china's economic relations with the west and japan

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

Farm and business lobby groups played a vital role in the erosion of the American-ledtrade embargo against China from 1949 to 1979. In this comprehensive study,based on recently declassified primary source material, trade negotiations andagreements are examined and a detailed account of developing economic linksbetween East and West is provided.

Developing economic relations and tensions with US policy are discussed inthe context of PRC and Western economic and agricultural problems, Beijing’sdevelopment 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-sufficiencypolicies. Washington was unable to convince its allies to block politicallyinfluential private and semi-official trade promotion organizations fromundermining stringent trade restrictions aimed at preventing China’s economicdevelopment. Mitcham also charts the rise and fall of the Great Leap Forward andChina’s eventual recovery, capped by rapprochement, the re-opening of importantdiplomatic and trade relations and Beijing’s readjustment policies. By the late1970s, with the Cultural Revolution having run its course, the stage was set forthe rise of the Chinese economic engine, and a shift in economic thinking thatcontinues to have repercussions both within the PRC and around the world today.

For historians, economists, political scientists, government officials, businessrepresentatives 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 PhDin 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 EditorPeter Nolan, University of Cambridge

Founding Series EditorsPeter Nolan, University of CambridgeDong Fureng, Beijing University

The aim of this series is to publish original, high-quality, research-level work byboth new and established scholars in the West and the East, on all aspects of theChinese economy, including studies of business and economic history.

1 The Growth of Market Relations inPost-reform Rural ChinaA micro-analysis of peasants,migrants and peasant entrepreneursHiroshi Sato

2 The Chinese Coal Industry An economic historyElspeth Thomson

3 Sustaining China’s EconomicGrowth in the Twenty-FirstCenturyEdited by Shujie Yao and Xiaming Liu

4 China’s Poor Regions Rural–urban migration, poverty,economic reform and urbanisationMei Zhang

5 China’s Large Enterprises andthe Challenge of LateIndustrializationDylan Sutherland

6 China’s Economic GrowthYanrui Wu

7 The Employment Impact ofChina’s World Trade OrganisationAccessionA.S. Bhalla and S. Qiu

8 Catch-up and Competitiveness inChinaThe case of large firms in the oil industryJin Zhang

9 Corporate Governance in ChinaJian Chen

10 The Theory of the Firm andChinese Enterprise ReformThe case of China international trustand investment corporationQin Xiao

11 Globalisation, Transition andDevelopment in ChinaThe case of the coal industryHuaichuan Rui

12 China along the Yellow RiverReflections on rural societyCao Jingqing, translated by NickyHarman and Huang Ruhua

13 Economic Growth, IncomeDistribution and Poverty Reductionin Contemporary ChinaShujie Yao

14 China’s Economic Relations withthe West and Japan, 1949–79Grain, trade and diplomacyChad J. Mitcham

China’s Economic Relationswith the West and Japan,1949–79Grain, trade and diplomacy

Chad J. Mitcham

First published 2005by Routledge2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

Simultaneously published in the USA and Canadaby Routledge270 Madison Ave, New York, NY 10016

Routledge is an imprint of the Taylor & Francis Group

© 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 DataA catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication DataA catalog record for this book has been requested

ISBN 0–415–31481–X

This edition published in the Taylor & Francis e-Library, 2005.

“To purchase your own copy of this or any of Taylor & Francis or Routledge’scollection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.”

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

(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 ManKam Leung and Professor T.D. Regehr.

Contents

List of illustrations ixForeword xiAcknowledgements xivList of abbreviations and acronyms used in text xviIntroduction xixStatistical note xxii

PART I

1949–August 1960 1

1 Grain imbalances, CHINCOM and China’s evolvingeconomic and foreign trade strategy, 1949–June 1957 3

2 China’s ‘Great Leap’ famine, ‘test purchases’ of Western grain and return to ‘readjustment’, July 1957–August 1960 27

PART II

September 1960–September 1962 49

3 Chinese–Western grain trade diplomacy: credits andfamine 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 91

5 Japanese–Western China trade competition: POL,chemical fertilizer, equipment and technology, September 1962–August 1963 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 1965–79 175

9 Cultural Revolution delays: steel complex negotiations and US–allied trade policy, October 1965–November 1966 177

10 Emergence from Cultural Revolution: trade negotiations resumed, US trade controls relaxed, November 1966–79 196

Conclusion 216

List of abbreviations in notes 220Notes 222Bibliography 256Index 271

Illustrations

Map

2.1 PRC’s wheat, rice and other major grain sown areas 29

Tables

1.1 Total annual PRC grain output, trade and government stockpile,June 1952–July 1957 8

1.2 PRC’s annual cereal imports, 1950–7 91.3 PRC’s annual foreign chemical fertilizer imports, 1950–7:

total and by country/organization 202.1 Total annual PRC grain output, trade and government stockpile,

July 1957–May 1961 412.2 PRC’s foreign chemical fertilizer imports, 1957–60:

total and by country/organization 433.1 PRC–Western cash grain contracts:

20 September 1960–27 February 1961 533.2 PRC–Western credit grain contracts: April–August 1961 634.1 PRC–Western credit grain contracts:

October 1961–26 March 1962 734.2 Proposed ITC–PRC/North Korea grain agreements 765.1 PRC–Western grain contracts: September 1962–August 1963 965.2 Initial major PRC–Japanese equipment contract, August 1963 1096.1 Major PRC equipment contracts with Western and Japanese

firms: November 1963–July 1964 1186.2 PRC–Western grain agreements and contracts:

November 1963–July 1964 1287.1 Major PRC equipment contracts with Western and

Japanese firms: August 1964–February 1965 1427.2 PRC–Western grain agreements and contracts:

August 1964–February 1965 1458.1 Major PRC equipment contracts with Western and Japanese

firms: March–September 1965 156

x Illustrations

8.2 PRC–Western grain agreements and contracts:March–September 1965 159

9.1 PRC–Western grain agreements and contracts: October 1965–December 1966 179

9.2 Major PRC equipment contracts with Western and Japanese firms: October 1965–December 1966 180

10.1 PRC–Western grain agreements and contracts:6 December 1966–79 200

10.2 Annual PRC cereal, wheat, rice and maize imports: 1958–80 20210.3 PRC’s total annual foreign chemical fertilizer

imports: 1966–80 203

Foreword

A famous Chinese slogan proclaims that ‘agriculture is the foundation of theeconomy; grain is the cornerstone of that foundation’. It was originally coinedin the aftermath of the Great Leap Forward and the subsequent great famine of1959–61, which accounted for the lives of up to 30 million Chinese farmers – theworst famine in human history. The terrible events of those years have had aprofound influence on China’s subsequent economic policies, even down to thepresent day. Not least, the memory of what happened at the end of the 1950swas central to Deng Xiaoping’s thinking about economic structural reform andthereby helped shape the distinctive approach towards reform that characterizedChina’s development efforts after 1979.

Perhaps the most lasting direct legacy of the crisis of 1959–61 has been theChinese government’s subsequent insistence that China should maintain ‘basic’grain self-sufficiency. Indeed, one of China’s most remarkable economic achieve-ments since it was forced, in 1961, to revert to the status of net grain importer is thatthe purchases of foreign grain have never exceeded 5 per cent of domestic cerealproduction. More questionable, in view of the increasingly serious arable landconstraint that China has faced, is whether the policy of self-sufficiency has madeeconomic sense. China’s abundant resource is labour, and economic logic wouldappear to demand a rise in cereal imports alongside a shift in the focus of farmingfrom grain cultivation towards more labour-intensive – and higher-income –activities. The force of this argument is underlined by the existence of a least130 million surplus farmers living in the Chinese countryside – many of them fac-ing severe poverty. The official response is that geo-political concerns increase thepossibility of China becoming more dependent on foreign supplies of such anessential good as grain. Only in recent months, and in the wake of four successivedismal harvests, does it look as if the government in Beijing may finally be aboutto acknowledge the necessity of lowering its grain self-sufficiency criterion toa level more consonant with its resource capabilities.

The tortuous route that connects Maoist policies of the late 1950s to key ruralsocial and economic issues confronting a very different Chinese society andeconomy today is still imperfectly understood. One of the most valuable aspectsof Dr Mitcham’s remarkable study of China’s trade diplomacy during the Maoperiod 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’seconomic and political trajectories in both periods.

Through his painstaking use of hitherto unused official and personal archivalmaterials, Chad Mitcham shows how the emergence, during the mid-1950s, ofincreasingly serious problems in agriculture encouraged China to explore thepossibility of purchasing grain from Western suppliers. Against the backgroundof a strict American trade embargo against China, this initiative was the sourceof considerable political tension between the governments of the US, Canada,Australia and some West European countries, although Mitcham suggests thatwell before the onset of famine Washington may have viewed the worsening foodsituation in China as a way of bringing political pressure to bear on Beijing. Hisanalysis also highlights cleavages within the Chinese leadership that were associ-ated with differing views on the acceptability, or otherwise, of opening andextending trade relations with the West.

From 1961 until the end of the Mao period, China was consistently a netimporter of food grains. The ramifications of this change in trading status wentbeyond the boundaries of this single commodity. As Mitcham demonstrates, by1962 Mao’s idiosyncratic views on development had been superseded by the moreorthodox – dare one say, sensible – views of Liu Shaoqi, Deng Xiaoping, ZhouEnlai and others. Thus, the pragmatism of these advocates of increased cerealimports from the West was extended to other products, reflecting their belief inthe potential gains from overseas purchases of a wide range of goods – oil, steel,petrochemicals, chemical fertilizers, etc. – needed for agricultural and industrialgrowth. It is of course undeniable that the withdrawal of Soviet aid to China in thesummer of 1960 was another factor that pushed the Chinese government towardsincreased trade with the West (including, by 1962, Japan). But one of the virtuesof this study is the evidence it provides of a desire by several Western govern-ments to engage with China well before 1960. It is true too that during the mostradical phase of the Cultural Revolution (1966–9), most of the original advocatesof expanded trade with the West were castigated as ‘capitalist roaders’. But exceptfor this brief period in which China shifted towards trade autarchy, since the early1960s China has consistently emphasized the important role of foreign trade asan engine of growth.

As befits a former student of the late Ralph Smith, Dr Mitcham’s study includesrich comment on the impact of the Vietnam War on trade, diplomacy betweenChina, 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 andmass demonstrations in Beijing, and the publication of hostile editorials; in addi-tion, and more importantly, it encouraged Mao Zedong to put the economy on awar 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 betweenChina and Western European countries continued to prosper. Moreover, despite itsincreasing involvement in Vietnam, but aware of Chinese preoccupations with theSoviet military threat, even Washington sought to woo Beijing by lifting travelrestrictions of Americans wanting to travel to China and rescinding its foreign

assets control regulations. Even under the John F. Kennedy and Lyndon Johnsonadministrations there was evidence of growing flexibility in American govern-ment policy vis-à-vis China. Under that of their successor, Richard Nixon, effortsto normalize bilateral diplomatic relations assumed unprecedented priority.

Chad Mitcham’s book transcends disciplinary boundaries. I find it difficult toimagine that there is anyone – modern historian, economist, political scientist,foreign relations analyst – who will fail to benefit from its rich and detailedanalysis. It is based on the tireless pursuit and careful examination of researchmaterials in archives the world over, backed up by personal interviews and thereading of secondary sources of even the slightest possible relevance. The resultis a book of superb scholarship and insight that deserves repeated reading. Itscoverage is truly encyclopaedic, the analysis and comment are balanced andobjective, and the arguments are compelling. It will surely be a standard work ofacademic and professional reference for many years to come.

Robert AshProfessor of Economics with reference to

China and Taiwan School of Oriental and African Studies

University of London May 2005

Foreword xiii

Acknowledgements

This book is based on over thirteen years of my research and could not have beencompleted without the help, support and encouragement of many people.

Specifically, I wish to thank my doctoral supervisor at the School of Orientaland African Studies (SOAS), University of London, the late Professor RalphBernard Smith and Professor Robert F. Ash, supplementary co-supervisor of myPhD 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 DavidShambaugh, Dr Odd Arne Westad, Professor Zhang Shuguang, Professor BerylWilliams, Miss Judith A. Stowe and Professor Kaoru Sugihara.

Professor Man Kam Leung who introduced me to Asian studies at theUniversity of Saskatchewan and has always encouraged and supported myendeavours; T.D. Regehr my MA thesis supervisor at the University ofSaskatchewan; Professor W.A. Waiser of the history department there.

The John F. Kennedy Library Foundation, the Lyndon Baines JohnsonFoundation and the Dwight D. Eisenhower Foundation for providing me withgenerous research grants, and the archivists of the Kennedy, Johnson andEisenhower 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, StanfordUniversity; J. Hugh Jackson Business Library, Graduate School of Business,Stanford University; the Boeing Company Historical Archives; the Library ofCongress; 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 theirexcellent UNESCO-sponsored facility.

Additionally, in Australia, Canada, the UK, Hong Kong and Macau: archivistsof the National Archives of Australia; the National Library of Australia; the NoelButlin Archives Centre, Australian National University; as well as several currentand former Australian Wheat Board officials; staff of the National Archives ofCanada; the Library of Parliament; the Canadian Wheat Board Library; theDiefenbaker Centre; and the David Lam Centre; staff of the (UK) NationalArchives; the British Library’s newspaper library and the British Library of

Acknowledgements xv

Political and Economic Science (LSE); staff of the Chinese Chamber ofCommerce Library, the Hong Kong Business Registry Office and of the HongKong University Library’s special collections; and Director Jorge Manuel deAbreu 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, mygeneral understanding of available written research material has benefited fromhelp provided by various individuals, some of whom are acknowledged in theinterviews and correspondence section in the bibliography, previously or currentlywith government, private business, the media or the church.

My sister Dr Stephanie Mitcham and her husband Dr Patrick Sexton andfriends who have helped, especially Mrs Gladys Steeves, Dr John Murray, TeresaMaini, Zhou Yiping, Laurie Landry and Vernon Bevan.

Finally, my wife Sue Thompson for her love, encouragement, advice, franknessand patience while I was writing this book.

Abbreviations and acronyms used in text

AID Agency for International Development (US)ANGB Argentinian National Grain BoardANIC Azienda Nationale Idrogenajione Cumbustibili – an ENI

Subsidiary (Italy)AWB Australian Wheat BoardBCPIT British Council for the Promotion of International TradeCAAC Civil Air Administration of ChinaCCP Chinese Communist PartyCCPIT China Council for the Promotion of International TradeCEROILFOOD China National Cereals, Oils and Foodstuffs Import and

Export CorporationCHICOM A US government term for Chinese CommunistsCHINATEX China National Textile Import Export CorporationCHINCOM China List (a.k.a. ‘The China Differential’) of COCOMCIA Central Intelligence Agency (US)CIRECO China Resources CompanyCITIC China International Trade Investment CorporationCNIEC China National Import–Export CorporationCNTIC China National Technical Import and Export CorporationCOCOM Coordinating Committee of the Consultative GroupCOFACE Compagnie Française d’Assurance pour le Commerce

(French Government’s Export Credit Insurance Agency)COSCO China Ocean Shipping CompanyCROCP Committee for a Review of Our China PolicyCTB Commonwealth Trading Bank (Australian)CWB Canadian Wheat BoardDEA Department of External Affairs (Australian/Canadian)DPI Department of Trade and Primary Industry (Australia)DTC Department of Trade and Commerce (Canada)ECGD Export Credit Guarantee Department (British)EEC European Economic CommunityENI Ente National Idrocarburi (Italy)Ex–Im Bank Export–Import Bank (Japan)

Abbreviations and acronyms xvii

FACR (US) Foreign Assets Control RegulationsFE Far East Bureau (US Department of State)FFYP First Five Year Plan (PRC’s)FO Foreign Office (UK)FRG Federal Republic of GermanyGLF Great Leap Forward (PRC’s)ICE Italian National Foreign Trade InstituteICI Imperial Chemical Industries (UK)ICP Italian Communist PartyINR Bureau of Intelligence and Research (US State Department)ITC International Trading Corporation (Seattle, Washington)ITT International Telephone and Telegraph CorporationJASEA Japanese Ammonium Sulphate Export AssociationJCEIA Japan–China Export Import AssociationJCOTLC Japan–China Overall Trade Liaison CouncilJCS Joint Chiefs of Staff (US)JCTPA Japan–China Trade Promotion AssociationJETRO Japan External Trade Promotion OrganizationJITPA Japan International Trade Promotion AssociationJPC Japan Peace CommitteeJSP Japanese Socialist PartyL–D Linz–DonawiczLDCs Less Developed CountriesLDP Liberal Democratic Party of JapanL–T Liao–Takasaki Trade MemorandumMAC Military Affairs Commission (PRC)MACHIMPEX China National Machinery Import and Export CorporationMFN Most Favoured NationMHI Mitsubishi Heavy Industries LtdMINMETALS China National Metals and Minerals Import and Export

CorporationMITI Ministry of International Trade and Industry (Japan)MN Canadian Manitoba Northern WheatMOFT PRC Ministry of Foreign Trade NATO North Atlantic Treaty OrganizationNITREX AG Nitrogen Chemical Fertilizer Export Cartel

(West European)NPC National Party CongressNSC National Security Council (USA)ODW Ostausschuss der Deutschen Wirtschaft (the Eastern

affairs committee of West German industry)ONIC National Cereals Office (France)Patronat Centre National du Patronat FrançaisPKI Partai Komunis Indonesia/Indonesian Communist PartyPL 480 Public Law 480 (US)

xviii Abbreviations and acronyms

PLA People’s Liberation Army (PRC)POL Petroleum, Oil and Lubricant ProductsPRC People’s Republic of ChinaPSI Partito Socialist Italiano (Italian Socialist Party)RCAP Rice and Corn Administration of the PhilippinesROC Republic of China (Taiwan)SBTC Sino-British Trade Council (UK)SEATO South-East Asia Treaty OrganizationSFYP Second Five Year Plan (PRC’s)SINOFRACT PRC’s Chartering and Shipbuilding CorporationSNAM-Progetti Societa Nationale Metanodetti-Progetti

(ENI subsidiary)S/P Policy Planning Council (US Department of State)STC Standard Telegraph and TelecommunicationsTEC Toyo Engineering Co.TFYP Third Five Year Plan (PRC)UK United KingdomUN United NationsUS United States of AmericaUSDA United States Department of Agriculture

Introduction

. . . there can be no understanding the actions of any one global power withoutreference to the debates and uncertainties of its adversaries. One would not, afterall, try to write the history of a game of chess, move by move, recording andanalysing 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 thegrain trade is still in its infancy. The focus of historical research still seems to beon individual countries and their rulers rather than the world and its resources.

[. . .] not that scholars have necessarily been derelict in their pursuits. Rather, theworld 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 Chinapolicy initiatives of 1969–1972 did not in fact spring full-blown from theRepublican 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 haspreviously 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 fromprivate and government collections throughout the world. It illuminates the cru-cial role that resources, commodities, business and trade diplomacy played notonly in the People’s Republic of China’s (PRC) domestic conflicts, decision-making, economic development and dealings with foreign countries, but also inAmerican relations with the major powers and especially the erosion of theUnited States (US)-led trade embargo against China between 1949 and 1979. Italso emerges that because of the continuity of the Chinese Communist Party(CCP) government’s ‘readjustment’ and associated foreign trade policies duringkey 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 TradeOrganization, it is timely and useful for the international community to under-stand more clearly the significance of the PRC’s first thirty years of economicdevelopment and international trade relations.

