from their families at home, the soldiers were becoming unhappy with the government.7 Yet, between 20 and 31 September CIRECO signed contracts with Bunge and the East German government to purchase as much as 50,000 tonnes of grain for shipment to Albania (see Table 3.1) as part of limited monetary and food aid that Beijing, despite the domestic situation, provided to its Communist European ally in appreciation of its support during the continuing Sino-Soviet ideological dispute. On 30 September, the CCP Central Committee approved the ‘readjustment, consolidation, filling out and improvement’ strategy already announced by Zhou Enlai and Minister of the State Planning Commission Li Fuchun.8 However, it took a further seventeen months for the leadership to agree on practical aspects of this policy. With Zhou Enlai in Rangoon for meetings with U Nu (back in power since 4 April 1960), Xiao Fanzhou, a high-ranking Zhejiang official who emerged as a key player in the Sino-Western grain negotiations, was appointed secretary general of the CCPIT. About mid-October, the Chinese realized that conditions at home were much worse than were previously thought and the enlarged Military Affairs Commission (MAC) meeting in Beijing between 14 and 20 October emphasized the need for

Grain trade diplomacy and famine relief 53 Table 3.1 PRC–Western cash grain contracts: 20 September 1960–27 February 1961 (in tonnes; wheat and barley in trade grain weight; flour in milled weight) Date

Firms/organizations

Quantities and variety

Delivery (payments in sterling)

20 September 1960

Bunge CIRECO

5,000–35,000: French wheat

To Albania October–November 1960 To Albania

20 September– East Germany 15 December 1960a CEROILFOOD 19 December 1960 AWB CIRECO 4 January 1961 Australian firms CIRECO 19 January 1961 CWB CIRECO 21 January 1961 AWB CIRECO 23 January 1961 Australian firms CIRECO 27 January 1961 CWB CIRECO February 1961 Alfred C. Toepher (FRG), Kampfmeyer (FRG) CIRECO Before 20 February CWB 1961 CIRECO 23 February 1961 27 February 1961

AWB CIRECO Australian Barley Board CIRECO

10,000: wheat 304,814: wheat

121,926: barley

January–February 1961 February–March 1961 March–April 1961

760,000: wheat

February–July 1961

22,353: flour

February–March 1961 April–August 1961

22,353: flour

660,430: wheat 101,605: wheat 40,000: flour

January–June 1961

40,642: wheat 20,321: wheat 102,000: oats

March–May 1961 (diverted to Albania) January–June 1961

315,280: barley

January–June 1961

20,000: barley

Sources: Composed by author from: Mitcham, op. cit., chapter 3 (based on reports/statistics found within: NAA: A1804; A1838; A2051 and NAC: RG#20; RG#25 and NACP: RG#59); Perrett, op. cit., p. 193. Note a Unconfirmed.

more political and ideological study. A crucial step towards uncovering the full extent of China’s crisis was PLA chief Lin Biao’s order of 25 October that the army’s general rear services department investigate divisional mess units.9 The CPC’s ‘Urgent Directive Letter on Current Policies for Rural People’s Communes’ (a.k.a. ‘the twelve articles’) of 3 November, written by Zhou Enlai at Mao’s request, signalled the official end of the GLF. The Chinese continued attempting to revive trade with Japan and on 17 November an initial ‘friendly firm’ contract was signed. Between early November and mid-December, as the Chinese–Western grain negotiations

54

September 1960–August 1961

continued, the PLA leadership received more worrying reports of food shortages and the resultant dropsy, oedema, famine and associated domestic unrest. The PLA’s general political department responded by endorsing these reports and stressed that greater emphasis be placed on political study to prevent internal unrest. It also recommended that the PLA listen to and not criticize those officials accurately reporting conditions, no matter how bad they might be in the various regions.10 Then, on 28 November the CPC Central Committee stressed that an overestimation of supplies led to the grain shortages, dropsy and unnatural deaths which were occurring in various counties.11 The General Political Department of the PLA’s directive of 2 December advised that the people be notified that the Chinese leadership was very concerned about people in the disaster areas and had taken direct action after learning of the seriousness of the situation. This included sending thousands of cadres to help and conduct investigations in the disaster areas and shipping large quantities of relief grain, medicine and winter clothing to the affected areas. Between 5 and 15 December the PLA continued to send inspection tours to disaster areas while Party Committee officials in the military regions discussed how to increase food production, conserve food supplies and distribute food more equitably.12 With the Chinese Lunar New Year Spring Festival scheduled for 15 February – the only time of the year that complete family units gathered for feasting – approaching, the Beijing leadership realized that there could be no celebrations if the peasants were deprived of the traditional Spring Festival meal of jiao zi (Chinese dumplings made from wheat flour). Cancellation of the festival could precipitate more serious unrest and dissent. Thus, about 15 December Chinese leaders initiated negotiations for larger emergency imports of Western grain over the short term.13 At this time Chen Ming was suddenly appointed director of MOFT’s third bureau. If the Chinese were considering approaching the Americans for grain, Cargill was the logical place to start, but on 24 November the firm’s 65-year-old chairman John H. MacMillan Jr suffered a cerebral haemorrhage. With his death on 23 December Cargill lost the remaining member of its dominant pro-China trade executive triumvirate. Thus, between 15 December 1960 and 28 February 1961, CIRECO negotiated grain and flour contracts with the CWB and AWB covering large emergency grain shipments on cash terms (see Table 3.1).

December 1960–January 1961 By early December CIRECO representatives organized a trade promotional visit to Canada for early January 1961. Between 1 and 13 December 1960, Canadian trade commission officials in Hong Kong and AWB officials visiting Japan and Manila heard rumours that the Chinese needed to purchase large quantities of Western grain. The Australian Liberal-Country Party coalition government was already under pressure to reduce domestic grain surpluses by facilitating trade with China. Thus, on 14 December 1960, AWB General Manager C.J. Perrett, on

Grain trade diplomacy and famine relief 55 returning to Australia from Japan and Manila, arranged to meet CIRECO officials in Hong Kong. When JSP Diet member Shichiro Matsumoto’s trade delegation arrived in Beijing that same day the Chinese were most eager to revive Sino-Japanese trade. Although the price the Chinese offered for Japanese chemical fertilizer was still considered too low, Mao assured Matsumoto that the PRC wanted to purchase small Japanese tractors, steel and chemical fertilizer in exchange for soybean, salt and coal.14 Also, with Moscow cutting back on POL exports to the PRC around this time Beijing asked that PLA fuel consumption be reduced by up to 30 per cent15 and purchased about 50,000 tonnes of POL from Shell, Singapore.16 Initial AWB–CIRECO negotiations on 15 and 16 December proceeded slowly but, on the 17th, Lin Biao told PLA leaders that because of the grain shortages, he expected more domestic political unrest than in any other year since 1949. He added that the leadership’s ‘. . . most immediate concern is the internal economic situation . . .’.17 That same day Ding Kejian arrived in Hong Kong from Beijing with the Chinese leadership’s authorization for CIRECO to purchase large quantities of foreign wheat immediately. An initial AWB–CIRECO cash grain contract was subsequently agreed on, though not signed, on 19 December (see Table 3.1). This agreement was facilitated by an AWB concession to sell the Fair Average Quality (FAQ)18 wheat at a discount and accept payment in sterling. Initial shipments began in late December – before the first AWB–CIRECO contract was actually signed and payments begun.19 Also on 19 December, the Chinese told Canadian trade commission officials in Hong Kong that Beijing had recently instructed CIRECO to purchase substantial quantities of goods during their upcoming visit to Canada and that ‘wheat is always a possibility’.20 Then, on 30 December, four days before the CIRECO delegation arrived in Canada, Deputy Director Xiao Hua of the general political department of the PLA told MAC’s administrative council that recent investigations had revealed that some personnel were affected by oedema, while approximately ten per cent of soldiers were ‘wavering ideologically’. He recommended that in addition to placing a greater emphasis on political study the leadership needed to ‘. . . provide both officers and soldiers with the necessary nourishment and calories’.21 On 3 January CIRECO officials, newly arrived in Canada, stated that they hoped to purchase Canadian wheat and barley.22 By conducting negotiations for this contract in Canada, the Chinese hoped to obtain maximum publicity and support for the agreement from the Canadian grain lobby. The following day, CIRECO signed a contract in Hong Kong to purchase Australian flour, hoping that this would emphasize to the Canadians that they would have to compete with the AWB in the Chinese grain market. A revival of Sino-Japanese trade was also under way. For the first time since 1958, Japanese cargo vessels were making direct runs between Kobe and Tianjin.23 Tokyo had decided to change existing regulations to enable Sino-Japanese barter trade to resume and had also agreed to accept Chinese payments in sterling. The Chinese wanted to discuss other payment and commercial banking arrangements

56

September 1960–August 1961

required to expand Sino-Japanese trade and made a somewhat higher offer, although still considered too low, for Japanese chemical fertilizer.24 Bank of Tokyo representatives asked American officials how Washington might react if a Sino-Japanese trade agreement was reached.25 Also on 11 January 1961, Tatsunosuke Takasaki – Japan’s Trade Minister in 1958–9, subsequently a Diet member, one of the more influential economic specialists within the Liberal Democratic Party of Japan (LDP) government and chairman of Toyo Seikan Kaisha Ltd – visited Washington where he probably discussed Tokyo’s rationale for reevaluating its position on China trade. Although there was a growing consensus among army leaders about the urgency of China’s domestic situation, as CWB–CIRECO grain talks proceeded slowly between 3 and 19 January, during a conference speech on 7 January, deputy director Liu Zhijian of PLA’s general political department admitted that there existed ‘. . . differing opinions on the current problems . . . such as food, the supply and demand in the market . . . and unnatural deaths . . .’.26 Nevertheless, a PLA general political department directive of 11 January advised that to prevent further unrest, it was necessary to prohibit certain personnel – those in seriously affected disaster areas and others who expressed serious dissatisfaction about the crisis – from returning home for the Spring festival. An MAC paper of 16 January warned that armed rebels had not been eradicated from China and stressed that the PLA should assist in disaster areas, support agricultural production and most importantly, better manage food supplies.27 The Ninth Plenary Session of the Eighth Central Committee of the CPC in Beijing (14–18 January) formally adopted the policy of ‘readjustment, consolidation, filling out and raising standards’. It accepted that agriculture, over the following 2–3 years, should be the foundation of the Chinese economy, and that the CCP and Chinese people should go all out to develop agriculture and raise grain output.28 Although a consensus had been reached on the necessity of readjusting agriculture, there remained considerable disagreement among the leadership about China’s overall economic condition. Those following the ‘leftist’ line continued to favour rapid industrial development and construction. However, on 20 January Luo Ruiqing, chief of the PLA’s general staff, who was from Sichuan (one of the provinces most badly affected by famine) reported that during his recent visit to the Kunming military region he found ‘. . . the prevailing spirit of the army . . . not as good as . . . [that existing] during the Red Army period’.29 After making further inspection tours, between 20 January and mid-February, of PLA companies in Kunming, Chengdu, Chongqing and Wuhan, Luo reported that officials there were eager to discuss China’s industrial achievements but failed to recognize clearly the country’s agricultural difficulties (especially the food problem).30 Meanwhile, in early to mid-January, CIRECO representatives visiting Canada emphasized to CWB officials that they found available Canadian wheat too costly, even though it was of higher protein content than Australian wheat.31 On 16 January the Canadian Cabinet rejected Minister of Agriculture Alvin Hamilton’s proposal that Ottawa provide Beijing with a gift of grain based

Grain trade diplomacy and famine relief 57 on the size of an actual PRC purchase so as to reduce prices and encourage the Sino-Canadian grain trade32 on the grounds that it could offend the Chinese and prompt Washington and Canberra to disregard international agreements aimed at promoting orderly surplus grain disposal.33 However, on 17 January, two days before initial CWB–CIRECO negotiations opened in Winnipeg, a high-level official of the USDA’s Commodity Credit Corporation in Washington told CWB chief commissioner W.C. McNamara that he hoped the Sino-Canadian grain negotiations were successful and that the Americans ‘. . . would [also] be able to participate in this business’.34 McNamara gathered from these remarks that Washington was also considering exporting grain to China and thus that it was crucial for the CWB to reach a deal with CIRECO before the Americans entered the bargaining.35 Two days later the CWB agreed to sell the Chinese barley. About that time CIRECO received an offer to purchase flour from West German firms at a much lower price than the Canadians and Australians had previously quoted. West Germany and France were both facing their own domestic grain surplus problems resulting from a combination of domestic overproduction and a large volume of foreign grain imports. Eager to keep their flour mills operating, they may have been purchasing US wheat and re-exporting it to China as flour. In any case, US grain was replacing West German and French stocks being exported to China.36 While FRG flour exports to China increased after 1960, West German imports of US grain also grew substantially.37 As Sino-Canadian grain negotiations continued, between 21 and 23 January the Chinese signed additional contracts to purchase Australian wheat and flour. Then, on 25 January, when asked during a news conference if he might sanction American relief grain shipments to China, US President John F. Kennedy – who had taken office only five days earlier – responded cautiously saying that, if Beijing asked Washington for grain, the US government would carefully consider the request.38 With the Canadians eager not to lose out to the Australians and Americans in the Chinese grain market, on 27 January the first CWB–CIRECO grain contract was concluded (see Table 3.1). The Canadians had agreed to reduce prices slightly and sell the Chinese quantities of lower grade wheat, which was in great demand by other regular customers. They also accepted Chinese payments in sterling. Furthermore, in late January 1961, when the Soviets, who had a three year grain agreement with Canada, learned of the CIRECO–CWB negotiations, they immediately agreed to purchase 200,000 tonnes of Canadian wheat. CWB negotiators received an icy response when they suggested to CIRECO officials that the Soviets might consider a Chinese request to allow the 200,000 tonnes, already contracted for by the USSR, to go to the PRC instead.39

February 1961 CIRECO was scheduled to resume negotiations with the AWB and the CWB in mid-February, but cash purchases of Western grain and flour between

58

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19 December and early February 1961 had nearly depleted Chinese currency and bullion reserves.40 Thus, when Japanese Socialist Party (JSP) members visited Beijing in early February, Mao and Zhou Enlai told them that private Sino-Japanese trade should be expanded. Liao Chengzhi also told Shichiro Matsumoto that Beijing hoped to increase imports of Japanese steel and chemical fertilizer to a level only possible under a Sino-Japanese governmental trade agreement which preferably involved deferred payments.41 Also, in early February, K.C. Jay asked Forsyth-Smith, and his Australian counterpart, G.R.B. Patterson, if Ottawa and Canberra might extend generous credits to Beijing to facilitate further grain purchases.42 About that time too Jay contacted J.M. Braga,43 the Hong Kong representative of the International Trading Company (ITC) of Seattle – a firm which had been involved in Otto Wolff AG’s (of Cologne) equipment deals with Burma during the 1950s – about the possibility of negotiating a large Sino-American credit grain transaction.44 These talks continued over the following months, but as we will see more serious negotiations did not begin until late 1961.

NATO credit policy: May 1959–22 April 1961 The issue of government-guaranteed credits for China was not discussed at NATO meetings before April 1961. Almost certainly had this matter been debated, Washington would have pressed its allies to restrict the extension of credits to a level well below that established under NATO’s unified credit policy for the ‘Soviet bloc’. In May 1959, NATO member governments had agreed not to guarantee longterm credits, of five years and more, to the USSR. Although they did not discuss policy regarding loans to other Communist nations, NATO representatives were generally not opposed to the extension of short-term credits of 6–12 months to ‘Soviet bloc’ countries. The UK’s NATO representatives, supported by the French, Dutch, Danes and Canadians, argued that governments of NATO countries should be allowed to extend guaranteed medium-term credits (1–5 years) to the USSR. However, American NATO representatives, supported by the Germans, Italians and Turks, opposed this proposal on the grounds that credits of more than one year were comparable to foreign aid. US representatives warned that if one Western country extended medium-term credits to bloc nations a ‘credit race’ might follow. The British government responded by emphasizing their continuing opposition to using ‘. . . economic warfare against “the Soviet bloc,” both because we reject it as an objective of policy and because we believe that it would be ineffective . . . .’45

February–May 1961 In February 1961 Whitehall told Washington that it continued to participate in COCOM ‘. . . to avoid rocking the transAtlantic boat . . . .’46 Also during February,

Grain trade diplomacy and famine relief 59 Japanese Prime Minister Ikeda asked Ministry of International Trade and Industry (MITI) to prepare tentative plans for a Japanese trade fair at Shanghai. Japanese trading firms and manufacturers were simultaneously seeking to use industrywide associations to strengthen Japan’s negotiating position with Beijing. This would eliminate the need for ‘friendly firms’, several of which had opened offices in Beijing. At that time Tokyo announced plans to revitalize JCEIA – which had played a central role in expanding Sino-Japanese trade before June 1958. Although JCEIA continued to receive an annual MITI subsidy of approximately 60 million Yen,47 its membership had dwindled between 1957 and 1961 and thus was insignificant when compared to the ‘left wing’ pro-China trade groups such as JITPA and JCTPA.48 Japanese heavy industry representatives were becoming enthusiastic about opportunities they believed existed in China’s capital equipment sector. Firms such as Kawasaki and Sumitomo wanted to resume exporting steel to the PRC although the Chinese made it clear that large deals could not be concluded until a Sino-Japanese governmental trade agreement was signed.49 In February 1961 the CCP Central Committee decided to reduce China’s foreign exports of farm produce and to make sure that it put ‘feeding the people above construction’.50 At that time, the Australians and Canadians were competing for Chinese grain contracts and remained eager to ship as much surplus grain as possible before Americans entered the bargaining.51 In early to mid-February, the Chinese signed initial contracts with West German firms to purchase approximately 40,000 tonnes of flour. Then when CIRECO–CWB negotiations resumed on 16 February, CIRECO officials told the Canadians that they were being pressured by their bosses in China to obtain more rapid delivery of Western grain. Two days later, Chinese negotiators first stated that, no matter how productive China’s future harvests were, they wanted to continue purchasing Western grain – preferably under long-term agreements.52 On 20 February a CWB–CIRECO contract was signed covering another 61,000 tonnes of Canadian wheat that the Chinese, despite the seriousness of the situation at home, were diverting to Albania. The Beijing leadership considered the substantial quantities of Western grain that it diverted to other Communist nations between 1960 and 1963 to be insignificant in terms of China’s total requirements, and useful for securing political benefits from the governments of these countries.53 Especially since 1958 there had been several high-profile cases involving the US Treasury applying FACR to prevent foreign subsidiaries of American firms from exporting goods to China. Between 17 and 20 February the US Treasury Department attempted to block Imperial Oil of Canada, the subsidiary of the American firm Standard Oil, from supplying bunker fuel to ships carrying Canadian grain to China, on the grounds that such transactions would violate FACR. All bunkering facilities and refineries on the Canadian West Coast, except Shell’s, were subsidiaries of American companies. However, when Diefenbaker complained about the matter on 20 February, Kennedy assured the Canadian Prime Minister that Washington would grant a waver enabling Imperial Oil to provide the fuel. Although Shell subsequently provided bunkers for these vessels

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instead,54 this development probably strengthened Ottawa’s resolve to pursue policies which were different from those promoted by Washington. In China on the 20th, MAC’s administrative council reported that, although the PLA’s individual grain and flour rations were unchanged, they were unsatisfactory because the quality and quantity of the military’s supplementary food had been greatly reduced.55 That same day, the PLA’s Rear Services Department reported that, although the oedema outbreak within the army had peaked in December 1960 and had subsequently decreased, it remained a problem and recommended that adequate food rations be provided. When CIRECO–AWB negotiations resumed in Hong Kong on 21 February, the Chinese also told the Australians that their principals in China were pressuring them to secure more rapid deliveries of grain already purchased. Also, they now wanted to purchase between 1 and 2 million tonnes of Australian grain over the following two years. However, the Australians were unenthusiastic about CIRECO’s proposal that such a deal be financed by 6–12 month credits, even though the Chinese maintained that their currency and bullion reserves were depleted and they would meet payments by exporting textiles, rice and soybeans.56 Consequently, on 23 February Sino-Australian flour negotiations collapsed over the issue of price, although the Chinese did sign a contract to purchase Australian oats. That same day, the White House announced that President Kennedy had rejected a proposal to send US wheat to China in exchange for the release of American POWs still held in China. Furthermore, by this time, CIRECO–Bunge negotiations for Argentinian maize were moving slowly. Also on 23 February, CIRECO representatives suddenly told CWB negotiators in Hong Kong that the Chinese might want to buy 2–3 million tonnes of grain over the next 2 or 3 years. For quite some time CEROILFOOD officials had wanted to reach such a deal to help establish a programme of exporting Chinese rice and importing Western wheat. They stressed that the PRC’s 1958 trial purchases of Western wheat had convinced them that such trade was sound and should be expanded. Because they wanted to import grain now, but would not be exporting rice until May, flexible payment terms were required.57 However, on 25 February, after reading internal food and health reports of five days earlier, Luo Ruiqing told PLA leaders that the army’s oedema problem was more serious than previously realized and ‘. . . earnestly requested that emergency measures be taken to solve this problem . . . . If we fail to take emergency measures, this disease will spread further’.58 That same day in Hong Kong, presumably after receiving Luo’s urgent instructions, CIRECO suddenly suggested to their CWB counterparts that they negotiate a credit agreement for 6–7 million tonnes of grain over a thirty month period.59 However, the Chinese emphasized that the volume of future purchases under such an agreement would depend upon Ottawa extending generous credits and permitting a larger volume of PRC goods, especially textiles, to enter Canada. Canberra had already extended Most Favoured Nation (MFN) status to Chinese textiles entering Australia. A new phase of China’s trade diplomacy was under way as Chinese negotiators exercised bold tactics, despite the crisis at home, to exploit competition among

Grain trade diplomacy and famine relief 61 Western grain exporters and thus win trade and political concessions. Between mid-February and June 1961, China’s negotiators shrewdly orchestrated a ‘credit race’ among grain suppliers which served as the basis of China’s economic recovery. During March and early April, Ottawa and Canberra considered Beijing’s indirect requests for credits and the impact that such large credit sales might have on the grain surplus problem, domestic industries (especially the textile industry) and relations with other grain exporting nations and Washington. To prevent the Chinese from exploiting competition between the CWB and AWB, officials from these marketing boards discussed the possibility of establishing a Canadian– Australian credit limit for grain sales to the PRC and agreed to keep one another informed about any subsequent change in their credit policy.60 Although the Canadian government realized that caving in to Chinese demands would infuriate domestic textile manufacturers, it remained under intense pressure to fulfill its election promise to reduce the record domestic grain surplus. Moreover, it did not want to fall behind either Australia or the US, if Washington agreed to permit American grain to be exported to China. Throughout March the Chinese pressured both the Canadians and Australians to extend generous credits to facilitate further large Chinese grain purchases. March spring planting was hampered by manpower shortages associated with China’s crisis, and on 3 March Lin Biao directed the PLA to provide its ‘. . . utmost support to agricultural production . . . Especially in the areas severely affected by disaster . . . .’61 Consequently, after initial Sino-Australian credit grain negotiations were concluded in Hong Kong in early March, C.J. Perrett became the first Western government grain marketing official to be invited to meet CEROILFOOD directors in China. On 9 March, when Perrett met CEROILFOOD deputy directors Fu Xing and Zhang Bing in Beijing to discuss a possible long-term grain agreement,62 he gave them a copy of a draft agreement drawn up earlier in Hong Kong. Australian Department of Trade and Primary Industry (DPI) officials later objected to its wording because its title did not mention either the AWB or CEROILFOOD. Consequently, it could have been misconstrued as a ratified governmental document and used as a future bargaining tool. As will emerge, this document probably played a significant role in subsequent Sino-Canadian grain negotiations.63 (Later, on 3 August, the Australian Cabinet rejected an AWB proposal that a Sino-Australian long-term agreement be negotiated on the grounds that it was unnecessary, vague and might imply that China would receive preference over established customers of Australian wheat.)64 With Perrett in Beijing on 9 March, the Canadian Cabinet agreed that, if the CWB was unable to conclude further cash grain contracts with the Chinese, it would consider guaranteeing credits of $50 million over six months.65 Washington understood that the Canadian government was under great pressure from grain interests to help reduce the domestic surplus and thus did not object after learning in late March that CIRECO–CWB negotiations continued and that Ottawa might extend credits to facilitate further grain sales to China.66 In fact, on 15 March, US Under-Secretary of State, Chester Bowles told Canadian officials

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that the US State Department was conducting a thorough review of American China policy. A Gallup Poll published in March, indicated that the American electorate was slowly changing its views on China: 47 per cent of Americans would favour Sino-American trade, while 52 per cent would approve of US–Chinese grain deals.67 On 22 March, as Chinese–Canadian grain negotiations resumed in Hong Kong, the AWB asked the Australian Cabinet to consider guaranteeing credits of six months to expedite further large Australian wheat sales to China.68 By 7 April the Chinese had rejected a Canadian offer of six month credits and were holding out for nine month terms.69 Then, on 10 April, as the Canadian Cabinet continued debating70 the Chinese demands, Canberra received a report that an unidentified American firm, which was almost certainly the ITC, had offered CIRECO unlimited quantities of wheat to be shipped via Hong Kong. Representatives of this firm had told CIRECO officials that Washington would approve the sale if Beijing agreed to import the grain. The Bank of China subsequently referred the matter to Zhou Enlai who met with U Nu in Yunnan about this time to discuss the threat of KMT irregulars operating in Burma and a possible Sino-Burmese rice deal.71 It is unknown whether the Australian report had been immediately forwarded to Ottawa but, on 10 April the Australian Cabinet rejected an AWB request for an official government guarantee of Sino-Australian credit sales, leaving the matter in the AWB’s hands.72 Nevertheless, on 11 April Alvin Hamilton, who had accepted the portfolio of Minister of Agriculture in October 1960 on the condition that he assume responsibility for the CWB (which was formerly under the DTCs jurisdiction) convinced his Cabinet colleagues to guarantee credits of $50 million over nine months (with payments in sterling) to facilitate a Sino-Canadian agreement.73 While Forsyth-Smith and John Small, both of whom played a crucial role in the negotiations, and the CWB officials completed initial negotiations for the agreement with CIRECO in Hong Kong, the final bargaining which involved the CWB and CEROILFOOD officials took place in Beijing. In the Chinese capital between 19 and 22 April, CEROILFOOD officials told the Canadians that in Hong Kong on the 18th, AWB negotiators offered grain at below the price extended to the UK and the EEC, with payments to be made in twelve months.74 CEROILFOOD officials and Minister of Foreign Trade Ye Jizhuang were both categorical when insisting that an AWB–CIRECO agreement had been signed. A few days later the Canadians learned that this was not the case and that the Chinese had lied to pressure CWB negotiators into agreeing to Chinese terms.75 On 22 April the first Chinese–Canadian thirty month grain agreement, and the first two contracts under the agreement, were signed (see Table 3.2).76 The agreement was signed on behalf of the Chinese by Shanxi-born Acting Director of CEROILFOOD Li Yousheng and Deputy Director Fu Xing, while CWB negotiators were received by Ye Zhizhuang. Concerned that AWB and CWB officials would compare notes about recent negotiations with CIRECO and CEROILFOOD, the Chinese had ensured that, when the Canadian negotiating team left Beijing for Hong Kong, they did not meet the Australians who were en route to the PRC’s capital.

CWB CEROILFOOD CWB CEROILFOOD

AWB CEROILFOOD

Alfred C. Toepher (FRG), Kampfmeyer (FRG) CIRECO Louis Dreyfus Co. (for ONIC) CIRECO Bunge (and possibly other Argentinian firms) CIRECO Inter-Agra (French firm) CWB CIRECO

22 April 1961

22 April 1961

7 May 1961

May/June 1961

April–June 1961 254,000: flour 162,567: wheat

35,000–51,000: maize, some wheat

254,012: barley

Approximately 200,000: flour

Initial contracts under the above agreement: #1: 457,220: wheat 304,814: wheat #2: 365,777: barley 762,000: wheat (and option to purchase another 254,012 under this contract later in the year)

3–5.1 million: wheat 610,000–3,000,000: barley

Quantities and varieties

n.a. August–September 1961

May–September 1961

June–December 1961

June–August 1961

August–November 1961 June–August 1961 June–November 1961 July–December 1961

Over 30 month period (under individual contracts to be negotiated)

Delivery

9 month credits 9 month credits: $100 million in credits, 25% cash, guaranteed by Canadian Cabinet

12 month credits: 10% cash, 40% in 6 months, 50% in 12 months, guaranteed by the Australian government’s Commonwealth Trading Bank (CTB) 9 month credits: provided by West European banks (no down payments) 12 month credits: 25% down payment, balance due in 12 months [Compagnie Française d’Assurance pour le Commerce (COFACE) guarantee] Less than 6 month credits

9 month credits: $100 million in credits, 25% cash, guaranteed by Canadian Cabinet 9 month credits: $100 million in credits, 25% cash, guaranteed by Canadian Cabinet

Payments (in sterling)

Note n.a. ⫽ not available.

Sources: Composed by author from: Mitcham, op. cit., chapters 3–6 (based on reports/statistics found within: NAA: A1804; A1838; A2051 and NAC: RG#20; RG#25 and NACP: RG#59); Perrett, op. cit., pp.190–205.

28 June 1961 5 August 1961

June 1961

Firms/organizations

Date

Table 3.2 PRC–Western credit grain contracts: April–August 1961 (in tonnes; wheat and barley in trade grain weight; flour in milled weight)

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September 1960–August 1961

The importance of the sales to the Canadian government were highlighted when Alvin Hamilton travelled to Hong Kong to meet with Ding Kejian and other CIRECO executives on 28 and 29 April to discuss financial aspects of the agreement. During this visit Hamilton invited the Chinese to send a general trade delegation to Canada.77 While the Canadian government was eager to draw attention to its role in the Sino-Canadian grain trade, the Australian government, which also favoured grain sales to China, publicly tried to distance itself from the Sino-Australian grain deals because it relied on preference votes from the Australian Democratic Labor Party, which opposed trading with Communist countries. The Australian government thus emphasized that the AWB was an autonomous government marketing organisation over which the elected government had little control – a position which was debatable.78 Regardless, the (Australian) Commonwealth Trading Bank, another government organization, agreed to guarantee twelve month credits to facilitate the signing, in Beijing on 7 May, of the first CEROILFOOD– AWB credit grain deal. About one week later, Tokyo responded by asking Canberra for its views on Beijing’s credit reliability so that it could evaluate the potential for Sino-Japanese trade.79 Tokyo and JASEA executives were ready to complain again to Washington about America’s reduced chemical fertilizer procurement policy under ‘dollar defense’, scheduled to take effect in November 1961.80 After learning of the credit grain agreements, UK interests stepped up pressure on the Macmillan government to take further steps to facilitate the expansion of Sino-British trade.81 A possible Chinese–Vickers aircraft deal represented an opportunity for the British government to play a greater role in developing trade with China. Already, during a COCOM meeting in late April 1961, the British strongly opposed efforts of the US delegation to increase the number of items on the embargo list. Also during 1961 Macmillan told President Kennedy that ‘. . . we must distinguish between security controls, the object of which is to protect our military security and anything like . . . economic warfare . . . .’82 A special bilateral British–American meeting was subsequently held ‘. . . to discuss the principles behind COCOM’83 during which the British stressed that a US-led economic embargo against China, as opposed to controls on items of strictly military application, would be ineffectual and would drive the Chinese government further away from the West. Chinese interest in UK aircraft grew as their talks with CANDAIR faltered in the second half of 1961, shortly after a CANDAIR promotional film was shown by Forsyth-Smith, on behalf of the Canadian firm, to Chinese officials in Hong Kong. The Chinese appeared displeased when CANDAIR aircraft appearing at the beginning of the film were adorned with the logos of flying tigers – the symbol of the KMT air force under Claire Chennault.84

May–August 1961 Chinese–Vickers aircraft negotiations moved slowly over the summer because the Beijing leadership realized that it needed to import much larger quantities of

Grain trade diplomacy and famine relief 65 Western grain over the long term – quantities which the Canadians and Australians alone could not provide. In early to mid-June a high-level Chinese government document stressed that, because of famine conditions throughout the mainland, China would be in a critical position if attacked simultaneously by Taiwanese forces and another enemy such as India.85 At the CPC Central Committee working conference in Beijing between 21 May and 12 June, Chen Yun, who was gradually regaining the influence that he had lost during the GLF, proposed that the Beijing leadership implement a grain import programme under which it would spend up to half of China’s foreign exchange earnings to buy 5 million tonnes of grain annually over three to five years.86 Furthermore in June, Nan Hanzhen was dispatched to Buenos Aires to convince the Argentinians to extend favourable terms of trade to enable Beijing to import surplus Argentinian grain. Despite the seriousness of conditions inside the PRC, the Chinese began telling their Western counterparts that further large grain purchases depended on the extension of more generous credits. In May and June, French and West German firms signed contracts to sell China barley and flour on 12 and 9 month credit terms, with no down payments for the latter, and were involved in further negotiations. The French deals were guaranteed by COFACE, France’s government credit agency. At this juncture a ‘credit race’ among Western grain exporters in the Chinese market was well under way. In May, as negotiations got under way on another contract under the Sino-Canadian grain agreement, the Chinese insisted that Ottawa needed to increase the credit limit from CAN$50 to $100 million before more contracts could be concluded. By 18 May the State Department was considering instructing Ambassador Jacob Beam to tell Ambassador Wang, at the 105th meeting of the Sino-American talks, that Washington hoped that Beijing would not prevent individual Americans from sending, in a manner that would not embarrass the Beijing government, PRC citizens humanitarian food parcels.87 Then, on 24 May, when a Canadian government general trade delegation was touring China (13 May–8 June), Jiangsu-born Vice-Minister of Foreign Trade Li Qiang told the visitors that he hoped Canada would buy more Chinese goods. Xiao Fangzhou added that he had information for the Canadians which ‘. . . had not appeared in the newspapers: . . . the Americans wanted to sell China wheat – but . . . [Canada] need not fear since China had only one buyer – . . . [acting CEROILFOOD director Li Yuesheng] and he would not buy from the Americans’.88 Nevertheless, on 2 June, a high-ranking British intelligence officer showed a US consulate official in Hong Kong a letter, by a local representative of an American company, sent to Zhou Enlai via CIRECO assuring Zhou that his firm could secure the State Department’s approval for a Chinese–American grain deal.89 This offer was in response to enquiries which K.C. Jay had made in January or February 1961.90 Between 5 and 7 June the US Treasury Department tried to block the sale through FACR of US made vacuator pumps for use on vessels carrying Canadian

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grain to China. But, as with the bunker fuel incident in February, Ottawa’s representations resulted in Washington allowing the vacuator pump transactions to proceed.91 During discussions to resolve the matter, Chester Bowles told Canadian officials that he favoured exporting grain to China.92 On 16 June, the Canadian Cabinet increased the credit guarantee for grain sales to China from $50 to $100 million,93 resulting in the signing, on 5 August, of a third Sino-Canadian contract – under their long-term grain agreement (see Table 3.2). Also, on 16 June, during the Laos Conference in Geneva, China’s Sichuan-born Foreign Minister, Chen Yi, thanked Canada’s representative, Secretary of State for External Affairs, Howard Green, for the Canadian grain shipments and Ottawa’s decisions to provide credits to the Chinese, to accept payment in convertible sterling and its efforts in solving the vacuator pump fiasco. Chen said that this kind of economic contact could help establish good Sino-Canadian relations without altering the formal legal position of non-recognition. While Chen mentioned that the Chinese needed to buy grain because of a severe drought, Beijing would ‘. . . continue the purchases on an annual basis, not just to meet famine conditions of the current crop year . . . [but] to build up a wheat reserve in China to overcome lean years [and] that demand for wheat in northern parts of their country was a continuing factor . . . .’94 A former Canadian diplomat later remembered that Green responded by asking Chen to a reception put on by the Canadians later that evening and attended by Secretary of State, Rusk and Ambassador at Large and head of the US delegation, Averell Harriman. Chen readily agreed, indicating that he was eager to speak to Harriman.95 Whereas it is not known what Harriman and Chen Yi discussed when they met that evening, many years later Rusk remembered that in 1961 he was leaning towards a ‘two China policy’ and had offered to shake hands with Chen Yi at the Geneva Conference. Although Chen responded, after a brief pause, and both exchanged pleasantries the PRC’s Foreign Minister declined Rusk’s suggestion that they meet privately.96 Yet, on 23 June, after Harriman suggested that a meeting be arranged with Chen Yi through the British, to discuss the Sino-Soviet rift, the elder statesman ‘. . . was sternly waved off by Rusk. Word of the meeting would leak . . . [Rusk said] enhancing China’s prestige and making the . . . [US] appear “weak and anxious” ’. Nevertheless, a guidance paper for the 105th meeting of the Sino-American ambassadorial talks on 29 June instructed Beam to raise the newsmen issue again and use whatever tactics he deemed appropriate to induce Wang accept the American humanitarian food parcel proposal, that was discussed as early as mid-May. Washington hoped that such ‘low-key tactics’ would give it more insights into how Beijing would use the Warsaw Talks to deal with the new Kennedy administration.97 On 29 June, Wang rejected the latest US newsmen proposal and ‘. . . declined [the] offer of food with dignity’. The talks remained deadlocked as Wang said that there could be no progress on smaller issues until a solution to the Taiwan problem was found.98 Yet, after the meeting, Beam accepted Wang’s ‘unusual initiative’ that they meet for coffee, during which the Chinese ambassador remembered having dinners with U. Alexis Johnson at Geneva in 1955, when ‘. . . frank private

Grain trade diplomacy and famine relief 67 talks had been held “without obligation . . . [for] either side”. . . [and he] considered this meeting in . . . [a] similar light.’ Although he complained about remarks allegedly made by Vice-President Lyndon B. Johnson in Taiwan – to the effect that Chen Yi was an ‘insignificant figure who only spoke from prepared texts’ – he was pleased that Harriman had complimented Chen Yi about the elevated tone of debate at the Conference on Laos and thus looked forward to accepting the American elder statesman’s offer to have another talk with him and Chen Yi at Geneva.99 On 18 July, Harriman had referred to a ‘Big Five’ – namely the US, France, the UK, the USSR and China – when telling Rusk that Washington should initiate a direct and possibly bilateral ‘serious phase of horse trading and compromise’ with Beijing. At the end of July, after the State Department rejected this proposal and Harriman had responded by complaining to American Ambassador J.K. Galbraith in India, Arthur Schlesinger raised the matter with President Kennedy. Kennedy subsequently told Harriman that he was free to speak with whomever he wanted, but by that time Chen Yi had left the Geneva conference.100 As had occurred in the autumn of 1956 and 1959 when Sino-American tensions appeared ready to moderate, on 1 August the PLA shot down another American-made high-altitude espionage-type aircraft (an RF 1C1). Rusk’s guidance paper in preparation for the 106th meeting of the SinoAmerican ambassadorial talks on 15 August made no reference to Wang’s interest in meeting Harriman. Nevertheless, Rusk stressed that the US wanted to offer Wang a ‘. . . fresh viewpoint on US–CHICOM relations, to the greatest extent possible in a manner which may induce . . . [Chinese] leaders to think seriously in months during which the talks will be recessed about permitting progress on at least some matters of mutual interest . . . [I]mpress on them that we . . . [are] willing . . . [to] take . . . [a] flexible approach to practical questions at issue, without . . . abandoning our position on fundamentals, in an effort to make . . . progress toward a better atmosphere’. Rusk suggested that, if the Chinese were to release US prisoners or agreed to exchange news representatives, both sides might have access to more specific and objective information which would help to increase understanding, prevent policy miscalculations, reduce tension and preserve peace.101 However, the Chinese were unwilling to consider such an exchange because President Kennedy had invited Chen Cheng to visit Washington. Wang said that visit and US intrusions into Chinese airspace and territorial waters was evidence that Washington was attempting to worsen its relations with Beijing. He also voiced concern about America’s position on the Berlin crisis, its support for and collaboration with the ROC and its efforts to keep the PRC out of the UN.102 Nevertheless, at the beginning of their informal discussion after the 106th meeting, Ambassador Wang again mentioned in response to Harriman’s offer, made at Geneva, that the two meet, he had told the elder statesman that ‘. . . his side would not refuse to participate in any exchange of views’.103 Chinese grain stockpiles, which had been nearly exhausted in mid-1960, remained depleted in the summer and autumn of 1961.104 The winter wheat crop, harvested between June and July, the first Chinese harvest of 1961,

68

September 1960–August 1961

was poor. For months China had been depending on a successful harvest to help ease domestic food shortages and expedite economic recovery. A PLA General Rear Services report of 4 August, based on meetings with directors of Rear Services units of the entire army (from 10 to 20 July), stated that, despite improved conditions since the winter of 1960–1, 5–10 per cent of soldiers were still short of food – although this was partly because they continued giving some of their rations to their families. On the 17th the MAC endorsed and transmitted this report, adding that, although the oedema problem had basically been resolved, the main problem facing the PLA was ongoing food shortages. It called for soldiers to ‘. . . vigorously get at autumn planting and harvesting’.105 However, Chinese officials realized that more grain would have to be imported from abroad to tide China over until results of the autumn grain harvest could be analysed. Thus, when the Vickers negotiators opened more serious aircraft talks in Beijing on 4 August, the Chinese completely avoided discussing politics. Facing ongoing financial difficulties, associated with the grain purchases, they still refused to tell the British negotiators how many aircraft they planned to purchase. Vickers needed to know precisely how many Viscounts the Chinese intended to buy for at least four reasons. ●

●

●

●

Vickers could not determine costs associated with assembly line production and offer a set price per aircraft until the Chinese specified how many Viscounts they wanted to buy.106 A Chinese–Vickers aircraft deal would accelerate the erosion of the US-led controls on China trade. Although Viscount aircraft were not on the COCOM embargo list, the radar and navigational equipment incorporated in the air-craft was – even though it did not have direct military application and was technologically obsolete. Prior to signing contracts involving items on the COCOM list, ‘Paris Group’ members were required to have relevant contractual details approved by COCOM through the ‘exceptions procedure’. The British government wanted to avoid actions which could jeopardize badly needed investment in the UK. It was necessary to determine whether Washington would try to block a Chinese–Vickers aircraft deal under FACR. The navigational and communications equipment incorporated in Viscount aircraft was manufactured by Standard Telegraph and Telecommunications (STC), the British subsidiary of the American multinational – International Telephone and Telegraph Corporation (ITT). Vickers negotiators felt that the more information that they could include with their application to the British government’s Export Credit Guarantee Department (ECGD) – for a guarantee covering generous credits of at least five years – the better their chances of securing the necessary guarantee.

The chances of obtaining the ECGD guarantee were soon increased when Chen Ming told British officials that the ‘Chinese Payments Corporation’ had instructed CCAB, which found Soviet aircraft difficult to maintain and repair

Grain trade diplomacy and famine relief 69 outside China, to purchase Western aircraft for use on external routes.107 Yet, although UK officials thought Beijing had a genuine interest in the UK aircraft, the timing of the enquiry was aimed at putting pressure on Moscow and promoting tension in US–British relations.108 Nevertheless, on 18 August 1961, ECGD officials told Vickers that it would be willing to provide a five year credit guarantee covering sales of Viscount aircraft to China.109 But the negotiations remained deadlocked on 28 August as the Chinese still refused to disclose how many Viscounts they wanted to buy, insisting that Vickers must first disclose aircraft prices and available payment terms.110

4

Aircraft, grain and the Kennedy Administration’s China policy debate, September 1961–September 1962

in 1957 . . . a . . . [Chinese] technical mission . . . sent to the UK . . . reported favourably upon Western machinery . . . particularly that of the UK. . . . [Its report] was made just before the . . . Great Leap Forward . . . [began] and . . . was shelved since it was not in accord with the general policies of 1958 and 1959 . . . . However, this report was perhaps dusted off in 1960–61 and . . . accepted. (British first secretary, commercial (Beijing) Ken Ritchie to US consulate officials in Hong Kong, 17 July 1962) [Only] when China has achieved a minimum standard of affluence does it seem possible that the ideas of her leaders may develop in the direction of revisionism . . . . In the past three years, the Chinese economy has taken and survived a much severer dose of economic warfare than the West could ever concoct . . . (British chargé d’affaires (Beijing) Garvey’s to Foreign Office UK (FO), 13 December 1963) over the history of COCOM there has been a steady erosion of the COCOM approach to trade . . . throughout [the US government has resisted] that erosion to a considerable degree and . . . [these are] just the political facts of life in dealing with these big trading countries . . . (Dean Rusk to a US House of Representatives Select Committee Hearing, autumn 1961) [I]f and when the Chinese . . . have a genuine interest in . . . [purchasing] American grain, we will unmistakably know it – not directly, for they will never mention it at Warsaw, but rather indirectly. (U. Alexis Johnson to Dean Rusk, 6 April 1962)

September 1960–29 November 1961 Although conditions inside China had improved considerably by autumn 1961 ‘acute’ grain shortages continued. The CPC’s Central Committee working conference at Lushan between 23 August and 16 September marked the turning point in the PRC’s economic recovery. During these meetings Chinese leaders obtained a better understanding of the overall situation throughout the PRC and agreed that ‘readjustment’ policies were not working because production quotas had not been

Aircraft, grain and US China policy debate 71 reduced significantly. Thus, the conference adopted Chen Yun’s May 1961 proposal that, while working to stimulate domestic production, the PRC import up to 5 million tonnes of Western grain for three to five years.1 By September 1961, Ottawa learned that Beijing had re-exported Canadian wheat to East Germany – approximately 271,000 tonnes between January 1961 and mid-1962 – an action not technically prohibited under the terms of the SinoCanadian grain agreement. While Washington was upset that some of the grain was diverted at the height of the Berlin Crisis in mid-August, it failed to persuade Ottawa and Canberra that this was reason enough to suspend their grain sales to China. While continuing grain negotiations with the AWB, CWB and Louis Dreyfus Co. throughout the autumn of 1961, the Chinese placed more emphasis on their equipment/technology import requirements. In early autumn 1961, after sending a delegation to tour Rolls-Royce’s UK operations, the Chinese told Vickers that they wanted to buy Viscount aircraft and on 13 October Whitehall asked Washington how it would respond to such a transaction. The Americans replied that they would oppose any such deal at COCOM because it would result in more requests to export embargoed equipment to China. Although the Viscount aircraft was not embargoed at COCOM, the British government had failed to convince the ‘Paris Group’ to remove the weather radar, incorporated in the aircraft, from the COCOM list. This despite the fact that an internal US technical evaluation of the unclassified equipment, which had been widely available for about five years, concluded that it was ‘. . . of a strategically low order’.2 COCOM had also previously granted approval for similar equipment to be exported to other Communist nations. US officials thought that the communications equipment incorporated in the Viscount might be subject to COCOM embargo even though an exception had previously been granted to enable the same item to be exported to Poland. This was because Washington did not know if Communist countries which had already obtained this technology would be willing to export it to the Chinese.3 Washington insisted that a British government decision to block the proposed aircraft deal, ‘. . . would not seriously damage the UK’s economic, political or social circumstances’.4 A showdown between the UK and US governments appeared inevitable when in October London asked COCOM for permission to include the radar and communications equipment incorporated into any Viscount aircraft exported to China. As the ‘Paris Group’ considered the matter, Beijing remained concerned about grain supplies after receiving poor autumn harvest reports from many parts of China. Later in February 1962 Chen Yun told the enlarged meeting of the Party Central Committee’s Standing Committee of the Political Bureau in Beijing that grain output in 1961 was 40 million tonnes less than in 1957.5 China’s grain bargaining position also weakened in autumn 1961 because of increasing worldwide demand for grain and reduced supplies in exporting countries because of smaller domestic harvests. To prevent harmful competition between French suppliers, the French National Cereals Office (ONIC) had appointed Louis Dreyfus Co. as sole French supplier

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in the Chinese grain market. During October COFACE provided another twelve month credit guarantee to enable the Chinese to purchase grain from Louis Dreyfus Co. Later that same month, when they resumed negotiations with the CWB and AWB, CIRECO asked for improved credit terms of twenty-four months. When governor H.C. Coombs of the Reserve Bank of Australia visited Beijing from 2 to 11 October, some observers speculated that the Bank had provided some type of credit guarantee for Chinese purchases of Australian grain.6 An inconclusive Australian DEA investigation of the allegations later conceded that Coombs may, ‘. . . have advised the trading banks with which the, . . . (AWB) deals that China was a good risk, but it would not be easy to establish the existence of an arrangement of this kind’.7 Although during November another Sino-Australian grain contract was signed on twelve month credit terms, both the AWB and CWB were unable to meet Chinese demands for larger quantities of grain on improved terms (see Table 4.1). The Chinese responded by opening negotiations to purchase more French grain and considered making an indirect approach to purchase US grain. However, with the Vietnam conflict showing signs of worsening and evidence of increasing PRC involvement there, the gradually dwindling, yet still powerful, pro-Taiwan ‘China lobby’ (a.k.a. the Committee of One Million) became more agitated about the steady growth of the Sino-Western grain trade. They maintained that Western grain and equipment sales to China, especially those facilitated by medium-term credits, were essentially foreign aid and demanded that Washington not ease its position on US and Western-aligned countries’ China policy. While Washington had prevented American firms and their foreign subsidiaries from completing grain deals with China in 1958, the development of the SinoWestern grain trade since autumn 1960 had encouraged America’s powerful ‘grain lobby’,8 which included the US-based operations of the international grain trading firms, to pressure the Kennedy administration to permit Sino-American grain deals. In the autumn of 1961 the American government was becoming divided over the question of possible US grain sales to China. Officials in the US military, Commerce Department (who generally favoured increased trade with the USSR instead) and the State Department’s Far Eastern Bureau – a prime target of Washington’s anti-Communist purges of the 1940s – still generally opposed US grain sales to China. For them grain was a strategic commodity which helped Beijing through its domestic crisis, providing it with additional funds to expand its political influence through its foreign aid programme to LDCs and the nonaligned countries.9 A much smaller, but growing, number of influential United States Department of Agriculture (USDA) and State Department officials were taking a practical and flexible approach in favour of exporting US grain to China either as a gift or on credit terms, arguing that the domestic ‘grain lobby’ would welcome the extra business because it would help reduce surpluses. In the middle were some US officials who favoured American grain sales to China only if such trade could be used to shape Chinese policy and actions.10

Table 4.1 PRC–Western credit grain contracts: October 1961–26 March 1962 (in tonnes; wheat and barley in trade grain weight) Date

Firms/ organizations

Quantities Delivery and varieties

October 1961

Louis Dreyfus 254,012: Co. (for ONIC) barley CIRECO

November 1961 AWB (option from CIRECO 7 May 1961 AWB–CIRECO contract)

254,012: wheat

18 December 1961

CWB CIRECO

833,158: wheat 193,049: barley

19 December 1961

CWB CIRECO

35,380: wheat

22 December 1961

CWB CIRECO

81,646: wheat

22 December 1961

Louis Dreyfus (for ONIC) CIRECO

1 million: grain (wheat and barley)

27 February 1962

AWB CIRECO

254,012: wheat

Payment

November– December 1961

12 month credits: (COFACE guarantee) December 12 month 1961–January credits: (10% 1962 cash, 40% in 6 months, 50% in 12 months, guaranteed by the Australian government’s Commonwealth Trading Bank) January– 9 month credits: May 1962 ($100 million in credits, 25% cash, guaranteed by Canadian cabinet) December 1961– 9 month credits: January 1962 ($100 million in credits, 25% cash, guaranteed by Canadian cabinet) February–May 9 month credits: 1962 ($100 million in credits, 25% cash, guaranteed by Canadian cabinet) in 1962: 12 month 406,419: wheat credits: 254,012: barley (COFACE in 1963: guarantee) 304,814: barley in 1964: 304,814: barley June–July 12 month 1962 credits (10% cash, 40% in 6 months, 50% in 12 months, (continued)

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Table 4.1 Continued Date

Firms/ organizations

Quantities Delivery and varieties

28 February 1962

AWB CIRECO

355,616: wheat 50,802: wheat

June–July 1962

26 March 1962

CWB CIRECO

152,406: wheat 908,992: wheat

April–May 1962 June–December 1962

Payment guaranteed by the Australian government’s Commonwealth Trading Bank) 12 month credits (10% cash, 40% in 6 months, 50% in 12 months, guaranteed by the Australian government’s Commonwealth Trading Bank) 9 month credits ($100 million in credits, 25% cash, guaranteed by Canadian cabinet)

Sources: Table composed by author from: Mitcham, op. cit., chapters 4–7 (based on reports/statistics found within: NAA: A1804; A1838; A2051 and NAC: RG#20; RG#25 and NACP: RG#59); C.J. Perrett, A Record of Constitutional Developments Policies and Operations of the Australian Wheat Board 1939–65, Melbourne: AWB, 1966, pp. 195–205.

In late October Rusk conceded to the House of Representatives’ Select Committee on Export Controls investigating strategic material sales to Communist countries that it would be safer for the US if Beijing used its foreign exchange for foodstuffs rather than equipment and other goods.11 On 26 October, a US Department of State Policy Planning Council (S/P) ‘think paper’ by Edward Rice12 suggested that Washington consider shipping 1.02 million tonnes of American grain to China as a gift through an intermediary country. Rice, who had recently been appointed Harriman’s deputy within the Far East (FE) bureau, concluded that ‘. . . the safest . . . [move] would be an arrangement whereby another country such as Canada make the shipments from stocks which . . . [the US] replaced’.13 Reports also stated that, when US wheat grower representatives travelled to Hong Kong on 29 October, they attended a pre-arranged conference with CIRECO officials at the Bank of China building.14 CIRECO officials later confirmed to the CWB’s chief commissioner that American wheat grower representatives had indeed met with them in Hong Kong and were continuing talks.

Aircraft, grain and US China policy debate 75 After completing a draft contract with the Chinese in early November 1961, Vickers negotiators, led by Jardine Matheson Chairman John Keswick, returned to London to wait for the British and Chinese governments to consider the proposed agreement.15 On 3 November Britain’s Ambassador to the US, Sir David Ormsby Gore – who was related by marriage to both President Kennedy and British Prime Minister Macmillan – asked Washington not to oppose the deal at COCOM. He warned that the British government would vigorously protest a ‘Paris Group’ decision to block the proposed sale. Because of the problems facing the UK aircraft industry, Whitehall could not afford to miss this opportunity to facilitate an aircraft deal. With Beijing unable to obtain comparable aircraft from Moscow, there was also a strong political rationale for allowing Vickers to supply the PRC with ‘obsolescent aircraft’. US Under-Secretary of State for Economic Affairs George Ball then reminded Ormsby-Gore that the proposed deal was especially sensitive politically because of ongoing Congressional Committee investigations into Western trade controls. Still, he hoped to respond to Ormsby Gore’s remarks by 7 or 8 November, after they were considered by top-level US officials and President Kennedy.16 On 6 November British daily newspapers reported that a Chinese–Vickers aircraft contract would soon be signed.17 That same day, as several times before when Sino-American tensions appeared to be moderating, the PLA shot down a US-made high-altitude espionage aircraft (a P2B). Then, on 7 and 8 November, when a group headed by John Pilcher, Republican Congressman (Georgia) visited Hong Kong, it warned American officials there that it planned on ‘. . . looking into the transaction and related aspects of US/UK relations in Asia’. On 8 November US officials in the British colony warned Rusk that, when Pilcher’s Congressional group returned home, it would question the US government about its attitude towards the proposed deal in terms of COCOM regulations and other elements of UK policy in the context of the Vietnam crisis and America’s SEATO responsibilities.18 The Chinese were simultaneously negotiating with the Burmese for secondhand Viscount aircraft and, suddenly on 7 November, Burmese Prime Minister U Nu – who had previously offered to help broker a Sino-American rapprochement – suggested to Washington that the US transship 304,814 tonnes of wheat to the PRC as a humanitarian gesture in a triangular PL 480 deal through Burma.19 When U Nu received Zhou Enlai, Rong Yiren and Luo Ruiqing in Burma on 1 January 1961 for the ratification of the Sino-Burmese border agreement, it was announced that Beijing had agreed to provide Rangoon with a twenty-year interest-free loan equivalent to $88 million. They probably also enquired about purchasing Burmese rice.20 About this time the president of the Seattle firm ITC finally asked the USDA about obtaining a US government export licence to ship grain to China and North Korea (see Table 4.2).21 On 9 November, as the Kennedy administration began considering U Nu’s proposal, London told Washington that an appropriate substitute for the Viscount navigational equipment was unavailable. The British maintained that, in comparison to other nations, they had demonstrated an excellent record at COCOM and

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September 1961–September 1962

Table 4.2 Proposed ITC–PRC/North Korea grain agreements (in tonnes; wheat and barley in trade grain weight) Firms/ organizations

Quantity

Delivery

Payments

American side: ITC Jose Maria Braga & Co., Hong Kong

Directly to the PRC: 6 million: grain (3 million: wheat 3 million: barley) To North Korean government: (for re-export by Pyongyang to the PRC according to need) 762,000: wheat, 762,000: barley

In equal annual amounts over three years

$414.75–$509.25 million depending on whether wheat was subsidized

PRC side: K.C. Jay and Bank of China officials, Hong Kong Zhang Shizhao, on behalf of a group of Chinese leaders in Beijing led by Zhou Enlai

Cash or by USDA’s Commodity Credit Corporation credit financing

Sources: Table composed by author from: Mitcham, op. cit., chapter 7 (based on reports within NACP: RG#59; CFPF 1961–3, CDF, box 1037, 493.119; JFKL: Thomson papers, box 15 and 26).

warned that if the US government attempted to block the proposed sale, there would be a severe backlash from the British public and Parliament who would discourage future UK adherence to ‘Paris Group’ controls. Regardless, they insisted it was probably politically advantageous for allied nations to encourage the Chinese to purchase less Soviet-made equipment and more Western equipment. However, later that day Rusk told British officials in the US capital that even if the items of American origin were replaced with comparable equipment produced by non-US firms, Washington would still try through COCOM to prevent the inclusion of internationally embargoed equipment in any Viscount aircraft sold to China.22 He stressed that Congress and the American public, who generally opposed trade with Communist countries, especially with the PRC, would not understand if the US government, when presented with the opportunity, raised no objections to a business deal involving China. The British insisted that this inflexible approach would ‘. . . create a lively reaction in the U.K.’ – especially in light of Washington’s recent opposition, also on political grounds, to the UK selling Sea Cat frigates to Argentina. On the evening of 9 November State Department officials admitted to the British that they did not know if President Kennedy had considered the SinoVickers aircraft deal. Apparently Ball and Rusk did not consider referring the matter to President Kennedy until 10 November, by which time they had already decided to try and block the proposed sale. They related this decision to the British on the 11th.23 Three days later, Whitehall told Washington that if Vickers could find a non-US replacement for the navigational and communication equipment, it

Aircraft, grain and US China policy debate 77 would allow the aircraft deal to proceed despite COCOM controls because of the diplomatic, economic and technical reasons already outlined.24 Meanwhile, Japanese interest in the Chinese market intensified after Washington’s 5 October decision to terminate non-US participation in the $17 million 1962 Agency for International Development (AID) chemical fertilizer tender scheduled for 15 November 1961. After the Japanese protested this decision at the first meeting of the Joint US–Japan Committee on Trade and Economic Affairs at Hakone (from 2 to 4 November) Washington reversed its decision and announced that an open worldwide chemical fertilizer tender under AID would take place on 15 November as originally planned. This provoked an immediate and angry response from American chemical fertilizer producers and the US Congress. As a result, on the morning of the 15th, shortly before the tender was held, Washington again announced that only US firms were eligible to compete in the 1962 tender. This reversal infuriated Japan’s chemical fertilizer producers who in turn pressured Tokyo to take steps to resolve the situation. Because of this American decision the Japanese found Chinese offers to buy Japanese chemical fertilizer considerably more attractive.25 At that point Beijing’s support for the South Vietnamese Liberation Front was an important factor in US decision-making with respect to the PRC. On 22 November President Kennedy approved NSAM (National Security Action Memorandum) no. 111: a decision to provide logistical support teams, equipment, training and advisors to the South Vietnamese military.26 On 27 November Washington officially rejected U Nu’s offer to help arrange a Sino-American grain deal.27 While the British government applied for a COCOM ‘exception’, on 24 November, to enable the embargoed equipment to be included in any Viscount aircraft sold to China, American opposition prevented the ‘Paris Group’ from reaching a decision for the rest of the month.28 Also at the 107th meeting of the Warsaw ambassadorial talks on 28 November, the Chinese refused to discuss the missing and imprisoned US servicemen and the exchange of newsmen. They accused Washington and Taibei of collaborating in aggressive activities around China’s periphery while blaming them for the PRC’s inability to attain UN membership, for disrupting the Geneva Conference on Laos and for allegedly planning to establish a northeast Asian alliance.29

30 November 1961–March 1962 Nevertheless, on 30 November the ‘Thanksgiving Day Massacre’ saw key US government officials moved to new posts, paving the way for the possibility of increased flexibility in US China policy. Assistant Secretary of State for Far Eastern Affairs (FE) McConaughty was replaced by Averell Harriman; George Ball was appointed Under-Secretary of State; Walt Rostow, previously Deputy National Security Advisor, was appointed to the State Department and Chief of the Policy Planning Council; while Chester Bowles became Kennedy’s Special Representative on African, Asian and Latin American Affairs.

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The following day the British government still had not obtained a COCOM ‘exception’ when it extended the necessary five year ECGD credit guarantee for the Chinese to buy six new Viscount aircraft from Vickers for a total of £4 million. It was the first Sino-Western transaction facilitated by long-term credits and left the Chinese dependent on British interests for related spare parts, engineering services and technical instruction, opening the door for Beijing to make other major purchases of British equipment.30 Viscount aircraft were well suited for preparing Chinese technicians, flight crews and maintenance workers to work with more advanced Vickers equipment such as the VC-10 jet which was scheduled to come ‘on line’ in 1964.31 Under the terms of the contract Vickers agreed to fly one Viscount aircraft per month, between July and December 1963, to China via Karachi, Delhi and Rangoon.32 Then on 4 December, the British reminded the ‘Paris Group’ that the ‘. . . final decision in any particular (COCOM) case rests with the interested country . . . .’ and that despite their exceptional unilateral decision ‘. . . they still generally supported the strategic embargo and COCOM unanimity’. Although COCOM officials subsequently expressed concern over the British government’s unilateral action, only the US delegate opposed the sale, stating that Beijing was unable to produce the radar and communications equipment in question or obtain similarly equipped aircraft elsewhere. He emphasized that Viscount aircraft could help the Chinese undertake ‘. . . infiltration, subversion, and direct action against neighbouring non-Communist countries . . . .’33 Although, Washington had instructed American COCOM delegates not to turn it into a major issue and jeopardize the ‘Paris Group’s future,34 during a press conference in Paris on 8 December, Republican Senator (New York) Kenneth Keating, a member of the steering committee of the Committee of One Million, criticized the Sino-British aircraft deal. Then, in response to questioning at another news conference that same day, Rusk insisted that, although Washington was displeased with the transaction, it was ‘. . . one of those transactions . . . [about] which governments must decide for themselves. I think I might just let it rest at that’.35 The ‘China Lobby’ supporters felt that this approach would lead to a further erosion of the Western trade controls. On 12 December an assistant of Senator (Wisconsin) Alexander Wiley – a Committee of One Million member and chairman of the Senate Foreign Relations Committee36 – complained to Rusk about Washington’s inability to block the deal despite having known about the negotiations before the contract was signed. The State Department then explained that Whitehall had been made fully aware of the US government’s position on China trade and Washington would stand by Rusk’s remarks to the press on 8 December. About that time Washington decided to deny export licenses to and withhold US defense and other ‘procurement contracts’ from foreign subsidiaries of American firms supplying equipment incorporated into Viscount aircraft sold to China. Washington also urged Whitehall to recommend that Vickers replace the STC equipment of American origin with larger and somewhat heavier British-made

Aircraft, grain and US China policy debate 79 Marconi equipment – which required more power to operate, but possessed the same frequency coverage and comparable specifications.37 During the 1962 COCOM list review the British secured a rule change so that embargoed equipment could be exported, provided it was incorporated in aircraft that did not appear on the COCOM List.38 However, the US Treasury Department had advised ITT’s New York headquarters not to fill previously existing orders from Vickers for equipment used in Viscount aircraft unless the firm first obtained a Treasury license. The Treasury planned to reject any such export license application unless President Kennedy overruled this decision.39 Meanwhile, news of the Sino-British aircraft deal left Tokyo under greater pressure to re-examine its controls on China trade so that Japanese businessmen might keep pace with their West European competitors. Shortly after the Sino-British aircraft deal was signed, the Chinese made a more attractive offer to purchase Japanese chemical fertilizer. But when a Japanese chemical fertilizer delegation was sent to Beijing on 14 December, Taibei threatened to cancel their annual imports of approximately 350,000 tonnes of Japanese ammonium sulphate fertilizer if there was a significant revival in Sino-Japanese trade.40 Although Tokyo responded by sending a representative to Taibei to discuss the situation, the Japanese were desperate to increase fertilizer exports following the loss of American AID fertilizer contracts. Between 15 December and mid-March 1962, a group of US officials led by Rusk, George Ball and Walt Rostow failed in their attempt to obtain Allied support for their proposal that Western credits be used as a lever to attempt to shape China’s behaviour in international affairs. Allied governments already questioned Washington’s evaluation of Beijing’s international intentions and this initiative indicated that the US was being forced to ease its position on China trade. The US proposal was made just as Washington was debating whether to allow American interests to ship grain to China.41 Between 18 and 22 December the Chinese had agreed to purchase a total of 1.1 million tonnes of Canadian grain. Also COFACE had agreed to guarantee 12 month credits to enable a 3 year Franco-Chinese grain deal, covering the purchase of approximately 1 million tonnes of French grain, to be signed on 22 December. Under the accord Louis Dreyfus Co. was to ship 406,000 tonnes of wheat and 254,000 tonnes of barley to China in 1962. While these deals somewhat eased Beijing’s worries about grain supplies, the leadership remained desperate to negotiate further contracts covering another 1.83 million tonnes – to fill the PRC’s 1962 grain import programme (see Table 4.1). During a meeting on 21 December, Carl Kaysen, Deputy Special Assistant to the President for National Security Affairs, White House and NSC officials assured Quaker representatives that, if a private US firm signed an agreement with the Chinese and applied for the necessary US government export licence, President Kennedy would consider the application – although its acceptance could not be guaranteed.42 About that time British officials advised ITT not to take action which might prevent or thwart the Chinese–Vickers aircraft deal.43 The British government

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wanted to maintain full control over domestic firms involved in defence production. Concerned about the domestic, political and economic implications of foreign investment in the UK, it felt that to yield to Washington’s pressure would imply public admission of the applicability of FACR in Britain.44 The Chinese–Vickers contract was based on the inclusion of ITT/STC technology and the installation of replacement Marconi equipment would require a major change in the airframes of the Viscount aircraft. Nevertheless, ITT wanted to extract itself from the predicament45 and planned not to supply Vickers with the equipment in question. Although STC offered to reimburse Vickers for expenses associated with installing replacement equipment in the Viscounts, Whitehall insisted that the contract be executed exactly as negotiated.46 The British government was prepared to requisition the equipment and, if STC still did not comply, it risked losing its UK government contracts, including its £15 million contract with the general post office.47 Whitehall also warned Washington not to interfere in STC operations, stressing that the UK government would take any steps necessary to ensure that the Viscount aircraft, complete with STC manufactured components, would be sold to China.48 On 5 January 1962 a memorandum circulated amongst the US State Department’s Policy Planning Council which China scholar James C. Thomson, then Special Assistant to Chester Bowles, later emphasized was the first US government report to seriously consider that the Sino-Soviet split was more than a concept discussed by journalists and academics. The report presented evidence that, since the 22nd CPSU Congress, ‘the Sino-Soviet dispute had entered a new and perhaps decisive phase’. It said that Moscow appeared to be applying economic pressure on Beijing to convince the Chinese to accept Russia’s position in their ideological conflict and that the PRC’s response was to lessen its dependence on the USSR by discontinuing its gold sales through Soviet agencies; by providing economic support to Albania, despite the Soviet embargo against that country; and by agreeing to purchase British Viscount aircraft. The report concluded that such trade could encourage a Sino-Soviet split which could greatly benefit the West and thus unsurmountable road blocks . . . [should not be placed] in the path of an emerging Chinese . . . policy designed to lessen . . . [China’s] dependence . . . [on the USSR] . . . . The U.S. should consider a policy of neither encouraging nor discouraging its allies from selling . . . non-strategic goods to the Chinese . . . . Such sales by U.S. allies are not likely to expand precipitately.49 By this point French officials thought that the US government might be easing its position on trade with Communist countries. Paris felt that, in contrast to previous cases when French firms reached deals with Communist nations, the US government had done little to block the Sino-British aircraft transaction. Thus, on 4 January, Paris told Washington that because of the British government’s unilateral action it could not justify endlessly fending off growing domestic

Aircraft, grain and US China policy debate 81 pressure from industrialists demanding equal access to Communist markets. It also emphasized that ‘. . . without U.S. insistence on maintaining COCOM’s structure, the whole concept would be abandoned within a month . . .’ and, because of the declining rank and professional stature of ‘Paris Group’ representation over the previous five years, the entire organization needed to be revamped.50 Meanwhile, the Chinese continued having difficulty securing enough grain from Western suppliers. On 26 January 1962 the CWB had told CIRECO that, because it possessed insufficient stocks, it could only offer approximately 300,000 tonnes of the additional 1.1 million tonnes that the PRC needed to buy from Canada during 1962.51 About that time the ITC applied for a US government export license to ship grain to China and North Korea, which had agreed to purchase some grain on behalf of the PRC.52 At a NSC meeting on 26 January, Averil Harriman initiated an investigation to determine whether the Chinese government really wanted to buy US wheat.53 However, American officials were already concerned that any Sino-American grain deals would upset Chang Kai-shek – who they knew was deeply concerned about the future course of US policy and was contemplating a final gamble to return to the Mainland – and prevent the passing of Kennedy’s Trade bill.54 Zhou Enlai, Liu Shaoqi and Chen Yun were firmly in control of the running of the Chinese economy following the initiation of the ‘decisive stage of all-round readjustment’ immediately following the CPC Central Committee working conference in Beijing on 7 February. On the previous day Chester Bowles sent President Kennedy a memorandum seeking permission to continue on to Rangoon in early March after completing previously scheduled talks with Indian Prime Minister Nehru, for discussions with his old friend Prime Minster U Nu on possible US food shipments to China.55 Washington had already been considering a proposal to provide military assistance to Burma.56 Bowles later recalled that when he met Kennedy that same day he asked the President for his views on a proposal that Washington permit an emergency American wheat sale to China ‘. . . for hard currency and without political conditions . . . if [Beijing agreed] not to attempt to change . . . [the PRC’s] existing borders by force (without necessarily forfeiting its claims to territories outside its present borders) . . . .’ Bowles also asked for Kennedy’s views on offering the Chinese much larger amounts of US wheat over the long-term on low interest credit terms. According to Bowles’ memoirs, Kennedy ‘readily agreed’ to the first proposal, suggesting as much as . . . (3–5 million tonnes). Concerning the second proposal Kennedy said that ‘if some reliable means of communication could be opened up’, he would consider an agreement to sell . . . (10–12 million tonnes) of American wheat annually on a long-term, easy credit basis provided China agreed to abandon its present military–political pressures on its neighbours . . . . Kennedy agreed that Bowles could advance these proposals with U Nu, describing them as proposals that he had discussed in general terms with the President but which had not been formally approved.57

