Foreign Relations of the United States, 1952–1954, China and Japan, Volume XIV, Part 1

INR–NIE files

No. 82
Special Estimate ¹

top secret
SE–37

Washington , 9 March 1953.

Probable Effects on the Soviet Bloc of Certain Courses of Action Directed at the Internal and External Commerce of Communist China

[Here follows a table of contents.]

the problem

To examine the current status and effectiveness of controls on trade with Communist China.

To examine the short and long term effects on the capabilities of the Chinese Communist regime of: (a) a complete embargo; (b) a naval blockade, alone or combined with bombardment of transportation facilities in Communist China; and (c) a Chinese Nationalist effort at blockade and aerial bombardment.

To estimate Communist reactions to these measures.

This estimate does not consider whether the UN would cooperate in these measures, or what the reaction of other non-Communist powers would be if the US adopted these measures unilaterally.

This estimate does not consider the probable consequences of substantially intensified US or US/UN military operations in Korea or Communist China undertaken in conjunction with some or all of these courses of action.

This estimate assumes that a blockade of Communist China would not involve interference with shipping to ports of the Soviet Far East.

conclusions

1. Present controls on trade with Communist China have not prevented the build-up of Chinese Communist military strength. Moreover, Communist China’s industrial and internal transportation systems have continued to expand since 1950, but at a greater cost to the Soviet Bloc and at a lower rate than if Western controls had not been in effect.

2. A total embargo on non-Communist trade with Communist China would probably have no significant effect on Chinese Communist capabilities to sustain military operations in Korea or to undertake military operations elsewhere, but would retard the expansion of Chinese Communist industry. An embargo would make Communist China economically more dependent on the USSR. An embargo would probably not induce the Communists to embark on new aggression, but would probably lead them to intensify political warfare.

3. A naval blockade of Communist China^* would increase the difficulty of Chinese Communist military operations requiring large expenditures of matériel, either in Korea or elsewhere. The present estimated maximum capacity of the inland transportation facilities serving Communist China is probably adequate to carry essential tonnage now seaborne plus the essential traffic now carried by land.^† However, a blockade would create serious economic problems. For instance, railroads do not serve all parts of Communist China now served by coastal shipping. A blockade would make Communist China economically more dependent on the USSR and would retard the expansion of Chinese Communist industry to a greater extent than an embargo. We believe that the political controls within Communist China are now so strong that their effectiveness would not be jeopardized by these economic difficulties.

4. In reaction to a naval blockade, the Chinese Communists would almost certainly attack the blockading forces, with covert Soviet assistance, and might launch new acts of aggression, such as the seizure of Hong Kong and Macau. The USSR might react to a naval blockade by attempting to bring merchant ships into Port Arthur and Dairen under Soviet naval escort, by attempting to force the blockade at other points, or by waging mine and submarine warfare against the blockading forces. However, we believe that the USSR would be unlikely to initiate general war solely because of incidents arising out of attempts to force the blockade. We believe that the blockade would not in itself induce the Communists to accept a Korean settlement on UN terms.

5. Large scale and sustained air and naval bombardment of key Chinese Communist transportation lines, in conjunction with a naval blockade, could sharply reduce Chinese Communist military capabilities. Communist China’s economic potential would be seriously affected, and the physical problems of the regime in maintaining control would be increased.

6. In reaction to a blockade and bombardment, the Chinese Communists would make a maximum air defense effort in China and Manchuria. Units of the Soviet Air Force in the Far East would covertly participate in the air defense effort, particularly in Manchuria. The Chinese Communists would probably also employ their air capability against some US/UN bases in the Far East. We believe that a blockade and bombardment would not in itself induce the Communists to accept a Korean settlement on UN terms.

7. In the unlikely event that the blockade and bombardment should threaten the existence of the Chinese Communist regime, the USSR would increase its aid to Communist China, possibly even to the point of openly committing Soviet forces against US forces in US/UN held territory and adjacent waters in the Far East.

8. Blockade and bombardment by the Chinese Nationalists alone would not under present conditions of Chinese Nationalist strength and operational efficiency, have a major effect. In reaction to a Chinese Nationalist blockade and bombardment, the Chinese Communists would almost certainly attack the blockading and bombarding forces and might retaliate by air against Nationalist-held territory.^‡

