power. It has historical antecedents dating back nearly two centuries. to China's first encounters with American and European traders. Until the opium war (1839-42) foreigners were excluded from direct business dealings with the Chinese, and relations were conducted on Chinese terms. With the establishment of treaty ports, however, customs collections fell under the control of foreign powers, and China was "opened" to world commerce. Although several Chinese scholars advocated reform of the Confucian system and acceptance of Western ways-meaning not only Western religious and political thinking, but also Western technology and business practices-China's leaders were impotent and their pleas fell upon deaf ears in Peking. Outbursts of xenophobic passions, such as during the Boxer Rebellion (1900), merely resulted in a further carving up of China by foreign powers. After the First World War, many of the Chinese who went abroad to study brought back an interest in increasing commercial and scholarly exchange with the West. Their potential impact on the Chinese economic and political system, however, was cut short by World War II and the Communist victory.

A. Ideologists Versus Pragmatists

Since the Communist takeover, two groups advocating different policies evolved: one, which takes a highly ideological stand and looks at economic relations with "capitalist" countries in terms of traditional Marxist theology; and the other, which takes a more pragmatic attitude, and which, while mindful of China's past, appears more willing to deal with "capitalists" for China's economic advantage. In recent years China watchers have labeled individuals belonging to each group "radicals" and "moderates," respectively. The "moderates" view China as a weak, vulnerable, underdeveloped country which must be transformed as rapidly as possible into a modern industrial state. They believe, among other things, that modernization requires scientific exchanges with and imports of technologically advanced investment goods from the West. On the other hand, the "radicals" believe that large-scale imports of foreign goods undermines faith of the people in the success of the revolution and makes China vulnerable to economic "blackmail." The radicals believe that reliance on foreigners rekindles the sense of inferiority caused by a century of humiliation at the hands of the West and that exposure to capitalists, capitalist-made products, and capitalist business procedures erodes the "revolutionary will" of the masses, leading to "revisionism." According to this viewpoint, China should rely primarily on the "wisdom of the masses" in order to develop and master new technology and limit reliance on the outside world.

B. The Recent Trade Debates

The most recent airing of these issues occurred during the campaign to criticize Lin Piao and Confucius (1973-74) and the anti-Teng Hsiao-ping campaign (late 1975-76). In the former, allegorical articles appeared in the Chinese media attacking and defending the foreign trade policies that were then being implemented by the

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moderates, led by Premier Chou En-lai. The radicals charged that the moderates were "slaves of foreigners," "not relying on the masses," and "being agents of imperialism." In rebuttal, China's Minister of Foreign Trade Li Chiang, writing in the magazine China's Foreign Trade, acknowledged the need for China to pursue a policy of self-reliance and reaffirmed that China did not intend to attract foreign investment capital, condone exploitation of domestic natural resources, or engage in joint ventures. He did state, however, that China wished to participate in business negotiations "in light of common international trade practices." Li defended a policy of "making foreign things serve China," by quoting a speech made by Mao Tsetung in 1949, which declared "the Chinese people wish to resume and expand international trade in order to develop production and promote economic prosperity."

Later (in 1975) this line was advanced in an article entitled "Some Questions on Accelerating the Development of Industry," authored by Vice Premier Teng Hsiao-ping. Teng proposed increasing exports of China's natural resources to pay for imports of technology and use of "accepted practices of international trade such as deferred payments and installment payments." After Teng's fall in April 1976 the "gang of four" criticized Teng as a traitor who wanted to "sell China out to the imperialists," shift "the international energy crisis onto the Chinese people" and turn China into a "raw material base," a "repair assembly workshop," and an "investment ground for imperialism."

C. Formulation of Trade Policies

In order to shed light on the future course of China's trade, it would help to know what policy differences actually separated the radicals from the moderates and what role each faction played in formulating China's trade policies during the 1970's. If, on the one hand, the moderates were largely responsible for shaping China's trade policies and the radicals had little impact on decisionmaking, then we might expect the essentially conservative policies that were pursued from 1974-76 to continue into the future. If, on the other hand, the moderates had intended to implement more expansionist trade policies but were held in check by the radicals, then we might expect more expansionist trade policies to follow, now that the radical opposition has been removed.

Both interpretations generally agree on one point: that the trade policies China followed in the 1970's were, by world standards, extremely conservative. Exports financed imports, and the Chinese made only sparing use of supplier credits. Imports were largely stopgap measures, designed to fill voids in either domestic production or capacity. Grain imports, for example, amounted to less than 2 percent of domestic production. China pursued a policy of import substitution, purchasing plants that would produce domestically commodities currently imported from abroad-steel, petrochemicals, synthetic textile fibers, fertilizers, and, indirectly, wheat. Thus, imports of capital equipment were aimed more at reducing reliance on foreign economies than at improving China's competition position in exporting to the world's market.