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In mid-February Bowles discussed the plan (confidentially) with Indian Prime Minister Nehru who ‘. . . was most responsive . . . [wishing] Bowles luck and offer[ing] . . . advice on how to approach U Nu’. Just at that time ITC representatives informed US State Department officials that K.C. Jay had told them that a group of Chinese officials led by Zhou Enlai, and supported by a majority of officials at the Hong Kong branch of the Bank of China, favoured a formal ‘. . . approach to the Americans for grain in the belief that better economic relations with the US are inevitable’. However, another group led by Liu Shaoqi vigorously opposed purchasing US grain, stressing that ‘. . . since the US seeks to destroy . . . [the PRC] a . . . [Sino-American] grain deal would be used to administer a propaganda defeat and that starvation was preferable to humiliation’.58 When the Chinese government’s ‘most important emissary’ – who was probably Zhang Shizhao, the 79-year-old former president of Beijing University and political advisor to Mao and Zhou Enlai59 – met ITC representatives in Hong Kong on 21 February, he said he was returning immediately to Beijing to prepare for a meeting on 4 March, where a final decision would be made on the proposed ITC–Chinese/North Korean grain sale.60 The emissary’s return to the Chinese capital coincided with the enlarged meeting of the CPC Central Committee working conference (21–23 February), presided over by Liu Shaoqi in Mao’s absence, to discuss the 1962 budget and the Chinese economy. On 27 February Wang Jiangxiang – who, since mid-1960, thought that the PRC should improve relations with all countries, including the US – sent a letter61 to Zhou Enlai, Deng Xiaoping and Chen Yi asking that, in the light of the PRC’s current economic problems, the leadership adopt a more conciliatory approach to foreign affairs.62 Zhou Enlai’s presence in Guangzhou in late February and early March to address the State Scientific Commission Conference, on 2 March, coincided with reports of negotiations on the North Korean portion of the proposed ITC–Chinese/North Korean grain agreement in that city at that time.63 Although Bowles was scheduled to leave Delhi for Burma on 3 March, suddenly on 2 March U Nu’s government was overthrown by General Ne Win’s forces, which opposed Burma accepting foreign aid and investment. When Bowles returned to Washington from Delhi he suggested to Kennedy that the US offer grain to the Chinese through the Warsaw Talks.64 However, the matter was not raised at the 108th meeting of the Sino-American ambassadorial talks on 1 March as Chinese Ambassador Wang focussed on accusing the US government of being hostile towards the PRC and pursuing aggressive policies towards South-East Asia.65 Then, on 7 March the CWB obtained Ottawa’s approval to reopen negotiations with the Chinese after it had suddenly located, on 21 February, the remainder of the 1.1 million tonnes of grain that the Chinese needed. In summer 1962 the Dominion Bureau of Statistics revised upwards its estimates of Canadian wheat supplies by 2.3 million tonnes – the first such revision since 1957–8 when both US and Canadian interests were also negotiating to sell grain to China.66 This development raises the question of where the CWB obtained the additional grain and if the Kennedy administration had decided to follow the suggestion made in Rice’s paper of 26 October.67

Aircraft, grain and US China policy debate 83 Although during February, West German interests applied for a licence to ship 270,000 tonnes of flour to the PRC and, on 27 and 28 February, CEROILFOOD agreed to purchase another 660,500 tonnes of grain from the AWB, until a new CWB–CIRECO deal was actually concluded, the Chinese remained interested in obtaining American grain. Their interest might have been greater had they known that, on 14 March when Chiang Kai-shek told Harriman that the ROC would soon initiate an invasion of Mainland China, the American elder statesman insisted that better intelligence on conditions in the PRC were required first.68 However, the ITC had not convinced Washington that Beijing wanted to buy US grain.69 Yet, in mid-March the ITC’s Hong Kong representative told American officials that China’s emissary was in Beijing and an aide at the Hong Kong branch of the Bank of China would join him there for discussion on the proposed deal. He then let on that he knew that food shipments had been discussed at the Warsaw Talks70 – information that he might have received from the Chinese, although it was well known that listening devices had been planted in the venue of the Warsaw Talks. By 19 March the State Department had concluded that, by filing a grain export license application, the ITC was attempting to get Washington to sanction a deal before it approached the Chinese.71 Also, when US Congressional supporters of the ‘China lobby’ learned of this proposed transaction, they pressured the Kennedy administration to reject it, stressing that such a deal would represent Washington’s ‘final betrayal’ of the ROC government.72 On 23 March the White House formally rejected the proposed deal on the grounds that it could jeopardize the passing of President Kennedy’s trade bill – aimed at resolving the increasingly serious US balance of payments deficits.73 The US government also emphasized that it had not received evidence that Chinese government interests wanted to buy US grain.74 The Chinese lost interest in buy US grain on 26 March, when CIRECO fulfilled the PRC’s grain import requirements for the foreseeable future by agreeing to purchase the 1.1 million additional tonnes offered by the CWB since the second week of March.75

April to early August 1962 Although conditions in China had stabilized by early 1962, and there were relatively few deaths associated with famine throughout that year, the influx of Chinese refugees into Hong Kong in April and May was seen by most foreigners as evidence that conditions remained serious across the mainland. At this stage the ROC, the ‘China lobby’ and its supporters in Washington expected the Kennedy administration to take a firmer position against the PRC government and the growth of Sino-Western trade. The Sino-American ambassadorial talks remained deadlocked at the 109th meeting on 5 April as the Chinese continued attacking US policies.76 However, that same day President Kennedy told Taibei that Washington needed better information on conditions in the PRC before supporting airdrops of ROC soldiers

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September 1961–September 1962

on the mainland. Although Kennedy did not oppose Taibei’s proposal to begin training the necessary personnel and during the summer agreed to provide the ROC with two C-123 aircraft, he turned down Chiang’s request for B57 aircraft and landing craft to support an amphibious assault on China.77 The Chinese later maintained that between 14 and 21 April, a US destroyer intruded into what Beijing claimed were their territorial waters, citing this as further evidence that Washington was trying to provoke Beijing. Meanwhile, Japanese and West European enthusiasm for China trade continued to grow. The Japanese Federation of Synthetic Chemistry Workers’ Union, an affiliate of the ‘left wing’ Sohyo organisation, was eager to cultivate China and the USSR as a potential long-term outlet for Japanese chemical fertilizer.78 In April and May Chinese negotiations with Jardine Matheson and RollsRoyce, for equipment to maintain the Viscount aircraft, progressed slowly. The Chinese had also entered serious discussions with Western aircraft firms to purchase medium to long-range passenger jets to enable CAAC (formed from CCAB that same year) to establish routes to Africa and eventually Cuba. Handley Page and Vickers representatives were also invited to Beijing for talks where China National Machinery Import and Export Corporation (MACHIMPEX) director Li Menghou told Keswick that the Chinese remained interested in buying more Vickers aircraft – possibly the VC-10 jet and the British Aircraft Corporation’s 1–111.79 Chen Ming had also enquired about Britannica aircraft and MACHIMPEX had written to Hawker Siddeley for information on the de Havilland Aircraft Company Ltd’s Comet 4C. By 1962 de Havilland was eager to expand sales of the 4C – first delivered in January 1960 to keep pace with American firms, Douglas and Boeing, and the French firm Sud Aviation, which had developed the highly successful DC-8, B707 and Caravelle passenger jets respectively. The Chinese could not afford to pay cash for medium and long-range jets, which cost at least US$ 6 million each and the British government was unwilling, for the time being, to provide the necessary long-term credit guarantees.80 Besides, since considerably more equipment of US origin was incorporated into these aircraft replacing it to avoid another confrontation with the US Treasury Department would raise the cost of each aircraft by as much as £250,000.81 However, other Western-aligned countries were considering closer financial ties with the PRC. In mid-May as a ‘credit race’ was developing in the Chinese market, the Australian Cabinet decided to allow People’s Bank of China president Dao Zhuru and Han Lei and Min Yimin of the same bank to visit Australia in midJune. Out of concern about how Washington might respond, Cabinet approved the visit on the understanding that the Chinese bankers were officially guests of the government’s Reserve Bank of Australia rather than of the Australian government at large.82 As talks between De Havilland and the Chinese continued, Chen Ming told British officials in Beijing that the French wanted to sell Caravelle aircraft to the Chinese.83 When Sud Aviation’s Caravelle aircraft came into service in 1959 it was the first commercial jetliner utilized by international commercial airlines for short- to medium-range flights. However, it carried too few passengers to compete

Aircraft, grain and US China policy debate 85 with comparable American aircraft.84 Since US airline companies preferred domestically produced equipment, American purchases of Caravelle aircraft during 1961–2 were well below Sud Aviation’s expectations. Throughout 1962 there was growing pessimism about the short-term outlook of France’s exports. Production levels of a large percentage of French businesses were below capacity. Thus, in mid-May 1962, with Sino-British aircraft negotiations continuing, Sud Aviation put on a demonstration of Caravelle jets for the Chinese in Hong Kong.85 Franco-Chinese talks were also spurred on by the fact that, prior to August 1961, French COCOM officials had told Sud Aviation executives that ‘the Paris Group’ would not block sales of Caravelle aircraft to the USSR.86 Washington was extremely apprehensive about the possible strategic implications if Beijing obtained the model they wanted most – the more advanced Caravelle SE 210-10B which had greater thrust, speed, range and payload than earlier models and was scheduled to go ‘on-line’ in March 1964. The US aerospace firms must have also been concerned that an early and significant West European entry into the Chinese aircraft market, where they were unable to compete, could gradually undermine their lead in sales. The Americans were also worried because the Chinese were beginning to turn to Western interests for POL and related production equipment and technology. Chinese oil production in 1962 increased by as much as 11 per cent over the previous year 87 and their petroleum imports decreased from approximately 3.2 million tonnes in 1961 to about 1.9 million tonnes in 1962. In early 1963 the Chinese claimed that they had nearly attained self-sufficiency in domestic crude oil production.88 Unbeknown to Westerners at that time, the Chinese had discovered larger oil reserves at Daqing (Heilongjiang) in 1959 and Shengli in 1962 to complement older fields at Yumen (Gansu), Karamay (Xinjiang), Nanchong (Sichuan) and West Qaidam. However, a large portion of crude from the older fields had to be transported hundreds of miles by truck and/or rail for refining at China’s first modern refinery, built at Lanzhou between 1956 and 1959 with Soviet assistance. Chinese oil contained many impurities and the PRC lacked the expertise, refining equipment, technology and capacity to produce nearly enough POL specialty items – such as aviation gas, gasoline, diesel oil, lubricants, synthetic rubber, greases and cable oil – required for domestic use. Eager to increase domestic production of these items – so that they could reduce demand on other domestic natural resources and aid agricultural production while eliminating their dependence on imports of POL, plastics, pesticides and chemical fertilizers – they planned to complete and upgrade key petrochemical projects, including a large modern integrated petrochemical centre at Lanzhou.89 However, as Sino-Soviet relations deteriorated Beijing could no longer obtain the necessary equipment, technology or technical support from Moscow.90 Following the signing of the Sino-British aircraft deal, perhaps the only remaining economic lever that Moscow could use against Beijing was China’s dependence on Soviet POL – imports which totalled 2.4 million tonnes in 1960 and 3.05 million tonnes in 1961.91 While aviation fuel and lubricant imports remained at the same level in 1962, gasoline imports decreased from approximately 1.02 million tonnes in 1961 to about 304,814 tonnes in 1962.92 In the

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summer of 1962 the USSR continued to reduce POL exports to the PRC and Chinese supplies of that item during that year were probably slightly less than that available in 1959.93 About June 1962 the Chinese sent a petrochemical delegation to study West European industry (especially oil refineries and chemical fertilizer plants).94 Essentially the Chinese were resuming the negotiations with Western firms, such as ENI, which they had suspended as the GLF gathered momentum in 1958.95 Meanwhile, in May after the Chinese had asked Vickers and Rolls-Royce representatives where they might purchase kerosene and lubricants to maintain and operate their Viscount aircraft, BP offered to act as agent (free of commission) for these POL purchases.96 With Western oil companies unable to reach a new agreement with Jakarta after it had ratified the new Oil and Mining Law No. 44 the previous year, Beijing was interested in purchasing Indonesian POL, or even taking over Western petroleum concessions in that country if it could obtain the necessary equipment, technology and ‘know-how’ from Western firms. During 1962, before attempting to purchase POL from Shell’s Indonesian operations, the Chinese bought at least 152 tonnes of lubricating oil from Japanese interests. They also wanted to purchase more POL from the Tokyo firm, Idemitsu Kosan Co. Ltd, Japan’s largest independent oil producer and 100 per cent Japanese owned. This firm imported almost all its oil from non-US sources and handled all of Japan’s imports of Soviet oil from 1959 to 1963 through Kawakami – a ‘friendly firm’ with branches in London, Tunis, Paris and Moscow.97 Idemitsu also imported crude from the Arabian Oil Co. and from Permina98 – the army-dominated Indonesian state-run oil company, which, when established in 1957, assumed control over domestic oil fields operated by Japan during the Second World War. Indonesian leader Sukarno was one of the prominent nationalists who the Japanese had utilized during the Second World War for propaganda purposes and in 1943 had been selected to lead Indonesia’s independence process. By 1962 Permina was attempting to reduce its dependence on American oil firms and was welcoming investment from the Japanese who, since the late 1950s, had become the biggest importers of Indonesian crude as they attempted to reduce their dependence on Middle Eastern petroleum.99 During 1962, just as Idemitsu hoped to increase oil refining to cope with its potentially serious financial problems – heavy debt servicing requirements associated with building its 100,000 barrel per day Chiba refinery, the largest in East Asia, which was scheduled to be completed in January 1963 – it became increasingly displeased about the rising price of Soviet crude.100 In light of the contemporary political climate in Jakarta, large Chinese purchases of POL from Shell’s Indonesian operations or from Japanese firms which refined crude supplied by Permina could further undermine the precarious, yet still dominant, position of US oil companies – Caltex101 and Stanvac102 – in the Indonesian petroleum industry and damage US diplomatic efforts in that country. With these negotiations continuing, Sino-American ambassadorial talks at Warsaw remained deadlocked at the 110th meeting on 17 May after the Chinese insisted that Washington did not really want peace or disarmament because of the

Aircraft, grain and US China policy debate 87 increased frequency of US intrusions into Chinese territory, its alleged occupation of Taiwan, and the presence of American combat forces there.103 The Chinese later claimed that on 22 May, a US destroyer entered into Chinese territorial waters northeast of Qingdao. About that time a senior official in the general sales manager’s office of the USDA told the Canadians that he supported the idea of exporting American commodities to China. On 24 May President Kennedy, who still had not completely ruled out this possibility, asked the Canadian ambassador in Washington about the terms of the Sino-Canadian grain deals.104 However, the Chinese government had already contracted for enough Western grain to cover domestic requirements for the next three or four months, and in late May and early June it stated that it would reject any American offer of grain.105 Unbeknown to all but the Chinese leadership, the Hong Kong’s refugee crisis in May and June 1962 resulted mainly from the decision of the working conference of the Political Bureau of the CPC Central Committee (7–11 May) to adopt Chen Yun’s earlier proposal to introduce measures aimed at reducing China’s urban population by 5–10 million by the end of August 1962.106 Meanwhile, there was a buildup of PLA forces in Fujian in response to a well-publicized threat that the ROC was preparing to invade Mainland China and concern over alleged US intrusions into PRC territorial waters and airspace. The Chinese later insisted that on 12 June another US destroyer operated in the vicinity of Chinese territorial waters. When a special Sino-American meeting, outside the regular framework of the Warsaw Talks, was held on 23 June at Wang’s residence, John Cabot told the Chinese ambassador that Washington had no intention of ‘. . . supporting any . . . [ROC] attack on [the] Mainland under existing circumstances . . . . [The ROC] was committed not to attack . . . [the PRC] without . . . [US] consent . . . [and America] had no intention . . . of supporting aggression against . . . [the Chinese] side anywhere’.107 Yet, the Chinese later claimed that on that same day a spokesman at the US Pacific Fleet Headquarters in Honolulu announced that units of the Seventh Fleet including some ships based at Yokosuka had been ordered to the Taiwan Straits. According to Japanese naval staff reports, Seventh Fleet units left Yokosuka between 23 and 25 June. The Chinese considered this move a hostile act. However, on 26 June when US embassy officials in Taibei briefed ROC officials on the Sino-American meeting held three days earlier they said that, in response to PRC allegations of US–ROC collaboration in a scheme to attack the PRC, Cabot had told Wang that ‘. . . US moves in . . . South-East Asia are in response to Communist aggressive pressures and would not have been necessary in the absence of such pressures . . . . [The] US . . . [is willing] to join in mutual renunciation of force’. Essentially, not wanting to expose itself to allegations that it was softening its approach towards the PRC, the US government had decided not to announce publicly or provide Taibei with further details of the Cabot–Wang discussion.108 However, much to the US government’s embarrassment later that same day, because of a never identified ‘leak’, wire services and American news sources reported a more complete account of the reassurances that the US had provided the PRC.109

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September 1961–September 1962

Thus by mid-July Taibei was extremely concerned about Washington’s position on the PRC and ROC.110 The Chinese later maintained that on 9 July, three days before the 111th meeting of the Sino-American ambassadorial talks, a US destroyer came near China’s territorial limit.111 The talks remained deadlocked on 12 July as the Chinese accused the Americans of aggravating tension in South-East Asia even though the US side remained eager to discuss renunciation of force, freeing of American prisoners and exchange of newsmen.112 Nevertheless, on 23 July nations represented at the Geneva conference on Laos announced a new ceasefire, the planned withdrawal of all foreign forces and issued a declaration on that country’s neutrality – an agreement signed by the USSR, the US and the PRC. When Sino-British negotiations for equipment to maintain the Viscount aircraft resumed at the end of July, Beijing still had not decided whether it would buy POL through BP.113 Yet, in July with the passing of Japan’s Petroleum Industry Law – which established strict domestic industry-wide production controls – it appeared that the Chinese might no longer have the option of purchasing significant quantities of POL from the Petroleum Association of Japan member firms. However, Idemitsu adamantly opposed this law as it was preparing to open its huge Chiba refinery. As Idemitsu became increasingly ‘hobbled’ by these production controls, it became eager to export POL to China and other new markets even if it meant withdrawing from the Petroleum Association.

Mid-August to 8 September 1962 At the Central Work Conference at Beidaihe in August, Mao attacked revisionist trends and more specifically Wang Jiangxiang’s foreign policy proposal of 27 February.114 The Chinese later alleged that on 17 August, five days before the 112th meeting of the Sino-American ambassadorial talks, a US destroyer was found operating east of Qingdao. At the talks on the 23rd, the Chinese protested this alleged incursion into PRC territory and blamed US activities in South-East Asia and American hostility towards China for lack of progress at the talks.115 During August Australian Commonwealth Trading Bank officials visited the PRC as guests of the Bank of China.116 On 23 August, in response to questioning by Washington, Paris denied rumours that it was planning to send an industrial delegation to China. However, at the end of the month MACHIMPEX agreed to buy spare equipment valued at £1 million from Rolls-Royce and Vickers which was needed to maintain China’s Viscount aircraft. The British and Chinese still had not decided what to do about navigational aids and the supply of POL. Then, in late August or early September, just prior to COCOM list review for 1963, Paris asked Washington how it would respond if Sud Aviation sold Caravelle aircraft to the Chinese. Although Washington conceded that because of a COCOM rule change in 1962 equipment was no longer embargoed if incorporated in non-embargoed aircraft, it insisted that a US Commerce Department re-export license was required for parts of US-origin incorporated in any Caravelle aircraft sold to China. US government approval was also necessary if

Aircraft, grain and US China policy debate 89 equipment incorporated in Caravelle aircraft sold to China was produced in France or elsewhere under a licensing agreement with a US firm or was produced by foreign subsidiaries of American companies.117 On 6 September, in response to persistent lobbying to obtain support for an ROC military assault on China, the Kennedy administration suggested that Taibei establish the ‘Blue Lion’ committee to prepare plans for the attack based solely on their own capabilities. The Americans initiated this exercise only to give Taibei the impression that meaningful bilateral consultations were under way, to emphasize to Chiang Kai-shek the deficiencies of his military capabilities and to be kept abreast of ROC government planning.118

Part III

September 1962–July 1964

5

Japanese–Western China trade competition POL, chemical fertilizer, equipment and technology, September 1962–August 1963

It is much more advantageous to import . . . important materials to build nitrogenous fertiliser factories than to import grains. (Excerpt from report drafted by Chen Yun, May 1961, translated in N.R. Lardy and K. Lieberthal (eds), Chen Yun’s Strategy for China’s Development: A Non-Maoist Alternative, 1983) From the point of view of American business – especially the oil companies with investments in Sumatra and certain banks with interests in Japan – the most critical country in South-East Asia was not Vietnam but Indonesia. (R.B. Smith, in An International History of the Vietnam War (Volume II) The Struggle for South-East Asia 1961–1965, 1985)

September 1962–January 1963 In the run up to Taiwan’s Legislative Yuan, scheduled for 21 September, Taibei was eager that Washington not take additional action, similar to the assurances which Ambassador Cabot had given to Ambassador Wang on 23 June, to further diminish its confidence in the ROC–American alliance.1 The Kennedy administration’s efforts to reassure Beijing about its intentions towards the PRC were seriously undermined on 9 September when the PLA shot down another US-made espionage aircraft, a U-2 operated by the ROC air force. On 15 September – with crucial policy meetings beginning in just over a week’s time – the Chinese called an emergency meeting of the Warsaw ambassadorial talks to discuss this incident. However, because Ambassador Cabot had suddenly become ill, while travelling outside Poland, and thus was unable to return to Warsaw until the 19th, this meeting could not be held until the 20th.2 Meanwhile, on 18 and 19 September, the US and ROC staged joint military ‘Blue Sky manoeuvres’. At the emergency Sino-American ambassadorial meeting on 20 September, Wang lodged ‘the strongest protest’ about the 9 September U-2 incident while emphasizing that continued US intrusions into Chinese territory, made untenable Washington’s assertions that America would not attack China. The Chinese would

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later claim that on 21 September, a US warship and two US aircraft entered PRC territorial water and airspace.3 At the Tenth Plenary Session of the Eighth Central Committee of the CPC in Beijing (24–27 September) Deng Zihui’s proposal, presented in early July, regarding household responsibility under strict production contracts was defeated by Mao Zedong, who reaffirmed the importance of class struggle. While this marked a shift back towards the ‘leftist’ line of the 1950s, Mao also accepted the general principles of the economic re-adjustment plan, reminding the conference ‘. . . Do not slacken economic work because of class struggle; put work above everything else’.4 Thus, a new equilibrium, lasting three years, was established between Liu Shaoqi and Zhou Enlai’s economic development strategy on the basis of science and technology, imports of equipment and technology from Capitalist countries, and Mao and Kang Sheng’s insistence on the maintenance of ‘socialism’ in the running of agricultural enterprises. In the middle was the PLA which benefited from the former without being damaged by the latter. By the end of September 1962 the CCP line was established, under which economic relations with the West and Japan would be pursued in the interest of Chinese industrial development. The Chinese could now focus on buying key interrelated items for mining, refining oil, building industrial plants and producing special steels, steel piping, petrochemicals, ammonia and urea chemical fertilizer. The government hoped to acquire state-of-the-art technology and training which had taken Westerners many years and great expense to develop. Much of this technology was American – or had at least evolved from patented American innovations. Owing to problems with surpluses and overcapacity, industrialists in Western-aligned countries were eager to sell the Chinese recent technology even though Beijing required substantial long-term credit financing and planned to use the imports for mass prototype copying.5 Four other advantages of importing Western and Japanese equipment/technology were that the exporting firm’s specialists would: (1) help evaluate whether a proposed project was feasible; (2) guarantee that the parts of the project would fit together; (3) teach Chinese workers how the equipment functioned and oversee trial runs; (4) and depart after a particular plant went ‘on-line’ and Chinese employees were trained – leaving the PRC in control.6 This import programme might appear to have been at odds with Mao’s objective of Chinese self-reliance until one refers back to his 25 April 1956 speech ‘On the Ten Great Relationships’ and the readjustment strategy which was being implemented prior to the GLF. Thus, it was logical that during the post-GLF period Mao approved the plan to import several dozen sets of Western and Japanese equipment and technology, especially those to produce chemical fertilizer and petrochemicals.7 Before approaching Western firms for substantial credits to buy the equipment, Beijing prioritized its shopping list. By importing six modern textile production plants and related technology it could reduce domestic demand for home grown cotton and imports of cotton, as well as textiles, thus making more land available

Japanese–Western China trade competition 95 for grain production and enabling China to export more grain and textiles on barter terms or for currency.8 First on Beijing’s shopping list was a facility that utilized waste materials such as cotton and wood pulp to produce cellulose fibre or vinylon. The Chinese wanted to buy five polymer based textile production installations, but these required surplus refined petroleum products which they still were unable to produce in sufficient quantities. Thus, before buying these installations, the Chinese decided to buy at least three related chemical fertilizer production installations and technology – two to produce ammonia from gas and the other to produce urea from ammonia. Although in January they planned to continue importing foreign chemical fertilizer, the Chinese had adopted Chen Yun’s proposal, first made in 1956–7, that they acquire the equipment and technology required to lessen dependence on chemical fertilizer imports. Beijing also planned to buy equipment and technology to refine petroleum and process steel because the by-products of such installations were essential in producing synthetic textiles, plastics and ammonia for chemical fertilizer. However, on 22 October Sino-Indian skirmishes began on the Himalayan frontier and four days later the Indian government declared a state of emergency. Full-scale war followed and, when the PLA advanced into Indian territory in November, Delhi asked Washington, Paris, London and Ottawa for military aid. Moscow refused to support Beijing during the crisis and reduced its exports of strategic goods such as POL to the PRC, increasing aid to and trade, even in military goods, with India. The Chinese leaders probably wondered if their industrial development plans for expanding economic relations with Capitalist countries were in jeopardy. Nevertheless, as Soviet POL shipments arrived behind schedule and in greatly reduced volumes, the Chinese prepared to send a delegation to Western Europe to study petroleum refining technology.9 It remained to be seen if ENI boss Enrico Mattei’s death – in a plane crash while returning from negotiations with Standard Oil Co. of New Jersey – on 27 October would adversely affect Chinese efforts (ongoing since the late 1950s) to purchase equipment and technology to refine petroleum and produce chemical fertilizer from the Italian firm. Mattei had negotiated a $200 million trade deal with Beijing in 1962 and had sought Moscow’s approval to link ENI’s Mediterranean pipelines to Soviet ones running between the Ural and Danube regions.10 A revision of the Franco-Chinese grain agreement, in late October, committed France to ship approximately 1 million tonnes of wheat to the PRC in 1962–3 – over twice the original amount – and to improve credit terms from 12 to 18 months (see Table 5.1). This was the first commodity transaction which broke the unwritten understanding among Western-aligned nations to maintain a twelve-month credit ceiling on commodity exports to China. Beijing then threatened to suspend purchases of Canadian grain unless Ottawa also extended improved terms of trade and allow more Chinese textiles to enter Canada. The federal Opposition alleged that the Canadian government was supporting both sides in the Sino-Indian border war because it refused to suspend its grain trade with China, yet decided to send India six Dakota aircraft.11 Nevertheless, on

AWB CIRECO

Louis Dreyfus Co. (on behalf of ONIC) CIRECO Louis Dreyfus Co. (on behalf of the South African Maize Board) CIRECO CWB CEROILFOOD

September 1962

October 1962

November 1962

8/9 December 1962

Firms/ organizations

Date

928,043: wheat

160,000: maize

3 year Franco-Chinese grain agreement renegotiated

101,605: wheat 22,353: wheat 508,023: wheat

Quantity and variety

January–June 1963

1962–3: 994,000: wheat (500,000 more than under original agreement) August–December 1963a; 381,018: wheat 1964a; 304,814: wheat January–April 1963

October–November 1962

Delivery

Improved credits: 12 months (guaranteed by Canadian Cabinet)

12 month credits: (COFACE guarantee)

Improved Australian credits: 12 months: 10% cash, 20% in 6 months, 20% in 9 months, guaranteed by Australian government’s Commonwealth Trading Bank Improved French credits: 18 months (COFACE guarantee)

Payments

Table 5.1 PRC–Western grain contracts: September 1962–August 1963 (in tonnes; wheat, barley and corn in trade grain weight)

3 million–5.1 million: wheat 610,000–3 million: barley

508,024: wheat

CWB CEROILFOOD

CWB

1 August 1963– 31 January 1964

Over 30 month period (under individual contracts to be negotiated with respected to quality, variety, price and delivery)

Before midDecember 1963

January–February 1963

Improved Canadian credits: 18 months (guaranteed by the Canadian Cabinet)

Improved credits: 12 months (guaranteed by Canadian Cabinet) 12 month credits: 10% cash, 20% in 6 months, 20% in 9 months, guaranteed by the Australian government Commonwealth Trading Bank Improved Canadian credits: 18 months (guaranteed by the Canadian Cabinet)

Note a Because of their crop failure in 1962–3 the French in 1963–4 could not meet their obligations to the Chinese under the three year Franco-Chinese grain agreement. In 1963–4 the French exported to China only: 187,200 wheat, 34,000 flour, 127,600 barley, 700 maize.

Sources: Table composed by author from: Mitcham, op. cit., chapters 7–8 (based on reports/statistics found within: NAA: A1804; A1838; A2051 and NAC: RG#20; RG#25 and NACP: RG#59); Perrett, op. cit., pp. 200–10; Eckstein, A., Communist China’s Economic Growth and Foreign Trade: Implications for US Policy, New York: McGraw-Hill Book Company, 1966, p. 227 (Eckstein’s source: UN FAO statistics).

1.2 million: wheat

1 August 1963 (second SinoCanadian 30-month grain agreement – superseded the initial SinoCanadian 30-month grain agreement) 1 August 1963

5 May 1963

23,949: barley

CWB CEROILFOOD AWB CEROILFOOD

8/9 December 1962

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1 November, the cabinet agreed to permit the CWB to offer the Chinese improved credits, extended from 9 to 12 months, to facilitate further grain deals.12 About two weeks later, Louis Dreyfus Co. agreed, on behalf of the South African Maize Board, to sell China 160,000 tonnes of maize on 12 month terms – guaranteed by COFACE. The South Africans were desperate to enter new export markets after having withdrawn from the Commonwealth on 15 March 1961 following objections by member countries to their racial policies. Meanwhile, on 9 November Liao Chengzhi and Tatsunosuke Takasaki signed an unofficial five year Sino-Japanese barter trade agreement – similar to the arrangement abandoned in 1958 – known as the Liao–Takasaki (L–T) memorandum. The accord stemmed from talks between Zhou Enlai and Kenzo Matsumura of the LDP in September 1962 and, as with the 1958 agreement, it was crucial to China’s readjustment strategy based on equipment and technology imports from Capitalist countries. The contracts – valued at approximately $100 million – were to be negotiated between 1963 and 1967, enabling Chinese soybeans, maize, coal, iron ore, salt and tin to be exchanged for Japanese steel, chemical fertilizer, insecticides, agricultural machinery and complete industrial equipment. The Japan–China Overall Trade Liaison Council (JCOTLC) – a voluntary organization of manufacturers and consumers of items provided for under the memorandum – was also established. Taibei responded almost immediately to news of the L–T agreement by terminating negotiations with Tokyo for a large loan.13 When JITPA director general, Suzuki’s delegation arrived in China, without MITI’s backing, in mid-November for negotiations with Nan Hanzhen on a separate trade agreement involving private Japanese firms, Japanese JCOTLC representatives probably felt greater pressure to bring bargaining on the 1963 L–T agreement to a successful conclusion. Recent reports that the Chinese would begin importing up to 3.05 million tonnes of chemical fertilizer annually placed JASEA under more pressure to resume sales to the PRC.14 Since 1958 only about one Sino-Japanese chemical fertilizer contract had been signed – for 101,605 tonnes of urea in early January 1962. Suddenly, in late autumn 1962 Nitrogen Chemical Fertilizer Export Cartel (NITREX AG)15 – a Zurich-based cartel formed earlier that year by major West European chemical fertilizer producers to cope with the vast buying power of state trading organisations of the LDCs – agreed to sell the PRC 1.08 million tonnes on a twelve month term with payment in goods at world market prices.16 The transaction threatened JASEA–NITREX collaboration, aimed at maintaining floor prices. ANIC/ENI, one of the West European suppliers not party to NITREX, who had seen their sales to the PRC fall from 96,000 tonnes in 1961 to 14,700 tonnes in 1962 – the lowest since prior to 1957 – soon agreed to sell the Chinese 93,000 tonnes of chemical fertilizer on eighteen month terms with delivery in 1963. Until this point, Rome and Bonn, unlike the other Western allies, had strictly adhered to Washington’s wishes that its allies provide no more than short-term credits to Communist countries. After the cease fire of 21 November, Chinese troops withdrew, by December, from Indian territory, halting hostilities which could eventually have threatened

Japanese–Western China trade competition 99 the PRC’s ‘readjustment’. Nevertheless, between November 1962 and midJanuary 1963, Washington questioned Ottawa, Canberra and Paris about their positions on grain sales to China in light of the Sino-Indian Border War.17 On 24 November Delhi told Ottawa that, if it would not suspend its credit grain sales to China because of the conflict, it should at least sell on a cash-only basis.18 However, on 8 and 9 December the CWB agreed to sell CEROILFOOD another 950,000 tonnes of grain on twelve month credit terms. Then, during meetings in December, Washington told Whitehall that the Viscount aircraft that Beijing had purchased from Vickers would substantially aid the PRC’s airlift capacity and was inconsistent with US aid to India and American plans to assist Indian air defense. Whitehall disagreed but guessed that Washington would eventually overlook the Sino-British aircraft deal.19 About that time the British government postponed Lu Xuzhang’s scheduled autumn 1962 visit to the UK.20 The Sino-American ambassadorial talks remained deadlocked at the 113th meeting on 13 December as the Chinese included America’s aid to and alleged encouragement of India in their standard list of evidence that Washington was not following its non-aggression policy outlined in June.21 Preparations for expanded Sino-Japanese economic relations continued on 27 December when the Suzuki–Nan trade protocol was signed, reaffirming the principles of ‘friendly firm’ trade and plans to organize reciprocal trade fairs. On 8 January 1963 JITPA announced that a Japanese industrial products exhibition would be held in Beijing and Shanghai in the autumn while the Chinese were scheduled to hold trade fairs in Tokyo and Osaka.22 On 11 January with ‘friendly firm’ trade poised to take off, the first contract under the 1963 L–T agreement was signed. JASEA, which hoped to keep pace with NITREX and ANIC, agreed to sell the Chinese 254,012 tonnes of urea and 203,209 tonnes of ammonium sulphate in exchange for 450,000 tonnes of salt. The Export–Import Bank (Ex–Im Bank) provided eighteen month credits without any down payments.23 To avoid angering Taibei and risk losing a lucrative share of the ROC fertilizer market, during the rest of 1963 the Japanese refrained from selling Beijing additional quantities of ammonium sulphate. Nevertheless, when NITREX negotiators arrived in Beijing on about 11 February, the Chinese pressured them to sell chemical fertilizer at prices well below production costs because JASEA and ANIC had recently provided them with improved credits.24 Yet, in early to mid-February the Chinese agreed to purchase about 1.2 million tonnes of ammonium sulphate on nearly identical terms to those under the 1962 contract.25 By January 1963 the Chinese had opened discussions with many Western and Japanese firms for a wide range of complete industrial installations and related technology. Negotiations on the UK’s EEC membership had broken off by 29 January, leaving the British more keen to develop trade with Communist countries. Thus interests in the other Western-aligned countries began following developments in Sino-British trade more closely so as not to fall behind in the ‘China market’. Also on 29 January Japanese PM Ikeda said that Tokyo’s final decision on whether to provide Ex–Im Bank credits for individual Sino-Japanese

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business transactions would be based on the terms West Europeans offered for comparable deals with China.26

January–March 1963 China also planned to invest much more heavily in the chemical fertilizer industry to raise productive capacities of existing plants and build new ones, while developing the pyrite mining industry and strengthening the transportation system.27 Many factories throughout China were being converted to produce high-pressure compressors, containers and synthesis process towers for chemical fertilizer plants.28 Although the Chinese had only managed to produce small quantities of inferior quality urea, they planned to build large complementary/integrated ammonia and urea production facilities at Nachi near Luzhou, Sichuan. However, because of inadequacies of certain sectors of their chemical machine tool and metal industries, they had only successfully built small and medium plants.29 They were unable to properly manufacture approximately 10 per cent of the parts needed to make nitrogenous fertilizer production equipment – higher technology items previously supplied by the Soviets, such as large high-pressure synthetic ammonia units.30 Between 21 February and 2 March, the Chinese Ministry of the Chemical Industry, the First Ministry of Machine Building, and the Shanghai Council for Industrial Promotion sponsored a national conference in Shanghai to plan a strategy to resolve these problems. This strategy inevitably involved imports of Western and Japanese equipment, materials and technology. About that time the British Cabinet was considering granting permission for South Durham, a financially troubled UK firm, to sell large diameter piping to the USSR,31 which became the world’s second largest oil producer in 1960. After Moscow proposed building a ‘friendship’ oil pipeline to Western Europe, Washington had asked allies not to export large diameter piping to the USSR.32 In October 1962, despite opposition from German steel makers and from within the Bundestag, Bonn vetoed a proposed lucrative sale of large diameter piping to the USSR by the West German firm Mannesmann.33 The following month, after having debated the matter for almost a year, NATO member nations agreed to try, individually, to prevent domestic firms from exporting this item to the USSR.34 Thus, when Bonn learned that the UK government was considering approving the Soviet–South Durham transaction, the Germans asked the British to be ‘good Europeans’ and veto the deal. While the British Cabinet did not reach a decision on the matter until March (see below) Bonn, under increasing domestic pressure, responded by telling Washington that it now might be unable to justify the continuation of its controls on piping exports.35 Negotiations for Chinese steel purchases under the 1964 L–T agreement were under way in mid-February36 when the Bank of Tokyo and the Bank of China reached a one year trial banking agreement involving opening branches in both countries. Takasaki was attempting to establish a credit scheme using private

Japanese–Western China trade competition 101 banks as an alternative to Ex–Im financing of Sino-Japanese trade.37 West Europeans were concerned that the number of Japanese ‘friendly firms’ was expanding rapidly and that Japanese businessmen were frequently bypassing the Guangzhou Trade Fair by obtaining invitations to visit Beijing directly. Meanwhile, during NITREX negotiations in February, L.C. Bu – who, in mid-1962, had been replaced as CIRECO Assistant General Manager and appointed Vice-Minister of CHINATEX – asked NITREX’s Federal Republic of Germany (FRG) representative if West German interests would import more Chinese textiles. Lu Xuzhang then suggested that, if the US lost influence in Europe because of France’s role in the rejection of the UK’s EEC bid, then West Germany could capitalize on opportunities to increase trade with China. Bonn also gathered that Beijing was suddenly enthusiastic about developing FrancoChinese relations because of France’s role in the collapse of the talks on Britain’s application to join the Common Market, and Beijing’s growing belief in French independence from American influence.38 Furthermore, Lu Xuzhang pointed out that Beijing had recently instructed a Chinese iron and special steel delegation – which visited Berne before Austria and the FRG later in February and early March – to continue on to France as well. Bonn also thought that ‘Patronat’ – Centre National du Patronat Français (the main association of French industrialists) – was preparing to send an economic delegation to China and guessed that Franco-Chinese political rapprochement was now possible.39 The French felt a greater urgency to expand their industrial exports to China partly because they had had a poor wheat harvest following the harsh winter of 1962–3, leaving them unable to meet their obligations for 1963–4 under the Franco-Chinese grain agreement. This latter development led to more uncertainty among China’s leadership about how the PRC’s foreign grain import requirements would be met.40 Although America was probably the only country with enough supplies and financial resources to even consider covering China’s credit grain import shortfalls, cereals were not discussed at the 114th meeting of the Sino-American ambassadorial talks on 20 February. The talks remained deadlocked as Ambassador Wang focussed on delivering the same criticisms of US policy and actions which they had made at the last few meetings.41 However, about that time the Chinese again enquired indirectly about purchasing American grain, but the US State Department still doubted that the PRC leadership was really interested in American supplies.42 Also, US officials were much more interested in developing Soviet–American trade as a means to lessen tensions with the USSR, reduce America’s balance of payments deficits and earn currency or gold. Despite the uncertainty about its foreign grain import programme, Beijing continued threatening to suspend purchases of Canadian grain, and did not sign any contracts with the CWB between 9 December 1962 and August 1963, because Ottawa had not allowed more Chinese textiles into Canada.

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The West Germans were watching for new developments in Sino-French trade when the Chinese iron and steel delegation visited various German plants, including those of Otto Wolff AG,43 Fried Krupp and DEMAG AG between 20 February and early March.44 On 1 March, Paris told Washington that retired French career diplomat and ambassador Guillaume Georges-Picot, now President of Syndicat d’Etudes pour l’Extreme Orient (the Far Eastern Study Group of the National Industrialists’ Council) – would lead a strictly private ‘Patronat’ delegation to China in the autumn.45 Moscow was still upset that Beijing had decided to buy British turboprops instead of purchasing more IL-18s and in early March a Soviet embassy official in the Chinese capital asked British commercial councillor L.S. Ross where the Chinese would obtain fuel to operate the Viscount aircraft. When Ross guessed that they might buy it from the USSR, the Soviet official emphasized: ‘That should not be taken for granted’.46 Indeed, in mid-January Beijing enquired about obtaining high-quality aviation gas from Kawakami (Idemitsu’s ‘friendly firm’) in exchange for more than 15,000 tonnes of heavy oil for fishing vessels and over 10,000 tonnes of petroleum coke.47 The American giant Caltex’s Japanese affiliate, Koa Oil Company, was the only Japanese producer of petroleum coke. That same month Idemitsu opened its huge new Chiba refinery, but because of the Petroleum Association of Japan’s production constraints, introduced in July 1962, it was only running at half-capacity. As Idemitsu became the first firm to openly challenge the production controls by threatening to withdraw from the Petroleum Association of Japan, which it did on 29 November 1963, it also threatened to stop importing Soviet oil because of its rising cost. Consequently, it became more interested in exporting more POL to China and increasing imports of Chinese or Indonesian crude.48 Sino-Indonesian economic ties continued strengthening on 28 January when Beijing and Jakarta signed an economic and technical cooperation agreement.49 Kawakami executives did not expect to run into any problems with the US government over its POL negotiations with the Chinese as Shell was supplying fuel for Soviet airliners in London and Amsterdam. Although US oil firms supplied technology to their Japanese counterparts, American trade controls did not cover refined petroleum products, exported by foreign firms, produced from crude from non-American suppliers which had not entered a technology agreement specifically permitting a US firm to control distribution of the end product. Thus, unless the Japanese government objected, it appeared that Idemitsu could export POL to China.50 Meanwhile, during the first week of March, as the Chinese continued POL negotiations with Kawakami/Idemitsu, the Indonesian government made new demands of Western oil companies. Caltex, which dominated production and exports of Indonesian crude oil, though it did not produce refined petroleum in that country, stood to lose the most if the demands became law. Jakarta gave the firms only a few days to respond and implied that the Chinese and upcoming US oil companies were eager to take over Indonesia’s foreign oil licenses.

Japanese–Western China trade competition 103 Washington responded on 6 March by telling Jakarta that its demands jeopardized US–Indonesian relations as well as private American investment and US oil operations in Indonesia – which were to have provided a basis for economic stabilisation in that country.51 Around that time BP suddenly asked Whitehall for permission to sell Beijing 10,160 tonnes of aviation gas. Also, Shell Oil Co.’s Shanghai office – which had had little business contact with the PRC government since 1956–7 – was suddenly invited to send a representative to Beijing to discuss the possibility of supplying POL52 from the Anglo-Dutch firm’s Indonesian operations. These negotiations caused considerable anxiety for American oil firms and the US government over subsequent weeks. Beijing expressed interest in purchasing British POL just as Whitehall was preparing for Lu Xuzhang’s rescheduled visit to the UK, beginning on 21 March 1963. As the first PRC Minister to be an official guest of the UK government, he toured industrial plants and discussed plans for a British Scientific Instruments exhibition in Beijing. The day after Lu’s arrival in the UK, the British Cabinet decided to allow South Durham to export large diameter piping to the USSR.53 At that time other UK firms were negotiating to sell the Chinese, under five year credits, various types of complete industrial plants – including installations to produce chemical fertilizer, fibres, wool fabric and pharmaceuticals.54 During March, Tokyo asked Whitehall to suggest how Japan might increase its trade, especially that involving credit financing, with China without seriously damaging its relations with America.55 Long-term Ex–Im Bank credit guarantees were required if the Chinese were to complete negotiations under way since 1957 and buy a 182,888 tonne p.a. urea plant from Toyo Engineering Co. (TEC) and a synthetic vinylon plant from Kurashiki Rayon Co. of Osaka. These firms were eager to conclude deals because of overcapacity.

April–May 1963 However, the Japanese had more than British competition to worry about. After leaving the UK in mid-April, Lu Xuzhang visited the Netherlands and the Dutch firm V.N.F. Stork Werkspoor – the largest engineering group in that country and a major supplier of chemical fertilizer production equipment. As will emerge, it is probable that, while in the UK and the Netherlands, Lu met with Shell officials. The Sino-American ambassadorial talks remained deadlocked after the 115th meeting on 17 April as Ambassador Cabot found Ambassador Wang’s criticisms of US actions towards Taiwan, the PRC, Laos and Vietnam even more intense than usual.56 The Chinese were unaware that President Kennedy had again refused Chiang Kai-shek’s requests of 15 March and 11 April, that the US prepare a plan to support an ROC assault on China. Washington, he felt, did not know whether PRC citizens could rebel successfully against the Beijing government.57 Then, on 23 April Tokyo told Washington that the UK government’s unilateral decision to permit British piping exports to the USSR, had made it extremely

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difficult for Japan to continue adhering strictly to the US-led China trade controls.58 Tokyo also emphasized that, if the British government provided another credit guarantee to finance another industrial plant sale to China, it would not veto the proposed Kurashiki deal.59 Three days later the Japanese government approved credit sales to China involving $2.25 million worth of Japanese farm machinery and $5 million in special steel products under the L–T memorandum. No down payments or installment payments were required. The balance was payable 18–25 months after delivery. Tokyo was considering an application for an Ex-Im Bank credit guarantee.60 In late April, Lu Xuzhang concluded his visit to the Netherlands and during the first week of May he held talks with West European business representatives in Switzerland. Prior to his visit, Franco-Chinese government contact was limited to the commercial attaché level, but in mid-May Paris gave its ambassador to Switzerland clearance to talk directly with Chinese officials, if the opportunity arose.61 Meanwhile, Liu Shaoqi had visited Indonesia from 13 to 20 April, and, on 6 May, the Petroleum Intelligence Weekly stated that Beijing might soon purchase Indonesian POL. The Americans guessed that a large deal involving oil from Shell Indonesia might be in the works,62 after learning on 8 May that Stuart Ross was travelling back and forth between the Hong Kong offices of Shell and the political advisor of the Colonial Secretariat. On 9 May Rusk told US embassy officials in London to ask the British if Shell was planning to sell POL to China. About this time, Averell Harriman, who had been promoted to second Under-Secretary of State in March, just as Roger Hilsman was appointed Assistant Secretary of State for Far Eastern affairs, also told Shell that Washington was concerned that ‘. . . rumored Shell sales [to China] may involve Indonesian oil and may have a bearing on US and UK companies’ negotiations with the Government of Indonesia . . .’63 At an Asia Society meeting in New York, on 10–11 May, oil specialist William Henderson criticized those questioning America’s military and economic commitment to South-East Asia.64 Although on 13 May Sukarno signed the economic stabilization plan, the following day Jakarta announced that, if an oil licence agreement was not reached by 15 June, foreign firms would have to liquidate their operations within five months or continue operating under conditions it imposed. On 17 May Caltex told Washington that it had suspended negotiations with Jakarta and would begin evacuating employees.65 Although Washington’s intervention helped to broker an agreement on 29 May between the oil firms and the Indonesian government, the parties involved still needed to negotiate detailed work contracts. During the second week of May, Lu Xuzhang arrived in Hong Kong from Switzerland for a private one-week visit, where he probably became involved in negotiations with Shell and met local business leaders, such as the Zhejiang-born multimillionaire tycoon and Hong Kong Chinese Chamber of Commerce Chairman Wang Kuancheng, who worked closely with the PRC government. Meanwhile, even though the PRC’s grain import situation remained unresolved, Beijing had influenced the outcome of the Canadian federal election – won by the

Japanese–Western China trade competition 105 opposition Liberals on 6 April – after threatening to suspend cereal purchases from Canada. The Chinese increased pressure on the new Lester B. Pearson government to offer improved terms of trade by agreeing on 25 May to purchase another 1.1 million tonnes of grain from the AWB. During mid-May, Taibei kept trying to persuade Tokyo to limit trade with China and decided to resume loan negotiations, suspended in November 1962 to protest the signing of the L–T memorandum with the Japanese government.66 However, in late May the Chinese signed a provisional contract with Dai Nippon Spinning Co./Nichibo to purchase a 51 tonnes per day capacity vinylon plant worth $30 million. The deal could not be completed unless Tokyo agreed to provide an Ex–Im credit guarantee. On 31 May Tokyo reminded Washington that British firms were close to completing similar deals with the Chinese and that the Ikeda government was under pressure from the opposition to disclose what type of credits West European equipment suppliers might offer Beijing.67

June–August 1963 In early 1963 international tensions appeared to be moderating. The Soviets had agreed to withdraw from Cuba and, on 1 April at the Geneva disarmament conference, the American and British governments tabled a memorandum on a nuclear test ban. As Tokyo prepared to make a final decision on the proposed Chinese–Kurashiki deal, Sino-West European trade appeared ready to take off and internationally there was a feeling that Washington might soon modify its China policy. Rome had declined Beijing’s offer to send a Chinese trade delegation to Italy. However, in 1963 Italy’s monetary reserves began to be depleted rapidly owing to a growing balance of payments deficit and rapid inflation. Because of overcapacity in key industries, especially the chemical, synthetic textile and steel sectors, Italian firms needed to increase exports and were closely observing recent developments in China’s trade with the other capitalist powers. Domestic firms lobbied Partito Socialist Italiano (PSI, the Italian Socialist Party) to pressure Rome to allow Italian Trade Commissioner Soverio Santaniello, also a PSI member, in Hong Kong to accept Beijing’s longstanding offer to conduct trade discussions. Santaniello received a warm welcome during a two week visit to Beijing, Shanghai and Wuhan in May and June and the Chinese asked him if Rome might help facilitate their purchases of Italian equipment and technology.68 Montecatini and ENI were already negotiating to sell the Chinese chemical fertilizer production plants, a petroleum refinery and related technology. In June a ‘hot line’ between Washington and Moscow was established and on 10 June a speech by President Kennedy called for the re-examination of US policy toward the USSR and the ‘cold war’. Chinese–Indian border hostilities had not resumed since the signing of a cease-fire agreement seven months earlier. Nevertheless, Sino-Soviet relations continued deteriorating as on 18 June Moscow condemned Beijing’s letter, sent four days earlier, criticizing the Soviet policy of ‘peaceful co-existence’.

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After a final discussion, on 27 June, of Washington’s objections to the Sino-Vickers aircraft contract, the British Cabinet agreed that the deal should proceed.69 In early June the Committee for a Review of Our China Policy (CROCP),70 a private American organisation, had asked Washington for permission to send a group to Hong Kong for trade talks with PRC governmental officials. Established at San Francisco in March, it sought to promote American China policy discussion and ‘humanitarian use of U.S. surplus food, trade in non-strategic goods and the exchange of visits by non-official citizens’.71 Its support was rooted in West Coast business, although many who agreed with CROCP’s ideas were unwilling to become identified publicly with an organisation challenging US government policy.72 In early July, Washington told CROCP co-chairmen, Charles Porter and Ernest Nash that, although Sino-US trade was prohibited, private Americans were allowed to participate in talks with PRC officials. However, Washington also added that it did not encourage discussions which might only be productive if US China policy and legislation were changed.73 At that time, Tokyo and Ottawa had still not decided whether to extend longterm credit guarantees to enable the Chinese to buy the Kurashiki vinylon plant and more grain. However, on 18 July President Kennedy addressed the US Congress regarding America’s balance-of-payments deficit and the problem of rapid outflow of dollars from the US economy. Kennedy announced that, in addition to the Trade Expansion Act aimed at resolving the first problem, his administration would introduce a 15 per cent tax on equity securities to limit the rate of capital outflow and discourage foreigners from raising capital on the New York market. Tokyo and Ottawa were not forewarned of this announcement, despite the fact that Canada had accounted for 42.3 per cent of foreign investment in the US during 1962, while in that year Japan was also a major investor in America. The announcement immediately undermined confidence in the Toronto and Tokyo stock markets, causing record falls. In July Canada’s official reserves fell by almost $100 million. Although after emergency consultations with Tokyo and Ottawa, Washington announced that President Kennedy could occasionally modify the tax and grant exemptions, the Canadians were unable to secure the extension of an exemption to cover tax on outstanding securities . . . [also] the US Treasury revealed on 23 July that as a quid pro quo for the exemption the Canadians were pledged to take steps, including if necessary the reduction of interest rates, to stop any excessive flow of dollars to Canada.74 Meanwhile, around 19 July Averell Harriman conceded to Canadian Ambassador Arnold Smith in Moscow, that for long-term Western interests, it was unwise for the West to continue pursuing a policy of isolating China – although, since 1960 he had not favoured any initiative that Washington recognize Beijing diplomatically and thought it sensible for the West to continue pressuring the Chinese while developing relations with the USSR.75

Japanese–Western China trade competition 107 On 30 July Porter told Roger Hilsman that he thought US China policy was changing and asked that CROCP be permitted to meet Chinese officials in Hong Kong and draw ‘. . . critics’ fire as the first to attempt to look at our [US] China policy, so that the . . . [US State] Department might more easily follow later . . . .’76 However, Hilsman thought that American business should be more interested in other economies, such as Indonesia’s. When Porter said that the PRC government’s decision to reject the Test Ban Treaty, reached on 15 July, had encouraged him to press harder for improved Sino-American relations, Hilsman said that his position was rather premature because Beijing was seeking alliances with Communist parties rather than with the West.77 Hilsman also reminded Porter that Beijing had rejected US initiatives, at the Warsaw Talks, to increase contact and understanding. In preparation for the 116th meeting at Warsaw on 7 April, Rusk instructed Cabot to ‘. . . Tell Wang that you trust that his side recognizes the world-wide importance of . . . [President Kennedy’s 10 June speech on world peace]. However, his side’s commentary on the . . . speech reenforces our surmise that . . . [the Chinese] hold misinformed and mistaken views of our beliefs . . . motives, and . . . policy . . . . As the President said, increased understanding will require increased contact and communications . . .’ Rusk also told Cabot to suggest, an exchange of news representatives and the release of US prisoners held in China.78 On 2 August Zhou Enlai sent a letter to President Kennedy with a draft agreement proposal on establishing a nuclear-free zone in the Asia–Pacific region, including the US, China, USSR and Japan. It called for the US to remove its nuclear weapons from China’s periphery and close its military bases in the region. Although the 116th meeting of the Sino-American ambassadorial talks was the longest in over four years, Ambassador Wang continued emphasising that Washington’s statements conflicted with its actions. Especially upset with the tripartite test ban treaty, the Chinese accused Washington of exacerbating tensions and hostility in South-East Asia and the ROC area and asked the Americans to remove those nuclear weapons which threatened the PRC’s important cities and hinterland, especially east and southeast China. Wang had nothing to add on the issue of newsmen and prisoners, although he presented Ambassador Cabot with the draft agreement that Zhou Enlai had sent President Kennedy five days earlier.79 Nevertheless, White House official Mike Forrestal’s80 memorandum to President Kennedy on 10 August stated that Roger Hilsman thought it significant that Wang had gone ‘. . . to some length in describing rather precisely the threat against important cities of . . . [China’s] hinterland . . . [posed by US] forces in the Pacific. Roger believes that this is an attempt by the Chinese to refute Khrushchev’s suggestion that . . . China has been trying to provoke a war between the . . . [US] and the Communist Bloc. By indicating in this backward way their awareness of U.S. strength, the Chinese may hope to convince us and others that they are not interested in a nuclear war’.81 However, at a meeting of Hong Kong’s Marco Polo Club in mid-August when West German commercial officer in Hong Kong, Fritz Cordt – who had been manager of a Shanghai firm, from 1945 to 1949, that included PRC officials such

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as Lu Xuzhang and L.C. Bu – asked for the second time82 since March 1962 if Beijing was interested in participating in Sino-American trade talks, the Chinese again said they were not.83 During July and August, in response to adverse effects of US economic policies and the perception that Washington’s position on China was becoming increasingly ambivalent, Ottawa and Tokyo began to review their own China policies. Ottawa again considered whether to recognize Beijing diplomatically,84 while Pearson’s Liberal government, eager not to lose support of prairie farmers, guaranteed eighteen months credits to facilitate the signing, on 1 August 1963, of a second Chinese–Canadian thirty month grain agreement85 which superseded the initial accord. Ottawa had agreed to allow the importation of more Chinese textiles into Canada and the CWB agreed to sell CEROILFOOD 508,000 tonnes of grain. On 29 July 1963 the first large Western industrial exhibition was held in the PRC – a display of industrial equipment and plastics of various UK firms, organized by CCPIT and the Sino-British Trade Council (SBTC) – an official British trade organization headed by John Keswick. During the exhibition the Chinese showed considerable interest in equipment to produce chemical fertilizer,86 polyethylene and polypropylene (for agricultural and industrial purposes – piping, fibre, injection moulding, sheeting, and electric wire coating).87 Spurred on by the pioneering work of the legendary unofficial UK pro-China trade organization, the ‘48’ Group, the SBTC was taking a more active role in developing Britain’s trade with the PRC. Competition between these British trade organizations was similar to the rivalry between Japanese ‘friendly firms’ and Japanese firms doing business under the L–T trade agreement.88 Since early 1963, as concern about the domestic steel industry intensified,89 German news sources speculated that a new West German government, led by Ludwig Erhard, might establish a trade mission in Beijing. During a Hong Kong Chinese Chamber of Commerce meeting about 19 August, as the Japanese made final deliberations on the proposed Sino-Japanese vinylon plant contract, Wang Kuancheng told FRG consulate officials that it was time for China and West Germany to redevelop their traditionally friendlier business relations.90 About this time PRC officials in Berne, intermediaries when Chinese steel and machinery technicians met Ruhr area steel firm representatives several weeks earlier, invited Otto Wolff von Amerongen to China. These developments gave Bonn reason to re-evaluate plans to establish an office in Taibei, although the West German Cabinet would not review the matter, at least until after Ludwig Erhard 91 gained power on 11 October. Suddenly, on 22 August the Japanese cabinet agreed to permit the Ex–Im Bank to guarantee five year credits so that the Chinese government could purchase the $20 million dollar vinylon plant and related technology from Kurashiki Rayon Co. (see Table 5.2). It was the PRC government’s first purchase of a complete industrial plant from a non-Communist country and the second five year credit guarantee obtained from a non-Communist government to facilitate an equipment purchase.

Japanese–Western China trade competition 109 Table 5.2 Initial major PRC–Japanese equipment contract, August 1963 Date (major contract # since November 30 1961)

Firms/ organizations

Equipment/ technology

Capacity and location

Cost and payments

#2 22 August 1963

Kurashiki Rayon Co. CNTIC

Complete vinylon plant and related technology Training for Chinese engineers

11,176 tonne p.a.a Construction: Beijing Delivery: beginning in 1964 Trial production: September 1965 Completion: 1966

$21 million – (design fee: 10% of cost, ‘knowhow’: 23% of cost) 5 year Ex–Im Bank credit guarantee

Sources: Table composed by author from information within: NACP: RG#59: CFPF, S-NF 1963, box 993, FT2 CHICOM–JAPAN; box 1423, XR POL CHINAT JAPAN and STR 12-3 CHICOM–JAPAN; box 3385, E 2-2 JAP; box 3635; Dicks, A.R. ‘The People’s Republic of China’, based on ‘How China buys foreign technology’, Business International, 15 December 1972, p. 396, in Starr, R. (ed.), East West Business Transactions, New York: Praeger Publishers, 1974. Note a Later upgraded – see Tables 6.1 and 7.1.

However, Kurashiki representatives became concerned about serious Chinese planning difficulties after learning that the vinylon plant was not being built near an alcohol production plant – alcohol being a necessary input for vinylon production.92 The Japanese attributed this oversight to a division of authority between the Chinese chemical and fibre agencies. When shortly after the vinylon plant contract was signed, the Chinese asked to upgrade the Kurashiki installation’s capacity from 30 to 51 tonnes per day, the Japanese firm refused. The Chinese later raised the plant’s output by 16 tonnes per day by purchasing two small complementary plants from the Japanese. Tokyo was concerned that Washington might respond to news of the SinoJapanese credit deal by implementing economic sanctions, such as a reversal of the proposed relaxation of US interest equalization tax on Japanese securities sold in America. Thus Tokyo told Washington that it was implementing a ceiling on credits extended to Communist countries, and the Kurashiki sale was a means of preparing the Japanese to accept the Ikeda government’s plan to admit US nuclear-powered submarines to domestic ports. Washington did not pressure Tokyo to reconsider its decision because it did not want to appear to be interfering in Japan’s affairs and felt that the Japanese already fully understood the American position on the China trade.93 Nevertheless, the ROC government, the China lobby and their supporters in Washington realized the Kurashiki sale set a dangerous precedent because it would stimulate competition between capitalist powers to extend more liberal

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credit guarantees to finance other equipment and technology sales to China.94 When Taibei insisted that the deal was essentially foreign aid and threatened to sever trade with Japan,95 Tokyo insisted that the vinylon equipment/technology was not embargoed at COCOM, that the credit terms were no more favourable than those Tokyo usually extended to other nations to facilitate plant exports, and that the Cabinet was not considering other such transactions involving China, although Dai Nippon/Nichibo still wanted to carry out its provisional contract with the Chinese for a 51 tonnes per day capacity vinylon plant. A.B. Perera, Sri Lanka’s ambassador to China until July, had already informed the Canadians that Chinese officials had told him that Paris would soon recognize Beijing diplomatically, possibly before the next meeting of the UN general assembly.96 Meanwhile, Canadian Secretary of State for External Affairs, Paul Martin, warned a press conference on 24 August that Western allies were mistaken in attempting to isolate Communist countries and said that any effective disarmament treaty would need to be accepted, in principle by the PRC government.97 Then, two days later Martin told Deputy Under-Secretary of State U. Alexis Johnson that Ottawa was considering changes to Canadian China policy to help end the PRC’s isolation from the world community.98 A Canadian DEA memorandum of 29 August, discussing the pros and cons of diplomatic recognition of the PRC, emphasized that recent remarks by US officials indicated that US opinion on China was changing. International recognition of the Beijing government and its seating at the UN would be one of the best ways to perpetuate the Sino-Soviet dispute, forcing it to consider views of governments of other nations through a process of education, pressure and attrition. In this vein, during a conversation with Stuart Ross in Beijing during August, Chen Ming criticized Soviet metal corporations for poor delivery, design and workmanship. While praising France’s approach to commercial and political relations, he emphasized that British industry could alternatively provide Beijing with new processes, techniques and equipment. Chen then said that Moscow would suffer the most if Chinese–USSR trade was suspended. Already Soviet trade corporations had complained that Chinese orders were falling off. Chen added that the Chinese found Soviet oil prices high, especially because of the world oil surplus. Consequently they were considering turning to other suppliers.99 The Chinese continued POL negotiations with Shell and BP in July when reports appeared100 that Beijing had offered to sell Japanese firms, Kawakami Trading Company, the Nissho Company and C. Itoh and Company,101 heavy oil produced in the PRC in exchange for POL. While Tokyo would not licence exports of petroleum products on the COCOM list, it would routinely issue import licences for a small amount of heavy oil totalling less than 0.3 per cent of Japan’s fuel imports in 1962.102 Washington responded in early August by explaining to American oil company representatives that they were permitted to sell fuel to foreign airline companies operating flights to the PRC, as long as the aircraft did not carry strategic goods or extra POL supplies produced by US firms.103

Japanese–Western China trade competition 111 About that time the Chinese government reached an agreement – the PRC’s first with an airline from a non-Communist country – with Pakistan International Airways (PIA) providing for the establishment of air routes from Karachi to Tokyo with stops in Shanghai or Guangzhou. The Chinese had been stimulating competition among international airlines eager to implement routes with stops in China and who could also pioneer and develop air routes which CAAC might later utilize on its own when economic and political conditions permitted.104 PIA representatives continued discussions, opened in early 1963, with the Seattle-based Boeing for the medium-range 720B/727 jet transports, with the UK firm Hawker–Siddeley for the medium-range Trident jet transport and with Sud Aviation for the Caravelle for use on these routes. In order to beat out De Havilland and Sud Aviation to secure a deal with PIA, Boeing needed to obtain the necessary US government export licences. This would also put the American aircraft producer in a good position to win another contract to supply All Nippon Airways (ANA) aircraft – on a one year lease-to-own arrangement, beginning in April 1964 – which the private Japanese airline planned to use on a proposed route with stops in China.105 Washington had previously approved the sale of US aircraft for use on PIA’s proposed Karachi–Moscow route, but in this instance it was concerned that PIA planned to store the US-made non-internationally embargoed aircraft parts in Pakistani government controlled bonded warehouses at Guangzhou and Shanghai airports.106 In 1963–4 just prior to the escalation of the Vietnam War there had been a significant lull in weaponry and aircraft sales. Aerospace firms and governments were willing to consider more flexible terms to facilitate commercial aircraft sales in new markets. However, the Kennedy administration kept delaying issuing the export licence necessary for the proposed Boeing aircraft deal to proceed. If the licence application was rejected and PIA obtained comparable equipment from another Western firm then Boeing and the powerful West Coast aircraft lobby would be upset with the Kennedy administration. Such a ruling would probably also alienate Pakistan, emerging as an important buyer of US aircraft. President Kennedy, Vice-President Johnson and Ex–Im Bank officials had agreed to ‘christen’, on the White House lawn, the first Sikorsky helicopter which the Pakistani airline had already agreed to buy. A Kennedy administration decision to issue the necessary export licences could lead to a further erosion of the multilateral controls on China trade, contribute to the perception that US China policy was changing, thus prompting a congressional backlash, and leave America’s allies in Asia feeling abandoned. This conflict between what was best for American business interests and the future of the US-led trade embargo was behind the growing ambivalence, which became increasingly apparent after August 1963, in the Kennedy administration’s China policy.