discussion

Extent of Present Controls on Trade With Communist China

9. Most of the nations outside the Soviet Bloc apply some form of export controls over trade with Communist China. The US has maintained a total trade and shipping embargo against Communist China, as well as controls over the dollar assets of Communist China, since December 1950. Canada, Japan, Nationalist China, and the Philippines have imposed trade restrictions almost as severe, while Costa Rica, Honduras, Liberia, and Panama have imposed strict controls over the movement of their vessels to Communist China. The UK has embargoed or restricted the export of a wide variety of strategic items including natural rubber. In July 1950, the Western European countries which are members of the Coordinating Committee (COCOM)^§ on East-West trade applied to Communist China the selective controls earlier put into effect against the rest of the Soviet Bloc. After Communist China was declared an aggressor by the UN, these countries instituted controls over trade with Communist China more severe than the controls over trade with the rest of the Bloc. At the present time, the COCOM countries embargo to Communist China all items included on the three International Lists plus some 16 additional items of particular strategic significance to Communist China. A China Committee (CHINCOM) parallel to COCOM was set up in the fall of 1952 for the purpose of working out international export controls to be applied in the Far East. A great number of other nations have also taken action to restrict strategic shipments to Communist China in accordance with the UN Additional Measures Resolution of May 1951. The Battle Act, enacted in the fall of 1951, has served to reinforce the COCOM and UN embargo by making the continuation of US assistance conditional upon the recipient country’s cooperation in supplying controls over strategic shipments to the Soviet Bloc, including Communist China.

10. There has been a wide variation, however, in the contraband lists and enforcement measures used by individual countries. Although the controls imposed by the UK and the continental COCOM countries are fairly comprehensive, they fall short of the total embargo imposed by the US. Other nations, which are largely non-industrialized and do not produce strategic equipment, have shown little uniformity in their interpretation of the UN Resolution, which covers transportation materials of strategic value and items useful in the production of military matériel as well as petroleum and purely military items. A number of Middle Eastern and Southeast Asian countries have made a general commitment to deny strategic items to the Chinese Communists, while India, Pakistan, and Burma have not been willing to go on record as supporting the UN Resolution, although they have been cooperating informally in preventing re-export of strategic items to the Chinese Communists. Ceylon, which is not a member of the UN, has refused to comply with the UN Resolution so far as shipments of rubber to Communist China are concerned.

11. Shipping controls have been particularly weak. The COCOM countries prohibit the sale of ships to Communist China and impose restrictions on the sale of merchant ships to the rest of the Bloc. Since October 1950 at least 33 vessels have been transferred to Soviet Bloc flags. However, COCOM restrictions on sales were tightened somewhat in December 1951. The US alone has imposed comprehensive formal controls on ship sales, repairs, and bunkering. During the past year, 61 Bloc ships, totalling 300,000 gross registered tonnage, received 30 days or more of repair work each in Western shipyards. Only the US, Costa Rica, Honduras, and Panama prohibit vessels of their registry from entering Chinese ports, although Liberia prohibits vessels of its registry from carrying strategic cargo to Communist China. Present COCOM controls do not prohibit the chartering of merchant vessels other than tankers to the Soviet Bloc and this prohibition has not been effective. Although the greater percentage by far of chartered vessels do not touch Chinese Communist ports, these vessels are used by the Soviet Bloc in Western European, South Atlantic and Indian Ocean trade and make possible the release of Communist flag vessels for direct service to Communist China.

The Effect of Present Controls on Communist China

Effect on Foreign Trade

12. Imports from non-Soviet Bloc Countries. The value of the goods imported from non-Communist countries by Communist China rose to a peak in the first half of 1951 but then dropped sharply during the second half of 1951, when trade controls became more stringent, and have remained at a relatively low level through 1952. These imports are estimated at $382 million in the first half of 1951, $148 million in the second half of 1951, and $135 million and $155 million respectively in the first and second halves of 1952. The volume of imports from non-Communist countries fell from 746,000 tons in the first half of 1951 to 242,000 tons in the second half of 1951, and then rose to 270,000 tons in the first half of 1952 and 330,000 tons in the second half of 1952.^║

13. The rise in tonnage reflects the increased import of such bulky commodities as ammonium sulphate and chemicals for heavy industry. A decline occurred in the import of goods on which most non-Communist countries have imposed control, notably metals and machinery, and crude rubber. (Crude rubber imports have continued to come principally from Ceylon.) During the 18 months ending December 1952, raw cotton accounted for one-quarter, and crude rubber, pharmaceuticals, fertilizers, dyestuffs, and heavy industrial chemicals for one-half of Communist China’s imports from non-Communist countries. Except for the decline in imports of metal and machinery from $125 million in 1950 to $14 million in 1952, the level and pattern of imports in 1950 and 1952 were roughly the same.

14. Exports to non-Soviet Bloc Countries. Foreign exchange earnings from exports to non-Communist countries have declined steadily since their peak in the last half of 1950. These exports are estimated at $400 million in 1950, $335 million in 1951, and $270 million in 1952. The volume of exports to non-Communist countries in 1952 is roughly estimated at 1.7 million tons (2.4 million tons in 1951), consisting largely of low-value bulky items such as coarse grains and soy beans. With the loss of markets for specialized items such as tung oil, bristles, egg products, and handicrafts, Communist China’s exports to non-Communist countries have increasingly been limited to foodstuffs for Hong Kong and Malaya, and grains and oilseeds for South Asia and Western Europe.