• China's Foreign Trade, vol. I, 1974, Peking, pp. 2-5.

Two scenarios emerge on the causal factors behind these trade policies. According to one scenario, the moderates, led by Chou En-lai and Teng Hsiao-ping, were in complete control of foreign trade organizations and policies throughout the 1970's. The policies of both Chou and Teng were motivated more by economic than by political factors. Thus, the large size of China's domestic markets and low per capita income explain the low levels of China's trade. If the radicals even had a foreign trade policy, the differences between the moderates and the radicals were narrow. They differed not on principle, but on the degree to which China could increase trade and still remain self-reliant. There were virtually no differences between the radicals and the moderates with regard to foreign participation in the Chinese economy; that is, the use of joint ventures, product repayment schemes, government-to-government loans, and direct foreign investments were ruled out by both factions. Thus the radical attacks on the moderates' foreign trade policies were inflated, disingenuous and motivated largely by political opportunism.

According to this theory, Chou En-lai and the moderates in the State Council were responsible for the cutback on imports which began in 1974. This was a reaction to a worsening trade deficit, declining terms of trade, and an improved harvest, which permitted grain imports to be reduced. Although the Campaign to Criticize Lin Piao and Confucius coincided with these cutbacks, the net effect of this criticism was not great. The decline in contracts for whole plants. after 1973 was the result, not only of balance of payments factors, but also of a need for a breathing space to absorb the large amounts of technology already purchased.

Advocates of this theory concede that the sharp decline in imports from developed countries following Teng's purge (see figure 6) was partially the result of activities by the "gang of four," but they would argue that the impact on trade was felt only indirectly through disruptions of the domestic economy, not through a change in trade policy. They point out that exports continued to expand in 1976, reaching the highest level ever in the fourth quarter. If there had been a change in policy, it probably would have affected exports as well as imports.

1970 1971 1972 1973 1974 1975 1976 1977

1. Data are from International Monetary Fund, Direction of Trade Tapes and from OECD, Statistics of Foreign Trade, Monthly Bulletin.

Furthermore, according to this theory, economic constraints will continue to hamper expansion of China's trade. If China's trade does expand significantly, it will be primarily because China's domestic economic situation has stabilized and its balance of payments has turned favorable in the past 2 years.

An alternative scenario would stress the effect of political factors on China's foreign trade. Thus the low levels of trade are explained largely by a Chinese aversion to economic dependence on the outside world, resulting from a long history of exploitation by the colonial powers, and most recently by the Soviets. The radicals and moderates may not have differed substantially over China's financial policies; however, they disagreed sharply over trade policies. In particular, the policy of exporting oil and other raw materials to pay for imports of high technology goods from the West was anathema to the radicals. While the radicals may not have been ensconced in the State Council and the bureaucracy, they nevertheless wielded significant influence over policymakers through their control of the press and their positions in the party. The radicals tempered what would have been an expansionist trade policy, which Chou and Teng wanted to institute. Fear of attacks by the radicals prevented the moderates from openly espousing such policies. Thus, statements by moderates that China must remain self-reliant and that China did not condone exploitation of its natural resources, were merely rhetoric-concessions the moderates were forced to make to the radicals.

According to this theory, there is a high correlation between the waxing and waning influence of the radicals and the contraction and expansion of China's trade. Commercial activity fell off at the height of the Cultural Revolution, expanded rapidly with the increasing influence of the moderates, began to contract during the anti-Lin anti-Confucius campaign, increased briefly during Teng's short reign at the end of 1975, then nearly collapsed following his purge. Since the ouster of the "gang of four," imports have again picked up, following the new leadership's call for a return to the active trade policies followed by Chou En-lai.

According to this theory, the radicals did not need to "take over" the Ministry of Foreign Trade in order to influence trade policytheir influence was more pervasive. Bureaucrats responsible for carrying out day-to-day trade operations, not wanting to be on the wrong side of the fence, became intransigent during periods of heated debate. Chinese exporters demanded prices that were prohibitively high so that they could not be blamed for giving away their products. Import negotiations, likewise, slowed or came to a standstill because of inflexibility on the part of Chinese negotiators.

The logical conclusion to this scenario is that now, with the demise of the "gang of four," the moderates are free to pursue more expansionist trade policies and China's trade is likely to take a new leap forward within the not-too-distant future.

D. The Impact of Economics and Politics on Trade

The interplay of global and domestic economic factors and of Chinese politics is complex, and the relative impact of each of these on China's trade policies and operations cannot be weighed with much precision. If economic factors were sufficient to explain not