6

China market rivalries intensify Washington and Taibei’s response, September 1963–July 1964

Kennedy was aware of the political risks involved in any move to withdraw from South Vietnam without accomplishing the objectives he had set himself in 1961. What would amount to the first American retreat before a Communist challenge since the ‘loss’ of China might well produce a backlash comparable with Joseph McCarthy’s ‘witchhunt’ of 1950. Such a retreat could certainly not be contemplated before the election of 1964. Nevertheless, if withdrawal was to become a long-term presidential objective it was not too early to begin preparing the ground – and there are signs that Kennedy was thinking along those lines in the autumn of 1963. (R.B. Smith, An International History of the Vietnam War (Volume II) The Struggle for South-East Asia 1961–1965, 1985) Tell Wang . . . [Bingnam] that . . . [Washington] maintains forces in the Far East and has mutual defense agreements with many countries . . . [there] solely for defensive reasons to protect free countries of Asia from Communist aggression . . . . [Washington] intends to maintain attitude of firmness without hostility . . . [but is] prepared to wait patiently until . . . [Beijing] co-operate[s] in lessening tensions. We have already proposed several moves such as the exchange of newsmen, and the release of the American prisoners as steps towards this end and feel that the initiative is up to them. (Dean Rusk to Ambassador Cabot, 4 September 1963 – in preparation for the 117th meeting of the Sino-American ambassadorial talks, 11 September 1963) [The US] has taken . . . recent steps with several Communist countries seeking . . . [a] relaxation . . . [of] world tensions. These include . . . [a] partial test ban treaty, wheat sales, and . . . [prisoner] exchange. We are also seeking [a] relaxation . . . [in] cold war tensions in . . . [the] Far East. Do not make parallel[s] so explicit as to imply we are offering similar wheat sales or exchange of prisoners with . . . [the] Chinese . . . . [Washington’s] effort . . . [to] achieve mutual renunciation of force represents an earnest attempt to lessen dangers of war in . . . [the] Far East. (Dean Rusk to Ambassador Cabot, 6 November – in preparation for the 118th meeting of the Sino-American ambassadorial talks, 13 November 1963)

Intensification of China market rivalries 113

September to early October 1963 During the first week of September, Washington urged Ottawa, for the sake of Western allies in Asia, not to change its China policy. Rusk and McGeorge Bundy pointed out that, despite the Sino-Soviet split, Beijing remained hostile to Washington and Taibei, and that the Chinese were responsible for their own isolation. If they wanted improved relations with the West they should make the first move.1 Ottawa responded by assuring Washington that, for the time being, it would not alter its China policy.2 With the 1964 L–T negotiations opening about 15 September, Rusk was also worried that Japanese pro-China trade forces were encouraged when Washington did not protest Tokyo’s decision to extend a long-term Ex–Im Bank guarantee for the vinylon plant deal. Thus, about 7 September he explained to Japanese leaders that Washington had not formally objected to it because Japan’s Cabinet had publicly supported the deal before officially approving it. He said that the deal would stimulate a ‘credit race’ in the Chinese market which would strengthen the PRC to the detriment of Western-aligned countries and especially damage the solidarity of non-Communist countries in Asia. Moreover, Western allies needed to be very cautious because Beijing manipulated its foreign trade to penetrate new markets, disrupt existing trade patterns and achieve its political goals.3 It remained to be seen how the death of Dr Hans J. Zimmer on 7 September would affect Beijing’s recent efforts to acquire chemical fertilizer and polypropylene processes from Vickers–Zimmer Ltd, a firm that he and Vickers Ltd founded in 1960.4 Vickers–Zimmer processes were often based on patents of foreign firms and, since its formation, most of its business had been with Communist nations. Its business had doubled in 1963. However, during that year, the firm began to suffer when, after having invested heavily in developing its chemical fertilizer industry, the Soviet government made fewer than expected equipment purchases.5 Vickers–Zimmer was also concerned about the expansion of US exports of polypropylene and related production technology.6 Meanwhile, on 4 September as Rusk sought assurances from Tokyo and Ottawa, his guidance paper for the upcoming meeting of the Warsaw talks exhibited a different tone than earlier such communiqués. It asked Cabot to reiterate assurances about American intentions, emphasizing that Washington’s attitude towards the PRC remained one of ‘firmness without hostility’ and that it would wait patiently until Beijing cooperated to reduce tensions.7 However, the SinoAmerican talks remained deadlocked following the 117th meeting on 11 September after Ambassador Wang sought to discuss exclusively a matter which Ambassador Cabot was unauthorized to address – that is, Washington’s reaction to Zhou Enlai’s letter and draft agreement proposal of 2 August.8 In Washington on the 11th ROC Defence Minister Chiang Ching-kuo was unable to convince President Kennedy to provide American equipment required to initiate air and sea raids, involving up to 500 men, against the PRC. When Chiang said that such action was necessary before Beijing overcame its present difficulties, Kennedy, not wanting to initiate another botched Bay of Pigs

114

September 1963–July 1964

type of operation, insisted that there was still insufficient intelligence available about conditions inside the PRC, although he agreed to study Taibei’s proposal and work closely with it to collect more information on Chinese Mainland conditions.9 Around that time Bin Akao’s Dai Nippon Aikakuta (Greater Japan Patriotic Party members) who, according to security division chief Kuniizasu Tsuchida of Japan’s National Police Agency, may have been receiving Guomindong backing, threatened All Nippon Airways (ANA) president Kaheita Okazaki’s delegation with violence unless it cancelled its pending trip to Beijing to bargain for a second year of L–T trade.10 Nevertheless, this failed to prevent Okazaki’s team from opening L–T negotiations in the Chinese capital around the 15 September. The following day, Mitsubishi affiliate Chiyoda Chemical Engineering and Construction Company’s representatives left for Beijing to open talks on selling an oil refinery to the Chinese.11 Two Sino-British contracts valued at £750,000 were signed on 15 September when Nan Hanzhen, Lu Xuzhang, Chen Ming and CCPIT Deputy Secretary General Yong Longgui received a ‘48’ Group delegation in Beijing. The Chinese expressed interest in UK engineering equipment and complete industrial plants, but MACHIMPEX director, Li Menghou, warned that because British prices were too high they might have to buy from other West European suppliers.12 Nevertheless, Lu Xuzhang referred to it as the most important delegation to visit China since 1957, leaving the British government concerned that the Chinese were giving the ‘48’ Group preferential treatment.13 Although Sino-Japanese trade negotiations opened on time, evidence suggests that there was growing opposition within the Chinese leadership to the L–T trade which remained crucial to China’s readjustment. Yet, even if an L–T deal for 1964 was made, by September 1963 the Chinese were once again extremely concerned about securing enough foreign grain on credit terms. France had already defaulted on its obligations under the Franco-Chinese grain agreement and the USSR, facing its own agricultural problems, had suspended grain exports and in August and early September agreed to purchase large quantities of French, West German and Australian grain and flour. On 14 September, as the Japanese L–T negotiating team left for Beijing, Ottawa announced that Moscow had agreed to purchase over 6.8 million tonnes of wheat under eighteen month credits. Despite Washington’s restrictions on US–Soviet trade, American interests were also negotiating to sell grain to the Russians.14 In mid-September President Kennedy told the White House Conference on Export Expansion that America needed to increase exports to help ease its growing balance of payments deficit, caused by increased foreign aid and spending.15 Because of changing world relations, Commerce Secretary Hodges also spoke out in favour of a review of American policy on non-strategic trade with Communist nations – a position which was immediately supported by various US business interests.16 On 25 September an editorial in the pro-Communist Hong Kong daily Wen Wei pao stated that the China trade embargo was causing problems for the US. While

Intensification of China market rivalries 115 questioning the sincerity of CROCP’s agenda, the editorial asked ‘aren’t . . . [the Americans] talking about studying the possibility of trade with . . . China?’17 Although ‘work contracts’ signed on 25 September between Western oil companies and Jakarta still needed to be ratified by the Indonesian parliament, the agreement may have left Washington feeling slightly less uneasy about recent Sino-Indonesian economic cooperation. However, two days earlier, when Tokyo asked Washington to clarify its position on trade with Communist countries, the Americans said that Hodges’ remarks did not apply to the PRC. Before asking Washington for advance warning of any reappraisal or change in US trade policy, Tokyo warned that the Japanese would not understand if America had a different trade policy for European Communist countries than for China.18 Yet, Fritz Cordt’s reception was warmer when, during the third week of September, he approached the Chinese for a third time (K.C. Jay on this occasion) in Hong Kong to suggest that CROCP act as intermediary between Washington and Beijing. Jay replied that, because Washington had softened its position on Sino-American trade discussions after having recently taken a more conciliatory position at the Sino-American Warsaw talks, Beijing’s ‘. . . reaction might be different from what it was a year ago’. Also, during discussions in Beijing between 20 September and 3 October with an industrial delegation headed by Guillaume Georges-Picot, Lu Xuzhang expressed regret that Washington had refused to provide visas permitting CROCP representatives to visit Guangzhou for talks. Chinese leaders were not particularly interested in holding discussions with CROCP representatives in Hong Kong, but Lu said that, if they did go there, they could probably meet with Chinese interests such as CIRECO.19 Zhou Enlai was in Guangzhou at that time (21–29 September) for a secret meeting of the Communist Parties of China, Vietnam, Laos and Indochina.20 On 30 September when State Department officials told Rusk about Jay’s remarks, US State Department officials concluded that the Chinese government had not changed its trade policies, but had probably recognized ‘. . . the political capital to be gained from taking . . . [a] superficially more favorable line on possibilities for US–CHICOM trade . . .’21 Washington may not have learned of Lu’s comments until 8 October,22 six days after Secretary of Defence McNamara and General Taylor had tabled a memorandum about a ‘Phased Withdrawal’ of US forces from Vietnam.23 Taibei continued complaining to Washington about the growth of SinoJapanese trade and was considering what economic sanctions it could apply against Tokyo in protest.24 On the evening of 25 September, despite a sizable police presence, windows were broken at the Japanese ambassador’s residence in Taibei. The following day, overseas Chinese were prevented from marching to the Japanese embassy, while English language newspapers in the ROC urged Taibei to pressure Tokyo more to curtail Sino-Japanese trade. Washington hoped that Tokyo would reassure Taibei that it would limit such trade, would not offer the Chinese more favourable commercial terms than those provided by other Western allies and would not recognize Beijing diplomatically or vote for its

116

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admission to the UN. However, George Ball also made the startling admission that Washington had . . . long ago concluded that attempts to force . . . [its] views on . . . others would be self defeating and unavailing . . . . [Taibei] must . . . exercise similar restraint . . . [making] its views on . . . [China] trade known in Tokyo and elsewhere but refraining from any attempt through economic sanctions or other means to compel others to see the mainland trade issue in precisely the same light that it does. Such efforts can only lead to isolation and weakening of the . . . [ROC government] which it can ill afford.25 On 12 September, with domestic prices rising and producers operating below capacity, the French government implemented an economic stabilization plan. About that time the Chinese welcomed Sud Aviation representatives to Beijing, saying that they now planned to buy Caravelle aircraft. On the 20th, as SinoJapanese L–T negotiations reached a critical stage and a West German industrial mission prepared to depart for the PRC, Georges-Picot’s industrial delegation – representing Patronat, which was regularly and unofficially ‘dispensed to’ by US officials such as George Ball,26 Syndicat d’Etudes pour l’Extreme Orient, and the French chemical and engineering industry associations – arrived in the Chinese capital. Although described as ‘strictly private’, the ‘Patronat’ delegation was a guest of CCPIT and had received the French government’s blessing. The talks focussed on the development of Franco-Chinese cultural relations and trade, reciprocal trade fairs and technical cooperation – especially concerning machine tools, lorries, complete industrial plants (including patents) and petroleum, petrochemicals, marine, mining, metallurgical and construction equipment. Zhou Enlai – before or probably after his trip to Guangzhou (21–29 September) Chen Yi, Nan Hanzhen and Lu Xuzhang told their guests that the PRC sought to become self-reliant, reduce its trade surplus with France and reach a Sino-French diplomatic rapprochement. The French delegation was extremely pleased with the talks and, after it returned home, France’s Foreign Minister Couvre de Murville spoke out in favour of increased Franco-Chinese trade and cultural contacts. He implied that French recognition of the Beijing government was imminent.27 At this time the Chinese were also calling for closer ties with Italy and West Germany.28 Meanwhile, during the L–T negotiations, Lu Xuzhang and chief Chinese negotiator Liao Chengzhi were very critical of Moscow and said that the Beijing leadership’s decision to permit a second year of L–T trade ‘. . . represented a vindication of the line advocated by . . . Zhou [Enlai] . . . Chen [Yi] . . . and Liao [Chengzhi] . . . .’ Japan’s L–T negotiators gathered that there existed considerable opposition within the Beijing leadership to ‘. . . China’s relatively pragmatic and gradualist approach toward Japan . . .’ possibly out of disappointment with SinoJapanese trade, or the degree to which the PRC’s trade had shifted away from Communist countries. While the 1964 L–T agreement was signed in late September, details of the accord were kept secret until mid-November 1963 to postpone the negative

Intensification of China market rivalries 117 response that would inevitably come from the ROC government. Both sides agreed to increase trade by up to 40 per cent, exclusive of complete plant purchases, although, in order to appease Taibei and Washington, the Japanese agreed to consider purchasing only one complete industrial installation during 1964. This was to be a 51 tonnes per day vinylon plant and related technology – the same technology they had already agreed to purchase from Kurashiki Rayon Co. – worth approximately $26 million from Dai Nippon Boseki/Nichibo.29 Toyo Engineering Company executives were undoubtedly upset by this decision because they were still eager to sell the Chinese a large urea plant and related technology. Realizing this, Beijing placed Tokyo under greater pressure from Japanese business by agreeing on 29 September to purchase a 177,808 tonne p.a. capacity prilled urea production plant from V.N.F. Stork Werkspoor of Amsterdam instead. The plant was required for Luzhou, Sichuan where the necessary feedstock (ammonia) could be produced cheaply from ‘abundant’ natural gas reserves.30 The Chinese would copy this technology to manufacture a number of standardized plants, giving them the ability to produce prilled urea in commercial quantities. The recently elected Dutch Labour–Neutralist coalition government extended a five year credit guarantee to facilitate the deal (see Table 6.1). With the signing of this contract, the ROC government, the ‘China Lobby’ and their supporters in Washington realized that to prevent a much more serious erosion of the embargo, immediate action was necessary. Meanwhile, the Chinese continued negotiating with Western and Japanese interests for a wide range of industrial installations – including an ammonia production facility to complement the Dutch urea plant. The China policy of the Kennedy administration appeared increasingly ambivalent.

Early October to 5 November 1963 In early October Taibei decided to limit ROC–Japanese political and economic contacts until Tokyo agreed to restrict trade with Beijing – especially that based on long-term Ex–Im Bank credits.31 Yet, ROC news sources were also reporting that a Soviet–American grain deal might soon be completed. US officials in Taibei advised Washington, on 3 October, that to avoid confusion in the ROC it should issue a clear public statement outlining the limits of any liberalization in US trade policy – especially defining the distinctions between its positions on trade with the USSR/Eastern Europe and China and strategic and non-strategic trade – prior to sanctioning Soviet–American deals.32 Washington may not have learned of Lu Xuzhang’s comments about Chinese interest in meeting with CROCP representatives until 8 October, by which time US officials in Hong Kong told Rusk that Beijing was increasingly willing to experiment and make compromises in its political principles as Sino-Soviet relations deteriorated, as China’s economic recovery resulted in a greater demand for foreign imports and as Capitalist countries became more enthusiastic about the China trade.33

Prilled urea plant and related technology Technical training for Chinese engineers

Continental Engineering Co. of V.N.F. Storkwerkspoor (Amsterdam) CNTIC

Humphrey’s and Glasgow (Britain) CNTIC

Montecatini (Milan) CNTIC

SNAM-Progetti/ENI (Milan) CNTIC

#3 (associated with #4) 29 September 1963

#4 (associated with #3) 25 October 1963

#5 14 December 1963

#6 19 December 1963

Synthetic ammonia plant and related technology (Ammonia feedstock for the Dutch urea plant) British engineers to spend several months providing assistance at the plant (a) Patents and know-how to build ammonia, nitric acid and ammonia nitrate fertilizer plants (at least one 150,000 tonnes ammonium sulphate plant) (b) A 30,000 tonnes (minimum) annual capacity ammonia synthesis chamber and related equipment Oil refinery

Equipment/technology

Date (contract # since Firms/organizations 30 November 1961)

US$8.4 million (know-how cost: about 10%) 5 year British government ECGD credit guarantee

US$7 million (‘know-how’ cost: about 10%) Dutch government 5 year credit guarantee

Cost and financing

200,000 tonne p.a. Probably equipment and technology for the Daqing

(b) May have been installed at Wuching plant

(b) $3.6 million. [Montecatini asked the Italian government to provide at least a 3 year credit guarantee for contracts (a) and (b)] US$5 million SNAM/ENI asked the Italian Government

(a) The ammonium (a) US$14.2 million (‘knowsulphate plant may have how’ cost: about 10%) been built in Albania, know-how used for other domestic plants

177,808 tonne p.a. capacity (later upgraded under contract terms to 355,616 tonnes p.a.) Delivery: in 1965 Began production: October 1966 (Luzhou, Sichuan) 111,765 tonne p.a. capacity Construction: September 1964–June 1967 at Naxi near Luzhou, Sichuan Trial production began: September 1967

Capacity and location

Table 6.1 Major PRC equipment contracts with Western and Japanese firms: November 1963–July 1964

F. Uhde (Dortmund, FRG) CNTIC

#10 early July 1964

Dry process acetylene generating plant to produce uryl acetate – required to upgrade the Kurashiki vinylon planta Perlon nylon plant

Plant to produce butanol, hexanol and ethylene (butyl and ethyl alcohol) Palm oil plant

—

1,100 m3/h

US$1.75 million medium-term credits

US$3 million

Note a See Table 5.2.

Sources: Table composed by author from information within: the LBJL: NSF: (especially: country file, memos, box 241 vol. IX, 3/67–6/67, CIA memorandum, 6 June 1966; box 240, CIA report, vol. VII, 3/66–9/66, 18 April 1966); NACP: RG#59: CFPF, S-NF 1964–6, box 700, STR 12-3 CHICOM–FR and E 2-2 CHICOM; box 701, STR 12-3 CHICOM–UK and E 2-2 CHICOM; box 993: FT E CHICOM–JAPAN; box 1423, STR 13-3 CHICOM–JAPAN; box 1424, STR 12-3 CHICOM–UK; box 1423-4, STR 12-3 CHICOM XR INCO 12-5 ALB; TNA:PRO: FO371 170691: FC 1152/51-67; MacDougall, C., ‘Dutch Contract’, FEER, 17 October 1963; ‘Eight Plants for Beijing’, FEER, 23 January 1964; Charbonnier, F., ‘The Sahara Oil’, FEER, 23 January 1964; Bondy, P., ‘Plant Clues’, FEER, 5 November 1964; Close, A., ‘Down to Earth’, FEER, 8 December 1966; ‘Humphreys and Glasgow to Supply Large Fertilizer Plant’, The Times, 28 October 1964; ‘Urea Plant to be Supplied by Werkspoor (Amsterdam)’, Financial Times, 1 October 1963; Buryn, W.M., ‘Pullman Kellogg: a Case Study’, Business International, pp. 287, 290; Liu, op. cit., passim; Szuprowiczs, op. cit., passim; Williams, B.A., ‘The Chinese Petroleum Industry: Growth and Prospects’, in China: A Reassessment of the Economy, A Compendium of Papers, Submitted to the Joint Economic Committee, Congress of the United States, 94th Congress, 1st session, Washington: US Government Printing Office, 1975, p. 245; Bartke, W., China’s Economic Aid to Developing and Socialist Countries, p. 43.

#9 May 1964

#8 May 1964

S.A. Melle and SPEICHIM (Paris) CNTIC Continental Engineering Co. of V.N.F. Storkwerkspoor (Amsterdam) CNTIC Japanese firm CNTIC

#7 11 January 1964

refinery (completed in to provide a 5 year credit 1966) and/or Beijing guarantee petrochemical plant (began operations in 1969) 300,000 tonne p.a. US$8.5 million COFACE 5 year credit guarantee

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Then, on 9 October President Kennedy personally authorized the sale of up to 4.06 million tonnes of US grain to the USSR to reduce domestic grain stocks and ease America’s balance of payments concerns.34 The Republican Opposition later blamed this extremely controversial decision for the serious erosion of the China trade controls.35 Washington had not warned the Japanese that American trade policy was about to be amended because it felt that Tokyo had not done enough to restrain Japanese trade (which was not under COCOM’s jurisdiction) with Moscow or Beijing.36 This left Tokyo in an embarrassing position because on the morning of 10 October, when reporters asked for its views on the US–Soviet grain transaction, the Japanese had to admit that Washington had not given them prior notice that the deal was to be signed.37 As the Kennedy administration contemplated a phased American withdrawal from Vietnam, the French, hoping to re-establish their influence in the Far East may have tried to broker a Sino-American rapprochement – involving Vietnam and even the establishment of trade or diplomatic relations. The New York Times reported on 17 October that, because he believed that it was no longer in the interest of Western-aligned countries to isolate China, de Gaulle wanted to extend unilaterally diplomatic recognition to Beijing and hoped that Washington would do so simultaneously. The report added that when French Foreign Minister Maurice Couve de Murville met Kennedy – who was scheduled to receive de Gaulle in Washington in March 1964,38 about the time Sud Aviation’s Caravelle 2E 210-10B was scheduled to come ‘on-line’ – the previous week he had urged the US president to adopt a new China policy.39 On 22 October, former French Premier Edgar Faure, whose then recently published book made a favourable evaluation of the Chinese government, began a fifteen day visit to China. Although Paris insisted that Faure’s visit was semiofficial in nature – to examine the possibility of increasing Franco-Chinese trade – he was rumoured to be carrying with him a special message from de Gaulle to the Beijing leadership on Franco-Chinese diplomatic relations.40 Faure had been in China for only three days when, on 25 October, Lu Xuzhang suddenly instructed CNTIC complete plants division director, Zui Zhun to conclude a contract with the UK firm Humphreys and Glasgow for a 110,000 tonne p.a. capacity synthetic ammonia plant to complement the Dutch urea plant. The UK government’s ECGD saved the day by providing a five year credit guarantee when negotiations, under way for several months, bogged down after the Chinese insisted that the British extend terms similar to those provided by the Dutch for the urea plant transaction. After concluding the deal, the Humphreys and Glasgow officials were received by Lu Xuzhang and Chen Yi (see Table 6.1). Thus, Japanese business interests became increasingly worried that Tokyo’s refusal to extend further Ex–Im Bank credit guarantees would leave them unable to compete for other Chinese industrial plant contracts. During the third week of October, Ambassador Reischauer in Tokyo warned Washington to use only discreet pressure to persuade Tokyo to limit its credit deals with Beijing, noting that Japanese politicians could not afford to oppose a certain amount of

Intensification of China market rivalries 121 commercially – based Sino-Japanese trade. He firmly rejected Taibei’s position that Beijing would use such trade to achieve Sino-Japanese diplomatic relations and voiced the debatable view that these transactions were ‘. . . hardly likely to spell a difference between Chicom survival and collapse . . . .’41 Although planning to agree to buy at least one more chemical fertilizer plant before the end of 1963, the Chinese continued negotiating for items required to resolve their petroleum/POL production deficiencies. On 28 October, Idemitsu Oil Co.’s managing director Teshima told Tokyo that Beijing planned to contact other suppliers to meet its 9 million kl annual petroleum production deficit – quantities usually supplied by Moscow.42 Indeed, during Zhou Enlai’s visit to Algiers in autumn 1963, he proposed a triangular payment deal whereby African countries linked with Paris would be granted French credits to import Chinese goods, the profits of which Beijing would use to purchase as much as 3.5 million tonnes of Sahara oil annually.43 Although the Japanese had imported almost 6 million kl of fuel oil in 1962,44 Teshima insisted that there was excess refining capacity in Japan and asked how Tokyo and Washington would react if Idemitsu supplied the Chinese with POL refined in Japan from the Arabian Oil Co., or from Permina – Indonesia’s army – dominated first state oil company which had been developing much closer business ties with Japanese interests. However, increased production by Idemitsu could further depress petroleum product prices which the Petroleum Industry Law was supposed to protect and threaten cooperation between Japanese oil firms.45 Under the still unratified ‘work contract’ agreement of 25 September, Western firms had become contractors for Indonesian state oil companies: Stanvac for Permina, Caltex for Pertamin and Shell for Permigan – the latter two Indonesian state oil companies having been formed around the time of the agreement. Large purchases of POL from Stanvac/Permina or Shell/Permagon would have been of considerable concern to Caltex because, although it dominated production and exports of Indonesian crude, it did not produce refined petroleum in that country. Although the US Departments of Commerce, Treasury and State wanted to discourage interests in non-Communist countries from selling refined petroleum products to the PRC, it was nearly impossible to do so under FACR and, with the exception of a few aircraft fuels and lubricants, refined petroleum was not on the COCOM lists. Also when Shell had previously sold the Chinese small quantities of POL, Washington had not protested.46 Thus, what would prevent Western and Japanese interests from selling the Chinese the equipment and technology for developing their own petroleum industry; or Indonesia’s, if Beijing could persuade Jakarta to let China take over foreign licenses in that country? By developing their petroleum/petrochemical industry, the Chinese could reduce domestic demand for minerals and agricultural products. Plastics and synthetics would replace cloth, leather, rubber and metal, allowing more domestic resources to be used for other purposes and lessening Beijing’s dependence on imports of strategic goods. Petrochemical products and petroleum products could eventually be exported to earn currency in exchange for essential imports.

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Despite the Sino-Soviet dispute, Hungary, Romania and East Germany continued selling the Chinese oil rigs, turbo drills, seismic equipment and core sampling plants.47 Although Beijing also obtained key catalytic cracking and platforming technology of US origin through the Esso-Shell refinery at Havana, Cuba,48 it needed to purchase other vital requirements directly from interests in Westernaligned countries. The Chinese needed to purchase equipment and technology to produce refinery equipment and pipelines – especially for new oil fields in the Northeast – which would eventually allow them to export large quantities of oil to Japan to pay for essential imports. A Chinese petroleum delegation toured Japan during the first week of October as guests of JCTPO and the Japan Oil Hydraulic Association – both ‘left wing’ organizations. It attended the World Oil Hydraulic Machinery Show in Tokyo and met with Japanese machinery manufacturers to discuss potential technical exchanges and purchases of hydraulic oil production equipment/technology. Chiyoda Chemical Engineering and Construction Company representatives had returned to Tokyo from Beijing on 16 October after initial negotiations to sell an oil refinery to the Chinese.49 The Chinese continued negotiating with ENI of Italy for a gasoline refinery and with the French firm Technip for a 2–3 million tonnes per year oil refinery and electronic petroleum prospecting equipment.50 A Chinese petroleum delegation was also scheduled to go to France in late November. The Chinese were making progress towards improving their steel industry – which would help them produce sheeting, piping and other equipment for developing their petrochemical and petroleum industries. In October Daido Steel Co. Ltd, of Nagoya, agreed to help upgrade Chinese electric furnace and converter techniques to international standards.51 In October/November ODW executive member and Mannesmann sales and export director Heinz Hufnagel visited Beijing to discuss plans for ODW chairman Otto Wolff von Amerongen’s visit to China in early 1964.52 The Chinese told Hufnagel that they hoped to purchase large diameter piping, semi-fabricated steel and especially machinery.53 Although Beijing wanted to negotiate a new SinoWest German trade agreement, Otto Wolff von Amerongen felt this was probably unnecessary to improve trade relations. Regardless, before approving such an arrangement, Bonn would require Beijing to sign a clause stating that Berlin should be under the FRG’s control.54 The Chinese also continued to negotiate with the AWB and the CWB and opened discussions with Argentinian and Mexican interests for crucial grain imports which the French were unable to provide. Beijing had purchased small quantities of Argentinian grain in 1962–3 – mostly barley, but the Argentinian military was unenthusiastic about Buenos Aires trading with Beijing. However, facing worsening balance of payments problems, Buenos Aires had complained to Washington several times since 1958 about US PL 480 exports cutting into ‘traditional’ Argentine export markets. The American grain lobby, already envious of Canadian, Australian, French and West German cereal exports to China, was watching closely developments in the Sino-Argentinian grain negotiations.

Intensification of China market rivalries 123 By early November US oil, grain and aircraft interests were among those with the most to lose from Washington’s inability to convince its allies to refrain from expanding trade with China. Cargill’s grain division had performed poorly between 1961 and 1963, while sales in 1962–3 were especially dismal. In late October 1963, after extensive investigations, Cargill’s main bank, the Chase Manhattan, which favoured Sino-American trade and was attempting to re-establish a Hong Kong office,55 tabled a commissioned report on the grain trading firm’s problems.56 Shortly thereafter, Cargill representatives spoke out in favour of trading with China.57 By the autumn of 1963, as the PRC aircraft market appeared ready to open up, the volume of US aerospace sales still had not increased. In early November Boeing was pressuring Washington to decide whether the firm should bother applying for US government export licences – required to sell PIA one 720B and three 727 medium-range passenger/transport jets valued at a total of US$22 million and spare parts worth another US$500,000. PIA was still interested in buying the low-cost 727B and 727 – lightened and shortened versions of the 707 – for establishing routes with stops in China. These aircraft had greater fuel capacity, unprecedentedly low-speed landing and takeoff performance compared to similar aircraft, making them ideal for smaller airports. The PIA also continued negotiations with Hawlker-Siddeley for the Trident and in early November, when Boeing–PIA negotiations reached a critical stage, Whitehall told Washington that Beijing was interested in purchasing ten De Havilland long-range Comet passenger jets.58 The French also continued negotiating to sell the Chinese helicopters and Caravelle aircraft. Although bargaining for the latter contract had not entered the final stages, Paris had decided to approve a deal as soon as replacements for the US components in the aircraft were installed.59 Then, on 5 November Edgar Faure returned to France after completing high-level meetings with Chinese officials. Were the French trying to negotiate a deal between the US and China? Would Kennedy consider letting the Caravelle negotiations proceed while sanctioning the PIA deal? Franco-Chinese aircraft negotiations may well have been a matter that de Gaulle would have raised with Kennedy when he visited Washington in March 1964, if not earlier. With US government debate about whether to approve the PIA deal reaching a critical phase, just as it appeared that FACR might be used to attempt to block Sud Aviation from selling Caravelle aircraft to China, some American officials probably wondered if there were not inherent contradictions in the application of US policy. Also the ‘China Lobby’ and their supporters in Washington were eager that the Kennedy administration not handle proposed Franco-Chinese Caravelle aircraft transactions in the manner that it had dealt with the Sino-British Viscount aircraft deal and the bunker fuel and vacuator pump incidents.

November 1963 to early February 1964 Meanwhile, as had happened previously when Sino-American tensions appeared to be lessening, on 1 November the PLA shot down another American-made espionage aircraft – a U-2 operated by the ROC air force.

124

September 1963–July 1964

Nevertheless, on 6 November, the day after Faure returned to France from China, Rusk sent Cabot a guidance paper in preparation for the next meeting of the Warsaw Talks, which reflected in a comparatively more concise and forceful manner the Kennedy administration’s growing eagerness to achieve a relaxation of tensions in Sino-American relations and in the Far East generally. Mutual renunciation of force, a willingness to discuss Zhou Enlai’s letter of 2 August and continued interest in exchanging news representatives were areas to be explored. Nevertheless, Rusk stressed that Washington would support the South Vietnam government until peace was established in that country.60 At the 118th meeting of the Sino-American Talks on 13 November Wang claimed that Chiang Ching kuo’s visit to Washington, US–ROC military and espionage operations – allegedly having violated PRC territory – and US military aid to India demonstrated that Washington’s China policy of ‘firmness without hostility’ was mere rhetoric. Although the Talks remained deadlocked after this meeting, Cabot felt that Wang’s rejection of the American side’s most recent offer to exchange news representatives ‘. . . appeared . . . less peremptory than usual’.61 Meanwhile, about 10 November ODW board member and DEMAG oil export division Director, Alfred Schultz, arrived in the PRC as a guest of the Beijing government. Prior to his departure there had been heated debate between DEMAG executives when some of the firm’s directors raised objections to trading with China. Schultz returned home feeling optimistic about possibilities for trade with China.62 Fritz Cordt and other West Germans visiting the Guangzhou Trade Fair about 15 November also found the Chinese eager to discuss Sino-West German trade prospects, but they were upstaged by the presence of representatives from 230 Japanese ‘friendly firms’.63 On 13 November Tokyo had announced details of the L–T negotiations, kept secret since late September. Chinese offers to purchase POL from Idemitsu in conjunction with the firm’s interest in selling its entire annual production capacity may have had a considerable bearing on its decision – announced in late November 1963 – to withdraw from the Petroleum Association of Japan. Between October and December the Chinese told the large number of Japanese trade delegations – representing the machine tool, chemical, iron and steel sectors – visiting the PRC that they planned to purchase more fertilizer production plants and between 2 and 3 million tonnes of chemical fertilizer annually.64 At that time the Chinese agreed to purchase very large quantities of galvinized rolled steel plates and tubing from Japanese firms.65 However, while Lu Xuzhang had previously told NITREX that Beijing would purchase 2 million tonnes of fertilizer from the cartel in 1964,66 it did not buy anything from the organization in 1964. Meanwhile, when President Kennedy was asked at a press conference on 14 November whether a resumption in Sino-American trade was possible, he replied that, if the Chinese showed that they wanted to live peacefully with the world’s nations, the US government would reappraise its China policy. He

Intensification of China market rivalries 125 said that Washington was not ‘. . . wedded . . . to a policy of hostility towards Red China’.67 Some observers took these remarks as more evidence of increased flexibility in Washington’s approach towards the PRC,68 although Kennedy had also emphasized that Beijing’s policies sought to create tension between nations. Then, on 18 November, as Sino-Western negotiations for POL and equipment and technology for China’s domestic petroleum industry reached a critical phase, President Kennedy offered to resume providing American aid to Indonesia if Sukarno would reach a peace agreement with Malaysia. This decision was probably unpopular with the US oil lobby which, since at least early 1963, was worried about how Sino-Indonesian economic collaboration might affect US oil interests in that country.69 On 20 November State Department officials appear to have taken a much firmer stance against the sale of Caravelle aircraft to China. Washington stressed to Paris that, even if cleared by COCOM, the US Treasury Department would try and block such a transaction because these planes contained many more advanced components of US-origin, produced under American licence by US firms, than those incorporated into Viscount aircraft. Washington’s position was that Caravelle SE 210-10B aircraft – which had greater thrust and payload than previous models, a range of 3,600 km, and a maximum speed of 835 km/hr – could be an important asset for the PRC to conduct subversive activities abroad. Also, once the Chinese obtained nuclear weapon production capability, Beijing could threaten to use the aircraft as a primitive delivery system. The Caravelle would not be an important military asset in a conflict involving NATO countries, but Washington was concerned that almost no military force in Asia possessed the equipment to detect and intercept this type of technology.70 While, it is not known why and who initiated the action, that same day when New York State’s Department of Social Welfare suddenly conducted a ‘field audit’ of the New York offices of Marvin Liebman Associates Inc. – which at least one researcher suggests played a key role in the pro-Taiwan Committee of One Million’s operations – it uncovered accounting procedure irregularities. It was recommended that the matter be forwarded to the New York Attorney General, but the final result of the investigation is unknown.71 Prior to becoming President, John F. Kennedy had been critical of the power which special interests groups, especially foreign ones, held in American politics. On 22 November, two years to the day after he had approved NSAM 111, President Kennedy was assassinated. Four days later, Boeing filed export licenses required to complete the PIA transaction.72 Then, on 6 December, Thomas Kerr, president of Kerr Grain Corporation, a Cargill subsidiary, and Vice-President of Portland, Oregon’s chamber of Commerce, told the Oregon Wheat Growers League’s annual meeting that US grain should not be given away and suggested that they try to send a trade mission to the PRC.73 Chase Manhattan Bank executives were also preparing to speak out in support of trading with the PRC74 after having re-established operations in Hong Kong on 29 November.75

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A FE bureau office of Northeast Asian Affairs memorandum of 9 October said that, when considering the proposed Boeing–PIA deal, it was important to ‘reach some balance between . . . [America’s] China policy and commercial and balance of payments requirements . . . .’ If the licence applications were rejected, PIA would probably turn, now and in the future, to Boeing’s competition abroad to purchase similar equipment.76 About that time, Under-Secretary of Commerce, Franklin D. Roosevelt Jr – whose family had a long-standing interest in the China trade and who was himself a close friend of the Kennedy family77 – stressed that it was important to US interests that the deal proceed.78 Then, on 11 December Washington officially approved Boeing’s application, after deciding that rejecting the application would ‘. . . work an unnecessary hardship on American business in the absence of any realistic prospect of advancing our . . . [China] policy interests . . . .’79 Although maintaining that its China policy remained unchanged, Washington decided that controls on exporting American aircraft to friendly nations were inconsistent with US policy and without precedent because under special circumstances, American goods were shipped to foreign consignees, for their own use, in Shanghai and Beijing’s diplomatic communities.80 Nevertheless, in a speech81 – not thoroughly read by Rusk who was hurrying to a NATO meeting in Paris and who was already preoccupied by recent reports that a Sino-French diplomatic rapprochement was imminent – to the Commonwealth Club at San Francisco, two days later, Roger Hilsman said that the US government was ‘. . . determined to keep the door open to the possibility of change, and not to slam it shut against our national good, serve the free world, and benefit the people of China . . . .’ His speech also seemed to imply that Washington was willing to consider permitting American trade with China, even though Beijing had made it clear that it was not interested in such economic contact because of alleged US hostility.82 The following day George Ball told American diplomatic posts abroad that Hilsman’s speech did not represent a new US China policy, but was rather a ‘. . . public presentation of assessment and thinking held for some time within the department . . . .’83 However, the State Department later concluded that the speech outlined generally ‘. . . a new view of the long-term . . . [Sino-American] relationship . . . [making] clear that our objective was the halting of direct and indirect Communist aggression rather than the destruction of Communism itself’.84 PRC radio broadcasts and a Xinhua commentary on 14 December emphasized the less friendly aspects of Hilsman’s speech. Not until mid-February did the Chinese reject Hilsman’s ‘open door’ initiative.85 Meanwhile, in late 1963, Italy’s economic and financial problems deepened. On 14 December, the day after Hilsman’s speech, the Italian firm Montecatini – experiencing financial difficulties and having recently received large infusions of capital from Royal Dutch Shell – agreed to sell the Chinese patents, technical assistance and training required to build and operate chemical fertilizer plants and related equipment for approximately US$20 million. Montecatini had also applied for a three year Italian government credit guarantee to facilitate the deal (see Table 6.1). Then, on 19 December the Chinese made their first major acquisition of Western oil refinery equipment/technology when they agreed to purchase

Intensification of China market rivalries 127 a 150,000–200,000 tonne p.a. capacity petrol refinery worth US$9 million from Societa Nazionale Metanodotti (SNAM-Projetti) – a private ENI subsidiary which handled engineering, construction and natural gas production. SNAM/ENI, which had beaten out other Japanese and West European interests for the contract, also asked Rome to provide a five year credit guarantee to facilitate the transaction. The equipment and technology was probably used for the construction of the Daqing refinery and the Beijing petrochemical plant (see Table 6.1). This initial petroleum equipment sale set the stage for China to obtain greater access to the considerable resources and technology of the ENI group – a development which was probably very worrying to American oil interests, the pro-Taiwan China lobby and its supporters in Washington. On 14 December the Joint Chiefs of Staff (JCS) had submitted a contingency plan, requested by the Department of State in mid-1963, for a conventional or nuclear weapons strike on PRC nuclear test facilities aimed at halting Beijing’s efforts to obtain a nuclear explosive device.86 Then, after completing another factfinding visit to South Vietnam, US Secretary of Defence McNamara submitted a report to President Johnson on 21 December emphasizing the need for renewed efforts in Laos, the need for covert action against North Vietnam and the fragility of the political situation in the South. ‘Phased Withdrawal’, which McNamara and General Taylor discussed in early October, was no longer considered to be an option because of the growing interrelationship between the situation in Vietnam, the instability of Laos and Cambodia and the worsening Indonesian–Malaysian conflict.87 Meanwhile, during November the AWB agreed to sell the Chinese another 1 million tonnes of grain, while the following month the CWB decided to provide them with another 500,000 tonnes (see Table 6.2). Also about that time, in order to help replace shipments which the French had been unable to send, the Chinese negotiated a three year credit grain agreement with private Argentinian interests. After signing initial contracts under the accord, the Chinese offered to purchase the grain, at a premium, directly from the Argentinian National Grain Board (ANGB), which responded by cutting off supplies to private domestic firms so that it could make the sales in 1964. Similarly, in late 1963 and early 1964 private firms which had signed contracts to sell the Chinese Mexican grain were unable to obtain enough supplies. CONASUPO – the powerful Mexican government price control agency, which answered directly to the country’s President, cut off supplies to the private trade when the Chinese offered to purchase the grain directly from the Mexican government. The Chinese were paying cash for most of the Argentinian and Mexican grain and accepting less favourable terms of trade than previously obtained from the CWB, AWB, the French and the West Germans. Meanwhile, in late November and early December, Zui Zhun and Lu Xuzhang told the British that the Chinese soon hoped to purchase up to ten chemical fertilizer production plants, worth about £3 million each and ‘a wide variety’ of industrial plants on credit terms from UK interests.88 During the last week of December, the Japanese announced that Chinese technicians would visit Japan in early 1964 to discuss Beijing’s plans to purchase the

CONASUPO (the Mexican Price Control Agency) CIRECO CWB CIRECO

November 1963– February 1964

19 February 1964

18 December– February 1964

ANGB CIRECO (includes at least one deal involving a private Argentinian firm) CWB CEROILFOOD

AWB CIRECO

November 1963

3 December 1963

Firms/organizations

Date

154,846: barley

988,000: wheat

533,400: wheat

450,000: wheat

1 million: wheat 142,247: oats

Quantity and variety

April–September 1964

1964

February–June 1964

1964

January–June 1964

Delivery

18 month credits: guaranteed by Canadian cabinet

18 month credits: guaranteed by Canadian cabinet 6 month credits

12 month credits: 10% cash, 20% in 6 months, 20% in 9 months guaranteed by the Australian government’s Commonwealth Trading Bank Cash

Payments (payments in sterling)

Table 6.2 PRC–Western grain agreements and contracts: November 1963–July 1964 (in tonnes; wheat and barley in trade grain weight)

AWB CEROILFOOD

CWB CEROILFOOD CWB CEROILFOOD AWB CEROILFOOD

April 1964

5 May 1964

7 May 1964 (approximately)

June 1964

152,407: wheat

356,000: barley

1,778,082: wheat

568,986: wheat

210,200: barley

September–October 1964

April–July 1964

May–December 1964

July–December1964

April–September 1964

18 month credits: guaranteed by Canadian cabinet 12 month credits: 10% cash, 20% 6 months, 20% 9 months, by the guaranteed Australian government’s Commonwealth Trading Bank 18 month credits: guaranteed by Canadian cabinet 18 month credits: guaranteed by Canadian cabinet 12 month credits: 10% cash, 20% 6 months, 20% 9 months, by the guaranteed Australian government’s Commonwealth Trading Bank

Sources: Table composed by author from: Mitcham op. cit., chapter 8; Various documents within: NAC: RG#20: vol. 819–820, file 10-33 (1963–4); NAA: 1804/28 201/12/1; NLA: MS 5049 (1963–4); NACP: RG#59: CFPF, S-NF 1963, box 3558 and 3635: INCO–WHEAT; JFKL: Thomson Papers, box 13; and CWB annual reports.

CWB CEROILFOOD

27 February 1964

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larger Japanese vinylon production plant (from Dai Nippon Spinning Co./Nichibo) under the L–T memorandum. The French were worried because they still had not concluded a major equipment contract with the Chinese. In mid-December, with rumours abounding that Paris planned to recognize Beijing diplomatically, Rusk was dispatched to the French capital. Relations between President Johnson and President de Gaulle had not got off to a particularly good start. Yet, in his State of the Union Address in early January, President Johnson spoke out in support of A world made safe for diversity in which all men, goods and ideas can freely move across every border and every boundary . . . . We must develop new ideas to bridge the gap between East and West . . . [,] facing dangers boldly wherever danger exists, but being equally bold in our search for new agreements which can enlarge the hopes of all while violating the interests of none. Then, on 11 January 1964 S.A. Melle and Société pour l’équipement des Industries Chimiques (SPEICHIM),89 of Paris – agreed to sell the Chinese a 2 million tonnes per year capacity butyl and ethyl hexyls alcohol plant for US$8.5 million. COFACE extended a five year credit guarantee to facilitate the deal. The plant would utilize gas from a domestic field or petroleum refinery to produce alcohol required for vinylon, plastics, organic pharmaceuticals and rubber (see Table 6.1). In mid-January Tokyo told Washington that it planned to permit Dai Nippon/Nichibo Co. to sell Beijing the large vinylon plant and related technology. Tokyo would not make a final decision on when to provide the necessary credit guarantee until it had evaluated the results of former Japanese PM Yoshida’s trip to Taiwan.90 In January the ROC government suspended its agencies’ purchases of Japanese goods and closed its Tokyo embassy to protest ‘the Ikeda statement’, the Zhou Hongjing case and the Chinese–Kurashiki rayon plant contract. When SBTC officials visited Beijing in January to discuss their plans to hold industrial fairs in China in June and November 1964, officials from MACHIMPEX, China National Metals and Minerals Import and Export Corporation (MINMETALS) and the ministries of coal mining, construction and machinery showed considerable interest in British mining and construction equipment.91 Then, in late January Paris told Washington that Sud Aviation executives wondered why the US government opposed sales of Caravelle aircraft to China when components on the COCOM list were incorporated in the Viscount aircraft purchased by Beijing. They felt that Washington’s only response to the Sino-Vickers deal had been ‘. . . “to get seriously concerned” over the matter’.92 However, Washington waited until 7 February to explain that while it may be unable to block the proposed Caravelle deal at COCOM it could instead through FACR, because of the large amount of equipment of US origin incorporated in the aircraft. Washington also insisted that it knew of no equipment incorporated into the Viscount which was of American origin or produced by US firms.93 Meanwhile, on 27 January Paris announced that it would extend diplomatic recognition to Beijing, and Taibei responded on 10 February by suspending

Intensification of China market rivalries 131 diplomatic relations with France. Washington also announced that it would continue supporting the ROC, South Vietnam and other countries threatened by the PRC. On 1 February Johnson also rejected de Gaulle’s proposal, made the previous day, for a South-East Asian neutrality agreement involving China, stating that ‘. . . the present course we are conducting there is the only answer . . . [and these] operations should be stepped up’. Yet, at the 119th meeting of the Sino-American ambassadorial talks on 29 January Ambassador Cabot had insisted that a breakthrough on the release of prisoners, an exchange of newsmen and the joint renunciation of force could be an important step towards creating the type of world which President Johnson envisioned in his recent state of the Union address. However, Ambassador Wang said that, although his side wanted a relaxation of tensions in Taiwan and the Far East, this would depend on Washington, not Beijing. While complaining about US trade and travel restrictions as well as American espionage aircraft, he also maintained that the Americans had offered nothing new and that China continued being the victim of US aggression.94 Another Chinese radio broadcast to Taiwan on 30 January 1964 emphasized that Hilsman’s 13 December speech reflected Washington’s declining support for Taibei – in the form of a ‘two-China’ policy.

Mid-February to May 1964 An article in the New York Times of 14 February, reported that David Rockefeller of the Chase Manhattan Bank had declared in Hong Kong that he favoured a resumption of Sino-American trade. Also in early 1964 director Alan Whiting of the US State Department’s FE section, Bureau of Intelligence and Research (INR) told Australian officials that the ‘China Lobby’ had lost all of its power and that the Committee of One Million was attempting to raise funds to cover its 1963 operating deficit.95 However, around this time China’s ‘readjustment’ movement suffered a serious loss when the 70-year-old PRC’s Minister of Foreign Trade, Ye Jizhuang, was permanently incapacitated by a stroke. Although Lin Haiyun took over as a permanent ‘Acting Minister’, Ye had been a key figure in financing the PRC’s grain purchases through its export drive and currency/bullion operations, especially through Hong Kong–Macau and South-East Asia. About the time of Ye’s stroke, Xie Shoudian and Li Chao-chih were appointed to leading positions at the Hong Kong branch of the Bank of China. The task of overseeing the PRC’s trade diplomacy had been a demanding one but Ye’s illness coincided with renewed efforts of ‘leftists’ within the leadership, to convince PRC officials to place a greater emphasis on ideological work. PRC foreign grain imports totalled over 6 million tonnes in 1963 – more than 1 million tonnes above the upper limit recommended by Chen Yun in 1962. There were also signs that the ‘readjusters’ planned to import even more grain in 1964, which must have worried ‘leftist’ leaders. During a visit to Taiwan in February, Yoshida promised Taibei that Tokyo would not extend Ex–Im Bank credits to finance trade with the PRC. This agreement was

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later confirmed in a document, subsequently known as ‘the Yoshida letter’, which Yoshida sent to the ROC government. Although he had not been a government official when conducting these negotiations with the ROC government, the document was considered binding.96 Nevertheless, Tokyo was concerned that Beijing would respond by expanding its business contacts throughout Western Europe from their Paris embassy.97 On 19 February the Chinese launched an attack in Renmin Ribao on Hilsman’s 13 December 1963 ‘open door’ speech. Then, at a world affairs conference on 25 February, Rusk accused Beijing of pursuing aggressive policies abroad and criticized China for not retreating from its position on Taiwan at the Warsaw Talks. By this juncture, prominent Kennedy administration officials such as Roger Hilsman began leaving the government or continuing on in much less influential positions – like Harriman, who was moved back to ambassador-atlarge. Such moves probably interfered with easing Sino-American tensions. The West Germans increasingly wondered why they were expected to adhere strictly to China trade controls when other Western-aligned governments were guaranteeing long-term credits to enable the Chinese to buy equipment and technology. The establishment of Franco-Chinese diplomatic relations contributed to West German concern that they might be falling behind other Western competitors in the Chinese market. After Otto Wolff von Amerongen and Krupp representatives returned home from China in early 1964, West German industrialists increased pressure on Bonn to conclude a Sino-FRG trade agreement and establish reciprocal trade offices.98 By February, the prognosis for French and British trade with the PRC was less optimistic than it had been just a few weeks earlier. Following French recognition of the PRC government, Paris remained unable to sell Beijing Caravelle aircraft, provide credits of more than five years to finance an expansion of FrancoChinese trade or engage in barter trade with Beijing. The Sino-French grain trade remained suspended and it would be another eight months before both sides concluded another major equipment deal. Then, on 11 March Rusk told Australian officials that if Defence Secretary McNamara’s fact finding mission to Vietnam found evidence of increased Chinese activities there, Washington might ask Ottawa, Canberra and Buenos Aires to tell Beijing that future wheat sales would depend on the PRC ceasing interference in South-East Asia.99 However, Canberra was sceptical of the proposal and said it would first need to make its own evaluation of the extent to which the PRC was responsible for and involved in the Vietnam conflict; whether all other Western wheat suppliers would agree to stop grain sales, or the extension of credit facilities to China; how effective a grain embargo might be in influencing Chinese actions; whether other goods would also be embargoed; the effect of the China trade restrictions on the Australian economy; and the long-term effect that grain trade controls could have on Sino-Australian commercial and political relations and Australia’s image in Asia and Africa.100 The ‘readjusters’ continued to bring in reinforcements to help fill the power vacuum resulting from Ye Jizhuang’s illness. In March, Xiao Fangzhou was

Intensification of China market rivalries 133 appointed CCPIT Vice-Chairman. In April, Jia Shi and Zhou Huamin, Deputy Head of a trade delegation to Osaka the following month, were appointed Vice-Ministers of Foreign Trade while Chen Ming was appointed commercial councillor at the PRC embassy at Paris. In early 1964 during negotiations on their 1965 trade agreement the Russians – already concerned about the marked reduction in Soviet exports to China – found the Chinese unenthusiastic about trade with them. Moscow was disappointed that Beijing had not offered food products and minerals, while Chinese officials had again concluded that Soviet equipment was generally ‘. . . heavy, old, expensive, and complicated’.101 However, when during the first half of 1964 problems developed in China’s trade with Japan, and the Chinese became irritated with the slow pace of Sino-Western aircraft negotiations, there was a slight revival in Sino-Soviet trade. As the Vietnam conflict deepened during 1964, aircraft sales improved and it became much more difficult to find bargains on Western aircraft. Negotiations for air agreements with Western countries – a prerequisite to Beijing purchasing Western long-range jets – also proceeded slowly. On 12 April the PIA had opened an office in Shanghai and on the 29th the Pakistani airline opened a once weekly route from Dacca to Guangzhou to Shanghai (later twice weekly: Karachi–Dacca–Shanghai and Karachi–Colombo–Guangzhou–Shanghai), which linked up with domestic flights.102 However, the PIA cancelled plans to extend its routes through China on to Tokyo after Washington persuaded the Japanese government to deny the Pakistani airline the necessary landing rights. Tokyo also rejected ANA’s request to operate unscheduled flights between a Southern Japanese city and Shanghai.103 On 19 May 1964, following on the heels of the Sino-Cambodian air agreement of the previous year, Royal Air Cambodge (49 per cent owned by Air France) began operating a weekly return flight a on 64 seat DC-4 aircraft, from Phnom Penh to Vientiane–Hanoi–Guangzhou/Kunming.104 However, Franco-Chinese air agreement talks during 1964, under which Air France hoped to establish a Karachi–Rangoon–Shanghai–Beijing return route, also proceeded slowly. Thus, CAAC’s deputy director told British officials in late March or early April that they had lost interest in Western long-range jet aircraft and planned to buy the Soviet IL-62 long-range jet instead.105 The Il-62 was scheduled to come online in 1966, would cost about the same as the VC-10, could carry 186 passengers and had a range of 4,160 miles making it ideal for flights to Moscow from suitable Chinese airports. As Chinese–Western aircraft negotiations ran into difficulty, the Chinese decided to attempt to purchase, under their 1964 trade protocol, more semiobsolescent Soviet-made IL-18 jetprop passenger aircraft. Although more expensive than the Viscount, the IL-18, with a range of 1,800 miles and a capacity of less than one hundred – was considerably cheaper than passenger jets. Most of China’s fleet of five IL-18s, purchased in 1960 – three for civilian use and twos, for the PLA – had been immobilized as Sino-Soviet relations deteriorated and the Chinese began having trouble obtaining parts to maintain the aircraft.

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The CAAC’s air service to Ulan Bator and Irkutsk on this aircraft had been reduced to a fortnightly service.106 A Sino-Afghan air agreement had been concluded in early 1963 and the Chinese hoped to obtain permission from the Afghan government to establish air routes, using IL-18s, from Sinkiang to Kabul, Kabul–Rawalpindi, and Kabul–Kandahar–Karachi.107 Under the 1964 Sino-Soviet trade protocol, announced on 16 May 1964, Moscow agreed to sell Beijing more Il-18s and on 2 June Tass reported that China had purchased five more of these aircraft for US$11.7 million as well as 30 spare engines worth another US$3.8 million.108 Meanwhile, at the 120th meeting of the Sino-American ambassadorial talks on 8 April, the Americans expressed interest in taking steps towards achieving a relaxation of tensions in the Far East. This was Wang Bingnan’s final meeting, as he was promoted to Vice-Minister of Foreign Affairs that same month. During the discussions, he handed Cabot a draft of a proposed joint announcement stating that both sides agreed to coexist peacefully on the basis of the five principles first proposed at Bandung. It called for both sides to settle disputes through peaceful negotiations and for the US to withdraw all of its armed forces from the Taiwan region. The talks remained deadlocked as the Americans considered the proposal preposterous.109 Nevertheless, on 16 April when Chiang Kai-shek attempted to enlist US support for a plan to airdrop ten units of 5,000–10,000 men to provoke antirevolutionary activities in Yunnan, Guangxi and Guangdong and sever PRC supply lines to Vietnam, Laos and Burma, Rusk told the ROC leader, that because the world was in a state of great change and uncertainty, his proposal was unfeasible without Washington’s support and possibly without the use of nuclear weapons, which could draw in the USSR.110

May to July 1964 On 3 May, Chinese Foreign Minister Chen Yi said that only Washington, which refused to recognize Beijing or withdraw its forces from Taiwan, could initiate an improvement in Sino-American relations. US Secretary of Defence McNamara announced on 12 May that the US was preparing for a long war in Vietnam and would send more fighter planes there immediately. Then, on 18 May President Johnson asked the US Congress to provide US$125 million in economic and military aid for South Vietnam. Meanwhile, as China’s economic problems deepened in 1964, Beijing seized the opportunity to pressure Rome to recognize the PRC diplomatically and negotiate a Sino-Italian reciprocal trade office agreement by placing large equipment and technology orders with firms from other Western countries. By May, it had been eight months since the Chinese had agreed to purchase a complete plant from Japan. Powerful Japanese domestic business interests were pressing Prime Minister Ikeda to emulate other Western-aligned governments and extend long-term credits for equipment and technology exports to China. This pressure was increased in May when a Japanese ‘friendly firm’ agreed to sell the Chinese a 1,100 m3/h capacity dry process acetylene generating plant valued at

Intensification of China market rivalries 135 US$300,000 – presumably making it less urgent to complete the proposed large vinylon plant contract with Dai Nippon/Nichibo. This would produce uryl acetate which, along with the output from another plant which the Chinese planned to purchase, would raise the capacity of the Kurashiki vinylon plant by more than 16 tonnes per day (see Table 6.1). Dai Nippon/Nichibo Co. continued lobbying Tokyo to extend a long-term Ex–Im Bank credit guarantee to enable it to sell the larger vinylon plant to the PRC. Then, on 27 June, Japanese L–T representatives reached an agreement with the Chinese government to exchange trade representatives – a development which immediately drew strong protests from Washington and Taibei. In early July, just as it appeared that the Ikeda government was reconsidering its position on Tokyo’s involvement in the China trade, Beijing suddenly agreed to purchase its first West German industrial plant – a perlon nylon synthetic fibre plant worth US$1.75 million from F. Uhde of Dortmund. The signing of this contract at that particular moment increased pressure on Prime Minister Ikeda to re-examine his position on Ex–Im Bank financing for the China trade. As had happened frequently before when Sino-Western/Japanese trade appeared ready to opened up, on 7 July, the PLA shot down another US made espionage aircraft – a U-2 operated by the ROC air force. Events in Vietnam also continued working against a change in Tokyo’s policy towards Beijing. Chinese Foreign Minister Chen Yi warned on 6 July, that any attack against North Vietnam would threaten China’s security and would result in an active Chinese response. On 14 July Washington said that it would send 600 more military advisors to South Vietnam and, on the 27th, it announced that the US would send 5,000 more soldiers to Vietnam, bringing the total of US troops there to 21,000. Yet, also on 27 July Xinhua and representatives of the Frankfurt-am-Main based Gesellschaft Fuer Mineraloeltechnik AG (Lurgi AG) announced that China had agreed to purchase a 50,000 tonne p.a. capacity oil cracking and olefin separation plant (ethylene cracking/oil processing and fractional distillation and separation of hydrocarbons) for US$12.5 million. The contract was facilitated by six month credits. The plant was scheduled to be built at Lanzhou. This was probably Beijing’s first purchase of a Western cracking unit and extraction plant – equipment that would produce a wide range of petrochemicals, especially plastics (see Table 6.1). In mid-July James C. Thomson and Ed Rice suggested that, with the appointment of Wang Guoquan as the new PRC ambassador to Poland, it was an opportune moment for Washington to attempt to raise the tone of the SinoAmerican ambassadorial talks in a manner free of polemics by clarifying their position on South-East Asia.111 However, at the 121st meeting of the Warsaw Talks on 29 July, although Wang Guoquan maintained that Beijing wanted to go all out to achieve a peaceful solution to Sino-American differences, the Talks remained deadlocked as he followed the same basic line as his predecessor.112 On that same day, the Italian government announced that it was considering entering a reciprocal trade office agreement with the PRC. Nenni’s Socialists were also pressuring Prime Minister Aldo Moro’s Christian Democrats and

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the Partito Socialist Italiano (PSI) to recognize the PRC diplomatically. Taibei immediately complained to Washington about these developments, suggesting that, if Italy’s economic relations with the ROC could be expanded, it might curb Rome’s enthusiasm for Sino-Italian trade. Washington, unwilling to provide the necessary financial aid to make this viable, soon received assurances from Rome that the Italians would not conclude a trade office agreement with Beijing immediately. Maintaining that it would definitely not recognize Beijing at that time, Rome however said that, if the British Labour Party were elected to power on 15 October, it might seek London’s support to pressure Washington to accept Italian diplomatic recognition of China. Regardless, Rome emphasized to Washington that it did not want to recognize the Beijing government in the manner that Paris had done: ‘. . . as a stick to beat the US’.113 By this juncture, despite the improvement in ROC–Japanese relations, Taibei was also concerned about how Ikeda would respond to growing domestic pressure on Tokyo to facilitate Japanese plant exports to China. On 30 July, newlyappointed Japanese Foreign Minister Shiina told Taibei that, although the Ikeda government prohibited long term Ex–Im Bank financing of Sino-Japanese equipment deals, Dai Nippon/Nichibo would still try to find a way to sell the Chinese a vinylon plant.114 However, in early August as Beijing’s trade diplomacy with non-Communist countries achieved impressive results, events in Vietnam led Washington to place even more pressure on its allies to re-examine their economic relations with the PRC.

Part IV

August 1964–October 1965

7

The ‘Third Front’, Vietnam and China’s foreign trade, August 1964–February 1965

. . . it was equally dog-eat-dog among . . . Western competitors, and this extended to the individual firms of the same nationality, thus putting the Chinese in a highly advantageous bargaining position, which they employed skilfully. (French Commercial Counsellor Robert Richard, Beijing to US Consulate officials, Hong Kong, August 1964) [Beijing] finds itself in a position in which efforts for [diplomatic] recognition are no longer necessary. It is . . . doubtful whether Mao would be very pleased if . . . [the PRC was] accepted into the . . . [UN] at present. Manoeuvring in political no-man’s land, these new commercial contacts offer a good possibility for China to achieve a status . . . [unattainable] by diplomatic skill. (Remarks by an Austrian official, autumn 1964)

2 August to late October 1964 On 2 August 1964 North Vietnamese torpedo boats attacked US warships in the Gulf of Tonkin. The US responded on 5 August by bombing North Vietnam. These developments signalled a worsening of the Vietnam conflict and an escalation of US involvement there. That same day Beijing proposed to Hanoi that they collaborate more closely to meet the American threat. Then, in mid-August, Mao told the Secretariat of the CCP Central Committee that PRC economic planning should focus on preparing for war. Mao felt that, because China’s industries were located mainly on the coast, the PRC was economically vulnerable to sudden attack. He suggested that some factories be relocated to the interior to build a second and third line of industrial bases. When initiated in late 1964 and early 1965, the emphasis of China’s economy changed from agriculture and light industry to heavy industry and industrial endeavours which could strengthen the PLA. Also, in response to the developments in Vietnam, the Chinese began rapidly building three new railway lines – the Chengdu–Kunming line, the Sichuan– Guizhou line and the Yunnan–Guizhou line. Meanwhile Sino-West European economic relations continued to develop. On 10 August a third Western industrial fair – an Italian Medical Apparatus and Optical Instruments Exhibition – was held in Beijing. Senator Vittorelli returned

140

August 1964–February 1965

to Italy with a draft reciprocal trade office agreement drawn up by CCPIT and the Italian National Foreign Trade Institute (ICE) – a semi-autonomous affiliate of the Italian Ministry of Foreign Trade. Vitorelli, with the support of the PSI, subsequently pressured Rome to ratify the document. When Washington expressed concern about the agreement, Italian Foreign Minister Saragat – in charge of a Ministry divided over China policy – said that although ‘Italy had little direct material interest in . . . [Vietnam], . . . spiritually they were in close sympathy with . . . [US] attitudes . . .’. He added that the signing of any Sino-Italian trade agreement would be delayed at least until after the US Presidential election, scheduled for 3 November 1964.1 By mid-August 1964 Dai Nippon/Nichibo had nearly reached an agreement to sell China a vinylon plant. With Japan’s steel industry saddled by overcapacity and mired in recession, Japanese steel firms were increasingly receptive to Chinese offers.2 Taibei became very concerned when Tokyo announced that it would focus on separating political and economic issues when dealing with Beijing. Both Washington and Taibei responded by asking Tokyo not to extend Ex–Im Bank credit guarantees to finance Sino-Japanese credit deals.3 In late August, as Tokyo came under fire from pro-China L–T traders on one side and the US and ROC governments on the other, Beijing was increasing efforts to acquire modern transportation and construction equipment/technology for economic development and national defence. The Chinese suddenly began placing greater emphasis on the ‘friendly firm’ trade by opening negotiations with Mitsubishi Heavy Industries Ltd (MHI) to purchase power shovels and with Komatsu for heavy-duty Caterpillar bulldozers – equipment not produced in China. MHI, which relied on US technology acquired through joint ventures, had only recently resumed operations after having ceased to function after the Second World War. Beijing had purchased Komatsu bulldozers in 1958, and the Japanese firm (which also relied on several technology and joint venture agreements with American firms) had recently implemented a plan to outsell the US company, Caterpillar, which had been the world’s leading heavy equipment producer for many years. Although the Chinese maintained that the equipment was needed to expand China’s agricultural land area, it was probably also required for rapid highway/railway/airfield construction in Xinjiang, Sichuan and southwestern China, for work at the Daqing oil fields and for land reclamation in the low-lying Shengli oilfields near Tianjin. Since 1960 the Chinese had purchased more than 700 trucks from the French firm Berliet, and during 1963 Zhou Enlai had visited the firm’s plant near Algiers. In China trucks were the preferred method of transporting and distributing commodities such as grain, petroleum and consumer goods to rural areas.4 Trucks were also vital in various construction projects, and the PLA utilized a wide variety of these vehicles. During September 1964, as the Chinese continued truck negotiations with Renault of France and Leyland and the Roots Group of the UK, Beijing agreed to purchase sixty more Berliet heavy trucks – this time from its Bourg-en-Bresse factory.5

Vietnam, trade and the ‘Third Front’ 141 Between 5 and 25 September France’s first trade exhibition was held in China.6 However, French embassy officials in Beijing were disappointed that, despite all the trade negotiations in the Chinese capital, not even one major Franco-Chinese equipment contract had been signed since March.7 On 1 September, as a series of Sino-French equipment negotiations reached a critical stage and the Chinese-Dai Nippon vinylon plant negotiations remained stalled over the Ex–Im Bank credit issue, the UK firm, Simon Carves, in association with Imperial Chemical Industries (ICI), agreed to sell China National Technical Import and Export Corporation (CNTIC) a 24,000 tonne per annum high-pressure polyethylene plant valued at US$12.6 million. By that time, ICI – the inventor of polyethylene and the largest producer of this chemical in the UK – had become frustrated by America’s growing dominance in polypropylene and polythene export markets.8 Thus, Simon Carves agreed to supply, design, build and operationalize the plant at Lanzhou while ICI would supply the ‘know-how’.9 When completed by 1966, it was to utilize ethylene produced at the Lurgi AG olefin separation plant (see Table 7.1). The British government’s ECGD agreed to provide a five year credit guarantee to finance the deal. Shortly after this Sino-British deal was concluded, Japanese officials admitted to their American counterparts that TEC (or Mitsui) would finally sell the Chinese a 100,000 tonne per annum capacity urea production plant for US$5 million during the first half of 1965.10 Dai Nippon/Nichibo Co. also agreed to sell the Chinese a vinylon plant but, because it was valued at US$26.5 million, the contract hinged on the Ex–Im Bank providing a five year credit guarantee. However, by late September Japanese Prime Minister Ikeda’s sudden hospitalization diverted attention away from policy issues. With continued uncertainty about the future of Sino-Japanese L–T trade, the Chinese made overtures towards the smaller market West European countries. For several years the Austrians had maintained contact with PRC commercial officials in Berne, but during 1964, as Vienna became more concerned about the Austrian economy, they became increasingly aware of Beijing’s trade diplomacy through the PRC embassy at Paris. Although they possessed relatively small capital compared to some of their Western European neighbours, and thus could provide only limited credits to finance the China trade, the Austrians were interested in recent developments in Sino-West German trade and Beijing’s efforts to buy steel and steel production/processing technology. Although Vienna officially remained neutral concerning political and economic relations with Beijing, it allowed an Austrian delegation – which included Vice-President Kommerzialrat Seidl of the Austrian Chamber of Commerce – to visit China in late September and early October for trade talks with CCPIT.11 On 22 September, about the time that the Austrian delegation left for China, Otto Wolff von Amerongen and other West German industrialists were urging Bonn to negotiate an official Sino-FRG trade agreement and offer long-term credit guarantees so that West German exporters could catch up to other Westernaligned countries in the Chinese industrial plant market. Although US officials

#17 October 1964 #18 November 1964 #19 November 1964 (indirectly associated with contracts #11 and #13)

#15 September 1964 #16 October 1964

Berliet (France) CNTIC Delmas Vieljeu (France) CNIEC/COSCO Berliet or Sercel (France) CNTIC Tokyo Precision Co. (Japan) CNTIC High Polymer and PetroChemical Engineering Ltd (UK) (a VickersZimmer subsidiary) CNTIC

Nichibo Co. (Japan) CNTIC

Delmas Vieljeu (France) CNIEC/China Ocean Shipping Company (COSCO) Simon Carves (UK) CNTIC

#12 August 1964

#13 3 September 1964 (indirectly associated with contracts #11 and #19) #14 September 1964

Firms/organizations

Date (contract # since 30 November 1961)

Polypropylene production plant To produce resin and fibre products in conjunction with the Lurgi AG olefin separation plant

Micrometer plant Built at Lanzhou

10,000 tonnes

Ocean freighter Oil rig(s)

60

25,000 tonne p.a. Built at Lanzhou

10,000 tonnes

Capacity, location, quantity

Heavy trucks

High pressure polyethylene plant and releted ‘know-how’ To utilize ethylene feedstock from the Lurgi AG olefin separation plant Vinylon fibre plant

Ocean freighter

Equipment/technology

Table 7.1 Major PRC equipment contracts with Western and Japanese firms: August 1964–February 1965

US$7.3 million 5 year government guaranteed credits Contract cancelled in 1968

US$4.86 million 5 year credits US$840,000

5 year credits

US$25.85 million PRC government cancelled contract

US$12.6 million 5 year British government ECGD government credit guarantee

5 year credits

Cost and financing

William Doxford & Sons (UK) CNIEC/COSCO London Overseas Freighter Ltd (UK) CNIEC/COSCO Japanese firm CNTIC

#21 January 1965

Mitsubishi Heavy Industries Ltd (Japan) CNTIC

#25 early 1965

Power shovels

Polyvinyl alcohol plant which combined with the dry process acetylene plant purchased in May 1964 (see Table 6.1) helped to raise the output of the Kurashiki rayon plant (see Table 5.2) by more than 10 tonne p.a. Oil pressure hydraulic equipment manufacturing plant

Ocean freighter

150 hp heavy-duty caterpillar bulldozers Scrapers excluding motors 115 hp motor graders and spare parts Ocean Cargo vessel

Built at Yu Zi in Shanxi Completed by December 1966

10,000 tonnes

550 80

870

US$4.4 million

US$3.9 million

US$865,000

£1 million

US$7 million

US$19.4 million

Sources: Table composed by author from information within the LBJL: NSF: (especially: country file, memos, box 241, vol. IX, 3/67–6/67, CIA memorandum, 6 June 1966; box 240, CIA report, vol. VII, 3/66–9/66, 18 April 1966); NACP: RG#59: CFPF, S–NF 1964–6, box 700, STR 12–3 CHICOM–FR and E 2-2 CHICOM; box 701, STR 12-3, CHICOM–UK and E 2-2 CHICOM; box 993, FT E CHICOM–JAPAN; box 1423, STR 12-3 CHICOM–JAPAN, STR 12-3 CHICOM–UK; ‘Vickers Ltd. Annual Report, 1964’, p.25; various FEER articles and reports between 1963 and 1966 (such as Bondy, P., ‘Plant Clues’, FEER, 5 November 1964; Close, A., ‘Down to Earth’, FEER, 8 December 1966); Szuprowics, op. cit., passim; Williams, op. cit.

Yuken Kogyo (Japan) CNTIC

#24 February 1965

#23 early 1965 (associated with contract #2)

#22 January 1965

Komatsu Manufacturing Co. (Japan) CNTIC

#20 November 1964

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were shocked that these business leaders made little mention of the political implications of such trade, less than one month remained until the annual meeting of the Ost Asiatischer Verein of Hamburg (on 16 October) at the Chamber of Industry and Commerce in Duesseldorf. Ernst Schneider, president of the National Chamber of Industry and Commerce, Walter Scheel and representatives of Far Eastern countries were expected to attend.12 During September and October Communist Party of China (CPC) Central Committee policy continued emphasizing politics, with the Socialist education movement in the countryside being a major focus.13 There was a deterioration in the tone of the Sino-American ambassadorial talks (the 122nd meeting) on 23 September when the Chinese complained aggressively that Washington’s statements about achieving peace were inconsistent with US government actions. They maintained that Washington had fabricated the Gulf of Tonkin incident as a pretext to escalate the Vietnam War and that on 18 September it had used the same tactics to create a second Gulf of Tonkin incident.14 On 30 September Xinhua announced the signing of a Sino-North Vietnamese trade protocol for 1965. In addition to the usual Chinese exports such as rolled steel, machinery, medicines and consumer goods, the new agreement provided for a considerable increase in trade over the previous year, with cotton, coal, chemicals and rubber tires to be sent to North Vietnam for the first time.15 After conducting their first atomic test explosion on 15 October, the Chinese announced that the PRC would never be the first to use nuclear weapons and called for a conference, including all nations, to discuss a ‘complete prohibition and . . . destruction of nuclear weapons’. The test contributed significantly to Beijing’s international status16 and placed the Belgian and Italian governments under even more pressure to vote for the PRC’s admission to the UN. Belgian Foreign Minister Spaak was concerned that he might be unable to prevent a Belgian vote to admit the PRC in 1964. He was certain that Belgium would vote for PRC admission to the UN in 1965.17 After gaining power by a narrow margin in the UK election on 15 October, Harold Wilson’s minority Labour government was immediately faced with a massive sterling crisis which it halted by borrowing heavily from the IMF and by placing a 15 per cent surcharge on imports. Then before leaving in late October to open Britain’s third industrial exhibition in Beijing – the largest ever held by a Western firm in the PRC – Douglas Jay, the new president of the British BOT, was outspoken in his support for increasing British trade with both China and the USSR to help balance the UK’s trade deficit.18 The exhibition was sponsored by CCPIT, the British BOT, members of the Association of British Chambers of Commerce, the China Association, Federation of British Industries, the London Chamber of Commerce and the SBTC.19 About that time, as a French petroleum delegation toured China, Beijing agreed to purchase used petroleum exploration equipment from Sercel and ‘stateof-the-art’ oil exploration devices (which included oil rig equipment), developed by French engineers in the Algerian oilfields, from Berliet for US$4.86 million (see Table 7.1).

Vietnam, trade and the ‘Third Front’ 145 Also in October the Chinese agreed to purchase two vessels (at least one of which was a 10,000 tonner) from the French firm Delmas Vieljeu, which had secured a five year credit guarantee from COFACE and drastically reduced prices to facilitate the deal.20 Another indication of Paris’ efforts to develop closer ties with China was that, on 30 October, de Gaulle sent Zhou Enlai a message stating that France, the only nuclear power beside China not to sign the 1963 test ban treaty, would be willing to enter into any serious negotiations which included all the world’s nuclear powers. Meanwhile, on 27 October the Austrian government approved a reciprocal trade office agreement – drawn up by CCPIT and the Austrian Chamber of Commerce. Although the agreement was expected to be signed in December and

Table 7.2 PRC–Western grain agreements and contracts: August 1964–February 1965 (in tonnes; wheat and barley in trade grain weight) Date

Firms/ organizations

Quantity and variety

18 September 1964 (announced)

ANGB 400,600: wheat CEROILFOOD (part of a one year ANGB– CEROILFOOD deal announced in April 1965) 23 October AWB 1,270,000: 1964 (reported CEROILFOOD wheat in press) (6 month agreement) First contract under deal signed covering 254,000: wheat 10 December 1964

21 January 1965

Louis Dreyfus/ 1 million p.a. Goldsmith grain (3 year CEROILFOOD agreement) First contract under deal signed: 356,000: wheat CWB 61,000: wheat CEROILFOOD 20,321: wheat

21 January 1965

CWB 406,419: wheat CEROILFOOD 325,135: wheat

Delivery

Financing

Late 1964

Cash

December 1964–June 1965

12 month credits: (10% cash, 20% in 6 months, 20% in 9 months) guaranteed by the Australian government’s Commonwealth Trading Bank 18 month credits (COFACE guarantee)

1965–7 (agreement cancelled by French in January 1965) February–June 1965 February–June 18 month 1965 credits guaranteed by Canadian cabinet February–June Cash 1965

Sources: Table composed by author from information within: NAC: RG#20: vol. 819–20, file 10-33 (1964–6); NAA: 1804/28 201/12/1; 1838/272 37/1/4/3, pt. 1; NLA: MS 5049, 1964; NACP: RG#59: CFPF, S–NF 1964–6, boxes 700-1, 3558, 3635 INCO–WHEAT; CWB annual reports.

146

August 1964–February 1965

would be effective until 30 June 1966, Vienna denied that it represented a move towards the establishment of Sino-Austrian diplomatic relations.21 At this time the Chinese were preparing for crucial negotiations with the Canadians, French and Argentinians to secure more grain for the first half of 1964. CIRECO had already agreed, on 18 September, to purchase 300,000 tonnes of Argentinian grain on cash terms from the ANGB and at least the same amount in both 1965 and 1966.22 Then, on 23 October, the Chinese agreed to purchase about 1.27 million tonnes of wheat from the AWB between December and June (see Table 7.2), although they still needed to import considerably more grain during the first half of 1964.