15. Imports from Soviet Bloc Countries. On the basis of Chinese Communist data which are generally consistent with other information, imports from the Soviet Bloc rose from $100 million in 1950 to nearly $1 billion in 1951. Chinese Communist data also indicate that imports in 1952 remained at roughly the same level as in 1951. Imports in both 1951 and 1952 consisted largely of military equipment and of commodities unavailable from non-Communist countries, notably petroleum, vehicles, machinery, metals, and metal manufactures. However, there were some imports from the Bloc of items currently being imported from the West, such as drugs, fertilizers, chemicals, and sugar.

16. Soviet Bloc shipments to Communist China by sea are estimated at 700,000 tons in 1952^¶ as against 350,000 tons in 1951. On the basis of partial cargo data, it is estimated that roughly one-fifth of this tonnage in 1952 consisted of petroleum products and two-fifths of metals and machinery. The value of seaborne imports from the Soviet Bloc is estimated at approximately $200 million.

17. Overland imports from the Soviet Bloc are roughly estimated at $800 million for 1952. The total volume of overland imports during 1952 is estimated to be 3.4 million tons. Military equipment and POL accounted for a large part of these overland shipments; in addition, there were substantial commercial imports of machinery, metals, and motor vehicles.

18. Exports to the Soviet Bloc. It is estimated that Chinese Communist exports to the Soviet Bloc were $175 million in 1950 and $350 million in 1951. These exports are believed to have risen sharply in 1952 and are very roughly estimated at $500 million. It is believed that the Chinese Communists are attempting to increase these exports still further in 1953, apparently in an effort to reduce the trade deficit with the Soviet Bloc. Seaborne exports to the Bloc during 1952 are estimated roughly at 800,000 tons and apparently consisted largely of grain, soy beans, and ores. On the basis of partial evidence, we estimate the volume of overland exports to the Soviet Bloc during 1952 at three million tons.

19. Over-all Effects. Present trade controls appear to have been an important factor in the sharp change that has occurred in Communist China’s foreign trade. In 1950, only one-fourth of Communist Chinese foreign trade was with the Soviet Bloc while three-fourths was with the West; in 1952, these proportions were almost reversed. However, other factors would have tended to increase Soviet Bloc exports to Communist China even if Western trade controls had not existed. These factors are: (a) movement of Soviet military supplies in support of the Communist war effort in Korea; (b) shipment of nonmilitary items to Communist China in fulfillment of Soviet commitments in the Sino-Soviet agreements of 1950 to provide economic assistance; and (c) the avowed policy of the Communist Bloc to achieve economic self-sufficiency.

Economic Effects

20. Industrial Effects. The restriction of imports into Communist China as a result of present controls has not curtailed industrial output. In fact, because of the greatly increased level of commercial imports from the Soviet Bloc and the more effective use of available equipment and stocks in Communist China, industrial output has continued to expand. However, this expansion would probably have been greater if the present trade controls were not in effect.

21. Effect on the Railroads. The railroad transportation system of Communist China, while not expanding to the extent it would have without present Western controls, has steadily improved in capacity and performance. Control measures have stopped imports from the West of locomotives, freight cars, parts for rolling stock, and rails. However, the Soviet Bloc has supplied limited quantities of these items which, together with local production, has permitted the maintenance of existing equipment and continued expansion of the rail network, despite the losses in Korea.

22. Effect on Other Internal Transportation. The expansion of motor freight movements which has occurred in Communist China during 1952 has been made possible largely by imports of Soviet trucks and petroleum. However, the traffic in smuggling of parts for motor vehicles continues to be considerable, indicating that Soviet Bloc assistance has not kept pace with expanding Chinese Communist requirements and that Western controls are imposing some cost on Communist China in this regard. Coastal shipping has not been appreciably affected by Western controls since most non-Communist countries permit their flag vessels to operate in the Chinese Communist coastal trade. Moreover, during the last year the Chinese Communist demand for foreign coastal shipping seems to have slackened, and it is possible that an increasing part of Chinese Communist requirements for river and coastal shipping capacity is being met by their own fleet.

23. Over-All Economic Effects. Despite the curtailment of trade with the West, during the last two years the Chinese Communist regime has made rapid progress in economic reconstruction, particularly in the restoration and expansion of its industrial capacity. However, the reduction in Communist China’s net receipts from foreign trade must be viewed as a deduction from the resources that otherwise would have been available to the government for investment. Without Western trade restrictions, Communist China’s economic progress probably would have been greater than it actually was, and it certainly could have been accomplished at less cost to the Soviet Bloc.

