of China's top fifty 1976 hard-currency-earning exports, on a product by product basis. Because we do not expect that the product composition of China's overall hard currency export capabilities will alter rapidly in the near term, we believe that the 30 percent MFN-induced rise in total U.S. imports from the PRC predicted by this model may be taken as applicable to the near future, should the United States grant MFN to China during the next few years. [Raffel, Teal, and McQueen, p. 840.] There is another assessment on the potential impact of extending MFN. The following restates the principal conclusions of this study: -The price elasticity of U.S. import demand for many of the types of products exported by the PRC is relatively low. Therefore, small changes in prices of these imported goods are likely to produce only limited consumer responses. -A significant proportion of current PRC exports to the U.S. are subject to ad valorem tariff differentials. Some are assessed only specific duties, and the impact of MFN extension for these commodities would be small. Given the price inelasticity and number of products not subject to ad valorem tariff differentials, the impact of MFN extension on those products currently being traded would be limited-perhaps five to seven percent of the actual import level. -Lack of MFN appears to have a substantial impact on certain commodities exported by the PRC, principally light manufactures. These commodities are imported by the U.S., but at disproportionately low levels compared to the EC market. If U.S. imports of PRC products had been "normalized" (i.e., equivalent to EC imports), the impact of MFN extension in 1975 at the normalized level would have been about 55 percent of the actual level of trade. In 1975, the difference between the normalized import level and the actual level for commodities with ad valorem differentials was approximately 90 percent of total imports. This suggests that the MFN impact in that year would have been between 50 and 90 percent of the actual value of imports. -In the future, the ratio of actual imports to "normalize imports (however defined) can be expected to rise; eventually a plateau may be reached. As trade increases, the significance of the lack of MFN should also increase, both in absolute value terms and as a percentage of the shortfall between actual and “normalized" trade. -The effect of MFN extension on U.S. domestic employment is likely to be small-fewer than 6,000 workers under the most pessimistic estimates. The apparel and light manufacturers (toys, sports goods, etc.) industries would be most affected. [Kilpatrick and Lincoln, pp. 827-828.] Question 18. What special economic relations does the PRC have with the developing world? As a recipient of aid from the PRC and the USSR, how does the Albanian case illustrate the comparative effectiveness of Chinese aid? Political turbulence in the People's Republic of China and the slowdown in domestic economic growth led to a decline in economic aid pledges to the Third World in 1975-77, to less than $200 million a year from the $500 million annual commitments of the first five years of the decade. Aid disbursements, on the other hand, maintained a brisk pace at $220 million a year in 1975-77, as earlier commitments were carried out and as new countries were added to the list of recipients. The number of Chinese technicians in the Third World rose to an all-time high of 24,000 in 1977. China gets good marks for its economic aid program, which emphasizes smallscale development programs and tailors projects to the needs and resources of its Third World clients. Chinese-LDC trade has become an important source of hard currency for China, at the same time providing new markets for Third World raw materials. Military transfers, which are concentrated overwhelmingly in Pakistan, have been a small fraction of the Chinese aid program and are dwindling in the face of Soviet and Western competition. [Fogarty, p. 851.] A study of the Albanian experience also suggests that a theory of aid which does not take account of ideological and political factors can never fully explain the impact of aid on a centrally-planned developing economy. The Albanian split with the Soviet Union provides the most dramatic illustration of this point. From a practical point of view, it seems reasonable to conclude that, while Albania has been able to maintain a reasonably steady flow of external credit throughout the past thirty years, the aid has nonetheless acted as a constraint on Albanian industrial policy in two important aspects. First, the aid received from Comecon assisted the development of light industry in Albania at the expense of heavy industry, notwithstanding the implied benefits for Albanian exports. It also operated to the detriment of agriculture up to 1953, but this appears to have been a failure of PLA policy rather than a constraint imposed by donor motivation. Second, the aid provided by China seems to have been fully in accord with a Stalinist strategy, but the geographic problems involved in commodity transport between China and Albania and China's instability as an aid donor may account for Albanian difficulties in completing the construction of industrial projects within a planned time. [Schnytzer, pp. 878-879.] PROSPECTS AND PROBLEMS This volume on the economy of the People's Republic of China may be especially timely for American policymakers, scholars and the general public for several reasons: 1. The post-Mao leadership has given high priority to economic modernization, professionalism, and incentive systems in planning and management. The need of PRC's economy for Western products and processes have created an opening for greater influence and a favorable environment for closer commercial ties between China and Japan, the United States and other Western industrial economies. 2. The rapproachement between the United States and the People's Republic of China has been followed by increasing political, commercial, scientific, social and other relations. Commercial relations have expanded due to China's stated needs for Western technology-including modern fertilizer plants to increase agricultural output. Expanding oil revenues and a more flexible attitude toward credit and other aspects of the Western market suggest wider future commercial ties. Since our continuing ties with Taiwan and concerns on arms control are serious barriers to rapid improvement in political and military relations, for the immediate future improved economic intercourse may be the most attractive avenue for improving Sino-American relations. 3. The leaders of the PRC have given priority to economic modernization. Although purchases of foreign military technology and an expressed need for military industries modernization is part of the current long run policy Western influence is still likely to be greatest in relations to China's economic needs. In spite of possible progress on birth control, the Malthusian spector still looms in China's future. Imports of grain and transfer of agricultural technology from the West, may be the critical longterm ingredient, although marginally significant in the short run. 4. Modest, but significant, improvements in the quantity and accuracy in published economic data, empirical evidence from exchanges, substantially increased Western access to the end users of the imports, have aided the Western analyst in appraising China's economic policy and performance. It is difficult to separate elements of long-term trends from cyclical or variable factors in performance. However, it seems clear after over a quarter of a century of power that Chinese leaders aim to develop a modern, powerful, industrial state which would be capable of dealing on equal terms with superpowers and at the same time, providing adequately for its citizens' needs. The current Chinese development plans, however, do not include the Stalinist type urgency to overtake and surpass the West in a short, definite time period-a goal the Chinese expressed during the Great Leap period. Against this long-term aim of achieving an economic basis for superpower status, there appear to be political, ideological, and social policies which from time to time override the short-term progress of economic nation-building. Some of them may take on importance in the years immediately ahead and influence economic performance: Political succession.-Inevitably, Hua and Teng, the successors to Chairman Mao and Chou En-lai will be challenged. Successions elsewhere, for example, after Lenin and Stalin, suggest that an unforeseen, unsettling struggle is more likely than orderly transfers of power. Ideological revitalization. There have been times such as the Great Leap and Cultural Revolution periods when the requirement for ideological revitalization conflicted with policies for economic performance. If this experience is repeated periodically, stable long-term growth prospects may be in jeopardy. To assume that no recurrence of these economically disturbing politicalideological cycles is, on the one hand, to give very great weight to the unique force of Mao's personality and on the other hand, to deemphasize the broader base of support for the "Yenan" revolutionary spirit in the Party and nation as a whole, which Mao must have had. Foreign threats or opportunities requiring more weapons and military forces.-Concern with the Soviet Union may at any time lead to a major shift in Chinese weapons or force buildup. Also, despite present indications of military restraint, under different circumstances Peking might well become more actively involved in supporting Asian Communist powers. Indeed, some would argue that these political factors represent central, fundamental forces in Chinese society and that economic considerations are the external or variable factors. Whatever the primary and secondary forces may be in Chinese development, it has become clearer in each successive economic assessment that the PRC economy has attained a firmer base for claims of meeting not only domestic but the major international goals of the leadership. In spite of many current and likely future problems, we should not assume that the People's Republic of China will not be able to continue to meet its priority economic needs. |