Late October to November 1964 However, in late October, Beijing’s trade and economic strategy was dealt a serious blow when poor health forced the resignation of Japanese Prime Minister Ikeda. Ikeda’s successor, who gained power on 9 November, was Sato Eisaku who – like his brother, the former Japanese Prime Minister Kishi Nobusuke – favoured closer relations with the US and Taiwan.23 Officials in the Japanese Foreign Office and Cabinet Research Council Office felt that Beijing had begun attacking Sato even before he became Prime Minister in an attempt to prevent him from taking steps at the UN which might be detrimental to Chinese interests. They believed that the Chinese hoped to force Sato from office, creating divisions within the LDP government by postponing the execution of trade agreements negotiated with Japanese interests and blaming the Japanese Prime Minister’s policies for the delay. On 3 November President Johnson was elected with the largest share of the vote in the history of US presidential elections. At this time an improvement in Sino-Soviet relations appeared unlikely as a CCP delegation, led by Zhou Enlai, which met Brezhnev and other Soviet leaders at the 47th anniversary of the October Revolution in Moscow between 5 and 13 November, found that the Soviets ‘. . . still persisted in their great chauvinism, declaring that their China policy remained the same as Khruschov’s [sic]’.24 During opening ceremonies for the British industrial exhibition on 2 November, Nan Hanzhen criticized US government efforts to prevent non-Communist nations from developing trade with China. More than 270 British companies exhibited approximately £1.1 million worth of state-of-the-art construction equipment, agricultural and industrial machinery, tools and engineering equipment. Firms in attendance provided information on their complete industrial plant processes, and UK representatives gave forty technical lectures to 100,000 individuals whom the Beijing government had selected from MACHIMPEX and the Chinese engineering and scientific community.25 After it closed on 14 November, British officials concluded that the exhibition increased Britain’s knowledge of Chinese requirements and was an important step in developing Sino-British trade.26 Nevertheless, during the fair the Chinese said that Britain should remove its COCOM restrictions and import more Chinese textiles. CCPIT Vice-Chairman,

Vietnam, trade and the ‘Third Front’ 147 Yong Longgui, also emphasized that the development of Sino-British trade would depend on better political relations between the two countries.27 Hoping to keep the pressure on Tokyo to develop Sino-Japanese economic relations, Xie Shoudian told the Tokyo correspondent of the British Financial Times during the British industrial exhibition that the Chinese were waiting for the UK government to approve a contract to sell them six VC-10 aircraft.28 However, for reasons mentioned earlier, there was little chance of such a deal proceeding at that time. In November the Chinese agreed to purchase a ‘state-of-the-art’ polypropylene polymerization and fibre plant worth US$7.3 million from the Vickers-Zimmer Ltd subsidiary High Polymer and Petro-Chemical Engineering Ltd. Apart from a pilot plant in Frankfurt, only two other similar plants existed in the world – one in the US and one in Argentina. ECGD had agreed to provide another five year credit guarantee to finance the deal. Vickers-Zimmer engineers were to oversee building of the plant at Lanzhou, China’s growing petrochemical centre. It would produce resin and fibre, using products from the olefin separation plant which the Chinese had agreed to purchase from Lurgi AG in July 1964 (see Table 7.1). A growing number of influential Japanese officials already believed that West European nations were selling items on the COCOM list to China, and JCEIA planned to press harder for a relaxation of COCOM restrictions on Japanese exports to China. On 12 November Kaheita Okazaki announced that the JCOTLC would ask Sato to sign a government trade agreement with China ‘as soon as possible’.29 However, Sino-Japanese relations had started deteriorating again after Tokyo denied Peng Zhen a visa to attend the Ninth Congress of the Japanese Communist Party (JCP) (25–30 November). When Beijing responded by postponing Chuji Kuno’s, a Sato faction member of the LDP and Diet group member, scheduled visit to China in December, Prime Minister Sato sent Kenzo Matsumura to the Chinese capital to explain that the denial of Peng Chen’s visa should not have been interpreted as evidence that Tokyo was hostile towards Beijing.30 Nevertheless, the Chinese responded by placing more of their large equipment orders with Western European rather than with Japanese firms.31 Also, in November, prior to the JCP Congress, the Chinese suddenly decided to accept the Italian Communist Party’s (ICP) open invitation, made in April, to visit Italy. Campaigning leading up to the Italian municipal elections, to be held on 22 November, was under way and the ICP was concerned that the presence of Chinese officials in Rome at this time could undermine their popular support. Nevertheless, permission was granted for a delegation led by Liao Chengzhi and including Lei Jenmin to visit Italy at that time. Rome was under considerable pressure from the PSI, the ICP and the Italian business community to establish diplomatic relations with Beijing. The PSI, the ICP and the Italian Parliament had told Italian Foreign Minister Saragat that, to gain their backing for his presidential bid, he must support the PRC’s admission to the UN. However, the Italian Foreign Ministry’s position was that, although Sino-Italian diplomatic relations were inevitable, Rome could not afford to damage relations with Taibei and Washington by embarking on a sudden change in

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China policy as Paris had done. After learning of these developments, Washington secured a promise from Rome that, at least until the end of 1964, it would not vote for the PRC to be admitted to the UN.32 In mid-November, after consulting with Western-aligned governments (including Rome), Belgian Foreign Minister Spaak decided that he would not bow to intense pressure from domestic forces which wanted Brussels, in light of the PRC’s recent nuclear test, to vote for the PRC’s admission to the UN, unless another American ally extended diplomatic recognition to the PRC first. At that time Western officials thought that Spaak’s position might become untenable if either Canada or Italy recognized Beijing.33 Also during November, FRG Defense Ministry officials visited Beijing to discuss Sino-West German diplomatic rapprochement, but their efforts were probably not helped by the fact that Defence Minister Strauss was in Taibei at the same time. On 23 November, when Chiang Kai-shek proposed that America provide materials and technical aid to destroy Chinese nuclear installations, President Johnson reaffirmed US support for the ROC, but did not respond directly to the proposal.34 The Sino-American ambassadorial talks also remained deadlocked after the 123rd meeting on 25 November. In late November Beijing continued applying pressure on the Sato government by reaching various deals with Japanese ‘friendly firms’. It agreed to purchase a micrometer production plant worth US$840,000 from Tokyo Precision Co. for the Beijing area. The Japanese firm applied for eighteen month Ex–Im Bank credits to facilitate the transaction, although the Japanese government delayed making a ruling on the matter until the new year.35 About that time Chinese officials suddenly invited Komatsu President Yoshinari Kawai, a former cabinet minister who remained politically influential, to Beijing to sign a contract for the sale US$8.4 million worth of bulldozers. Just prior to the signing ceremony, the Chinese suddenly announced that, as a ‘present to Kawai’, they would purchase an additional US$11 million worth of Komatsu equipment under the same contract. With this new contract worth US$19.4 million – reported to be China’s largest ever equipment purchase from a firm in the West or Japan – Beijing acquired 870 (150 hp) bulldozers, 550 scrapers excluding motors and 80 (115 hp) motor graders. Although Komatsu had not agreed to import an equivalent amount of Chinese goods under the contract, company officials maintained that the deal was within the L–T agreement’s outer framework.36

December 1964–February 1965 Italy’s Secretary of Foreign Trade, Matterella, was in New York on 2 December when he received an urgent message from his under-secretary, Senator Giroamo Messeri, informing him that ICE’s director-general had finally signed a reciprocal trade office agreement with CCPIT. Under the accord, which had been drawn up in April and finalized in November, reciprocal PRC and Italian trade offices were to open in Beijing and Rome in mid-March 1965. Shocked that, as acting secretary, he had been completely bypassed on this matter, Messeri resigned

Vietnam, trade and the ‘Third Front’ 149 immediately. Other Christian Democrats, such as former Prime Minister Scelba, also vigorously protested the agreement and the way it was negotiated.37 Several days later Italian Foreign Ministry officials conceded that the agreement was a concession to the Nenni Socialists, but emphasized that it merely ‘institutionalized’ the fact Sino-Italian business ties were strengthening rapidly. After all, the volume of Sino-Italian trade was greater than the trade between China and some countries which had normalized relations with the PRC government.38 About that time, with L–T negotiations for 1965 under way, Beijing became more critical of Tokyo’s position on the Peng Zhen’s visa issue, its decision to extend a US$150 million loan to Taibei and Japanese Foreign Minister Shiina’s statement opposing PRC representation at the UN. In fact, L–T negotiations were suspended for about one week, beginning around 5 December.39 That same day, after reviewing Xie Fuzhi’s report on his work at the Shenyang Metallurgical Plant, Mao Zedong wondered how many of China’s industrial enterprizes were under capitalist management. He traced the source of this trend to higher levels of government.40 The previous day Beijing also announced that it would not accept UN membership until Taiwan was removed from the organization. Then, in Vienna on 7 December, CCPIT and the Austrian Federal Chamber of Commerce signed an agreement under which reciprocal trade offices were scheduled to open in the Chinese and Austrian capitals by mid-1965. At that time CCPIT Vice-President Hou Ton told the press that the Chinese were especially interested in acquiring Austrian Linz–Donawicz (L–D) steel production technology.41 Construction and production costs for large L–D plants were about 30 to 60 per cent lower respectively than for open hearth plants of equivalent capacity.42 In autumn 1964 the Chinese reported that they had built a pilot L–D plant at Shijingshan Iron and Steel Corporation, part of the Beijing Tianjin steel production region. Although the plant utilized small crucibles, they hoped to import two much larger 30 tonne L–D crucibles (a benefit in terms of efficiency) with an annual capacity of 600,000–650,000 tonnes from Vereinigte Osterreichische Eisen-und Stahlwerke (VOEST). The Linz-based firm – which had developed the technology in 1949 and built the first plant in 1952 – representatives had been invited to Beijing in May 1963 for negotiations.43 Meanwhile, following the signing of the Sino-Australian grain deal in October, Sino-Western grain negotiations had gone poorly. Because of growing uncertainty about the L–T trade, the Chinese had pressed for lower prices and threatened to suspend imports of French and Canadian grain unless PRC goods were given greater access to these markets.44 Thus, Paris began lobbying the EEC for more generous export subsidies to facilitate Franco-Chinese grain sales, emphasizing that because of its proximity to China, Australia could offer Beijing grain at much lower prices than exporters from Western Europe.45 On 10 December Louis Dreyfus Co. agreed to sell the Chinese 350,000 tonnes of wheat on eighteen month terms and continued negotiations to supply another 650,000 tonnes. Competition was so intense between grain exporting countries that the Franco-Chinese deal was reached only because it was financed by a large ONIC subsidy in conjunction with an unprecedentedly generous Common

150

August 1964–February 1965

Agricultural Fund export subsidy – extended by the EEC executive commission to encourage Paris to reach an agreement with Bonn on common grain prices prior to the 15 December deadline.46 On 12 December, Mao Zedong – while commenting on Chen Zhengren’s work at the Luoyang Tractor Plant – said that ‘the leaders taking the capitalist road have become or are becoming bourgeois elements who suck the blood of the workers . . . they are the target of struggle . . . of revolution, and must never be relied on in the socialist education movement’.47 On 14 December, about the time that Sino-Japanese L–T negotiations resumed, the Japanese media (incorrectly) reported that, by extending eight year credits, a French firm had won a contract to build 6 cargo ships for China.48 When Zhou Enlai addressed the First Session of the Third NPC (20 December–4 January) on 21 and 22 December he undoubtedly hoped for an improvement in Sino-Japanese relations during early 1965. He told the Congress that China’s increased agricultural and industrial production had improved the economy and that, while China’s ‘readjustment’ had been ‘basically completed’ and debts to the USSR repaid, during 1965 China should focus on completing tasks of the ‘readjustment’ to help prepare for the Third Five Year Plan (TFYP), scheduled to begin in 1966. He emphasized that China should increase its efforts to become a socialist power based on modern agriculture, industry, national defence, science and technology.49 During the Congress CCP Vice-Chairman Chen Yun was reappointed Vice-Premier. However, the PRC’s imports of foreign grain in 1964 totalled a record 6.68 million tonnes, a figure, which for the second straight year, was well above the upper limit suggested by Chen Yun in 1962. This must have caused considerable concern for those Chinese leaders who opposed the PRC becoming dependent on Western grain and who had only agreed to the foreign grain import strategy to aid domestic economic recovery and facilitate ‘self-reliance’. At a national working conference of the Political Bureau of the CPC Central Committee under way (15–28 December), the main topic of discussion was the socialist education movement in rural areas. During the proceedings, Mao emphasized that its purpose was to resolve the contradiction between socialism and capitalism, adding that ‘in Beijing . . . [there were] “two independent kingdoms”. . . Deng Xiaoping and the Secretariat of the CPC Central Committee as one and Li Fuchun and the State Planning Commission as the other . . .’. A CPC Central Committee conference summary issued on 14 January 1965 stated that ‘the target of this movement is the Party persons in power taking the capitalist road’.50 Liu Shaoqi already appeared to have been losing influence when, on 3 January, the NPC promoted Lin Biao to the position of vice-premier. Mao’s call on 30 December to ‘Learn from Dazhai’, may have indicated that, because of deteriorating Sino-Japanese economic cooperation, he wanted China to become more ‘self-reliant’ rather than resuming economic ties with the USSR.51 Although relatively low-ranking Chinese officials were sent for talks on the 1964 Sino-Soviet trade protocol in November 1963, Liu Xiwen52 was chosen

Vietnam, trade and the ‘Third Front’ 151 to head a delegation to Moscow in late December 1964 or early January (prior to 4 January) for preparatory discussions on the 1965 Sino-Soviet trade protocol talks scheduled for the spring.53 With the Vietnam conflict worsening and Sino-Western aircraft negotiations running into difficulty, the purchase of Soviet aircraft was a major talking point. On 10 January 1965 the PLA shot down another US-made espionage aircraft (again a U-2 operated by the ROC air force). Three days later, after having met on 12 January for talks, the US President and the Japanese PM made a joint statement in which Johnson said that Washington continued to support Taibei, while adding that ‘China’s militant policies and expansionist pressures against its neighbours endanger the peace of Asia’. Sato stated that, while Tokyo planned to maintain good relations with Taibei, it would continue to promote private contacts with China – especially with trade. On 14 January President Johnson announced that the ten year, US$1.5 billion American economic aid programme for Taiwan had been so successful that AID would terminate assistance to Taipei on 30 June. Nevertheless, the US government continued providing military assistance to the ROC. Then, during his first major press conference after returning home, Sato emphasized that Sino-Japanese trade must expand on a non-governmental basis. Meanwhile, shortly after the 1 million tonne Franco-Chinese grain agreement was reached in December, the Chinese told the French that they had concluded the accord on the understanding that they could make payments in industrial goods instead of cash. The French responded in January by cancelling the agreement – a decision made easier by the fact that they were making inroads into the Soviet and East European grain markets.54 The Russians were competing with the Chinese to buy Western grain. From early to mid-January the Soviets bought 50,000 tonnes of Canadian flour and on 21 January CEROILFOOD agreed to purchase more than 800,000 tonnes of wheat from the CWB for delivery between February and June. Partly because in December the French had agreed to sell the Chinese grain more cheaply, the CWB was forced to lower prices to conclude its deal with China. This decision had been criticized by the US National Association of Wheat Growers who spoke favourably of the USDA decision to respond by raising its export subsidy.55 On 22 January the Japanese government decided that Ex–Im Bank financing would not be made available for large Sino-Japanese equipment contracts. Disappointed by Tokyo’s decision, Dai Nippon/Nichibo executives still hoped to complete their vinylon plant contract with China by the end of 1965 with the help of private banks.56 Yet, MITI had agreed to provide up to 4 million yen (from the annual JCEIA subsidy) of the 20 million yen total which the Japanese L–T trade office would require for operation after it opened in Beijing in late January. When the Japanese government appeared unwilling to provide the remaining funds directly, newly appointed Japan External Trade Promotion Organization (JETRO) Chairman Sukemarsa Komamura stated that his organization – which received at least half of its funds from the Japanese government – might provide up to 40 million yen for the office’s market research.

152

August 1964–February 1965

When Washington learned of this development and raised the matter with Tokyo, Japanese Foreign Office officials maintained that MITI was not directly involved in financing China trade. They also drew attention to the British government’s credit policy concerning Communist countries, while insisting that it was unfair for Japanese industrial plant exporters to lose out to their West European counterparts because Tokyo adhered to more stringent controls on credits to finance the China trade.57 For its part, Beijing cancelled its vinylon plant contract with Dai Nippon/Nichibo when it learned that Ex–Im Bank financing was unavailable. Then, when Kaheita Okazaki visited the Chinese capital in late January or early February, Chen Yi told him that Beijing would not buy any more Japanese industrial plants unless Tokyo changed its policy on credit financing. At that time, Liao Chengzhi also told Japanese reporters that, unless Tokyo’s policy changed, Beijing would terminate trade under the L–T memorandum.58 Although during February Tokyo approved a contract application by Hitachi Shipbuilding Co. to sell Beijing a freighter, it still did not change its credit policy. In early February, just as Beijing learned that it had failed to secure long-term credits from Tokyo, the over-extension of credits for overvalued real estate caused financial panic in Hong Kong. The Canton Bank and Trust Company closed and there were runs on several banks, including the Hang Seng Bank.59 These developments almost certainly had an adverse effect on Chinese financial operations in the British colony. Although the Hong Kong Shanghai Banking (HKSB) Corporation ultimately purchased 50 per cent of the Hang Seng to save it from insolvency, this was not before some HKSB executives raised concerns that the US government might one day uncover a link between the Chinese government and the Hang Seng – which was at the centre of the Hong Kong/Macau gold trade.60 France had been exchanging dollars for gold for some time when, on 4 February, de Gaulle proposed the establishment of a new international financial system based on the metal. About this time officials of the Hong Kong branch of the Bank of China were preparing to apply, through their associates, to the Macau government for the exclusive and lucrative right to import gold to Macau for re-export to Hong Kong. It may be that these developments had some bearing on the decision to replace the director of the People’s Bank of China at this time. As the Vietnam conflict intensified during February, verbal exchanges between Beijing and Washington became more hostile. Nothing new of substance was discussed at the 124th meeting of the Sino-American ambassadorial talks on 24 February as the Chinese complained about US bombing in North Vietnam, America’s alleged occupation of Taiwan and its activities in Asia generally.61 Nevertheless, this did not dampen Western and Japanese enthusiasm for business opportunities in the Chinese market. Beijing continued pressuring Tokyo by concluding more deals with Japanese ‘friendly firms’. In early 1965 ChineseMHI negotiations, which began in August 1964, resulted in a contract under which Beijing agreed to purchase US$4.4 million worth of power shovels from the Japanese firm (see Table 7.1). Also in February 1965, the Japanese firm, Yuken Kogyo, sold the PRC an oil pressure hydraulic equipment manufacturing

Vietnam, trade and the ‘Third Front’ 153 plant, including technical support, for US$3.8 million. This transaction, which did not involve Ex–Im Bank financing, was approved by the Japanese government the same month. The plant was to be built at Shanxi and completed by December 1966.62 About this time China also agreed to purchase a polyvinyl alcohol plant for US$865,000. This plant, combined with the dry process acetylene production plant purchased from a Japanese firm in May 1964, was designed to raise the output of the Kurashiki vinylon plant in Beijing by more than 10 tonnes per annum.63 As problems continued with Sino-Japanese L–T trade, Beijing began focussing more on developing trade with firms from smaller market West European countries. On 13 February, two days before a Danish electronic measuring equipment exhibition opened in Beijing (before moving on to Shanghai and Wuhan ten days later), Denmark’s Minister of Commerce was received in the Chinese capital by acting Minister of Foreign Trade Lin Haiyun and Lei Renmin.64

8

Vietnam escalation and the non-strategic China trade Washington’s position reconsidered, March–October 1965

In the later stage of the readjustment period when the economic situation had gradually improved, ‘left’ ideology reared its head again and inflated during the ‘cultural revolution’ . . . plunging the national economy once again into a new and sorry plight. It was correctly decided in 1963 that economic work should follow the principle of ‘solving the question of food, clothing and other daily necessities, strengthening the basic industries . . . paying due attention to national defence and mastering advanced science and technology’ . . . Beginning in 1965 . . . the focus of economic work was shifted to preparations against war . . . In April 1965 the Party Central Committee, proceeding from the needs of coping with the worst possible situation, issued the call to immediately pool all the resources to speed up the construction of the inland provinces. (Excerpts from the official PRC publication: China’s Socialist Economy: An Outline History 1949–1984, 1986)

March to early June 1965 On 2 March Washington firmly committed itself to the Vietnam conflict by initiating ‘operation rolling thunder’. Sustained US air strikes against North Vietnamese targets under this campaign, and continued American aid to South Vietnam, signalled the escalation of the conflict. Yet, despite these developments and pressure from Taibei and Washington to curtail economic ties with Beijing, Sino-Western/Japanese economic relations continued to develop. By March the US Treasury Department was encountering formidable resistance from the French authorities as it made another ill-fated attempt to enforce FACR, while trying to prevent sixty semi-trailers – worth US$360,000 and produced by the 67 per cent American-owned French subsidiary of the US-based Fruehauf – from being exported to China as part of a larger contract, signed on 24 December, involving the sale of Berliet trucks.1 Sino-West German negotiations involving several different types of large industrial plants were under way and, in early March, medium-term credits were extended so that the Chinese could buy a 10,000 tonne per annum capacity acrylonitrile plant, worth US$11 million, from Lurgi AG. Scheduled to be built at

Non-strategic trade and Vietnam escalation 155 Lanzhou by mid-1967, it was to complement the oil cracking and olefin separation plant purchased from Lurgi AG in 1964. The Chinese planned to utilize the acrylonitrile (a vinyl cyanide) through polymerization to produce synthetic rubbers to reduce their dependence on natural rubber imports. This would give Beijing considerably more power in its trade negotiations with rubber producing countries (see Table 8.1). Since October 1964, the Chinese had also purchased very large quantities of petroleum drilling equipment and piping from West European firms.2 Although Washington also notified Rome of US–ROC concerns about the reciprocal Sino-Italian trade office agreement, both missions opened on schedule during early and mid-March 1965. Regardless, the ROC was unable to offer Italy a comparable level of business as an incentive for the Italians to limit trade with China. Although the Italian government subsequently dictated which Italian firms they could meet with, the Chinese granted each member full diplomatic status and complete access to CCPIT and China’s trade corporations.3 However, some Italians alleged that the system was an exclusive one and that the PSI was profiting financially from its involvement in securing the agreement. Beijing had also been negotiating, since late 1964, with French interests for a 2–3 million tonne capacity oil refinery, but Paris appears to have been unwilling to provide the necessary long-term credit guarantee. Thus, about the time that the Italian trade office opened, the Chinese agreed to purchase a 180,000 barrels p.a. capacity oil refinery (worth US$5.6 million) and additional refining equipment such as pumps and compressors from ENI (see Table 8.1). The equipment may have been for Daqing.4 West German firms had been unable to secure one of the approximately thirteen large equipment contracts which Beijing had signed with firms from non-Communist countries since September 1964. About 18 March the FRG Cabinet finally broke from US policy by agreeing in principle to permit Hermes Export Insurance to offer Communist countries credit guarantees of up to five years. This decision was not announced until one year later.5 In the interim political issues continued to hinder Sino-West German trade. Beijing remained at odds with Bonn for deciding not to prosecute Nazi war criminals after May 1965 (the twentieth anniversary of Germany’s surrender in the Second World War), not to improve relations with Israel and to send a ‘peace note’ to governments of the world. Washington’s surprisingly mild response was to ask the FRG government to notify it prior to signing credit deals with Cuba and North Vietnam.6 After all, in February, Otto Tossett of the Great Plains Wheat Inc. had told the 27th annual meeting of the National Farm Institute that Canadian grain production was increasing because of the Sino-Canadian grain deals, and emphasized that the US government should allow American grain to be sold to China.7 On 18 March US Assistant Secretary of State for Far Eastern Affairs, William Bundy, Lindsay Grant of the Office of Asian Communist Affairs and Marshall Green recommended that Washington announce that, although it was not softening its position on China, it would cement American de facto diplomatic recognition of the Chinese government by: (1) extending diplomatic recognition to Mongolia,

Lurgi AG (Frankfurt-am-Main) CNTIC

# 26 10 March 1965 (associated with contracts #11, #13, #19) # 27 March 1965

Berliet (Vénissieux Rhône) CNIEC

Burmeister & Wain CNIEC/COSCO Atlas Copco, ASEA, Svenska Fluktfrabrieken (Sweden) CNTIC

# 28 3 June 1965

# 29 June 1965 # 30 June 1965

Snam-Projetti (Milan) CNTIC

Firms/ organizations

Date (contract # since 30 November 1961)

Tunnelling equipment

Heavy-duty multi-axle 18–25 tonne dump trucks/construction vehicles Production licensing rights Marine diesel engines

Acrylonitrile plant (to produce synthetic carpets and synthetic rubbers) Oil refinery Equipment (pumps and compressors)

Equipment/ technology

3

1,035

10,000 tonne p.a. Built at Lanzhou (to compliment the Lurgi plant purchased in 1964) 180,000 barrels p.a. For Fushun or Daqing

Capacity, location, quantity

Table 8.1 Major PRC equipment contracts with Western and Japanese firms: March–September 1965

£5 million

US$3 million

US$5.6 million 5 year credit guarantee application with the Italian government

US$11 million Medium-term credits

Cost and financing

Kobe Steel Works (Japan) CNTIC L.A. Mitchell/ Scott Bader (UK) CNTIC Prinex (UK) CNTIC Norwegian firm CNIEC Otto Wolff (FRG) CNIEC/COSCO Linde (FRG) CNTIC Acrylic resin fibre plant Naphtha cracking equipment 10 Maybach marine diesel engines Air liquefaction and separation plant

Polyester resin plant

Wire drawing mill

Possibly for Beijing

US$12.7 million 5 year FRG government credit guarantee

US$1.4 million

US$4.86 million

US$8.4 million

US$100,000

US$5 million

Sources: Table composed by author from information within: LBJL: NSF: (especially China memos, box 241, vol. IX, 3/67–6/67, CIA memorandum, 6 June 1966; box 240, CIA report, vol. VII, 3/66–9/66, 18 April 1966); NACP: RG#59: CFPF, S-NF 1964–6, box 700, STR 12-3 CHICOM–FR and E 2-2 CHICOM; box 701, STR 12-3 CHICOM–UK and E 2-2 CHICOM; box 992, FT 2 CHICOM–IT and FT CHICOM–W. GER; box 993, FT E CHICOM–JAPAN; box 1423, STR 12-3 CHICOM–JAPAN and STR 12-3 CHICOM–FR; box 1424, STR 12-3 CHICOM–UK and E 2-2 CHICOM; NAA: A1838/2-275 766/1/4, pt. 1–5; Wilson, D., ‘Turning Point in Trade’, FEER, 30 September 1965; ‘China, No Bouquets’, FEER, 4 August 1966; MacDougall, C., ‘Foreign Trade: Trading Undisturbed’, FEER, 29 September 1966; ‘The Industrial Scene: Production Records’, FEER, 29 September 1966; ‘Courtaulds Ltd. to Supply $7.8 Million Fiber Plant to Peking’, Wall Street Journal, 24 August 1965; Szuprowiczs, op. cit., passim; Williams, op. cit.

# 33 August 1965 # 34 1965 # 35 September 1965 # 36 September 1965

# 31 June 1965 # 32 July 1965

158

March–October 1965

(2) removing restrictions on American travel to China and (3) placing US business in a more competitive position by permitting the export of commodities such as grain and medicine to China. Their memorandum concluded that extraterritorial application of FACR and American diplomatic pressures on allies, aimed at stemming the expansion of Chinese–Western trade diplomacy, were largely ineffective, tended to damage US–Allied relations and depleted valuable political leverage that Washington might require for more pressing matters.8 However, US officials later remembered that, although reports such as Bundy’s may have finally begun to filter through upper echelons of the State Department to the Secretary of State, Rusk continued not acting on them.9 As had occurred before when there appeared to be an opportunity for easing Sino-American tensions, at the Warsaw Talks on 21 April the Chinese alleged that, from 18 March to 18 April, several US fighter planes, American-made military reconnaissance aircraft and high-altitude pilotless planes had entered Chinese airspace. They also claimed that, on 18 April, they had brought down one of the high-altitude pilotless planes. As the conflict in Vietnam escalated, US–ROC pressure was slowing the expansion of Sino-Japanese trade. On 30 March, Tokyo announced that it had finally decided not to extend long-term Ex–Im Bank credit guarantees for large sales of equipment, industrial plants and related technology to China. This decision jeopardized the future of the Sino-Western grain trade and moderate development strategy. The rice harvest in Southern China was excellent in 1965, but unconfirmed reports of drought and flooding in late December 1964 and January 1965 may indicate that northern wheat crops were not up to expectations.10 In late February or early March the AWB, which had recently concluded a large deal with the Soviets, agreed to sell CEROILFOOD another 1.25 million tonnes on six month credit terms (see Table 8.2). Yet, since the Chinese needed to purchase much more grain for delivery in 1965, on 30 March CIRECO agreed to pay cash for 700,000 tonnes of Argentinian grain. Since the ANGB was simultaneously negotiating a 1 million tonne barter deal with the USSR,11 Beijing hoped that Buenos Aires would agree to purchase more PRC goods to pay for Chinese grain purchases. On 5 April Beijing responded to Tokyo’s decision not to finance the China trade by cancelling the Hitachi freighter contract, emphasizing that it would not buy any more Japanese industrial plants under L–T trade unless the Sato government reversed its decision.12 These developments led Western European business interests to become more optimistic about their chances of increasing exports to China. On 2 April Washington announced that it would send more troops and economic aid to South Vietnam, while increasing the number and intensity of air strikes against the North Vietnamese. In a speech at Johns Hopkins University on 7 April, President Johnson said that, although the US government would be willing to begin ‘unconditional discussion’ to end the war in Vietnam, any subsequent agreement must guarantee ‘an independent South Vietnam’. A CPC Central Committee directive of 12 April stressed that expanding US aggression in Vietnam threatened China’s security. It instructed the Chinese to

Non-strategic trade and Vietnam escalation 159 Table 8.2 PRC–Western grain agreements and contracts: March–September 1965 (in tonnes; wheat and barley in trade grain weight) Date

Firms/ organizations

Quantity and variety

Delivery

By early March 1965

AWB CIRECO

1,252,000: wheat (under 6 month agreement)

June–December 12 months 1965 credits: 10% cash, 20% in 6 months, 20% in 9 months guaranteed by the Australian government’s Commonwealth Trading Bank April–October Cash (sterling) 1965

9 April 1965 ANGB (announced – CIRECO probably signed in March) 21 May 1965 (amended on 29 June)

CWB CEROILFOOD

29 June 1965 (amendment of 21 May contract)

CWB CEROILFOOD

1 million grain: (including 400,000 contracted for in September 1964) 1,548,456: wheat (subject to amendment depending on availability) 2,300,838: wheat

Financing

May–July 1966 18 months credits: guaranteed by Canadian cabinet May–July 1966 18 months credits: guaranteed by Canadian cabinet

Sources: Composed by author from various documents within: NAC: RG#20: vol. 819–820, file 10–33 (1964–6); NAA: 1804/28 201/12/1; 1838/272 37/1/4/3, pt.1; NLA: MS 5049; NACP: RG#59: CFPF, S-NF 1964–6, box 3558 and 3635, INCO-WHEAT; CWB annual reports.

step up war preparations. This directive initiated a gradual reversal of China’s economic position. Rapid industrial development – this time in the interior, associated with the ‘Third Line Project’ – began replacing agriculture (especially grain production) as the primary focus.13 Domestic economic conditions were still basically good and, after having completed debt payments to Moscow a few weeks earlier, the leadership expected before long to have more currency available to purchase foreign equipment and technology. Officials in charge of the ‘readjustment’ still appeared to be influential in policymaking. Opponents of the ‘readjustment’ had suffered a blow on 9 April with the sudden death of Shanghai Party Secretary and Politburo Member Ke Qingshi – appointed Vice-Premier by the NPC in January 1965 and one of Shanghai’s main long-time supporters of Mao’s rapid development policies.

160

March–October 1965

Ke was alleged to have spent much of 1964–5 attempting to smooth over quite serious problems associated with the shipment and installation of industrial equipment from Shanghai to Sichuan related to the ‘Third Line Project’. His death occurred just as Mao decided to take control of Shanghai. Ke’s replacement was Chen Pixian who had served under Chen Yi’s Third Field Army in 1949 and was later accused during the Cultural Revolution of having opposed the pace of Maoist development policies – especially the ‘Third Line Project’ and associated movement of key industries inland from Shanghai. Deng Xiaoping had approved Chen’s appointment to replace Ke as Shanghai Party secretary in April.14 Meanwhile, since mid-1964, Washington had been conducting an intensive investigation into how Beijing could afford to import such a large volume of Western commodities, equipment and technology. The Americans suspected that significant funds came from PRC investment in, and ownership of, Hong Kong banks, property and other businesses (including retail stores), which increased substantially after 1963.15 Beijing purchased much larger amounts of sterling than could be accounted for by examining official Sino-Hong Kong trade statistics. Washington concluded, in the first half of 1964, that Beijing might be earning as much as US$500 million annually through Hong Kong (US$200 million more than previously thought) largely because of ‘invisible earnings’. Beijing was accomplishing this by undervaluing exports to the British colony by an average of 10 per cent and by 20–40 per cent for fresh food.16 The development of China’s plastic and synthetic textile industry was helping17 the PRC to increase dramatically exports of food, commodities, textiles, footwear, light industrials, building materials, household items and medicines to Hong Kong.18 On reaching Hong Kong, many of these goods were re-packaged, relabelled and re-exported, sometimes several times, to countries throughout SouthEast Asia – especially Singapore and Malaysia. Singapore received most of its PRC imports through Hong Kong and handled about 80 per cent of PRC exports to the comparatively high tariff country of Malaysia – many of which were later re-exported.19 Despite the closure of the Bank of China’s Kuala Lumpur branch in 1959 PRC exports to Malaysia had increased dramatically by 1964. The development of Chinese seaports, especially Shanghai, and the conclusion of new shipping agreements with Japan opened up other avenues of re-export. Substantial quantities of Chinese goods were also reaching the Philippines from Hong Kong, through Japan and Taiwan. Chinese goods were also entering Thailand (whose anti-Communist ruler, Field Marshall Sarit Thanarat, had suspended trade with Beijing in 1959 after having reportedly received payments from Taiwanese and Japanese interests) from Malaysia.20 During April 1965, as Chinese–Indonesian economic ties strengthened, the Malaysian government decided not to renew the Singapore branch of the Bank of China’s operating licence when it expired in August. Since 1949 this branch had been at the centre of the PRC’s lucrative regional economic activities and a vital source of currency.21 Coming at a critical moment, the decision dealt another serious blow to Beijing’s development plans for increased economic

Non-strategic trade and Vietnam escalation 161 relations with the West and Japan. Subsequent protests by Nan Hanzhen, the Singapore Chinese Chamber of Commerce, the Singapore Rubber Packers’ Association and Singapore’s opposition Barisan Sosialis Party failed to convince the Malaysian government to reverse its decision. Then, on 20 April, Italian Prime Minister Aldo Moro assured Rusk that, because Allied solidarity was required to respond to developments in South-East Asia, SinoItalian relations would not progress beyond the reciprocal trade office representation stage for some time.22 Ottawa was unenthusiastic about Beijing’s suggestion, made that same month, that reciprocal trade offices be established.23 Then, between 26 and 28 April, Toyko and Taibei signed official governmental notes relating to yen based credits of approximately US$150 million. It was now essential for the Chinese to expand exports to as many Western markets as possible. The topic of Chinese access to the Norwegian market was undoubtedly raised after a seventeen member delegation, composed of representatives of Norway’s major export industries, led by Energy Minister Karl Trasti, began its tour of Guangzhou, Shanghai and Beijing on 26 April. However, the Chinese received more bad news on 29 April when Australian Prime Minister Menzies – bowing to Washington’s ultimatum that he commit soldiers to Vietnam or risk having American investment in Australia cut by up to 20 per cent – announced that he would send 800 troops of the First Battalion, Royal Australian Regiment. The Chinese probably wondered if Canberra might soon be forced to terminate the Sino-Australian grain trade, as critics maintained that such deals were supporting the enemy. Yet, growing conflict between MITI and Japanese Foreign Ministry officials over the Sato government’s decision to suspend Ex–Im Bank credits to China must have renewed optimism in Beijing that the ruling might eventually be overturned. High-level MITI officials publicly opposed government policy, insisting that Tokyo not be swayed by Taibei’s ultimatum to choose between the ROC and PRC markets. They stressed that Tokyo was providing long-term credits for Japanese exports to the USSR and other Communist countries and that Japan could not afford to lose more ground to Western European competitors in the Chinese market.24 During April the Japanese made their first purchase of Chinese rice since 1957, when they agreed to buy 120,000 tonnes of Chinese rice.25 At the 125th meeting of the Warsaw Talks on 21 April, the Chinese said that US military operations and intrusions of US aircraft into Chinese airspace during March and April demonstrated that President Johnson did not really want to negotiate a settlement to the Vietnam conflict.26 Johnson’s response, on 27 April, to domestic protests against the bombing of North Vietnam, was to reaffirm the offer to engage in peace talks. Nevertheless, on 7 May he signed a bill allocating US$700 million for military requirements associated with the conflict. Meanwhile, despite the serious rift in Sino-Soviet relations, the Chinese had resumed negotiations to purchase 5 more (in addition to the ten already purchased) affordable long-range Il-18 jet-props. When the deal was concluded in April or May, these 15 Il-18s, together with the 6 Vickers Viscounts (all purchased since 1960), increased the PLA’s airlift capacity and permitted the opening of

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commercial routes from Xinjiang to Kabul, Kabul to Rawalpindi and Kabul to Kandahar to Karachi.27 Some Chinese officials may have wanted to continue negotiations for more advanced Soviet passenger/cargo jets and related technology which, they thought, could improve China’s nuclear weapons delivery capability. This seems possible since, on 14 May, the Chinese announced a second successful nuclear test, during which the device was dropped from the air. On 7 May, about the time that the latest Il-18 contract was being concluded, PLA Air Force Commander Liu Yalou died in Shanghai after a brief illness. Liu’s views about Beijing’s trade and economic strategies are unknown, but, apart from the purchase of the IL-18s, 5 Mil-6 helicopters and 2 An-24 turboprops from the USSR in 1965, China’s only other known purchases of aircraft between 1965 and 1970 were 15 Alouette III helicopters from France in 1967. Liu’s successor, Wu Faxian, was later identified, along with Lin Biao, as a key figure in the downfall of Luo Ruiqing during the opening phase of the Cultural Revolution. A CPC Central Committee decision of 11 May urged ‘all industrial and transportation departments to learn from the PLA and put ideological and political work in the first place . . .’.28 Sino-Soviet trade seems to have plummeted from this time on. In light of events revealed in Chapter 10 of this book, it is probable that even by 1965 some Chinese leaders thought that the PRC should purchase new, or barter for used, Soviet or Western-made aircraft.29

Grain, population and Chinese economic policy debate, summer 1965 An overzealous approach to war preparations associated with carrying out the ‘Third Line Project’ was responsible for eroding progress made in the early phase of ‘readjustment’.30 Warning signs of this trend appeared as early as June 1965 – as the Chinese harvested their first grain crop of the year – and seems to have sparked intense policy debate among the CCP leadership in the runup to CPC policy meetings in the autumn, on the TFYP. Four years had passed since Chen Yun officially recommended adopting a long-term programme to import Western grain with a view to restoring domestic grain production within 3–5 years. This target was reached when the PRC recorded a grain harvest of 194.5 million tonnes in 1965, surpassing the previous high, in 1958, by 1 million tonnes.31 However, this was insufficient to meet domestic requirements, made greater by rapid development and population growth. Also in late 1965 Renmin Ribao reported that drought conditions of a magnitude rarely seen in the past century existed in North China,32 which raises the question of whether the Chinese government (as it had done during the GLF) was blaming poor weather for its policy failures. Regardless, northern grain output probably suffered. For the third straight year, the Chinese had imported much more foreign grain – 6.41 million tonnes (slightly less than the record established the previous year) – than Chen Yun had gained approval for at the outset of the ‘readjustment’.

Non-strategic trade and Vietnam escalation 163 As in previous years, Mao seems to have used the good overall harvest report to rally support for policies which emphasized ideology, self-reliance and an increased pace of construction. Unless Beijing obtained much more generous credits to purchase ‘state-of-the-art’ equipment and technology, from the West and Japan, to carry out necessary domestic development, the PRC would become more dependent on foreign countries rather than being ‘self-reliant’. Average per-capita grain consumption in 1965 remained slightly below that of 1957,33 which is partly explained by the fact that China’s population had grown by 65 million between 1958 and 1965, totalling 725 million in 1965. Although the central government coordinated a 14.2 million reduction in China’s urban population between 1961 and 1963, by late 1965 the nation’s urban population totalled 130.45 million, or just 280,000 less than the record high established in 1960.34 Chinese news articles in early June 1965 complained that the influx of commercial workers to the cities was having adverse consequences for the countryside.35 These developments must have greatly concerned Chen Yun who had warned about leaving such trends unchecked. Regional statistics should hold the key to gaining accurate insights into China’s overall grain supply, but such figures for the late 1960s and early 1970s are sketchy. Nevertheless, it is clear that Sichuan, which possessed the largest grain export surpluses prior to the GLF, became the region with the largest grain deficit after 1965.36 That province suffered the greatest number of abnormal deaths associated with famine between 1958 and 1962. Chinese leaders such as Chen Yi, Deng Xiaoping and Luo Ruiqing, who were intimately associated with the strategy to import grain, chemical fertilizer, equipment and technology from nonCommunist countries, were natives of that province. They must have been concerned about increasingly rapid development in Sichuan associated with the ‘third line’, which pulled labour away from agriculture. At the same time, Chinese leaders with close ties to the Shanghai region and the Northeast (Chen Yun, Zhou Enlai, Lu Xuzhang, Bo Yibo and Nan Hanzhen), who were also closely associated with the PRC’s foreign grain import and Western–Japanese trade strategy, must also have worried about the effect of the ‘third line’ in their home areas. These officials already saw that the recent setbacks in China’s trade diplomacy with Japan and Malaysia, in conjunction with newly introduced Maoist policies, would not allow China to escape from a web of insufficient grain harvests, growing dependence on foreign imports and technological backwardness unless adequate controls were placed on population growth and distribution, and Chinese negotiators were able to secure much more generous foreign long-term credits to pay for larger, integrated ‘state-of-the-art’ industrial plant projects and related technology. Such measures were required to keep the ‘readjustment’ going, for Zhou Enlai and Chen Yun to maintain their influence in economic decision-making and to prevent ‘leftist’ policies from leading the PRC back down the road to disaster. As Chen Yun had pointed out years earlier, since imports of grain, fertilizer and steel were expensive, it was practical to invest in producing more of these items in China. Of key importance were steel processing plants to turn out products that would enable the Chinese to build more installations for making agricultural

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chemicals (especially fertilizer) machinery and plastics which in turn would help raise grain production. In the mid-1960s the five major steel plants in China were Anshan, Shanghai, Wuhan, Chongqing (thought to produce approximately 1 million tonnes of steel annually) and Baotou. Medium-sized steel plants were located at Shijingshan and Hebei. The weakest sector in the PRC’s steel industry was probably the steel fabricating sector. Thus, from mid-1963 onwards, as the economic situation improved, the Chinese tried to become less dependent on steel imports by initiating more serious negotiations with various Western European and Japanese firms for the purchase of steel processing equipment and related technology. Firsthand accounts of foreigners visiting China confirm that serious production problems existed at the Baotou and Wuhan steel operations – both of which desperately needed infusions of equipment and technology for finishing steel products. Prior to the deterioration in Sino-Soviet relations, the Baotou Works was supposed to have obtained these items from Moscow.37 By May potentially serious problems were looming for the Sino-Western grain trade. The Chinese had not signed a contract to purchase Western wheat since 30 March – the day that the unified Japanese position on Ex–Im Bank financing was announced. Although grain prices were falling in 1964–5, poor weather in northern grain exporting countries and poor harvest prospects in many southern importing countries accounted for decreased availability. China also faced growing competition from the Soviets in Western grain markets. As well, because of a poor domestic harvest in 1965, caused by drought, the AWB had to reduce exports and was unable to fill Chinese orders later in the year. This development neutralized Zhou Enlai’s threat that the PRC might suspend wheat purchases from the AWB if Australian troops stayed in Vietnam.38 Although the Chinese covered the (drought-related) shortfall in Australian exports by turning again to Argentina, this contingency measure increased the burden on the PRC’s already strained currency reserves. Also, during an Australian Parliamentary visit to Buenos Aires in June, President Illia told Australian Senator Gordon that he was very concerned about Chinese expansionist activities.39 It appeared that, over the short-term, Beijing might have to depend more on Canadian grain. The Chinese agreed to purchase 1.5 million tonnes of Canadian wheat on 21 May, but they still needed over 600,000 more tonnes (see Table 8.2). Thus, in late May or early June – in the wake of Canberra’s decision to send troops to Vietnam – the Chinese suddenly wanted to send a delegation to Australia (all previous Sino-Australian grain negotiations had taken place in either Hong Kong or Beijing) for two months to work out another contract and examine opportunities for expanding Chinese exports. At the time, the AWB was uncertain about the availability of exports for non-traditional markets because of domestic drought, and on 9 June the Australian Cabinet for ‘substantial international and domestic reasons . . .’ rejected an AWB proposal that the Chinese delegation visit Australia in October to negotiate further grain sales.40 Although the CWB was able to meet China’s immediate shortfall on 29 June, by that time China’s options were very limited. The Australians had no extra wheat available for export to

Non-strategic trade and Vietnam escalation 165 non-traditional markets for the rest of 1965 and the Soviets appeared ready to buy large quantities of Canadian wheat (under the Sino-Soviet agreement). In June, prior to crucial central government meetings scheduled for September and October, Chen Ming and top CIRECO grain negotiator (and Zhejiang native) Yu Dunhua were among those key officials suddenly called back to Beijing to participate in high-level meetings on economic relations with Western countries and general debate on economic and grain policy planning. The crucial yet contentious issues almost certainly included: How would the ‘Third Line Project’ and intensified Chinese war preparations affect long-term economic development? How much longer should the PRC purchase Western grain? Should, or could, China reduce its growing economic dependence (especially on grain and equipment) on Capitalist countries, trade more with the USSR and/or become more self-reliant? Chinese leaders favouring ‘gradualist’ development based on the Western/ Japan trade were simultaneously trying to get their programme back on track by pressuring Japanese Prime Minister Sato to reconsider his stand on credit financing. Under the circumstances, only by perpetuating Western–Japanese business competition could Beijing hope to obtain the large integrated steel processing complexes it needed to be more self-reliant?

June and July 1965 Apart from the Australian drought and the tightening world grain situation, events appeared to be working in Beijing’s favour during the summer. In mid-May Clement Zablocki Democrat (Wisconsin) – head of the Congressional Subcommittee for the Far East and Pacific (for the House of Representatives’ hearings on the Sino-Soviet conflict) – recommended that the US government consider ‘at the appropriate time’ initiating direct, but limited, contacts with Beijing through cultural, media and scholarly exchanges and by extending diplomatic recognition to Outer Mongolia. Zablocki had been an initial signatory of the 22 October 1953 ‘China lobby’ petition to President Eisenhower against PRC admission to the UN and, subsequently, a consistent endorser of the Committee of One Million’s positions. Also in May or early June 1965, US Chamber of Commerce President Robert Gerholtz added his name to the list of US business representatives openly suggesting that Sino-American trade might help reduce tension and open communication with China.41 President Johnson, simultaneously being urged to take action to halt the outflow of US gold and stabilize the dollar, had asked Treasury Secretary Fowler, on 16 June, for a strategy to limit US vulnerability to foreign interests converting US dollar holdings into gold. During June, as Washington increased America’s commitment to Vietnam, US anti-war protestors became more vocal. In June too, Rusk and President Johnson began to consider lifting restrictions on travel by US citizens to China. On 30 June AID withdrew financial support for the ROC, but the PRC and American involvement in the escalating Vietnam conflict, in conjunction with the ongoing stalemate regarding Taiwan, continued to work against early modifications to US China

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policy. Washington was encouraging closer relations between Tokyo and Seoul as an alternative to the strengthening of Sino-Japanese relations, and, during June, a South Korean–Japanese treaty was signed. Nevertheless, public statements like those of Zablocki and Gerholtz added to the perception that Washington might soon be obliged to begin modifying its China policy. By May the US government had failed in its bid, through the French courts, to block the Chinese-Berliet/Fruehauf trailer transaction and French news sources were carrying reports that criticized Washington’s handling of the matter.42 (In April or May the French firm had also agreed to sell the Chinese oil drilling equipment and at least one oil rig, for US$4.86 million.) On 3 June 1965 – shortly after these news reports first appeared – the Chinese agreed to purchase 1,035 heavy-duty multi-axle trucks – including cement trucks, cranes, 18–25 tonne dumpers and other public construction vehicles from Berliet. It was reported to be the largest ever Sino-Western deal (see Table 8.1). Under the contract, the French firm also agreed to sell Beijing licensing rights permitting the Chinese to produce four types of Berliet trucks in China. Both sides continued talks about Chinese interest in purchasing a large factory complex worth US$40 million, under generous COFACE financing, for producing these vehicles at Wuhan, the centre of China’s automotive industry. About this time the Chinese were talking with Western and Japanese firms about purchasing a large integrated steel processing complex for Wuhan. Steel sheeting produced at such a facility could be used for manufacturing auto bodies. Despite having faced competition from Leyland and Fiat – which had both recently negotiated large sales with Cuba and the USSR – in early 1966 Berliet secured the contract to sell the Chinese the truck production complex.43 However, the Chinese were adamant that they should direct plant construction. They had sent their engineers to Berliet headquarters in France to study its proposed design and operations and insisted that matters relating to the plant remain confidential. French engineers would not be allowed to travel to the construction site. Thus Berliet’s task was to design the complex, recommend types of machinery to meet the Chinese requirements, provide licensing for Berliet processes and identify possible alternate sources for some of the equipment required. Although between June and December Beijing signed eighteen more major equipment contracts with firms in Capitalist countries, the Berliet–Chinese heavyduty truck deal in June was the last large Franco-Chinese equipment contract signed in 1965. The Chinese had begun to court interests in other countries which could provide them with equipment related to the large integrated complexes to process steel and trucks. In June 1965 the Chinese obtained one year credits to purchase a glass rolling plant (worth US$2.1 million) – for producing windshields on a truck assembly line – from the West German firm IMAG. This deal whetted the appetite of Ruhr industrialists who were frustrated that their West European allies no longer appeared to be bound by the same controls on China trade as those being enforced by Bonn. West German businesses had eagerly accepted recent Chinese requests to open discussions to purchase more seamless steel piping and several large

Non-strategic trade and Vietnam escalation 167 plants to produce/process chemicals, synthetic fibres, pharmaceuticals and steel – the latter associated with a proposed integrated steel processing complex. The Chinese also placed greater pressure on the FRG government to break from US policy so that they could compete on a more equal basis with other West European interests in the China market. However, it remained unclear how the West Germans would respond if Washington protested any decision by Bonn to provide medium to long-term Hermes Export Credit Insurance guarantees to finance Sino-West German equipment and technology contracts. Nevertheless, the Chinese appeared to be more interested in Italian firms when purchasing iron, steel, piping, trucks, jeeps, machinery and chemicals. A large Italian industrial trade delegation secured approximately US$10 million worth of machinery orders when visiting the PRC from 25 May to 18 June. They were also received by Finance Minister Li Xiannian who said that Beijing was very upset with the French for not selling them state-of-the-art equipment. In Rome at that time, officials from both the PRC’s Chartering and Shipbuilding Corporation (SINOFRACT) and the PRC embassy in Paris told local shipping, business and industrial representatives that Beijing wanted to develop long-term Sino-Italian trade.44 When criticizing Moscow, the Chinese said that Beijing was responding to closer Soviet–American ties by attempting to establish a powerful alignment of Asian (eventually to include all of Asia) and African countries to ultimately defeat the US, the USSR and their allies.45 On 29 June CCPIT officially opened its Vienna trade mission – under the SinoAustrian trade office agreement – as the Chinese continued discussions with Austrian industrial representatives.46 Further Sino-Japanese trade negotiations also placed the Sato government under greater pressure to reverse its decision on Ex–Im financing. In June, Kobe Steel Works signed a contract to sell CNTIC a wire drawing mill.47 This installation may have been built in Beijing, because in 1966 when (during a tour of many Chinese industrial enterprises from a wide variety of sectors) Canadian economist Barry Richman visited the Soviet-designed steel wire production facility in that city he found it ‘. . . on the verge of chaos’. High-level officials at the plant seemed more upset with the Soviet withdrawal of technological support six years earlier than all the other PRC officials he spoke with.48 In early 1965, Washington was already upset about a contract signed in March – following the recent British precedent of selling vibration testing equipment to the USSR – under which a Japanese firm agreed to sell the Soviets similar equipment. Tokyo had insisted that, although the equipment could measure 28,000 lbs of thrust, it was not ‘specifically designed for military uses’. Then, in June too a Japanese firm agreed to sell the Chinese a magnetic tape plant. This transaction left US officials eager to discuss Tokyo’s interpretation of the COCOM regulations. However, Tokyo insisted that the ‘know-how’ was not being sold as part of the Sino-Japanese contract, although Japanese technicians were to help build the plant and train the Chinese. Tokyo stressed that it had a very favourable record of adhering to COCOM controls while adding that ‘Paris Group’ nations had been granting ‘exceptions’ to facilitate the export of ‘grey area’ goods to the PRC. With

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Tokyo already under pressure from Japanese industry to reduce COCOM restrictions, MITI was preparing proposals to present to the ‘Paris Group’ for liberalizing the trade controls. The Japanese added that, if rumours that Paris was preparing to withdraw from COCOM proved correct, then Tokyo would have to reconsider participating in the ‘Paris Group’.49 State Department officials felt that MITI tended to approve deals with Communist nations which fell into COCOM’s ‘grey area’ including those where exporters had submitted imprecise descriptions of export goods in order to avoid contracts being blocked at COCOM. These officials thought that it was still worthwhile for Washington to discuss these cases with the Japanese government, even if Tokyo failed to block the deals, as it might prevent similar transactions from being approved in the future.50 As L–T trade diplomacy continued to falter, Beijing focussed more on developing trade with the smaller market West European countries. In April a Swedish mining equipment exhibition was held in Beijing and in June the Chinese agreed to purchase £5 million worth of complete tunnelling equipment from Atlas Copco, ASEA and Svenska Fluktfabrieken. In June, the Danish firm, Burmeister and Wain, agreed to sell the Chinese three marine diesel engines, worth approximately US$3 million, for installation in 10,000 tonne vessels being built in Chinese shipyards. After arriving in Oslo, en route from Denmark and Sweden, on 5 July, Lei Renmin’s economic delegation told their hosts that the PRC wanted to increase trade with Norway, whose government was eager to help the domestic shipping industry (a key sector in that country). Later that month, the Chinese also agreed to purchase a naphtha cracking installation worth US$14.6 million from a Norwegian firm.51 Meanwhile, there were more tangible signs that Washington was easing its position on China. At the 126th meeting of the Sino-American ambassadorial talks on 30 June, Cabot suggested that both sides should increase contacts. He reminded Wang that Washington still wanted to exchange news representatives and added that the US had decided unilaterally to begin validating passports for public health workers to travel to China. However, the meeting remained deadlocked as the Chinese refused to discuss these issues while major long-standing problems remained unresolved.52 By 7 July Washington rejected a proposal, supported by James C. Thomson, Marshall Green (who was leaving the FE Bureau) and Ambassador Cabot, that it enlarge the category of Americans able to seek authorized passports to travel to China to include public health officials and medical doctors.53 That same month the US government announced that it was phasing out aid to the ROC, although Xinhua reported on 17 July that Beijing had agreed to send equipment, whole sets of installations and supplies to North Vietnam to support the country’s national defence and economy. In July, as negotiations on lucrative Sino-West German contracts entered a crucial phase and as sterling came under pressure, Beijing suddenly agreed to purchase two fibre production plants – the fifth and sixth from non-Communist interests since 1963 – from UK firms. British interests had not won a major Chinese

Non-strategic trade and Vietnam escalation 169 equipment contract since March, but in this instance were able to beat out their competitors (including West German firms). Also in July, British firms – L.A. Mitchell, in association with Scott Bader-agreed to sell the Chinese a polyester resin plant. The plant was expected to begin production at the end of 1966 and was rumoured to be part of a larger complex for which Scott Bader and CNTIC were negotiating (see Table 8.1). Despite the fact that Argentine President Illia had expressed concern about Beijing’s foreign policy, there remained considerable Argentinian enthusiasm for the Chinese market. Beijing continued purchasing large quantities of Argentinian grain, and on 8 July Nan Hanzhen hosted a banquet in the Chinese capital for President Alfredo Weiner of the International Food Company of Argentina.54 Nan’s trade delegation was in Japan on 26 July when MITI Minister Miki reportedly told Japanese news sources that Tokyo would resume Ex–Im Bank long-term credit financing of some of the China trade contracts – but only after considering individual proposals on a case by case basis.

August and October 1965 In early August Japanese Foreign Ministry officials remained adamant that ‘the Yoshida letter’, although not an official agreement, could not be ignored because it was a politically and morally binding statement, of unspecified duration, of the Ikeda Cabinet. However, on 2 August, Miki told the House of Representatives Committee for Commerce and Industry that Tokyo was not bound by the letter and that Japan should expand trade with all Communist countries. That same day MITI Vice-Minister Sahashi predicted that in October several Sino-Japanese industrial plant and equipment contracts would be signed and MITI would provide five year Ex–Im Bank credit guarantees to finance some of the contracts (those that the US could not describe as foreign aid).55 Then, on 3 August, economic planning agency director Fujiyama questioned the legal authority of the ‘Yoshida letter’ while emphasizing that Tokyo could make its own trade policy and that, apart from the need to observe COCOM restrictions fully, the Ex–Im Bank should be left to decide how credits were applied. That same day Japan’s Cabinet agreed that Tokyo was not legally bound by the letter and that the decision not to extend credits for the Hitachi freighter and Nichibo plant contracts was not based on the letter, although ‘the Yoshida letter just happened to coincide with the Government of Japan’s policy at that time’56 On 7 August, Beijing announced that, if necessary, Chinese troops would fight alongside the Viet Cong in Vietnam. It appeared increasingly probable that the PRC could continue with economic development based on trade relations with non-Communist countries, when, on 9 August – less than a week before the forced closure of the Singapore branch of the Bank of China – Singapore separated from Malaysia and the People’s Action Party government immediately renewed the Bank’s operating licence.57 Although Beijing was still undoubtedly concerned about the future of the Singapore branch’s operations, in the meantime its lucrative export drive in that region continued.

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A few days later, in the lead-up to L–T negotiations, Beijing stepped up pressure on the Sato government to resume Ex–Im Bank credit financing of SinoJapanese trade by suddenly attempting to resume negotiations with the TEC for a large (US$12 million) urea production plant. Just at that time, as pressure on sterling eased following financial policy measures announced by the British government on 27 July, the UK firm Prinex (a Courtauld subsidiary) agreed to sell TECHIMPORT an acrylic resin fibre plant and the technology (worth US$ 8.4 million) to produce Courtelle fibre, used in clothing and carpets on mediumterm credits.58 This plant was to be built at Lanzhou where the Simon Carves polyethylene plant, the Vickers-Zimmer high polymer polypropylene plant and the two Lurgi AG plants were being constructed. About that time, the Chinese also purchased an air liquefaction and separation plant (worth approximately US$3.3 million) from the West German firm Linde.59 The plant would produce liquid oxygen, nitrogen and argon – probably for one or more L–D type steel plants which the Chinese hoped to build at Wuhan, Baotou, Shanghai, Luoyang and Taiyuan, if they could acquire the necessary Western technology, equipment and technical support.60 Linde had applied for a five year credit guarantee from the West German government (see Table 8.1).61 In August, prior to the L–T negotiations, the Chinese again offered to sell rice to the Japanese at much lower prices than those quoted by other suppliers, partly because this would help Beijing pay for purchases of Japanese chemical fertilizer.62 A Sino-Japanese rice deal had not been concluded since 1957–8, and Japan’s rice harvests had been good since then. However, since mid-March 1965, reports stated that crop damage from colder than normal weather in Japan might cause serious domestic rice shortages. Although by the late summer of 1965 the Japanese had entered into rice contracts or negotiations with Taiwanese, Thai, South Korean, Spanish and American interests, Tokyo maintained that Japan needed to import much more rice than previously thought. Tokyo soon informed Washington that, because of political and economic considerations, the Japanese needed to purchase all their additional rice requirements for 1965 from the PRC. With Sino-Japanese trade prospects improving, Beijing was eager to work out a new long-term grain deal with the Canadians to compensate for uncertainty about Australian supplies and the growing competition it faced from Moscow in world grain markets. (In August the Soviets agreed to buy 5 million tonnes of Canadian wheat.) Thus, it was no coincidence that on 3 September Zhou Enlai’s close associate, Ding Kejian, was suddenly chosen to replace Zhang Bing as leader of a Chinese grain delegation scheduled to travel to Canada later that month to negotiate a new three year grain deal.63 With these grain negotiations about to begin, negotiations on L–T trade (for 1966) were concluded more quickly than in previous years. On 18 September a non-binding agreement, providing for a total of US$100 million in trade by each country, was signed in Beijing. Although it represented a slight increase in L–T trade over 1965 totals, Liu Xiwen rather than Liao Chengzhi had signed the agreement with Takasaki Office Chief, Kaheita Okazaki. Chinese negotiators

Non-strategic trade and Vietnam escalation 171 continued to attack their counterparts because of the Sato government’s position on trade with China.64 The following day Tokyo emphasized to Washington that it would not be a form of foreign aid to guarantee five year credits to finance another Sino-Japanese vinylon plant deal, and would not encourage Chinese activities abroad. When the Japanese maintained that the Sino-Japanese trade would be a positive influence on Beijing, and that the PRC was incapable of major military endeavours, Rusk conceded that it was better for the Chinese to spend currency on domestic items rather than equipment which would contribute directly to strengthening the PLA. Nevertheless, Rusk urged Tokyo to be cautious and keep Washington informed about developments in Sino-Japanese relations.65 Meanwhile, at the 127th meeting of the Warsaw Talks on 15 September, Cabot – participating in his last meeting before turning over the reins to the new American ambassador to Poland, John Gronouski – made a final effort to secure a deal on the exchange of news representatives and the release of American prisoners. However, the Chinese again insisted that it would be impossible to improve SinoAmerican relations with the US occupying Taiwan and talking about peace while stepping up their aggression in Vietnam. Ambassador Wang also maintained that, four days earlier, an American fighter jet had intruded into Chinese airspace.66 As US military expenditure in Vietnam mounted, the Johnson administration came under growing pressure from Congress to take a firmer stance against allies pursuing policies that ran contrary to American interests. A US Senate bill of 25 August granted President Johnson’s 4 August request for US$1.7 billion for US military efforts in Vietnam – thereby bringing American expenditures on Vietnam during 1965 to US$2.4 billion. However, Americans were increasingly divided over Vietnam, which led to demonstrations, in October, to voice support for and against US participation in the conflict. The signing of the L–T agreement on 18 September provided a timely boost to PRC development policies based on the trade with Capitalist countries because, that same day, the CPC Central Committee Working Conference opened in Beijing (continuing until 12 October) to discuss China’s economic plan for 1966 and its longterm economic strategy (focussing on finance and trade).67 The draft of the TFYP was presented during the proceedings, although it was revised further between September and December to place greater emphasis on the ‘third line strategy’.68 During the first few days of the conference, Liao Chengzhi told Japanese officials that Prime Minister Sato should publicly disavow the Yoshida letter and emphasized that, because Tokyo had extended eight year credits to finance SinoSoviet trade, comparable terms should be offered to Beijing.69 With Ding Kejian’s CIRECO delegation scheduled to open negotiations with the CWB in Canada on 30 September on a third long-term Sino-Canadian grain agreement,70 many Chinese leaders probably thought that Beijing’s foreign trade strategy was heading firmly back on track. PLA Commander Lin Biao’s article ‘Long Live the Victory of People’s War’ was also published during September. It restated Chinese foreign policy objectives, including the promotion of world Communist revolution through wars of

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liberation against ‘bourgeois states’, and having China regain its former international stature (especially in Asia).71 However, despite some successes with foreign trade, 1965 was not shaping up as a particularly good year for Chinese diplomacy. By September, China had suffered several setbacks in its support for national wars of liberation in Asia, Latin America and Africa. In Latin America CCPIT and Xinhua officials had become implicated in several high-profile subversion cases. Since late 1964 there had been a steady flow of high-level Indonesian and PRC political and economic delegations travelling between Beijing and Jakarta. On 10 September Indonesian Foreign Minister Subandrio received the PRC Ambassador Yao Zhongming in Jakarta. From 16 September to 7 October a highlevel Indonesian government economic delegation was received by Zhou Enlai and Li Xiannian. In late September and early October, an Indonesian Air Force Academy delegation visited Beijing and was received by Luo Ruiqing and Zhou Enlai. When a Sino-Indonesian economic, technical and payments agreement was signed on 30 September, Mao Zedong and Liu Shaoqi received many of the Indonesian guests. However, between 30 September and 1 October, as the CPC Central Committee Working Conference reached the midway point, Indonesian leader Sukarno was removed from power during what is officially described as a failed coup attempt, led by the Partai Komunis Indonesia/Indonesian Communist Party (PKI) and an Indonesian army officer sympathetic to their cause. On 16 October, the Indonesian armed forces searched the commercial councillor’s office of the PRC embassy at Jakarta. The rise to power of General Suharto led to the suspension of Sino-Indonesian trade – which, since 1963, had resulted in Jakarta becoming an important importer of Chinese goods, recipient of Beijing’s economic aid and a vital source of Beijing’s rubber and POL imports. Beijing not only lost an important source of export earnings, but the coup immediately demonstrated that the development of Sino-Indonesian economic cooperation had not been completely compatible with the eventual Chinese support for a PKI-led revolution in Indonesia. In this instance, Chinese foreign aid and economic relations appear to have worked against Maoist-based policies to aid national wars of liberation. This development at such a crucial moment in Chinese policy debate appears to have exacerbated policy differences among Chinese leaders. Since 1963 Shell’s Shanghai office, in conjunction with its Indonesian operations, had emerged as a supplier of POL and possibly other products and technical support for the Chinese market. This, along with rumours of American involvement (including the CIA and oil companies) in Sukarno’s removal from power, probably led Mao to become even more sceptical of PRC policies to develop closer economic ties with Capitalist nations. These developments likely contributed to Mao’s growing wariness of recent proposals that the PRC participate in joint ventures (related to industrial projects inside China) with Western/ Japanese firms and the completion of some Sino-Western/Japanese agreements calling for foreign technicians to oversee Chinese projects.

Non-strategic trade and Vietnam escalation 173 Although CPC Central Committee Working Conference delegates approved the State Planning Commission’s economic outline plan for 1966, and emphasized the need to make agriculture the first priority, it also agreed to continue ‘in depth the socialist education movement . . .’, ‘store grain among the people . . .’, and fix the amount of grain purchased by the state once every three years.72 On 10 October Mao continued to emphasize politics when discussing the PRC’s preparations for war and the ‘third line’ with CCP leaders.73 Maoist supporters continued to gain influence in policymaking during the rest of 1965–6, as the Chinese government was unable to obtain the necessary trade concessions from Capitalist countries to meet growing demands associated with increasing domestic population, rapid industrial development and war preparations under the ‘Third Line Project’.

Part V

October 1965–79

9

Cultural Revolution delays Steel complex negotiations and US–allied trade policy, October 1965–November 1966

During the . . . [nineteenth] century the West forced China to recognize that no country can refuse to trade with the rest of the world. . . . [The US government] now enforce[s] the opposite in . . . [its] own embargo policy . . . (American Consul Edward E. Rice, Hong Kong to Department of State, 15 April 1966) [It] is now desirable to reconsider our China trade . . . control[s] in light of our current exploration of possible ways to pierce . . . China’s ‘isolation’ from the rest of the world. We remain opposed to measures likely to contribute to Peking’s military growth, but changes . . . in our system of controls[,] compatible with this main purpose . . . [might add] to useful . . . contact between . . . China and the . . . [US] and the our overriding long-term goal of peace and reconciliation in Asia. (William P. Bundy to Dean Rusk, July 1966, on the findings of the first US government inter-agency Committee, since the Korean War, to review America’s China policy) . . . the greatest means for opening closed minds and closed societies is the free flow of ideas and people and goods. We . . . believe that even the most rigid societies will one day awaken to the rich possibilities of a diverse world. . . . cooperation not hostility is really the way of the future in the 20th century. (US President Lyndon B. Johnson, in speech to the American Alumni Council, 12 July 1966)

October 1965–January 1966 In mid-November the PRC government reported that drought of a magnitude rarely seen in the past century was affecting northern China. By focusing on poor growing conditions, one wonders if the Chinese leadership (as during the GLF) was preparing to deflect attention from further adverse effects of its policies. During October, because of Australia’s drought, the AWB could agree to sell the Chinese only 500,000 tonnes of wheat on twelve month credits. This represented just a small portion of the grain the Chinese needed, for the first half of 1966, and had contracted for under the six month Sino-Australian agreement signed in March.

178

October 1965–November 1966

There were indications that the Sino-Argentinian grain trade could also run into difficulty. Argentina’s grain harvest was smaller in 1965–6, owing to a decline in area sown, lack of rainfall and very low temperatures in Cordoba and Santa Fe. Besides, the Chinese were upset that in the autumn of 1965 Lt General Onigania, Commander in Chief of the Argentine Army, visited Taiwan.1 Chinese purchases of Argentinian grain were also a large and unexpected drain on Chinese currency reserves. Nevertheless, on 25 October the Chinese agreed to buy more than 1.5 million tonnes of grain – 700,000 tonnes for delivery prior to 31 December 1965, and the remaining 800,000 tonnes to be delivered prior to July 1966 – on cash terms from the ANGB. In Canada the following day, Ding Kejian’s delegation signed the third long-term Sino-Canadian grain agreement (see Table 9.1). At that time Ding told prairie farmers that the PRC wanted to buy Canadian grain on a permanent basis. Because of deepening financial problems in Capitalist countries during the autumn, Washington appeared less eager to influence its allies not to trade with China. At that time, Genoa was handling an increasing volume of imports of Chinese minerals and foodstuffs. It had also become the principal Mediterranean departure point for goods like Italian trucks, jeeps, machinery, chemicals, iron and steel products, being shipped to China. Among the exports were very large quantities of unusually thick steel plates, cold rolled steel sheets and steel piping required in oil refineries, natural gas wells, nuclear energy plants, synthesis towers for ammonia manufacturing plants and facilities to produce liquid air, oxygen and liquid helium.2 In October ENI and the Chinese signed a contract covering the sale of a complete gasoline refinery worth about US$5.5 million, possibly on five year credits. That same month CNTIC agreed to pay cash to purchase a plant, valued at US$3.2 million, for expanding large-diameter-seamless-steel tubing of up to 24 inches in diameter from the Innocenti Society (see Table 9.2). Washington was not told about the deal until it was a fait accompli, at which time Rome maintained that, although the Allies agreed to support America’s position that the Soviet ‘friendship pipeline’ posed an economic/strategic threat to Westernaligned interests, the NATO embargo on large-diameter piping exports to the USSR did not extend to China. The development of Sino-Italian trade during the second half of 1965 was of particular interest to the West Germans because Rome and Bonn tended to be the Western governments which adhered most strictly to Washington’s position on the China trade. A deepening recession in the German steel industry and a visit during October and November by a Chinese rolling steel delegation touring several West European steel plants, before continuing on to Japan, left Ruhr area industrialists more determined to expand exports to China. With the Chinese also continuing to negotiate with West German firms for locomotives, complete plants to produce seamless-steel piping, pharmaceuticals, chemicals, synthetic fibres, glass and metals, Bonn became increasingly aware of the potential economic and political costs of adhering to more stringent controls on China trade. As sterling came under renewed pressure during the autumn, British firms continued to make headway in the Chinese market. Beijing agreed to purchase

Table 9.1 PRC–Western grain agreements and contracts: October 1965–December 1966 (in tonnes; wheat and barley in trade grain weight) Date

Parties involved

Quantity and variety

Delivery

Financing

25 October 1965

ANGB CEROILFOOD

1,524,070 million wheat

Cash

26 October 1965

CWB CEROILFOOD

Third longterm agreement covering 3–5 million (grain)

711,233 tonnes prior to 31 December 1965 812,838 prior to July 1966 Under individual contracts to be negotiated

October/ November 1965

AWB CEROILFOOD

508,024 wheat

January–June 1966

25 March 1966

CWB CEROILFOOD

August– December 1966

Early 1966

May/June 1966

Louis Dreyfus/ Goldsmith CEROILFOOD AWB CEROILFOOD

1,624,755 under new longterm agreement signed in October 1965 101,605 wheat

6 December 1966

CWB CIRECO

609,628 wheat (mostly offgrade) 960,701 MN#2, MN#3, Alberta garnet and red winter wheat

January–July 1967

18 month credits: ($100 million in credits guaranteed by Canadian cabinet) 12 month credits: (10% cash, 20% in 6 months, 20% in 9 months) 18 month credits: ($100 million in credits guaranteed by Canadian cabinet) 18 month credits: (COFACE guarantee) 12 month credits: (10% cash, 20% 6 months, 20% 9 months) 18 month credits: ($100 million in credits guaranteed by the Canadian cabinet)

Sources: Table composed by author from various documents within: NAC: RG#20: vol. 819–20, file 10–33 (1965–6); NAA: 1804/28 201/12/1; 1838/1 766/3/56; /2 3107/40/164; NLA: MS 5049; NACP: RG#59: CFPF, S–NF 1964–6, box 3558 and 3635: INCO–WHEAT; CWB annual reports.