Most previous research assume that from 1949 to the early 1980s Western andJapanese ‘China trade’ strategies were almost entirely shaped by US governmentpolicy, which, in turn, was determined by strategic concerns. This earlier researchsuggests 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 toreduce its controls on trading with China or vote for the Beijing government’sadmission to the United Nations (UN) – only in the early 1980s did the efforts ofprivate ‘lobby groups’ begin actively shaping Western and Japanese ‘China policy’.

However, by concentrating on key Sino-Western/Japanese trade negotiationsand agreements, this book reveals that pro-China trade, farm and business lobbygroups/trade promotion organizations played a leading role in the erosion of theAmerican-led trade embargo against the PRC between 1949 and 1979. The devel-opment of these economic relations, contrary to official US policy and wishes ofthe ‘China Lobby’, are discussed in the context of the economic, especially grain,problems of the PRC and Western-aligned nations, Beijing’s development strate-gies, Sino-Soviet relations, and the Korean, Sino-Indian and Vietnam conflicts.

During the 1950s paramount PRC leader Mao Zedong’s insistence that hiscountry become self-reliant through rapid development resulted in worseningregional grain shortages, necessitating increased trade with the West and Japan.Sensing impending disaster, influential CCP officials with strong pre-1949business ties in non-Communist countries began orchestrating a ‘readjustment’based on reduced industrialization targets, the gradual lessening of Beijing’s nearcomplete economic dependence on Moscow, the purchase of ‘state-of-the-art’Western and Japanese equipment, complete industrial installations, relatedtechnology and technical support, as well as the return to the pre-1949 Chinesepolicy of importing Western grain. This ‘readjustment’ was accomplishedlargely through politically influential affiliated private and semi-officialChinese–Western/Japanese trade promotion organizations – which transcendednational, political and ideological boundaries and arose out of the MoscowInternational Economic Conference of mid-1952.

Following the Korean War, the Eisenhower administration was increasinglyunsuccessful at convincing America’s allies to maintain more stringent traderestrictions aimed at preventing the PRC’s economic development. Western-aligned countries only agreed to controls limiting the People’s Liberation Army’s(PLA) strength and blamed US government export subsidies for their mountingdomestic agricultural surpluses and industrial overcapacity, thus strengtheningtheir resolve to expand trade with China. By promoting competition amongWestern suppliers (and their ‘lobby groups’/trade promotion organizations) theChinese subsequently won important political and economic concessions.

However, any illusion that Mao’s Great Leap Forward (GLF) could be financedby Western trade was shattered in mid-1958 with the suspension of Sino-Japanesetrade relations, developing problems in Beijing’s lucrative South-East Asianexport drive and the PRC’s inability to balance its trade with individual Westerncountries. Not until early autumn 1960, with the collapse of Sino-Soviet economiccollaboration and the realization that grain shortages and famine had becomewidespread since late 1957, was the GLF halted and the ‘readjustment’ resumed.

The Chinese then engineered a remarkably rapid recovery by utilizing theirvast buying power to exploit market fragmentation, surpluses and industrial over-capacity in the West and Japan to obtain grain, chemical fertilizer, industrialequipment and technology on progressively favourable cash and credit terms,which Washington maintained was foreign aid. Between 1960 and 1966, despitethe Sino-Indian border war and Sino-American involvement in the Vietnam con-flict, the US government failed to persuade its allies to curtail trade with China.The Sino-Western/Japanese ‘credit race’, the establishment of reciprocaltrade/news offices and trade fairs facilitated economic relations. Resultant ‘Chinapolicy’ debate within the Kennedy and Johnson administrations and recommen-dations for a gradual easing of Washington’s ‘China trade’ controls were delayedbetween mid-1966 and 1969 by events in Vietnam and the most disruptive phaseof China’s Cultural Revolution when ‘readjustment’ was again abandoned.

However, in the early 1970s, practical economic and strategic considerations ledthe Nixon administration and CCP government to seek a rapprochement based ontrade diplomacy. Beijing also gradually implemented a variation of ‘readjustment’,which by 1979 served as an important foundation of the PRC’s future economicreforms.

Introduction xxi

Statistical note

Figures appearing in this book have usually been converted by the author to tonnesfrom tons, long tons or bushels, and while reported as accurately as possible, theyshould be considered as approximations. Cereal statistics, especially, are proba-bly inherently imprecise because the international grain trade tends to be bothhighly competitive and confidential.

Also, because amounts sold under particular contracts, as well as total nationalannual grain sales and production were revised often, they were reported differentlyfrom year to year. Sometimes grain shipments under a particular contract weremade over at least two crop years, resulting in uncertainty about where theyappeared or should have appeared in annual reports. Cereal statistics are sometimesreported by calendar year (1 January–31 December), international grain tradedata often by crop year (usually from 1 August to 31 July).

Cereal statistics appearing in this book are in trade grain weight (i.e. huskedgrain) 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 iswritten in terms of ammonium sulphate) are from annual reports published by theUN and by government departments, agencies or marketing boards of the majorgrain exporting nations as well as from correspondence and reports of privatetraders and government officials held at Western archives and libraries.

Part I

1949–August 1960

In an article dated 16 September, 1949, Mao [Zedong] ridiculed . . . Secretary ofState Dean Acheson’s ‘great hope’ that the . . . [CCP] would ‘not be able to solveits economic problems’. . . , that . . . [the PRC] would ‘remain in perpetualchaos’. . . 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 WorldKnowledge (a.k.a. World Culture) article)

The . . . [USSR] . . . occupies the first place, but . . . it is necessary to get ready to dobusiness with . . . Germany, Great Britain, Japan . . . the US and other states.

(Mao Zedong, in a telegram from Moscow to CCPCentral Committee, 22 December 1949)

[We] often repeated: [it is] better to have a slower rate of construction . . . this wasdifferent from . . . [Mao Zedong]’s guiding policy of more, faster, better and moreeconomical.

(Excerpt from Chen Yun’s ‘self-criticism’ at the CPC Central Committeeworking conference, Chengdu, from 8–26 March 1958)

[By 1955–6 the PRC’s] agricultural production could no longer meet the needs ofindustrial development, particularly those arising from the expansion of heavyindustry and the accompanying growth of the urban population . . . [serving] as awarning . . . for us to readjust the ratio between agriculture and . . . industry . . . Thereadjustment 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 help-ing them strategically, but the Europeans have never agreed with that. Their con-cept 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 Warvictory, Chinese Communist Party (CCP) leaders were already debating how totransform China into an industrialized power. The Chinese needed substantial

1 Grain imbalances, CHINCOMand China’s evolving economicand foreign trade strategy,1949–June 1957

short-term support from abroad to import essential items required to achieveparamount CCP leader Mao Zedong’s vision, of economic self-reliance throughrapid industrialization.

The CCP decided that imports of industrial-related equipment and technologywere top priority and that traditional methods, within a new institutionalframework, would be sufficient to generate adequate agricultural growth to meetindustrial targets. Essentially, the Chinese needed to export enough foodstuff,textiles and light industrial goods to pay for necessary material, equipment andtechnology imports.

However, even when China’s pre-1949 Guomindong leadership encourageddirect foreign investments, imports of Western grain were indispensable inbalancing domestic grain supplies. Since wheat was less expensive and possessed ahigher protein content than rice, the Chinese imported foreign wheat and exporteddomestically grown rice. Currency earned from selling one tonne of Chinese ricecould purchase over 1.5 tonnes of Western wheat. Imported to Shanghai andChina’s northern coastal cities, wheat eased the burden on the domestic grain dis-tribution system, on the internal transportation network, on producers in provinceswith surpluses and on the ‘traditionally’ grain-deficient northern region.

However, Mao continually warned against China becoming dependent on tradewith Capitalist countries. In September 1949, just before the establishment ofthe People’s Republic of China (PRC), he emphasized that Washington hopedthat the CCP would be unable to solve China’s economic problems and that thecountry would become dependent on American grain imports.1 Because foreigngrain imports might be used as a diplomatic lever and ran contrary to his visionthat China achieve ‘self-reliance’, Mao insisted that it would be ‘dangerous’ torely on such purchases.2

Chen Yun – a dominant PRC leader and economic planner3 – agreed with theposition of the Chinese Republic’s founder, Sun Yat-sen that China could meet itsinternal grain transfer and foreign grain export obligations without importinggrain from abroad if it distributed grain ‘rationally’ and took adequate measuresto increase domestic production.4 Yet, as the pace of construction increasedduring the 1950s, Chinese leaders became increasingly polarized when debatingwhat was ‘rational’. Mao’s decision-making was influenced by officials favouringrapid industrial development, especially in heavy industry, and by others, ledby Chen Yun and Foreign Minister Zhou Enlai, emphasizing that balancedgrain distribution, increased agricultural production and maintaining an overallbalance should be top priorities as China proceeded more gradually towards lessambitious 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 foreconomic aid. Consequently, the PRC’s increasingly ambitious developmentplans during the 1950s relied heavily on Soviet loans, trade agreements, industrialequipment, related technology and technical support.

Nevertheless, as early as April 1949, Mao and other Chinese leaders such asZhou Enlai, and Chen Yi agreed that, although it might be impossible for the CCP

4 1949–June 1957

to have close relations with Washington, it could be useful for a CCP governmentto trade with America and its Western allies. Limited Sino-American trade‘. . . could deepen mutual understanding . . . [possibly leading] to an explorationof diplomatic ties on the basis of equality’ and would discourage China frombecoming 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 andtake is permissible’.6 In fact, on 22 December 1949, frustrated by treaty negotia-tions with Soviet Leader Stalin, Mao told the CCP Central Committee that thePRC needed to trade with other countries, including Britain, Japan, India and theUS.7 Over the next thirty years, the Beijing government took a practical andopportunistic approach to its foreign economic relations by using trade to winpolitical 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 withthe West and Japan. These capitalist industrial powers possessed large commod-ity surpluses, industrial overcapacity, more advanced technology and the abilityto provide generous credit financing. To further their trade and political objec-tives, the Chinese utilized the vast concentrated purchasing power of their statetrading corporations to encourage competition and division between the frag-mented private business interests from various non-Communist market sectors.

On 14 February 1950, a thirty year Sino-Soviet alliance was signed under whichChina obtained extensive Soviet economic and financial aid. Consequently,US government China trade controls, comparable to those applied against theUSSR and Communist countries of Eastern Europe, were officially implementedin March 1950.

The Coordinating Committee of the Consultative Group (COCOM) (a.k.a.‘the Paris Group’), was created in 1949 under the North Atlantic TreatyOrganization (NATO). Composed of fifteen nations – the US, Canada and WestEuropean countries, excluding Iceland – COCOM produced three regularlyreviewed lists of embargoed items and attempted to administer uniform control ofexports to the USSR and its East European allies.8

The US Treasury refused to issue export licenses for American businesscontracts with China and North Korea after the Korean War began on 25 June1950. COCOM nations agreed in July to apply controls on China trade compara-ble to those implemented against the USSR and Eastern European nations. ChenYun had already warned that China’s participation in the Korean War could delaydomestic development.

On 3 December, following China’s entry into the war, Washington introduceda complete embargo on trade with China, Hong Kong and Macau.9 However, asWashington pressed its allies to enforce more stringent controls on China trade,Sino-Western–Japanese trade diplomacy was already under way. Arising from theInternational Economic Conference (Moscow) in April 1952 were affiliatedorganizations in several countries for promoting international trade betweennations with no formal diplomatic relations. On 4 May the first of these

Embargo and grain imbalances 5

semi-official organizations, the China Council for the Promotion of InternationalTrade (CCPIT) and the British Council for the Promotion of International Trade(BCPIT), were founded. Many CCPIT members had close ties to Zhou Enlai andChen Yun and had been influential trade union leaders, bankers and businessmenbefore 1949 when they worked with Western business representatives who alsolater became involved with CCPIT’s associate organizations abroad. Many CCPITofficials gradually emerged as leading figures in developing Sino-Westerntrade through CCPIT’s foreign affiliates. Following the International EconomicConference (Moscow), international economic and political developmentsworked 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 theSino-Japanese barter trade. The Chinese considered such trade advantageousbecause it would enable them to obtain essential items for domestic developmentwithout having to spend limited available currency. On 1 June 1952, NanHanzhen 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 onlyabout 5 per cent of this amount was traded because the Japanese refused to sellthe Chinese embargoed items such as special steel, tin, locomotives, cranes andtrucks, it enabled Beijing to obtain some essential items such as chemical fertil-izer in exchange for coal. The agreement sparked greater Japanese interest in theChinese market, placing Tokyo under pressure to re-examine its China traderestrictions.

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-Britishdiplomats. In January 1952, when Washington accused the British of exportingstrategic goods to China, often on UK ships, Whitehall insisted that strategicgoods were not involved and refused to implement shipping controls unless othernations followed suit.12 In September, when the China Committee of COCOM(CHINCOM) was established, it included the US, its Western allies and Japanand 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 underCOCOM,13 and applying only to the PRC.

The difficulties of maintaining the China differential became apparent almostimmediately when the Chinese continued to obtain rubber, an embargoed item,indirectly from Britain through the USSR and from Sri Lanka after signing afive year rice–rubber barter agreement with Colombo on 4 October 1952. Withinternational rice prices rising and rubber prices falling, Beijing made the most ofthis opportunity to expand its political influence abroad while Colombo wasespecially grateful to secure an inexpensive source of rice.

Also while Western allies supported trade restrictions aimed at preventingthe development of the PLA, they increasingly resisted Washington pressure toenforce controls aimed at limiting the PRC’s economic development. The US andits allies, led by Britain, disagreed over the definition of strategic when applied to

6 1949–June 1957

items with both civilian and military uses and/or items not directly related tomilitary use.

Thus, during 1952, Paris Group members agreed to an exceptions procedureunder which COCOM member nations could permit the export to China of goodson the ‘Watch List III’ and, under special circumstances, items on the ‘China List’which the exporting countries believed would be used solely for civilianpurposes.14

After the Korean armistice on 29 July 1953, Washington continued to pressureits allies to oppose any reduction in the China differential, PRC admission to theUnited Nations (UN) and diplomatic recognition of the Beijing government.However, the international dispersal of new technology and machinery after theSecond World War was contributing to overproduction and overcapacity in theagricultural, resource and manufacturing sectors of Capitalist countries.

Because the US was the richest and most technologically advanced country inthe world, Washington could afford to be selective when deciding which countriesAmerican interests could trade with. It provided generous subsidies to Americanproducers who were blocked from entering a particular market. In contrast, USallies facing domestic production surpluses, overcapacity and American compe-tition in non-Communist markets, began considering trading with Communistnations to balance their trade.

Following Stalin’s death on 5 March 1953, Moscow agreed to continue providingBeijing with economic and technical support, but also appeared eager to developtrade with non-Communist countries. About that time, the PRC faced its first graincrisis, 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 invarious parts of China during the spring and summer.15 Nevertheless, on16 October, the CPC Central Committee adopted measures allowing the Centralgovernment to increase grain procurement, the size of the stockpile and thevolume of foreign grain exports (see Table 1.1).

However, residents of the traditionally grain deficient North who preferredeating wheat protested when the central government organized shipments of ricefrom the South to cover northern grain deficits. Thus, in autumn 1953, theChinese government decided to import a small amount of foreign wheat to helpmeet demand.

Competition among the major ‘traditional’ grain exporting nations, Australia,Argentina, Canada and the US was intensifying as record world grain surplusesdeveloped. America’s rivals in grain exporting were eager to enter availablenew markets – those still untapped by the US through Washington’s growingmulti-million dollar government subsidized surplus disposal programme.

However, PRC government budgets did not allocate funds for purchasingforeign grain.16 Regardless, a large portion of China’s very limited ‘hard’ cur-rency reserves were in sterling which, during the early to mid-1950s, Westernnations were reluctant to accept as payment. China also possessed large tradedeficits with many grain exporting countries – including Australia, France, West


Tabl

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Germany and Argentina. Although Beijing had large trade surpluses with Asiancountries, particularly in South-East Asia, these helped repay debts to Moscowand cover growing trade deficits with West European countries.

Nevertheless, in the autumn of 1953 the China National Import–ExportCorporation (CNIEC) purchased approximately 15,000 tonnes of Argentinianwheat, hoping that the Peron government would reciprocate by sanctioningpurchase of Chinese goods (see Table 1.2). Argentina thus became the first LatinAmerican country to conduct direct, albeit limited trade (non-governmental only)with the PRC.17 By importing Argentinian wheat, Beijing could also irritateWashington.18 Yet, because the quantity purchased was comparatively small, itwould not appear that serious grain problems were developing in China.

About that time, another CCPIT official, Lu Xuzhang19 who became increas-ingly associated with policies advocated by Chen Yun and Zhou Enlai, wasappointed director of the PRC Ministry of Foreign Trade’s (MOFT) third bureau,which handled trade with Western countries. Vice-Minister of Foreign Trade LeiRenmin – 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 % oftotal grain imports)

Year Total Wheat Rice Maizecereals

1950 67,973 57,915 —(85%)

1951 — — —1952 102 — —1953 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 12,193 (15%) (77%) (7%) (Canadian via Poland) (1,000 Bulgaria) (2,000 Bulgaria)

(86,000 � Burma) (10,193 Cambodia)1957 169,477 50,701 107,700 11,075

(30%) (Canadian and (64%) (5,000 Bulgaria) (5%) French from 1957–8 (25,000 Cambodia) (4,000 Bulgaria)account) (81,000 � Burma) (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’sRepublic of China, 1953–69’ and FEER, 17 January 1957, p. 92.

tycoon and banker Rong Yiren became executives of the newly established PRCfederation of industry and commerce.

Then, on 29 October CCPIT and the union of the Japanese Diet members topromote Japan–China trade signed a second Sino-Japanese barter agreement.There was growing Japanese interest in the Chinese market and, this time, about38 per cent of the £30 million maximum amount provided for under the agreementwas 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 regionswith surpluses to cover shortages, augment the national stockpile and exportabroad to earn currency. Although its total foreign grain exports were less thanthe previous year, it placed approximately 4.2 million tonnes of grain in thenational stockpile (see Table 1.1).

Grain producers again resisted government procurement by hoarding grain.Rapid development and associated migration to the cities caused excessive urbangrain sales leading to severe regional food shortages throughout 1954.21

By mid-1954, as Mao pressed for more rapid domestic development, Chen Yunand Zhou Enlai realized that China’s grain distribution system was becomingmuch less ‘rational’. If this trend continued, the Chinese government might onlyavert disaster by substantially increasing domestic grain production and foreigngrain imports. Although consumers in the grain-deficient North demanded wheat,Mao remained opposed to spending extra funds to buy significant quantities offoreign grain.

Nevertheless, a Soviet source confirms that throughout the 1950s someChinese leaders felt that the PRC should develop relations with the US and itsallies to counterbalance Soviet influence.22 This would allow the Chinese accessto Western grain on credit or on subsidized terms. Indeed, concerned by thedegree of its economic dependence on Moscow in early 1954 – and attracted byopportunities presented by CCPIT and its foreign affiliates – Beijing graduallybegan reducing its trade deficit with Moscow and doing more business withWestern and Japanese firms that were desperate to find new export markets.Chinese trade offers placed Western-aligned governments under great pressurefrom domestic business lobby groups, often the affiliates of the CCPIT.

