NSC BRIEFING
17 March 1959
CHINESE ECONOMIC
ACTIVITY IN SOUTHEAST ASIA
I. Peiping began an
economic drive in 1954 in Southeast Asia.
Effects first really felt last year, but now, because of current pre-occupation
with the "leap forward," moving ahead on its earlier momentum.
Presents long-range threat of major implications for the position of the West
in Southeast Asia.
A. Chinese activity is dual-motivated: to make its growing power felt in
Southeast Asia through economic relations, and to generate sterling, enabling
China to finance West European goods essential to its own developmental
program.
II. China has a
capability for a major trade assault which could disrupt several Southeast
Asian economies.
A. Rice sales to Southeast Asia, now totaling less than .005 percent of Chinese
production, easily could be expanded with drastic effect on the economies of
Burma and Thailand.
B. Chinese rubber purchases, nearly 10 percent of Southeast Asian production,
are shifted from one producer to another, creating uncertainties in the market.
China's first major purchases from Malaya made in 1958 probably will not be
repeated this year, but diverted to Indonesia.
III. The impact of the
Chinese drive has been mixed and the program encountered some set-backs.
A. In those countries where Chinese goods compete with local production,
domestic commercial influences have become vociferously anti-Chinese.
- Malaya and Singapore reacted to Chinese
aggressive tactics by quotas, embargoes and proposed legislation on
dumping. Malaya will close by mid-April the Bank of China branches which
engaged in unorthodox transactions such as tariff rebates, thus
influencing importers to buy Chinese goods.
- To counter the Malayan action Peiping
retaliated with a trade ban which hurt China more than Malaya and was, in
effect, subsequently rescinded.
- Despite the obstructions to trade, China’s
exchanges with Singapore and Malaya increased by 25% in 1958 to 100
million dollars (US).
B. In other countries
where there is little domestic industry (Burma, Indonesia, Cambodia), Chinese
price-cutting and favorable credit terms have reduced import costs and hence
increased the availability of a wide range of consumer goods and light industrial
items.
1. In Indonesia, China began a drive to expand trade by 10-year loans for
consumer goods (an unusual Communist tactic) and by military credits.
a. To meet Indonesia’s needs for slow ground attack aircraft, China, in its
first arms deal in the free world, has been supplying relatively obsolescent
aircraft this year.
C. But in this case the
trade drive has affected competing exporters in Hong Kong, Japan and India.
1. But actually, Chinese
sales during the trade drive (starting 1954) account for only 15 percent of total increased Southeast Asian imports in
that period.
2. And only certain
products have been affected by this drive, for example: textiles (India, Japan,
Hong Kong) and cement (Hong Kong, Japan).
IV. It is highly
unlikely, however, that China, at this time, will risk its past gains by
an effort which would provoke adverse reaction to the whole program and confirm
warnings of the potential threat.
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