Snam–Projetti (Italy) CNTIC Leyland (UK) CNTIC VOEST (Linz, Austria) CNTIC VOEST (Linz, Austria) CNTIC Melle and SPEICHIM and/or Berliet CNTIC Japanese firm CNTIC Alstom–MTE (France) CNTIC Henschel (FRG) CNTIC

#40 October 1965 #41 November 1965 #42 23 December 1965

#43 late-1965

#44 December 1965

#48 December 1965

Schloemann AG (Duesseldorf ) CNTIC

Mannesmann (FRG) CNTIC Innocenti Society (Italy) CNTIC Charles Churchill (UK) CNTIC

#37 22 October 1966 #38 October 1965 #39 October 1965

#45 1965 #46 1965 #47 early December 1965

Firms/organizations

Date (# contract since 1 December 1961)

—

For Taiyuan, Shanxi

30,000 tonne p.a. @

5

4,000 HP diesel hydraulic MKW process high grade cold strip stainless steel rolling mill

31 —

US$2.5 million (US$500,000 each) US$17 million

— —

US$4.86 million

US$12 million

650,000 tonne p.a.

2 For Taiyuan Iron and Steel Plant —

—

—

US$5–6 million

£200,000

—

—

US$3.2 million

US$ 6 million

Cost and financing

5 tonnes per hour @ Installation in 1967–8

Capacity, location, delivery, quantity

Small electric locomotives —

Oil drilling equipment

Truck equipment production systems Linz–Donawicz steel converter plant (basic oxygen steelmaking furnace) 55 tonne BOF furnaces

Hot process piping machinery Seamless tube production plant Machine tools and automated link line system for making lay shift gears for truck gearboxes Gasoline refinery

Equipment/technology

Table 9.2 Major PRC equipment contracts with Western and Japanese firms: October 1965–December 1966

Sweden

Hitachi Shipbuilding and Engineering Ltd (Japan) CNTIC Berliet (France)

Schloemann AG (Duesseldorf) CNTIC Stanhope–Seta (UK) CNTIC Snam–Projetti (Italy) CNTIC Berliet (France) CNTIC

Small electric locomotives

Iron pelletising plant used to concentrate low grade ore 13–15 tonne construction trucks

Aromatic chemicals production plant Recommended and designed machinery and provided licensing for Berliet processes to be used at a huge truck production complex

Petroleum test instruments

Extrusion and pipe press mill

600 Delivered: February 1967–April 1968 17

—

US$40 million

To be built at Wuhan (near the planned DEMAG and Nippon Steel rolling mill projects) @

—

80 million francs

A credit guarantee 1 of at least 32 years offered by the French government’s COFACE Project postponed in late 1966 US$ 3.3 million

US$5.5 million

—

@ 2 70,000 tonne p.a.

US$16 million

35,000 tonne p.a.

Note @ Contracts associated with the large integrated steel processing complex at Wahan.

Sources: Table composed by author from information within: LBJL: NSF: (especially: China memos, box 241, vol. IX 3/67-6/67 CIA memorandum, June 1966; box 240, VI, 3/66-9/66, 18 April 1966); NACP: RG#59: CFPF, S–NF 1964–6, box 700: STR 12-3 CHICOM–FR and E 2-2 CHICOM; box 701: STR 12-3 CHICOM–UK and E 2-2 CHICOM; box 992: FT2 CHICOM–IT and FT CHICOM–GER W; box 993: FT E CHICOM–JAPAN; box 1423: STR 13-3 CHICOM–JAPAN and STR 12-3 CHICOM–FR; box 1424: STR 12-3 CHICOM–UK and E2-2 CHICOM; NAA: A1838/2 766/3/7-43, pt. 1, (1965); ‘China: No Bouquets’, FEER, 4 August 1966; ‘Half-term Report’, FEER, 14 July 1966; MacDougall, C., ‘Foreign Trade: Trading Undisturbed’, FEER, 29 September 1966; ‘The Industrial Scene: Production Records’, FEER, 29 September 1966; ‘Austrian Concern to Build Steel Mill for Red China’, Wall Street Journal, 2 December 1966; ‘The Struggle to Come’, FEER, 4 June 1970; Hsia, R., Steel in China, p. 192; Bartke, W., Oil in the People’s Republic of China, p. 43.

#55 1966

#54 5 December 1966

#53 September 1966

#50 1966 #51 1966 #52 mid-1966 (associated with rolling mill projects: see Chapter 10)

#49 March 1966

182

October 1965–November 1966

three computers, worth a total of nearly US$ 3 million, from UK firms. In late October 1965, the Charles Churchill Group of Halifax agreed to sell £220,000 worth of machine tools, for producing truck parts. Following the signing of this contract the Chinese did not sign another major equipment contract with British interests until late 1966. Meanwhile, on 9 September de Gaulle told a press conference that French military integration within NATO would end by 1969. Paris had also decided not to participate in the 10 September aid package for sterling of the Allied Central Banks and during November, told Washington that America’s Vietnam War deficit was adversely affecting European economies. Holders of US dollars continued to exchange the currency for gold, resulting in a further decrease in the size of America’s gold stocks during 1965. Late in that year, as Paris and Beijing, which had also switched from sterling to Swiss francs for settling trade debts with Japan, continued buying gold, the USSR suddenly suspended sales of this metal and did not resume making large sales until 1972.3 French interests remained keen on keeping pace in the China market and in December, the Chinese agreed to purchase banknote production equipment, worth US$4 million, from a French firm and oil drilling equipment worth US$4.86 million from Melle and SPEICHIM and/or Berliet (see Table 9.2). Then, on 5 December, as CNTIC’s steel production equipment/technology negotiations with the Austrian firm VOEST entered a critical stage and the Chinese rolling steel mill delegation neared the end of its tour of Japanese plants (29 November–6 December), a Sino-North Vietnamese accord was signed, under which Beijing agreed to provide loans of undisclosed amounts to Hanoi. About that time Bonn told Washington that it might approve two or three applications for West German government long-term credit guarantees to finance relatively large equipment/technology sales to China. One of the applications asked that Bonn guarantee five year credits required for a contract, signed in December, under which Schloemann AG had agreed to sell the Chinese a 30,000 tonne p.a. capacity MKW4 process high-grade cold strip alloyed stainless steel-sheeting rolling mill valued at US$17 million. About 23 December, as Bonn considered Schloemann’s proposal, news sources reported that VOEST had recently agreed to sell CNTIC a 650,000 tonne per year capacity L–D steel converter plant (basic oxygen steel-making furnace) for approximately US$12 million. It was Beijing’s first large purchase of Western steel production equipment/technology. Vienna had guaranteed five year credits to facilitate the deal. The plant was to be built at Taiyuan, Shanxi and was scheduled to begin operating in 1968 (see Table 9.2). As Ronald Hsia explains, both the domestically engineered Shijingshan plant and the imported VOEST plant at Taiyuan were vital to the construction of the Shanghai no.1 Iron and Steel Works in 1966. The new 600,000 tonnes capacity Shanghai plant utilized two large L–D crucibles which may have been based on the two 55 tonne BOF blast furnaces that VOEST also reportedly sold the Chinese in late 1965.5 In December, negotiations, under way since 1961, between the West German controlled Henschel AG and the Chinese for up to ninety 4,000 HP diesel locomotives,

Steel and Cultural Revolution delays 183 reached a critical stage. Beijing had previously relied exclusively on Moscow to provide comparable equipment for long-haul freight and mountain routes. Facing serious financial difficulties, Henschel AG had recently become 49 per cent owned by Morgan of New York – which appeared willing to arrange financing for a Chinese–Henschel deal. The US Treasury Department had been considering the implications of such a deal since at least May 1963. Although US interests held a minority interest in the West German firm, there was a growing consensus within the US government that it was politically and economically unproductive to continue pressuring its allies and foreign subsidiaries of US firms to adhere to stringent controls on China trade. After all, during December, Alstom Atlantique MTE, a Cie Générale Electricité subsidiary which had sold locomotives to the PRC as early as 1954, and twenty-five 6,000 hp electric locomotives in 1960, agreed to sell Beijing more railroad equipment. Thus, Washington did not attempt to prevent Henschel from selling the Chinese six 4,000 hp locomotives, worth a total of US$2.5 million, under a contract signed in December.6 On 15 December, when the newly appointed American Ambassador to Poland, John Gronounski, made his first appearance at the Warsaw Talks (for the 128th meeting), he reiterated key elements of President Johnson’s January 1964 state of the union address, while attempting to persuade the Chinese that the US government was not hostile toward any country, including the PRC. He then announced that Washington would consider visa applications for Chinese journalists wishing to visit the US and hoped that Beijing would make a reciprocal offer. Gronouski added that Washington would soon consider validating passports so that American doctors, scientists and public health workers could visit China for work-related matters. However, Ambassador Wang replied that American actions – especially more alleged US incursions into Chinese airspace and territorial waters since September – remained inconsistent with US statements. The Chinese remained unwilling to discuss smaller issues until the matter of Taiwan was resolved.7 On 27 December, with US Allies pressing for the PRC to be admitted to the UN, President Johnson agreed to allow American scientists, medical doctors and public health workers to travel to China. However, two days later Ho Chi Min rejected an American proposal for unconditional peace talks. Recent Sino-West European equipment and technology deals had attracted considerable attention in Japan and, by late December, there were indications that Sino-Japanese economic relations were strengthening. In 1965, the Japanese had agreed to purchase as much as 160,000 tonnes of Chinese rice. Then, in early January, the Japanese accepted Beijing’s offer, which undercut all others, and agreed to purchase 320,000 tonnes of PRC rice for delivery in 1966. This development worried Taibei which had previously warned Washington that Tokyo might turn increasingly to Beijing rather than to the US, Taiwan, Egypt or southern NATO countries to cover Japan’s rice deficits. Nevertheless, many wondered how Beijing would come up with the extra rice. The answer was not long in coming.8 During a speech on 2 January 1966, Cuban leader, Fidel Castro, accused the Chinese of reneging on their commitments under the Sino-Cuban rice–sugar barter agreement, signed in October 1964. Outside of Asia, only Cuba imported substantial

184

October 1965–November 1966

quantities of PRC rice and, in 1966, Havana planned to import 285,400 tonnes of Chinese rice in exchange for 800,000 tonnes of sugar. However, during negotiations in December 1965, about the time that the Japanese told the Chinese that they wanted to buy more PRC rice than in the previous year, Beijing informed Havana that it could supply Cuba with no more than 135,000 tonnes of rice during 1966 in exchange for 600,000 tonnes of sugar. The Chinese claimed that they did not need to buy as much sugar and, because of shortfalls in domestic rice production, hoped to sell as much rice as possible for hard currency to pay for more purchases of Western grain. Observers also speculated that the PRC was building up grain stocks in preparation for an American invasion, and was providing some food aid to the North Vietnamese who were short of grain.9 The withholding of PRC rice exports to Cuba, was also a means for Beijing to reprimand Havana for leaning towards Moscow in the Sino-Soviet dispute.10 Although Chinese L–T trade officials had told the Japanese that China’s longawaited TFYP would not be published, but presented to the NPC in December 1965,11 it is unclear how closely it was followed. The growing emphasis which Beijing placed on politics, preparation for war and self-reliance made the ‘readjustment’ strategy increasingly unfeasible. During the enlarged meeting of the Standing Committee of the Political Bureau of the CPC Central Committee in Shanghai (8–15 December) Luo Ruiqing was accused by Lin Biao, Wu Faxian and others of opposing the policy of ‘putting politics first’, ‘usurping military power and opposing the Party . . . .’ Luo, who we now know was closely associated with the PRC’s grain import programme, soon became the first PRC leader official to be removed from power in the Cultural Revolution.12 On 20 December, Zhou Enlai told those in attendance at the fifth anniversary celebrations of the founding of the National Liberation Front that America was preparing to extend the Vietnam conflict throughout South-East Asia, and ultimately, to China. He warned that if the US decided on ‘. . . having another trial of strength with the Chinese people . . . (China would) take up the challenge and fight to the end.’ By late 1965, Chinese leaders who had overseen the ‘readjustment’ since 1961, probably recognized that 1966 would prove crucial for their own careers and China’s economic and political future. They were under intense pressure from those increasingly influential Chinese leaders who favoured ‘leftist’ policies to demonstrate that ‘readjustment’ was leading to ‘self-reliance’ and improving China’s grain situation rather than encouraging dependency on imports from Capitalist countries. The ‘readjusters’ precarious positions could probably only be rectified if they could expedite purchases, under very generous long-term credits, of much larger ‘stateof-the-art’ steel production and processing equipment necessary to raise production of petroleum, chemical fertilizer and equipment to boost domestic grain production.

January–March 1966 In January 1966, Bonn approved five year credit guarantee applications so that the Chinese could buy an air liquefaction and separation plant from Linde and

Steel and Cultural Revolution delays 185 a cold strip rolling mill from Schloemann under contracts signed in the autumn of 1965.13 This latter deal was rumoured to be associated with a proposed large integrated ‘state-of-the-art’ steel-rolling mill complex project for which rival West European and Japanese consortiums were competing to provide equipment, technology and engineering services. The Chinese must have realized that it would be useful to do business with such consortiums because, when working together, powerful business interests wielded even greater international political influence which could help further erode the China trade controls. About this time, the Cultural Revolution claimed another victim. Chen Ming, a key official in China’s trade and currency operations with non-Communist countries, suddenly disappeared. A speech by William Bundy on 12 February reiterated several points relating to China made by Roger Hilsman in his landmark speech of December 1963. However, five days earlier, as had happened a good many times before, when there were renewed hopes for an improvement in Sino-American relations, the PLA shot down another US made pilotless high-altitude military reconnaissance aircraft.14 Then, on 18 February, Rusk told the Senate Foreign Relations Committee that Washington had exhausted every effort to resolve the Vietnam conflict peacefully. During the last week of February, West German industrialists told American officials about their central role in a consortium of West European firms15 negotiating to sell the Chinese a large ‘state-of-the-art’ integrated steel-rolling mill complex worth more than US$150 million. The complex would produce at least 1 million tonnes of finished hot rolled wide sheet steel and 1 million tonnes of finished cold rolled wide sheet stainless steel per year. The 1.5–10 mm thick and 700–1,500 mm wide sheets from this complex would be useful for producing tin cans, construction/roofing sheeting and automotive bodies.16 The ‘DEMAG project’ was to be built at Wuhan, home of China’s automotive industry, where the steel sector was in difficulty mainly because certain key equipment and technical parts were unavailable. This project would help to make the Wuhan truck production facilities the largest and most technologically advanced in China.17 Nevertheless, this project, in which DEMAG appeared poised to play a key role, involved the construction of hot and cold rolling mills, a wire mill, a steel reducing plant and other installations for producing steel casting and tubing. Participating German firms had applied for a five year FRG government credit guarantee on their approximately US$70 million share of the complex. About 20 March, when making a public announcement about West German involvement in the deal, Bonn finally revealed that, one year earlier, it had decided to guarantee credits of five years for exports to Communist nations. By mid-March the CNTIC–DEMAG steel processing complex negotiations had entered a final stage.18 Also about that time Schloemann AG announced that it had agreed to sell Beijing a 35,000 tonne per annum (maximum diameter 300 mm) steel tube extrusion and pipe press mill for approximately US$16 million. This was probably part of the DEMAG project, as were contract negotiations with

186

October 1965–November 1966

Mannesmann for equipment to process ends of piping of between 2.7 and 22 cm19 for use in city gas and water grids, boilers and housing construction,20 cold-drawing installations and transport devices within a cold-drawing mill. Meanwhile, on 5 March, shortly after US officials first began to hear details of the DEMAG negotiations, Beijing had claimed that the PLA had shot down yet another US made high-altitude military reconnaissance aircraft.21 Nevertheless, at the 129th meeting of the Sino-American ambassadorial talks eleven days later Ambassador Gronouski again emphasized that Washington was not hostile towards Beijing. Washington would not change its position on Vietnam, but it wanted to increase contacts with Beijing by exchanging meteorological information and academics. Gronouski gave Wang a copy of the Zablocki committee testimony and, after their meeting, invited Wang to dine at his home. As before, Wang alleged that Washington continued acting aggressively towards the PRC, while complaining about American activities in South-East Asia.22 Official confirmation of the Sino-DEMAG project negotiations provoked more intense debate in Washington over the purpose, function and future of the embargo. Although Washington was considering loosening its controls on non-strategic trade with China, it was under growing Congressional pressure to tighten restrictions on strategic trade – despite the fundamental ongoing disagreement between the US and its allies over the definition of strategic. On 10 March de Gaulle, had announced that France would withdraw from NATO and that the organization’s headquarters were no longer welcome on French soil. Washington was expected to provide much of the necessary financing to help reaffirm the solidarity of the remaining fourteen NATO member countries. Ultimately, the US Congress would have to vote on the issue and the Senate to approve the necessary funding.23 American Allies continued to sell the Chinese grain on credit terms despite the Vietnam conflict. Uncertainty about the PRC’s grain import programme remained, although in early 1966 the Chinese had agreed to purchase 100,000 tonnes from Louis Dreyfus/Goldsmith on eighteen-month terms. Domestic demand for grain was increasing and subsequent reports by PRC news sources, stating that China’s major grain producing regions had been adversely affected by severe drought during 1966, may also been exaggerated to deflect attention from the Beijing government’s policy failures.24 Regardless, the Chinese needed to buy much more grain in 1966–7, but because of the continuing Australian drought, the AWB was unable to sell them grain until at least May. Cash purchases of Argentinian grain continued to be a burden on Beijing’s currency reserves. With Beijing still unwilling to ask Washington directly to consider sanctioning Sino-American grain sales, it was crucial that the Chinese reach more deals with the CWB. Then, on 25 March, the initial contract under the third long-term Sino-Canadian grain agreement was signed, under which Ottawa guaranteed medium-term credits, enabling the CWB to sell CEROILFOOD 1.6 million tonnes of grain. That same day Rusk, responding especially to Bonn’s announcement, five days earlier, that it would provide an export credit guarantee to enable the

Steel and Cultural Revolution delays 187 CNTIC–DEMAG steel processing complex deal to proceed, asked those [C]onsidering the type of trade with . . . China which might add . . . to their war-making capability . . . and . . . make it more difficult to . . . establish a peace out there . . . that the substantial increase in the steel producing capability of . . . China is not a very comfortable idea for us . . . when China is doing nothing to bring about peace in South-East Asia . . . ’.25 However, on 28 March 1966 Bonn insisted that the equipment and technology included in the DEMAG project was not on the COCOM list, would not contribute to China’s capability of waging war and that the credit terms offered did not exceed Berne union limits.26 That same day Tokyo asked Washington for an update on the DEMAG project negotiations and inquired about how the US government would respond if Japanese interests agreed to sell Beijing a titanium installation. Rusk’s response was that, although COCOM would not block a titanium plant deal, Washington would consider it inconsistent with ‘Paris Group’ objectives because it would enable the PRC to produce a strategic material. Titanium products would be useful in China’s aerospace industry and he said he hoped that Tokyo would consider how such a transaction could affect Japan’s national security. He guessed that Washington might be even more opposed to such a deal than to the DEMAG project because America had helped establish Japan’s titanium industry by providing a guaranteed market for Japanese produced titanium in the US.27 Although the five year L–T trade agreement would expire in June and Tokyo was eager to renegotiate the accord, the Japanese assured Washington that Ex-Im Bank financing for the China trade was still unavailable and that recent rumours that Hitachi would participate in the proposed DEMAG project were incorrect.28 Under growing pressure from Congress, Washington decided to clarify America’s position on recent developments in East–West trade. In a speech to the Vebersee Club in Hamburg on 31 March, American Ambassador to West Germany, C.M. McGhee, emphasized that Congress was displeased with the proposed DEMAG project and stated that Part of the argument for freer trade with the Communist world is that a willingness to trade is evidence of a desire to promote . . . harmonious relations . . . . So far, the Chinese . . . have given no such evidence. The Peking regime has exported subversion to Vietnam, Laos, Thailand, Malaysia and . . . Africa . . . . When [Bonn] first approached us regarding the steel mill project, we reluctantly did not object since there was no formal violation of COCOM or Berne Union rules involved. However, in light of current U.S. involvement in Vietnam and . . . of our assessment of Peking’s continued aggressiveness, we could not help but be disappointed at a decision to promote the sale . . . .29

April–July 1966 West German news sources were mostly critical of Washington’s position as outlined in McGhee’s speech, while Bonn continued insisting that the proposed

188

October 1965–November 1966

deal did not conflict with US interests. Although conceding that products from such a complex might be used for war materials, Bonn insisted that ‘. . . no one would have objected if Germany had sold large quantities of rolled steel to the Chinese. . . .’30 In April, the idea that a more flexible US–China policy might benefit America was gaining greater acceptance in Washington. A US government policy paper produced at that time emphasized that by adopting a more flexible approach towards China, Washington could improve relations with most nations and place Beijing on the defensive by undermining its efforts to portray America as the ‘implacable’ enemy. A more moderate American stance might demonstrate that the PRC government was the main obstacle to improving Sino-American relations.31 On 12 April the State Department’s Far Eastern Bureau, the CIA and the White House began conducting the US government’s first inter-agency review of America’s trade controls since the beginning of the Korean War.32 By mid-May President Johnson was considering supporting Ottawa’s proposal to introduce a ‘two Chinas’ resolution at the upcoming UN meeting.33 Ironically, this re-evaluation of US–China policy was initiated just as China was about to be thrown into turmoil by the Cultural Revolution. In late April, before entering final negotiations, in Beijing, to sell the Chinese a pipe-processing installation, worth US$6.75 million, Mannesmann learned that Bonn would provide a five year credit guarantee to facilitate the signing of a contract. However, when Mannesmann’s negotiating team returned to Duesseldorf with a signed contract on 24 May, they revealed that their Chinese counterparts had been uninterested in obtaining long-term credits – ultimately agreeing to pay 15 per cent cash with the balance on delivery in twenty-two months – and had placed no time constraints on delivery of the plant. The Chinese also accepted less than half the production guarantee that Mannesmann was willing to offer, were unwilling to divulge the construction site of the plant and resisted the firm’s request that West German engineers helping with the project be granted free movement in the local community or the opportunity to return home.34 For its part, Bonn had not kept Washington informed about the negotiations and US officials only learned of the deal from the Mannesmann representatives after it was signed.35 Then, when Kenzo Matsumura met Liao Chengzhi, Zhou Enlai, Chen Yi and Zhu De in Beijing in late May, the Chinese Premier rejected the Japanese request that negotiations on a new five year L–T accord begin in the autumn to protest the Sato government’s approach to China trade. Also the Chinese would only agree to negotiate annual L–T contracts not under five year ‘umbrella accords’ and planned to do more business with Japanese ‘friendly firms’ instead.36 However, information received by the US government in mid-June indicated that for the past few weeks, the Chinese Ministries of Foreign Trade and Foreign Affairs had virtually halted their usual work as they focussed on Maoist ideological study.37 Less wheat was available on world markets. In June, Australia, having suffered another poor harvest, could sell China only 600,000 tonnes of wheat. Thus, some

Steel and Cultural Revolution delays 189 PRC leaders, especially those concerned that China’s renewed emphasis on Maoist ideology might again produce disaster, appeared eager to examine any possibility of easing Sino-American tensions, especially so that the Chinese could buy US grain, equipment and technology on credit. About 13 June, Chen Yi told British officials in Beijing that his government hoped its fear that America would attack the PRC would prove wrong. He referred to the ‘Four Points’ outlined by Zhou Enlai on 10 April: first, that Beijing would never start a war with the US; second, that it meant what it said; third, that it was prepared for escalation of the Vietnam conflict; and, lastly, that if Washington extended the war to the PRC there would be no boundaries to that conflict. He emphasized that the Chinese government considered a Sino-American diplomatic rapprochement far more important than PRC admission to the UN, but this could not be discussed unless America withdrew from Vietnam.38 Also in June, Bo Yibo – the Shanxi born Vice-Premier and Chairman of the State Planning Commission since 1956 – was branded a counter-revolutionary and purged, while Liu Shaoqi, Nan Hanzhen and recently appointed Vice-Minister of Foreign Trade, Zhou Siyi, disappeared. Rong Yiren and Luo Ruiqing were among other key officials removed around this time. More significant ‘readjusters’ were soon to be purged. Despite the US government’s stance on the DEMAG project, there were signs of a new flexibility in Washington’s China policy. President Johnson’s landmark speech to the American Alumni Council on 12 July, entitled ‘The Essentials for Peace in Asia’, emphasized that the free flow of goods, people and ideas was the best means to open closed minds in closed societies and that, although Beijing had rejected its previous initiatives, Washington was keeping the door open to ‘cooperation without hostility’, ‘containment without isolation’ and ‘reconciliation’.39 Then, on 21 July 1966, after receiving the final report of the US government inter-agency committee reviewing (since 12 April) US–China policy, William Bundy recommended to Rusk that Washington consider undertaking a limited, but not token, relaxation of the trade embargo to allow American foodstuffs and non-strategic goods to be exported to the PRC. However, the Committee recognized that, even with Presidential approval, there remained significant official opposition to such changes, especially within the State Department’s FE Bureau. Political ramifications associated with any reduction in the China trade controls would involve the situation in Vietnam, the upcoming 1968 Presidential election and the controversy surrounding the proposed DEMAG contract. Although the committee expected that Beijing would reject such an initiative and warned against participating in deals which could bolster the PLA and Vietcong through re-exports, it emphasized that limited trade in non-strategic goods would be a useful Sino-American contact, which might help the Johnson administration achieve its objective of attaining reconciliation and peace in Asia.40 That same day, the Australian Cabinet met to discuss John Lysaght (Australia) Ltd’s recent application to export 17,000 tonnes of cold reduced steel-sheeting to China. Although Australian trade controls only permitted the export to China of metals such as tin plate, which were of little benefit to the PLA, Cabinet approved

190

October 1965–November 1966

John Lysaght’s application because the quantity of steel-sheeting involved represented a small fraction of China’s total requirements and the Chinese could obtain this material elsewhere anyway. The Australian firm needed the business and Canberra felt that it was one of the best ways to improve Sino-Australian relations.41 By late July Tokyo was convinced that Washington was re-evaluating its China policy. Although it had not decided to recognize Beijing diplomatically, it planned to push for more Sino-Japanese economic contact and for Washington to lift the China trade embargo.42 The China lobby and their supporters in Congress realized that immediate and fairly drastic action was required to prevent the embargo from breaking down. On 27 July, the US Senate approved a foreign aid bill (a motion by Senator Byrd) making drastic cuts and amendments to the previous legislation. Under the bill the Johnson administration lost its fight to hold down interest rates on development loans to poor countries. Before its passing, the Senators associated the bill with the condemnation of West European, especially West German, participation in the DEMAG deal.43 West German news sources were generally wondering why the US Senate seemed to be focussing on the proposed DEMAG deal, when Washington had not openly complained about Ottawa guaranteeing Canada’s credit grain sales to China, Rome allowing Fiat to sell Moscow an automotive plant, London permitting a British firm to sell the Soviets large-diameter piping, or more than twenty other Sino-Western complete plant deals.44 Throughout July DEMAG representatives told American officials that, although the Chinese had still not made a final decision on specifications for the integrated steel processing complex, Bonn would probably allow a deal to proceed further because it knew that Washington was considering selling the PRC grain.45 On 29 July 1966, American officials in the West German capital warned Rusk that continuing Congressional criticism of the proposed DEMAG deal would probably detract seriously from Washington’s ability to influence Bonn’s future China trade policies. Most West Germans seemed in favour of it proceeding, and the Cabinet could not reverse its position without appearing utterly subservient to Washington. Although some of the items produced at such a complex could be used to produce Chinese military equipment, the same could be said of other industrial plants which firms from Capitalist nations sold to the PRC – deals which Washington had not raised serious objections about. West Germans would not understand the US government’s position on the proposed deal, especially at a time when they felt that US–China policy was changing, and increasingly saw it as a test of their sovereignty.46 Nevertheless, from the China lobby’s perspective it was a good time to keep the pressure on the PRC. With Chinese officials close to concluding crucial technology and equipment deals with Western and Japanese interests, more serious problems were developing with the PRC’s trade and development strategy. However, from July onward, growing turmoil in the PRC and official Chinese actions abroad, associated with the Cultural Revolution, left Western

Steel and Cultural Revolution delays 191 governments increasingly cautious of Beijing. As Chinese leaders favouring ‘leftist’ development strategies gained control of PRC policymaking they emphasized ‘self-reliance’ and rejected foreign credits and technical cooperation.

Mid-July–21 November 1966 In addition to Maoist ideological study, the Chinese were preoccupied with meeting their main economic objective for 1966 – achieving an all-round Leap Forward through sustained production increases, especially in grain. Mao was very concerned that China meet production targets47 and the ‘Great School of Revolution’, announced on 1 August, sought to solve China’s agricultural problems. However, obstacles were looming for the all important, from the Chinese perspective, L–T trade. Negotiations for the final year of the accord were set to begin in September, but were delayed until 5 November. After a good domestic rice harvest in 1966, the Japanese had decided to purchase much less Chinese rice, for delivery in 1967, than in the previous year. This cut would cost the PRC government approximately US$16 million in lost profits, currency which it would have channelled into purchasing more crucial items from the Japanese under the L–T agreement.48 This was especially significant as the L–T barter trade was a key source of essential items for PRC development and because of recent pressure from ‘leftists’ within the Beijing leadership to wean China from foreign credits and grain imports. Coming at a critical moment, these developments, together with Beijing’s concern that Washington might ultimately convince Bonn to block the proposed DEMAG project, may have strengthened the hand of Chinese officials opposing closer economic ties with Capitalist countries, contributing to the intensification of the Cultural Revolution. If imports of Western and Japanese equipment/technology were to continue to be central in achieving development targets, the Chinese needed to find a way to keep their export drive going. Because of growing rice shortages in various countries prices for this grain were rising, so beginning in mid-July PRC officials were even more eager to export rice to ‘non-traditional’ Asian markets. In addition to commercial grain imports, East Pakistan received annual shipments of American PL 480 grain, but in mid-July Rawalpindi maintained that it had insufficient stocks to cover shortages caused by flooding. Rangoon subsequently suggested that Rawalpindi ask Beijing if it would spare a portion of the 300,000 tonnes which Burma had recently exported to China. After arriving in the Chinese capital on 27 July to negotiate a new barter agreement, East Pakistan’s Minister of Commerce, Faruque, met with Zhou Enlai and Chen Yi, and soon afterward, Beijing agreed to provide Rawalpindi with 100,000 tonnes of rice, on barter terms. Thanking the Chinese for this friendly gesture during its time of need, Rawalpindi blamed domestic food shortages on delays in American PL 480 shipments. Concerned that these allegations might affect support for Communist and Muslim elements in Pakistan, Washington noted that, during the first half of 1966,

192

October 1965–November 1966

over 400,000 tonnes of American grain was exported to Pakistan – three quarters of which was destined for East Pakistan – while during the second half of the year a further 1.5 million tonnes was shipped. Washington, believing that Pakistan’s food shortage was caused primarily by local merchants withholding grain from the market so that they might obtain higher prices once the US shipments had stopped, informed Rawalpindi that such ‘grossly misleading’ charges could ‘. . . only have . . . [an] unfavourable impact . . . [in Washington] on Pakistan’s interests’.49 Also in mid-July when the Rice and Corn Administration of the Philippines RCAP – a government agency which purchased grain on behalf of the National Economic Council – was unable to buy enough rice on favourable terms from traditional suppliers, CIRECO offered to sell Manila 200,000 tonnes of rice up to 30 per cent below open market prices on the condition that such a deal was signed by PRC and Philippine officials. Ferdinand Marcos’ government’s policies – which encouraged farmers to use IR-8 miracle rice and chemical fertilizers – had helped raise domestic yields from the average of 28 (48 kg) sacks per hectare of standard rice to between 150–1,200 (48 kg) sacks per hectare. However, when a serious rice shortage developed in 1966, the RCAP reported that only about 100,000 tonnes of rice remained in Philippine government and private warehouses. The RCAP could not account for most of the approximately 1.4 million tonnes of rice imported from abroad by the previous Philippine government, from 1962 to 1965, and assumed that either the rice: (1) been consumed because of increased Philippine consumption (in which case certifications of shortages of the previous government were understated); (2) was smuggled out of the country after reaching the Philippines; or (3) had only partially been recorded in official documents – the rest not having actually entered the Philippines. Rice shortages were also exacerbated by a shortage of farm labour and by transportation problems in the southern Philippines, which often resulted in harvested rice not reaching commercial centres. Thus the Marcos government faced increased domestic political pressure to remedy the situation – especially in President Marcos’ home region of northern Luzon.50 RCAP officials maintained that they would be unable to obtain rice of a quality, quantity and price comparable to that offered by the PRC, from Thailand, Burma, Cambodia, Egypt, America, Singapore or Taiwan. Nevertheless, the Foreign Affairs Branch of the Philippine government – which tended to be influenced by Washington – was opposed to purchasing rice from Beijing. After learning of CIRECO’s offer, Washington had told Manila that it opposed such a deal and would invoke FACR to prevent the Philippine government from using US dollars to purchase Chinese rice. Washington was concerned that a SinoPhilippine rice transaction would help Beijing earn currency, possibly US dollars, which could create serious domestic political problems for the Johnson administration. After all, according to Philippine Central Bank governor, Andres Castillo, the Philippines’ gross international currency reserves by August 1966 were equivalent to US$199.69 million and 95 per cent of this amount was in US dollars. During his visit to the US earlier that summer Castillo had secured a US$22 million loan from a syndicate of eight private American commercial banks. At that

Steel and Cultural Revolution delays 193 time Washington had also promised to extend other loans to Manila, if required. Then, on 16 September, the day that the first contingent of Philippine troops arrived in South Vietnam, Marcos met with Johnson in the American capital. The visit was subsequently described as a great success, and the following day Washington announced a substantial increase in American economic aid to Manila.51 In mid-September, as American pressure and economic incentives threatened to undermine Sino-Philippine rice negotiations, PRC rice shipments to East Pakistan were well behind schedule and those that had reached port were rumoured to have a large percentage of broken kernels and to be of the worst quality. By that point, as large shipments of Canadian and US grain arrived in Pakistan, Rawalpindi bowed to high-level US government pressure that it guarantee equitable media/political coverage for arrivals of Western food grain at Pakistani ports.52 Not only had the PRC’s rice diplomacy with East Pakistan been less than a complete political success, it had not earned the Chinese currency or provided equipment/technology for achieving ‘self-sufficiency’. In mid-September too, Sino-Japanese L–T negotiations were delayed until November and Beijing broke off relations with Japanese ‘friendly firms’ because the JCP, which had strong ties with these companies, had recently been improving its relations with Moscow. Nevertheless, in September, as Sino-Japanese trade began running into difficulty, the Chinese agreed to purchase a pelletizing plant, valued at approximately US$3.3 million from Hitachi Shipbuilding and Engineering Ltd. The equipment was needed to concentrate the low grade ores found in the Wuhan region, where the DEMAG project was supposed to be built. On 20 September, Air France was permitted to begin its service – established under a recent Franco-Chinese air agreement – from Paris to Shanghai via Athens–Cairo–Karachi–Phnom Penh.53 About 13 September, Sino-Mannesmann negotiations resumed in Beijing for another piping production installation – a 5-tonne-per-hour-capacity small-gauge hot process piping plant worth approximately US$6 million.54 This installation was also probably part of the proposed DEMAG project. During the negotiations, the Chinese were again unenthusiastic about receiving foreign credits, although Mannesmann had applied for another FRG Hermes Export Insurance guarantee to finance such a deal.55 After refusing to admit Mannesmann technicians to the PRC, Chinese negotiators suggested that they send ten of their technicians to West Germany for training because they wanted to complete domestic construction projects themselves. The Chinese showed no interest in securing a firm date for Mannesmann to deliver the equipment or in obtaining a production guarantee as to when equipment became operational. Mannesmann representatives guessed that, because of the PRC’s steel shortage, the Chinese realized that the plant would operate intermittently.56 On 23 September, as the Cultural Revolution intensified and foreign students were asked to leave the PRC, Chinese negotiators told DEMAG executives that the steel-rolling plant project had been postponed indefinitely.57 Beginning two days earlier and continuing at least until late December, PRC news sources

194

October 1965–November 1966

reported bumper domestic harvests in all regions, despite the severe drought which had occurred throughout China in 1965 and 1966.58 However, it is possible that the government exaggerated drought reports, as during the GLF, to deflect attention from adverse consequences of its policies. Political enthusiasm associated with the Cultural Revolution may also have resulted in harvest reports being inflated. PRC trade statistics published in 1983 suggest that, during the most disruptive phase of the Cultural Revolution, beginning in 1966, the government had insufficient information to produce output figures for many grain crops.59 Nevertheless, the Chinese remained eager to expand their rice diplomacy to earn currency to pay for essential imports. Consequently, they sold rice to Senegal which was unable to obtain enough rice of the variety and quality required from Thailand, Brazil, and Cambodia to meet serious domestic food shortages. In earlier years the Senegalese had purchased small quantities of Chinese rice indirectly through French intermediary firms, but this time they bought 40,000 tonnes directly from the Chinese government and an additional 20,000 tonnes through a local import firm, Consortium African. This firm was run by Alioune Camara – a Senegalese member of the outlawed Communist Parti African de l’ Indépendence – who arranged for the rice to be delivered to Senegal through intermediaries in the Mali government, which had dealt directly with the Chinese embassy in Bamako.60 However, this transaction had still not resolved the PRC’s hard currency problems. Washington became agitated when on 29 September it learned that the RCAP may have signed a deal to purchase low-grade Chinese rice from Hong Kong interests. Since 1949 the Hong Kong government had enforced an unstated policy of restricting imports of Chinese rice to below 30 per cent of the British colony’s total rice imports. However, because of rice shortages on world markets, the Hong Kong consumer began paying much higher prices, often for inferior blended grades and the Colonial government came under pressure to address the problem. Of course, the solution was to import more rice from the PRC.61 For the proposed PRC–Hong Kong–Philippine deal to proceed, President Marcos would have to approve the suggested financing arrangement and the Hong Kong Department of Commerce’s department of rice control needed to grant export licenses to enable the rice to be shipped from the British colony to the Philippines. As officials in Hong Kong and Manila reviewed details of the proposed transaction, Washington was engaged in frantic and unproductive efforts to find alternate sources of rice which could match Beijing’s offer. American pressure throughout October on Manila and Hong Kong banks – which revoked the required letters of credit – paid off, when, about 11 November, the Philippine government cancelled the proposed PRC–Hong Kong–RCAP rice deal.62 Meanwhile, L–T negotiations had opened on 3 November and, although Japan’s national elections were imminent, the amount of trade provided for under the 1967 agreement, concluded on 21 November, was the smallest since the first annual pact was negotiated. Furthermore, although the Chinese agreed to purchase hot process piping machinery, worth approximately US$6 million, from

Steel and Cultural Revolution delays 195 Mannesmann Meer on 22 October, this was the final major equipment deal that the Chinese signed with foreign countries until 1970–1 when they resumed serious talks with Western firms for the integrated steel-rolling mill project. In late October the Chinese cancelled their contract with Berliet to purchase a $40 million truck production complex.

10 Emergence from Cultural Revolution Trade negotiations resumed, US trade controls relaxed, November 1966–79

. . . regional analysis . . . reveal[s] that the major deterioration in China’s ability to meet its food needs between the 1FYP and 3FYP periods derived overwhelmingly from the elimination of the previous sizable grain surplus from the Southwest and that region’s transition to deficit status. (Robert F. Ash, ‘The Cultural Revolution as an Economic Phenomenon’ in Werner Draghn and David S.G. Goodman (eds), China’s Communist Revolutions: Fifty Years of the People’s Republic of China (2002))

21 November 1966–June 1967 In November 1966 China’s Cultural Revolution entered a new stage, characterized by increasing political turmoil and resultant economic disruptions. More Chinese officials in charge of the post-GLF ‘gradualist’, ‘agriculture first’ ‘readjustment’ economic strategy were purged or lost influence. Those officials who CCP historians describe as ‘leftist’, gained control of the PRC’s policymaking and government apparatus and, without regard for overall balance, implemented policies emphasizing ‘self-reliance’, more rapid economic industrial development in the interior and preparation for war. The Beijing government suspended all foreign imports of non-essential equipment, complete industrial installations and technology while focussing more on copying and distributing items already purchased from abroad. In the early stages of the Cultural Revolution Mao reiterated his former assertion that it was dangerous for the PRC to rely on foreign grain imports1 and the Chinese soon began trying to drastically reduce or even eliminate these purchases by raising domestic output through increased fertilizer application. The leadership responded by planning to cut back or even eliminate their annual Western grain imports by raising domestic output through increased chemical fertilizer application. This in turn entailed drastically increasing domestic chemical fertilizer production and purchases of Western and Japanese chemical fertilizer. As early as autumn 1966, the Chinese initiated efforts to secure a record 4.9 million tonnes of foreign fertilizer (1.75 million tonnes more than in 1966) for delivery in 1967.2

Trade talks resumed, US controls relaxed 197 Since Japan’s elections were imminent when the L–T accord for 1967 was concluded on 21 November, Tokyo was especially concerned that its decision to buy less rice from China would result in Beijing purchasing less Japanese chemical fertilizer. Realizing the strength of their bargaining position, in November the Chinese suddenly threatened to purchase more than 3 million tonnes of chemical fertilizer (for delivery in 1967) – an amount approximately equivalent to the PRC’s previous total annual foreign imports of this commodity – from JASEA, unless NITREX accepted the extremely low price (a reduction of more than US $10 per tonne) they were offering. Although, by agreeing in late November to sell fertilizer to the Chinese at very low prices, NITREX broke its October 1966 agreement with JASEA that prohibited the undercutting of the Japanese cartel in the Chinese market, the West Europeans were unwilling to risk losing out then or over the longer-term. Nevertheless, after closing this deal, the Chinese still wanted to purchase another 1.5–2 million tonnes and JASEA subsequently succumbed to a Chinese ultimatum that it agree, before 20 December, to sell them this quantity at the same price per tonne that NITREX had accepted. Despite the continued success of Chinese trade negotiators, deepening political turmoil inside the PRC in 1967 began reversing the economic progress made from 1961 to 1966. Distribution and industrial production were severely disrupted, resulting in very serious shortages of goods – especially in the cities. Statistical reporting deteriorated to the point that the central government was unable to prepare an economic plan for 1968.3 Preoccupation with work on the ‘Third Line’ programme may have had a significant adverse effect on regional grain production, supplies and distribution. Along with the Northwest region and parts of Henan, Hubei and Hunan, the Southwest (Sichuan, Yunnan and Guizhou) was the recipient of many projects associated with this programme. Railway lines and a very large steel mill were being built in Sichuan. There were significantly more people to feed in areas where labour had been diverted to work on such projects, and consequently insufficient numbers of farm labourers. The Southwest had China’s largest potential grain surpluses from 1953 to 1957, but not after the 1958–62 famine, when the region registered more abnormal deaths than any other region. Although from 1967 to 1970 the PRC’s overall annual grain harvest increased, between 1966 and 1970 the Southwest had the second largest potential grain deficits – shortfalls which remained serious from 1971 to 1975. Also, despite significant agricultural successes, China’s per capita grain consumption between 1966 and 1970 fell in both urban and rural areas (the latter registering significantly lower figures than in 1957).4 China was becoming increasingly isolated from the international community, which was concerned about Beijing’s foreign relations and conditions inside the PRC. On 10 January 1967 the US President Johnson expressed hope for reconciliation between the Chinese people and the world community. The following day, at the 132nd meeting of the Warsaw Talks, the Chinese denounced Johnson’s remarks, emphasizing that Sino-American relations could not be improved while the US ‘occupied’ Taiwan and interfered in PRC affairs. Beijing also rejected

198

November 1966–79

Washington’s proposal to hold the 133rd meeting in April instead of June because, they insisted, more frequent meetings were currently unnecessary.5 (In January Vice-Minister of Foreign Affairs and former ambassador to Poland, Wang Bingnan, was accused of collaborating with foreign countries and disappeared.)

June 1967–August 1968 In June the CCP Central Committee – which was attempting to build domestic food reserves while weaning the PRC from the remaining elements of Chen Yun and Zhou Enlai’s ‘readjustment’ strategy – made provision for a substantial reduction or suspension of China’s foreign grain imports.6 Indeed, although on 6 December 1966 CEROILFOOD had agreed to purchase about another 1 million tonnes of wheat from the CWB, between January and November 1967 the Chinese agreed only to buy another 31,000 tonnes from the Canadians – none of this (which was contracted for on 17 April) was for delivery during 1967 (see Table 10.1). Although they secured about 2.9 million tonnes from the AWB in that year, they bought only small quantities from other sources, leaving Beijing’s total foreign grain purchases in that year at around 4.7 million tonnes – the lowest figure since 1960, the first year below 5 million tonnes since 1962 and down from the near record 6.44 million tonnes imported in 1966 (see Table 10.2). It is noteworthy that, despite reports that the Chinese–DEMAG negotiations, suspended in late 1966, were to resume in April 1967, they broke down again shortly thereafter.7 About that time Sino-Canadian grain negotiations also ground to a halt and Lei Renmin was denounced and purged as a counter-revolutionary revisionist. On 27 June the incapacitated (probably since early 1964) Minister of Foreign Trade died. Other key ‘readjusters’ who were attacked, purged and/or disappeared about that time included Liu Shaoqi, Liao Chengzhi, Lu Xuzhang, Xiao Fangzhou, Vice-Minister of Food Chen Guodong and Tao Zhu. At that juncture, there were also reports of worsening food shortages and lawlessness in Guangzhou.8 Delays in Chinese ports associated with the Cultural Revolution, in conjunction with the closing of the Suez Canal in June, also resulted in the PRC not accepting the full amount of chemical fertilizer contracted for from NITREX. Meanwhile, after the 133rd meeting on 14 June, the talks remained deadlocked and the Chinese rejected a US request to hold the 134th meeting in late September, insisting on mid-November instead.9 During their meeting in Washington on 26 June 1967, when Romanian Foreign Secretary Ion Gheorghe Maurer, who was preparing to leave for the PRC, asked the US President if he had any message for the PRC’s leadership, Johnson said ‘. . . that he wished neither war with China nor to change its form of government . . . [and] to see Communist China join the society of nations . . . [Washington and Beijing] should discuss the non-proliferation treaty and work out ground rules for avoiding nuclear war’.10 As conditions deteriorated inside China, more pragmatic Chinese leaders who still retained influence probably had some success in persuading Mao that the PRC must alter its contemporary course. Thus, in response to Johnson’s remarks, Beijing suggested that the Sino-American ambassadorial talks be moved from the

Trade talks resumed, US controls relaxed 199 Polish Palace of Culture to the US and Chinese embassies on a rotating basis – an initiative which Washington accepted.11 In an unpublished speech to the Revolutionary Committee in Beijing on 1 September Zhou Enlai admitted that China was six months behind in its production targets and, in a speech at Wuhan on 9 October, he blamed this problem on disruptions associated with the Cultural Revolution.12 Since February the loyalty of some PLA units had been questioned and Beijing news sources warned of a possible coup attempt.13 By October, information reaching Washington indicated that the PLA largely did not support the Cultural Revolution and was (along with economic factors) increasingly influential in ‘toning down’ the movement.14 According to official US sources, as early as 1967, during a surprise visit to Beijing, senior regional PLA commanders warned Mao that, if the Cultural Revolution was not stopped, it would result in uncontrolled civil war and return China to a divided land.15 Political turmoil threatened to disrupt the harvesting of what Xinhua described in September as a ‘leap forward’ domestic crop for 1967 – a record in all but a few small areas. With Sino-Canadian grain negotiations stalled since mid-April, the Chinese continued to import large quantities of Australian grain. Then, following the preliminary assessment of the domestic harvest in early September, Beijing expressed interest in purchasing up to 600,000 tonnes of French grain. However, Franco-Chinese grain negotiations soon bogged down when the French refused to barter grain for pork because they questioned the quality of the meat offered, how such imports would affect Paris’ relations with domestic farmers, and how Rome and other EEC members would respond to the large grain export subsidy still required to finance such a deal.16 When, on 12 December, CEROILFOOD agreed to purchase more than 2.1 million tonnes of wheat from the CWB – for delivery from January to October 1968 under their long-term agreement – this comprised a very large portion of China’s total imports in that year.17 Meanwhile, during October 1967, as both Sino-Soviet relations and conditions inside China deteriorated further, Richard Nixon – preparing to make another bid for the Presidency – had an article published, in Foreign Affairs, which called for changes in Washington’s relations with Beijing.18 As had occurred so many times before when prospects for Sino-American relations improved, the PLA shot down another US-made espionage aircraft (a U-2 operated by the ROC air force). During 1967, China specialists, testifying before the US Joint Economic Committee, spoke out in favour of relaxation of Washington’s China trade controls. The 20 December report of Asian scholars also echoed this sentiment. By that time President Johnson was considering negotiating with Beijing through Moscow and asked for updated recommendations on American ‘China policy’. While there was an improvement in tone at the 134th meeting of the Warsaw Talks on 9 January 1968, the talks remained deadlocked.19 Nevertheless, during his State of the Union Address on 17 January, President Johnson expressed interest in examining the possibility of developing contacts with the Chinese people through the exchange of basic foodstuffs. Then, on 2 February he met academic and

CWB CIRECO CWB CIRECO CWB CIRECO CWB CIRECO CWB CIRECO CWB CIRECO CWB CIRECO CWB CIRECO CWB CIRECO CWB CIRECO CWB CIRECO

6 December 1966

17 April 1967

12 December 1967

14 November 1968

22 September 1969

27 October 1970

13 September 1971

17 December 1971

2 June 1972

5 October 1973

8 November 1972

Firms/organizations

Date

1,600,300: wheat (under individual contract) 1,707,500: wheat (under individual contract) Fourth long-term agreement signed (under which the first contract was signed covering 1,021,100: wheat)

3,200,500: wheat (under individual contract)

533,400: wheat (under individual contract)

2,652,200: wheat (under individual contract)

1,529,000: wheat (last contract under third long-term agreement) 2,339,800: wheat (under individual contract)

2,126,700: wheat

31,000: wheat

960,701: wheat

Quantity and variety

January–June 1974

April–October 1973

July 1972–March 1973

January–December 1972

October–December 1971

January–December 1971

October 1969–September 1970

December 1968–July 1969

January–October 1968

May–July 1967

January–July 1967

Delivery

n.a.

n.a.

Credits of at least 18 months (guaranteed by the Canadian cabinet) Credits of at least 18 months (guaranteed by the Canadian cabinet) Credits of at least 18 months (guaranteed by the Canadian cabinet) Credits of at least 18 months (guaranteed by the Canadian cabinet) Credits of at least 18 months (guaranteed by the Canadian cabinet) Credits of at least 18 months (guaranteed by the Canadian cabinet) Credits of at least 18 months (guaranteed by the Canadian cabinet) Credits of at least 18 months (guaranteed by the Canadian cabinet) n.a.

Credits

Table 10.1 PRC–Western grain agreements and contracts: 6 December 1966–79 (in tonnes; wheat and barley in trade grain weight)

CWB CIRECO CWB CIRECO CWB CIRECO

4 April 1975

26 February 1976

CWB CIRECO CWB CIRECO CWB CIRECO CWB CIRECO

31 May 1977

13 June 1978

26 February 1979

1,011,600: wheat (under fourth long-term agreement) 1,013,100: wheat (individual contract not under long-term agreement) 1,117,300: wheat (under fourth long-term agreement) 917,000 wheat: (under fourth long-term agreement) 790,600 wheat: (last contract under the fourth long-term agreement) 1,580,500: wheat (individual contract not under long-term agreement) 3,142,000: wheat (individual contract not under long-term agreement) 3,143,700: wheat (individual contract not under long-term agreement) Fifth long-term grain agreement signed 2,100,000: wheat (first individual contract under fifth long-term agreement)

Note n.a. ⫽ not available.

Source: Table composed by author from CWB annual reports.

4 September 1979

CWB CIRECO

28 January 1977

1 December 1976

25 June 1974

CWB CIRECO CWB CIRECO

22 June 1974

October 1979–July 1980

n.a.

September 1978–August 1979

August 1977–July 1978

March–December 1977

February–June 1977

April–December 1976

May 1975–March 1976

July–December 1974

August–December 1974

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

202

November 1966–79

Table 10.2 Annual PRC cereal, wheat, rice and maize imports: 1958–80, according to China Resources Company Statistics (in tonnes; trade grain weight) Year

Total cereals

Wheat

Rice

1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

223,500 2,000 66,300 5,809,700 4,923,000 5,952,000 6,570,100 6,405,200 6,437,800 4,701,900 4,596,400 3,786,300 5,359,960 3,173,200 4,756,200 8,127,900 8,121,300 3,735,000 2,366,500 7,344,800 8,832,500 12,355,300

148,300 — 38,700 3,881,700 3,535,600 5,587,700 5,368,700 6,072,700 6,213,800 4,394,600 4,451,400 3,740,200 5,302,100 3,022,000 4,333,600 6,298,500 5,383,400 3,491,200 2,021,900 6,875,800 7,667,300 8,709,800

31,600 — 27,600 363,000 174,100 100,200 159,100 180,800 198,600 94,700 39,200 17,100 42,000 131,000 197,000 66,700 120,700 70,200 290,000 125,300 170,700 123,900

Maize 41,900 2,000 — 86,200 496,300 217,600 281,500 98,500 25,300 210,500 102,400 29,000 13,000 20,200 223,300 1,605,600 1,905,300 136,800 23,900 7,700 794,000 2,791,600

Source: Table composed by author from CIRECO, op. cit., p. 944.

government ‘China specialists’ to discuss the situation in the PRC and American China policy generally. Johnson concluded the discussions by asking that, over the next six weeks, participants provide him with written personal views on the Warsaw Talks and China.20 In a speech that same day Zhou Enlai admitted that the Chinese had made inadequate preparations for sowing the spring crops and that the domestic water conservation and fertilizer situations had deteriorated since 1967.21 Rusk’s response on 22 February to President Johnson’s 2 February request emphasized that, in light of the continuing war in Vietnam, America’s obligations to its allies in Asia and ongoing scrutiny from Congress, any re-evaluation of the US government’s trade controls should focus solely on foreign American subsidiaries, ship bunkering controls, removing the certificate of origin requirement on purchases of up to US$100 in Chinese goods and permitting US exports to China of insecticides, farm machinery, chemical fertilizer and grain.22 On 3 May Washington invited Beijing to send journalists to report on the US Presidential election in November and, on 21 May, Under-Secretary of State Katzenbach said he expected Sino-American relations to improve gradually. However, on 31 March Johnson announced that he would not seek re-election, and the Chinese insisted on 28 May that, because both sides currently had nothing

Trade talks resumed, US controls relaxed 203 new to discuss, they wanted to postpone the 135th Sino-American ambassadorial meeting until after the US election.23 Owing to the Soviet-led invasion of Czechoslovakia in August and the continued deterioration of Sino-Soviet relations, Johnson had to abandon the idea of negotiating with Beijing and easing America’s China trade policy. Also, as the Cultural Revolution gathered momentum in 1968 and 1969, representatives of Western governments, business and the media inside China became targets of the Red Guards. From 1966 to 1972 many Western and Japanese plant construction projects in the PRC were delayed or postponed and the Chinese concluded, few if any, equipment and technology deals with foreign interests.24 Poor weather during the first half of 1968 adversely affected growing conditions in China, which, in conjunction with the ongoing political turmoil, exacerbated domestic problems.25 During 1968 the Chinese imported 5.2 million tonnes of chemical fertilizer from abroad – up substantially from the record amount purchased the previous year (see Table 10.3). By August, chemical fertilizer was less available because of delayed foreign imports and other problems associated with the Cultural Revolution. Western grain exporters were disappointed that the Chinese imported only 4.6 million tonnes of grain from abroad in 1968 – even less than the previous year. Chinese news sources explained that there were increased incidents of black marketeering and food shortages caused by procurement and distribution problems. Many urban areas, previously recipients of fine grains as part of their preferential treatment, found their rations reduced and substituted with less Table 10.3 PRC’s total annual foreign chemical fertilizer imports: 1966–80 Year

Total chemical fertilizer imports (in tonnes)

1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

3,198,774 4,958,080 5,290,515 5,641,238 6,521,298 6,506,362 6,870,090 6,383,731 5,183,632 5,014,163 4,661,510 6,497,828 7,450,633 8,529,015 10,177,780

Source: Table composed by author from CIRECO, op. cit., p. 939.

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popular coarse grains.26 This may have allowed the Chinese to reduce their shortterm foreign grain imports, but a growing number of Chinese leaders probably speculated that following such a strategy over the long-term was both impractical and perilous. It was probably the realization that China’s grain situation was returning to pre-‘readjustment’ levels which convinced Mao to reappraise both the Cultural Revolution and Sino-American relations. In August the Chinese urgently opened negotiations to purchase Australian grain for delivery in early 1969. Also, the PLA, during July and August, was reasserting control to stop factional fighting and to carry out the leadership’s decree to get people back to work.27

September 1968–December 1969 During a conference in Beijing in September 1968, high-level CCP officials declared that the Cultural Revolution was essentially over. Nevertheless, the Chinese were still trying to reduce their dependence on foreign grain. Although on 14 November CEROILFOOD agreed to purchase more than 1.5 million tonnes of Canadian wheat for delivery during the first half of 1969, this figure represented nearly half (the rest coming from Australia) of the PRC’s comparatively meagre total of foreign grain imports in 1969.28 This was the final Sino-Canadian grain contract before their third successive thirty month grain agreement expired. A new long-term arrangement was not reached. In November Beijing and Washington agreed to postpone the next meeting of the Warsaw Talks, scheduled for 20 November, until 20 February 1969 – after Republican President elect Richard Nixon’s inauguration. The Nixon administration’s power base was the West Coast, which was home to major manufacturers of petrochemical and petroleum equipment, aircraft and interests associated with the US grain producers who increasingly favoured the establishment of SinoAmerican trade relations. A PRC press release of 26 November maintained that, since the beginning of the talks, the Americans had focussed on resolving smaller issues while Beijing again sought to convince Washington to withdraw its military from the Taiwan region and sign an agreement on the five principles of co-existence. The Americans realized that the mention of these points – first presented at the Bandung Conference (1955) and subsequently raised by the Chinese (usually Zhou Enlai) when international tensions moderated – probably indicated renewed flexibility in Beijing’s approach.29 Indeed, Zhou Enlai was trying to convince other Chinese leaders that PRC economic development must be based less on Maoist ideology and more on moderate, ‘gradualist’ ‘agriculture first’ policies which characterized the 1961–5 readjustment. America’s economic situation had deteriorated considerably during 1968 and there was growing domestic opposition to the Vietnam conflict. On 10 February 1969 Canada’s Secretary of State for External Affairs, Mitchell Sharp, told the House of Commons that the Trudeau government wanted to open negotiations, at Stockholm, with the PRC on establishing diplomatic relations.30 As the Beijing

Trade talks resumed, US controls relaxed 205 government reduced purchases of foreign grain, the CWB saw the establishment of Sino-Canadian diplomatic relations as a means of encouraging the Chinese to continue buying Canadian wheat. President Nixon’s memorandum to his Special Assistant for National Security Affairs, Henry Kissinger, about that time also instructed Washington to explore diplomatic relations with Beijing. On 18 February Nixon also told Secretary of State William Rogers that the US should participate in broad scientific and cultural exchanges with China. Suddenly, on 20 February Beijing cancelled the scheduled resumption of the Sino-American Warsaw Talks, which were to begin that very day, to protest Washington’s decision to grant asylum to Liao Hoshu – a defector from the PRC embassy in the Netherlands. Then, the Chinese agreed to hold the first meeting of the Sino-Canadian Stockholm Talks the following day. As these discussions took place on 21 February, Kissinger told news representatives that Nixon wanted to pursue a China policy characterized by ‘maximum contact’ – an approach not previously made public. In early March Sino-Soviet military skirmishes broke out along their common border and, on 1 March, Nixon told de Gaulle that, whatever the obstacles, he wanted to open discussions with Beijing aimed at normalizing Sino-American relations and having China admitted to the UN, while ending US involvement in Vietnam. Meetings of the Sino-Canadian Stockholm Talks were held on 3 and 10 April. On 23 April, de Gaulle asked the newly appointed French ambassador to China to transmit Nixon’s message to the Chinese leadership.31 On 29 May Canadian Prime Minister Trudeau – who had taken over from the retiring L.B. Pearson in early April – announced that his Liberal government would recognize the PRC diplomatically as soon as possible and vote for China’s admission to the UN.32 However, as had happened so many times before when Sino-American tensions appeared ready to moderate, on 16 May the PLA shot down another US-made espionage aircraft (a U-2 operated by the ROC air force). Meanwhile, the Cultural Revolution was officially brought to a close at the CCP’s Ninth Party Congress in April, and the domestic situation began to stabilize as production increased.33 However, after Lin Biao’s appointment as Mao’s successor in April, Zhou Enlai’s strategy for 1970 – which involved a greater emphasis on agriculture, while pursuing less ambitious targets – was gradually replaced by one stressing decentralization and unrealistically rapid development of heavy industry in the interior.34 In July Washington began unilaterally validating passports enabling American scholars, journalists, students and members of Congress to travel to the PRC, and allowed US citizens visiting that country to buy up to US$100 dollars worth of Chinese goods. On 8 August, Secretary of State Rogers announced that the Americans wanted to resume the Warsaw Talks. The Chinese purchased only 3.8 million tonnes of foreign grain in 1969 – the lowest amount since 1960. As China’s grain situation deteriorated, the Beijing leadership realized that at least over the short-term, it needed to resume importing more than 5 million tonnes of foreign grain annually. Thus, on 22 September 1969,

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following the expiration of the third Sino-Canadian grain agreement, CEROILFOOD agreed to buy more than 2.4 million tonnes of wheat (for delivery between October 1969 and September 1970) from the CWB.35 It was very significant that, as the Chinese tried to stop relying on foreign grain imports, for the first time since before 22 April 1961, the Sino-Canadian grain trade was proceeding outside the parameters of a larger long-term ‘umbrella agreement’. This was probably an even greater incentive for the Canadians to reach a breakthrough at the eighth meeting of the Stockholm Talks, scheduled for 18 October. During policy debate, about 22 September, those ‘readjusters’ who had survived the first three years of the Cultural Revolution probably advised the PRC leadership to resume large credit purchases of equipment and technology from Capitalist countries, of Western grain under long-term agreements and even consider buying US grain and other goods with a view to reaching a Sino-American rapprochement. Because of the Sino-Soviet split, Beijing could not, even if it wanted to, obtain significant quantities of items which it required from Moscow. By improving relations with Washington, Beijing would counterbalance its poor relations with Moscow, assuage its concerns about increasing Soviet economic and military involvement in Asia, about its poor relations with Delhi, about tension along the Sino-Indian border and about PRC involvement in the Vietnam conflict. Americans were protesting against US involvement in the Vietnam War and, by late 1969, the Nixon administration was eager to exit as gracefully as possible from the conflict and explore more seriously opportunities in the potentially vast Chinese market. US business and farm ‘lobby groups’ wanted Washington to take steps to help resolve America’s worsening balance of payments problems, stem the outflow of gold from domestic reserves, boost the weakening US dollar, reduce growing domestic grain surpluses, industrial overcapacity and underemployment. On 7 November the US suspended naval patrols off Taiwan. On 11 December Beijing agreed to resume the Warsaw Talks, even though Chen Yun was dropped from the Politburo (although he continued on at the CPC Ninth Party Congress) and during November Liu Shaoqi and Tao Zhu died. On 15 December the US government said that all US nuclear weapons would be removed from Okinawa by the year’s end and, the same month, Washington announced that foreign subsidiaries of US firms could begin exporting ‘non-strategic’ items to China and eliminated the US$100 limit on American purchases of PRC goods – thus permitting purchases of unlimited value.36

January 1970–June 1974 The Beijing government’s plans to finance development by dramatically increasing petroleum exports to Japan during the 1970s were being undermined by low extraction rates at PRC oil fields. Thus, in 1970 the Chinese opened negotiations with interests in Capitalist countries to buy petroleum exploration and refining equipment and agreed to purchase oil drilling equipment from a Japanese firm.

Trade talks resumed, US controls relaxed 207 That same year, the Chinese resumed negotiations (suspended in 1964–5) for foreign-made medium and long-range passenger and cargo jets and related equipment and technology. However, Chinese leaders still disagreed about which type of aircraft was the most suitable and how orders for passenger/cargo jets should be distributed among West European, Soviet or even American firms. The Chinese still needed very generous long-term credits to finance purchases of long-range commercial jets – terms which almost certainly would meet strong opposition from leaders eager that the PRC become self-sufficient. Such deals would leave China with large long-term debts to Western countries and would probably only be practical if the Chinese government decided to greatly expand its international contacts. In 1970 the Beijing government decided to provide Pakistan with a squadron of PRC-built MiG fighter jets in exchange for four used British Hawker Siddeley Trident 1 medium-range jet transports, which had a range of 1,100 miles and could carry up to 109 passengers.37 This deal was probably a means of placating those PRC leaders opposing a resumption of aircraft negotiations with Western firms and invigorating foreign aircraft producers’ interest in the Chinese market. Meanwhile, on 8 January 1970, when announcing that the Warsaw Talks would resume later that month, the US State Department made its first public reference to the PRC. On 18 January the Nixon administration’s report (entitled ‘US Foreign Policy for the 1970s, a New Strategy for Peace’) – which suggested that all necessary steps be taken to improve Sino-American relations – was presented to Congress. At Warsaw two days later the Chinese suggested that the talks be moved to Beijing in May. Although no formal meetings of the Sino-Canadian Talks at Stockholm were held between March and August 1970, both sides continued informal discussions on diplomatic recognition.38 Meanwhile, on 16 March Washington announced that it would validate US passports for legitimate travel to China. Then, in April Washington authorized exporters to ship to China non-strategic and foreign manufactured goods which incorporated US components. However, on 19 May, the Chinese cancelled the next meeting of the Warsaw Talks, scheduled for the following day, to protest America’s invasion of Cambodia. Nevertheless, during discussions with Rumanian officials in June, Zhou Enlai implied that, although he favoured improved Sino-American relations, other Chinese leaders did not.39 Then, in July the Chinese government announced that it had released an American imprisoned for spying – before his term had been fully served. Grain supplies in North China were inadequate and the State Council’s agricultural conference for northern regions in August discussed proposals for rapid agricultural production increases.40 In 1970 the Chinese imported a record 6.5 million tonnes of foreign chemical fertilizer and purchased 5.36 million tonnes of Western grain – the largest amount since 1966. Also in 1970 Chen Guodong and Chen Ming re-emerged, the latter as chairman of the Shaanxi branch of the Federation of Returned Overseas Chinese.