The UK government was especially vulnerable to this pressure becauseBritain’s postwar financial/economic recovery proceeded more slowly than thatof other Western European nations. In early 1954, British firms, associated withthe pioneering unofficial pro-China trade organization, the ‘48’ Group (a BCPITaffiliate), signed provisional contracts with the Chinese covering many itemswhich could be exported if the CHINCOM controls were relaxed. Beijing alsopromised 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,

10 1949–June 1957

Jakarta might remove its embargo on exporting rubber to the PRC. US PresidentDwight D. Eisenhower and Treasury Secretary G.M. Humphrey agreed that long-term efforts to maintain stringent controls on East–West trade would beunproductive. Instead, Eisenhower suggested that Western allies consider howbest to advance their interests through trade with Communist nations.

However, the US Defense establishment and Commerce Department, with theoverwhelming support of the US Congress and the American people, firmlyopposed Whitehall’s proposal that Western allies substantially reduce their traderestrictions. Although National Security Council (NSC) members agreed thatWashington should not protest if Tokyo gradually relaxed its China trade controls –to the CHINCOM level, Eisenhower, aware of China’s food problems, thoughtthat Sino-Soviet relations might be strained if Western aligned nations, espe-cially Japan, were permitted to export more goods – which the USSR couldnot provide – to the PRC. He felt that such trade might be ‘. . . the best way toinfluence the Chinese people against their Communist government . . .’, but USDefence officials maintained that, if initiated, the Chinese would mainly purchaseitems for increasing the PLA’s capacity to wage war.24

Nevertheless, during April the US and British governments agreed to initiate areview, both at COCOM and trilaterally (France included), of the internationalcontrol lists. Then on the 22 April, Burma (renamed Myanmar in June 1989 afterfalling under control of a junta) reached a three-year agreement with the PRCunder which Rangoon (currently known as Yangon) agreed to purchase enoughChinese goods to balance Beijing’s purchases of up to 300,000 tonnes of Burmeserice. Beijing found Chinese–Burmese economic relations politically appealingbecause Washington had terminated its aid agreement with Rangoon in March1953. In 1954, the Burmese and Thai governments had complained aboutWashington’s new multi-million dollar Public Law (PL) 480 grain disposalprogram,25 emphasizing that it disrupted traditional South-East Asian rice tradingpatterns and damaged their economies. Beijing probably diverted most of the ricethey purchased from Burma to Colombo to fulfil PRC obligations under theSino-Sri Lankan rice–rubber agreement. This arrangement undercut Burma’s ownexports to Colombo, but it eased slightly and indirectly the burden on Chinesegrain producers without drawing international attention to the PRC’s domesticgrain situation.

With Washington under growing pressure from its allies to reduce controls onthe China trade, some Chinese leaders wanted to re-examine the possibility ofimproving Sino-American relations. An early Sino-American diplomatic break-through might provide Beijing with an inexpensive source of wheat and eliminatethe possibility that a future PRC grain supply crisis could leave China with noalternative but to lose face by asking Washington for grain before the establish-ment of diplomatic relations.

The Geneva Conference, convened in spring 1954, is usually considereda landmark in terms of the development of diverging US-Allied approaches toChina. During the proceedings, American negotiators rejected a Chinese sugges-tion that a third party be appointed to handle a Sino-US exchange of detained


nationals on the grounds that, if accepted, it would be a move towards establishingdiplomatic relations. Nevertheless, before the end of the conference, on 15 June,after the Chinese agreed to release six US civilian detainees, both sides agreed tohold subsequent talks.26

Although in June the Chinese initiated a propaganda campaign to ‘liberateTaiwan’, on the 17th Sino-British reciprocal chargé d’affaires representation wasestablished, without full ambassadorial status to its representatives. The Britishgovernment remained opposed to enforcing an embargo aimed at limitingeconomic development of Communist countries.

While American officials almost unanimously opposed Whitehall’s proposalthat eighty items be removed from the International Embargo List, Eisenhowertold NSC officials during the summer of 1954 that, because of Western economicproblems, Washington could not expect its allies, especially Japan, to rejectCommunist trade offers. He insisted that it was time to enforce what Washingtonand London agreed was ‘. . . genuinely strategic . . . [and] pare this strategic listdown 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 extendedto CHINCOM.28 Nevertheless, Beijing could now acquire embargoed goods moreeasily by re-export through other Communist countries. Embargoed itemspurchased in COCOM member countries continued to reach the PRC via HongKong, Switzerland and Sweden (not ‘Paris Group’ members), contributing toWestern and Japanese suspicion that they were maintaining more stringentcontrols on the China trade than were their allies.29

Also during the summer the PRC government made several appointmentswhich helped smooth the way for improved Chinese–Western trade relations.Shanxi-born Bo Yibo was replaced as Minister of Finance by Li Xiannian andappointed Vice-Chairman of the State Planning Commission. Rong Yiren waselected Deputy for Shanghai to the First National Party Congress (NPC)and appointed Vice-Chairman of the city’s section of the federation of industryand commerce. Nan Hanzhen was elected deputy for Shanxi to the First NPC andbecame chairman of the Bank of China ( public shares)30 – which oversaw thebalancing of the PRC’s foreign trade. The bank’s Hong Kong branch – vital toChina’s international trade and currency operations – worked closely withits branches in Singapore, Malaysia and London and with the PRC’s statetrading organizations, such as China National Cereals, Oils and Foodstuffs Importand Export Corporation (CEROILFOOD), China National Technical Import andExport 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 availableto buy about another 27,000 tonnes of wheat from the Argentinians – whom theywere still trying to persuade to reciprocate by purchasing PRC goods of compar-able value. During a CCPIT-sponsored visit to China by Argentinian businessrepresentatives earlier that year, both sides had jointly announced their plans toexpand Sino-Argentinian trade.31 However, the relatively small grain agreements

12 1949–June 1957

with Argentina and Burma did not resolve the PRC’s growing domestic regionalfood shortages and the demand for wheat in the North. Beijing remained unwillingto accept international aid.

Twice during 1954, when the Geneva-based League of Red Cross Societiesoffered to organize international aid for China, the Beijing government insistedthat it could cope on its own. Also noting that the Sino-Sri Lankan barter tradein rice and rubber continued, and not wanting to help strengthen the PRC econ-omy and the PLA or give Western allies the impression that it was softeningits China policy, in August, Washington advised against American relief beingoffered to Beijing. Nevertheless, CIA director Allen Dulles convinced NSCmembers that Washington should occasionally consider making such an offerbecause of the propaganda value it might have in non-Communist countries andamong PRC citizens, if they learned of it.32

The beginning of the ‘Taiwan Straits Crisis’ on 3 September marked the startof a period of increased Sino-American tension. Yet, the strengthening of Japan’spro-China trade lobby33 culminated on 22 September with the establishmentof the official Japanese International Trade Promotion Association (JITPA), anofficial organization. Then in October, Norway extended full diplomatic recogni-tion to China and the following month, Sino-Dutch relations were established atthe chargé d’affaires level.

By mid-November, China’s relatively poor agricultural performance andescalating development targets were undermining industrial performance underthe First Five Year Plan (FFYP),34 leading Liu Shaoqi, Zhou Enlai, Chen Yi, ChenYun and Deng Zhihui to recommend the dissolution of the Agricultural ProducersCooperatives (APC). Following the spring floods, the central government hadpurchased an additional 3.5 million tonnes of grain from the peasants, thus exac-erbating regional shortages. During November and December all CCP memberswere preoccupied with grain purchasing and marketing problems.35

Washington was even more concerned than previously about Japan after PrimeMinister Yoshida was replaced by Hatoyama – who obtained socialist support byagreeing to hold elections in March 1955 and favoured increased Japanese tradewith the PRC and the USSR. In December Eisenhower urged the CIA to preparean estimate analysing the net effect on Japan and North China/Manchuria ifJapanese consumer goods were given greater access to the PRC in exchange forChinese items required by Japanese industry and answering the question: wouldsuch trade promote democratic ideas in China? However, at least one NSC mem-ber was sceptical because it was the PRC trading corporations which distributedforeign imports among China’s citizens – who were not necessarily told whereitems originated.36

March–January 1956

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


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 increasedforeign grain exports and the size of the national stockpile as a safety net (seeTable 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 fromGuangdong province to help cover regional shortfalls in the ‘traditionally’ grain-deficient northeast and responded by purchasing substantially more foreign ricethan in previous years – a total of 139,000 tonnes from Burma. However, north-ern residents grew more upset about the rice shipments they were receiving anddemanded wheat and soybeans instead.

Just when it appeared prudent for the Chinese leadership to reduce itsdevelopment targets, Mao’s landmark recommendation to the CPC’s NationalConference in Beijing (21–31 March) that China should strive to surpass the lead-ing industrial powers within a few decades, launched the ‘First Leap Forward’.During March, Washington told Taibei not to expect unqualified US supportfor defending Republic of China (ROC) – controlled offshore islands or for keepingthe PRC out of the UN, while Secretary of State Dulles admonished ROC leaderChiang Kai-shek for threatening an imminent Guomindong invasion of China.However, the Task Force on Economic Defense Policy’s report to the Council onForeign Economic Policy (CFEP) on 23 March recommended that the PRC shouldbe kept under ‘. . . economic and other pressures . . . [that] add to the strains whichultimately lead to disintegration . . . [it] has undertaken heavy commitments . . .[probably] it cannot under present circumstances increase its resources fast enoughto cover . . . [them] all. This kind of dilemma tends to lead to breakdown’.38

More pragmatic CCP leaders had already reached a similar conclusionand appeared to have responded to Mao’s growing impatience by instructingCNIEC officials to initiate more serious talks with Western and Japanese firmsabout 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 com-promise, reached in 1955, between the US and its allies, providing ‘Paris Group’member nations, discretionary powers to export some embargoed goods which didnot increase the importer’s military potential.39 Although Beijing continued thetrend begun the previous year of increasing purchases of Western and Japanesegoods, it stimulated greater competition by increasing imports of Soviet products.

Also around March, the PRC government made several more appointmentswhich could facilitate Chinese purchases of Western grain and trade with non-Communist countries. Shanxi native, Liu Xiwen was appointed deputy director ofMOFT’s third bureau, Rong Yiren was elected member of the People’s Councilof Shanghai and Xiao Fangzhou was appointed CCPIT secretary general.Lu Xuzhang was also elected member of the Committee of Democratic NationalConstruction Association – whose 150 members had been mostly businessand industrial leaders who had helped engineer economic expansion in the 1920sand 1930s.

14 1949–June 1957

Then, in mid-1955 a CCPIT delegation was dispatched to Buenos Aires40 todetermine whether the Argentinians would buy enough Chinese goods to enableBeijing to purchase more Argentinian wheat. However, since Argentina was inthe final days of the first Peron regime, a Sino-Argentinian grain deal was out ofthe question. China’s foreign wheat import options were also diminished by seriousgrain production problems in the USSR, Czechoslovakia, East Germany andPoland, which all began importing Canadian grain on credit terms in 1955.41

At the Bandung Conference on 23 April, Zhou Enlai accompanied by Ministerof Trade Ye Jizhuang42 told Asian and African leaders that Beijing wanted goodrelations with Washington and would participate in Sino-American talks aimedat reducing tensions in Asia. Three days later, the US government agreed to thetalks on the condition that the issues of Taiwan and Washington’s refusal to grantdiplomatic recognition to the PRC would not be raised.43

Lei Renmin, Nan Hanzhen and Lu Xuzhang’s trade delegation was in Japan atthat time and on 4 May, the third Sino-Japanese trade agreement was concludedunder which Beijing was to import mainly Japanese fertilizer, steel and machin-ery in exchange for Chinese agricultural products and minerals. Trade picked upas 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 ofFrench and West German equipment and metal, and the British governmentresponded that summer45 by telling Washington that the China differential shouldbe reduced.

While visiting Washington in early July, U Nu, who had received Zhou Enlaiafter the Bandung Conference,46 offered to help facilitate Sino-Americandiplomacy. However, with America experiencing the first of three years of solideconomic growth after the 1954 recession, Washington remained under Con-gressional pressure not to reduce the China trade controls. On 13 July Washingtonnotified Beijing, through the British government, that it was willing to participatein Sino-American ambassadorial talks to secure the release of Americans stillheld in China.

On 30 July, at the second meeting of the First Session of the NPC, Zhou Enlaiexpressed great hope that these talks would lead to a peace agreement involvingthe PRC, the US and Asian countries and result in trade between all countries.He added that the Chinese could only transform their economy through strengthand unity within a peaceful international environment.47

Meanwhile, in June and July, Lin Haiyun and Lu Xuzhang were appointedAssistant Ministers of Foreign Trade while Lei Renmin continued to gain influ-ence. At that time, with peasants continuing to withhold grain stocks from thegovernment, Chen Yun and Zhou Enlai were preparing new measures on nation-wide urban grain rationing, purchasing and supply which were formally adoptedby the Seventeenth Session of the State Council on 5 August.

Mao’s speech and report of 31 July, the day before the Sino-Americanambassadorial talks opened in Geneva, was critical of what he felt was China’sslow pace of development. This was a great watershed in the PRC’s history as it


launched a high tide of collectivization resulting in almost all peasant householdsbeing incorporated into fully socialist collectives within one year. Suddenly, asChina’s First Leap Forward continued, the Chinese government had abandonedits plan to achieve mechanisation before collectivization. During the autumnMao also convinced sceptical, powerful domestic industrialists and businessmento agree to transform all domestic enterprises into joint ventures, although theysoon became resentful of CCP interference in the running of these operations.

About that time the Chinese government also realized that it must soon importmore foreign wheat to appease the northern consumers. However, its options wereeven more limited than they had been a few months earlier. The Peron regimewas overthrown on 19 September and Argentina’s wheat exports were drasti-cally reduced because total domestic wheat production in 1955–6 was about2.72 million tonnes less than the previous year. In Western Europe, the extremelycold winter seriously damaged wheat crops, so that limited grain stocks werebeing depleted.48 International competition for rice stocks was intensifying and inJuly a three year Soviet-Burmese rice deal was reached, under which Moscowagreed to provide Rangoon with machinery.

Nevertheless, Chinese officials realized that from mid-1955 onward, Westerngrain 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 therelease of US airmen. While topics discussed during the first meeting included:the repatriation of civilian prisoners and Taiwan, by the 2nd, America’s negotia-tors gathered that Beijing expected Washington to respond to their prisonerrelease initiative by relaxing its trade embargo against China.49

Suddenly, about 20 October – after receiving an unofficial enquiry fromChinese representatives – a New York firm asked if Ottawa would license a20,000 tonnes shipment of Canadian wheat/wheat flour to Shanghai.50 Thereundoubtedly remained considerable opposition within the Beijing leadership topurchasing Canadian or American grain directly from Western interests, but thisenquiry was made just as the Sino-American ambassadorial talks at Genevareached a critical phase.

On 10 November US negotiators rejected a Chinese draft agreement onSino-American diplomatic recognition and China’s UN membership bid, tabledthirteen days earlier, but Zhou Enlai remained determined to orchestrate a diplo-matic breakthrough.51 In early December 1955, Whitehall had notifiedWashington that in January 1956, it would begin unilaterally reducing its Chinatrade controls to the level applied to other Communist nations.52 British PrimeMinister Eden was unable to convince the Eisenhower administration to agree toa 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 toestimate the potential net dollar gain or loss to the US and allied economies if thecontrols on trade with the ‘Soviet bloc’ were abolished.53

Meanwhile, between November 1955 and April 1956, the Chinese purchased30,000–45,000 tonnes of Canadian wheat (and a small amount of French flour)

16 1949–June 1957

from the Polish government. Poland had agreed to purchase approximately380,000 tonnes of Canadian Manitoba Northern (MN)#5 wheat54 on credit termsin mid-1955 and in December was negotiating with Canadian firms for another30,500 tonnes of MN#3 wheat – a variety which Poland had not previouslypurchased.55 However, China’s grain distribution problem remained unresolved.

January–June 1956

Grain rationing, introduced in August 1955, reduced China’s urban grain sales toa more reasonable level. This measure, together with a record domestic grain har-vest in 1956, allowed the central government to attempt to improve its relationswith the peasants and consumers by reducing rural grain procurement and, inearly 1956, raising urban grain rations.56 By June of that year the national grainstockpile 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 pronouncedincrease in the rural and urban demand for grain, especially for fine grains suchas rice and wheat. More than ever, the PRC’s grain output was insufficient to meetdemand.57

The First Leap Forward had been enthusiastically supported by Zhou Enlai andChen Yun – both of whom were instrumental in setting ambitious targets underthe Twelve Year Draft Plan for Agriculture (40 articles) – which was formallyadopted by the Supreme State Conference in January 1956.58 However, betweenJanuary and April 1956, as the Sino-American Geneva talks reached an impasse,Zhou Enlai, Chen Yun, Li Xiannian and Li Fuchun, voiced opposition to pro-gressively escalating domestic capital construction targets and associated wasteand shortages and were gaining support for their proposal that China learn fromthe USSR’s mistakes and embark on an economic ‘readjustment’.59 This strategyinvolved China pursuing more gradual economic development and dramaticallyimproving economic relations with the West and Japan in order to obtain grain,chemical fertilizer and state-of-the-art equipment and technology to raiseagricultural production.

As we will see, in 1956 Beijing was becoming disillusioned with its Soviet-style development policies and aspects of aid that Moscow was providing. ThePRC leadership was also displeased with Soviet leader Khrushchev’s speech tothe Twentieth Congress of the CPSU in February 1955 on Stalin and the interna-tional Communist movement. Many years later the Chinese themselves admittedthat this was a defining moment in Sino-Soviet differences.60

By about March, Mao had been persuaded that it was necessary to lower indus-trial targets substantially while establishing a better balance between industry andagriculture. This was an extremely important development as it meant that theChinese leadership was officially rejecting the strategy advocated at the outset ofthe FFYP. This ‘readjustment’ concept was reflected in the Chinese leader’s25 April speech ‘on the Ten Great Relationships’, one of the most significant evergiven by the Chinese leader. It noted the shortcomings of Soviet and Chinesescience/development and advocated a more flexible and balanced approach to the


‘industry first’ Soviet model previously favoured by Chinese policy. Mao addedthat China

. . . must learn from the strong points of all . . . countries, including theadvanced sciences and technologies of capitalist countries and their scientificmanagement of enterprises . . . we must learn with an analytical and criticaleye . . . [but] we must never copy them indiscriminately or transplant themmechanically.61

At the Leipzig Spring Trade Fair, Ding Kejian – a member of Nan Hanzhen’sdelegation there, who was also a high ranking CNIEC official and top economicadvisor to Zhou Enlai – told ‘48’ Group representatives that China requiredapproximately 1.4 million tractors during the period covered by the ‘Twelve YearPlan for Agriculture’. Only some of these would be purchased abroad since tractorswere on the COCOM list. However, UK tractor manufacturers were suffering fromslumping sales and idle capacity and by March, Massey-Harris-Ferguson andDavid Brown representatives were negotiating in Beijing.62

At the NSC’s 281st meeting on 5 April, Eisenhower spoke out in favour ofremoving as many American trade restrictions as possible, encouraging Japan totrade with its neighbours including China and avoiding the disruption of ‘tradi-tional’ 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 becomethe first to use COCOM’s ‘exceptions procedure’ to sell the Chinese embargoedequipment. The French government also appeared willing to approve the exportof French tractors to China through the same loophole. Besides, Beijing couldobtain 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 tosell the Chinese increasing quantities of metal, chemicals and equipment.