Military Effects

24. Ground Forces. Although Western trade controls have made it difficult for the Communists to acquire certain important items such as antibiotics and other medical supplies, communications equipment, and rubber products, the Chinese Communist ground forces have not been adversely affected by Western trade controls. Communist China produces only a part of its own light ground force equipment and supplies. The materials required for Communist China’s munitions industry are relatively small in tonnage and are for the most part produced domestically. The only important import requirements are for copper and zinc, which are supplied in adequate quantities for the most essential uses by the USSR. In addition, the USSR is providing most of the heavy military equipment, virtually all POL, and a large share of the light equipment and supplies used in Korea.

25. Air Force. Since the USSR provides Communist China with virtually all aviation equipment and supplies including avgas and jet fuel, present Western controls on strategic materials have not affected the capabilities of the Chinese Communist Air Force. The Air Force has continued to expand in aircraft strength and capabilities throughout the period of present Western controls.

26. Navy. Since a large part of the Chinese Communist Navy is composed of former foreign naval vessels, present Western controls on strategic materials have almost certainly hindered the Chinese Communists in their efforts to put back into service and maintain their naval vessels. As far as is known, the USSR has supplied at most only a few small warships to the Chinese Communists, forcing them to rely almost entirely on those ships taken over from the Nationalists.

Internal Political Effects

27. Western trade restrictions have not appreciably affected the Chinese Communist regime’s ability to consolidate its political position. In fact, the restrictions have been cited by the Communists in domestic propaganda as an additional indication of the implacable hostility of the West, and thus have provided the Chinese Communists with a pretext for applying further stringent political controls.

[Here follows discussion of the other topics dealt with in the “Conclusions” sections, with an attached map of the Chinese railroad system.]

1. A note on the cover sheet of the source text reads:

   “The following member organizations of the Intelligence Advisory Committee participated with the Central Intelligence Agency in the preparation of this estimate: The intelligence organizations of the Departments of State, the Army, the Navy, the Air Force, and the Joint Staff.

   “All members of the Intelligence Advisory Committee concurred in this estimate on 5 March 1953. See, however, the comment of the Director of Naval Intelligence and the Deputy Director for Intelligence, The Joint Staff, on paragraphs 3, 8, and 50. Also the comment of the Director of Naval Intelligence on paragraph 35.”

2. The effects of a naval blockade of Communist China would be materially lessened if trade with Communist China through Port Arthur and Dairen, Hong Kong and Macau were not prevented. [Footnote in the source text.]
3. The Director of Naval Intelligence and the Deputy Director for Intelligence, The Joint Staff, believe that the transportation burdens imposed upon Communist China by a naval blockade may well be considerably greater than is indicated by this paragraph. [Footnote in the source text.]
4. The Director of Naval Intelligence and the Deputy Director for Intelligence, The Joint Staff, believe that, if given US matériel and training support and complete US staff planning for all blockading operations, the Chinese Nationalists could probably impose a blockade which would substantially reduce seaborne traffic and coastal traffic south of Shanghai and through the Straits of Formosa. This probably could be accomplished within a period of six months after receipt of US assistance and despite Chinese Communist air and surface operations. The degree of US matériel and training support needed to achieve this result would be at the minimum: (a) Increasing US aid (including spare parts and equipment) to the extent that the vessels now commissioned in the Nationalist Navy would be capable of operating effectively at least 50% of the time; (b) Instituting a vigorous training program which would include vessels operating with US underway training groups; (c) Insisting that the Chinese Nationalist Air Force exert maximum effort to provide air search and cover for blockading units; (d) Insuring that Nationalist crews receive a proportionate share of all prizes. [Footnote in the source text.]
5. Participants in the COCOM include Belgium, Denmark, France, West Germany, Italy, Japan, Luxembourg, the Netherlands, Norway, and Portugal as well as the US, the UK, and Canada. [Footnote in the source text.]
6. The figures in this paragraph are based on an agreed US–UK intelligence study of Communist Chinese imports during 1951 and the first half of 1952, and preliminary US estimates for the last half of 1952. The Director of Naval Intelligence believes that the volume of trade is larger than the figure agreed upon and included in these calculations, but it is impossible to arrive at a new agreed estimate at this time. In any case, it is unlikely that the new figures would invalidate any of the conclusions based on the present figures. [Footnote in the source text.]
7. Exclusive of approximately 50,000 tons of cargo picked up by Bloc vessels in non-Communist countries and shipped to Communist China. This cargo has been counted in Communist China’s imports from non-Communist countries. [Footnote in the source text.]