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CEROILFOOD purchased 2.22 million tonnes of grain from the AWB in the first three-quarters of 1970. On 13 October, after nearly twenty months of Sino-Canadian negotiations at the Stockholm Talks, and with separate CEROILFOOD–CWB bargaining on a second successive large one year grain deal reaching a critical stage, the Trudeau government recognized the PRC government diplomatically. Then, on 27 October CEROILFOOD agreed to purchase 2.65 million tonnes of grain from the CWB, and the Chinese subsequently maintained that they would not buy more Australian grain until Canberra recognized Beijing diplomatically. Also during the autumn of 1970, a strike by General Motors workers in America was exacerbating that country’s economic difficulties. This, in conjunction with the revival of Sino-Western trade diplomacy, generated more American business interest in trade with China. On 24 October Nixon asked Pakistan leader, Yahya Khan, who was preparing for a trip to the PRC, where he met Mao on 13 November, to suggest to the Chinese that high-level Sino-American talks be held in Beijing. The same day the White House suggested that it would be willing to adopt a two China policy. Then, on 6 November, Rome recognized Beijing diplomatically. In December 1970 and January 1971 Washington and Beijing exchanged increasingly friendly communiqués through Pakistan. Although Sino-American relations deteriorated for several weeks after Washington supported South Vietnam’s invasion of Laos, the Americans assured Beijing that this action was not a threat to the PRC. However, some Chinese leaders were growing very uneasy about the revival of trade relations with the Capitalist powers and especially Beijing’s increasingly friendly exchanges with Washington. Suddenly, in December, as the Chinese resumed negotiations to purchase new aircraft directly from Western firms, Bai Xiangguo41 – strictly a military official until being appointed as a MOFT cadre member in April 1970 – was appointed Minister of Foreign Trade. Lin Haiyun, Acting Minister of Foreign Trade since early 1964, soon disappeared. Nevertheless, in 1971 the Chinese signed contracts to purchase six Trident 2E jet transports – with a range of 1,100 miles and a passenger capacity of 149 – directly from Hawker Siddeley for a total of approximately US$46 million. Although in early 1971 Washington told Boeing that US embassy officials in Europe had learned that Beijing was interested in buying jet transports, the US firm received no response from the Chinese when they attempted to initiate talks through unofficial contacts in Hong Kong a short time later.42 Boeing was still America’s largest aircraft manufacturer and sales of its 707 aircraft remained strong but, in 1968, with the cutbacks in the US space programme and the peaking of the Vietnam War boom, the aerospace industry entered a more difficult and competitive period. From 1968 to 1972 US aerospace employment and sales showed the greatest decline for twenty years. The size of Boeing’s workforce contracted from about 100,000 in 1968 to 72,000 in 1971 and the firm’s project to produce supersonic aircraft had been cancelled. By January 1971 when the US President’s wife, Pat Nixon, christened the first Boeing 747 to fly to London,

Trade talks resumed, US controls relaxed 209 costs associated with designing this aircraft’s production site were nearly equivalent to the Seattle firm’s entire capital.43 On 13 March 1971, as Sino-American relations continued to improve, and with the Chinese aircraft market ready to open up, London extended full diplomatic recognition to the Beijing government. Shortly thereafter Beijing invited Washington to send a high-level envoy to the Chinese capital for talks.44 US table tennis players visiting the PRC from 10 to 17 April were the first American sports delegation to visit China since 1949. On 14 April Zhou Enlai declared that the visit had opened the door to friendly official Sino-American exchanges. Then, on 18 and 28 May respectively, the Dutch and Austrian governments recognized the PRC diplomatically. In mid-1971, as the Chinese continued to bargain with Hawker Siddeley for more Trident aircraft, they opened negotiations with the British Aircraft Corporation and the Toulouse-based Aerospatiale for the Anglo-French supersonic Concorde – which had a range of 3,896 miles and a passenger capacity of 128. Some Western observers were concerned that, if the Chinese acquired Concordes, they might equip them with warheads to use them as an alternative to intercontinental and intermediate-range ballistic missiles.45 By late May, with Sino-American relations continuing to improve, a growing number of Chinese leaders wanted the PRC to open negotiations with Boeing for the firm’s 707–320 long-range intercontinental commercial jetliner. Developed for use as an air force transport, the 707–320 later became America’s first production jet airliner and the first profitable long-range passenger jet in history. Used by the airlines since October 1958, its popularity made Boeing the leading commercial jet manufacturer in the world. While Chinese leaders opposed to negotiating with Boeing might have emphasized that the Seattle-based firm also produced the B-52 aircraft used for bombing Vietnam, CAAC considered the 707’s specifications, including its cruising speed (591 mph), range (3,925 miles), passenger capacity (189) and superior short takeoff performance (in comparison to the Trident or Concorde), ideal for establishing routes from Beijing/Shanghai/and Guangzhou to Tokyo and to Tirana via Bucharest and Paris. When Zhou Enlai and Kissinger met for talks in Beijing from 7 to 11 July, the Chinese invited Nixon to visit the PRC, although on 20 July they reiterated their firm opposition to the ‘two China’ UN policy proposed by the Americans. Also, during July, there was a run on the US dollar, and, when Washington responded between August and December by suspending the conversion of dollars to gold, there was a massive outflow of capital from the US. President Nixon’s visit to the PRC was scheduled when Kissinger returned to Beijing for more meetings with Zhou Enlai from 20 to 26 October. As talks progressed on 25 October, Belgium extended diplomatic recognition to China. Between January and August 1971, under new Minster of Foreign Trade, Bai Xiangguo, the Chinese drastically reduced their imports of foreign grain. In that year the PRC purchased a mere 3.2 million tonnes of foreign grain – the smallest amount since 1960. ‘Leftist’ policy errors resulted in economic dislocations – including the

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‘three excesses’ (i.e. too rapid development, urban overpopulation and unemployment, acute cereal shortages and reduced grain reserves caused by excessive domestic sales) – not seen since the GLF. These developments seemed to have a considerable impact on China’s internal politics. During the second half of 1971 Chen Yun and Zhou Enlai began regaining influence in policymaking and in August Liao Chengzhi made his first appearance since 1967. By autumn Chinese leaders must have been engaged in intense debate over whether to resume annual imports of more than five million tonnes of Western cereals and begin purchasing US grain and aircraft. During the first two weeks of September, as Sino-Canadian grain negotiations reached a critical stage, the Chinese leadership was trying to decide what type of aircraft it should purchase. About that time Boeing began receiving ‘somewhat mysterious’ enquiries – which executives of the Seattle firm later traced back to the PRC government.46 Suddenly, on 13 September (according to the official version of events) PRC Defense Minister, Lin Biao, and his co-conspirators tried and failed, to escape to the USSR – aboard one of the Trident aircrafts obtained from Pakistan – after their plot to overthrow the PRC government was exposed. The landing gear of this aircraft was reported to have sustained serious damage after clipping a vehicle during takeoff. The Trident also carried insufficient fuel and later crashed in Outer Mongolia.47 One might contemplate how the Boeing 707–320’s uniquely short takeoff capability and much greater range might have made it a more suitable getaway aircraft. With Lin’s death, internal opposition to import equipment and technology from the US gradually diminished. Also on 13 September, CEROILFOOD suddenly agreed to purchase 533,400 tonnes of Canadian wheat. It appears that, as this was an emergency shipment, it was to be delivered on incredibly short notice (from October to December). It represented more than one sixth of China’s total imports of foreign grain in that year. Then, on 17 December, with the Sino-Australian grain trade still suspended, CEROILFOOD agreed to buy another 3.3 million tonnes for delivery between January and December 1972. Meanwhile, in October China’s seat at the UN was restored and between December 1971 and February 1972 Iceland, Mexico and Argentina recognized the PRC diplomatically. On 6 January ‘readjustment’ forces lost a key ally when PRC Foreign Minister Chen Yi (who had been persecuted during the Cultural Revolution before Zhou Enlai personally intervened to save him) died. That same month, Shanghai flour and textile tycoon, Rong Yiren, was restored to power. On 14 February, Washington reduced its controls on American exports to China to the same level applied to the USSR and Eastern Europe. Then, on 28 February – following meetings between Nixon and Zhou Enlai – Washington and Beijing produced the ‘Shanghai communiqué’ in which they agreed ‘. . . to facilitate the progressive development of trade between the two countries’.48 Nevertheless, American business soon faced intense competition from interests in other Western-aligned countries which had already developed business ties with the PRC during the 1950s and 1960s. In 1972 US aircraft representatives

Trade talks resumed, US controls relaxed 211 soon learned, if they did not know already, how the Beijing government shrewdly promoted competition among foreign interests by ‘playing one side against another’ to win political and economic concessions. Shortly after the ‘Shanghai communiqué’ was signed, Boeing again tried, without success, to initiate talks – through ‘diplomatic channels’ – with the PRC government. CNTIC had entered into discussions with McDonnell–Douglas Corporation and Lockheed Aviation Co. about the Longbeach, California-based firm’s jumbo L-1011 Tristar, L-100 Hercules and the (executive) Jetstar.49 On 7 March some US Congressional representatives had alleged that Washington was favouring Lockheed’s bid to enter the Chinese market because Treasury Secretary John Connally – who had also been in the Johnson and Kennedy administrations – had sponsored the loan required for L-1011’s development.50 Also on 7 March, Boeing wrote directly to CNTIC. The Chinese responded three weeks later, leading to the opening of talks on 15 April. On 18 May Boeing representatives completed initial presentations (on 707 aircraft) to the Chinese and, on 22 May, they began outlining the firm’s technical proposals.51 Between 28 May and 14 June a Lockheed delegation, led by the firm’s President, Robert Mitchell, visited China. On 30 June the US Commerce department granted export licences enabling Boeing to export 707s to China if it could reach a deal with the PRC government. During the summer, as the CNTIC–Boeing negotiations reached a critical stage, the Chinese placed preliminary orders (worth approximately US$70 million) to purchase Concorde aircraft – one from British Aircraft Corporation and the other two from Aerospatiale. About that time the Chinese also signed contracts to purchase six more Trident 2E jet transports (worth a total of about US$57 million) from Hawker Siddeley. Signing these deals with French and British firms at that particular moment was an extremely effective way for the Chinese government to remind the Americans that, although it wanted to buy US equipment, alternate sources existed. In July Washington granted authorization for Lockheed to put on a flight demonstration for the Chinese and approved export license applications to allow Boeing to sell 707 aircraft to the Chinese. Then, on 9 September the Chinese agreed to purchase four 707–320B passenger jetliners and six 707–320C convertible passenger/cargo transport jetliners, spare parts and ground support equipment for approximately US$125 million in cash. At the time, it was the PRC’s largest ever single purchase of aviation equipment. Under the contract, the Chinese made a 30 per cent down payment with the balance to be paid after delivery of the aircraft (scheduled between late summer 1973 and spring 1974). Boeing also agreed to train Chinese pilots on flight simulators at its Seattle headquarters before teaching them to actually fly the 707 in the PRC. About that time, the Chinese agreed to buy forty Pratt and Whitney JT3D turbofan spare jet engines (worth about US$21 million) for the 707s from United Technologies.52 Between 1971 and 1973 the Chinese bought five Illusyin Il-62 long-range jet transports – each with a passenger capacity of 186 and a range of 4,160 miles – for

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use on a direct route from Beijing to Moscow. They also purchased a total of thirty-five Trident aircraft from Hawker-Siddeley (worth US$234.2 million) between 1970 and 1974.53 Realizing that Sino-American trade might soon open up, and eager to do what it could to enable Japanese firms to keep pace with the West Europeans in the Chinese market, on 29 September Tokyo recognized Beijing diplomatically. About that time the Chinese purchased an iron work from Hitachi, a continuous-slab rolling mill from Sumitomo, and several petrochemical plants, as well as a large amount of construction equipment from various Japanese firms. Then, on 11 October, Bonn recognized Beijing diplomatically. About that time the Chinese finally agreed to buy a small rolling mill (valued US$80 million) from DEMAG and told representatives of the US firm Pullman Kellogg, visiting Beijing, of their interest in purchasing more chemical fertilizer equipment.54 Continued interference from ‘leftist’ elements during 1972 resulted in a worsening of ‘the three excesses’ of the previous year, and Zhou Enlai tried again to steer the leadership towards the ‘agriculture first’ ‘gradualist’ path and improved diplomatic relations with the US.55 In 1972 the Chinese imported a record 6.9 million tonnes of foreign chemical fertilizer and their imports of Western grain increased to 4.76 million tonnes (over 3 million tonnes from Canada, 940,000 from the US and 210,000 from France). This left the Australians even more eager to resume exporting grain to the PRC, and on 22 December Canberra recognized Beijing diplomatically. During Kissinger’s trip to the PRC, between 15 and 19 February 1973, the Americans and Chinese announced that they had agreed to establish reciprocal trade offices (to open on 1 June). In mid-March the PRC government released a CIA official and two US air force pilots imprisoned in China. That summer the Chase Manhattan Bank became the first American bank to open direct links with the PRC. As China’s economic situation improved, Mao and Zhou Enlai orchestrated the PRC’s complete plant import programme.56 In 1973, Beijing spent even more money than in the previous year when it signed many more lucrative contracts to purchase equipment, industrial plants and related technology from Japanese, West European and American firms.57 During April Xiao Fangzhou – who had been intimately involved in the PRC’s grain diplomacy before disappearing during the Cultural Revolution – was reactivated. Then, in May Lin Haiyun – the former Acting Minister of Foreign Trade who had been replaced in late 1970s – was named as a State Council cadre member. In October, Li Qiang, who had survived the Cultural Revolution, was appointed Minister of Foreign Trade, replacing Bai Xiangguo who became Deputy Director of the PLA’s logistics department. On 5 October, about the time of Li’s appointment, the fourth Sino-Canadian long-term grain agreement (to run from January 1974 to December 1976) was signed. The first contract under the accord was also signed, providing for the Chinese to purchase over one million tonnes of Canadian wheat. This was extremely significant because the Chinese, who had been trying to end their reliance on Western grain, had decided in September 1969 not to enter foreign grain import agreements lasting more than twelve months.

Trade talks resumed, US controls relaxed 213 Also in October 1973, a long-term Sino-Australian grain agreement (covering January 1974–December 1976) was signed, under which Beijing agreed to purchase 4.7 million tonnes. During 1973 PRC foreign grain imports climbed to a record 8.13 million tonnes (about 2.5 million tonnes from Canada, 4.2 million tonnes from the US,58 100,000 tonnes from Argentina and 800,000 tonnes from Australia – the first PRC purchase of Australian grain since 1970). Although in 1973 the PRC’s total imports of foreign chemical fertilizer fell to 6.3 million tonnes – the lowest figure since 1969 – in November 1973, Beijing agreed to buy 8 plants to produce ammonia fertilizer from natural gas and 8 urea installations (all to be completed in 1978 and worth a total of US$290 million) from Pullman Kellogg and Continental, its Dutch affiliate.59 When Kissinger visited the PRC from 10 to 14 November, an agreement to expand the scope of the Sino-American reciprocal trade offices was reached. From 1973 onwards, American firms such as Baker–Hughes established schools in Beijing to train Chinese oil technicians and subsidiaries in Hong Kong to facilitate exports of large quantities of ‘state-of-the-art’ petroleum equipment and technology to the PRC. China’s economic conditions continued to improve, and in 1974 the Chinese purchased much less foreign chemical fertilizer (only 5.2 million tonnes). They also imported 8.12 million tonnes of foreign grain (2.8 million tonnes from the US,60 1.9 million tonnes from Canada, 1.4 million tonnes from Australia and 730,000 tonnes from Argentina), only slightly less than the record established the previous year. Also in 1974 the Chinese agreed to purchase very large amounts of steel processing equipment and technology – items which they had tried to acquire as early as 1965–6 for the proposed integrated complex at Wuhan – from consortiums led by DEMAG and Nippon Steel.61

June 1974–Autumn 1978 However, in 1974–5 the PRC economy was thrown into turmoil again as ‘leftist’ leaders attempted to undermine efforts of officials associated with Zhou Enlai, Deng Xiaoping and Chen Yun to implement policies promoting ‘gradualist’ ‘agriculture first’ economic development. In 1975, following his election as ViceChairman of the CCP Central Committee and member of the Political Bureau of the Standing Committee, Deng Xiaoping attempted to turn China away from the policy of technological and financial self-reliance. Nevertheless, industrial development (especially for heavy industry) was accelerated under a Ten Year Plan for Economic Development (1976–85). One hundred and twenty very large industrial and transport projects (including ten new oil fields) were to be completed during this period by importing necessary items from abroad under long-term credits, to be repaid partially by increasing foreign coal and petroleum exports.62 The volume of the PRC’s chemical fertilizer imports fell further in 1975 to 5.01 million tonnes, but in that year Beijing imported only 3.7 million tonnes of foreign grain – the lowest amount since 1971. Suddenly in May 1975 Lin Haiyun was promoted to Vice-Minister of Foreign Trade and in August Wang Bingnan

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November 1966–79

made his first appearance since early 1967. In September, former Vice-Minister of Foreign Trade Jia Shi also re-emerged, while Luo Ruiqing too was reactivated during 1975. However, on 8 January 1976, the re-emerging ‘readjusters’ suffered another blow when Zhou Enlai, who had been in charge of China’s grain import programme since its inception, died. Thus it is not surprising that in 1976 the Chinese purchased a record low 2.4 million tonnes of foreign grain (the lowest amount since 1960) and only 4.7 million tonnes (even less than the previous year) of chemical fertilizer from abroad. Also in January, Lu Xuzhang made his first appearance, since having disappeared in 1967, when he attended the mourning ceremony for the late Chinese Premier. By spring 1976 Deng Xiaoping was under attack from leftists – especially for his trade policies. The Chinese people were unhappy about domestic conditions, and in October 1976 (following Mao’s death on 9 September), the CCP finally ‘cracked down’ on ‘leftist’ elements. In 1977 and 1978, as the Beijing government made amends for ‘leftist’ policy errors, economic conditions began to improve. The PRC imported a total of 7.34 million tonnes of grain in 1977 and a record 8.83 million tonnes the following year. By late 1978 it was clear that the Ten Year Plan was badly flawed. In that year the Chinese largely overlooked agriculture and other key sectors as they signed many contracts to import expensive items required to improve the technological base of existing heavy industry. Thus the PRC’s revenue was no longer sufficient to cover foreign exchange obligations, forcing the Chinese to consider accepting foreign loans. They also discovered that the PRC’s oil and gas reserves – the foundation of their economic development strategy – were much smaller than originally thought. This forced the leadership to view ‘leftist’ development policies more critically, leading it to abandon several partially completed industrial projects and reconsider its entire economic and trade strategies.63 Thus it is not surprising that, in 1978, the Chinese asked Pullman Kellogg to redesign two of the ammonia production facilities (which they had agreed to purchase from the US firm in November 1973) so that another liquid hydrocarbon rather than natural gas could be used as a feedstock.64

Autumn 1978–December 1979 In autumn 1978 Deng Xiaoping and Chen Yun consolidated power, setting the stage for major changes to Chinese government policy. (Earlier in the year Liao Chengzhi was elected deputy for Guangdong to the fifth NPC and in May Lu Xuzhang was appointed director of the PRC’s International Travel Service.) In December, Bo Yibo made his first appearance since 1966. On 16 December, Washington and Beijing agreed to establish full diplomatic relations and two days later the Third Plenary Session of the Eleventh Central Committee of the CCP – which marked the beginning of a new stage in economic development based on liberalized trade and economic policies – opened in Beijing.

Trade talks resumed, US controls relaxed 215 In early 1979 the Chinese government adopted Chen Yun’s ‘new’ development strategy, focussing on agricultural development and consumption, reducing investment in heavy industry, and supporting a more moderate economic growth. This ‘new’ strategy of ‘readjustment, reform, rectification and improving standards’ was actually a variation of the one which Chen Yun,65 Zhou Enlai, Li Xiannian and others had tried to implement prior to the GLF and which, from 1961 to 1965, had enabled the PRC to recover from their economic crisis. (In May 1979 Bo Yibo was elected deputy for Beijing to the fifth NPC, in July he was appointed to the State Council and became Vice-Premier and in December he was elected to the CCP Eleventh Central Committee.) Between 1979 and 1983 the PRC’s imports of foreign grain exploded to between 12.4 and 16.1 million tonnes annually. Although the last of the chemical fertilizer plants purchased from Pullman Kellogg began operating in 1979 and 1980, in those years Beijing imported a record 8.5 and 10.2 million tonnes, respectively, of foreign chemical fertilizer. Under the ‘readjustment’ initiated in 1979, the PRC found new ways to raise capital for domestic development. The government began to rehabilitate and provide large cash payouts to compensate former successful Chinese business people still living in the PRC who had previously been stripped of their assets during political upheavals (most recently the Cultural Revolution) and who might now be useful in China’s development push. In early 1979, China International Trade Investment Corporation (CITIC) was established under the State Council. Working closely with the Bank of China, it promoted Chinese–foreign joint business ventures at home and abroad, raised capital by encouraging foreign investment in the PRC and facilitated the absorption of advanced foreign technology. During the second half of 1979 several figures who had been crucial in the 1961–5 ‘readjustment’ were identified as CITIC executives: Rong Yiren as chairman, Lei Renmin as vice-chairman, Wang Kuancheng, Jing Shuping, Xu Zhaolong (the latter two longtime associates of Rong Yiren) and Lui Xiwen as directors and Min Yimin (another of Rong’s associates) as a leading member of CITIC’s financial department.

Conclusion

By focussing on key trade negotiations and agreements, within the multilateral perspective and in the context of contemporary sectoral market conditions and government domestic and foreign policy, a much clearer picture of the motivations, intentions and actions of global trading powers emerges. The continuity of the more pragmatic aspects of PRC and Western economic policy and trade diplomacy from 1949 to 1979 – which prepared the foundation on which the PRC’s post-1979 reform period rests – was, to a considerable extent, the result of developments within national and international agricultural, resource, commodity and business sectors. Pro-China trade promotion organizations and lobby groups representing interests from these sectors played a crucial role in the erosion of the trade embargo between 1949 and 1979. During the 1950s, Chinese leaders became progressively more eager to trade with Capitalist countries as they became disillusioned with Soviet equipment, technology and aid and concerned about worsening regional Chinese grain shortages associated with Mao Zedong’s rapid development policies. From 1954 on, growing Western and Japanese agricultural surpluses and industrial overcapacity, often exacerbated by US economic and trade policies, resulted in domestic business/agricultural interests and their lobby groups pressuring governments to consider easing their China trade controls. They were increasingly successful between the end of the Korean armistice and the autumn of 1958, then from 1961 to 1966 and after 1970 – their influence only diminished by events in China during the GLF and the Cultural Revolution’s most disruptive phase. Although President Eisenhower recognized that a certain amount of SinoWestern trade in non-strategic goods was not only necessary, but impossible to prevent and perhaps even beneficial to the Western alliance, especially in the case Japan’s expanding economic relations with China, most other US policymakers, led by the JCS, disagreed. Frequent reports, during the 1950s, that the PRC’s extremely ambitious development programme was in difficulty, convinced Washington, Taibei and the pro-Taiwan ‘China-lobby’ that, by maintaining or tightening the trade restrictions, Western governments might eventually hasten the demise of the Beijing government. During the 1950s and 1960s Western-aligned governments tried to accommodate American wishes out of loyalty to the alliance and so as not to irritate Washington

Conclusion 217 and jeopardize US economic, financial and military support on which they relied. However, although America’s allies had agreed to maintain trade controls aimed at limiting the PLA’s strength, they had never accepted the US government’s position that the embargo should also attempt to prevent the economic development of the PRC. Furthermore, dissatisfaction with the PRC’s dependence on the USSR, Mao’s rapid development policies and resultant regional grain shortages resulted in the Chinese leadership, between 1955 and 1957, embarking on a gradualist economic readjustment based on reducing development targets as much as possible and trading more with Capitalist powers. When Mao Zedong could not be swayed from initiating the GLF, leaders associated with Zhou Enlai and Chen Yun argued that such a scheme could probably not be accomplished without importing large quantities of Western grain, equipment and technology. With the demise of the ‘China differential’ in May 1957, and Western interests eager to sell the Chinese grain, it appeared that this strategy might be viable. However, the unwillingness of Western allies, under pressure from Washington to further reduce the trade controls – contributing to the collapse of the all important Sino-Japanese barter trade – in conjunction with grossly exaggerated Chinese harvest reports in late1958, resulted in Beijing abandoning the readjustment and suspending ‘test shipments’ of Western grain. It appears that, because of the breakdown of the PRC state statistical system, Chinese leaders were unaware that there had been a large number of abnormal deaths in 1958. This signalled the beginning of a famine which claimed the lives of as many as thirty million people from 1958 to 1962. In 1958–9, after receiving and investigating reports of food shortages, some leaders nearly convinced Mao Zedong to scale back the GLF. But, after Peng Dehuai criticized the movement in the summer of 1959, the Chairman, still unaware of the tragedy unfolding in the countryside, felt that to end the movement would be an admission of his own incompetency. Only beginning in March 1960 did the leadership learn that the country’s grain stocks were depleted and starvation rife throughout the country. Mao responded immediately by ordering further investigations, which took place from May to November as the Chinese terminated the GLF, resumed importing Western grain and reintroduced the ‘readjustment’ that had been suspended in 1957–8. The Soviet decision to withdraw technical support in July, just as the Chinese were discovering the magnitude of their crisis, had a profound effect on subsequent Sino-Soviet trade and diplomatic relations. Nevertheless, from 1961 to 1965 those in charge of the readjustment orchestrated the PRC’s remarkable recovery by large-scale imports of Western grain and agriculture-related industrial products, especially in chemical fertilizer and chemical fertilizer plants, transportation and construction equipment and related technology. The Chinese obtained most of these essential items under increasingly favourable terms, in cash and medium- to long-term Western government credit guarantees, by promoting intense competition among exporters in the Capitalist countries, which in turn weakened the solidarity of the Western anti-PRC alliance.

218

Conclusion

Taibei and Washington continued opposing the development of Chinese–Western trade, especially because of China’s economic crisis, the SinoIndian Border War and the PRC’s involvement in the Vietnam Conflict. Yet, behind the scenes, Kennedy administration officials accepted that America’s allies needed to conduct a certain amount of ‘non-strategic’ trade with China. They resumed and expanded investigations initiated by their counterparts in the Eisenhower administration into how such trade, including limited Sino-American economic relations, could be used to the advantage of the Western alliance. Although the Kennedy administration could not afford to appear to be abandoning its allies in Asia and risk a political backlash from powerful conservative forces at home, during the summer and autumn of 1963 it notified the Chinese at the Warsaw Talks that it was seeking an easing of tensions in South-East Asia. By late 1963, America’s China policy – which during the 1950s was aimed at ‘encirclement, containment and isolation’ of the PRC – evolved into one generally characterized by ‘firmness and flexibility’. The erosion of the China trade controls from 1961 to 1965 had not enabled Beijing to obtain the type or quantity of equipment and technology it needed to solve its development problems. In this sense the embargo was extremely effective. Without greater access to these items on improved long-term credits, the readjustment could no longer meet the demands of uncontrolled population growth, China’s growing involvement in the escalating Vietnam conflict and associated rapid domestic preparations for war. Not only did the objective of attaining ‘self-reliance’ probably appear to ‘leftist’ leaders as distant as ever, but China was becoming dependent on Western and Japanese credits, commodities, equipment and technology. As the PRC economy began weakening in 1965, ‘leftist’ leaders reasserted their authority and placed a renewed emphasis on ideological study and self-reliance, leading the PRC to turn inward, away from gradualist ‘agriculture-first’ policies based on trade with the West and Japan. Despite growing US and Chinese commitment to the Vietnam War, the Johnson administration introduced several initiatives at the Warsaw talks aimed at increasing Sino-American contact and understanding. Between early 1965 and 1968 Washington seriously considered a gradual easing of America’s non-strategic China trade controls, but because of events in Vietnam and in China itself, following the outbreak of the Cultural Revolution, such policy initiatives were not implemented. Suspicions that a complete Sino-Soviet split had occurred appeared to have been confirmed with the outbreak of military skirmishes along their common border in 1968. Meanwhile, ‘leftist’ rapid-development policies aimed at selfreliance were again leading China towards disaster. Serious regional food shortages redeveloped in 1970–1 after the Chinese dramatically scaled back foreign grain imports and purchased from abroad record quantities of chemical fertilizer from 1967 to 1970. However, in 1969–70 Chinese officials who had overseen the successful ‘readjustment’; began reasserting and cementing their authority and opened negotiations for closer trade relations and diplomatic rapprochement with the Capitalist powers.

Conclusion 219 Sino-American trade diplomacy began about the time of Lin Biao’s demise and developed as other ‘leftist’ elements gradually lost influence. Growing American economic problems and strategic concerns relating to the Vietnam War and Sino-Soviet hostilities also contributed to the Nixon administration’s decision to relax US China trade controls. This bold initiative was, nevertheless, the culmination of a gradual process occurring over the previous two decades of policy proposals introduced, debated and amended during the Eisenhower, Kennedy and Johnson administrations. Crucial and constant factors in this process, leading to the erosion of the US-led trade embargo against the PRC, was the overwhelming influence that sectoral market forces and pro-China trade organisations and lobby groups had on Western, Japanese and Chinese government policy during this period.

Abbreviations in notes

A463, A1209, A8648 A609, A611 A1310, A1313 A1804 A1838 AWF BOT BWEN CAB 128 CAB 129 CC/CCPHRC CC:WER CDF CFPF CQ DDEL DDEPP DEA FEER FO 371 Hamilton Papers Hilsman Papers JFKL LBJL MS MS 4300 MS 5049 NAA NAC NACP

Australian Department of Prime Minister and Cabinet Australian Department of Primary Industry (DPI) Australian Department of Commerce and Trade (DCT) Australian DPI and Energy Australian Department of External Affairs (DEA) Ann Whitman File British Board of Trade Bi-Weekly Economic Notes British Cabinet, Minutes British Cabinet, Memoranda Central Committee of the CCP Party History Research Centre (PRC) Communist China: Weekly Economic Review Central Decimal Files Central Foreign Policy Files China Quarterly Dwight D. Eisenhower Presidential Library Dwight D. Eisenhower Personal Papers Department of External Affairs (Australian and Canadian) Far Eastern Economic Review British Foreign Office, Political Files Alvin Hamilton Papers Roger Hilsman Papers John F. Kennedy Presidential Library Lyndon Baines Johnson Presidential Library Manuscript Division Jose Maria Braga Papers Christopher J. Perrett Papers (National) Australian Archives National Archives of Canada (US) National Archives at College Park, MD

Abbreviations in notes 221 NLA NSAM NSC NSF RG# RG#2 RG#20 RG#25 RG#59 S-NF SOAS Sorenson Papers Thomson Papers TNA:PRO

National Library of Australia National Security Action Memorandum National Security Council National Security Files Record Group Number Canadian Cabinet Conclusions and Minutes Canadian Department of Trade and Commerce Records (DTC) Canadian Department of External Affairs Records (DEA) US Department of State Records Subject-Numeric Files School of Oriental and African Studies (University of London) Theodore C. Sorenson Papers James C. Thomson Jr Papers The (UK) National Archives: Public Records Office

Notes

1 Grain imbalances, CHINCOM and China’s evolving economic and foreign trade strategy, 1949–June 1957 1 JFKL: Thomson Papers, box 15, US Department of State, INR memorandum, 21 September 1961 (based on Mao Zedong’s 16 September 1949 article quoted in World Knowledge, 20 March 1961). 2 Walker, K.R. in Ash, R.F. (collector and ed.), Agricultural Development in China, 1949–1989: The Collected Papers of Kenneth R. Walker (1931–1989), Oxford: Oxford University Press, 1998, p. 149 (based on Mao Zedong sixiang wansui, 1967, p. 227). 3 A pre-1949 economic specialist who had worked closely with Zhou Enlai as a Shanghai trade union leader. 4 Walker, K.R., Food Grain Procurement and Consumption in China, Cambridge: Cambridge University Press, 1984, p. 44. 5 Goncharov, S.N., Lewis, J.W. and Xue, L.T., Uncertain Partners: Stalin, Mao and the Korean War, Stanford, CA: Stanford University Press, 1993, pp. 49–50, 308; Shaw, Y.M., ‘John Leighton Stuart and US–Chinese Communist Rapprochements: Was There Another “Lost Chance in China”?’, China Quarterly, March 1982, vol. 89, pp. 82–3, 91; Dietrich, C., People’s China: A Brief History, Oxford: Oxford University Press, 1986, pp. 52–3. 6 Shaw, op. cit., p. 94. 7 Goncharov, Lewis, and Xue, op. cit., pp. 90–1, 240, 317–18. 8 In March 1951 the Australian Cabinet also agreed to adhere to COCOM principles. 9 Enforced mainly the Export Control Act (1949) and a 1933 amendment to the Trading with the Enemy Act (1917). 10 A Shanxi native, chief PRC delegate to the International Economic Conference (Moscow), director of the People’s Bank and on the Bank of China’s board (representing public shares). 11 Son of Liao Zhiqao, the San Francisco-born KMT leader and confidant of Sun Yat-sen who was assassinated at Guangzhou. 12 TNA:PRO: CAB: 128/24 Cabinet conclusion 2(52), 10 January 1952. 13 Adler-Karlsson, G., Western Economic Warfare, 1947–67, Stockholm: Almqvist & Wiksell Boktryckeri, 1968, pp. 201–2, 246; Garson, J.R., ‘The American Trade Embargo Against China’, in J.A. Cohen, R.F. Dernberger, and J.R. Garson (eds), China Trade Prospects and U.S. Policy, New York: Praeger Publishers, 1971, pp. 6–10, 24–43. 14 NAA: A1838/280 3107/385, pt. 4, memorandum, undated. 15 Walker in Ash, op. cit., p. 23. 16 NAC: RG#20: vol. 818, file 10-33, pt. 2, Hong Kong to Ottawa, 15 May 1957. 17 Li, H., Sino-Latin American Economic Relations, New York: Praeger, 1991, p. 15. 18 Buenos Aires had poor relations with Washington and depended on undeveloped oil reserves, beef exports and wheat to earn badly needed currency and reduce its growing trade deficit.

Notes 223 19 A pre-1949 Shanghai banker and trade executive, an International Economic Conference (Moscow) delegate, and Zhejiang native (Zhou Enlai, who was born at Jiangsu and raised at Tianjin, always proudly maintained that he was a ‘Zhejiang person’ because his grandfather was from Ningbo). 20 Also an International Economic Conference (Moscow) delegate. 21 Walker in Ash, op. cit., pp. 34–5. 22 Borisov, I.B. and Koloskov, B.T., Soviet–Chinese Relations 1945–1970, Bloomington, IN: Indiana University Press, 1975, pp. 121–7. 23 TNA:PRO: FO 371/115107: FC 115/1, memorandum from the Secretary of State for Foreign Affairs, undated. 24 DDEL: DDEPP: AWF: NSC series, box 5, NSC meetings, 19 November 1953, 11 March and 13 April 1954. 25 The American economy went into recession in 1954 and early in the year Congress passed PL 480 legislation – scheduled to take effect in July. 26 Wilhelm, A.D., Jr, The Chinese at the Negotiating Table; Style and Characteristics, Washington: National Defense University Press, 1994, pp. 171–2, 249. 27 DDEL: DDEP: AWF: NSC series, box 5, NSC meetings, 17 June and 5 August 1954. 28 TNA:PRO: FO 371/158073: M 341/10, memorandum, undated. 29 TNA:PRO: FO 371/ 120943: FC 1151/10, parliamentary question, Viscount Elibank, 25 January 1956. 30 After turning over the director generalship of the People’s Bank of China to Cao Juru. As the People’s Bank of China’s subsidiary and a special agency of the State Council, the Bank of China (established in 1912), as late as 1978 it still had some of its original shareholders and was only 66 per cent owned by the PRC government (see: Szuprowicz, B.O. and Szuprowicz, M.R., Doing Business with the People’s Republic of China: Industries and Markets, New York: John Wiley and Sons, 1978, pp. 75–8). 31 Li, H., op. cit., p. 15. 32 NACP: RG#59: CDF 1955–9, box 5080, FW 893.47, Dillon to US Secretary of State, 30 June 1959; DDEL: DDEPP: AWF: NSC series, box 5, NSC meeting, 12 August 1954. 33 Including JCTPA (established by private business), the Japan–China Friendship Society (JCFS) and the Japan Peace Committee (JPC). 34 The Plan was not finalized or published until July 1955. 35 Party History Research Centre of the Central Committee of the CCP (compiler) [CC/CCPHRC], History of the Chinese Communist Party – A Chronology of Events (1919–1990), Beijing: Foreign Languages Press, 1991, pp. 247–8. 36 DDEL: DDEPP: AWF: NSC series, box 6, NSC meetings, 9 December 1954 and 7 April 1955. 37 Walker in Ash, op. cit., pp. 34–6; CC/CCPHRC, op. cit., p. 250. 38 DDEL: White House Office, Office of Special Assistant for National Security Affairs, records 1952–61, Special Assistant series, Presidential subseries, box 2, memorandum. 39 TNA: PRO: CAB: 128/30: CM 48 (56), 11 July 1956. 40 Li, H., op. cit., p. 15. 41 ‘Supplementary Report of the Canadian Wheat Board (1955–6)’, p. 7. 42 A Guangzhou (area) native, former military leader/trade official in the Northeast under Chen Yun and son of a prosperous Guangzhou-Hong Kong businessman. 43 On 30 May, after encouragement from Delhi, Beijing released four US airmen being held in China. 44 Timberlake, P., The 48 Group: The Story of the Icebreakers in China, London: The ‘48’ Group Club, 1994, p. 38. 45 TNA:PRO: FO 371/120943: FC 1151/10, 26 January 1956. 46 In December 1954, Burmese Prime Minister U Nu stated publicly that, when he met Zhou Enlai and Mao Zedong one month earlier, Zhou had assured him that the PRC government was willing to receive an American goodwill delegation. 47 Xinhua (English).

224

Notes

48 ‘Supplementary Report of the Canadian Wheat Board (1955–6)’, p. 7. 49 Foreign Relations of the United States (FRUS), 1955–7 (vol. III), Bureau of Public Affairs, Washington: US Government Printing Office, Ambassador U. Alexis Johnson, Geneva to Washington. 50 NAC: RG#20: vol. 818, file 10-33, pt. 2, from Canadian consul/trade commissioner, New York, 20 October 1955. 51 Wilhelm, op. cit., p. 195. 52 TNA: PRO: FO 371/120944: FC 1151/36, BOT to Allen, 20 April 1956. 53 DDEL: DDEPP: AWF: NSC series, box 7, NSC meeting, 8 December 1955; box 8, NSC meeting, 22 December 1955 and 26 January 1956. 54 A hard red spring wheat marketed according to grades (MN#1, MN#2, MN#3, MN#4, MN#5) that did not vary annually. Of the highest quality and protein content, it cost approximately 25–30 cents per bushel more than lower-grade Australian FAQ wheat. MN wheat was exported internationally and blended with soft domestic wheats for all purposes. 55 NAC: RG#20: vol. 818, file 10-33, pt. 2, CWB, London to CWB, Winnipeg, 9, 13 and 19–20 December 1955. 56 Walker, op. cit. (1984), pp. 60,68. 57 Ibid., pp. 60, 62, 65, 68, 95. 58 Teiwes and Sun, op. cit., pp. 22–3. 59 Liu, S.N. and Wu Q.G. (eds), China’s Socialist Economy: An Outline History 1949–1984, Beijing: Beijing Review, 1986, pp. 217, 255. 60 Smith, R.B., An International History of the Vietnam War (Volume II): The Struggle for South-East Asia 1961–1965, London: Macmillan, 1985, p. 173. 61 Teiwes, F.C. and Sun, W., China’s Road to Disaster: Mao, Central Politicians, and Provincial Leader in the Unfolding of the Great Leap Forward 1955–1959, London: M.E. Sharpe, 1999, pp. 24–6 (quotation from Liu and Wu, op. cit., p. 219). 62 Timberlake, op. cit., p. 39. 63 DDEL: DDEPP: AWF: NSC series, box 7, NSC meeting, 5 April, 1956. 64 TNA:PRO: CAB: 128/30, 56th Cabinet minute, 24th Cabinet conclusion, 21 March 1956. 65 DDEL: DDEPP: AWF: NSC series, box 7, NSC meeting, 26 April 1956. 66 Also a Zhejiang native and American University educated. 67 Walker in Ash, op. cit., pp. 333–55. 68 Adler-Karlsson, op. cit., pp. 205–6. 69 Walker, K.R., Planning in Chinese Agriculture Socialisation and the Private Sector 1956–1962, London: Frank Cass & Company Ltd, 1965. 70 China Resources Trade Consultancy Co. Ltd (CIRECO), Almanac of China’s Foreign Trade Relations and Trade, Hong Kong: the editorial board of the almanac of China’s foreign economics and trade, 1984, p. 939. 71 ‘Urea Analysis of World Supply/Demand 1956–1976’, The British Sulphur Corporation Ltd, London, 1969. 72 Howe, C., ‘Technology and Industrial Policy in China: A Survey of Issues in the Reform Period and Lessons From Other East Asian Economies’, in Perspectives on Contemporary China in Transition, Taibei: Institute of International Relations, National Chengchi University, 1997, p. 83. 73 NACP: RG#59, CDF 1955–9, 893.3972, Hong Kong to Washington, 12 November 1959, (based on Chinese official sources, Planned Economy, no. 10, 9 October 1957 and Chemical Industry, no. 6, 1958); quotation from Liu, J.C., China’s Fertilizer Economy, Chicago, IL: Aldine Publishing Co., 1970, p. 14. 74 Lauriat, G., ‘Awaiting the Rush of Chinese Crude, if Any’, Far Eastern Economic Review (FEER), 7 October 1977. 75 CIA research aid: ‘People’s Republic of China: Chemical Fertilizer Supplies 1949–1974’. 76 Walker, op. cit. (1965), p. 45.

Notes 225 77 Lardy, N.R. and Lieberthal, K. (eds), Chen Yun’s Strategy for China’s Development: A Non-Maoist Alternative, Armonk, NY: M.E. Sharpe Inc., 1983, pp. 134–5. From a May 1961 speech, but reflects the policy Chen tried to implement as early as 1957. 78 Chinvanno, A., ‘Thailand’s Policies Towards The People’s Republic of China, 1949–1957’, PhD thesis, Oxford University, 1988, pp. 320–2 (based on NACP, DS, 792.00, 26 May 1956 and article in Bangkok Post, 3 August 1975). 79 Ang, C.G., Vietnamese Communists’ Relations with China and the Second Indochina Conflict, 1956–1962, Jefferson, NC: McFarland & Co. Inc. Publishers, 1997, p. 28. 80 Poland began to accept US PL 480 grain shipments. 81 Walker, op. cit. (1984), p. 92. 82 Teiwes and Sun, op. cit., pp. 33–5. 83 By the time FEER’s editor Dick Wilson retired in September 1964 the publication had become a sort of Asian Economist circulating in seventy countries (including the PRC) where it was an indispensable reading for government officials, business representatives and academics alike. 84 ‘The Passivity of Entrepreneurs in China’, FEER, 9 August 1956, p. 186. 85 TNA:PRO: CAB: 128/30 Cabinet minute 48 (56), 11 July 1956. 86 Young, K.T., Negotiating with Chinese Communists: The United States Experience 1953–1967, New York: McGraw-Hill, 1968, pp. 116, 119; and Wang, B.N., Memoirs of Wang Bingnan: Nine Years of Sino-US Talks in Retrospect, JPRS-CPS-85-079, 7 August 1985; FRUS 1955–7 (vol. III), Geneva to Washington, 21 August 1956. 87 Teiwes and Sun, op. cit., p. 33–5. 88 Ang, op. cit., pp. 38–9 (based on SWB/FE/September 1956, supplement #4, pp. 20–1). 89 Dechert, C., Ente Nazionale Irocarburi: Profile of a State Corporation, Leiden: E.J. Brill, 1963, pp. 4–5, 50; Humbaraci, A., ‘Recognition in Rome’, FEER, 18 March 1965. 90 Adler-Karlsson, op. cit., p. 94. 91 TNA:PRO: CAB: 129/84 Cabinet memorandum 221 68 (4), 1 October 1956; (56) 68th Conclusion, 3 October 1956. 92 Teiwes and Sun, op. cit., pp. 33–5. 93 CC/CCPHRC, op. cit., p. 260. 94 Ang, op. cit., p. 46. 95 It included Li Fuchun, Li Xiannian, Bo Yibo and PLA chief of staff Huang Kecheng. All the ‘Small Group’ members (with the possible exception of Li Fuchun) had previously worked closely with the Fourth Field Army elite or the North China Field Army and had participated in either the establishment of military districts in Manchuria or in North China politics involving the ‘White Party’ and Liu Shaoqi. 96 Teiwes and Sun, op. cit., p. 42. 97 Chinvanno, op. cit., pp. 320–2 (based on NACP, DS, 792.00, 26 May 1956 and article in Bangkok Post, 3 August 1975). 98 Lardy and Lieberthal, op. cit., pp. xix, xxx, xlii. 99 Mentioned in China News Analysis, no. 199, 4 October 1957. 100 Walker in Ash, op. cit., p. 128. While referring to Chen Yun’s remarks of May 1961, as we will see this was the policy Chen was trying to implement as early as 1957. 101 Ang, op. cit., p. 51. 102 DDEL: DDEPP: AWF: NSC series, box 8, NSC meeting, 3 January 1957. 103 DDEL: DDEPP: AWF: NSC series, box 8, NSC meeting, 6 March 1957. 104 Mic´unovic´, V., Moscow Diary, London: Chatto & Windus, 1980. 105 He taken over from Ishibashi (who had replaced Ichiro Hatoyama in late 1956) and had maintained ties with the KMT for many years. Smith, R.B., An International History of the Vietnam War: Volume I Revolution Versus Containment 1955–61, London: Macmillan, 1983, p. 115. 106 NAC: RG#20: vol. 818, file 10-33, pt. 2, Ottawa to Hong Kong, 23 May 1957. 107 ‘Communist China, the Loosened Rack’, Time, 13 May 1957, pp. 33; ‘Red China Flood and Famine’, Time, 5 August 1957.

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108 TNA:PRO: FO 371/127354: FC 1151/40, from Beijing, 5 June 1957. 109 Britain was not party to the Treaty of Rome, signed on 25 March (to take effect on 1 January 1958), which established the EEC. Also, following the Suez crisis, the UK government needed to raise interest rates dramatically, and to obtain private, US government, as well as IMF financing to fight inflation, support sterling and ease balance of payments deficits. 110 TNA:PRO: FO 371/127354: FC 1151/40, from Beijing, 5 June 1957. 111 Smith, op. cit. (1983), p. 115. 2 China’s ‘Great Leap’ famine, ‘test purchases’ of Western grain and return to ‘readjustment’, July 1957–August 1960 1 2 3 4 5 6 7 8

9 10 11 12 13 14 15 16 17 18 19

20

21 22

People’s Daily (Beijing) articles: especially 30 August 1957. CC/CCPHRC, op. cit., pp. 269–70. ‘The Emotional Storm Over China’, FEER, 15 August 1957. Walker in Ash, op. cit., p. 87. Vogel, E.F., Canton Under Communism: Programs and Politics in a Provincial Capital, 1949–1968, Cambridge, MA: Harvard University Press, 1969, pp. 220, 402. ‘The Food Problem, The Great Discussion’, cited in: China News Analysis, no. 204, 1957. Walker in Ash, op. cit., pp. 110–11. Article provided by R.F. Ash and translated for author by Zhou Yiping: ‘Continuing Criticisms of Mao Zedong: New Data Relating to Mortality Caused by Starvation During the Great Leap Forward Period – Chinese Communist Party Official Statistical Research’, Kai Fung (Open Magazine), Hong Kong, January 1994, pp. 52–3. Walker in Ash, op. cit., pp. 155–9. Wong, J., The Political Economy of China’s Changing Relations With Southeast Asia, New York: St. Martins Press, 1984, p. 162. Report of the CWB (crop year 1957–8), pp. 12–14. Smith, op. cit. (1983), p. 108. DDEL: White House memorandum series, box 5, Secretary of State Dulles to President Eisenhower, 21 August 1957. DDEL: DDEPP: AWF: NSC series, box 9, NSC meeting, 13 September 1957. DDEL: DDEPP: AWF: NSC series, box 9, NSC meeting, 2 October 1957. NAC: RG#20: vol. 818, file 10-33, pt. 1, The Bank Line (China) Ltd director, Hong Kong to Canadian Trade Commission, Hong Kong, 13 September 1957. Broehl, W., Cargill Trading the World’s Grain, Hanover, NH: University Press of New England, 1992, pp. 772–800. Mitcham, C.J., ‘Trade, Grain and Diplomacy in China’s Economic Relations With the West and Japan, 1957–63’, unpublished PhD thesis, SOAS, 2000, pp. 99–101. Under the semi-private Cologne-based Bundeverband Deutschen Industrie (BDI) were three subcommittees: one handling trade relations with the USSR, another for East European Communist nations, and another for the ODW for the PRC. The ODW was composed of the same members as BDI and, although it did not have official government status, Bonn consulted the organization before approving any commercial transaction with Eastern countries. ODW representatives were included in West German government delegations negotiating with Eastern countries and an official from the FRG Economics Ministry was an unofficial board member. Lardy and Lieberthal (eds), op. cit., pp. 67–72; Teiwes and Sun, op. cit., pp. xvi, xvii, 55–63, 105–6, 110; CC/CCPHRC, op. cit., pp. 267; Bachman, D., Bureaucracy, Economy and Leadership in China: The Institutional Origins of the Great Leap Forward, Cambridge: Cambridge University Press, 1991, pp. 80–3, 192–201. Vogel, op. cit., pp. 220, 402. RMRB report see: Walker in Ash, op. cit., p. 158.

Notes 227 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

53 54 55 56 57 58 59

Teiwes and Sun, op. cit., p. 67; CC/CCPHRC, op. cit., p. 267. Walker, op. cit. (1984), p. 70. Ang, op. cit., p. 56. CC/CCPHRC, op. cit., p. 268. Ibid. Forsyth-Smith Papers: Forsyth-Smith to Ottawa, 26 November 1957 and undated attached report. Morgan, D., Merchants of Grain, New York: Viking, 1979, p. 95. Forsyth-Smith Papers: Forsyth-Smith to Ottawa, 26 November 1957; Forsyth-Smith to Ottawa, 28 February 1958. NAC: RG#20: vol. 818, file 10-33, pt. 2, Hong Kong to Ottawa, 5 November 1957. NAC: RG#20: vol. 818, file 10-33, pt. 2, Hong Kong to Saskatchewan Wheat Pool, 12 December 1957. Forsyth-Smith Papers: Forsyth-Smith to Ottawa, 26 November 1957. NAC: RG#20: vol. 818, file 10-33, pt. 2, to Ottawa, 24 December 1957. FEER, 13 March 1958, p. 336. Lardy and Lieberthal, op. cit., pp. xxii, 67–72, 146–7. NACP: RG#59: CFPF, CDF 1955–9, box 5080, 893.401, Hong Kong to Washington, 20 December 1957, discussing: ‘Urban Population Must be Controlled’, People’s Daily, 27 November 1957. See Chapter 4: note 106. Clayton, D., ‘British Foreign Economic Policy Towards China 1949–60’, Electronic Journal of International History, article 6, Online. Available: http://www.history.ac.uk/ejournal/art6.html, pp. 8, 11, 39. Teiwes and Sun, op. cit., pp. 245–6. NAC: RG#20: vol. 818, file 10-33, pt. 3, Hong Kong to Ottawa, 7 February 1958. Mitcham, op. cit., chapter 2. FEER, 10 April 1958, p. 460. Mitcham, op. cit., chapter 2 (based on documents from NAC: RG #20: vol. 818, file 10-33, pts. 2–4, especially: Small, C. J., ‘Sales of Wheat to China 1958’; NAA: A804/28 201/12/1, pt. 1, 1958). NAC: RG#20: vol. 818, file 10–33, pt. 3, Hong Kong to Ottawa, 21 March 1958; author’s interviews of Forsyth-Smith: January 1996–2002. Adler-Karlsson, op. cit., passim. Mitcham, op. cit., chapter 2 (based on RG#20: vol. 818, file 10-33). Li, Z.S., The Private Life of Chairman Mao: The Inside Story of the Man Who Made Modern China, UK: Chatto and Windus, 1994, pp. 239, 242, 247–9. Mitcham, op. cit., chapter 2 (based on RG#20: vol. 818, file 10-33). NAC: RG#20: vol. 818, file 10–33, pt. 3: (Reuters report from Beijing), by J. Gee: ‘Drought, Frost Threat To China Wheat Crops’, The Gazette, 13 May 1958. Mitcham, op. cit. (2000), chapter 2 (based on RG#20: vol. 818, file 10-33). NAC: RG#25: vol. 4722, file 50055-B-40, from NAR, 29 August 1963 (discusses 1958 DEA review of Canadian ‘China policy’). See also: Beecroft, S., ‘Canadian Policy Towards China, 1949–1957: The Recognition Problem’, in P.M. Evans and B.M. Frolic (eds), Reluctant Adversaries: Canada and the People’s Republic of China, 1949–1970, Toronto, Ont.: University of Toronto Press, 1991, p. 66. NAC: RG#20: vol. 818, file 10-33, pt. 3, Hong Kong to Ottawa, 13 June 1961. CC/CCPHRC, op. cit., p. 270. Teiwes and Sun, pp. xxi, 105–9, 157. CC/CPPHRC: op. cit., pp. 272–3; 1998 figure from Chinese State Statistical Yearbook (1999), pp. 11, 395. p. 12. Mitcham, op. cit., chapter 2 (based on RG#20: vol. 818, file 10-33). NAC: RG#20: vol. 818, file 10-33, pt. 3, Hong Kong to Ottawa, 21 October 1958.

228

Notes

60 NAC: RG#20: vol. 818, file 10-33, pt. 4, Xinhua (English), Beijing report of 22 July 1958, ‘1958 Harvest “Unprecedently Good”, Says Ministry’ (excerpts from Chinese Ministry of Agriculture report on Crops in 1958); Xinhua (daily bulletin) no. 223, 24 July 1958, pp. 31–3. 61 Walker in Ash, op. cit., p. 158. 62 Teiwes and Sun, op. cit., pp. 109–11. 63 Wong, op. cit., p. 72. 64 Clayton, op. cit., pp. 8, 11–12. 65 Teiwes and Sun, op. cit., p. 110. 66 Liu and Wu, op. cit., p. 503. 67 See chapter 3: footnotes 42–3, 90. 68 NLA: MS 4300, Braga papers, box 45, memorandum, 25 June 1960. 69 Naosakiu Uchida, ‘Economic Activities of the Chinese in Southeast Asia’, FEER, 8 November 1956. 70 Wong, op. cit., pp. 72–5. 71 See note 101. 72 Teiwes and Sun, op. cit., pp. 122–3. 73 NAC: RG#20: vol. 818, file 10-33, pt. 3, Hong Kong to CWB, 16 October 1958. 74 Teiwes and Sun, op. cit., pp. 25–6. 75 Wang, B.N., ‘Recalling Nine Years of Sino-US Talks’, translated in FBIS (Daily Report, People’s Republic of China), 28 March 1985, B-7. 76 CIRECO, Almanac of China’s Foreign Trade Relations and Trade (1984), Hong Kong: The editorial board of the almanac of China’s foreign economics and trade, China Resources Trade Consultancy Co. Ltd, 1984, pp. 826, 909. 77 Lardy, N.R., Agriculture in China’s Modern Economic Development, Cambridge: Cambridge University Press, 1983, p. 152. 78 Teiwes and Sun, op. cit., p. 62. 79 JFKL: NSF: countries, box 21, report, 31 May 1960 (discusses the 1958–60 period, based on China News Analysis which utilized the CCP publication: Planning and Statistics). 80 Smith, op. cit. (1983), pp. 143, 162. 81 Smith, op. cit. (1983), pp. 157, 170. 82 Teiwes and Sun, op. cit., pp. 159–60. 83 Smith, op. cit. (1983), pp. 157–74; Ang, op. cit., chapters 5–6. 84 Smith, op. cit. (1983), pp. 170–1. 85 CC/CCPHRC, op. cit., pp. 280–1. 86 United States of America Congressional Record (1950–80), Washington: US government printing office, 4 June 1959, p. 1993. 87 Bachrack, S.D., The Committee of One Million: ‘China Lobby’ Politics 1953–1971, New York: Columbia University Press, 1976, pp. 152, 155–8. 88 Smith, op. cit. (1983), p. 176. 89 Lardy and Lieberthal, op. cit., speech by Chen Yun, ‘Speed Up Development of the Nitrogenous Chemical Fertiliser Industry (May 1961)’, pp. 129–38. 90 Liu, J.C., China’s Fertilizer Economy, Chicago: Aldine Publishing Co., 1970, pp. 58–9, 66–7. 91 Humbaraci, op. cit. 92 Ibid; JFKL: NSF: Italy: box 123, background paper for Italian Prime Minister Fanfani’s visit to Washington, 12–13 June 1961, 9 June 1961; Dechert, op. cit., pp. 4–5. 93 Ang, op. cit., p. 141. 94 Teiwes and Sun, op. cit., p. 215. 95 Becker, J., Hungry Ghosts: China’s Secret Famine, London: John Murray, 1996, pp. 141, 323. 96 NAC: RG#25: vol. 580, file 9030-40, pt. 6, Hong Kong to Ottawa, 5 April 1960. 97 Ang, op. cit., p. 141.

Notes 229 98 Wang spent time in Shanghai and Hong Kong in the 1930s and headed the propaganda department of the CCP’s North East China Bureau in Manchuria in the late 1940s. 99 Qiang Zhai, China and the Vietnam Wars, 1950–1975, London: University of North Carolina Press, 2000, pp. 114–15, 554–7. 100 CC/CCPHRC, op. cit., p. 284. (Severe grain shortages also affected the nuclear test areas beginning in late 1960, see: Teiwes and Sun, op. cit., p. 216.) 101 NLA: MS 4300, J.M. Braga to Zeca, 18 June 1960. 102 NAC: RG#20: box 43, vol. 1983–84/234, 17–21, file 7-C3-1, memorandum by Tsao Lien-En, Letsao International, Montreal to CANDAIR Ltd, Montreal, 8 June 1960. 103 NAC: RG#20: box 43, vol. 1983–84/234, 17–21, file 7-C3-1, Hong Kong to the Under-Secretary of State for External Affairs, 13 June 1961; Nash, K., ‘Still More Sales for Canadians in China Market? Lots of Profits Ahead Selling to the Chinese?’, The Financial Post, 27 May 1961. 104 Liu and Wu, op. cit., pp. 260–81; CC:CCPHRC, op. cit., pp. 284–99. 105 Joffe, E., Party and Army: Professionalism and Political Control, in The Chinese Officer Corps, 1949–1964, Cambridge, MA: Harvard University Press, 1965, pp. 156–7. 106 It became the Chinese Civil Aviation Corporation (CAAC) in 1962. 107 TNA:PRO: FO 371/158424: FC1381/10, from Beijing 78E 1386/18/61; from Beijing (British official source: Chen Ming). 108 Sampson, A., Empires of the Sky: The Politics, Contests and Cartels of World Airlines, London: Hodder and Stoughton, 1984, pp. 103–4. 109 TNA:PRO: CAB: 129 C(61) 150, Cabinet memorandum, 6 October 1961. 110 CC/CCPHRC, op. cit., pp. 285–6; Liu and Wu, op. cit., p. 273. 111 Yang, D., Calamity and Reform in China: State, Rural Society, and Institutional Change Since the Great Leap Famine, Stanford, CA: Stanford University Press, 1996, pp. 65–73; J.K. Fairbank and R. MacFarquhar (eds), Cambridge History of China, Vol.14 The People’s Republic Part I: The Emergence of Revolutionary China 1949–1965, Cambridge: Cambridge University Press, 1987, p. 382; NAA: A1838/1 766/1/4, pt. 1, Hong Kong to AWB, 3 September 1960. 112 NAC: RG#25: vol. 5280, file 52280, 9030-40, pt. 6, Hong Kong to Under-Secretary of State for External Affairs, 23 February 1961. 113 Ang, op. cit., p. 159 (reported in Xinhua, 1 August 1960. See also: Edgar Snow, The Other Side of the River, pp. 77, 85, 92). 114 Teiwes and Sun, op. cit., p. 216. 115 Sadao Nakabayashi, ‘The Cartel Problem in Japan’, Cartel: Quarterly Review of Monopoly, Developments and Restrictive Business Practices, vol. XIII, no. 3, July 1963. 116 NACP: RG#59: CFPF, CDF 1960–3, box 2900, 894.397, Tokyo to Washington, 30 April 1962. 117 Established on 30 June 1955 replacing Foreign Operations Administration in overseeing American foreign technical and financial aid programmes. 3 Chinese–Western grain trade diplomacy: credits and famine relief, September 1960–August 1961 1 L.S. Li, ‘Sino-Canadian Relations and the Grain Trade’, unpublished MA thesis, Carleton University, Ottawa, Ont.: 1995, pp. 96, 104 (based on Li’s interviews with Chen Zhongmin and Chen Guodong). 2 NAA: A1838/1 766/1/4, pt. 1, Hong Kong to AWB, 3 September 1960. 3 Smith, op. cit. (1983), p. 214. 4 NACP: RG#59: CFPF, CDF 1960–3, box 2881, 894.00 XR 893-0094, Tokyo to Washington, 18 December, 1962; S-NF 1964–6, box 993, FT 2 CHICOM–JAPAN, Tokyo to Washington, 10 June 1965.

230

Notes

5 NAC: RG#25: vol. 5280, file 9030-40, pt. 7, DEA memorandum, 10 May 1961. 6 TNA:PRO: FO371/158424: FC 1381/6, August 1961. 7 Cheng, C. (ed.), The Politics of the Chinese Red Army: A Translation of the Bulletin of Activities of the People’s Liberation Army, Stanford, CA: Hoover Institution, 1966, pp. 19–25, 173–6, 284, 295–301. 8 CC/CCPHRC, op. cit., p. 286. 9 Cheng, op. cit., pp. 73, 173, 167. 10 Ibid., pp. 11–14. 11 CC/CCPHRC, op. cit., pp. 287–8. 12 Cheng, op. cit., pp. 8–9, 15–19, 146–7, 167, 171, 209–11. 13 Author’s interview with former Xinhua and China International Trust Investment Corporation (CITIC) official Yao Wei, March 1996. 14 NACP: RG#59: CFPF, CDF 1960–3, box 2885, 893.49, Tokyo to Washington, 15 February 1961. 15 Cheng, op. cit. 16 Bartke, W., Oil in The People’s Republic of China Industry, Structure, Production, Exports, London: Institute of Asian Affairs Hamburg, C. Hurst and Co., 1977, p. 43 (Bartke’s source: FEER, 3 January 1961). 17 Cheng, op. cit., pp. 8–9. 18 A grading system adopted by all Australian states from 1891 to 1905 under which each Australian state’s Chamber of Commerce determined an average annual extracted imperial weighted sample (excluding inferior samples) after overseeing the pooling and mixing of the State’s wheat harvest. The FAQ system was subsequently criticized because grades varied annually and it reflected bushel weight and the wheat’s milling value of wheat, rather than its quality for baking. (See: Whitwell, G. and Sydenham, D. A Shared Harvest: The Australian Wheat Industry 1939–1989, Melbourne: Macmillan Education Australia Ltd, 1991, p. 104; Callaghan, A.R. and Millington, A.J., The Wheat Industry in Australia, Sydney: Angus and Robertson, 1965, pp. 349–63.) 19 NAA: A1804/28 201/12/1, pt. 1, Hong Kong to Canberra, 19 December 1960; memorandum by C.J. Perrett, AWB, January 1961. 20 NAC: RG#25: vol. 5280, file 9030-40, Hong Kong to Ottawa, 20 December 1960. 21 Cheng, op. cit., pp. 31–40. 22 NAC: RG#20: box 43, vol. 1983–84, 234, 17–21, file 7-C3-1, Ottawa to Winnipeg, 6 January 1961; Hong Kong to Ottawa, 3 January 1961. 23 Robinson, P., ‘Japan Looks to Increased Trade with Red China’, Australian Financial Review, 19 January 1961. 24 NACP: RG#59: CFPF, CDF 1963–6, box 2900, 493.94, memorandum, 16 January 1961. 25 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493.94, memorandum from Hong Kong, 19 January 1961 (US official source: Takeshi Ohta, Hong Kong branch, Bank of Tokyo); 493.94, from Hong Kong, 24 January 1961. 26 Cheng, op. cit., pp. 97–105. 27 Ibid., pp. 161–2, 185–99. 28 CC/CCPHRC, op. cit., pp. 289–90. 29 Ibid., pp. 200–3. 30 Ibid., pp. 227–83. 31 NAC: RG#25: vol. 5280, file 9030-40, pt. 1, memorandum, 17 January 1961. 32 NAC: RG#20: box 43, vol. 1983–84/234, 1721, file 7-C3-1, Hamilton to Cabinet, 13 January, 1961. 33 NAC: RG#25: vol. 5280, file 9030-40, pt. 1, Robertson for the Minister, 14 January 1961; Cabinet decision, 16 January 1961. 34 NAC: RG#25: vol. 5280, file 9030-40, pt. 1, Roy Faibish to Secretary of State for External Affairs (and attached memorandum), 17 January 1961. 35 Ibid.

Notes 231 36 NACP: RG#59: CDF 1960–3, box 1037, 493.0009, memorandum, 22 October 1962 (US official source: Director Leopold Stern, Louis Dreyfus Co., New York). 37 JFKL: Theodore C. Sorensen Papers, subject files 1961–4, box 41, ‘West German Flour Exports to the Soviet Bloc’, undated. 38 Public Papers of the Presidents of the United States – John F. Kennedy: Containing the Public Messages, Speeches, and Statements of the President, 1961 and 1962, Washington: US Government Printing Office, p. 8. 39 NAC: RG#25: vol. 5280, file 9030-40, pt. 6, Hong Kong to Under-Secretary of State for External Affairs, 23 February 1961. 40 Liu and Wu, op. cit., p. 277. 41 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493.94, Tokyo to Secretary of State, 10 February 1961; box 2885, 893.49, Tokyo to Secretary of State, 15 February 1961. 42 NAC: RG#20: vol. 1943, file 20-141-C3, Hong Kong to Ottawa, 3 February 1961; NAA: A1804/28 201/12/1, pt. 1, 23 February 1961. 43 Braga’s ancestors were early Portuguese settlers of Macau and his family had subsequently become influential in Macau and Hong Kong business and politics. 44 NACP: RG#59: CFPF, CDF 1961–3, box 1037, 493.119, Hong Kong to Secretary of State, 18 and 22 February 1962. 45 TNA:PRO: FO 371/157941: UEE 10415/37, Jackling to Petch, 31 January 1961. 46 TNA:PRO: FO 371/158083, UK OEEC delegation to FO, February 1961. 47 NACP: RG#59: CFPF, S-NF 1964–6, box 992, E 2-2 CHICOM, Tokyo to Secretary of State, 8 January 1965. 48 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493.94, Tokyo to Secretary of State, 27 February 1961. 49 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 893.94, Tokyo to Secretary of State, 10 February 1961; box 2885, 893.49, Tokyo to Secretary of State, 15 February 1961. 50 Liu and Wu, op. cit., p. 295. 51 NAA: A1838/1 766/1/4, pt. 1, memorandum, 10 April 1961; NAC: RG#25: vol. 5280, file 9030-40, memorandum by McNamara, CWB, 24 February 1961. 52 NAC: RG#20: vol. 1943, file 20-141-C3, CWB memorandum, 27 February 1961; NAA: A1804/28 201/12/2, pt. 1, AWB memorandum, March 1961. 53 NAC: RG#25: vol. 5281, file: 9030-40, pt. 9, Warsaw to Ottawa, 18 January 1963. 54 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493.429, memorandum, 28 April 1961; 493.429, Vancouver to Secretary of State, 23 February 1961; Diefenbaker, J.G., One Canada: Memoirs of the Right Honourable John G. Diefenbaker – The Years of Achievement 1957–1962, Toronto, Ont.: Macmillan, 1976, p. 179; NAC: RG#2: vol. 6176, report, 21 February 1961. 55 Cheng, op. cit., pp. 295–301, 351–6. 56 NAA: A1804/28 201/12/2, pt. 1, memorandum, March 1961. 57 NAC: RG#20: vol. 819, file 10-33, 7-10-303, pt. 12, CWB negotiators, Hong Kong to CWB, Winnipeg, 24 February 1961. 58 Ibid. 59 NAC: RG#20: vol. 1943, file 20-141-C3, CWB memorandum, March 1961. 60 NAA: A1804/28/201/12/2, pt. 1, Canberra to Australian High Commission, Ottawa, 7 March 1961; memorandum by C.J. Perrett, AWB, March 1961; NAC: RG#20: vol. 1943, file 20-141-C3, memorandum to Cabinet, 8 March 1961; Cabinet decision, 9 March 1961; RG#2: vol. 6176, Cabinet memorandum, 11 April 1961. 61 Cheng, op. cit., pp. 318–19. 62 Perrett, C.J., A Record of Constitutional Developments Policies and Operations of the Australian Wheat Board 1939–65, Melbourne: AWB, 1996, p. 206. 63 NAA: A1804/28/201/12/2, pt. 1, from DPI Secretary, 14 April 1961. 64 NAA: A4940/1 C3287, Cabinet decision, 3 August 1961. 65 NAC: RG#20: vol. 1943, file 20-141-C3, Cabinet decision, 9 March 1961.

232

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66 NACP: RG#59: General Records, Bureau of European Affairs, Office of British Commonwealth and Northern Affairs, Alpha-Numeric Files, Canadian Affairs, 1952–63, box 3, 6-D.317: memorandum, 5 May 1961. 67 TNA:PRO: FC 1281/39, ‘Gallup Poll’, American Institute of Public Opinion, 20 March 1961. 68 NAA: A1838/1 766/1/4, pt. 1, AWB to Canberra, 17 March 1961; A1884/28/201/12/2, telephone message from AWB, 22 March 1961. 69 NAC: RG#20: vol. 1943, file 20-141-C3, McNamara, Hong Kong to DTC, Ottawa, 7 April 1961. 70 NAC: RG#20: vol. 1943, file 20-141-C3, memorandum to Cabinet, 8 April 1961; RG#2: vol. 6176, memorandum to Cabinet, 11 April 1961. 71 NAA: A1838/1 766/1/4, pt. 1, memorandum, 10 April 1961. 72 NAA: A1804/28/201/12/1, Minister for Primary Industry to AWB chairman, Teasdale, 13 April 1961. 73 NAC: RG#2: vol. 6176, Cabinet memorandum, 11 April 1961; author’s interviews of Alvin Hamilton, 1992–8; author’s correspondence with Roy Faibish 1994–5. 74 NAA: A1804/28/201/12/2, pt. 1, Washington to Secretary DPI, Canberra, 26 May 1961. 75 NAC: RG#25: vol. 5280, file 9030-40, pt. 3, Hong Kong to the Under-Secretary of State for External Affairs, 9 May 1961. 76 NAC: RG#25: vol. 4722, file 50055-B-40, pt. 15, long-term agreement between CEROILFOOD and the CWB, 22 April 1961 and attached memorandum (inseparable part of the long-term Sino-Canadian agreement), 22 April 1961; For details of negotiations see: Mitcham, op. cit., pp. 164–83. 77 Mitcham, op. cit., pp. 180–1. 78 Ibid., pp. 40–1, 185–6; Albiniski, H.S., Australian Policies and Attitudes Toward China, Princeton, NJ: Princeton University Press, 1965. 79 NAA: A1838/1 766/1/4, pt. 1, report, 15 May 1961. 80 NACP: RG#59: CFPF, CDF 1960–3, box 2900, 894.3972, JASEA chairman to Washington, 26 June 1961. 81 RG#25: NAC: vol. 5280, file 9030-40, pt. 8, London to the Under-Secretary of State For External Affairs, ‘Text of British House of Commons Debates’ (for 1 June 1961), 5 June 1961. 82 TNA:PRO: FO 371/158073 341/0. 83 TNA:PRO: FO 371 164489: UEE 10415/36, telegram, 12 February 1962. 84 Author’s interview with C.M. Forsyth-Smith, Halifax, Nova Scotia, 3 January 1996. 85 ‘Testimony of Chao Fu’ (Chinese defector and former security officer, PRC Embassy, Stockholm), 29 November 1962, 87th Congress, Senate Committee Hearing, vol. 1543, subcommittee to investigate the administration of the Internal Security Act and Other Internal Security Laws of the Committee of the Judiciary. 86 Walker in Ash, op. cit., p. 128; Chen Yun’s speech at the Central Work Conference, May 1961, ‘An Important Work That Relates to the Overall Situation’, translated in Lardy and Lieberthal, op. cit., p. 145. 87 JFKL: NSF 1961–3: box 153, Bowles to Hong Kong, 18 May 1961. 88 NAC: RG#20: vol. 1983–84/234, 17–21, file 7-C3-1, C. John Small, tour notes, ‘C.M. Forsyth-Smith and C.J. Small May 14–June 7 1961’; Forsyth-Smith ‘China Diary’ (14 May–7 June 1961). 89 NACP: RG#59: CDF 1960–3, box 1037, 493.119, Hong Kong to Secretary of State, 2 June 1961. 90 See above: notes 34, 35 and 44. 91 NAC: RG#25: vol. 5280, file 9030-40, pt. 8, Secretary of State for External Affairs to Diefenbaker, 7 July 1961. 92 NAC: RG#25: vol. 5280, file 9030-40, pt. 8, Washington to Ottawa, 7 June 1961. 93 NAC: RG#2: Cabinet decision, 16 June 1961. 94 NAC: RG#20: vol. 1943, file 20-141-3, Geneva to Ottawa, 16 June 1961.

Notes 233 95 Ignatieff, G., The Making of a Peacemonger: The Memoirs of George Ignatieff, Toronto, Ont.: University of Toronto Press, 1985, pp. 194–5. 96 Rusk, D., As I Saw It, London: Tauris, 1990, pp. 196, 282, 284, 287. 97 JFKL: NSF 1961–3: Poland, box 153, Secretary of State to Warsaw, 23 June 1961. 98 JFKL: NSF 1961–3: Poland, box 153, Warsaw to Secretary of State, 30 June 1961. 99 Ibid. 100 Abramson, R., Spanning the Century: The Life of W. Averrell Harriman, 1891–1986, New York: William Morrow & Co. Inc., 1992, pp. 585, 728 (based on Harriman papers, Rusk to Harriman, 23 June 1961; Harriman to Rusk, 18 July 1961; and Schlesinger, A.M., Jr, A Thousand Days: John F. Kennedy in the White House, Boston, MA: Houghton Mifflin Company, 1965, p. 514). 101 JFKL: NSF 1961–3: Poland, box 153, action Warsaw from Secretary of State, 13 August 1961. 102 JFKL: NSF 1961–3: Poland, box 153, Warsaw to Secretary of State, 15 August 1961. 103 JFKL: NSF 1961–3: Poland, box 153, Warsaw to Secretary of State, 16 August 1961. 104 Lardy and Lieberthal, op. cit., pp. xxix–xxxi, xlii, 145–7. Mao revealed this to Field Marshal Montgomery – see Times (London), 15 October 1961. 105 Cheng, op. cit., pp. 743–6. 106 TNA:PRO: FO 371/158424: FC 1381/5, from Beijing, 12 August 1961; NACP: RG# 59: CFPF, CDF 1960–3, box 1037, 493., background paper, Bermuda meeting with British Prime Minister Macmillan, 21–2 December 1961. 107 TNA:PRO: FO 371/158424: FC 1381/10, Beijing, 78E 1386/18/61. 108 TNA:PRO: FO 371/158424: FC 1381/12, from FO, 16 August 1961; FC 1381/6, ‘Viscounts for China’, undated. 109 TNA:PRO: FO 371/158424: FC 1381/6, FO to Beijing, 18 August 1961. 110 TNA:PRO: FO 371/158424: FC 1381/17, from Beijing, 28 August 1961. 4 Aircraft, grain and the Kennedy Administration’s China policy debate, September 1961–September 1962 1 CC/CCPHRC, op. cit., pp. 293–4; Liu and Wu, op. cit., p. 274; Mitcham, op. cit., p. 235. 2 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., memorandum, 17 October 1961. 3 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., background paper, Bermuda meeting with Prime Minister Macmillan, 21–2 December 1961. 4 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., memorandum, 17 October 1961. 5 Liu and Wu, op. cit., p. 284. 6 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493.439, Melbourne to Washington, ‘Wheat Glut Sold’, Australian Financial Review, October 1961; NAA: A1838/2 766/1/4, pt. 2, for Peachey, 7 June 1962; from Clark, 10 May 1962. 7 NAA: A1838/2 766/1/4, pt. 2, for Peachey, 7 June 1962. 8 Which included: the Farmers’ Union Grain Terminal Association, the Great Plains Wheat Market Development Association (of Garden City, Kansas), a non-profit organization representing Mid-western wheat growers; the Western Wheat Association Incorporated (of Portland), which was supported by the Oregon, Idaho and Washington state governments through a tax on each bushel; and humanitarian groups including various Quaker organizations such as the American Friends Service and the Friends Committee for National Legislation. 9 Mitcham, op. cit., chapter 6. 10 NAA: A1209/106 61/428, Washington to Canberra, 13 and 16 January 1962. 11 ‘Investigation and Study of the Administration, Operation and Enforcement of the Export Control Act of 1949 and Related Acts’, 87th Congress, 1st session, 25–6 and 30 October, Washington: US Government Printing Office, 1962, p. 100. 12 Rice was an ‘old China hand’ within the department who had been a foreign service officer in China during the 1930s and 1940s and US Consul in Stuttgart between 1952 and 1956.