At the NSC’s 282nd meeting on 26 April, it was agreed that Washington mightfind it more advantageous to tolerate Western-aligned nations’ use of the excep-tions procedure of the CHINCOM than to participate in formal negotiations toreduce the CHINOM list because this might make allies more willing to embargogoods such as copper.65

About that time Nan Hanzhen, Lu Xuzhang and Ma Yinchu – a non-CCP eco-nomist and former director of the Bank of China who since 1955 had advocateddecentralization in economics and gradual/balanced domestic economic growthbased on agricultural development66 – were appointed members of the CCPIT’sforeign 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 tradeagreement between the two nations be extended for another year, beginning on4 May. However, on 10 May when Japanese Prime Minister Ichiro Hatoyama toldthe Diet that he would approve a proposal that the PRC establish a trade mission

18 1949–June 1957

in Japan, Japanese Foreign Ministry officials opposed the initiative, emphasizingthat 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 utilizeCHINCOM’s ‘exceptions procedure’ so that some rubber could be exported toChina. Other South-East Asian rubber exporters, led by Malaya and Singapore,whose trade with China had grown rapidly since 1955, announced that they wouldalso follow suit.68 This development threatened to undermine the Sino-Sri Lankanrice rubber barter trade, and Colombo’s eagerness to secure a second consec-utive deal was a key factor in Sri Lanka’s 7 February 1957 decision to extenddiplomatic recognition to China.

About May 1956, Zhou Enlai and Chen Yun probably decided to persuadeMao, over the coming months, to reverse his earlier stand and sanction negotia-tions with Western traders for substantial quantities of grain. Regardless,the Chinese leadership agreed on the importance of increasing immediately theapplication of chemical fertilizer to stimulate greater grain output.

A result of the cooperativization campaign proceeding well beyond theofficially approved targets, was the dramatic decline in the pig population –previously a vital source of manure.69 Beijing had responded by increasing itsannual foreign imports of chemical fertilizer from 365,777 tonnes in 1953 to1.4 million tonnes in 1956 (see Table 1.3).70

Chemical fertilizer production worldwide expanded drastically during the1950s and 1960s and overcapacity among Western producers was pushing downexport prices. They were more receptive to expanding exports through unortho-dox methods. The Less Developed Countries (LDCs) became increasingly impor-tant export markets, and, whereas they found it difficult to afford foreignchemical fertilizer, their state trading organizations possessed vast buying power,allowing them to promote competition among suppliers, drive down prices in theworld markets and win political and economic concessions.

Over two-thirds of the PRC’s total annual chemical fertilizer imports between1949 and 1957 came from Western Europe where producers paid much more thanthe Japanese for shipping fertilizer to China. However, West European productioncosts were lower than those of the Japanese because their plants were larger andoften utilized natural gas as a feedstock.71 Until 1956, firms from West Germany,Belgium (including Luxemburg and Japan) were the PRC’s most important sourcesof chemical fertilizer. However, in 1957, Beijing also began purchasing large quan-tities from Italy. Italian fertilizer, produced from abundant Po Valley, natural gas byAzienda Nationale Idrogenajione Cumbustibili (ANIC) (a subsidiary of the semi-official Ente National Idrocarburi (ENI)), Montecatini and Edison, was relativelyinexpensive.

However, these imports were a heavy drain on Beijing’s limited currencyreserves and under the FFYP, announced in mid-1955, the government planned tofocus more on developing the domestic chemical fertilizer industry. By 1957about 73 per cent of China’s nitrogenous fertilizer output came from two plantsbuilt between 1935 and 1937.


From 1949 to 1957 the Soviets provided most, if not all, of the PRC’s importedunits and related technology for direct ammonia synthesis. However, in 1956 and1957 the Chinese blamed the delays in delivery and expense of Soviet chemicalfertilizer equipment for the slow progress in the PRC’s chemical fertilizer industry.Apparently the central government’s ‘technology transfer’ was not adequatelyfiltering down to small-scale rural-based enterprises on which PRC developmentplans relied heavily.72 Ministry of Chemical Industry officials openly ‘. . . criticisedRussian design as too elaborate and uneconomical in terms of land and material’.

To save currency and increase the speed of construction, in late 1956 theChinese began experimenting with building their own synthetic ammonia and

20 1949–June 1957

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

Year OECDa OECDa (%) Japana Japana (%) Totalb

1950 — — — — 117,9631951 — — — — 198,7391952 — — 1,000 — 215,0971953 92,000 72 30,000 23 365,777

(Belgium–Luxemburg57,000)(FRG 22,000)

1954 24,000 18 108,000 82 658,906(FRG 22,000)

1955 361,000 66 171,000 31 830,110(Belgium–Luxemburg106,000)(FRG 236,000)

1956 642,000 66 318,000 33 1,357,845(Belgium–Luxemburg264,000)(FRG 258,000)(Norway 1,000)

1957 742,000 74 246,000 25 1,236,021(Belgium–Luxemburg292,000)(FRG 248,000)(Italy 154,000)

Sources: Table prepared by author from: a J.C. Liu, op. cit., pp. 54–5, 58–9, 66–7 (based on officialpre-1958 OEEC, post-1958 OECD, Japanese government and Japanese Fertilizer Association annualstatistics); b CIRECO, op. cit., p. 939.

NotesBelgium–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).

urea units, but had problems manufacturing various components.73 Unable toproduce significant quantities of these fertilizers cheaply, they became interestedin purchasing comparatively inexpensive state-of-the-art equipment for producingammonia from natural gas and highly concentrated synthetic urea from the Westand Japan where deals were available following the onset in late 1956 of a post-Korean War recession.

The Chinese believed, incorrectly, as became evident in the 1970s, that theSichuan Basin contained abundant high-sulphur-content natural gas reserves andwanted 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 north-ern mines (China’s largest reserves), ease the burden on the transportation systemand make more coal available for electrical generating plants. By utilizing thenatural-gas-to-ammonia process, which ENI had pioneered to produce a compar-atively inexpensive fertilizer, the Chinese could also use the gases from oil refin-ing and steel production to produce ammonia fertilizer.74 The ammonia could beused to produce prilled (a.k.a. pelletized) urea which had a nitrogen content ofapproximately 46 per cent – while ammonia fertilizer was only about 20 per centnitrogen rich. Prilled urea could also be easily handled and applied75 and retainedits nitrogen content better than other forms of fertilizer, which in turn eased theburden on labour, transportation and storage.

Although Chinese leaders were receptive to proposals aimed at dramaticallyincreasing domestic production, they disagreed over the proper approach.Ma Yinchu insisted that it would be too expensive for the PRC to build manyfertilizer plants at once.76

Because the PRC lacked the necessary technology, Chen Yun opposed plans tobuild many inexpensive, small and medium nitrogenous fertilizer production plantsthroughout the countryside. Instead, he recommended building up to five large-scalefacilities (i.e. with at least 25,000–50,000 tonne p.a. capacities) and suggested thatthe output and quality of domestically produced special steels required for fertilizerproduction equipment be increased. Beijing still needed to spend about $3.2 millionto import at least 10,000 of the 30,000 tonnes of various types of metal required tobuild a 50,000 tonne p.a. capacity complete chemical fertilizer plant. Chen Yunpointed 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 beconsumed very soon. But if . . . [instead we] use this to buy the importantmaterials for building . . . a factory that annually produces . . . [50,000 tonnes]of synthetic ammonia . . . the chemical fertiliser produced . . . will increasegrain 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, reducedprocurement, increased domestic sales and a growing volume of foreign exports


resulted in grain stocks declining for the first time since 1953, and at an alarmingrate. As grain distribution problems continued, the Chinese agreed to purchase116,541 tonnes of foreign rice for delivery in 1956 – at least 86,000 tonnes ofwhich came from Burma under their earlier agreement.

The Chinese began tapping into Cambodia’s relatively small grain surpluson 24 April when both sides signed a trade and payments agreement. PrinceSihanouk was reluctant to commit Phnom Penh to work closely with the South-East Asia Treaty Organization (SEATO) despite offers of US aid.

Secret Sino-Thai diplomacy led to an agreement – signed by Zhou Enlaiand Thai officials on 21 June – under which Bangkok lifted its embargo on non-strategic exports to China. In December 1955, Mao had urged Thai Prime MinisterPhibulsonggram, who blamed US PL 480 grain shipments to South-East Asia forthe reduction in prices received for Thai rice, tin and rubber exports to ‘tradi-tional’ regional markets – not to participate in the SEATO pact, which Thailandhad already signed. The Thai government had also reportedly taken an interest inthe 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 andeconomic ties could be developed to improve relations with Japan and peacefullyresolve the Taiwan issue.79 However, Beijing’s successful South-East Asian tradediplomacy was not helping its efforts to reach a breakthrough with the Americansat Geneva. Moreover, although the Chinese obtained greater access to South-EastAsian rice surpluses, these fluctuated greatly and would be insufficient to meetdemand if more serious Chinese supply crises developed.

Following ‘the Pozan Uprising’ of 28 June, Poland suspended indefinitely itsre-exports of Western wheat to China.80 Canadian stocks appeared to be China’sonly potential source of wheat for the foreseeable future, but for political andfinancial reasons discussed earlier, there remained considerable resistance amongChinese leaders to making large direct grain imports from these countries. Yet,costs associated with Soviet intervention in Poland and Hungary during thesecond half of 1956 led Moscow to reduce its own economic targets and curtailits financial aid to Beijing. Then, in July or August the Chinese governmentwas forced to grant the Guangdong authorities – following protests from theprovince’s producers and consumers – a complete waiver on their scheduled grainexport transfers in 1956.81 Thus, when Zhou Enlai responded by warning the StateCouncil meeting, between 3 and 5 July, that the Second Five Year Plan (SFYP)(1958–62) draft under review was ‘dangerous’, participants agreed that targetsunder the plan should be reduced.82 According to the Far Eastern EconomicReview (FEER),83 during the summer, when the government was criticized fornot making the best use of various individuals with extensive foreign tradeexperience, Ye Jizhuang said that this oversight was being addressed.84

As the grain problem came to a head, Beijing continued to create frictionbetween the US and its allies through its effective efforts to undermine theWestern embargo. In July, with UK economic difficulties continuing, includingthe domestic auto industry wrestling with growing surpluses, London sought

22 1949–June 1957

COCOM’s approval to sell the PRC three hundred and fifty British Landrovers.The US stood alone in opposing the transaction, although Japan and Canadaabstained from expressing an opinion.85

Some Chinese leaders, led by Zhou Enlai, felt that it was time to considerinitiating Sino-American trade discussions. On 6 August, with the ambassadorialtalks in Geneva stalled, Zhou invited the Americans to send news representativesto China. Although the US rejected this offer, when the Geneva talks resumed on21 August, China’s chief negotiator and Ambassador to Poland, Wang Bingnan,suggested that both sides discuss organizing bilateral contacts and presentedthe Americans with a proposed draft agreement on relaxing the China tradeembargo. While Beijing appeared willing to work towards resolving these issuesbefore focussing on more problematic ideological matters such as Taiwan,Washington rejected this initiative because the Chinese refused to renounce theuse of force in Taiwan and continued to hold US citizens as prisoners.86 Also on8 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 occurseveral more times over the coming years when Sino-American tensions appearedready to moderate.

At the CCP’s Eighth NPC (15–27 September) the SFYP – which called forreductions in administrative and military expenditure and gave priority to bal-anced economic development over ‘class struggle’ – was approved.87 During theproceedings, Chen Yi emphasized that peaceful international relations would helpChina reach its industrialization targets and stated that Beijing was willing toestablish diplomatic relations with any country, including the US, which obeyedthe Five Principles of peaceful coexistence. His remarks essentially reiteratedZhou Enlai’s comments of 28 June 1956.88

Also chemical fertilizer production targets were raised to 3–3.2 million tonnesfor 1962 and, beginning in late 1956, officials of the Ministries of ChemicalIndustry (formed earlier in the year with the merging of the separate Ministries ofcoal, petroleum and electric power industries), MOFT and the First Ministry ofMachine Building opened discussions with Western firms for chemical fertilizerequipment. Representatives of Shell, an Anglo-Dutch firm – which did not main-tain an office in Taiwan and refused to do business with the ROC – and ENI, whichunder the leadership of founder and president Enrico Mattei had established itselfas a thorn in the side of the major Western oil firms and the US government byoffering oil rich LDCs comparatively favourable terms to help develop their oil andgas fields, were scheduled to visit China in 1957–8.89

Meanwhile, lucrative Chinese trade offers since July had created more Westernand Japanese interest and competition in the China market, adding to tensionsin US–Allied relations. Even by late 1956, CHINCOM delegates had begundiscussing seriously the abolition of the China differential.90 On 3 October 1956,after Washington asked Whitehall and ‘Paris Group’ members to restrict using theexceptions procedure to prevent the trade controls from breaking down, theBritish Cabinet agreed to curtail its use of this loophole over the short term,particularly for goods previously on the COCOM list.


In light of the Suez crisis, the British were especially eager not to offend theAmericans and risk jeopardizing their access to ‘dollar oil’. Nevertheless, theBritish Cabinet also decided to inform Washington that, owing to mounting pres-sure from domestic industrial interests and opposition members in the House ofCommons, the more stringent controls on China trade could not be maintainedindefinitely.91 Still, the Suez crisis, Soviet intervention in Poland and Hungary,concern about increasing Chinese involvement in Vietnam, the PLA’s construc-tion of an airfield opposite Taiwan and the upcoming US Presidential electionminimized the likelihood of a US government re-evaluation of the embargo inlate 1956.

At the State Council Standing Committee meeting between 20 October and9 November Chinese leaders unanimously supported Zhou’s call for a reducedpace of economic construction.92 At the Eighth Central Committee of the CPC’sSecond Plenary Session (10–15 November), Zhou Enlai and Chen Yun againcriticized rapid development policies pursued in 1956 and Liu Shaoqi boldlywarned leaders to ‘. . . draw lessons from the Polish and Hungarian incidents andother issues, pay attention to the development of agriculture and light industryand show concern for the people’s welfare’.93 While in Phnom Penh between22 and 27 November, Zhou Enlai told US journalists that Beijing would stillwelcome a visit to China of US newsmen.94 However, Washington was alreadyhardening its position towards the PRC following the signing on 6 November ofa Sino-Indonesian economic agreement – covering the exchange of Chineseequipment, raw materials, cotton and silk for Indonesian oil, rubber, sugar andcoffee – which threatened to draw the resource rich Indonesia even further awayfrom Western influence. Much to the irritation of Western oil companies operat-ing in that country in 1957, Jakarta established Permina – an army dominatedstate 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 admin-istration.95 When the ‘Small Group’ immediately recommended a reduction indevelopment targets, Mao spoke out in favour of Chen Yun’s analysis of theChinese economy.96 That same month Zhou Enlai personally approved a Sino-Thai rice deal as ‘a goodwill gesture’ when negotiations in Beijing, shortly beforeThailand’s general elections, stalled over the issue of price.97 However, South-EastAsian rice surpluses alone were both unsuitable and insufficient to help balancesupplies in China’s grain deficient northeast.

Between June 1956 and July 1957 the PRC’s national grain reserves fell from21.69 to 18.49 million tonnes, leading Chen Yun to warn that, if this trend con-tinued, by 1961 stockpiles would be exhausted.98 Excessive urban populationgrowth associated with rapid development remained a major cause of China’sgrain problem. A pamphlet published in Beijing in March 1957, emphasized thatthe PRC’s current economic conditions were similar to those prevailing in

24 1949–June 1957

1953 and recommended that a national grain reserve of at least 50 million tonnesbe 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 atthe rate of more than 3.2 million tonnes a year, Beijing would have to reduce thepace of construction drastically, focus more on increasing domestic grain outputand return, at least temporarily, to the pre-1949 strategy of importing Westernwheat and wheat flour.

With Mao still set on rapid development, Chen Yun and Zhou Enlai maintainedthat, in addition to foreign chemical fertilizer, equipment and technology imports,the Central government could lessen the burden on domestic grain supplies andstimulate production by reducing the urban population by several million whileimporting up to five million tonnes of Western grain annually, for the coastalcities, for three to five years.100

However, in early 1957, when the Chinese again enquired about purchasingforeign wheat, they still found their options extremely limited. It appearedunlikely that the PRC would be able to buy US grain after August 1956, whenDulles rejected Zhou Enlai’s invitation to send American news representatives tothe PRC. However, the Eisenhower administration subsequently came under pres-sure to reverse its position. Realizing this, and still hoping to break the ice, on17 February 1957 Wang Bingnan suggested a Sino-American exchange of newsrepresentatives, but Washington continued to focus on obtaining the release ofthe ten remaining American prisoners in China. However, Zhou Enlai’s foreignrelations report to the Second National Committee of the Chinese People’sPolitical Consultative Conference (5–20 March) emphasized that, although deter-mined to protect its sovereignty and liberate Taiwan, Beijing was willing to settleSino-American differences through peaceful negotiations.101

The US economy continued to grow after the setback of 1954, but Washingtonbecame concerned when America began running a balance of payments deficit inearly 1957.102 Also at that time, because of US–Allied disagreement over thescope of the China trade controls, concern about the future of Japan’s economicand political stability, and Eisenhower’s objective of reducing international barri-ers, CFEP prepared a policy proposal calling for a substantial relaxation of theWestern China trade controls.103 About this time Washington recommended thatits allies tighten their China trade controls.

At that point Yugoslavian Ambassador Mi|unovi| in Moscow noticed thatChinese criticisms of the Soviets became more serious.104 Then on 10 April,Japanese PM Kishi Nobusuke105 said that it was time to establish Sino-Japanesediplomatic relations.

Beijing had already begun to consider purchasing Canadian grain. In early1957, after hearing rumours of worsening grain supply problems in China,Canadian Wheat Board (CWB) representatives had been dispatched to Hong Kongfor discussions with CIRECO.106 Australian Wheat Board (AWB) officials werealso waiting to see if the Chinese were interested in buying significant quantitiesof Western wheat. Also in April Rong Yiren was appointed deputy of Shanghaiand Vice-Minister of Foreign Trade Lei Renmin continued to gain influence.


Although the Chinese still maintained that they did not plan to purchase foreignwheat, during the first week of May 1957 Chen Yun reduced urban food rationsand increased prices for agricultural commodities, making more money availableto peasants for consumer products. By this point the government was havingincreased difficulty in procuring enough grain for the rapidly growing urbanpopulation because, as the agricultural sector grew, peasants exerted pressure formore grain rations.107

Then, between 18 May and 30 June, CIRECO officials visited Canada to assessthe Canadian market for Chinese goods and consider Canadian commoditiesavailable for export. During the visit CIRECO officials maintained that theywere unaware of food shortages in China and that Beijing was not at that pointconsidering purchasing grain.

However, on 18 May, as the CIRECO delegation arrived in Montreal, China’sofficial news agency Xinhua reported on Poland’s recent credit trade negotiationsand agreements with French, Canadian and American interests. British officialsthought this probably reflected Beijing’s plans to dramatically increase trade withthe West and Japan108 and considered it crucial that UK interests be able toexpand trade with China promptly.109

Thus, on 29 May 1957, the British Cabinet – unable to convince the USgovernment to agree to modifying the China trade controls – decided unilaterallyto reduce UK controls to the level set for exports to the ‘Soviet bloc’. Thisdecision, announced the next day in the House of Commons, effectively endedthe China differential. The other COCOM nations, with the exception of the US,Canada and Turkey, responded by reducing their respective controls on exports toChina.