234

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13 JFKL: Thomson Papers, box 14, E.E. Rice, top secret, (S/P) ‘think paper’, 26 October 1961, p. 28. 14 NAC: RG#20: vol. 819, file 10-33, pt. 9, Hong Kong to Ottawa, 24 November 1961; NAA: A1804/28 201/12/1, pt. 2, Ravenholt, A., ‘Starving China Seeks U.S. Grain’, Chicago Daily News, 21 November 1961; A1838/2 766/1/4/, pt. 2, ‘Big Wheat Market for US in China’, Australian, 6 April 1962. 15 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., Hong Kong to Secretary of State, 3 November 1961. 16 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., memorandum, 3 November 1961. 17 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., London to Secretary of State, 14 November 1961 (see: Daily Sketch, 29 September 1961; Daily Express and Daily Mail, 28 October 1961; Evening News, 6 November 1961). 18 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., Hong Kong to Secretary of State, 8 November 1961. 19 Foreign Relations of the United States (FRUS), Washington: US Government Printing Office: Northeast Asia, vol. XXII, 1996, pp. 174–5. On U Nu’s friendship with Zhou Enlai see: U Nu (translated by U. Law Yone), U Nu Saturday’s Son, London: Yale University Press, 1975, passim and Butwell, R., U Nu of Burma, Stanford, CA: Stanford University Press, 1963, passim. 20 Zhou Enlai was also awarded Burma’s highest title – newly created by U Nu. 21 JFKL: Thomson Papers, box 15, Martin, E. and Harriman F.E., to McGhee, F.E., 25 January 1962. 22 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., to the White House, through McGeorge Bundy, 4 December 1961. 23 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., memorandum, 10 November 1961. 24 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., London to Secretary of State, 14 November 1961. 25 NACP: RG#59: CFPF, CDF 1960–3, box 2900, 411.9441, Washington to Tokyo, 15 November 1961; 894.3972, JASEA Chairman Anzai to Ambassador Reischauer, Tokyo, 4 December 1961. 26 Smith, op. cit. (1985), p. 27. 27 FRUS, op. cit., p. 175, from Department of State, CDF, 811.0093 to Rangoon, 27 November. 28 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., background paper, Bermuda meeting with Prime Minister Macmillan, 21–22 December 1961. 29 JFKL: NSF 1961–3, box 153, Warsaw to Secretary of State, 28–29 November 1961; 1 December 1961. 30 TNA:PRO: FO 371/158424: FC 1381/5, from Beijing, 1 December 1961. 31 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., London to Secretary of State, 2 February 1962. 32 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., London to Washington (information: Hong Kong, Paris), 25 January 1962. 33 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., background paper, Bermuda meeting with Prime Minister Macmillan, 21–22 December 1961. 34 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., action: Paris, information: London, Bonn, Ottawa and Hong Kong, from Secretary of State, 7 December 1961. 35 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., background paper for meeting with Prime Minister Macmillan, 21–22 December 1961. 36 Bachrack, op. cit., p. 76. 37 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., to London, Paris, Bonn, Ottawa and Hong Kong, 20 December 1961; box 1037, 493., background paper, Bermuda meeting with Prime Minister Macmillan, 21–22 December 1961. 38 NACP: RG#59: CFPF, S-NF 1963–6, box 1423, 493., Washington to Paris, 22 January 1964.

Notes 235 39 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., memorandum, 27 December 1961 (US official source: M.R. Mitchell, Vice-President, ITT, New York). 40 NACP: RG#59: CFPF, CDF 1960–3, box 2900, 894.3972, memorandum from Tokyo (US officials’ conversation with JASEA representatives), 12 December 1961. 41 Mitcham, op. cit., pp. 247–52 (based on JFKL: Thomson Papers, box 15, Ball to Canberra, Ottawa, Taibei, Hong Kong, 15 December 1961; NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493.009, report, 16 January 1962; box 1038, 493.439, memorandum, 8 March 1962). 42 JFKL: Thomson papers, box 15, memorandum, 10 January 1962. 43 NACP: RG#59: CFPF, CDF 1960–3, box 1037, memorandum, 27 December 1961 (US official source: M.R. Mitchell, Vice-President, ITT, New York). 44 JFKL: Thomson papers, box 15, London to Washington, 9 February 1962. 45 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., Martin to McGhee, 28 December 1961. 46 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., London to Secretary of State, 1 February 1962. 47 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., London to Washington, 17 January 1962. 48 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493., London to Secretary of State, 18 January 1962. 49 JFKL: Thomson Papers, box 15, S/P ‘think paper’ by Mose Harvey, 5 January 1962; see also: Harvey to Thomson CIA draft paper, ‘Prospects for the Sino-Soviet Relationship’. 50 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., Paris to Secretary of State, 4 January 1962. 51 NAC: RG#20: vol. 819, file 10-33, p. 9, CWB–CIRECO meeting, 29 January 1962; CWB to Alvin Hamilton, 21 February 1962. 52 Luo Ruiqing, who, in February 1961, had initiated the PRC’s large credit purchases of Western grain, had visited North Korea in October/November 1960 and returned there again with Deng Xiaoping in July 1961 for negotiations leading to the Treaty of Felp. Deng had also headed another delegation to the 4th North Korean WP Congress in September 1961. 53 FRUS, op. cit., p. 183, S/S–NSC files, lot 70 D265, Harriman and Martin to McGhee, NSC meeting 26 January 1962; draft memorandum, Rusk to President Kennedy, 4 April 1962, pp. 208–9. 54 FRUS, op. cit., pp. 182–3, Komer to McGeorge Bundy, 29 January 1962; CIA telegram 270057Z to JCS. 55 JFKL: Thomson Papers, box 15, Bowles to President Kennedy, 6 February 1962; Bowles, C., Promises to Keep: My Years in Public Life 1941–1969, New York: Harper and Row, 1971, pp. 401–3. 56 Smith, op. cit. (1985), pp. 65, 386. 57 See Bowles, op. cit., pp. 401–3. No government document was found to confirm Bowles account, although Kennedy’s appointment book indicated that both met for 25 minutes on 6 February. See FRUS, op. cit., p. 185. 58 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493.119, Hong Kong to Secretary of State, 18 February 1962. 59 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 7 CHICOM XR POL 27-7 CHICOM–US, Hong Kong to Secretary of State, 16 March 1963; CHICOM 765, from Hong Kong, 12 April 1963. 60 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493.119, Hong Kong to Secretary of State, 18 February 1962. 61 Signed by PRC International Liaison Department Deputy Directors Liu Ningyi and Wu Xinguan. 62 Qiang Zhai, op. cit., pp. 114–15, 554–7.

236

Notes

63 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493.119, Hong Kong to Secretary of State, (corrected copy), 9 March 1962. 64 Bowles, op. cit., pp. 401–3. 65 JFKL: NSF 1961–3: box 153, Warsaw to Secretary of State, 1 and 3 March 1962. 66 Western, M., ‘DBS Finds More Wheat’, Winnipeg Free Press, 30 August 1962. 67 See footnote 13 above and Mitcham, op. cit., chapter 6; see also chapter 2 on US flour entering Canada for re-export. 68 LBJL: NSF: China, box 238, background paper for ROC Minister of Defence Chiang Ching-kuo’s visit to Washington, 21–28 September 1965. 69 NAC: RG#20: vol. 5280, file 9030-40, Washington to Ottawa, 15 March 1962. 70 JFKL: NSF 1961–3: box 26, Hong Kong to Secretary of State, 20 March 1962. 71 JFKL: NSF: Countries, box 26, action: the Hague from Ball, 22 March 1962. 72 United States of America Congressional Record, Washington: US Government Printing Office, 19 March 1962, pp. 4471–2. 73 Allen, R.S. and Scott, P., ‘Two Solons Blocked it’ newspaper article from week of 25–30 March 1962 reprinted and discussed in: United States of America Congressional Record, op. cit., 6 November 1963, pp. 21184–5. 74 NAA: A1838/2 766/1/4, pt. 2, 6, Belair, F., Jr, ‘U.S. Forbids Sale of Grain to Reds’, Seattle Daily Times, 23 March 1962; NLA: MS 4300, Braga Papers, box 52, ‘ITC Grain Deal Application Rejected’, 23 March 1962; ‘Washington Rejects U.S. Firm’s Application, No Request by Peking’, South China Morning Post. 75 NAC: RG#20, vol. 819, file 10-33, pt. 9, CWB to Ottawa, 7 March 1962. 76 JFKL: NSF 1961–3: box 153, Warsaw to Secretary of State, 5 and 6 April 1962. 77 LBJL: NSF: China, box 238, background paper for ROC Minister of Defence Chiang Ching-kuo’s visit to Washington, 21–28 September 1965. 78 NACP: RG#59: CFPF, CDF 1960–3, box 2900, 894.3972, Japanese Federation of Synthetic Chemistry Workers Union to American ambassador for Tokyo, 6 February 1962; Tokyo to Washington, 8 February 1962; Chemical Engineering, vol. 69(4) and 64, 19 February 1962. 79 TNA:PRO: FO 371 164945: FC 1381/7, from Beijing, 21 May 1962. 80 TNA:PRO: FO 371/164945: FC 1381/5, from Beijing, 21 May 1962. BOAC had installed the Comet 4 on the first transatlantic passenger jet service on 26 October 1958. The Comet 4C was developed from the Comet 1, the first passenger jet ever produced, but permanently grounded in early 1954 after several pressurization accidents associated with metal fatigue. 81 TNA:PRO: FO 371/164945: FC 1381/10, FO to Beijing, 21 January 1963. 82 NAA: Prime Minister’s Department, Cabinet decision, no. 245, 24 May 1962. 83 TNA:PRO: FO 371/164945: FC 1381/5, from Beijing, 21 May 1962. 84 Sampson, op. cit., pp. 103–4. 85 TNA:PRO: FO 371/164945: FC 1381/6, from Beijing, 16 May 1962. 86 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–FR, Paris to Washington, 7 February 1964. 87 NACP: RG#59: CFPF, S-NF 1963, box 3619, PET 17 CHICOM–JAP, Tokyo to Washington, 2 August 1963 (US official source: Mainichi, 30 July 1963). 88 China Reconstructs, April 1963. 89 Szuprowicz, B.O. and Szuprowicz, M.R., Doing Business With the People’s Republic of China: Industries and Markets, New York: John Wiley and Sons, 1978, pp. 120, 122, 125. 90 NACP: RG#59: box 323B, 02 557–CH5458, INR report, 24 May 1961; Szuprowiczs, op. cit., pp. 117, 120,125. 91 NACP: RG#59: CFPF, S-NF 1963, box 3619, PET 17 CHICOM–JAP, Tokyo to Washington (US official source: Mainichi, 30 July 1963). 92 NACP: RG#59: CFPF, S-NF 1963, box 3619, PET 17 CHICOM–USSR, Secretary of State to Hong Kong, 6 March 1963.

Notes 237 93 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT CHICOM–USSR, from Hong Kong, 16 February 1963. 94 NACP: RG#59: CFPF, CDF 1960–3, box 2881, 893.00, Hong Kong to Washington, 26 January 1963. 95 Trade Partners, July 1962, p. 14. 96 TNA:PRO: FO 371/164945: FC 1381/5, from Beijing, 21 May 1962. 97 TNA:PRO: FO 371 170706; 170707; 170708. 98 NACP: RG#59: CFPF, S-NF 1963, box 3385, E 2-2 JAP, Tokyo to Washington, ‘BWEN: 30 November–13 December 1963’, 17 December 1963. 99 Stig Aga Aandstad, ‘Surrendering to Symbols: United States Policy Towards Indonesia, 1961–1965’, Cand. Philol., history dissertation, University of Oslo, Spring 1999, pp. 31, Online. Available: http://aga.nvg.org/oppgaver/dissertation.html 100 NACP: RG#59: CFPF, S-NF 1963, box 3619, PET 11-2 JAP XR PET 11-2 CHINA, Hong Kong to Washington, 30 December 1963; box 3385, E 2-2 JAP, Tokyo to Washington, ‘BWER: 30 November–13 December 1963’, 17 December 1963. 101 A subsidiary of the US firms Standard Oil Co. (of California) and Texaco. 102 An amalgamation of Standard Oil Co. and its subsidiary NKPM. 103 JFKL: NSF 1961–3, box 153, Warsaw to Secretary of State, 17–18 May 1962. 104 NAC: RG#20: vol. 819, file 10-33, pt. 10, Washington to Ottawa, 11 June 1962. 105 FRUS, op. cit., ‘Northeast Asia’, 1996, Washington to Warsaw, 30 May, 611.93/53062 (footnote 2), p. 233; Warsaw to Washington, 31 May and 2 June, 611.93 and 611.93, Washington to Warsaw, 4 June, p. 233; TNA:PRO: FO 371/164904: FC 1022/5, from Beijing, 12 June 1962. 106 Mitcham, op. cit., pp. 272–3. 107 JFKL: NSF 1961–3, box 153, action Warsaw from Secretary of State, 30 May 1962; Warsaw to Secretary of State, 23 June 1962. 108 JFKL: NSF 1961–3, action: box 153, Taibei and Warsaw from Ball, 26 June 1962. 109 JFKL: NSF 1961–3, action: box 153, Taibei and Warsaw, 27 June 1962. 110 JFKL: NSF 1961–3, box 153, Taibei to Secretary of State, 13 July 1962. 111 JFKL: NSF 1961–3, box 153, Warsaw to Secretary of State, 23 August 1962. 112 JFKL: NSF 1961–3, box 153, Warsaw to Secretary of State, 12 and 13 July 1962; Warsaw to Washington, 20 July 1962. 113 TNA:PRO: FO 371/164945: FC 1381/10, from Beijing, 4 September 1962. 114 Qiang Zhai, op. cit., pp.114–15, 554–7. 115 JFKL: NSF 1961–3, box 153, Warsaw to Secretary of State, 23–24 August 1962; Warsaw to Washington, 23 August 1962. 116 NAA: A1838/280 3107/8/5, pt. 2, Hong Kong to Canberra, 19 September 1962. 117 TNA:PRO: FO 371/164945: FC 1381/10, from Beijing, 4 September 1962. 118 LBJL: NSF: China, box 238, background paper for ROC Minister of Defence Chiang Ching-kuo’s visit to Washington, 21–8 September 1965. 5 Japanese–Western China trade competition: POL, chemical fertilizer, equipment and technology, September 1962–August 1963 1 2 3 4 5

JFKL: NSF 1961–3; box 153, Taibei to Secretary of State, 18 September 1962. JFKL: NSF 1961–3; box 153, to Secretary of State, 15, 17 and 19 September 1962. JFKL: NSF 1961–3; box 153, Warsaw to Secretary of State, 20–21, 29 September 1962. CC/CCPHRC, op. cit., p. 302. NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2 CHICOM, from Hong Kong, 19 January 1966. 6 Wang, N.T., China’s Modernization and Transnational Corporations, Columbia, MO: Lexington Books, 1984, p. 69. 7 Xue, M.Q., China’s Socialist Economy, Beijing: Foreign Languages Press, 1981, p. 262. 8 Szuprowiczs, op. cit., p. 207.

238

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9 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT 6 CHICOM–USSR, Hong Kong to Washington, 16 February 1963. 10 Votaw, D., The Six Legged Dog: Mattei and ENI – A Study in Power, Berkley, CA: University of California Press, 1964, p. 145. 11 J. Saywell (ed.), Canadian Annual Review (1962), p. 138; Canada, House of Commons, Canada, House of Commons, Debates, Ottawa: Queens Printer and Controller of Stationary, 30 October 1962. 12 NAC: RG#20: vol. 1943, file 20-141-C3, to Cabinet, 1 November 1962. 13 NACP: RG#59: CFPF, S-NF 1963, box 3474, POL–1CHINAT XR FT4 CHICOM–JAP, Taibei to Washington, 14 June 1963. 14 ‘China: Japanese Fertilizer and Production Plants Desired’, Japan Chemical Week, 4(184), 7 January 1963. 15 Member firms included: West Germany’s BASF AG, Hoechst AG, Ruhr-Stickstoff AG; Austria’s Osterrichische Stickstoffwerke; Italy’s SEIFA; Norway’s Norsk Hydro; The Netherlands’ Centraal Stickstoff-Verkoop-Kantoor n.v.; Belgium’s COBELAZ Comptoir Belge de l’Azote; France’s Syndicat Professionel de l’Industril des Engrais Azotes; and Lonza AG (a non-exporting member) of Switzerland. See: NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–EUR, September–December 1966. 16 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 13-3 CHICOM–W. GER, 17 January 1963. 17 NAC: RG#20: vol. 1943, file 20-141-C3, Washington to Ottawa, 5 December 1962; NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493.439, acting Secretary of State Ball, to Canberra, Buenos Aires, Ottawa, Paris, Pretoria, Bonn, Hong Kong, 13 December 1962; NAA: A1209/106 1/428, memorandum, 8 March 1963. 18 NAC: RG#20: vol. 819, file 10-33, 7-10-303, pt. 11, Delhi to Ottawa, 26 November 1962. 19 TNA:PRO: FO 371/164945: FC 1381/12, Delhi to FO, 12 December 1962; 158424: FC1381/5, from Beijing; Cabinet C(63)13, memorandum by the Secretary of State for Foreign Affairs, 4 February 1963. 20 TNA:PRO: FO 371/164939: FC 1151/73, Treasury to BOT, 26 November 1962. 21 JFKL: NSF 1961–3, box 153, Warsaw to Washington, 13 December 1962. 22 NACP: RG#59: CFPF, CDF 1960–3, box 2883, 494.93, Kobe-Osaka to Washington, 21 January 1963. 23 NACP: RG#59: CFPF, S-NF 1963, box 3385, E 2-2 JAP, Tokyo to Washington, 8 February 1963; Tokyo to Washington, ‘BWEN: 9–22 March 1963’. 24 NACP: RG#59: CFPF, S-NF 1963, box 3474, FT 1-2 CHICOM–BR, Brussels to Washington, 7 February 1963; box 3635, STR 12-3 CHICOM–W. EUR, from Hong Kong, 23 February 1963. 25 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–W. EUR, from Hong Kong, 23 February 1963; Paris to Secretary of State, 4 February 1963; box 3558, INCO–WHEAT FR; Mitcham, op. cit., pp. 289–90. 26 NACP: RG#59: CFPF, S-NF 1963, box 3385, E 2-2 JAP, from Tokyo, ‘BWEN: 26 January–8 February 1963’, attached (29 January 1963) Diet interpellation statement by Prime Minister Ikeda, from Nihon Zeijai newspaper. 27 Translation of Gongren Ribao article 10 January 1963 in NACP: RG#59: CFPF, S-NF 1963, box 3520, INCO FERTILIZER–CHICOM, Hong Kong to Washington, 15 February 1963. 28 NACP: RG#59: CFPF, S-NF 1963, box 3520, INCO FERTILIZER–CHICOM, Hong Kong to Washington, 15 February 1963 (based on translated Xinhua article, 13 February 1963). 29 Close, A., ‘Down To Earth’, FEER, 8 December 1966. 30 NACP: RG#59: CFPF, S-NF 1963, box 3529, INCO FERTILIZER–CHICOM, Hong Kong to Washington, 8 May 1963 (US official source: translation of no. 3 issue of Machine Building Industry, 1963).

Notes 239 31 TNA:PRO: CAB: C(63), 55, 22 March 1963. 32 NACP: RG#59: CFPF, S-NF 1963, box 3488, FT 8 UK USSR XR PET 17 USSR, memorandum, 21 February; E 2 CHICOM, Hong Kong to Washington, 16 October 1964 (US official source: French Commercial Officer, Beijing); ‘Export of Strategic Materials for the USSR and Other Soviet Bloc Countries’, ‘Hearings before the Sub-Committee to Investigate the Administration of the Internal Security Laws of the Committee on the Judiciary’, US Senate 87th Congress, 2nd session (part 3), ‘Problems Raised By Soviet Oil Development’, 26 October 1962, Washington: US Government Printing Office, p. 376. 33 NACP: RG#59: CFPF, S-NF 1964–6, box 3635, STR 9-1 CHICOM, memorandum from Dusseldorf, 18 November 1966 (US official source: Mannesmann and Krupp executives). 34 JFKL: NSF, box 122, position paper in preparation for Italian Prime Minister Fanfani’s visit to Washington, 16–17 January 1963, 10 January 1963. 35 NACP: RG#59: CFPF, S-NF 1963, box 3462, STR 12-3 USSR–W. GER, Bonn to Secretary of State, 2 March 1963. 36 NACP: RG#59: CFPF, S-NF 1963, box 3385, E 2-2 JAP, Tokyo to Washington, ‘BWEN: 26 January–8 February 1963’. 37 NACP: RG#59: CFPF, CDF 1963, box 3385, 493.94, Tokyo to Washington, 3 March 1963. 38 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–W. EUR, Hong Kong to Washington, 23 February 1963. 39 NACP: RG#59: CFPF, S-NF 1963, box 3378, E 7 FRANCE, Hong Kong to Secretary of State, 20 February 1963. 40 NACP: RG#59: CFPF, S-NF 1963, box 3378, E 2-3 FR, Paris to Washington, ‘Economic Summary – Third Quarter, 1963’, 30 October 1963. 41 JFKL: NSF 1961–3, box 153, Warsaw to Secretary of State, 21 February 1963; Warsaw to Washington, 20 February 1963. 42 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 7 CHICOM XR POL 27-7 CHICOM–US, Hong Kong to Secretary of State, 16 March 1963; Hong Kong to Washington, 12 April 1963. 43 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT CHICOM–W. GER, Bonn to Washington, 15 November 1963. 44 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT CHICOM–W. GER, Bonn to Washington, 13 March 1963. 45 A private co-operative association – with connections to Banque Nationale Pour le Commerce et L’Industrie and Banque de IndoChina. NACP: RG#59: CFPF, S-NF 1963, box 3378, E 7 FRANCE, Paris to Secretary of State, 1 March 1963. 46 NAC: RG#25: vol. 5389, file 1061-B-40, pt. 4, memorandum, 28 March 1963 (Canadian official source: British Commercial Councillor L.S. Ross, Beijing, 9–14 March 1963). 47 TNA:PRO: FO 371 170706; 170707; 170708. 48 NACP: RG#59: CFPF, S–NF 1963, box 3619, PET 11-2 JAP XR PET 11-2 CHINA, Hong Kong to Washington, 30 December 1963; box 3385, E 2-2 JAP, Tokyo to Washington, ‘BWER: 30 November–13 December 1963’, 17 December 1963. 49 NACP: RG#59: CFPF, CDF 1960–3, box 2881, 893.00, Hong Kong to Washington, WER#2, 11 January 1963; S-NF, box 3474, POL–CHICOM–INDON, Jakarta to Washington, 15 February 1963 (US official source: Apa Pant – Indian Ambassador, Djakarta). 50 NACP: RG#59: CFPF 1963, S-NF, box 3635, STR 12-3 CHICOM–JAP XR STR 7-2, Secretary of State to Tokyo, 29 November 1963. 51 Stig Aga Aandstad, op. cit. 52 NAC: RG#25: vol. 5389, file 1061-B-40, pt. 4, memorandum, 28 March 1963 (Canadian official source: British Commercial Councillor L.S. Ross, Beijing who

240

53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69

70 71 72 73 74 75 76 77 78 79 80 81

Notes received the information from the Dutch Embassy’s economic specialist); TNA:PRO: FO 371 170706; 170707; 170708. TNA:PRO: Cabinet C(63), 13, memorandum by the Secretary of State for Foreign Affairs, 4 February 1963; CAB: Cabinet C(63) 55, 22 March 1963. NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP XR STR 12-3 CHICOM–UK, Tokyo to Secretary of State, 22 and 31 May 1963. NACP: RG#59: CFPF, S-NF 1963, box 3474, FT 2 CHICOM–JAP, London to Washington, 13 September 1963 (US official source: E. Lown, British BOT Desk Officer for China). JFKL: NSF 1961–3, box 153, Warsaw to Secretary of State, 17–18 April 1963. LBJL: NSF: China, box 238, background paper for ROC Minister of Defence Chiang Ching-kuo’s visit to Washington, 21–28 September 1965. NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Tokyo to Secretary of State, 22 May 1963. NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 USSR–UK STR 12-3 CHICOM–JAP, Tokyo to Secretary of State, 26 April and 1 May1963. NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Tokyo to Secretary of State, 31 May 1963. JFKL: NSF 1961–3: box 26, Countries, Paris to Secretary of State, 14 May 1963. NACP: RG#59: CFPF, S-NF 1963, box 3619, PET CHICOM–INDON, Hong Kong to Washington, 8 May 1963. NACP: RG#59: CFPF, S-NF 1963, box 3619, PET CHICOM–INDON PET 6 INDO, London to Secretary of State, 9 May 1963. Smith, op. cit (1985), pp. 139–40. Stig Aga Aandstad, op. cit., p. 35. NACP: RG#59: CFPF, S-NF 1963, box 3474, POL-1 CHINAT XR FT 4 CHICOM–JAP, Taibei to Washington, 14 June 1963. NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Tokyo to Secretary of State, 31 May 1963. NACP: RG#59: CFPF, S-NF 1963, box 3437, FT CHICOM–IT, memorandum from Hong Kong, 14 June 1963. TNA:PRO: CAB: 128 CC(63)43, 27 June 1963; The aircraft were delivered to China on schedule and subsequently used on new non-stop Beijing– Chansha–Guangzhou, Beijing–Shanghai and Beijing–Chengtu–Kunming air routes established in March 1964, see: C.M. Forsyth-Smith Personal Papers, ‘Trip From Canton To Peking – 13 April 1964 on behalf of the Canadian Imperial Bank of Commerce’. It sent out occasional press releases and appeared before various US government committees and hearings. Bachrack, op. cit., p. 206. Steele, A.T., The American People and China, New York: McGraw-Hill, 1966, p. 90. NACP: RG#59: CFPF, S-NF 1963, box 3475, FT 1 JAP XR FT 1 CHICOM–US, Washington to London, Taibei and Hong Kong, 12 July 1963. Mayall, J.B., ‘The Financial Policies of the Western Powers’, in D.C. Watt (ed.), Survey of International Affairs, 1977, quote: p. 73, see also: pp. 56, 64, 69–74. NAC: RG#25: vol. 4722, file 50055-B-40, to DEA, Moscow to Ottawa, 24 July 1963. NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 13–3 CHICOM–US, memorandum, 30 July 1963. Ibid. JFKL: NSF 1961–3, box 153, action Warsaw from Secretary of State, 26 July 1963. JFKL: NSF 1961–3, box 153, Warsaw to Secretary of State, 7 and 8 August 1963. The son of the first Defense Secretary and a close friend of Harriman. JFKL: NSF 1961–3, box 153, Forrestal, White House to President Kennedy, 10 August 1963.

Notes 241 82 In March Cordt asked – on behalf of the Kansas wheat growers – L.C. Bu for the PRC position on possible Sino-American grain deals and on 4 April, the CIRECO general manager replied that Beijing was not interested in such trade. 83 NACP: RG#59: CFPF, S-NF box 3475, FT CHICOM–US, Hong Kong to Secretary of State, 30 September 1966. 84 NAC: RG#25: vol. 4722, file 50055-B-40, Moscow to Ottawa, 24 July and 9 August 1963; by G.P. de, T.G., 12 August 1966. 85 Mitcham, op. cit., pp. 300–3. 86 TNA:PRO: FO 371/170694: FC 1152, from Beijing, 28 August 1963. 87 MacDougall, C., ‘Peking Facing West’, FEER, 1 August 1963; ‘Plastics in Peking’, FEER, 22 August 1963. 88 Wolfstone, D. (D. Wilson), ‘Asian Commentary’, FEER, 26 March 1964; TNA:PRO: FO 371/170695: FC 1152/61, Beijing to FO, 14 November 1963; 175938 FC 1151/2, Beijing to FO, 10 January 1964; FC 1151/16, Beijing to FO, 21 April 1964 (e.g. 24 March 1964 remarks of the British Secretary of State for Industry to the House of Commons). 89 NACP: RG#59: CFPF, S-NF 1960–3, box 3118, FSE ECSC XR INCO–IRON XR FT 13-2 ECSC, Bonn to Washington, 21 December 1963. 90 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT 1 CHICOM–W. GER, Hong Kong to Washington, 30 August 1963. 91 Under Adenhauer, Erhard (who favoured free enterprise and trade) managed West Germany’s post-Second World War economic revival. 92 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Tokyo to Washington, 22 October 1963 (government translation of September 1963 Sekai article). 93 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Tokyo to Secretary of State, 22 August 1963. 94 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–JAP, to Washington, 29 February 1964. 95 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Taibei to Secretary of State, 25 August 1963. 96 NAC: RG#25: vol. 4722, file 50055-B-40, Colombo to Ottawa, 27 August 1963. 97 NAC: RG#25: vol. 4722, file 50055-B-40, Ottawa to Hong Kong, 28 August 1963. 98 JFKL: NSF, box 19–20, Ottawa to Secretary of State, 4 September 1963. 99 NAA: A1838/2 530/2, pt. 3, London to Australian Secretary of State for External Affairs, 10 September 1963 (Australian official source: L.S. Ross after he met with Chen Ming and other PRC officials). 100 Japanese Chemical News, China Trade News, Asahi and Mainichi. 101 The latter two were ‘friendly firms’. 102 NACP: RG#59: CFPF, S-NF 1963, box 3619, CHICOM–JAP XR PET17 CHICOM–USSR, Tokyo to Washington, 2 August 1963. 103 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK XR AU4, memorandum, 1 August 1963 (US official source: T.J. Cory, Standard Oil Co., New Jersey; P.G. Richmond, Esso International Inc.). 104 NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2, Hong Kong to Washington, ‘CC:WER#11’, 13 March 1964. 105 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK XR AU, Tokyo to Secretary of State, 4 December 1963. 106 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK XR AU, to acting Secretary of State, Ball, 6 December 1963; Washington to Karachi, 29 May 1963. 6 China market rivalries intensify: Washington and Taibei’s response, September 1963–July 1964 1 NAC: RG#25: vol. 4722, file 50055-B-40, Washington to Ottawa, 30 August 1963. 2 JFKL: NSF: box 19–20, Tyler to Secretary of State, 7 September 1963.

242

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3 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP XR FN 11-1, Secretary of State to Tokyo, 5 September 1963. 4 The firm was also part of Vickers Ltd’s efforts to gain a foothold in the EEC and diversify its operations in response to increasing competition from American shipbuilding and aircraft firms. 5 ‘Vickers Limited in 1961’, ‘Vickers Limited in 1965’ (annual reports); Scott, J.D., Vickers: A History, London: Weidenfeld and Nicolson, 1962, pp. 370–1; NACP: RG#59: CFPF, S-NF 1963, box 3504, INCO 6 W.GER XR ST 7-2, Bonn to Washington, 28 February 1963; box 3507, INCO–CHEMICALS USSR, Bonn to Washington, 22 November 1963. 6 TNA:PRO: FO 371/170, 694: FC 1152/45, Beijing to BOT, 27 August 1963; NACP: RG#59: CFPF, S-NF 1964–6, box 2900, INCO–CHEMICALS, memorandum, 8 February 1963; box 3507, INCO–CHEMICALS UK, London to Washington, 9 April 1963; box 3488, FT 14 UK–US, London to Washington, 23 April and 6 September 1963. 7 JFKL: NSC 1961–3; box 153, Warsaw to Secretary of State, 4 September 1963. 8 JFKL: NSC 1961–3; box 153, Warsaw to Secretary of State, 11 and 12 September 1963. 9 LBJL: NSF: China, box 238, background paper for ROC Minister of Defence Chiang Ching-kuo visit to Washington, 21–28 September 1965. 10 NACP: RG#59: CFPF, S-NF 1963, box 3474, FT 2 CHICOM–JAP, Tokyo to Washington, 25 September 1963. 11 NACP: RG#59: CFPF, S-NF 1963, box 3385, E 2-2 JAP, Tokyo to Washington, ‘BWEN: 10–26 August 1963’. 12 TNA:PRO: FO 371/170694: FC 1152/49, Beijing to BOT, 11 September 1963; Timberlake, op. cit., p. 49; Wolfstone (D. Wilson), op. cit., p. 663. 13 TNA:PRO: FO 371/175938: FC 1151/2, from Beijing, 10 January 1964; FO 371/175938: FC 1151/16, Beijing to FO, 21 April 1964. 14 Morgan, op. cit., pp. 108–11. 15 ‘Kennedy Challenges Business to Cut Prices To Spur Exports and Close Payments Gap’, Wall Street Journal, 18 September 1963. 16 ‘Export Conferees Urge Kennedy To Restudy Curbs on Red Trade Hodges Favors’, Wall Street Journal, 19 September 1963. 17 NACP: RG#59: CFPF, S-NF 1963, box 3474, FT CHICOM–US, Hong Kong to Washington, 30 September 1963. 18 NACP: RG#59: CFPF, S-NF 1963, box 3488, FT 2 CHICOM–JAP, Tokyo to Secretary of State, 25 September 1963. 19 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT CHICOM–US, Hong Kong to Secretary of State, 30 September 1963. 20 Smith, op. cit. (1985), pp. 178, 202. 21 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT CHICOM–US, Hong Kong to Secretary of State, 30 September 1963. 22 NACP: RG#59: CFPF, S-NF 1963, box 3474, FT CHICOM–F. WORLD, Hong Kong to Secretary of State, 11 October 1963 (American official source: AFP correspondent Sacharenko – based on his 4 October 1963 interview of Georges-Picot and his delegation). 23 Smith, op. cit. (1985), pp. 194–5, 203–9. 24 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Taibei to Secretary of State, 24 September 1963. 25 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP XR POL 1 CHINAT–JAP, Taibei to Secretary of State, 26 September 1963. 26 Di Leo, D.L., George Ball, Vietnam and the Rethinking of Containment, Chapel Hill: University of North Carolina Press, 1991, p. 24. 27 NACP: RG#59: CFPF, S-NF 1963, box 3619, PET 17 CHICOM–FR, PET 17 ALG–CHICOM, from Lyon, 27 December 1963.

Notes 243 28 NACP: RG#59: CFPF, S-NF 1963, box 3474, FT CHICOM–F. WORLD, Hong Kong to Secretary of State, 11 October 1963. 29 NACP: RG#59: CFPF, S-NF 1963, box 3385, E 2-2 JAP, Tokyo to Washington, ‘BWEN: 7–20 September 1963’; FT 2 CHICOM–JAP, Hong Kong to Washington, 1 October 1963 (US official source: Japanese Consul General Tsukahara in Hong Kong who had debriefed Tomoharu Okubo, Secretary and translator of Japanese delegation which negotiated the 1964 L–T agreement). 30 NACP: RG#59: CFPF, S-NF 1963, box 3305, E 2-2 JAP, memorandum from Hong Kong (US official sources: Chuji Kuno LDP Diet and First Secretary Sojiro Surida), 15–16 October 1963; box 3385, Tokyo to Washington; ‘BWEN: 14–27 December 1963’; K. Tahara, ‘The Main Chance’, FEER, 22 July 1966. 31 NACP: RG#59: CFPF, S-NF 1963, box 3474, E 2-2 JAP, Taibei to Secretary of State, 8 October 1963. 32 NACP: RG#59: CFPF, S-NF 1963, box 3474, E 2-2 JAP, Tokyo to Washington, ‘BWEN: 5–18 October 1963’. 33 NACP: RG#59: CFPF, S-NF 1963, box 3474, FT CHICOM–F. WORLD, Hong Kong to Secretary of State, 11 October 1963 (US official source: see note 22). 34 JFKL: Theodore C. Sorenson Papers, subject files 1961–4, box 41, ‘Advantages of Permitting Wheat Sale To the Soviet Union’. 35 Republican Senator Karl Mundt ‘South Dakota’, US Senate Hearing, Spring 1964. 36 NACP: RG#59: CFPF, S-NF 1963, box 3385, E 2-2 JAP, Tokyo to Washington, ‘BWEN: 5–18 October 1963’. 37 NACP: RG#59: CFPF, S-NF 1963, box 3635, FT 1 US XR FT 1 JAP XR INCO WHEAT US, Tokyo to Secretary of State, 11 October 1963; box 3488, STR 12-3 CHICOM–JAP XR POL 23 JAP, Taibei to Secretary of State, 30 October 1963; Tokyo to Secretary of State, 11 October 1963. 38 JFKL: NSF: box 26, Rusk to Paris, 4–5 April 1963; Paris to Rusk, 5 April and 22 June 1963. 39 ‘Recognition of Peking’, New York Times, 17 October 1963. 40 Charbonnier, F., ‘French Emissaries’, FEER, 21 November 1963, p. 430. 41 NACP: RG#59: CFPF, S-NF 1963, box 3474, FT 1 US XR INCO–WHEAT US XR FT 1 JAP, Tokyo to Secretary of State, 11 October 1963; FT CHICOM–JAP, Tokyo to Secretary of State, 16 October 1963. 42 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP XR PET CHICOM–USSR, Tokyo to Secretary of State, 28 October 1963 (US official source: Teshima). 43 MacDougall, op. cit. Charbonnier, op. cit. (1963); Charbonnier, F. ‘The Sahara Oil’, FEER, 23 January 1964; NACP: RG#59: CFPF, S-NF 1963, box 3474, FT CHICOM–F. WORLD, Hong Kong to Secretary of State, 11 October 1963 (US official source: see notes 22 and 33); box 701, E 5 CHICOM, Paris to Secretary of State, 4 January 1964; box 3619, PET 17 CHICOM–FR, PET 17 ALG–CHICOM, from Lyon, 27 December 1963. 44 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP XR PET 17 CHICOM–USSR, Tokyo to Secretary of State, 28 October 1963. 45 NACP: RG#59: CFPF, S-NF 1963, box 3385, E 2-2 JAP, Tokyo to Washington, ‘BWEN: 30 November–13 December 1963’, 17 December 1963. 46 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP RSTR 7-2, Secretary of State to Tokyo, 29 November 1963. 47 NACP: RG#59: CFPF, CDF 1960–3, box 2881, 893.00, Hong Kong to Washington, 26 January 1963. 48 Smil, op. cit., source: Williams, op. cit., p. 245. 49 NACP: RG#59: CFPF, S-NF 1963, box 3385, E 2-2 JAP, Tokyo to Washington, ‘BWEN: 10–26 August 1963’. 50 Jones, P.H.M., ‘The Peking Paris Entente’, FEER, 2 July 1964.

244

Notes

51 NACP: RG#59: CFPF, S-NF 1963, box 3385, E 2-2 JAP, Hong Kong to Washington: ‘Monthly Economic Notes – November 1963’, 18 December 1963. 52 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT CHICOM–F.WORLD, translated Handelsblatt article: ‘Trade Talks With China in Canton’, 3 December 1963; S-NF 1964–6, box 1423, FT 4 CHICOM–W.GER XR FT 1, Duesseldorf to Washington, 23 November 1966; STR 12-3 CHICOM–W. GER, memorandum from Dusseldorf, 18 November 1966 (American official source Heinz Hufnagel, Mannesmann export division and V. Lierau, Krupp, Essen). 53 NACP: RG#59: CFPF, S-NF 1964–6, box 992, FT 4 CHICOM–W.GER XR FT 1, Duesseldorf to Washington, 24 January 1964. 54 NACP: RG#59: CFPF, S-NF 1963, box 3650, FT 1 CHICOM–W.GER XR STR 2, Duesseldorf to Washington, 17 September 1963. 55 Closed along with its Tianjin and Shanghai branches in the late 1940s and early 1950s. 56 Broehl, W., Cargill Going Global, Hanover, NH: University Press of New England, 1998, pp. 23, 26, 27, 45. 57 See: note 73. 58 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK, Department of State/Commerce to Karachi, 9 November 1963; S-NF 1963, box 3372, E PAK, Hong Kong to Secretary of State, 2 November 1963. 59 LBJL: NSF: China, box 237, Paris to Secretary of State, 6 December 1963. 60 JFKL: NSC 1961–3; box 153, Secretary of State to Warsaw, 6 November 1963. 61 JFKL: NSC 1961–3; box 153, Warsaw to Secretary of State, 14 November 1963. 62 NACP: RG#59: CFPF, S-NF 1964–6, box 992, FT 4 CHICOM–W. GER XR FT 1, Duesseldorf to Washington, 24 January 1964 (US official source: Ekhard Von Maltzhan, former director, Krupp export division and Handelsblatt, 3 December 1963). 63 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT CHICOM–W.GER, Bonn to Washington, 14 November 1963. 64 ‘Japanese Fertilizers and Production Plants Desired’, Chemical Week, vol. 4 (184 1), 7 January 1963. 65 NACP: RG#59: CFPF, S-NF 1964–6, box 3474, FT 2 CHICOM–JAP, Tokyo to Washington, 22 November 1963 (US official sources: translations of Mainichi newspaper article of 14 November 1963); box 3118, E 2-2 JAP, Tokyo to Washington, ‘BWEN: 14–27 December, 1963’, 30 December 1963. 66 NACP: RG#59: S-NF 1963, box 3635, STR 12-3 CHICOM–W. EUR, from Hong Kong, 23 February 1963; Paris to Secretary of State, 4 February 1963; CFPF, S-NF 1963, box 3558, INCO–WHEAT FR; Mitcham, op. cit., pp. 289–90. 67 Thomson J.C., Jr, ‘On the Making of U.S. China Policy, 1961–9: A Study in Bureaucratic Politics’, The China Quarterly, no. 50, April/June 1972, p. 230. 68 Bachrack, op. cit., p. 208. 69 Smith, op. cit (1985); Schlesinger A.M., Jr, Robert Kennedy and His Times, New York: Ballantine Books, 1978; op. cit. (1965). 70 NACP: RG#59: CFPF, S-NF 1963, box 1423, STR 12-3 CHICOM–FR, memorandum, 20 November 1963 (US official source: Secretary Roger d’Uzer, French Embassy, Washington). 71 Bachrack, op. cit., chapter 7 (especially p. 161) and p. 209. 72 NACP: RG#59: CFPF, S-NF 1963, box 3635, Secretary of State to Karachi, 29 November 1963. 73 Moll, T., ‘Kerr Urges Drive for Red China Trade’, Portland Reporter, 9 December 1963. 74 See note 95. 75 Higham, C., Trading With the Enemy: An Expose of the Nazi-American Money Plot 1933–1949, London: Robert Hale, 1983, pp. 20–31; J.D. Wilson, The Chase: The Chase Manhattan Bank, N.A., 1945–1985, Boston, MA: Harvard Business School Press, 1986, pp. 36, 168, 169; NAA: A1838/2 766/3/33, pt. 1, Washington to

Notes 245

76 77

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96

97 98 99 100 101

102

Secretary of State for External Affairs, 17 February 1964; Hong Kong Government Company Registry, Overseas Department, Registry of Foreign Firms, #789. NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK, from Office of Northeast Asian Affairs to Bureau of Economic Affairs, 9 December 1963. Former US President Franklin D. Roosevelt’s maternal grandfather Warren Delano was one of the six partners in the Boston based Samuel Russell and Co. which operated one of the three main Western owned trading firms at Hong Kong and Guangzhou during the 1800s. NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK, Ball to Roosevelt, 11 December 1963. NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK, Ball to Roosevelt, 12 December 1963. NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK, Ball to Taibei, Tokyo, Karachi, New Delhi, Paris, London and Hong Kong, 11 December 1963; Secretary of State to Karachi and Tokyo, 12 December 1963. Drafted by James C. Thomson; Mainland China Desk Officer Lindsey Grant; Deputy Assistant Secretary of State Robert Barnett; and INR, Far East Chief Allen Whiting. JFKL: Thomson Papers, box 10, text of Hilsman’s speech, 13 December 1963. JFKL: Thomson Papers, box 10, Under-Secretary of State to all diplomatic posts, action: Hong Kong, Singapore; CIRCPAC US Poland; USRO; USUN, 14 December 1963. LBJL: Administrative history of the US Department of State, vol. 1, chapter 7, East Asia, sections A–D, Communist China, pp. 7–8. Smith, op. cit. (1985), pp. 212, 396. Mann, J., ‘U.S. Weighed Bomb Raid on China in “64” ’, International Herald Tribune, 28 September 1998. Smith, op. cit. (1985), pp. 194–5, 203–9. TNA:PRO: FO: 371/170 695: FC 1152/66, Beijing to BOT, 28 November 1963; FC 1152/67, from BOT, 5 December 1963. A member of the Schneider Group which had previously sold the Chinese locomotives. NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–JAP, Tokyo to Washington, 13 January 1964 (US official sources: Japanese Foreign Minister Ohira and Vice-Foreign Minister Oda). Wolpert, V., ‘Two Specialised British Fairs’, FEER, 27 January 1964, p. 157. NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–FR, Paris to Secretary of State, 22 January 1964. NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–FR, Washington to Paris, 7 February 1964. LBJL: NSF: Poland, box 202, Warsaw to Washington, 29 January 1964. NAA: A1838/2 766/3/33, pt. 1, Washington to Secretary of State for External Affairs, 17 February 1964. NACP: RG#59: CFPF, S-NF 1964–6, box 3474, POL CHICOM–JAPAN XR STR 12-3, Tokyo to Secretary of State, 18 August 1964 (US official source: Director Nakayama, Economic Affairs Bureau, Japanese Foreign Ministry based on his conversation with President Hara Dai, Nippon Spinning Co.). TNA:PRO: FO: 371 176024: FJ 113110/1, Tokyo to FO, 28 February 1964. MacDougall, C., ‘Eight Plants for Peking’, FEER, 23 January 1964, p. 158. NAA: A1838/280 3107/38/5, pt. 3, Washington to Canberra, 11 and 13 March 1964. NAA: A1838/280 3107/38/5, pt. 3, to Canberra, 13 March 1964. NACP: RG#59: CFPF, S–NF 1964–6, box 701, E 2-2 CHICOM, memorandum from Hong Kong, 12 April 1964; from Hong Kong, ‘CC:WER#47’, 20 November 1964. (US official source: First Secretary, Commercial L.S. Ross, British chargé d’affaires, Beijing). C.M. Forsyth-Smith, Personal Papers, ‘Trip From Hong Kong To Canton’, 12 April 1964 on behalf of the Canadian Imperial Bank of Commerce.

246

Notes

103 NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2, memorandum from Hong Kong, 12 April 1964 (US official source: First Secretary, Commercial L.S. Ross, British chargé d’affaires, Beijing); Hong Kong to Washington, ‘CC:WER#12’, 20 March 1964; Tin Htun, ‘Asia in the Air’, FEER, pp. 52–3. 104 About September 1965 Royal Air Cambodge stopped routing its flights through Hanoi and flew over or stopped in Hong Kong instead. 105 NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2, memorandum from Hong Kong, 12 April 1964 (US official source: First Secretary, Commercial L.S. Ross, British chargé d’affaires); Hong Kong to Washington, ‘CC:WER#12’, 20 March 1964; Tin Htun, ‘Asia in the Air’, FEER, pp. 52–3. 106 NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2, memorandum from Hong Kong, 12 April 1964 (US official source: First Secretary, Commercial L.S. Ross, British chargé d’affaires, Beijing); from Hong Kong, ‘CC:WER#20’, 15 May 1964; ‘CC:WER#21’, 22 May 1964; ‘CC:WER#23’, 5 June 1964. 107 NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, from Hong Kong, ‘CC:WER#12’, 26 March 1965. 108 NACP: RG#59 CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, ‘CC:WER#21’, 22 May 1964; ‘CC:WER#23’, 5 June 1964. 109 LBJL: NSF: Poland, box 202, action Secretary of State from Warsaw, 8 April 1964. 110 LBJL: NSF: China, box 238, background paper for ROC Minister of Defense Chiang Ching-kuo’s 21–8 September 1965 visit to Washington. 111 LBJL: NSF: China, box 202, J.C. Thomson to NSC, 15 July 1964; action Secretary of State from Hong Kong, 13 July 1964. 112 LBJL: NSF: Poland, box 202, Warsaw to Washington, 29 July 1964. 113 NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, Hong Kong to Washington, 30 July 1964; memorandum, 30 July 1964 (US official source: Minister Kiang Yi-seng, ROC embassy, Consul Johnson Cheng, ROC embassy). 114 NACP: RG#59: CFPF, S-NF 1964–6, box 3474, POL CHICOM–JAPAN XR STR 12-3, Tokyo to Secretary of State, 30 July 1964 (US official source: Director Hara, China section, Japanese Foreign Ministry). 7 The ‘Third Front’, Vietnam and China’s foreign trade, August 1964–February 1965 1 NAA: A1838/272 37/1/4/3, pt. 1, Rome to Canberra, 31 July 1964. 2 MITI had long supported the domestic steel industry, but since 1959 domestic producers had generally not taken proper notice of MITI’s warnings not to increase production. As part of its efforts to become a large operation, the new steel firm, Sumitomo, had obtained a World Bank loan to build an integrated steel mill and harbour facilities at Wakayama. However, MITI’s warning proved prophetic when Sumitomo was forced to participate in a production control programme. NACP: RG#59: CFPF, S-NF 1964–6, box 1423, FT 1 CHICOM–JAPAN, Tokyo to Secretary of State, 30 March 1966; Hirchmeier, J. and Yui, T., The Development of Japanese Business 1600–1973, Cambridge, MA: Harvard University Press, 1975, pp. 262–3. 3 NACP: RG#59: CFPF, S-NF 1964–6, box 3474, POL CHICOM–JAPAN XR STR 12-3, Tokyo to Secretary of State, 30 July and 18 August 1964 (US official source: Director Nakayama, Economic Affairs Bureau, Japanese Foreign Ministry following his conversation with President Hara, Dai Nippon Spinning Co.). 4 Lippitt, V.D., ‘Development of Transport in Communist China’, in An Economic Profile of Mainland China, New York: Praeger Publisher, 1968, p. 673. 5 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–FR XR IT 7-12 FR, Hong Kong to Washington, 23 June 1965; box 701, E 2-2 CHICOM, Hong Kong to Washington, 16 October 1964; NAA: 1838/2 766/3/7, pt. 1, UPI report from

Notes 247

6 7 8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

London, 6 March 1965 (UPI’s source: Leyland’s spokesperson); monthly report (China), no. 32, November 1964. NACP: RG#59: CFPF, S-NF 1964–6, box 700, FT 2 CHICOM–FR, Hong Kong to Washington, 16 October 1964. NCP: RG#59: CFPF, S-NF 1964–6, box 992, FT 2 CHICOM–FR, Hong Kong to Washington, 26 August 1964; box 700, Hong Kong to Washington, 16 October 1964. NACP: RG#59: CFPF, S-NF 1964–6, box 2900, INCO–CHEMICALS, memorandum, 8 February 1963; box 3507, INCO–CHEMICALS UK, London to Washington, 9 April 1963; box 3488, FT 14 UK–US, London to Washington, 23 April 1963; FT UK–US XR INCO–CHEMICALS, London to Washington, 6 September 1963. NACP: RG#59: CFPF, S-NF 1964–6, box 993, FT E CHICOM–JAPAN, Tokyo to Washington, 10 June 1965; NAA: 1838/2 766/3/7, pt. 1, ‘Chinese £412 m. order from Simon Carves and ICI’, Financial Times, 3 September 1964. NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#37’, 16 September 1964. NAA A1838/2 766/3/43 pt. 1, translation of Neues Oesterreich article, 2 September 1966. NACP: RG#59: CFPF, S-NF 1964–6, box 992, FT 1 CHICOM–W. GER, Duesseldorf to Washington, 24 September 1964. CC/CCPHRC, op. cit., pp. 312–13. LBJL: NSF: Poland, box 202: Warsaw to Washington, 23 September 1964. NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#41’, 9 October 1964. LBJL, Administrative history of the US State Department, vol. 1, chapter 7, p. 3 (based on memorandum for McGeorge Bundy, 28 October 1964). NAA: 1838/272 7/1/4/8, pt. 1, Brussels to Canberra, 28 October, 19 November 1964 (Australian official source: Fontaine, Directorate of Asian Affairs, Belgian Foreign Affairs Ministry). NAA: 1838/2 766/3/7, pt. 1, UPI report from Moscow, 29 October 1964; Wolpert, V., ‘Peking Preview’, FEER, 1 October 1964. Wolpert, V., ‘Guarded Hopes’, FEER, 5 November 1964, p. 285. NACP: RG#59: CFPF, S-NF 1964–6, box 700, STR 12-3 CHICOM–FR, Hong Kong to Washington, 16 October 1964. NAA: 1838/2 766/3/43, pt. 1, Vienna to Canberra, 29 October 1964. NAA: 1838/272 37/1/4/3, pt. 1, Buenos Aires to Canberra, 25 September 1964. Smith, op. cit. (1985), p. 351. CC/CCPHRC, op. cit., pp. 313–14. MacDougall, C., ‘Eight Plants for Peking’, FEER, 23 January 1964; ‘Britain’s Trade Fair’, FEER, 20 March 1964; Ross, L.S., ‘The British Industrial Exhibition at Peking’, FEER, 3 December 1964. Close, A., ‘Long-Term View’, FEER, 26 November 1964. NACP: RG#59: CFPF, S-NF 1964–6, box 700, STR 12-3 CHICOM–UK, Hong Kong to Washington, 25 November 1964. NACP: RG#59: CFPF, SN-F 1964–6, box 701, E 2-2 CHICOM, ‘CC:WER#47’, 20 November 1964. NACP: RG#59: CFPF, SN-F 1964–6, box 701, E 2 CHICOM, ‘CC:WER#47’, 20 November 1964; box 993, FT I CHICOM–JAPAN, Tokyo to Washington, 25 November 1964. NACP: RG#59: CFPF, S-NF 1964–6, box 993, FT 4 CHICOM–JAPAN, Tokyo to Washington, 7 December 1964 (US Embassy sources: Kimiro Fujita (China section, Japanese Foreign Ministry), Takaaki Hasegeua (Director of analysis section, Research Division, Japanese Foreign Ministry) and Eijiro Noda (Japanese Cabinet Research Council)).

248

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31 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#5 and #6’, 12 February 1965. 32 NAA: 1838/272 37/1//4/3, pt. 1, Delhi to Canberra, 10 December 1964. (Australian official source: Councillor Carrara, Italian Embassy, Delhi.) 33 NAA: 1838/272 7/1/4/8, pt. 1, Brussels to Canberra, 24 November 1964; 28 October 1964; 19 November 1964. (Australian official source: Fontaine, Directorate of Asian Affairs, Belgian Foreign Affairs Ministry.) 34 LBJL: NSF: China memos, box 238, background paper, for ROC Minister of Defence Chiang Ching-kuo’s visit to Washington, 21–8 September 1965. 35 NACP: RG#59: CFPF, S-NF 1964–6, box 993, XR FT 2 CHICOM–JAPAN, Tokyo to Washington, 11 January 1965. 36 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–JAPAN, Hong Kong to Washington, 24 December 1964; LBJL: NSF: China memos, box 241, vol. IX, 3/67–6/67, CIA memorandum: 6 June 1966; box 240, vol. VII, 3/66–9/66, 18 April 1966. 37 NAA: 1838/272 37/1/4/3, pt. 1, Rome to Secretary of State for External Affairs, 14 and 17 December 1964. 38 NAA: 1838/272 37/1/4/3, pt. 1, Rome to Canberra, 3 and 11 December 1964. 39 NACP: RG#59: CFPF, S-NF 1964–6, box 992, XR FT 1 CHICOM–JAPAN, Tokyo to Washington, 5 December 1964. 40 CC/CCPHRC, op. cit., p. 314. 41 NAA: 1838/2 766/3/43, pt. 1, Vienna to Secretary of State for External Affairs, 10 and 18 December 1964. 42 Ibid.; The L–D process produces most of the grades of steel turned out by electric arc furnaces, but from nearly any kind of iron containing carbon, sulphur, manganese and phosphorus. 43 Hsia, R., Steel in China: Its Output Behavior Productivity and Growth Pattern, Weisbaden: O. Harrassowitz, 1971, p. 192. 44 NAC: RG#20, vol. 820, file 10-33, Paris to CWB, 26 November 1964. 45 NAA: A1209/106 61/428, Paris to Canberra, 23 October 1964; Brussels to Canberra, 29 October 1964; Canberra to Brussels, 28–9 October 1964; A2051 S325, pt. 6, memorandum, 3 November 1964 (Australian official source: Canadian Commercial Councillor, B. O’Neil in Canberra). 46 NAA: 2051/2 S325, pt. 6, Brussels to Canberra, 22 January 1965; NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, 16 October 1964 (US official source: French Commercial Councillor, Beijing); NAA: 1209/106 61/428, ‘Trade Bloc Backs Wheat’, New York Times, 20 November 1964; Brussels to DEA, 5 November 1964; to DEA, 29 October 1964. 47 CC/CCPHRC, op. cit., p. 314. 48 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–JAPAN, Tokyo to Paris, 23 December 1964 (information based on Asahi, report). 49 Liu and Wu, op. cit., p. 312. 50 CC/CCPHRC, op. cit., pp. 314–15. 51 Smith, op. cit. (1985), p. 352. 52 Liu was one of only two or three of the Ministry of Foreign Trade’s top executives in 1965 who were not removed during the Cultural Revolution. 53 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#1’, 8 January 1965. 54 NACP: RG#59: CFPF, S-NF 1964–6, box 992, FT 2 CHICOM–FR, Paris to Washington, 3 February 1965. 55 NAC: RG#20: vol. 820, file 10-33, pt. 14. (Numerous Canadian DTC and CWB reports, telegrams and memoranda.) 56 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–JAPAN, Tokyo to Secretary of State, 22 January 1965. 57 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, FT CHICOM–JAPAN, Tokyo to Secretary of State, 8 January 1965.

Notes 249 58 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#5–#6’, 12 February 1965. 59 LBJL: NSF: China cables, vol. IV, box 238, Hong Kong action to Secretary of State, 8 February 1965. 60 King, F.H.H., History of the Hong Kong Shanghai Banking Corporation Volume V, The Hong Kong Bank in the Period of Development and Nationalism, 1941–1984 From Regional Bank to Multinational Group, Cambridge: Cambridge University Press, 1989, pp. 704–5. 61 LBJL: NSF: Poland, box 202, Warsaw to Washington, 24 February 1965. 62 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#9’, 5 March 1965. 63 LBJL: NSF: China memos, box 240, vol. VII, 3/66–9/66, 18 April 1966. 64 NAA: 1838/1 766/3/24, to Canberra, 22 February 1965. 8 Vietnam escalation and the non-strategic China trade: Washington’s position reconsidered, March–October 1965 1 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–FR. (Various documents, dated from January 1964 to December 1966, from within these files.) 2 MacDougall, C., ‘Buyer’s Market’, FEER, 22 July 1965, p. 165. 3 Humbaraci, op. cit. 4 Bartke, op. cit., p. 43. 5 Stanhke, A.A., China’s Trade With the West: A Political and Economic Analysis, New York: Praeger, 1972, p. 147. 6 ‘China, No Bouquets’, FEER, p. 216; Humbaraci, op. cit., pp. 477–8. 7 Noel Butlin Archives of Business and Labour, ANU: N92334-337, file 335, ‘U.S. Urged to Sell Wheat to Red China’, The Australian, 15 February 1965. 8 JFKL: Thomson Papers, box 16, from Bundy and Grant through Green, 18 March 1965. 9 Thomson Jr, op. cit. 10 NAA: A1838/280 3107/38/5, pt. 4, memorandum, 11 January 1965. 11 NAA: 1838/272 37/1/4/3, pt. 1, Hong Kong to DEA, 11 and 14 April 1965; ‘Argentina Sells Wheat to Peking’, New York Times, 10–11 April 1965. 12 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2CHICOM, Hong Kong to Washington, ‘CC:WER#14’, 9 April 1965. 13 CC/CCPHRC, op. cit., p. 316; Liu and Wu, op. cit., p. 311. 14 Hunter, N., Shanghai Journal, New York: Praeger, 1969, pp. 191, 199, 210 276–9, 282–4; Chen Pixian later recalled that during the 1950s Ke Qingshi ‘always wanted to surpass what was allowed by objective conditions and obstinately attempted things that could not be achieved’. See Teiwes and Sun, op. cit., p. 32. 15 ‘Hong Kong Spurs Peking’s Income’, New York Times, 30 May 1965; LBJL: NSF: Country file, China, vol. XIII, 7/68–12/68, CIA report, May 1966, pp. 39, 52. 16 NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#11’, 13 March 1964; ‘#25’, 19 June 1964; ‘#28’, 16 July 1965. 17 Wilson, D., ‘Plastics in Shanghai’, FEER, 2 July 1964, p. 16. 18 Hohler, F., ‘Hong Kong: Role Reversed’ FEER, 1 October 1964; MacDougall, C., ‘China’s Consumer Customers’, FEER, 10 June 1965, pp. 507–9. 19 Oei, A., ‘Malaysia One-Way Traffic’, FEER, 1 October 1964, p. 36. 20 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, 14 July 1965. 21 Wong, op. cit., p. 89. 22 NACP: RG#59: CFPF, S-NF 1964–6, box 992, FT CHICOM–IT, action Rome, Taibei, 22 April 1965. 23 St Amour, N., ‘Sino-Canadian Relations, 1963–1968: The American Factor’, in Evans P.M. and Frolic B.M. (eds), Reluctant Adversaries: Canada and the People’s Republic of China, 1949–1970, Toronto, Ont.: University of Toronto Press, 1991.

250

Notes

24 NACP: RG#59: CFPF, S-NF 1964–6, box 993, FT 2 CHICOM–JAPAN, Tokyo to Washington, 22 May 1965; Translations of Asahi Journal, interview of Shigeru Sahashi, 9 May 1965. 25 NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, ‘CC:WER#16’, 23 April 1965. 26 LBJL: NSF: box 202, Warsaw to Washington, 21 April 1965. 27 NACP: RG#59: CFPF, SN-F 1964–6, box 700, E 2-2 CHICOM, ‘CC:WER#12’, 26 March 1965. 28 CC/CCPHRC, op. cit., p. 316. 29 See: chapter 10 footnote 37. 30 Liu and Wu, op. cit., pp. 311, 334. 31 State Statistical Bureau (PRC), China’s Statistical Yearbook, in L.Y. Chen and A. Buckwell (eds), Chinese Grain Economy and Policy, Wallingford, Oxon: C.A.B. International, 1991, appendix one. 32 16 November 1965. 33 Liu and Wu, op. cit., p. 314. 34 The State Statistical Yearbook of China, 1983, Hong Kong: Wing Fat Printing Co. Ltd, 1983, p. 103. 35 NACP: RG#59: CFPF, S-NF 1964-6, box 700, E 2-2CHICOM, Hong Kong to Washington, ‘CC:WR#24’, 18 June 1965 (based on People’s Daily and Da Gong bao, 4 and 5 June 1965). 36 Ash, R.F., ‘The Cultural Revolution as an Economic Phenomenon’, in Draghn W. and Goodman D.S.G. (eds), China’s Communist Revolution: Fifty Years of the People’s Republic of China, London: RoutledgeCurzon, 2002. 37 MacDougall, C., ‘Half-Term Report’, FEER, 14 July 1966; ‘The Struggle to Come’, FEER, 4 June 1970. 38 MacDougall, C., ‘Foreign Trade: Trading Undisturbed’, FEER, 29 September 1966, pp. 616–17. 39 NAA: 1838/272 37/1/4/3, pt. 1, Buenos Aires to Canberra, 26 June 1965. 40 NAA: Cabinet minutes, 9 June 1965. 41 Keatley, R., ‘US–China Trade’, The Wall Street Journal, 7 June 1965. 42 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–FR, Paris to Secretary of State, 5 March 1965; Secretary of State to Paris, 23 September 1965 and attached newspaper article: ‘US–French Clash Over Red China Case Dramatizes the Plight of Multinational Firms’, Business International, 6 August 1965; Paris to Secretary of State, 24 June 1965. 43 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR CHICOM–FR, Lyon to Washington, translated newspaper article: ‘Berliet Signs China Accord’, 9 June 1965. (US official source: Georges Eynard, Berliet’s Chief of External Relations.) 44 NACP: RG#59: CFPF, S-NF 1964–6, box 992, FT CHICOM–IT, Rome to Washington, 21 May 1965; from Hong Kong, 22 September 1965 (US official source: Luciano Braccalarghe, Italian Trade Mission, Beijing); E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#24’, 18 June 1965. 45 NACP: RG#59: CFPF, S-NF 1964–6, box 992, FT CHICOM–IT, Genoa to Washington, 22 June 1965. 46 NAA: 1838/2 766/3/43, pt. 1, Vienna to Australian Secretary of State for External Affairs, 10 December 1964 and 10 July 1965. 47 Hsia, op. cit., p. 191. 48 Richman, B., Industrial Society in Communist China: A Firsthand Study of Chinese Economic Development and Management with Significant Comparisons with Industry in India, the USSR, Japan and the United States, New York: Random House, 1969, p. 857. 49 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–JAPAN, Tokyo to Washington, 8 September 1965.

Notes 251 50 51 52 53 54 55

56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73

Ibid. NAA: 1838/1 766/3/56, report, 5 July 1965. LBJL: NSF: Poland, box 202, Warsaw to Washington, June 30 1965. LBJL: NSF: China memos, vol. IV, box 238; Warsaw to Secretary of State, 1 July 1965; Green to Cooper and Thomson, 9 July 1965; Thomson to President Johnson, undated. NAA: 1838/1 766/3/56, ‘Argentine Guest Feted in Peking’, Xinhua, 077837, 9 July 1965. NACP: RG#59: CFPF, S-NF 1964–6, box 993, CHICOM–JAPAN, Tokyo to Secretary of State, 6 August 1965 (report based on articles from: Japan Times, 26 July 1965; Ashi and Mainichi, 2 or 3 August 1965; Nihon Keizai, 2 or 3 August 1965; Manichi, 6 August 1965 (included the text of the Yoshida letter)). Ibid. Wong, op. cit., p. 92. Bonavia, D., ‘Buying British’, FEER, 2 September 1965, p. 405. NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#36’, 10 September 1965. Ibid.; Hsia, op. cit., p. 193. NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn to Washington, 30 March 1966. NACP: RG#59 CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#34’, 27 August 1965. NAC: RG#20: vol. 820, file 10-33, pt. 14. (Various telegrams, reports and memoranda, dated from September to December 1965, from the Canadian DTC; the Canadian Trade Commission, Hong Kong; and the CWB.) NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#38’, 24 September 1965. NACP: RG#59: CFPF, S-NF 1964–6, box 992, CHICOM–JAPAN, Tokyo to Washington, 20 September 1965. LBJL: NSF: Poland, box 202, Warsaw to Secretary of State, 16 September 1965. CC/CCPHRC, op. cit., p. 317. Liu and Wu, op. cit., p. 339. NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#41’, 15 October 1965. NAC: RG#20: vol. 820, file 10-33, pt. 14. Correspondence, dated from June to September 1965, between the Canadian DTC and the Canadian Trade Commission, Hong Kong; the CWB; and CIRECO, Hong Kong. LBJL: Administrative history of the US Department of State, vol. 1, chapter 7, p. 4. CC/CCPHRC, op. cit., p. 317. Ibid., pp. 317–18.

9 Cultural Revolution delays: steel complex negotiations and US–allied trade policy, October 1965–November 1966 1 NAA: 1838/2 3107/40/164, Buenos Aires to Secretary of State for External Affairs, 29 November 1965. 2 NACP: RG#59: CFPF, S-NF 1964–6, box 992, POL 17 CHICOM–IT, Genoa to Washington, 7 December 1966. (US official sources: Port of Genoa and local shipping statistics; 19 October 1966 article in Corriere Mercantile (Genoa daily newspaper); and observations by American officials.) 3 FEER, 24 November 1966. 4 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Secretary of State to Bonn, 4 March 1966; Bonn to Washington, 30 March 1966. 5 Szuprowiczs, p. 179. 6 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#49’, 10 December 1965.

252

Notes

7 LBJL: NSF: Poland, box 202, Warsaw to Washington, 15 December 1965. 8 NACP: RG#59: CFPF, S-NF 1964–6, INCO RICE 17 JAPAN–US, Taibei to Secretary of State, 27–28 December 1965. 9 NACP: RG#59: CFPF, S-NF 1964–6, INCO RICE 17 JAPAN–US, Taibei to Secretary of State, 27 December 1965. 10 Keatley, R., ‘Red China–Cuba Dispute Over Barter Pact Follows Poor Food-Grain Crop on Mainland’, The Wall Street Journal, 13 January 1966; LBJL: NSF: China Memos, box 239, INR to Secretary of State, 24 January 1966. 11 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Secretary of State, 12 October 1965. 12 CC/CCPHRC, op. cit., p. 319. 13 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn to Washington, 30 March 1966. 14 Xinhua. 15 West German firms (including DEMAG, Otto Wolff, Schloemann and Siemans) wanted to provide $US75 million in equipment and services (worth 42.5 per cent of the total value of the contract). Belgian firms Sybetra and ACEG were eager to supply about $US48 million in electrical equipment and services, Fives Lillecall of France wanted to provide oven hearth construction worth US$34 million and Ruthner of Austria may also have been willing to supply another US$12 million in electrical equipment and services. 16 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn to Washington, 30 March and 2 April 1966; Secretary of State to Bonn, 4 March 1966; Bonn to Washington, 28 March 1966; ‘China No Bouquets’, FEER, August 1966, p. 217; Stahnke, op. cit., p. 147. 17 Baranson, J. ‘The Automotive Industry’, in Whitson W.W. (ed.), Doing Business With China, American Trade Opportunities in the 1970s, New York: Praeger Publishers, 1974, p. 186; Szuprowicz, op. cit., pp. 179, 319–23; ‘Business Strategies for the People’s Republic of China’, Business International Asia/Pacific Ltd, Hong Kong, 1980, pp. 49, 53–7; Business International, p. 327. 18 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn to Washington, 25 March 1966. 19 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn to Secretary of State, 30 March and 6 October 1966. 20 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn to Washington, 25 May 1966. 21 SMCP, 5 March 1966. 22 LBJL: NSF: Poland, box 202, Warsaw to Washington, 16 March 1966. 23 ‘Red China Will Buy Steel Mill Equipment, West German Credit of $86 Million’, Wall Street Journal, 1966. 24 See: footnote 59. 25 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Washington to Bonn, 25 March 1966. 26 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn to Washington, 29 March 1966. 27 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–JAPAN, Secretary of State to Tokyo, 1 April 1966. 28 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–JAPAN, Tokyo to Secretary of State, 30 March 1966. 29 US Department of State, Bulletin, vol. LIV, no. 1409, G.C. McGhee’s address to the Uebersee Club, Hamburg, 31 March 1966, ‘East–West Trade – a Realistic Appraisal’, pp. 1019–26. 30 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, from Bonn, 2 April 1966.

Notes 253 31 LBJL: NSF: China Memos, box 240, vol. VII, 9/66–11/66, Thomson to Rostow, Moyers and Valenti, 2 April 1966; and attached telegram from Hong Kong, 31 March 1966 (comments regarding a People’s Daily article, 29 March 1966). 32 LBJL: NSF: China memos, box 240, vol. VII, 9/66–11/66, for Rostow, 4 August 1966; Bundy (FE), Solomon (E) to Secretary of State, undated. 33 St Amour, op. cit., pp.117–18. 34 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, memorandum from Duesseldorf, 2 December 1966 (US official source: Kurt Gruber, Director, Mannesmann-Meer). 35 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn to Secretary of State, 25 May 1966. 36 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#21’, 27 May 1966. (US official sources: Xinhua, 19 May 1966 and Japanese Consulate Officials who had interviewed delegation members.) 37 LBJL: NSF: China Memos, box 239, vol. VI, 3/66–9/66, CIA report, 15 August 1966; NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, Washington to Bonn, Brussels, London, Paris, Rome, Tokyo, Vienna and Hong Kong, 30 June 1966. 38 LBJL: NSF: China memos, box 239, vol. VI, China cables, information White House from Secretary of State, 13 June 1966. 39 LBJL: Administrative History of the US State Department, vol. 1, chapter 7, p. 10. 40 LBJL: NSF: China memos, box 240, vol. VII, 9/66–11/66, Bundy (FE) and Solomon (E) to Secretary of State, July 1966. 41 NAA: Cabinet decision, 21 July 1966. 42 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Duesseldorf to Secretary of State, 28 July 1966. 43 ‘Senate Votes Sharply Cut Foreign Aid Bill Raps Bonn for Aiding Red China Steel Mill’, The Wall Street Journal, 27 July 1966. 44 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn to Secretary of State, 28 July 1966; 29 July 1966. 45 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Duesseldorf to Secretary of State, 28 July 1966. 46 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn to Secretary of State, 29 July 1966. 47 LBJL: NSF: China cables, box 240, vol. VII, CIA document, 19 September 1966. 48 ‘A Race With Rice’, FEER, 4 August 1965; NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#19’, 1965. 49 NACP: RG#59: CFPF, S-NF 1964–6, INCO-RICE 17 PAK–BURMA. 50 NACP: RG#59: CFPF, S-NF 1964–6, box 1422 and 1212, INCO-RICE 17 PHIL, 1966; box 700, E 2-2 CHICOM, Hong Kong to Washington, ‘CC:WER#19’. 51 NACP: RG#59: CFPF, S-NF 1964–6, box 1422 and 1212, INCO-RICE 17 PHIL, 1966. 52 NACP: RG#59: CFPF, S-NF 1964–6, INCO-RICE 17 PAK–BURMA. 53 SWB: FE 2271/A1/2, 20 September 1966. 54 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Duesseldorf to Secretary of State, 28 September 1966. 55 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Duesseldorf to Secretary of State, 25 October 1966; Duesseldorf to Washington, 23 November 1966; Bonn to Secretary of State, 1–2 December 1966. 56 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Duesseldorf to Washington, 26 October 1966; memorandum from Duesseldorf 21 October 1966. (American official source: Kurt Gruber Director, Mannesmann-Meer.) 57 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR CHICOM–W. GER, Duesseldorf to Secretary of State, 28 September 1966. 58 SMCP (see Current Background, 21 September–21 December 1966).

254

Notes

59 Nongye jingji ziliao (1949–1983) (materials on the Agricultural Economy 1949–1983), Planning Office of the (PRC) Ministry of Agriculture, Livestock and Fisheries, 1983, translated for author by Robert F. Ash. 60 NACP: RG#59: CFPF, S-NF 1964–6, box 1211, Dakar to Washington, 20 November 1966. 61 Author’s interview of J.D. McGreggor, Hong Kong, May 1997. 62 NACP: RG#59: CFPF, S-NF 1964–6, box 1212, box 1422 INCO-RICE 17 PHIL; STR 9-1 CHICOM 17 PHIL–HK. 10 Emergence from Cultural Revolution: trade negotiations resumed, US trade controls relaxed, November 1966–79 1 Walker in Ash, op. cit., p. 227. 2 CIRECO, Almanac of China’s Foreign Trade Relations and Trade (1984), Hong Kong: the editorial board of the almanac of China’s foreign economics and trade, 1984, p. 939. 3 Ash, op. cit. (2002); Liu and Wu, op. cit., p. 343. 4 Ibid. 5 LBJL: NSF: Poland, box 202, Warsaw to Secretary of State, 25 January 1967. 6 LBJL: NSF: China memos, box 242, vol. XI, INR to acting Secretary of State, 2 October 1967 (US official source: Red Guard documents). 7 MacDougall, C., ‘Only the Best’, FEER, 20 April 1967, p. 110; ‘Far Eastern Roundup’, FEER, 6 June 1966. 8 LBJL: NSF: China cables, box 241, vol. IX, Jenkins to Rostow, the White House, 18 July 1967. 9 LBJL: NSF: China, box 202, Warsaw to Washington, 14 June 1967. 10 Rostow, W.W., The Diffusion of Power: An Essay in Recent History, New York: The MacMillan Co., 1972, pp. 432–4. 11 See chapter 9, ‘China, 1949: Waiting for a Democratic Revolution’, in W.W. Rostow (ed.), Concept and Controversy: Sixty Years of Taking Ideas to Market, Austin, TX: University of Texas Press, 2003. 12 LBJL: NSF: China memos, box 242, vol. VXI, Hong Kong to Secretary of State, October 1967 (US official source: Red Guard newspaper report). 13 LBJL: NSF: China memos, box 242, vol. VIII, Jenkins to Rostow, the White House, 10 February 1967. 14 LBJL: NSF: China memos, box 242, vol. XI, Jenkins to White House, 5 October 1967. 15 Rostow, op. cit., 2003. 16 LBJL: NSF: China memos, box 243, vol. XII, CIA memorandum, February 1968. 17 CWB annual report. 18 ‘Asia After Viet Nam’, October 1967, pp.111–25. 19 LBJL: NSF: Poland, box 202, Warsaw to Washington, 9 January 1968. 20 LBJL: NSF: China memos, box 243, vol. XII, memorandum, 2 February 1968. 21 LBJL: NSF: China memos, box 243, vol. XIII, CIA memorandum, August 1968. 22 LBJL: NSF: China memos, box 243, vol. XII, Rusk to the President, 22 February 1968. 23 LBJL: NSF: Poland, box 202, Warsaw to Secretary of State, 28 May 1968; Rostow, op. cit., 2003. 24 For example see: George Watt, China Spy, London: Johnson, 1972 (Watt was an engineer at the Vickers-Zimmer polyproylene plant project, cancelled by the Chinese in 1968). 25 LBJL: NSF: China, box 243, (c) vol. XIII, INR to Secretary of State, 30 July 1968. 26 LBJL: NSF: China, box 243, (c) vol. XIII, CIA memorandum, August 1968. 27 LBJL: NSF: China, box 243, (c) vol. XIII, the White House to Rostow, 21 August 1968. 28 CWB annual report. 29 LBJL: NSF: Poland memos, box 202, vol. IV, INR to Secretary of State, 29 November 1968. 30 Debates (Canada), 10 February 1969. 31 Kalb, Kissinger, Boston: Little Brown and Co., 1974, pp. 220–2.

Notes 255 32 Frolic, B.M., ‘The Trudeau Initiative’, in Evans and Frolic (eds), Reluctant Adversaries: Canada and the People’s Republic of China, 1949–1970, Toronto, Ont.: University of Toronto Press, 1991, pp. 192–3. 33 Kaufman, V., Confronting Communism: US and British Policies Toward China, Columbia, MO: University of Missouri Press, 2001, p. 208. 34 Ash, op. cit. (2002); Liu and Wu, op. cit., p. 23. 35 CWB annual report. 36 Kalb, op. cit., p. 228. 37 Szuprowiczs, op. cit., pp. 336–47. 38 Frolic, op. cit., passim (especially p. 208). 39 Kalb, op. cit., pp. 231–2. 40 Liu and Wu (eds), op. cit., p. 362. 41 He was a political commissar in the PLA’s 41st army in 1966, Leader of the Guangzhou military region by early 1969 and appointed Vice-Chairman of the Guangzhou Revolutionary Committee in April 1969. 42 De Pauw, J.W., US–Chinese Trade Negotiations, New York: Praeger Publishers, 1981 (based on Aviation Week and Space Technology, 15 March 1971; 18 September 1972). 43 Sampson, A., op. cit. (1984), pp. 124–5; The Arms Bazaar: From Lebanon to Lockheed, New York: Bantam Books, 1977, p. 107. 44 Kalb, op. cit., p. 237. 45 Szuprowiczs, op. cit., pp. 344–5. 46 Aug, S.M., ‘Others Would Follow Boeing–China Deal’, Star and News, 18 September 1972. 47 SWB: FE/6856/B11/1, ‘Circumstances of Lin Biao Plane Crash in 1971 Analysed’; Xu Wenyi, ‘A Special Mission History Entrusted to Me’, Beijing Review, 23–9 May 1988; 30 May–5 June 1988. 48 Avery, M. and Chase, W., ‘Sino-American Commercial Relationship’, Chinese Economy Post-Mao: A Compendium of Papers Submitted to the Joint Economic Committee Congress of the United States (Volume I) Policy and Performance, 9 November 1978, p. 744. 49 Aug, op. cit.; De Pauw, op. cit., p. 55. 50 United States of America Congressional Record, Washington: US government printing office, 7 March 1972, p. 7236 (AW& ST, 9 August 1971, p. 24). 51 Boeing Co. Archive, ‘The 707-China Story – Impact and Impressions’, Boeing News, 21 September 1972; De Pauw, op. cit. 52 Aviation Week, 28 February 1972; Boeing Co. Archive, ‘China Buys 10 Boeing Jet Airliners’, 12 September 1972; ‘The 707-China Story – Impact and Impressions’, Boeing News, 21 September 1972. 53 Szuprowiczs, op. cit., pp. 336–47. 54 Szuprowiczs, op. cit., pp. 178–9, 217, 221, 319, 320, 323. 55 Liu and Wu, op. cit., pp. 69–386. 56 Naughton, B., Growing Out of the Plan: Chinese Economic Reform 1978–1993, New York: Cambridge University Press, 1995, p. 384; Xue, op. cit., p. 262. 57 Szuprowiczs, op. cit., passim. 58 In 1973 the PRC was the third largest market for American grain. 59 Szuprowiczs, op. cit., pp. 217–21. 60 In 1974 the PRC was again the third largest market for US grain. 61 Szuprowiczs, op. cit., pp. 178–80. 62 Naughton, op. cit., p. 67; Lardy, N.R., Foreign Trade and Economic Reform in China, 1978–1990, Cambridge: Cambridge University Press, 1992, p. 37. 63 Naughton, op. cit., pp. 67–74. 64 Buryn, W.M., ‘Pullman Kellogg: A Case Study’ in D.C. Buxbaum, C.E. Joseph and P.D. Reynolds (eds), China Trade: Prospects and Perspectives, New York: Praeger Publishers, 1982. 65 Naughton, op. cit., pp. 76, 342.

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Theses and research papers Aandstad, S.A., ‘Surrendering to Symbols: United States Policy Towards Indonesia 1961–1965’, Philology Candidate history dissertation, University of Oslo, spring 1999. Available: http://aga.nvg.org/oppgaver/dissertation.html Chinvanno, A., ‘Thailand’s Policies Towards The People’s Republic of China, 1949–1957’, unpublished PhD history thesis, Oxford University, 1988. Forget, C.E., ‘China’s External Trade: A Canadian Perspective’, sponsored by the Canadian Economic Policy Committee – Private Planning Association of Canada, 1971. Hamilton, W.E. and Drummond, W.M., ‘Wheat Surpluses and their Impact on Canada–United States Relations’, (US) National Planning Association and Private Planning Association of Canada, 1959. Ho, S.P.S., ‘Canada’s Trade With China: Patterns and Prospects’, Economic Policy Committee and Private Planning Association of Canada, 1969. Johnson, V.A. and Breemer, H.L. (eds), Wheat in the People’s Republic of China, Committee on Scholarly Communication with the People’s Republic of China, report no. 6, Washington, DC: National Academy of Sciences, 1977. Li, L.S., ‘Sino-Canadian Relations and the Grain Trade’, unpublished MA history thesis, Carleton University, Ottawa, 1995. Minden, K., ‘The Politics of Cerealism: The Wheat Trade and Canadian–Chinese Relations’, working paper no. 27, Joint Centre on Modern East Asia, University of Toronto, York, April, 1985. Mitcham, C.J., ‘Trade, Grain and Diplomacy in China’s Economic Relations with the West and Japan, 1957–63’, unpublished PhD history thesis, SOAS, 2000. Walker, K.R., ‘Provincial Grain Output in China 1952–1957: A Statistical Compilation’, research notes and studies, no. 3, Contemporary China Institute, SOAS, London, 1977.

Books and articles (not including peripheral works, cited occasionally in notes) Adler-Karlsson, G., Western Economic Warfare, 1947–67: A Case Study in Foreign Economic Policy, Stockholm: Almqvist & Wiksell Boktryckeri, 1968. Albiniski, H.S., ‘Australia and the Chinese Strategic Embargo’, Australian Outlook, 1965, vol. 19, pp. 117–28. —— Australian Policies and Attitudes Toward China, Princeton, NJ: Princeton University Press, 1965. Ang, C.G., Vietnamese Communists’ Relations With China and the Second Indochina Conflict, 1956–1962, Jefferson, NC: McFarland & Company Inc. Publishers, 1997.

Bibliography 267 Arndt, H.W., Australia and Asia: Economic Essays, Canberra: Australian National University Press, 1972. Ash, R.F. (collector and ed.), Agricultural Development in China, 1949–1989: Collected Papers of Kenneth R. Walker (1931–1989), Oxford: Oxford University Press, 1998. Bachman, D., Bureaucracy, Economy and Leadership in China: The Institutional Origins of the Great Leap Forward, Cambridge: Cambridge University Press, 1991. Bachrack, S.D., The Committee of One Million: ‘China Lobby’ Politics 1953–1971, New York: Columbia University Press, 1976. Bartke, W., China’s Economic Aid to Developing and Socialist Countries, New York: Holmes and Meyer, 1975. —— Oil in The People’s Republic of China Industry, Structure, Production, Exports, London: C. Hurst and Co., 1977. —— Who’s Who in the People’s Republic of China, Armonk, NY: M.E. Sharpe Inc., 1981. —— Who’s Who in the People’s Republic of China, 2nd edn, London: K.G. Saur, 1987. —— Biographical Dictionary and Analysis of China’s Leadership 1922–1988, London: K.G. Saur, 1990. —— Who’s Who in the People’s Republic of China, vols 1–2, 3rd edn, London: K.G. Saur, 1991. Becker, J., Hungry Ghosts: China’s Secret Famine, London: John Murray, 1996. Bell, C., Dependent Ally: A Study in Australian Foreign Policy, 3rd edn, Canberra: Allen & Unwin and ANU, 1994. Bernstein, T.P., The Modernization of China, New York: Free Press, 1981. Boardman, R., Britain and the People’s Republic of China, 1949–74, London: Macmillan, 1976. Burke, R.F., Dwight D. Eisenhower: Hero and Politician, Boston, MA: G.K. Hall and Co., 1986. Burr, W., The Kissinger Transcripts: The Top Secret Talks With Beijing and Moscow, New York: New Press, 1998. Buxbaum, D.C., Joseph, C.E. and Reynolds, P.D., China Trade: Prospects and Perspectives, New York: Praeger, 1982. Callaghan, A.R. and Millington, A.J., The Wheat Industry in Australia, Sydney: Angus and Robertson, 1965. Carter, C.A. and Zhong, F.N., China’s Grain Production and Trade: An Economic Analysis, London: Westview Press, 1988. Chang, G.H., Friends and Enemies: The United States, China and the Soviet Union, 1949–72, Stanford, CA: Stanford University Press, 1990. Chen, J., China’s Road to the Korean War: The Making of the Sino-American Confrontation, New York: Columbia University Press, 1994. Chen, L.Y. and Buckwell, A., Chinese Grain Economy and Policy, Wallingford, Oxon: C.A.B. International, 1991. Clayton, D., ‘British Foreign Economic Policy Towards China 1949–60’, Electronic Journal of International History, article 6. Available: http://www.history.ac.uk/ ejournal/art6.html Cohen, J.A., Dernberger, R.F. and Garson, J.R., China Trade Prospects and U.S. Policy, New York: Praeger, 1971. Derdak, T. (eds), International Directory of Company Histories, Chicago, IL: St. James Press, 1988. Dicks, A.R., ‘The People’s Republic of China’, in Starr, R. (ed.), East–West Business Transactions, New York: Praeger, 1974.

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Dicks, A.R., ‘Macao: Legal Fiction and Gunboat Diplomacy’, in Goran Aijmer (ed.), Leadership on the China Coast, Studies on Asian Topics, no. 8, Scandinavian Institute of Asian Studies, Copenhagen: Curzon Press, 1984. Dietrich, C., People’s China: A Brief History, Oxford: Oxford University Press, 1986. Donnithorne, A., China’s Grain: Output, Procurement, Transfers and Trade, Hong Kong: The Chinese University of Hong Kong Economic Centre, 1970. Draghn, W. and Goodman, D.S.G. (eds), China’s Communist Revolutions: Fifty Years of the People’s Republic of China, London: RoutledgeCurzon, 2002. Eckstein, A., Communist China’s Economic Growth and Foreign Trade: Implications for US Policy, New York: McGraw-Hill Book Company, 1966. Evans, P.M. and Frolic, B.M. (eds), Reluctant Adversaries: Canada and the People’s Republic of China, 1949–1970, Toronto, Ont.: University of Toronto Press, 1991. Fairbank, J.K. and MacFarquhar, R. (eds), Cambridge History of China, Vol. 14 The People’s Republic Part I: The Emergence of Revolutionary China 1949–1965, Cambridge: Cambridge University Press, 1987. Fowke, V.C., The National Policy and the Wheat Economy, Toronto, Ont.: University of Toronto Press, 1957. Goncharov, S.N., Lewis, J.W. and Xue, L.T., Uncertain Partners: Stalin, Mao and the Korean War, Stanford, CA: Stanford University Press, 1993. Hardy, R.W., China’s Oil Future: A Case of Modest Expectations, Boulder, CO: Westview Press, 1978. Heine, M.I., China’s Rise to Commercial Maritime Power, New York: Greenwood, 1987. Howe, C., ‘Technology and Industrial Policy in China: A Survey of Issues in the Reform Period and Lessons from Other East Asian Economies’, in Ash, R.F., Edmonds, R. and Shaw, Y.M. (eds), Perspectives on Contemporary China in Transition, Taibei: Institute of International Relations, National Chengchi University, 1997, pp. 78–98. Howe, C. and Walker, K.R., The Foundation of the Chinese Planned Economy: A Documentary Survey 1953 to 1965, Basingstoke: Macmillan, 1989. Hsiao, G.T., The Foreign Trade of China: Policy, Law and Practice, Berkeley, CA: University of California Press, 1977. Jain, R.K., China and Japan 1949–1976, Delhi: Radiant Publishers, 1977. Kaplan, F., Sobin, J. and Andors, S., Encyclopaedia of China Today, New Jersey: Eurasia Press, 1977. Kaufman, B.I., Trade and Aid: Eisenhower’s Foreign Economic Policy 1953–1961, Baltimore, MD: Johns Hopkins University Press, 1982. Klein, D. and Clark, A.B., Biographic Dictionary of Chinese Communism 1921–1965, vols 1–2, Cambridge, MA: Harvard University Press, 1971. Kristjanson, R.L., ‘Problems and Prospects of Canadian Wheat Sales to China and the USSR’, Journal of Farm Economics, vol. 49, no. 5, December 1967. Kyba, P., Alvin: A Biography of the Honorable Alvin Hamilton, P.C., Regina, Sask.: Canadian Plains Research Center, 1989. Lamer, M., World Fertilizer Economy, Stanford, CA: Stanford University Press, 1957. Lardy, N.R., Agriculture in China’s Modern Economic Development, Cambridge: Cambridge University Press, 1983. —— Foreign Trade and Economic Reform in China, 1978–1990, Cambridge: Cambridge University Press, 1992. Lawson, E.K. (ed.), US–China Trade Problems and Prospects, New York: Praeger, 1988. Ling, H.C., The Petroleum Industry of The People’s Republic of China, Stanford, CA: Hoover Institution Press, 1975.

Bibliography 269 Liu, J.C., China’s Fertilizer Economy, Chicago, IL: Aldine Publishing Co., 1970. MacFarquhar, R., The Origins of the Cultural Revolution: Contradictions Among the People 1956–1957, New York: Columbia University Press, 1974. —— The Origins of the Cultural Revolution, Volume II: The Great Leap Forward 1958–1960, Oxford: Oxford University Press, 1983. Mann, J., About Face: A History of America’s Curious Relationship with China, from Nixon to Clinton, New York: Alfred Knopf, 1999. Martin, S.B. (ed.), Notable Corporate Chronologies, Detroit, MI: Gale Research Inc. International, Thompson Publishing Company, 1995, vols 1–2. Mayall, J.B., ‘The Financial Policies of the Western Powers’, in Watt, D.C. (ed.), Survey of International Affairs 1963, Oxford: Oxford University Press on behalf of RIIA, London, 1977, pp. 55–80. Miyagawa, M., Do Economic Sanctions Work, New York: St. Martin’s Press, 1992. Morgan, D., Merchants of Grain, New York: Viking, 1979. Muller, K., The Foreign Aid Programs of the Soviet Bloc and Communist China, New York: Walker and Company, 1964. Naughton, B., Growing Out of the Plan: Chinese Economic Reform 1978–1993, New York: Cambridge University Press, 1995. Piazza, A.L., Food Consumption and Nutritional Status in the PRC, Boulder, CO: Westview Press, 1986. Qiang Zhai, The Dragon, the Lion and the Eagle: Chinese-British-American Relations, 1949–1958, London: Kent State University Press, 1994. —— China and the Vietnam Wars, 1950–1975, London: University of North Carolina Press, 2000. Ricklefs, M.C., History of Modern Indonesia Since c.1200, 3rd edn, Basingstoke: Palgrave, 2001. Riskin, C., China’s Political Economy: The Quest for Development Since 1949, Oxford: Oxford University Press, 1987. Shao, W.G., China, Britain and Businessmen: Political and Commercial Relations 1947–57, London: Macmillan, 1991. Smith, D.E., The Regional Decline of a National Party: Liberals on the Prairies, Toronto, Ont.: University of Toronto Press, 1981. Smith, R.B., An International History of the Vietnam War (Volume 1): Revolution Versus Containment, 1955–61, London: Macmillan, 1983. —— An International History of the Vietnam War (Volume II): The Struggle for South-East Asia, 1961–65, London: Macmillan, 1985. —— An International History of the Vietnam War (Volume III): The Making of a Limited War, 1956–66, London: Macmillan, 1990. Stahnke, A.A. (ed.), China’s Trade with the West: A Political and Economic Analysis, New York: Praeger, 1972. Starr, R. (ed.), East West Business Transactions, New York: Praeger Publishers, 1974. Szuprowicz, B.O. and Szuprowicz, M.R., Doing Business With the People’s Republic of China: Industries and Markets, New York: John Wiley and Sons, 1978. Teiwes, F.C. and Sun, W., China’s Road to Disaster: Mao, Central Politicians, and Provincial Leaders in the Unfolding of the Great Leap Forward 1955–1959, London: M.E. Sharpe, 1999. Thompson, R.C., The Pacific Basin since 1945, 2nd edn, London: Longman, 2001. Tsao, J.T.H., China’s Development Strategies and Foreign Trade, Lexington, MA: Lexington Books, 1987.

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Index

Afghanistan 134, 162 Agency for International Development 77, 79, 151, 165 agriculture xxii, 216–18; in 1961–2 46, 56, 61–2, 72, 85; from 1962–4 94, 98, 108, 114, 121, 139–40, 146, 150; from 1965–6 159, 163, 173, 191–7; from 1967–9 204–5, 207, 212–15; before the GLF 3–9, 13–18, 24–31, 35–8; during the GLF 40–2; see also grain; rice; wheat air agreements 133–4, 193 aircraft: Alouette III 162; BAC 1–111 84; Britannica 84; Caravelle 84–5, 89, 111, 116, 120, 123–5, 130–2; Comet 84, 123, 236 n.80; Concorde 209, 211; Dakota 95; Hercules 211; IL-18 102, 133–4, 161; IL-62 133, 211; manufacturers: Aerospatiale 209, 211, British Aircraft Corporation 84, 209, 211, CANDAIR 45, 52, 64, de Havilland 84, 111, 123, Handley Page 84, Hawker Siddley 84, 111, 207–12, Lockheed 211, Sikorsky 111, Sud Aviation 84–5, 88, 111, 116, 120, 123, 130; MiG 207; Trident 111, 123, 207–12; Tristar 211; VC-10 78, 84, 133, 147; see also Boeing; Vickers airlines: All Nippon Airways 111, 114, 133; Pakistan International Airways 111, 123, 125–6, 133 air routes 111, 134, 240 n.69 Albania 52–3, 59, 80, 118, 209 Alstom Atlantique 180, 183 American Friends Service 233 n.8 André & Cie S.A. 37 Andrew Weir & Co. 30 Anhui 37, 39, 44 Argentina: pre-1957 grain deals 7, 9, 12–16, 222 n.18; 1961 grain deals 32,

35, 51, 60, 63, 65, 76; 1962–3 negotiations 122, 127–8; 1964 negotiations 132, 145–6, 158, 164, 169; 1965 negotiations 178; 1966 negotiations 186; 1967–79 trade diplomacy 19, 210, 213 ASEA 156, 168 Ash, R.F. 27–8, 196 Atlas Copco 156, 168 Australia xxi; pre-1957 cash deals 7, 9, 25, 30, 35–6; 1961 cash deals 44, 51–65, 71–5; 1962–3 credit negotiations 84, 88, 96–9, 114, 122, 128–9; 1964–5 credit negotiations 131–2, 148–50, 159, 161–5, 170, 177–8; 1966–79 trade diplomacy 186–90, 199, 204, 208–13; see also Australian Wheat Board Australian Wheat Board: pre-1961 cash grain negotiations 25, 51–7; 1961–2 credit grain negotiations 60–4, 71–5, 83, 96; 1963–5 negotiations 105, 122, 127–9, 145, 146, 158–9, 164, 177–8; 1966–79 negotiations 186, 198, 208 Austria 101; diplomacy with in 1962 139–41, 145–8, 167, 180–2; diplomatic recognition by 209; and NITREX 238 n.15; and the steel rolling mill complex consortium 252 n.15 Bai Xiangguo 208–9, 212 Baker–Hughes 213 Ball, G. 75, 76–7, 79, 116, 126 Bank Line 30–3, 39 banks 182; Bank of China 12, 18, 39, 62, 74, 88, 100, 131, 160, 169, 215, 222 n.10, 223 n.30; Bank of Tokyo 56, 100; Chase Manhattan 125, 212; Commonwealth Trading 63–4, 73–4, 82–4, 88, 96–7, 128–31, 145,

272

Index

banks (Continued) 150–2, 159; Hong Kong 152, 160, 170, 194; Japanese 52; Malaysian 39, 160; People’s Bank of China 44–5, 152, 182, 222 n.10, 223 n.30; Philippine 192; PRC 6, 10, 55; Reserve Bank of Australia 72, 84; Shanghai 19, 152, 223; US 93, 192; see also Ex–Im Bank of Japan barley: cash deals in 1961 53, 55–7; credit deals in 1961 63–5, 74–6, 79; credit deals from 1962–3 96–7, 122, 128–9; credit deals from 1964–6 145, 159, 179; credit deals from 1967–79 200; see also grain BASF 20, 43, 238 n.15 BDI 226 n.19 Beam, J.D. 65–6 Belgium 19–20, 43, 144, 209 Berliet 140–4, 154, 156, 166, 180–2, 195 Bin Akao Dai Nippon Aikakuta 114 Boeing 84, 111, 123, 125–6, 208–11 Bowles, C. 61, 66, 77, 80–2, 235 n.57 Bo Yibo 12, 34, 37, 40, 163, 189, 214–15, 225 n.95 BP 86, 88, 103, 110 Braga, J.M. 58, 76, 231 n.43 British Council for the Promotion of International Trade 6, 10 Brown, David 18 Bu, L.C. 34, 101, 108, 241 bulldozers 140, 143, 148 Bundy, M. 113 Bundy, W.P. 155, 158, 177, 185, 189 Bunge 32–5, 51–3, 60, 63 Burma: pre-1960 rice deals 9–16, 22; air routes 133; and PRC-Pakistani trade 191–2; and Sino-American trade diplomacy 52, 58, 62, 75, 78, 81–2, 134, 223 n.46, 234 n.20 Burmeister & Wain 156, 168 Cabot, J.M.: Warsaw Talks in 1962–3 87, 93, 103, 107, 112–13, 124; Warsaw Talks in 1964–5 131, 134, 168, 171 Caltex 86, 102, 104, 121, 237 n.101 Cambodia 9, 22–4, 127, 133, 192–4, 207 Canada: pre-1958 cash deals 5–9, 15–17, 22, 25–7, 30–8; 1961–2 cash deals 44–5, 51–66, 71–4, 79–82, 87, 95–9; credit deals from 1963–5 101, 104–6, 108, 110, 113–14, 122, 128–9, 132, 145–8, 150–1, 155, 159, 161, 164–5, 167, 170–1, 178–9; 1965–8 trade

diplomacy 186, 188, 193, 198–200, 204; trade diplomacy and the Stockholm Talks 205–8, 210–13; see also Canadian Wheat Board; grain; wheat Canadian Wheat Board 25, 27; cash deals in 1960–1 51, 53–7; credit deals in 1961–2 59–63, 71–5, 81–3, 96–9; credit deals from 1962–4 101, 108, 122, 127–9, 145; credit deals from 1964–6 151, 159, 164, 171, 179, 186; deals from 1967–79 198–201, 205–6, 208 CANDAIR 45, 52, 64, 133, 192–4, 207 Cargill, A. 30 Cargill Grain Co. 30, 35, 44, 54, 123, 125 Central Intelligence Agency 119, 143, 157, 181, 212; on China’s grain sown areas 29; and Indonesia 37, 172; on offering US grain to China 13, 188 Centre National du Patronat Français 101–2, 116 Chase Manhattan Bank 123, 125, 131, 212 chemical fertilizer xxiii, 217–18; in 1960–1 46–7, 55–8, 64, 77, 79, 84–6; in 1962–3 93–5, 98–100, 103–5, 108, 113, 118–19, 124–7; in 1965–6 163–4, 170, 184, 192, 196; from 1967–79 197–8, 202–3, 207, 212–15; before the GLF 6, 14, 17, 19, 20–7, 31, 34; during the GLF 39–44; production plants 217, 1962–3 negotiations to buy 86, 94–5, 103, 117–21, 126, from 1964–79 141, 170, 178, 213–15, inadequacies of 19–21, 43, 100; see also Japanese Ammonium Sulphate Export Import Association; NITREX Chen Feizhang 32–3 Chen Guodong 198, 207, 229 n.1 Chen Ming 54; pre-1960 positions 39, 41; during the Cultural Revolution 185, 207; role in readjustment 68, 84, 110, 114, 132–3, 165 Chen Pixian 160, 249 n.14 Chen Yi: from 1961–3 66–7, 82, 116, 120; from 1964–6 134–5, 152, 160, 163, 188–9, 191; before the GLF 4, 13, 23, 37; death of 210 Chen Yun 217; from 1961–6 51, 65, 71, 81, 87, 93–5, 131, 150, 162–3; during the Cultural Revolution 198, 206, 210, 213; during the GLF 39–42; and pre-GLF economic planning 3–6, 9–10, 13, 15, 17, 19, 21, 24–8, 31, 33–8, 223 n.42; and the return to ‘readjustment’ 214–15

Index 273 Chiang Ching-kuo 113 Chiang Kai-shek 14, 36, 83, 89, 103, 134 Chiba refinery 86, 88, 102 China see People’s Republic of China China Civil Aviation Bureau (CCAB) 45, 68, 84 China Council for the Promotion of International Trade: from 1960–2 46, 52; from 1963–5 108, 114, 116, 133, 140–1, 144–8, 155, 167, 172; prior to the GLF 6, 9–10, 12–15, 18, 31, 34 China International Trust Investment Corporation 215, 230 n.13 China Lobby (Committee of One Million) xxii, 216; in 1961–2 72, 78, 83; in 1963–4 109, 117, 123, 125, 127, 131; in 1965–6 165, 190 China National Cereals, Oils and Foodstuffs Import and Export Corporation: during the GLF 39; and grain negotiations from 1960–2 53, 60–5, 83, 96, 99; and grain negotiations from 1963–5 108, 128–9, 145, 150–1, 158–9, 179; and grain negotiations from 1965–79 186, 198–9, 204–6, 208–10; and pre-GLF grain imports 12, 27, 30–7 China National Import–Export Corporation 9, 12, 14, 18, 27, 142–3, 156–7 China National Machinery Import and Export Corporation 84, 88, 114, 130, 146 China National Metal and Minerals Import and Export Corporation 130 China National Technical Import Export Corporation 12; in 1963–4 109, 118–20, 141–3; from 1964–79 156–7, 167, 169, 178, 180–2, 185–6, 211 China National Textiles Import Export Corporation 36, 101 China Ocean Shipping Company 142–3, 156–7 China Resources Company: during the GLF 41, 43; and pre-GLF trade negotiations 8–9, 12, 20, 25–7, 34–8; and trade negotiations in 1960–1 51–65, 72–5, 81, 83, 96; and trade negotiations from 1962–4 101, 115, 128, 146, 241 n.82; and trade negotiations in 1965–6 158–9, 165, 171, 179, 192; and trade negotiations from 1966–79 200–3 CHINCOM 6, 10–12, 18, 19, 23

Chinese Communist Party xxi, xxii, xxiii; from 1960–4 52, 56, 59, 94, 139, 146, 150; from 1965–79 162, 173, 196, 198, 204–5, 213–15; during the GLF 41–2; pre-GLF 3, 4, 13–16, 18, 23–4, 28, 32, 37 Chiyoda Chemical Engineering and Construction Co. 114, 122 C. Itoh and Co. 110 Civil Air Administration of China 84, 111, 133–4, 209; see also China Civil Aviation Bureau (CCAB) COCOM: and Caravelle aircraft 85, 88, 125, 130; and the demise of the China differential 26; during the 1950s 5, 6, 7, 11, 12, 222 n.8; exceptions 14–15, 18, 23; list reductions 33, 36; and POL 121; and Sino-Japanese trade 110, 120, 147, 167–9; and the steel rolling mill complex 187; and Viscount aircraft 46, 52, 58, 64, 68, 70–81 COFACE: and trade deals in 1961 63, 65, 72, 73, 79; and trade deals in 1962 96, 98; and trade deals in 1964–5 119, 130, 145, 150, 166; and trade deals in 1966 179, 181 Committee for the Review of Our China Policy 106–7, 115, 117 Commonwealth Trading Bank 63–4, 73–4, 88, 96–7, 128–9, 145, 159 CONASUPO 127–8 Connally, J. 211 Continental Engineering Co. 118–19, 213 Coombs, H.S. 72 Cordt, F. 107, 115, 124, 241 n.82 Courtaulds 157, 170 Couvre de Murville, M. 116 credit guarantees see individual countries Cuba 84, 105, 122, 155, 166, 183–4 Cultural Revolution xxiii, 154, 183, 216, 218; and Chinese officials 162, 184–5, 189, 198, 215, 248 n.52; and foreign trade 188, 190, 191; and government policy 193, 195, 205; and grain 194, 196, 199, 203, 204, 210, 212 Daido Steel Co. 122 Dai Nippon/Nichibo: cancellation of PRC contract 151–2, 169; contract with PRC 105, 110, 117, 130, 135–6, 140–2 De Gaulle, C. 120, 123, 130–1, 145, 152, 182, 186, 205 Delmas Vieljeu 142, 145

274

Index

DEMAG: steel rolling mill complex negotiations 181, 185–93, 198, 212–13, 252 n.15; trade talks 102, 124 Deng Xiaoping 41, 82, 150, 160, 163, 213–14, 235 Denmark 153, 168 Diefenbaker, J. 34, 37, 59 Ding Kejian 18, 34, 38, 51, 55, 64, 170–1, 178 Dodds Stewart & Co. 35, 37 Dulles, A. 13 Dulles, J.F. 14, 25, 30 East Asiatic Co. 35 East Germany 15, 53, 71, 122 East Pakistan 191–3 Eden, A. 16 Edison 19, 20, 43 Eisenhower, D. xxii, 165; on China trade 11–13, 16, 18, 25, 38, 216, 218–19 ENI: and the China trade during the 1950s 19–20, 23; and the China trade in 1960–1 43, 44, 86; and the China trade in 1962–3 95, 98–9, 105, 118, 122, 127; and the China trade in 1965–6 155–6, 178, 180–1 Erhard, L. 108, 241 n.91 European Economic Community 35, 62, 99, 101, 150, 199, 226 n.109, 242 n.4 Ex–Im Bank of Japan 99, 103–4, 108–9, 113, 117; and the 1960–3 L–T negotiations 103, 120; 1964–6 L–T negotiations 131, 135–6, 140–1, 148, 150–3, 158, 161, 164, 169, 187 Export Credit Guarantee Department 68–9, 78, 118, 120, 141–2, 147; see also United Kingdom Faibish, R. 232 n.73 famine xxiii; abnormal deaths 28, 44, 54, 56, 83, 163, 197, 217; conditions from 1949–59 27, 31–3, 35, 39–46, 51–2, 54, 65–6, 197; dropsy 54; oedema 54, 55, 60, 68 Faure, E. 120, 123–4 Fiat 166, 190 First Leap Forward 14–17 flour xxiv; deals before the GLF 3, 9, 16, 25, 30–6, 45; transactions from 1961–2 53–7, 59–65, 83; transactions between 1963–79 97, 114, 151, 210 food shortages see famine

Foreign Assets Control Regulations 158; and bunker fuel 59; and Caravelle aircraft 123, 130; and Fruehauf trailers 154; petroleum 121; and Sino-Philippine trade 192; and vacuator pumps 65; and Viscount aircraft 46, 68, 80 Forrestal, M. 107, 240 n.80 Forsyth-Smith, M. 31–2, 35, 44, 58, 62, 64 ‘48’ Group 10, 18, 108, 114 France: and trade before 1958 9, 11, 15–18, 26, 30–5, 43; trade from 1960–2 51–3, 57–8, 63, 65, 67, 71, 79–80, 84–5, 88–9, 95–9, 238 n.15; trade from 1963–5 101–4, 110, 114, 16, 120–7, 130–3, 136, 139–45, 148–55, 162, 166–8, 180–2; trade from 1966–79 186, 193, 194, 199, 205, 209, 211, 212, 252 n.15; see also COFACE ‘friendly firm’ trade: from 1960–3 46, 52–3, 59, 86, 101–2, 108, 124–6, 241 n.101; from 1964–6 134, 140, 148, 152, 188, 191, 193, 208–9 Friends Committee for National Legislation 233 n.8 Fruehauf 154, 166 Fu Xing 61–2 Geneva Conference on Laos 66–7, 77, 88 Geneva Talks (Sino-American ambassadorial) 15–17, 22–3, 30, 33, 39, 66 Georges-Picot, G. 102, 115–16, 242 n.22 Gerholtz, R. 165–6 gold 33, 80, 182; and Hong Kong and Macau 39, 45, 152; and the US dollar 35, 38, 101, 165, 206, 209 Goldsmith 145, 179, 186 grain xxi, xxii, xxiii, xxiv, 216–18, 233 n.8; from 1949–58 3–17, 21–40, 225 n.80; in 1959–60 41–6, 51–5; in 1961–2 56, 58–9, 61, 63, 67–8, 70, 72–6, 83, 87, 93, 98–9, 235 n.52; in 1963–4 101, 104–6, 117, 120–5, 131–2, 140, 146, 149, 241 n.82; in 1965–6 155, 161–5, 169, 173, 177, 184, 189–97; from 1967–79 198–9, 201–3, 205, 207–10, 214–15, 255 nn.58, 60; agreements 16, 19, 57, 60–6, 71, 75–7, 79–2, 95–7, 108, 114, 127–8, 149–51, 158–9, 170–1, 178–9, 186, 200, 204–6, 212–13; see also barley; flour; rice; wheat

Index 275 grain growers associations 151, 155, 233 n.8 ‘Great Leap Forward’ xxiii, 27–8, 32, 38–42, 46, 53, 65, 70, 86, 94, 162–3, 177, 194–6, 210, 215–17 Green, H. 66 Green, M. 155, 168 Gronouski, J. 171, 183, 186 Guangzhou: during the 1950s 28, 31–7, 222 n.11, 223 n.42, 245 n.77; in 1962–3 82, 101, 111, 115–16, 124; from 1964–79 133, 161, 198, 209, 240 n.69, 255 n.41 Hall Bryan Ltd 37–8 Hamilton, A. 56, 62–4 Hang Seng Bank 152 Harriman, A. 66–7, 74, 77, 81–3, 104–6, 132 Henderson, W. 104 Henschel 180, 182–3 Hilsman, R. 104, 107, 131–2, 185; speech on US China policy 126 Hitachi Shipbuilding and Engineering Co. 152, 158, 169, 181, 187, 193, 212 Hodges, L. 114–15 Hoechst 20, 43, 238 n.15 Hong Kong: during the 1950s 5, 9, 12, 25, 30–6, 39, 223 n.42, 229 n.98, 231 n.43, 245 n.77; from 1960–2 44–5, 51–5, 58–62, 64–5, 70, 73–4, 76, 82–3, 85–7; from 1963–5 104–8, 114–17, 123, 125, 131, 139, 152, 160, 177; from 1966–79 194, 208, 213 Hong Kong Shanghai Bank 152 Hou Ton 149 Huang Kecheng 42, 225 n.95 Hufnagel, H. 122 Humphreys and Glasgow 119–20 Idemitsu Kosan Co. 86, 88, 102, 121, 124 Ikeda: on Ex–Im Bank credits 58–9, 99–100, 105, 109, 130, 134–6, 169; illness of 141, 146 Illia, A.U. 164, 169 IMAG 166 Imperial Chemical Industries 141 India xxii, xxiii, 5, 40, 44, 65, 67, 78; Chester Bowles’ meeting with Nehru 81–2; Sino-Indian Border War 95, 98–9, 105, 124, 206, 218, 223 n.43 Indonesia: Chinese–Indonesian trade during the 1950s 11, 24, 37; and POL

negotiations with the Chinese 86, 93, 102–4, 107, 115, 121, 125, 127, 160, 172 industry xxii, xxiii, 216–17; prior to 1959 3–5, 10–20, 22–4, 27–8, 31–4, 37–40; from 1959–62 42, 44–5, 56, 58–61, 75, 81, 86–8, 94–5, 98–100; in 1963–4 101–5, 108, 110, 113–17, 119–22, 125–7, 130, 132, 135, 139–41, 143–9; in 1965–6 151–4, 157–69, 172–3, 178, 180–1; from 1967–79 185, 187, 190, 196–7, 205–8, 212–15; see also chemical fertilizer; petrochemicals; petroleum; steel Innocenti Society 178, 180 International Cooperation Administration 47 International Milling Co. 36 International Trading Company 58, 62, 75–6, 81–3 Italy: and credits for China trade 98, 118, 126–7, 178, 180; ICE 140, 148; trade during the 1950s 19–20, 43–4, 58; trade in 1962–3 95, 98, 105, 116, 118, 122, 126–7; trade in 1964–5 127, 134–6, 139–40, 144–8, 155–6, 161, 167, 178, 180–1; trade in 1965–6 190, 199, 208; see also ENI; Innocenti Society ITT 68, 79, 80 James Richardson and Sons’ Ltd 35, 39 Japan xxii, xxiii, 216, 217, 218, 219, 223 nn.32, 33; trade during the 1950s 3–6, 10–15, 17–23, 25–6, 30–7, 40, 42–3; trade in 1960–1 46–7, 52–9, 64, 77, 79; trade in 1962–3 84, 86–8, 93–5, 98–111, 113–22, 124, 127; trade in 1964–5 130–6, 140–3, 146–58, 160–1, 163–73, 178, 180–4; trade from 1966–79 185, 187–8, 190–7, 203, 206, 209, 212; see also Ex–Im Bank of Japan Japan–China Export Import Association 34, 59, 147, 151 Japan–China Overall Trade Liaison Council 98, 147 Japan–China Trade Promotion Association 34, 46, 52, 59, 223 n.33 Japanese Ammonium Sulphate Export Import Association 46, 64, 98–9, 197 Japanese Federation of Synthetic Chemistry Workers Union 84

276

Index

Japanese Socialist Party 58 Japan External Trade Promotion Association 151 Japan International Trade Promotion Association 13, 18, 59, 98–9 Jardine Matheson 34, 36, 51, 84 Jay, D. 144 Jay, K.C. 39, 45, 58, 65, 76, 82, 115 Johnson, L.B. xxiii, 67, 111, 127, 211; 1964 State of the Union Address by 130; on China 165, 188–90; China trade embargo re-evaluated by 197–9, 202–3, 218–19; election of 146; on freer trade 177, 183; meeting with President Marcos 193; on ROC 148, 151; on steel rolling mill complex 190; on Vietnam 131, 134, 158, 161, 171 Johnson, U.A. 66, 70, 110 Joint Chiefs of Staff 127, 216 Kampfmeyer 53, 63 Kang Sheng 94 K.A. Powell (Pacific) Ltd 37 Kawai, Yoshinari 148 Kawakami Trading Co. 86, 102, 110; see also Idemitsu Kosan Co. Kaysen, C. 79 Keating, K. 78 Kennedy, J.F. xxiii, 132, 211, 218, 219; in 1961 57, 59–60, 64, 66–7, 70, 72–3, 75–9; in 1962 81–4, 87–9, 93, 235 n.57; in 1963 103, 105–7, 111–14, 117, 120, 123–6 Kennedy, R. 125 Ke Qingshi 37, 159, 249 n.14 Kerr, T. 125 Kerr Gifford and Co. 30 Kerr Grain Corporation 125 Keswick, J. 75, 84, 108 Khrushchev, N. 17, 32, 38, 42, 107, 146 Kishi, Nobusuke: on establishing Sino-Japanese diplomatic relations 25–6; and relations with the US and ROC 32, 36, 146 Kissinger, H. xxi, 205, 209, 212–13 Kobe Steel Works 55, 157, 167 Komatsu Manufacturing Co. 140, 143, 147 Korean War xxii, 5–7, 21, 37, 177, 188, 216, 235 n.52 Krupp 102, 132

Kurashiki Rayon Co. 103–9, 117, 119, 130, 135, 143, 153 Landrovers 23 Laos 40; Geneva Conference on 66–7, 77, 88; US–Chinese disagreement over 103, 115, 127, 133–4, 187, 208 Lei Renmin 9, 15, 25, 153, 168, 198, 215 Leyland 140, 166, 180 Liao Chengzhi 6, 58; during the Cultural Revolution 198, 210; and the L–T trade 98, 116, 147, 152, 170–1, 188; post-Cultural Revolution 214 Liao–Takasaki memorandum: in 1962 98; in 1963 100, 104–5, 108, 113–16, 124, 130; in 1964 135, 140–1, 147–9; in 1965 151–3, 158, 168, 170–1, 184; in 1966 187–8, 191, 193–4; in 1967 197 Liao Zhiqao 222 n.11 Li Chao-chih 131 Li Fuchun 17, 46, 52, 150, 225 n.95 Li Menghou 84, 114 Lin Biao 42, 219; and the Cultural Revolution 162, 171, 184, 205; after the GLF 53, 55, 61, 150; on trade agreements and the death of 210 Linde 157, 170, 184 Lin Haiyun 15, 131, 153, 208, 212–13 Li Qiang 65, 212 Liu Shaoqi xiv; in 1962–3 81–2, 94, 104; in 1965–6 150, 172, 189; during the Cultural Revolution 198, 206; before the GLF 13, 24, 28, 225 n.95; during the GLF 41 Liu Xiwen 14, 150, 170 Liu Yalou 162 Li Xiannian 12, 17, 34, 167, 172, 215, 225 n.95 Li Yousheng 62 Lockheed 211 Locomotives 6, 14, 178, 180–3, 245 n.89 London Overseas Freighter Ltd 143 Louis Dreyfus Co.: and deals during the 1950s 35–6; and deals from 1960–2 51, 63, 71–4, 79, 96, 98; and deals from 1964–6 145, 149, 186 Luo Ruiqing 42; and the Cultural Revolution 162, 184, 189, 214; and foreign grain imports 56, 60, 163, 235 n.52; and Indonesia 172; and negotiations with Burma 75 Lurgi 135, 141–2, 147, 154–6, 170

Index 277 Lu Xuzhang: in 1962–3 99, 101, 103–4, 108, 114–17, 120, 124, 127; during the Cultural Revolution 198; following the Cultural Revolution 214; before the GLF 9, 14–15, 18, 34; on the Third Line project 163 Macau 5, 39, 45, 131, 152, 231 McCabe Grain Co. 38 MacMillan, C. 30 Macmillan, H. 64, 75 MacMillan, J.H. Jr 31, 54 McNamara, R. 115, 127, 132, 134 McNamara, W.C. 57 Malaysia 12, 39, 125, 127, 160–3, 169, 187 Mannesman 100, 122, 186, 188, 193, 195 Mao Zedong xxii, xxiii, 216–17; in 1961–2 53, 55, 58, 82, 88, 93–4; in 1963–4 139, 148–50; 1965–6 159–60, 163, 172–3, 188–9, 191, 196; between 1967–76 198–9, 204–5, 208, 212, 214; during the GLF 39–44; prior to the GLF 3–5, 10, 14–19, 22, 24–38, 223 n.46 Maple Leaf Milling Co. 36 Martin, P. 110 Massey-Harris-Ferguson 18 Matsumura, Kenzo 98, 147, 188 Mattei, E. 23, 44, 95 Ma Yinchu 18, 21, 27, 42 Melle and SPEICHIM 119, 130, 180, 182 Menzies, R. 161 Mexico 210; see also CONASUPO Ministry of International Trade and Industry (Japan) 59, 98, 151–2, 161, 168–9, 246 n.2; see also Ex–Im Bank of Japan Min Yimin 44, 84, 215 Mitchell, L.A. 157, 169 Mitchell, R. 211 Mitsubishi Heavy Industries 140, 152 Montecatini 19, 20, 43, 105, 118, 126 Moro, A. 135, 161 Nan Hanzhen: from 1961–3 65, 98, 114, 116; in 1964–5 146, 161, 163, 169; during the Cultural Revolution 189; before the GLF 6, 12, 15, 18, 34 Nash, E. 106 National Security Action Memorandum 77, 125 National Security Council 11, 13, 16, 18, 30, 36, 79, 81 natural gas: during the 1950s 9, 21, 23, 44; from 1960–6 95, 117, 127, 130, 178, 186; from 1973–8 213–14

Nehru, J. 81–2 The Netherlands 13, 58, 238 n.15; and 1963 trade talks 104; and complete plant sales 117–20, 213; and the Cultural Revolution 205; and diplomatic recognition of the PRC 209; Shell and 23, 27, 103, 126 Ne Win 82 Nien Cheng 27 Nippon Steel 213 Nissho Co. 110 NITREX 98–9, 101, 124, 197–8 Nixon, P. 208 Nixon, R. xxi, xxiii, 199, 204–10, 219 North Atlantic Treaty Organization 5, 58, 100, 125–6, 178, 182–3, 186 North Korea 5, 75–6, 81–2 North Vietnam: in 1963 127; in 1964 135, 139, 144; in 1965 152, 154, 155, 158, 161, 168, 182, 184; see also Vietnam War Norway 13, 20, 43, 161, 168, 238 n.15 Okazaki Kaheita 114, 147, 152, 170 ONIC 63, 71, 73, 96, 122, 149 Ormsby-Gore, D. 75 Ostausschuss der Deutschen Wirtschaft 31, 122, 124, 126 n.19 Otto Wolff AG 31, 102, 157, 152 n.15 Otto Wolff von Amerongen 31, 108, 122, 132, 141 Pakistan 78, 111, 133–4, 162, 191–3, 207–10 Pakistan International Airways 111, 123, 125–6, 133 Pearson, L.B. 105, 108, 205 Peng Dehuai 40, 42, 217 People’s Liberation Army xxii, 217; in 1960–1 51–6, 60–1, 67–8, 75, 87; from 1962–4 93–5, 123, 133, 135, 139–40; in 1965–6 151, 161–2, 171, 185–6, 189; from 1967–79 199, 204–5, 212, 217, 255 n.41; during the GLF 40, 42; prior to the GLF 3, 6, 11, 13, 23, 24, 38, 225 n.95; see also famine; grain; Luo Ruiqing People’s Republic of China see agriculture; air agreements; aircraft; air routes; banks; chemical fertilizer; Chen Ming; Chen Yi; Chen Yun; China Civil Aviation Bureau; China Council for the Promotion of International Trade; China International Trust Investment

278

Index

People’s Republic of China (Continued) Corporation; China National Cereals, Oils and Foodstuffs Import and Export Corporation; China National Import Export Corporation; China National Machinery Import and Export Corporation; China National Textiles Import Export Corporation; China Ocean Shipping Company; China Resources Company; Chinese Communist Party; Cultural Revolution; Deng Xiaoping; Ding Kejian; famine; flour; ‘friendly firm’ trade; Geneva Conference on Laos; Geneva Talks; grain; Guangzhou; industry; Jay, K.C.; Landrovers; Liao Chengzhi; Liao–Takasaki trade; Lin Biao; Liu Shaoqi; Li Xiannian; Luo Ruiqing; Lu Xuzhang; Mao Zedong; Ma Yinchu; Nan Hanzhen; natural gas; People’s Liberation Army; petrochemicals; petroleum; polyethylene/polypropylene; readjustment strategy; rice; Rong Yiren; rubber; Shanghai; shipping; ships; Sichuan; Sino-Soviet relations; steel; steel rolling mills; sugar trade; Suzuki–Nan trade; technology; textiles; titanium; tractors; trade exhibitions; trade offices; trucks; Vietnam: North, War; vinylon; Wang Bingnan; Wang Kuancheng; Warsaw Talks; wheat; Xie Shoudian; Xinhua; Ye Jizhuang; Zhou Enlai; also individual countries; firms; organizations; people Permagon 121 Permina 24, 86, 121 Perrett, C.J. 53–4, 61, 63, 74, 97 Pertamin 121 petrochemicals xiv, 85–6, 94, 116, 119–22, 127, 135, 147, 204, 212; see also chemical fertilizer; polyethylene/polypropylene petroleum: during the 1950s 23, 44; from 1960–3 45, 104, 110, 116, 121–2, 124–5; from 1964–6 140, 144, 181, 184; from 1968–79 204, 213; in Indonesia 24; petrol/gasoline 85, 102–3, 122, 178, 180; refining 21, 36, 59, 85–8, 94–5, 102, 105, 114, 118–22, 126–7, 130, 135, 155–7, 168, 178, 180, 206 Petroleum Association of Japan 88, 102, 124

Phibulsonggram 22, 31 Philippines 54, 55, 160, 192–4 Pilcher, J. 75 PKI 172 Poland 71, 93, 135, 171, 183, 198, 225 n.80; and the 1950s grain trade 9, 15, 17, 22–6, 30; see also Warsaw Talks polyethelene/polypropylene 108; complete plant negotiations 113, 141–2, 147, 170 Porter, C.O. 42, 106–7 Pratt and Whitney 211 Prinex 157, 170 Public Law 480 11, 22, 75, 122, 191, 223 n.25, 225 n.80 Pullman Kellogg 119, 212–15 Quaker Groups 79, 233 n.8 railways 139–40, 197; see also locomotives Ralli Bros. Ltd 35 readjustment strategy xxi, xxii, xxiii; from 1960–2 46, 52, 56, 70, 81, 94, 98–9; from 1963–5 114, 131, 133, 150, 154, 159, 162–3, 184; from 1966–79 189, 196, 198, 204, 206, 210, 214, 215; before the GLF 3, 17, 27, 38 Red Cross 13 Reischauer, E.O. 120 Republic of China (Taiwan) xxii; during the 1950s 14, 23, 26, 30; from 1960–2 42, 67, 83–4, 87–9, 93, 99; in 1963 103, 107, 109, 113, 115–17, 123–4; in 1964 130–6, 140, 148; in 1965 151, 155, 158, 161, 165, 168; from 1967–9 199, 205 Reserve Bank of Australia 72, 84 Rice, E.E. 74, 82, 135, 177, 233 n.12 rice: during the 1950s 4, 6–7, 9, 11, 13–14, 16–17, 19, 22, 24, 28–9, 31, 35, 38; from 1958–79 202; from 1961–3 60, 62, 69, 75, 116, 158, 161, 170, 183–4, 191–4, 197; see also grain Robin Hood Flour Mills 36 Rockefeller, D. 131 Rogers, W. 205 Rolls-Royce 52, 71, 84, 86, 88 Romania 122, 198 Rong Yiren: during the 1950s 10, 12, 14, 25, 41–2; 44, 75; and CITIC 215; during the Cultural Revolution 189, 210 Roosevelt, F.D. Jr 126, 245 n.77 Ross, L.S. 102, 104, 110 Rostow, W.W. 77, 79

Index 279 rubber: during the 1950s 6, 10–11, 13, 19, 22, 24; from 1960–3 45, 85, 121; in 1964–5 130, 144, 155–6, 161, 172 Rusk, D.: on China in 1961 66–7, 74, 76, 78–9; on China in 1963 104, 107, 112–13, 115, 117, 124, 126, 130; on China in 1966 132, 134, 158, 161, 165, 171, 177; on China in 1968 185–7, 189–90, 202; on COCOM 70 Sarit Thanarat 160 Sato, Eisaku 146–7, 151, 165, 167, 171 Sato government 147–8, 158, 161, 167, 170–1, 188 Schlesinger, A. 67 Schloemann 180–2, 185, 252 n.15 Schneider Group 245 n.89 Schultz, A. 124 Scott Bader 157, 160 Senegal 194 Sercel 142, 144 Shanghai: in 1960–1 45, 59; in 1961–2 99, 100, 103, 105, 107, 111, 126; from 1964–6 133, 152–3, 159, 160–4, 170, 172, 182, 184, 193, 240 n.69; from 1971–3 209–11; before the GLF 4, 9, 12, 14, 16, 25, 27, 28, 30–7, 222 n.3, 223 n.19, 229 n.98, 244 n.55; during the GLF 39–40 Sharp, M. 204 Shell: during the 1950s 23, 27; in 1961–2 55, 59, 86; in 1963 102–4, 110, 121–2, 126, 172 shipping xxiv, 217; during the 1950s 6–7, 14, 16, 19, 22, 33–8, 225 n.80; in 1960–1 45–6, 52, 54–5, 57, 59, 62, 66, 74, 75, 79; in 1962–3 81, 83, 95, 126–7; 1964–70 142, 160, 167–8, 178, 191–4, 202, 207 ships (cargo) 6, 36, 59, 150, 152, 156–7, 168 Sichuan 35, 85; grain deficits 163; and the Great famine 56, 66; natural gas/ammonia fertilizer 21, 100, 117–18; petrochemical plants 135, 141–2, 147, 155–6, 170; railways 139–40; Third Line Project 160, 197 Sihanouk, N. 22 Simon Carves 141–2, 170 Singapore 12, 19, 38, 55, 160–1, 169, 192 Sino-British Trade Council 108, 130, 144 SINOFRACT 167

Sino-Soviet relations xxii, xxiii, 217–19; during the 1950s 5, 11, 17, 32, 36, 40; in 1960–2 52, 66, 80, 85; in 1963–4 105, 110, 113, 117, 122, 133–4, 146, 150; in 1965–6 151, 161–5, 184; from 1967–9 199, 203, 205–6; see also Soviet Union Small, J. 44, 62 Sohyo 84 South Africa 34–6, 96, 98 South African Maize Board 96, 98 South-East Asia xxiii, 218; during the 1950s 9, 11, 19, 22, 31, 37, 39, 45; in 1962–3 82, 87–8, 93, 104, 107, 112; from 1964–6 131–2, 160–1, 184, 186–7 South-East Asia Treaty Organization 22, 75 South Korea 47, 166, 170 South Vietnam: in 1957 32; in 1961 77; in 1963 112, 124, 127; in 1964 131, 135; in 1965 154–5, 158; in 1966 193; in 1971 208 Soviet Union xxii, xxiii, 216–19, 226 n.19; prior to 1959 3–20, 22, 24–8, 31–8, 222 n.10, 223 nn.19, 20, 46; in 1958–9 39–42; in 1961 43–5, 51–3, 55–8, 66–9, 72–3, 76; in 1962 80, 82, 84, 85, 86, 88, 93, 94, 95, 100; in 1963 101–7, 110–11, 113–14, 116–17, 120–2; in 1964 133–4, 139, 144–5, 148–50; in 1965 151, 158–67, 170–3, 178, 182; in 1966 184, 188–93, 196; from 1967–79 198–9, 203–8, 210, 212, 214; see also Sino-Soviet relations Spaak, P.H. 144, 148 Sri Lanka 6, 11, 13, 19, 31, 110 Stalin, J. 5, 7, 17 Standard Oil Co. 59, 237 nn.101, 102; Stanvac 86, 121 Standard Telegraph and Telecommunications 68, 78, 80 steel: in 1960–1 55, 58–9; in 1962–3 94–5, 98, 100–2, 104–5, 108, 122, 124; in 1964–5 140–1, 144, 149, 157, 163–7, 170, 177, 178, 180–4, 246 n.2, 248 n.42; in 1966–79 185, 187–91, 193, 195, 197, 213; before the GLF 6, 15, 21, 34; during the GLF 39–40 steel rolling mills 36, 178, 180–5, 193, 195, 212; see also DEMAG sterling: in the 1950s 7, 35–7, 226 n.109; from 1960–3 53, 55, 57, 62–3, 66, 128; in 1964–5 144, 159, 168, 170, 178, 182

280

Index

Stockholm negotiations 204–8 Stork Werkspoor 103, 117–19 strategic vs. non strategic trade xxii, xxiii, 216, 218–19; during the 1950s 3, 6, 12, 22, 36, 38; from 1960–3 71–2, 78, 80, 85, 95, 106, 110, 114, 117, 121; from 1964–6 154–5, 159, 161, 163, 165, 167, 171, 173, 178, 186–7, 189; from 1967–79 206–7; see also CHINCOM; COCOM; trade embargo Subandrio 172 Sud Aviation 84–5, 88, 111, 116, 120, 123, 130 sugar trade 24, 183–4 Suharto 172 Sukarno 37, 86, 104, 125, 172 Sumitomo 59, 212, 246 n.2 Suzuki Kazuo 46, 52, 98–9 Suzuki–Nan trade 46, 52, 98–9; see also ‘friendly firm’ trade Sweden: China trade 12, 156, 168, 181 Syndicat d’Etudes Pour l’Extreme Orient 102, 116 Taiwan see Republic of China Takasaki, Tatsunosuke 56, 98, 100 Tao Zhu 28, 198, 206 Teasdale, J. 232 n.72 technology xxii, xxiii, 216–18; during the 1950s 4–5, 7, 17, 19–21, 25, 36; from 1960–2 42, 44, 71, 80, 85–6, 93–5, 98–9; in 1963 100, 102, 105, 108–10, 113, 117–19, 121–2, 125–7; in 1964 130, 132, 134, 140–2, 148–50; in 1965 154, 156, 158–60, 162–4, 167, 170, 180, 182–3; in 1966 185, 187, 189–91, 193, 196; from 1967–79 203, 206–7, 210, 212–13, 215 Texaco 237 n.10 textiles: and China’s 1950s export drive 4, 37, 39; and China’s post-1960 export drive 60, 94–5, 101, 108, 146, 160 Thailand: during the 1950s 11, 22, 24, 28, 30, 31, 38; 1965–6 trade with 160, 170, 187, 192, 194 Thomson, J.C. xxi, 80, 135, 168 titanium 187 Toepher, Alfred C. 53, 63 Tokyo Precision Co. 142, 148 Toyo Engineering Co. 103, 117 tractors 14, 18, 55 trade embargo 217; during the 1950s 5, 7, 9–11, 14–16, 18, 23–6, 30, 32–3; in 1960–1 44, 64, 68, 74–5, 76–7, 79; in 1962–3 88, 100, 102, 104, 111,

120, 126; in 1964–5 132, 152, 166, 168, 177; from 1966–79 190, 202–3, 205, 209–10; see also COCOM; CHINCOM; strategic vs. non strategic trade trade exhibitions/fairs xxiii; during the 1950s 18, 34; from 1960–3 59, 99, 103, 108, 116; in 1964–5 130, 139, 141, 144–6, 153, 168; at Guangzhou 32–3, 36–7, 101, 124 trade offices xxiii; Sino-American 212–13; Sino-Austrian 146, 167; Sino-Canadian 161; Sino-Italian 134–6, 140, 149, 155, 161; Sino-Japanese 34, 151, 170; Sino-West German 132, 108 Trident aircraft 111, 123, 207–12 trucks 6, 116, 140, 166–7; Berliet 142, 154, 156, 178, 180–2, 195; and the steel rolling mill complex 185 Trudeau, P.E. 204–5, 208 U-2 and espionage aircraft: in 1956 23; in 1959 42; in 1961 67, 75; in 1962 93; in 1963 123–4; in 1964 131, 135; in 1965 151; in 1967 199; in 1969 205 Uhde, F. 119, 135 United Kingdom xxi; during the 1950s 3, 5–6, 10–12, 15–16, 18–19, 22–7, 30, 32–6, 38, 41, 226 n.109; in 1960–1 45–6, 58, 62, 64–71, 75–9; in 1962–3 80, 84–8, 95, 99–106, 108, 110–11, 114, 118–20, 123, 127; in 1964–5 132–3, 136, 140–6, 152, 157, 160, 167–9, 170, 178, 180–2; in 1966 189–90, 194; from 1967–79 207–9, 211 United Nations xxii, xxiv; in the 1950s 7, 14, 16, 30; from 1961–3 67, 77, 97, 110, 116; from 1964–6 139, 144–8, 165, 183, 188–9; from 1967–79 205, 209–10 United States xxi, xxii, xxiii, 216, 217, 218, 219; under the Eisenhower administration 3–16, 18, 22–6, 29–30, 32, 35–6, 38–9, 42, 44, 222 n.18, 223 n.43, 225 n.80, 226 n.109; under the J.F. Kennedy administration 45–7, 51–2, 56–72, 74–5, 75–89, 93–5, 97–117, 119–25, 233 nn.8, 12, 245 n.77; under the Johnson administration 126–7, 130–6, 139–41, 144–7, 151–2, 154–5, 158, 160–1, 165–71, 177, 178, 182–94, 197–9, 202–3; under the Nixon administration 204–14, 255 n.60

Index 281 United States Department of Agriculture 57, 72, 75–6, 87, 151 U Nu 15, 52, 62, 75, 77, 81–2, 223 n.46, 234 nn.19, 20 USSR see Soviet Union Vickers: in 1960–1 45–6, 52, 64, 68–71, 75, 76, 78–9; in 1962–3 80, 84, 86, 88, 99, 106, 113; in 1964–5 130, 161; see also Viscount aircraft; Vickers–Zimmer Ltd Vickers–Zimmer Ltd 113, 147, 170, 254 n.24 Vietnam War xxi, xxii, xxiii, xiv, 24, 42, 218–19; in 1961 72–3; in 1962 93, 103, 111–12, 115, 120, 127; in 1964 132–6, 139, 140, 144, 151; in 1965 152, 154, 158, 161, 165, 171, 173, 182, 184; in 1966 185, 186, 187, 189; in 1968 202, 204; in 1969 205–6; in 1971 208–9 vinylon see Dai Nippon/Nichibo; Kurashiki Rayon Co. Viscount aircraft 125, 130, 133, 161; negotiations in 1960 45–6, 52; negotiations in 1961 68–9, 71, 75–80; negotiations in 1962 84, 86, 88, 99; negotiations in 1963 123; POL for 102; see also Foreign Assets Control Regulations; Vickers; Rolls-Royce VOEST 149, 180, 182 Walker, K.R. 27–8, 41 Wang Bingnan: during the Cultural Revolution 198, 213–14; and the Sino-American ambassadorial talks at Geneva 23, 25; at the Warsaw Talks in 1961–2 65–7, 82, 87, 93; at the Warsaw Talks in 1963–4 101, 103, 107, 112–13, 124, 131, 134; at the Warsaw Talks during the GLF 40 Wang Guoquan 135, 168, 171, 183, 186 Wang Kuancheng 104, 108, 215 Warsaw Talks 218; in 1958–9 39–41; in 1960–1 52, 66–7, 70, 77; in 1962 82–3, 86–8, 93, 99; in 1963 101, 103, 107, 112–13, 115, 124; in 1964 131–2, 134–5, 144, 148; in 1965 152, 158, 161, 168, 171, 183; in 1966 186, 197; from 1967–79 198–9, 202–7; see also Beam, J.D.; Cabot, J.M.; Wang Bingnan; Wang Guoquan West Germany 226 n.19; 1961 cash deals 53, 57; 1961–2 credit deals 63, 98; 1962–4 trade negotiations 101–2, 108,

116, 119, 122, 124, 127, 132, 135, 141, 148, 150, 238 n.15, 241 n.91; 1965 trade negotiations 155–7, 166–7, 178, 180–2, 184–93, 212; business relations with China during the 1950s 9, 19–20, 31–2, 39, 43; steel piping debate 100 wheat xxiv, 224 n.54, 230 n.18, 233 n.8; during the 1950s 4, 7–15, 17, 22, 25–32, 34–8, 222 n.18; in 1960–1 45, 51, 53–63, 65, 67, 71, 73–5, 76, 79; in 1962–3 81–2, 95–7, 101, 112, 114, 125, 128–9; 1964–5 132, 146, 149–51, 155, 158–9, 164–5, 170, 177–8; in 1966 188; from 1967–79 198–202, 204–6, 210, 212; see also grain Wiley, A. 78 William Doxford & Sons 143 Wilson, D. 157, 225 Wilson, H. 144 Wu Faxian 162, 184 Xiao Fangzhou 14, 65, 132, 198, 212 Xie Shoudian 45, 131, 147 Xinhua 135, 144, 168, 230 n.13; on China’s 1958 wheat harvest 38; on China’s 1967 harvest 199; on credit trade negotiations 26; on Hilsman’s 1963 China policy speech 126; on Kishi’s assurances to the ROC 36; officials in Latin America 172 Xue Muqiao 3, 40, 42 Yao Wei 230 n.13 Ye Jizhuang 15, 22, 28, 41, 62, 131, 132 Yong Longgui 114, 147 Yoshida, Shigeru 13, 130–2, 169, 171; letter 131–2, 169, 171, 251 n.55 Yu Dunhua 165 Yuken Kogyo 143, 152 Zablocki, C. 165–6, 186 Zhang Bing 61, 170 Zhang Shizhao 76, 82 Zhejiang 52, 104, 165, 223 n.19, 224 n.66 Zhou Enlai 217; during the 1950s 4, 6, 9–10, 13, 15–19, 22–5, 27–8, 33–4, 36–8, 222 n.3, 223 n.19, 223 n.46; from 1960–2 40, 42, 44, 46, 51, 53, 58, 62, 65, 75–6, 81–2, 94; in 1963–4 107, 113, 115–16, 121, 124, 140, 145, 150, 164; in 1965–6 170, 172, 184, 188–9, 191; from 1967–76 198–9, 202, 204–5, 207, 209, 210–15, 234 n.20 Zhu De 188 Zhu Rongji 28, 37