During the first few days of June, as the CIRECO delegation toured Canada,Chinese officials admitted to a Polish diplomat that Beijing was very unhappyabout its almost complete economic dependence on Moscow and was considering‘. . . a partial re-orientation of the Chinese economy away from some of its Sovietties . . . .’110

However, PRC leaders sceptical of, or opposed to closer economic ties with theWest and Japan may have become suspicious of Tokyo’s intentions towardsBeijing when, during June, Japanese Prime Minister Kishi visited the ROC andthe US and on the 5th said that he was not contemplating a change in Japan’sChina policy.111

26 1949–June 1957

That the three years between 1959 and 1961 witnessed the most severeconsequences of the . . . [GLF] strategy is not in doubt. There is, however, evidenceto 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 discussthe supply of insecticides and chemical fertilizers to China by Shell.[B]efore . . . return[ing] to Shanghai . . . [we] thought [a CNIEC official] men-tioned . . . [Zhou Enlai’s] personal approval of our trip to encourage my husband toobtain from Shell in London all the things the corporation wanted to buy . . . .

[W]e went to London . . . [and the Hague in 1956–7 for] discussionswith . . . [Shell’s] directors about trade prospects in China . . . [which] looked promis-ing and British experts were invited . . . to China. But soon after . . . [returning] theAnti-Rightist Movement was launched . . . followed by the . . . [GLF]. . . . Everythinghad to stop. The . . . [Beijing] officials who were so enthusiastic could no longermake 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] atrial . . . [which] convinced their principals at CEROILFOOD that the trade wassound. 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 grainproduction was not keeping up with growing domestic and export requirements.1

With the ‘Hundred Flowers’ campaign encouraging frank discussion, between3 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 andacademic leaders at Shanghai and found the non-Communist and the intellectual

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

representatives unsupportive of the movement against critics of government duringthe rectification campaign.3 That same day Henan Ribao reported that the HenanFirst Party Secretary, Ban Fusheng had criticized the Central government forrequesting grain transfers from that province. Peasants were demanding and receiv-ing increased grain rations which adversely affected urban grain supplies.4 Aboutthis time, Ye Jizhuang became Vice-Chairman of the CCP Central Committee’sfinance and economic committee, while the deputy chief Zhu Rongji of the StatePlanning Commission made a speech questioning CCP rapid development policies.

In July, Guangzhou news sources reported critical agricultural problems inGuangdong. Rural grain procurement was increasing to support rapid urbangrowth, especially Guangzhou’s, and as shortages worsened, the provincialgovernment reduced the area sown with crops used for industrial purposes.5

Then in August, although Tao Zhu remained party secretary he was replaced asgovernor of Guangdong.

A point of focus of a special meeting of the Political Bureau and StandingCommittee of the Central Committee at Qingdao in July or early August, wasMao’s report on his meetings at Shanghai in early July.

A People’s Daily editorial of 30 August warned that during ‘this coming autumnharvest, if we cannot contrive a way for the state to buy more grain, we are head-ing for a future full of troubles’.6 Indeed, as we will see, declassified Westernarchival material relating to the Sino-Western grain trade and China’s economyprovides important new evidence to support Kenneth R. Walker and Robert F. Ash’scontention that China’s ‘Great Leap Forward’ (GLF) famine, which resulted in thedeaths of between 20 and 30 million Chinese people, may have actually begun asearly as 1957–8 – at least a year earlier than other researchers maintain.7 Recentlyreleased Chinese government statistics show that approximately 1.8 millionabnormal deaths occurred throughout China in 1958.8

Contrary to the standard Western interpretation, the Chinese leadership imple-mented early, direct and fairly extreme measures to resolve the deepening foodcrisis. However, with leaders disagreeing over the appropriate approach, conflict-ing policies were often pursued simultaneously. Some leaders, believing thatrapid development should continue, favoured a reduction in grain rations whileencouraging people to consume more fine grain substitutes.

Mao maintained that grain production could be increased by planting rice andother high-yielding cereals in the grain deficient North, even though residentsthere preferred wheat and the climate and soil were not conducive to rice pro-duction (see Map 2.1). Liu Shaoqi and other CCP leaders were later alleged tohave vehemently opposed this policy which was introduced in mid-1956 andpromoted in autumn 1957.9 Then, in August, Chinese officials, led by Chen Yunand Zhou Enlai, stepped up efforts to reduce the pace of domestic construction,increase the PRC’s trade with non-Communist countries and increase the quantityof preferred grains for domestic consumption by returning to the pre-1949strategy of importing substantial quantities of Western wheat.

Sino-Thai trade was increasing in August when Bangkok announced that itwanted to trade more directly, rather than participate in the usual unofficial trade

28 July 1957–August 1960

Kashi

3.

8.

5.

6.

4.

10.

YiningUrumqi

National border

9.

Indian claim

Lhasa

Lanzhou

1.

7.

2.

Chengdu

Xian

WuhanChongqing

Kunming

NanningGuangzhou

Xiamen

HainanDao

TAIWAN

CHINAWHEAT PREDOMINANT

RICE PREDOMINANT

Chang Jiang River

Huang He River

Taiyuan

Shenyang

Harbin

Beijing

Shanghai

Agricultural regions

Major rivers

Chinese line of control

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; andV.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.

Notes1 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 almost30 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.

via Hong Kong and suggested that Beijing establish permanent trade representationat the Thai capital.10 This was welcome news to those Chinese leaders eager toincrease export earnings to pay for substantial quantities of Western wheat.

In 1957–8 China’s foreign grain import options were again limited as otherCommunist nations continued importing grain and Australia, which suffereda poor harvest, even imported some Canadian wheat to supplement domesticdemand. Nevertheless, France’s harvest was good and Canadian and Americangrain surpluses reached record levels.11

Although in a speech on 28 June, Secretary of State Dulles declared thatChinese Communism was just a passing phase, during the Sino-American talksat Geneva in early to mid-August 1957, both sides seemed closer to reachingan 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’spolicy debates by taking a slightly more flexible approach to the talks.12

In mid-August the US government was preparing to issue unrestrictive temporaryexperimental passports enabling representatives from several news organizationsto be stationed in China for at least six months. However, it was unwilling to offerreciprocal visas to news representatives holding PRC passports. Washington alsostressed that the offer did not reflect a change in the China policy of the US, butsimply sought to have Americans better informed on conditions in China.13

However, around 26 August the Chinese rejected a related American initiative onnews representatives and, at an ambassadorial meeting on 12 September, bothsides indicated that talks on this issue remained deadlocked.

Clarence Randal told the NSC’s 336th meeting on 13 September 1957, that itwould be unfair to American business if the US government maintained unilateralrestrictions on China trade. Yet, Secretary of State Dulles advised against relax-ing the controls because this would send the wrong political and psychologicalmessage to America’s Asian allies who were attempting to prevent Communistinfiltration14 Later, at the NSC’s 338th meeting on 2 October, Dulles suggestedthe possibility, outlined by Hu Shi at the UN, that uprisings like those in Polandand Hungary could occur in China and present the ROC government with theopportunity to return to the Mainland.15

Also on 12 September a CEROILFOOD (Shanghai) official approached theBritish firm Bank Line’s office in Shanghai to enquire about purchasingCanadian or Australian wheat and wheat flour.16 Bank Line – an affiliate ofCargill, the Minneapolis-based grain trading firm which had previouslyconducted most of its business in the US – was one of the few Western firmsthat the Beijing government had allowed to maintain an office in the PRC.Cargill had been interested in expanding exports to Asia since purchasingKerr Gifford & Co. – a major American West coast grain trading company whoseAsian business agent was Andrew Weir & Co. – in June 1953. Cargill’s 69-year-old president, Austen Cargill, had died suddenly on 24 May 1957, just when Sino-Western/Japanese trade appeared to be opening up and, although he was replacedon 13 August by Cargill MacMillan, the firm’s sales slipped in 1957. Thus, in


September his brother, Cargill Chairman John H. MacMillan Jr scheduled atrip to Asia for early 1958 to investigate trade opportunities and to decide ona location for an official regional division headquarters.17

‘Max’ Forsyth-Smith, the Canadian trade commissioner in Hong Kong, learnedof the Chinese approach almost immediately from Bank Line’s Hong Kong direc-tor, and subsequently obtained approval from Ottawa and Beijing to lead a tradepromotional delegation to Guangzhou, Beijing, Tianjin and Shanghai from 6 to23 November 1957.18 Mao – who probably remained opposed to China importingWestern 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 thecapitalist powers and South-East Asian countries had to improve. Thus, it wascrucial 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 furtherlimiting Beijing’s foreign sources of rice and making Western wheat importsimperative. Another result of this Thai decision was that Beijing lost a potentiallylarge 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 andpayment agreement (1958–62) was signed. Then, on 27 September, CCPIT andOtto Wolff von Amerongen – owner of Otto Wolff AG and Chairman of theCologne based semi-official East–West trade organization Ostausschuss derDeutschen Wirtschaft (ODW)19 [the Eastern Affairs Committee of West GermanIndustry] – signed a one year trade agreement. It provided for Bonn to considerproviding Hermes Export credit guarantees to facilitate Sino-West German trade.

These agreements were finalized as the Third Plenary Session of the CPC washeld (20 September–9 October), where many leaders called for less ambitious andmore balanced economic development. On 24 September, Chen Yun emphasizedto the conference the importance of achieving a proper balance between foreignexports, domestic procurement and rationing of grain. He also urged the imme-diate adoption of measures to develop the domestic chemical fertilizer andchemical fibre industries so as to help resolve China’s food and clothing prob-lems. During these meetings the revised draft of the National Programme forAgricultural Development (1956–67) was approved in principle.20

Mao was already disappointed with China’s economic growth in 1957 when, on7 October during the meetings, the Guangzhou authorities reported that theirprovince 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’scultural bias against eating potatoes by suggesting that consuming more of thisvegetable would reduce grain consumption and help feed the peasants.22

‘Great Leap’, famine and ‘readjustment’ 31

On 9 October, during the final speech at the Third Plenary Session Mao calledfor more rapid domestic development and a restoration of the position taken atthe Second Plenary Session of the CPC, Seventh Central Committee on classstruggle – a directive which CCP Party historians maintain enabled serious ‘leftist’policy errors to occur.23 A Chinese State Council supplementary directive of11 October reduced urban grain rations for 1957–8, greatly tightened overall con-trols on grain and flour supplies, and introduced the first ever flour rationing atHeilongjiang.24

Sino-Soviet relations had improved since the summer25 and on 15 OctoberMoscow agreed to extend necessary aid for the PRC’s nuclear programme. Then,from 2 to 20 November Mao joined international Communist Party leaders inMoscow for the fortieth anniversary celebrations of the October Revolution.

Following news that on 3 November the Soviets had successfully launcheda second Sputnik satellite, Mao shocked Communist leaders in Moscow byannouncing that China’s annual output of heavy industrial products would surpassBritain’s within fifteen years.26 He also told Khrushchev that Japan and WestGermany represented the biggest threat to Communist countries – reflecting hisdispleasure with China’s increased trade with Capitalist countries and JapanesePM Kishi’s visits to South Vietnam, Taiwan and the US during the year. On13 November, the GLF slogan was first mentioned in an editorial of the People’sDaily urging the Chinese to repudiate right conservative ideas and ‘make a greatleap forward on the production front’.27

Meanwhile, on 6 November two days after Time published an article, ‘RedChina Famine on the Way?’ a Canadian government trade delegation began itstour of China at Guangzhou. The Canadians were met there by Chen Feizhang ofCEROILFOOD (Shanghai) who was visiting the autumn Guangzhou Trade Fair.Chen told the Canadians that his organization wanted to place a trial order for1,000–2,000 tonnes of Canadian wheat through Bunge.28 Although Bunge was‘traditionally’ an Argentinian-based firm – since mid-1946 when the Peron gov-ernment gained power and effectively nationalized Argentina’s grain trade – itconducted a considerable amount of business from its New York office.29

That same day the Chinese queried Bunge’s Hong Kong manager about pur-chasing French flour.30 Bunge representatives felt that the Chinese wanted toobtain quotations for grain immediately so that CEROILFOOD (Shanghai) couldconduct business independently at the Guangzhou Trade Fair rather than goingthrough its headquarters once its representatives returned to Beijing.31

Indeed, when Forsyth-Smith’s delegation reached Beijing, officials atCEROILFOOD’s national headquarters told them that China did not need toimport wheat. When the Canadians mentioned the interest CEROILFOOD(Shanghai) had shown, Beijing officials thought it ‘unlikely that Shanghai wouldbe making enquiries without direct instructions from the Head Office’ althoughthe Canadians ‘later discovered that the Branches of the Corporations . . . [had]a good deal of autonomy and . . . [could] import virtually any commodity withoutthe prior consent or even knowledge of their Head Offices’.32 After all, the centralgovernment did not allocate budgetary funds for foreign grain imports anyway.


Nevertheless, even if Mao had been unaware of CEROILFOOD (Shanghai’s)approach to Western interests, it was probable that he would hear about it whenhe returned from Moscow.

After leaving Beijing, the Canadians went to Shanghai where CEROILFOODofficials enthusiastically confirmed that they would place a trial order for1,000–2,000 tonnes of Canadian wheat. The Canadians got the impression that, ifthe Chinese were pleased with this initial shipment, they would import moreCanadian wheat in 1958.

Chen Feizhang contacted the Canadians again when they returned toGuangzhou before leaving China, telling them that CEROILFOOD (Shanghai)officials were negotiating deals with Bank Line and Bunge in Guangzhou so thatthe wheat contract(s) could be included in the final tally of business concludedat 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 BankLine’s Shanghai representative who confirmed that the negotiations had beencompleted and the firm’s Hong Kong director was to sign a contract with theChinese covering 1,000–2,000 tonnes of Canadian wheat.33 However, when BankLine’s Hong Kong director arrived the following day, the Chinese told him thatthe signing of the deal needed to be postponed until about March 1958.34 Thismysterious development occurred, almost certainly, because the Chinese leader-ship suddenly needed a complete review of its overall development strategy.

On 20 November Mao had returned to China from the USSR eager to imple-ment policies aimed at fulfilling the extremely ambitious prediction, which hehad made in Moscow regarding Chinese industrial development. China’s SFYPwould be placed in jeopardy without Western and Japanese trade35 and Beijingwas intrigued that the British government, concerned about the recent and sub-stantial reduction in the UK’s gold and currency reserves, was pressing the ParisGroup to reduce the size of its embargo list. However, in November, following thesigning of a Sino-Swedish trade agreement (on the 8th), Sino-Japanese bartertrade agreement negotiations broke down when Tokyo refused to allow the PRCto establish a permanent trade mission in Japan.

Between the autumn harvests of 1956 and 1957, 570,000 peasants had movedto the cities. Such rapid urban population growth,36 as well as excessive governmentinvestment, contributed to regional Chinese grain shortages. An article in thePeople’s Daily on 27 November 1957, warned that funds allocated for capital/industrial construction would have to be used for food, housing and other servicesif the increase in China’s urban population exceeded the domestic economicgrowth rate37 – a position later associated with Chen Yun.38

Despite the deferral of Chinese–Western wheat negotiations, on 27 Novemberthe Chinese agreed to purchase 67 tonnes of devitalized wheat gluten froma small Canadian firm for $30,000. A Sino-Danish trade agreement was alsosigned on 1 December.

However, Chen Yun and Zhou Enlai’s trade strategy was dealt a blow with thecollapse of the Sino-American ambassadorial talks at Geneva on 12 December.


Then, in January the UK government, hoping to protect domestic industry andimprove British–Japanese relations, imposed quotas on imports of PRC cottonand rayon piece goods.39

Furthermore, in January (11–22) China’s economic plan and budget for 1958were the focus of the National/Provincial Party Conference at Nanning, Guangxiduring which Mao criticized Zhou Enlai, Chen Yun and Li Xiannian for opposinghis growth targets. Zhou, Li and Bo Yibo were encouraged to provide self-criticismsfor 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 andothers favouring importing foreign grain were still influential. Ding Kejian hadbecome deputy director of MOFT’s general office. Suddenly about 4 February,L.C. Bu, CIRECO’s assistant manager – who had worked for the same Shanghaifirm as Lu Xuzhang before 1949 and whose former business partner was cur-rently running a firm in Canada, invited Bunge officials to Beijing to resumegrain negotiations suspended in November. While emphasizing that there was nofood shortage in China, Bu maintained that he had persuaded CEROILFOODofficials 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 JohnDiefenbaker’s Progressive Conservative government, which was campaigningfor the upcoming Canadian federal election of 3 March (in which they werere-elected). It would be the second Canadian federal election in less than one yearand the Progressive Conservatives were eager to maintain crucial support of prairiefarmers by fulfilling their earlier promises to increase backing for farmers andreduce 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 reservationsabout French grain /flour because of its higher moisture content than other foreigngrain and consequent susceptibility to insect infestation when shipped through thetropics. China also had a large trade deficit with France, but, by creating the illusionthat they might turn to the French to meet their import requirements, the Chinesehoped to improve their bargaining power with the Canadians. They were alsonegotiating with Jardine Matheson for South African maize.

Chen Yun and Zhou Enlai’s trade strategy was bolstered on 5 March whenCCPIT Chairman Nan Hanzhen and representatives of Japan’s Diet membersunion, Japan–China Trade Promotion Association (JCTPA) and Japan–ChinaExport Import Association (JCEIA), signed the fourth ‘private’ Sino-Japanesetrade agreement. Unlike the previous arrangement, this was a five year £200million barter deal providing for annual increases in the amount of Japanese steeland chemical fertilizer exchanged for Chinese iron ore and coal. It also providedfor the establishment of permanent reciprocal trade offices in Beijing and Tokyo(with diplomatic status and permission to fly the national flag) and for reciprocalcommodity exhibitions to be held at Nagoya, Fukuoka, Wuhan and Guangzhou.43


Then, between 10 March and 21 July 1958, Beijing reversed its policy ofimporting mainly rice to cover domestic shortfalls. Although China remained anet grain exporter throughout the 1950s, from 1955–7 rice accounted for 64–86per cent of its foreign grain purchases. However, in 1958 when the volume ofChina’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 wellas much smaller amounts of South African maize (at least 20,000 tonnes) andAustralian 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 – weresigned while Mao attended the CPC Central Committee working conference atChengdu, Sichuan between 8 and 26 March, where he criticized those opposingrapid 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 – topurchase for registered sterling a shipment of Canadian wheat. East Asiatic hadtaken over Bunge’s negotiations with the Chinese in late February afterWashington pressured the New York office of the Argentinian firm not to sellgrain to China. Next, Dodds Stewart & Co. Ltd, Vancouver – the Canadian affili-ate of the London (England) subsidiary of the Paris-based international grain trad-ing firm Louis Dreyfus Co. – signed a contract in Hong Kong on 24 March to sellCIRECO (for convertible sterling) a second cargo of Canadian wheat. LouisDreyfus, New York, which officially handled the multinational’s North Americanoperations, had already been pressured by Washington not to export grain toChina. Dodds Stewart had taken over the negotiations from the British firm, RalliBros. Ltd – which had refused to accept payment for the grain in transferablesterling – and agreed to provide the Chinese with contacts to help them increasetheir 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 JohnH. MacMillan Jr met with Forsyth-Smith in the British colony, he was enthusias-tic about Hong Kong as a potential headquarters for Cargill’s Far East divisionand as a base for participating in the grain trade with China.45

Growing American interest during 1958 in the China trade resulted partlybecause of a substantial decline in US exports following a reduction in Europeanpurchases of ‘dollar oil’ after the Suez crisis and increased investment in theEuropean Economic Community (EEC). In that year America ran a balance ofpayments deficit and holders of dollars began exchanging the currency for gold.

Nevertheless, MacMillan’s enthusiasm proved premature as Washington pres-sured Cargill not to complete the transaction, thus forcing the US firm to turnthe deal over to James Richardson & Sons Ltd of Winnipeg. Then on 31 MarchDodds Stewart and CIRECO concluded another contract in Hong Kong for thesale of a fourth cargo of Canadian wheat.

The signing of these contracts preceded the Ministry of Agriculture’s confer-ence in Hebei, from late March to early April, where a plan was introducedto increase wheat production in the major winter wheat-producing provinces


(Hebei, Henan, Shandong, Shanxi, Shaanxi and Gansu) in 1958 by 25 milliontonnes – up 50 per cent over 1957.

With limited currency available, the Chinese were eager to conclude subse-quent grain deals on barter terms – conditions which Western interests had previ-ously been unwilling to agree to. However, a new development threatened toderail 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 Tokyoto protest the development of Sino-Japanese economic trade relations. Xinhuareported on 1 April that, because Japanese Prime Minister Kishi had respondedby assuring Chiang Kai-shek that the Japanese government would not recognizethe PRC diplomatically, Tokyo remained hostile towards Beijing.

Meanwhile, at the NSC’s 356th meeting on 28 February, participants decidedthat Washington should agree to a general reduction in the multilateral controlson trade with Communist countries in order to maintain an effective multilateralembargo on items ‘. . . having a clear military application or involving advancedtechnology of strategic significance not available to the Sino-Soviet bloc’. TheNSC also asked the CFEP, in light of the above decision, to review current USeconomic defence policy.

On 24 March COCOM began reviewing its embargo list which, despite con-tinued 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 Chineseneeded were removed from the ‘embargo list’, including civilian aircraft, aircraftengines, kerosene, vehicles, ships, oil exploration and refinery equipment, smallrolling mills, compressors and blowers.46

Also, prior to the end of March, CIRECO signed contracts in Hong Kong topurchase at least two 10,000 tonnes cargoes of South African maize from JardineMatheson Ltd (for convertible and registered sterling) who had also agreed tohelp Beijing market Chinese goods in South Africa.

In early April, the Maple Leaf Milling Company, a Canadian Pacific Companysubsidiary, signed a contract with China National Textile Import ExportCorporation (CHINATEX) Shanghai to exchange 254 tonnes of Canadian flour for250,000 yards of Chinese grey cloth (for flour bags). Maple Leaf had completedthe deal after Robin Hood Flour Mills’ parent company – the New York-basedInternational Milling Co. – was pressured by the US government not to becomeinvolved in the China trade.47

In April, after leaving Chengdu, Mao visited Chongqing, Wuhan and Guangzhoubefore 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 oftrade by encouraging competition among suppliers, opened more grain negotiationsat the Guangzhou Trade Fair. From 10 to 12 May, the Chinese signed three con-tracts with Louis Dreyfus Co. (London) to purchase approximately 11,000 tonnesof Australian wheat for cash.49 However, after a poor harvest in 1957–8, theAustralians could not offer the Chinese much more grain. Besides, the PRC had hada large and widening trade deficit with Australia since 1956.


Furthermore on 10 May Chen Yun and Zhou Enlai’s trade strategy suffered acrippling blow when Beijing suspended trade with Japan in response to theNagasaki Flag Incident. Nevertheless, China’s South-East Asian export drive wasstill gathering momentum, and Sino-Indonesian economic ties continued gettingstronger following the failure of the CIA-backed rebellion against the Indonesianleader Achmed Sukarno in May.

Still, the Chinese needed to buy much more foreign wheat. A Reuters reportfrom Beijing on 13 May quoted a PRC Ministry of Agriculture official as sayingthat ‘wheat is generally coming up very well. But roughly 10–15 per cent of thecrop is not up to standard and this is a serious problem’.50 Suddenly, the Chinesebegan having more success at negotiating grain contracts under which the selleragreed to help them sell textiles and light industrial products. At the GuangzhouTrade Fair, from 15 to 26 May, CEROILFOOD officials arranged purchases of afifth, sixth and seventh cargo of Canadian wheat (for convertible sterling) fromDodds Stewart and Hall Bryan Ltd – the Canadian agent of the Swiss-basedmajor international grain trading firm André & Cie S.A. which was known formaking 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 CanadianChina policy since the Korean War recommended that Ottawa gradually movetowards diplomatic recognition of the PRC government through increasedunofficial contacts – especially in trade relations. The Diefenbaker government,under sustained pressure from prairie farm groups, remained eager that Canadianwheat continue to be exported to China.52 However, during the summer of 1958,firms in Shanghai, the port where Canadian grain was arriving, were seriouslyaffected 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 backwardeconomy as soon as possible ‘in disregard for the objective laws governingeconomic development’.54

During May, Chen Yi was appointed PRC Foreign Minister and replaced asmayor of Shanghai by Anhui-born deputy Ke Qingshi. Zhu Rongji was removedfrom the CCP after being accused of being a rightist. Zhou Enlai, who along withseveral 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 Junea Sino-Norwegian trade agreement was signed.

Nevertheless, while Mao, on 9 June, rejected Zhou’s offer to resign the nextday, the ‘Central Small Group for Economic Work’ was replaced with the ‘CentralFinancial and Economic Group’. Although still headed by Chen Yun, the newgroup was granted only advisory powers.

Mao, influenced by overly optimistic agricultural reports from the East ChinaRegion, told Bo Yibo at a meeting of top economic officials (including the


recently downgraded Chen Yun) on 18 June that China’s grain problem had beensolved.55 The following day officials of the East China region called for a ‘GreatLeap’ in agriculture and raising per capita grain output from 500 kg to theunrealistic level of 750 kg (China’s per capita grain output in 1998 was onlyabout 410 kg).56

However, the Chinese were probably concerned because during June,Khrushchev suggested to Eisenhower that the volume of Sino-American trade innon-strategic goods increase. Washington was only interested in such trade on anunofficial basis – to help ease balance of payments problems and reverse the out-flow of gold stocks. Ding Kejian’s article in Peking Review on 15 July promotedthe benefits of China negotiating ‘Long-Term Trade Agreements’ with bothCommunist and Capitalist countries. Ding stressed that the PRC would continueto develop trade relations with Capitalist countries out of mutual economic bene-fit and to promote world peace.57 On 15 and 21 July, with Mao in Beijing awaitingKhrushchev’s secret visit, CIRECO signed contracts, in Winnipeg, to purchasethe ninth and tenth shipments of Canadian grain – from McCabe Grain Co. andHall 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 Canadiangrain.58 CIRECO officials subsequently told the Canadians that China would notbe buying more foreign grain soon and that Canadian traders should concentrateon 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 theGLF gathered momentum, Xinhua published excerpts from the ChineseMinistry of Agriculture’s crop report, which said that the 1958 harvest was‘Unprecedently Good’ and that wheat yields per hectare were 71 per cent higherthan in 1957.60

Thus, in early August, when Mao visited a part of rural Hebei which hadreported a massive increase in grain production, he told the peasants they couldconsume wheat and preferred coarse grains instead of potatoes.61 Soon Chinesegovernment estimates for total grain production in 1958 exceeded 300 milliontonnes, about 90 per cent more than in 1957. The enlarged conference of thePolitical Bureau of the Party Central Committee at Beidaihe (17–30 August 1958)responded by recommending that China focus on industrial development ratherthan agriculture.62

Exaggerated output figures also led the Chinese to begin exporting premiumgrade rice to Malaya and Singapore, which were Thailand’s traditional rice exportmarkets, at prices 25 per cent lower than those offered by Thai traders.63 Theperceived boom in agricultural production probably contributed to Beijing’sdecision to authorize the PLA’s shelling of offshore islands held by KMT forces.

Zhou Enlai and Chen Yun’s ‘readjustment’ trade strategy suffered a furtherblow during August when the UK government expanded quota restrictionson PRC imports introduced in January to most textile items. During 1959 thesequotas were extended to an even wider range of PRC imports.64


September 1958–December 1959

In September Chen Yun was placed in charge of the newly established StateCapital Construction Commission, a body created to oversee China’s rapid devel-opment strategy – especially steel production. Despite Chen Yun’s reservationsabout the GLF,65 steel was crucial to the domestic chemical fertilizer industrywhich he was keen to develop. Chen’s doubts were probably fuelled by uncon-firmed accounts in 1958 that domestic harvest reports were exaggerated and thatgrain was in short supply in some regions. Partly because Chen had been incharge of warehouse inspection and material allocation since early 1950,66 prob-ably 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 resumeimporting Western grain, Beijing suggested to Washington that the Sino-Americanambassadorial talks be reopened. Then on 8 September, as the Chinese andAmericans awaited the resumption of the talks at Warsaw on 15 September – movedfrom 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 theBank of China, made a formal enquiry of the Macau government about obtaining thepreferred 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 feltthat not enough of the vast profits from the trade were reinvested in the Portuguesecolony – 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 pro-vided for under the Sino-FRG trade agreement and it was not renegotiated whenit expired at the end of September. Also, although by 1956 about 66 per cent ofthe PRC’s South-East Asian capital investment was in Malaya where 44 per centof the population was Chinese,69 the lucrative Sino-Malayan trade, ran into diffi-culty on 1 October when Kuala Lumpur announced that domestic importers ofChinese textiles would have to obtain special government permits. Sixteen dayslater it banned imports of various Chinese textiles and restricted imports of othergoods from the PRC. Then, at the end of October the Bank of China was forcedto close its branches in Malaya (the only foreign bank branches there) followingKuala Lumpur’s decree prohibiting foreign banks from operating in Malaya.70

This probably left Beijing more dependent on individuals like Chen Ming, whohad emerged as a key ‘fixer’ for the PRC’s Ministry of Foreign Trade and Bankof China, since emigrating from Malaya in 1938 (aged 19) to keep its South-EastAsian export drive running. Although, during 1959, as the GLF proceeded, Jayand his associates suspended talks with the Macau government.71

Meanwhile, by 2 October Mao had received reports of starvation at Anhui, andfrom 13 to 17 October, he investigated areas in northern China near Beijing –including Tianjin. On 16 October, as Mao expanded consultations with localofficials,72 CEROILFOOD (Shanghai) asked Bank Line representatives in thatcity for James Richardson & Sons’ cable address. While the Chinese emphasized


that they were not planning to purchase more Western grain soon, after furtherprompting they conceded that ‘one could never be sure about such things’.73

By late October, Mao thought that production targets, especially for steel andgrain output figures might be too high. Although he continued to promote overlyambitious development at the First Zhengzhou Working Conference held from2 to 10 November, he also began attempting to ‘cool down’ the GLF. Bo Yibo laterremembered that Mao had told the conference that ‘in Shanghai and Wuhan thereis nothing to eat’.74 About that time Mao instructed Ambassador Wang Bingnannot to offend the Americans during the Warsaw Talks.75

At the Wuchang Conference, held between 21–27 November, a drasticallyinflated grain production figure of 375 million tonnes for 1958 was reported.Chen Yun responded in early 1959 by conducting an investigation in Henan, butwas unable to obtain adequate information from local cadres. Chen knew, how-ever, that the size of the national grain stockpile had contracted steadily sincemid-1956 (see Table 2.1).

Since late 1958, the Chinese had dramatically increased grain and agriculturalexports to earn currency to pay for the growing volume of equipment andmaterials required to finance the GLF.76 Chen responded by warning the ‘CentralFinance and Economic Group’ that domestic grain shortages would not be remed-ied by current policies. However, by then Chen Yun and Zhou Enlai lacked theauthority 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 almoststarving. He responded by warning the Central Committee that production fig-ures 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 inBeijing that the exaggeration and falsification of statistics must stop.79

In late 1958, as the PRC’s State statistical system collapsed and the central gov-ernment received falsified reports and figures from throughout China, the Beijingleadership was preoccupied with foreign affairs. At that time the PRC wasincreasing its economic aid to North Vietnam80 and on 10 March 1959 the PLAbrutally suppressed an uprising in Tibet which by mid-August initiated theSino-Indian conflict. Further, in early 1959, the Chinese became increasinglyconcerned about the situation in Laos.

Because of the collapse of Sino-Japanese trade relations, Chen Yun hadendorsed Renmin Ribao articles in early 1959, calling for China to rely moreheavily 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 plantsincluding metallurgical and chemical fertilizer production installations. Under aSino-Soviet economic cooperation agreement signed on 7 February 1959,Moscow agreed to help Beijing construct 78 more large industrial projectsbetween 1959 and 1967. However, Sino-Soviet economic cooperation was latersaid to have been almost completely suspended in 1959.81 Nevertheless, fromApril to early June, after conducting investigations in rural China, Peng Dehuaivisited Eastern Europe and the USSR.


The Warsaw Talks had resumed on 19 May 1959, at the request of theAmericans, and Chinese officials associated with gradualist policies based on theWestern trade were gaining influence. In April Liu Shaoqi had replaced Mao asCCP Chairman although Mao remained in de facto control. Around that timeRong Yiren became a member of the Standing Committee of the CCP CentralCommittee. In June Chen Ming was appointed deputy director of the third bureauof MOFT whereas the title of deputy director of the finance and trade office ofthe State Council was added to Ye Jizhuang’s portfolio.

The renewal of the Sino-Norwegian trade agreement on 5 June may havereflected renewed interest among Chinese leaders in expanding trade withCapitalist countries. Chen Yun and Deng Xiaoping’s decision to go on extendedsick leave three days later probably stemmed from growing tension within theleadership over economic policy.82


Table 2.1 Total annual PRC grain output, trade and government stockpile, July 1957–May1961 (in million tonnes)

Year 1957a 1958a 1959a 1960a 1961a

Total stocks 18.49 a a a 7.5a

(July)Change in �3.2 a a a �10.99a

stocksForeign 2.12 2.93 4.22 2.76 1.38grainexports

Change in �0.57 �.81 �1.29 �1.46 �1.38foreigngrainexports

Grain 190.7 193.5 165.2 139.4 143.2output

Change in �2.3 �2.8 �28.3 �25.8 �3.8grainoutput

Total 0.1668 0.2235 0.0200 0.0660 5.80foreigngrainimports

Change in �0.0176 �0.0567 �0.2035 �0.046 �5.734foreigngrainimports

Sources: Table composed by author using both official PRC information and estimates from thefollowing sources: Walker, op. cit., pp. 42, 60, 80–3, 160; Liu and Wu, op. cit., p. 128; Lardy andLieberthal, op. cit., pp. xx, ix; CIRECO, op. cit., p. 909; Carter, C.A. and Zhong, F.N., China’s GrainProduction and Trade: An Economic Analysis, London: Westview Press, 1988, p. 5.

Notea 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).

Then, in late June Moscow broke its October 1957 scientific agreement withBeijing by refusing to provide China with an atomic device and related technicalinformation. Between late June and early July 1959, as Soviet–American relationsimproved, the Chinese leadership learned that Khrushchev had criticized the GLFearlier in the year.83

On 14 July, as Mao reconsidered elements of the GLF strategy, Peng Dehuaiwrote the Chinese leader a letter criticizing the GLF. During the enlarged meet-ing 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 CentralCommittee (2–16 August), Peng Dehuai and others were censured as ‘rightistopportunists’ 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, butthe following month Xue Muqiao was replaced as State Statistical Bureau chief,even though agricultural output statistics had been ‘revised downward’ duringCCP meetings at Lushan the month before.84 Ambassador Zhang Wentian wasrecalled from Moscow and on 17 September Peng Dehuai was replaced by LinBiao – 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 PLAchief of general staff. Nevertheless, that same month Luo Ruiqing was appointeddeputy Minister of Defense and chief of the PLA general staff while Rong Yirenbecame vice-minister of the PRC’s textile industry.

In the US attitudes towards the PRC were beginning to change. In JuneCongressman (Oregon) Charles Porter suggested that the opening of Sino-American business contacts might improve relations between both sides.86 Alsoon 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 occurseveral more times over the coming years when Sino-American tensions appearedready to moderate. In September 1959 the Conlon Associates report to the USSenate Foreign Relations Committee recommended that Washington’s Chinapolicy of ‘containment through isolation’ be replaced by one aimed at ‘explorationand negotiation’.87 However, as had occurred in September 1956 whenSino-American tensions appeared to be easing, on 7 October 1959 the PLA shotdown a US-made high-altitude espionage aircraft (an RB-57D). It also appearedthat troubles in Vietnam would continue escalating.88

January–August 1960

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


However, by December 1960 only eight of China’s twenty-seven small-scaleplants were in operation and these did not work well. There were similar problemswith medium-scale facilities. In 1958, the Chinese had started to build at leastten large-scale fertilizer production facilities, but these were without sufficientsupplies and equipment. By 1960 not one of these plants had been completed.89

As the Chinese government became disillusioned with Soviet equipment and tech-nical support its chemical fertilizer imports increased from 117,963 tonnes in1950 to a record of nearly 2 million tonnes in 1958. Prior to 1958, Japan provided22–31 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 werefrom West European firms. Although Belgium/Luxembourg and West Germanycontinued as major suppliers, Montecatini, Edison and ANIC suddenly becamemain 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 74 246,000 25 1,236,021(Belgium–Luxemburg 292,000)(FRG 248,000)(Italy 154,000)

1958 1,077,000 77 313,000 22 1,998,463(Belgium–Luxemburg414,000)(FRG 430,000)(Italy 150,000)(Norway 24,000)

1959 1,068,000 99 –– –– 1,541,242(Belgium–Luxemburg 398,000)(FRG 202,000)(Italy 361,000)(Norway 24,000)

1960 851,000 98 2,000 –– 1,270,770(Belgium–Luxemburg 251,000)(France 10,000)(FRG 232,000)(Italy 287,000)(Norway 7,000)

Sources: Table prepared by author from: a Liu, J.C., China’s Fertilizer Economy, Chicago: AldinePublishing 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.

NotesBelgium–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).

After ENI founder and president Enrico Mattei’s ENI/Societa NationaleMetanodetti-Progetti (SNAM-Progetti) (ENI’s natural gas pipeline subsidiary)delegation went to the PRC in 1958, Beijing’s purchases of chemical fertilizerfrom ANIC increased from 20,000 tonnes in 1958 to 82,000 tonnes in 1959 and50,900 tonnes in 1960.91 The Chinese found ENI one of the more attractive poten-tial sources of equipment and technology for developing their chemical, naturalgas and petroleum industries.

Although the Italian Parliament was technically supposed to preside over ENIoperations, Rome maintained that it had no effective direct control over the firm’ssubsidiaries. Because of its controversial status and history, ENI was sometimesreferred to as a state within a state.92

Meanwhile, despite Beijing’s massive expenditure on foreign fertilizer, China’sgrain production in 1959 fell to the lowest level since 1953. In 1960 it fell evenfurther. Yet, China’s grain exports increased dramatically from 1958 to 1960 causingthe national grain stockpile to be depleted rapidly (see Table 2.1).

About 4.8 million more abnormal deaths occurred in 1959, but the leadershipwas still unaware that famine had spread throughout China. Yet, in March 1960,the government, already concerned about China’s diplomatic isolation,93 receivedreports of starvation from various parts of Anhui.94

On 29 March Zhou Enlai responded by asking Anhui leader Zheng Xisheng toverify if these reports were exaggerated. Zhou conceded that isolated cases ofstarvation had occurred in every province in 1959 and reminded Zheng that Maohad recently urged Chinese officials to take starvation reports seriously.95

If the Chinese were considering purchasing American grain it wouldhave been logical for them to approach Cargill again, but its 60-year-old presi-dent Cargill MacMillan, who favoured trading with China, became ill afterChristmas 1959 and was permanently incapacitated after being released fromhospital in mid-March 1960. Suddenly, on 5 April, the PRC government, previ-ously unenthusiastic about C.J. Small – a Canadian Department of External Affairs(DEA) official stationed at the Canadian trade commission in Hong Kong – andForsyth-Smith’s request to visit China to promote trade, decided to allow them totour the country from 13 May to 8 June.96

Meanwhile, in February, the Australian government abolished its import licens-ing controls, allowing the Chinese greater access to this market. That samemonth Min Yimin – Rong Yiren’s long-time associate – was identified as deputydirector, office of foreign trade under the People’s Bank.

At the close of the Second Session of the NPC on 10 April, Zhou Enlai gavean unscheduled last minute report on China’s need to develop peaceful foreignrelations and cooperation based on the five principles – a position which he hadpromoted in mid-1956.97 Anhwei-born PRC leader Wang Jiangxiang98 was veryconcerned about conditions in the PRC and wanted Beijing to improve relationswith Moscow, Delhi and Washington so China could focus on famine relief andrebuilding the economy.99

The Chinese leadership continued receiving starvation reports from throughoutthe PRC and, on 28 May 1960, the CPC Central Committee issued the ‘Urgent


Directive on Allocating and Shipping Grain’, admitting that in the previoustwo months grain transfers to Beijing, Tianjin, Shanghai and Liaoning wereinadequate. Grain stocks there were nearly depleted and ‘Unless more grain wasshipped to these places immediately, the situation would deteriorate’.100

About that time K.C. Jay resumed discussions, suspended in 1959, with theMacau government on obtaining the exclusive Macau–Hong Kong gold importa-tion 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 tradingin Canadian wheat flour, newsprint, rubber and bristles throughout China andSouth-East Asia – approached CANDAIR Ltd, the Montreal-based aircraft firm,to ask if his firm (also based in Montreal after 1949) could represent the Canadiancompany in the PRC. Tsao, who was extremely disillusioned with the KMTgovernment on arriving in Canada in 1947, now explained that Beijing was rely-ing on Moscow out of necessity, not by choice. He then offered to help sell theChinese goods such as Canadian uranium, aircraft, an aircraft production plantand wheat in exchange for Chinese goods.102

Although it would be several weeks until Sino-Western grain negotiationsresumed, Tsao’s approach to CANDAIR Ltd occurred as ‘political appointees’ atthe headquarters of the PRC’s state trading corporations were being replaced byofficials having strong business backgrounds, many of whom were former influ-ential Shanghai businessmen.103 The most important positions went to those expe-rienced in doing business with interests in the non-Communist countries.104 InJuly 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 exportdepartment. Xie who was also second deputy director of the Bank of China wasconsidered by Western officials to be ‘. . . the man who really runs the Bank’.

PRC economic problems were exacerbated by Moscow’s decision, announcedon 16 July 1960, to withdraw, by 1 September, technical aid and support becauseof its increasingly bitter ideological dispute with Beijing. The Chinese immedi-ately had to cancel more than 250 domestic construction projects. Shortages ofequipment, components and other key goods previously supplied by the USSRsoon developed. PRC civil and military aviation began suffering from seriousshortages of crucial items – such as specialized petroleum, oil, lubricants (POL)and aircraft parts – which could not be produced domestically. Some planes weregrounded and their parts removed to maintain a reduced number of operationalaircraft, mostly of Soviet origin.105

In August 1960, the Chinese Payments Corporation instructed the China CivilAviation Bureau (CCAB)106 to examine the possibility of purchasing Westernaircraft for use on external routes.107 Although they waited until the autumn toapproach Vickers, the Chinese were interested in buying the firm’s Viscountmedium-range turboprop aircraft. The Viscount was Britain’s most successful evercivil 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 – especiallythose in which its major competitor, the US, could not compete. Fragmentation ofthe European aircraft production industry made it increasingly difficult for


Europeans to compete with American firms in available markets.108 Since 1956,aircraft accounted for approximately 9 per cent of British exports, but subsequentdecreased military demand and the growth of America’s more highly subsidizedaerospace industry left the British concerned about the future of the UK aircraftindustry.109

However, it remained to be seen how Washington would respond if Whitehallgranted approval for Vickers to sell Viscount aircraft to the Chinese. Althoughthese planes were not on the COCOM list, communication and navigationalequipment incorporated into them were. Also, some of this equipment was man-ufactured by the UK subsidiary of a US firm. Thus Washington might try andblock 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 aircrafton credit – terms which Western countries had never previously extended to thePRC government.

Meanwhile, the Beijing leadership began to acknowledge that the GLF hadfailed and that it was necessary to resume the readjustment, although excessiveproduction targets for 1961 were not reduced. At the CPC Central WorkingConference in Beidaihe, from 5 to 10 August, the ‘Directive on Mobilizing theEntire Party Membership to go in for Agriculture and Grain Production’ was for-mulated.110 In July and August 1960, after receiving further reports that seriousfamine existed throughout the mainland, urban grain rations were reduced by 1 kgper month as Zhou Enlai attempted to balance supplies.111 Even PLA food rationsin various areas were reduced by up to one half.112

In August, Chen Yi and Zhou Enlai told Western officials and representativesthat China needed international peace over the long-term, was seeking toresolve disputes through negotiation and wanted to examine the possibility ofAsian Pacific rim countries, including the US and the PRC, reaching a mutualnon-aggression agreement.113

In late August Li Fuchun and Zhou Enlai’s ‘new’ economic policy of ‘read-justment, consolidation, filling out and improvement’ was introduced.114 Chinawas essentially returning to the readjustment strategy, abandoned in late 1958,based on gradualist development economic targets, an emphasis on increasingagricultural production and greater trade with the West and Japan. Also inlate August the Chinese leadership ordered MOFT to gradually resume the ‘testshipments’, suspended in 1958, while it conducted further investigations into con-ditions and requirements in China. It was now essential to revive trade with Japanand Zhou Enlai told JCTPA director Kazuo Suzuki that, although Beijing pre-ferred to negotiate a trade agreement with Tokyo, it would participate in specialtrade with firms designated as ‘friendly’ by CCPIT.

Fortunately for the Chinese, Japanese chemical fertilizer producers were veryinterested in resuming exports of their products to the PRC. Chemical fertilizerswere Japan’s most lucrative chemical export and, because of intensifying compe-tition in export markets, Japanese ammonium sulphate fertilizer producers hadformed the Japanese Ammonium Sulphate Export Association (JASEA).115


Despite a slowdown in domestic fertilizer purchases, Japanese chemical fertilizerproducers had increased production and were reducing prices to increase sales.116

By resuming imports of Japanese fertilizer Beijing could also embarrassWashington. Because of the growing balance of payments deficits and protestsfrom US Congress and American chemical fertilizer producers, the US govern-ment was considering cancelling its annual International CooperationAdministration (ICA)117 purchases of this commodity from Japan. ICA pur-chases, re-exported mainly to South Korea, accounted for 40 per cent of Japanesechemical fertilizer exports.


Part II

September 1960–September1962

A key figure in the Chinese government’s historic decision to import grain fromabroad was Chen Yun. In . . . May 1961, Chen argued that such importswere . . . essential . . . to relieve the ‘tense’ grain situation, stabilise the food marketand lighten the burden on the peasants – though he added that financial and transportconstraints dictated that an upper limit of five million tonnes be placed on suchpurchases . . . evidence . . . suggest[s] that Chen regarded the import of foreigngrain as a temporary expedient, arguing that its positive incentive would restoredomestic production within three to five years.

(Kenneth R. Walker, in R.F. Ash (collector and ed.), AgriculturalDevelopment 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 graduallyresume purchasing Western grain through CIRECO resulted in the PRC becominga net grain importer for the first time and over the long-term. The grain importprogramme was managed by Zhou Enlai until his death in 1976,1 and in theautumn of 1960 Ding Kejian, one of Zhou’s top economic advisors, was appointedCIRECO’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 ofwheat. As the Chinese continued to evaluate conditions at home, negotiations forthis 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 WesternEurope’s total grain harvest was of a lower quality and approximately 2.7 milliontonnes less than the previous year. Although French, Argentinian and Soviet grainstocks were somewhat smaller in 1960–1, record surpluses existed in Canada,the US and Australia and the governments of these countries were under growingpressure from domestic farm lobby groups to take action to reduce supplies.

As in 1955, 1957 and 1958, initial Chinese enquiries in 1960 about purchasingforeign grain coincided with crucial Sino-American diplomatic talks. During

3 Chinese–Western grain trade diplomacyCredits and famine relief, September1960–August 1961

the hundredth meeting of the Warsaw Talks on 6 September 1960, the Chineseproposed linking the recognition of their claims to Taiwan to an agreement toexchange news representatives. However, with the US Presidential elections onlyweeks away, Washington, led by the Pentagon and State Department was perhapstaking the most pronounced anti-Communist stand since 1954. Thus, theAmericans rejected the Chinese initiative, resulting in a lasting stalemate.3

As Sino-Western grain talks continued slowly, JCTPA director Suzuki beganaccepting applications from ‘friendly firms’, which included major Japanesebanks, trading firms and ‘dummy companies’ (‘fronts’ for major Japanese firmsseeking to hide their involvement in Sino-Japanese trade) interested in tradingwith China.4 Nevertheless, many Japanese businessmen remained cautious oftrading with the Chinese, having suffered serious losses when Beijing suspendedtrade 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 trans-action could damage US–Canadian relations.5 About this time the Chinese con-tacted Vickers-Armstrong (Aircraft) Ltd and Rolls-Royce about purchasing up toforty new Vickers Viscount 810 Series medium-range turboprops, related replace-ment parts and spare Rolls-Royce Dart 525F engines.6 British officials felt that aSino-British aircraft deal might prompt Beijing to become dependent on Westernfirms for spare parts, maintenance materials and technical instruction andencourage a Sino-Soviet split. However, Sino-Western equipment talks wereslowed over the following year as the Chinese used available funds for grain andother items required to resolve their crisis.

During September 1960, with reports of food riots and famine conditionsthroughout the mainland, PLA food rations were reduced further. Because theywere not getting enough to eat and were receiving grim reports from their fami-lies at home, the soldiers were becoming unhappy with the government.7

Yet, between 20 and 31 September CIRECO signed contracts with Bunge and theEast German government to purchase as much as 50,000 tonnes of grain for ship-ment to Albania (see Table 3.1) as part of limited monetary and food aid thatBeijing, despite the domestic situation, provided to its Communist European ally inappreciation of its support during the continuing Sino-Soviet ideological dispute.

On 30 September, the CCP Central Committee approved the ‘readjustment, con-solidation, filling out and improvement’ strategy already announced by Zhou Enlaiand Minister of the State Planning Commission Li Fuchun.8 However, it took a fur-ther 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 since4 April 1960), Xiao Fanzhou, a high-ranking Zhejiang official who emerged asa key player in the Sino-Western grain negotiations, was appointed secretarygeneral of the CCPIT.

About mid-October, the Chinese realized that conditions at home were muchworse than were previously thought and the enlarged Military Affairs Commission(MAC) meeting in Beijing between 14 and 20 October emphasized the need for

52 September 1960–August 1961

more political and ideological study. A crucial step towards uncovering the fullextent of China’s crisis was PLA chief Lin Biao’s order of 25 October that thearmy’s general rear services department investigate divisional mess units.9 TheCPC’s ‘Urgent Directive Letter on Current Policies for Rural People’sCommunes’ (a.k.a. ‘the twelve articles’) of 3 November, written by Zhou Enlai atMao’s request, signalled the official end of the GLF.

The Chinese continued attempting to revive trade with Japan and on17 November an initial ‘friendly firm’ contract was signed. Between earlyNovember and mid-December, as the Chinese–Western grain negotiations

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 Deliveryvariety (payments in

sterling)

20 September 1960 Bunge 5,000–35,000: To AlbaniaCIRECO French wheat October–November

196020 September– East Germany 10,000: wheat To Albania15 December 1960a CEROILFOOD

19 December 1960 AWB 304,814: wheat January–FebruaryCIRECO 1961

4 January 1961 Australian firms 22,353: flour February–MarchCIRECO 1961

19 January 1961 CWB 121,926: barley March–April 1961CIRECO

21 January 1961 AWB 760,000: wheat February–July 1961CIRECO

23 January 1961 Australian firms 22,353: flour February–MarchCIRECO 1961

27 January 1961 CWB 660,430: wheat April–August 1961CIRECO 101,605: wheat

February 1961 Alfred C. Toepher(FRG), Kampfmeyer 40,000: flour January–June 1961(FRG)

CIRECOBefore 20 February CWB 40,642: wheat March–May 19611961 CIRECO 20,321: wheat (diverted to

Albania)23 February 1961 AWB 102,000: oats January–June 1961

CIRECO27 February 1961 Australian Barley 315,280: barley January–June 1961

BoardCIRECO 20,000: barley

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

Notea Unconfirmed.

continued, the PLA leadership received more worrying reports of food shortagesand the resultant dropsy, oedema, famine and associated domestic unrest. ThePLA’s general political department responded by endorsing these reports andstressed that greater emphasis be placed on political study to prevent internalunrest. It also recommended that the PLA listen to and not criticize those officialsaccurately reporting conditions, no matter how bad they might be in the variousregions.10

Then, on 28 November the CPC Central Committee stressed that an over-estimation of supplies led to the grain shortages, dropsy and unnatural deathswhich were occurring in various counties.11 The General Political Department ofthe PLA’s directive of 2 December advised that the people be notified that theChinese leadership was very concerned about people in the disaster areas and hadtaken direct action after learning of the seriousness of the situation. This includedsending thousands of cadres to help and conduct investigations in the disasterareas and shipping large quantities of relief grain, medicine and winter clothingto the affected areas. Between 5 and 15 December the PLA continued to sendinspection tours to disaster areas while Party Committee officials in the militaryregions discussed how to increase food production, conserve food supplies anddistribute 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 ifthe peasants were deprived of the traditional Spring Festival meal of jiao zi(Chinese dumplings made from wheat flour). Cancellation of the festival couldprecipitate more serious unrest and dissent. Thus, about 15 December Chineseleaders initiated negotiations for larger emergency imports of Western grain overthe short term.13 At this time Chen Ming was suddenly appointed director ofMOFT’s third bureau.

If the Chinese were considering approaching the Americans for grain, Cargillwas the logical place to start, but on 24 November the firm’s 65-year-oldchairman John H. MacMillan Jr suffered a cerebral haemorrhage. With his deathon 23 December Cargill lost the remaining member of its dominant pro-Chinatrade executive triumvirate. Thus, between 15 December 1960 and 28 February1961, CIRECO negotiated grain and flour contracts with the CWB and AWBcovering large emergency grain shipments on cash terms (see Table 3.1).

December 1960–January 1961

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


returning to Australia from Japan and Manila, arranged to meet CIRECO officialsin Hong Kong.

When JSP Diet member Shichiro Matsumoto’s trade delegation arrived inBeijing that same day the Chinese were most eager to revive Sino-Japanese trade.Although the price the Chinese offered for Japanese chemical fertilizer was stillconsidered too low, Mao assured Matsumoto that the PRC wanted to purchasesmall Japanese tractors, steel and chemical fertilizer in exchange for soybean, saltand coal.14 Also, with Moscow cutting back on POL exports to the PRC aroundthis 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 slowlybut, 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. Headded that the leadership’s ‘. . . most immediate concern is the internal economicsituation . . .’.17 That same day Ding Kejian arrived in Hong Kong from Beijingwith the Chinese leadership’s authorization for CIRECO to purchase large quan-tities of foreign wheat immediately. An initial AWB–CIRECO cash grain contractwas 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 AverageQuality (FAQ)18 wheat at a discount and accept payment in sterling. Initial ship-ments began in late December – before the first AWB–CIRECO contract wasactually signed and payments begun.19

Also on 19 December, the Chinese told Canadian trade commission officials inHong Kong that Beijing had recently instructed CIRECO to purchase substantialquantities of goods during their upcoming visit to Canada and that ‘wheat isalways a possibility’.20 Then, on 30 December, four days before the CIRECOdelegation arrived in Canada, Deputy Director Xiao Hua of the general politicaldepartment of the PLA told MAC’s administrative council that recent investiga-tions had revealed that some personnel were affected by oedema, while approxi-mately ten per cent of soldiers were ‘wavering ideologically’. He recommendedthat in addition to placing a greater emphasis on political study the leadershipneeded to ‘. . . provide both officers and soldiers with the necessary nourishmentand calories’.21

On 3 January CIRECO officials, newly arrived in Canada, stated that theyhoped to purchase Canadian wheat and barley.22 By conducting negotiations forthis contract in Canada, the Chinese hoped to obtain maximum publicity and sup-port for the agreement from the Canadian grain lobby. The following day,CIRECO signed a contract in Hong Kong to purchase Australian flour, hopingthat this would emphasize to the Canadians that they would have to compete withthe AWB in the Chinese grain market.

A revival of Sino-Japanese trade was also under way. For the first time since1958, Japanese cargo vessels were making direct runs between Kobe and Tianjin.23

Tokyo had decided to change existing regulations to enable Sino-Japanese bartertrade to resume and had also agreed to accept Chinese payments in sterling. TheChinese wanted to discuss other payment and commercial banking arrangements


required to expand Sino-Japanese trade and made a somewhat higher offer,although still considered too low, for Japanese chemical fertilizer.24 Bank ofTokyo representatives asked American officials how Washington might reactif a Sino-Japanese trade agreement was reached.25 Also on 11 January 1961,Tatsunosuke Takasaki – Japan’s Trade Minister in 1958–9, subsequently a Dietmember, one of the more influential economic specialists within the LiberalDemocratic Party of Japan (LDP) government and chairman of Toyo SeikanKaisha Ltd – visited Washington where he probably discussed Tokyo’s rationalefor reevaluating its position on China trade.

Although there was a growing consensus among army leaders about theurgency of China’s domestic situation, as CWB–CIRECO grain talks proceededslowly between 3 and 19 January, during a conference speech on 7 January,deputy director Liu Zhijian of PLA’s general political department admitted thatthere existed ‘. . . differing opinions on the current problems . . . such as food, thesupply and demand in the market . . . and unnatural deaths . . .’.26

Nevertheless, a PLA general political department directive of 11 Januaryadvised that to prevent further unrest, it was necessary to prohibit certainpersonnel – those in seriously affected disaster areas and others who expressedserious dissatisfaction about the crisis – from returning home for the Spring festi-val. An MAC paper of 16 January warned that armed rebels had not been eradi-cated from China and stressed that the PLA should assist in disaster areas, supportagricultural production and most importantly, better manage food supplies.27

The Ninth Plenary Session of the Eighth Central Committee of the CPC inBeijing (14–18 January) formally adopted the policy of ‘readjustment, consoli-dation, filling out and raising standards’. It accepted that agriculture, over thefollowing 2–3 years, should be the foundation of the Chinese economy, and thatthe CCP and Chinese people should go all out to develop agriculture and raisegrain output.28 Although a consensus had been reached on the necessity ofreadjusting agriculture, there remained considerable disagreement among theleadership 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 wasfrom Sichuan (one of the provinces most badly affected by famine) reported thatduring his recent visit to the Kunming military region he found ‘. . . the prevailingspirit of the army . . . not as good as . . . [that existing] during the Red Armyperiod’.29 After making further inspection tours, between 20 January andmid-February, of PLA companies in Kunming, Chengdu, Chongqing and Wuhan,Luo reported that officials there were eager to discuss China’s industrialachievements but failed to recognize clearly the country’s agricultural difficulties(especially the food problem).30

Meanwhile, in early to mid-January, CIRECO representatives visiting Canadaemphasized to CWB officials that they found available Canadian wheat toocostly, even though it was of higher protein content than Australian wheat.31

On 16 January the Canadian Cabinet rejected Minister of Agriculture AlvinHamilton’s proposal that Ottawa provide Beijing with a gift of grain based


on the size of an actual PRC purchase so as to reduce prices and encourage theSino-Canadian grain trade32 on the grounds that it could offend the Chinese andprompt Washington and Canberra to disregard international agreements aimed atpromoting orderly surplus grain disposal.33

However, on 17 January, two days before initial CWB–CIRECO negotiationsopened in Winnipeg, a high-level official of the USDA’s Commodity CreditCorporation in Washington told CWB chief commissioner W.C. McNamara thathe hoped the Sino-Canadian grain negotiations were successful and that theAmericans ‘. . . would [also] be able to participate in this business’.34 McNamaragathered from these remarks that Washington was also considering exportinggrain to China and thus that it was crucial for the CWB to reach a deal withCIRECO before the Americans entered the bargaining.35 Two days later the CWBagreed to sell the Chinese barley.

About that time CIRECO received an offer to purchase flour from WestGerman firms at a much lower price than the Canadians and Australians had pre-viously quoted. West Germany and France were both facing their own domesticgrain surplus problems resulting from a combination of domestic overproductionand a large volume of foreign grain imports. Eager to keep their flour mills oper-ating, they may have been purchasing US wheat and re-exporting it to China asflour. In any case, US grain was replacing West German and French stocks beingexported to China.36 While FRG flour exports to China increased after 1960, WestGerman imports of US grain also grew substantially.37

As Sino-Canadian grain negotiations continued, between 21 and 23 January theChinese signed additional contracts to purchase Australian wheat and flour. Then,on 25 January, when asked during a news conference if he might sanctionAmerican relief grain shipments to China, US President John F. Kennedy – whohad taken office only five days earlier – responded cautiously saying that, ifBeijing asked Washington for grain, the US government would carefully considerthe request.38 With the Canadians eager not to lose out to the Australians andAmericans in the Chinese grain market, on 27 January the first CWB–CIRECOgrain contract was concluded (see Table 3.1). The Canadians had agreed to reduceprices slightly and sell the Chinese quantities of lower grade wheat, which was ingreat demand by other regular customers. They also accepted Chinese paymentsin sterling.

Furthermore, in late January 1961, when the Soviets, who had a three yeargrain agreement with Canada, learned of the CIRECO–CWB negotiations, theyimmediately agreed to purchase 200,000 tonnes of Canadian wheat. CWB nego-tiators received an icy response when they suggested to CIRECO officials that theSoviets might consider a Chinese request to allow the 200,000 tonnes, alreadycontracted for by the USSR, to go to the PRC instead.39

February 1961

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


19 December and early February 1961 had nearly depleted Chinese currency andbullion reserves.40

Thus, when Japanese Socialist Party (JSP) members visited Beijing in earlyFebruary, Mao and Zhou Enlai told them that private Sino-Japanese trade shouldbe expanded. Liao Chengzhi also told Shichiro Matsumoto that Beijing hoped toincrease imports of Japanese steel and chemical fertilizer to a level only possibleunder a Sino-Japanese governmental trade agreement which preferably involveddeferred payments.41

Also, in early February, K.C. Jay asked Forsyth-Smith, and his Australiancounterpart, G.R.B. Patterson, if Ottawa and Canberra might extend generouscredits to Beijing to facilitate further grain purchases.42 About that time tooJay contacted J.M. Braga,43 the Hong Kong representative of the InternationalTrading Company (ITC) of Seattle – a firm which had been involved in OttoWolff AG’s (of Cologne) equipment deals with Burma during the 1950s – aboutthe possibility of negotiating a large Sino-American credit grain transaction.44

These talks continued over the following months, but as we will see more seriousnegotiations 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 NATOmeetings before April 1961. Almost certainly had this matter been debated,Washington would have pressed its allies to restrict the extension of credits toa 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 long-term credits, of five years and more, to the USSR. Although they did not discusspolicy regarding loans to other Communist nations, NATO representatives weregenerally 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 shouldbe allowed to extend guaranteed medium-term credits (1–5 years) to the USSR.However, American NATO representatives, supported by the Germans, Italiansand Turks, opposed this proposal on the grounds that credits of more than oneyear were comparable to foreign aid. US representatives warned that if oneWestern country extended medium-term credits to bloc nations a ‘credit race’might follow. The British government responded by emphasizing their continuingopposition to using ‘. . . economic warfare against “the Soviet bloc,” both becausewe reject it as an objective of policy and because we believe that it would beineffective . . . .’45

February–May 1961

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


Japanese Prime Minister Ikeda asked Ministry of International Trade and Industry(MITI) to prepare tentative plans for a Japanese trade fair at Shanghai. Japanesetrading firms and manufacturers were simultaneously seeking to use industry-wide associations to strengthen Japan’s negotiating position with Beijing. Thiswould eliminate the need for ‘friendly firms’, several of which had opened officesin Beijing. At that time Tokyo announced plans to revitalize JCEIA – which hadplayed a central role in expanding Sino-Japanese trade before June 1958.Although JCEIA continued to receive an annual MITI subsidy of approximately60 million Yen,47 its membership had dwindled between 1957 and 1961 and thuswas insignificant when compared to the ‘left wing’ pro-China trade groups suchas JITPA and JCTPA.48

Japanese heavy industry representatives were becoming enthusiastic aboutopportunities they believed existed in China’s capital equipment sector. Firmssuch as Kawasaki and Sumitomo wanted to resume exporting steel to the PRCalthough the Chinese made it clear that large deals could not be concluded untila Sino-Japanese governmental trade agreement was signed.49

In February 1961 the CCP Central Committee decided to reduce China’s foreignexports of farm produce and to make sure that it put ‘feeding the people aboveconstruction’.50 At that time, the Australians and Canadians were competing forChinese grain contracts and remained eager to ship as much surplus grain aspossible before Americans entered the bargaining.51 In early to mid-February,the Chinese signed initial contracts with West German firms to purchase approxi-mately 40,000 tonnes of flour. Then when CIRECO–CWB negotiations resumedon 16 February, CIRECO officials told the Canadians that they were beingpressured by their bosses in China to obtain more rapid delivery of Westerngrain. Two days later, Chinese negotiators first stated that, no matter howproductive China’s future harvests were, they wanted to continue purchasingWestern grain – preferably under long-term agreements.52 On 20 February aCWB–CIRECO contract was signed covering another 61,000 tonnes of Canadianwheat that the Chinese, despite the seriousness of the situation at home, werediverting to Albania. The Beijing leadership considered the substantial quantitiesof Western grain that it diverted to other Communist nations between 1960 and1963 to be insignificant in terms of China’s total requirements, and useful forsecuring political benefits from the governments of these countries.53

Especially since 1958 there had been several high-profile cases involving theUS Treasury applying FACR to prevent foreign subsidiaries of American firmsfrom exporting goods to China. Between 17 and 20 February the US TreasuryDepartment attempted to block Imperial Oil of Canada, the subsidiary of theAmerican firm Standard Oil, from supplying bunker fuel to ships carryingCanadian grain to China, on the grounds that such transactions would violateFACR. All bunkering facilities and refineries on the Canadian West Coast, exceptShell’s, were subsidiaries of American companies. However, when Diefenbakercomplained about the matter on 20 February, Kennedy assured the CanadianPrime Minister that Washington would grant a waver enabling Imperial Oil toprovide the fuel. Although Shell subsequently provided bunkers for these vessels


instead,54 this development probably strengthened Ottawa’s resolve to pursuepolicies which were different from those promoted by Washington.

In China on the 20th, MAC’s administrative council reported that, although thePLA’s individual grain and flour rations were unchanged, they were unsatisfactorybecause the quality and quantity of the military’s supplementary food had beengreatly reduced.55 That same day, the PLA’s Rear Services Department reportedthat, although the oedema outbreak within the army had peaked in December1960 and had subsequently decreased, it remained a problem and recommendedthat adequate food rations be provided.

When CIRECO–AWB negotiations resumed in Hong Kong on 21 February, theChinese also told the Australians that their principals in China were pressuringthem to secure more rapid deliveries of grain already purchased. Also, theynow wanted to purchase between 1 and 2 million tonnes of Australian grain overthe following two years. However, the Australians were unenthusiastic aboutCIRECO’s proposal that such a deal be financed by 6–12 month credits, eventhough the Chinese maintained that their currency and bullion reserveswere depleted and they would meet payments by exporting textiles, rice andsoybeans.56 Consequently, on 23 February Sino-Australian flour negotiationscollapsed over the issue of price, although the Chinese did sign a contract topurchase Australian oats.

That same day, the White House announced that President Kennedy had rejecteda proposal to send US wheat to China in exchange for the release of AmericanPOWs still held in China. Furthermore, by this time, CIRECO–Bunge negotiationsfor Argentinian maize were moving slowly.

Also on 23 February, CIRECO representatives suddenly told CWB negotiatorsin Hong Kong that the Chinese might want to buy 2–3 million tonnes of grainover the next 2 or 3 years. For quite some time CEROILFOOD officials hadwanted to reach such a deal to help establish a programme of exporting Chineserice and importing Western wheat. They stressed that the PRC’s 1958 trial pur-chases of Western wheat had convinced them that such trade was sound andshould be expanded. Because they wanted to import grain now, but would not beexporting rice until May, flexible payment terms were required.57

However, on 25 February, after reading internal food and health reports of fivedays earlier, Luo Ruiqing told PLA leaders that the army’s oedema problem wasmore serious than previously realized and ‘. . . earnestly requested that emergencymeasures be taken to solve this problem . . . . If we fail to take emergencymeasures, this disease will spread further’.58 That same day in Hong Kong, pre-sumably after receiving Luo’s urgent instructions, CIRECO suddenly suggestedto their CWB counterparts that they negotiate a credit agreement for 6–7 milliontonnes of grain over a thirty month period.59 However, the Chinese emphasizedthat the volume of future purchases under such an agreement would depend uponOttawa extending generous credits and permitting a larger volume of PRC goods,especially textiles, to enter Canada. Canberra had already extended Most FavouredNation (MFN) status to Chinese textiles entering Australia.

A new phase of China’s trade diplomacy was under way as Chinese negotiatorsexercised bold tactics, despite the crisis at home, to exploit competition among


Western grain exporters and thus win trade and political concessions. Betweenmid-February and June 1961, China’s negotiators shrewdly orchestrated a‘credit race’ among grain suppliers which served as the basis of China’s economicrecovery.

During March and early April, Ottawa and Canberra considered Beijing’s indirectrequests for credits and the impact that such large credit sales might have onthe grain surplus problem, domestic industries (especially the textile industry)and relations with other grain exporting nations and Washington. To prevent theChinese from exploiting competition between the CWB and AWB, officials fromthese marketing boards discussed the possibility of establishing a Canadian–Australian credit limit for grain sales to the PRC and agreed to keep one anotherinformed about any subsequent change in their credit policy.60

Although the Canadian government realized that caving in to Chinese demandswould infuriate domestic textile manufacturers, it remained under intense pres-sure 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 Washingtonagreed to permit American grain to be exported to China. Throughout March theChinese pressured both the Canadians and Australians to extend generous creditsto facilitate further large Chinese grain purchases.

March spring planting was hampered by manpower shortages associated withChina’s crisis, and on 3 March Lin Biao directed the PLA to provide its‘. . . utmost support to agricultural production . . . Especially in the areas severelyaffected by disaster . . . .’61

Consequently, after initial Sino-Australian credit grain negotiations wereconcluded in Hong Kong in early March, C.J. Perrett became the first Westerngovernment grain marketing official to be invited to meet CEROILFOODdirectors in China. On 9 March, when Perrett met CEROILFOOD deputy direc-tors Fu Xing and Zhang Bing in Beijing to discuss a possible long-term grainagreement,62 he gave them a copy of a draft agreement drawn up earlier in HongKong. Australian Department of Trade and Primary Industry (DPI) officials laterobjected to its wording because its title did not mention either the AWB orCEROILFOOD. Consequently, it could have been misconstrued as a ratifiedgovernmental document and used as a future bargaining tool. As will emerge, thisdocument probably played a significant role in subsequent Sino-Canadian grainnegotiations.63 (Later, on 3 August, the Australian Cabinet rejected an AWBproposal that a Sino-Australian long-term agreement be negotiated on thegrounds that it was unnecessary, vague and might imply that China would receivepreference over established customers of Australian wheat.)64

With Perrett in Beijing on 9 March, the Canadian Cabinet agreed that, if theCWB 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 pressurefrom grain interests to help reduce the domestic surplus and thus did not objectafter learning in late March that CIRECO–CWB negotiations continued and thatOttawa might extend credits to facilitate further grain sales to China.66 In fact, on15 March, US Under-Secretary of State, Chester Bowles told Canadian officials


that the US State Department was conducting a thorough review of AmericanChina policy. A Gallup Poll published in March, indicated that the American elec-torate was slowly changing its views on China: 47 per cent of Americans wouldfavour Sino-American trade, while 52 per cent would approve of US–Chinesegrain 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 sixmonths to expedite further large Australian wheat sales to China.68 By 7 April theChinese had rejected a Canadian offer of six month credits and were holding outfor nine month terms.69

Then, on 10 April, as the Canadian Cabinet continued debating70 the Chinesedemands, Canberra received a report that an unidentified American firm, whichwas almost certainly the ITC, had offered CIRECO unlimited quantities of wheatto be shipped via Hong Kong. Representatives of this firm had told CIRECO offi-cials that Washington would approve the sale if Beijing agreed to import thegrain. The Bank of China subsequently referred the matter to Zhou Enlai who metwith U Nu in Yunnan about this time to discuss the threat of KMT irregularsoperating in Burma and a possible Sino-Burmese rice deal.71 It is unknownwhether the Australian report had been immediately forwarded to Ottawa but, on10 April the Australian Cabinet rejected an AWB request for an official govern-ment guarantee of Sino-Australian credit sales, leaving the matter in the AWB’shands.72 Nevertheless, on 11 April Alvin Hamilton, who had accepted the port-folio of Minister of Agriculture in October 1960 on the condition that he assumeresponsibility for the CWB (which was formerly under the DTCs jurisdiction)convinced his Cabinet colleagues to guarantee credits of $50 million over ninemonths (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 thenegotiations, and the CWB officials completed initial negotiations for the agree-ment with CIRECO in Hong Kong, the final bargaining which involved the CWBand CEROILFOOD officials took place in Beijing. In the Chinese capitalbetween 19 and 22 April, CEROILFOOD officials told the Canadians that inHong Kong on the 18th, AWB negotiators offered grain at below the priceextended 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 bothcategorical 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 theChinese had lied to pressure CWB negotiators into agreeing to Chinese terms.75

On 22 April the first Chinese–Canadian thirty month grain agreement, and thefirst two contracts under the agreement, were signed (see Table 3.2).76 The agreementwas signed on behalf of the Chinese by Shanxi-born Acting Director of CEROIL-FOOD Li Yousheng and Deputy Director Fu Xing, while CWB negotiators werereceived by Ye Zhizhuang. Concerned that AWB and CWB officials would comparenotes about recent negotiations with CIRECO and CEROILFOOD, the Chinese hadensured that, when the Canadian negotiating team left Beijing for Hong Kong, theydid not meet the Australians who were en route to the PRC’s capital.


Tabl

e 3.

2P

RC

–Wes

tern

cre

dit

grai

n co

ntra

cts:

Apr

il–A

ugus

t 19

61 (

in t

onne

s; w

heat

and

bar

ley

in t

rade

gra

in w

eigh

t; f

lour

in

mil

led

wei

ght)

Dat

eF

irm

s/or

gani

zati

ons

Qua

ntit

ies

and

vari

etie

sD

eliv

ery

Paym

ents

(in

ste

rlin

g)

22 A

pril

196

1C

WB

3–5.

1 m

illi

on:

whe

atO

ver

30 m

onth

per

iod

9 m

onth

cre

dits

: $1

00 m

illi

onC

ER

OIL

FO

OD

610,

000–

3,00

0,00

0: b

arle

y(u

nder

ind

ivid

ual

cont

ract

s in

cre

dits

, 25%

cas

h,to

be

nego

tiat

ed)

guar

ante

ed b

y C

anad

ian

Cab

inet

22 A

pril

196

1C

WB

Init

ial

cont

ract

s un

der

the

9 m

onth

cre

dits

: $1

00 m

illi

onC

ER

OIL

FO

OD

abov

e ag

reem

ent:

in c

redi

ts, 2

5% c

ash,

#1:

457,

220:

whe

atA

ugus

t–N

ovem

ber

1961

guar

ante

ed b

y C

anad

ian

304,

814:

whe

atJu

ne–A

ugus

t 19

61C

abin

et#2

: 36

5,77

7: b

arle

yJu

ne–N

ovem

ber

1961

7 M

ay 1

961

AW

B76

2,00

0: w

heat

(an

d op

tion

to

July

–Dec

embe

r 19

6112

mon

th c

redi

ts:

10%

cas

h, 4

0% i

n C

ER

OIL

FO

OD

purc

hase

ano

ther

254

,012

6 m

onth

s, 5

0% i

n 12

mon

ths,

un

der

this

con

trac

t la

ter

ingu

aran

teed

by

the

Aus

tral

ian

the

year

)go

vern

men

t’s C

omm

onw

ealt

h T

radi

ng B

ank

(CT

B)

May

/Jun

e 19

61A

lfre

d C

. Toe

pher

(F

RG

),A

ppro

xim

atel

y 20

0,00

0:Ju

ne–A

ugus

t 19

619

mon

th c

redi

ts:

prov

ided

by

Kam

pfm

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(F

RG

)fl

our

Wes

t E

urop

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bank

s (n

oC

IRE

CO

dow

n pa

ymen

ts)

June

196

1L

ouis

Dre

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254,

012:

bar

ley

June

–Dec

embe

r 19

6112

mon

th c

redi

ts:

25%

dow

n C

o. (

for

ON

IC)

paym

ent,

bala

nce

due

in 1

2 m

onth

sC

IRE

CO

[Com

pagn

ie F

ranç

aise

d’A

ssur

ance

pou

r le

C

omm

erce

(C

OFA

CE

) gu

aran

tee]

Apr

il–J

une

1961

Bun

ge (

and

poss

ibly

oth

er35

,000

–51,

000:

mai

ze,

May

–Sep

tem

ber

1961

Les

s th

an 6

mon

th c

redi

tsA

rgen

tini

an f

irm

s)so

me

whe

atC

IRE

CO

28 J

une

1961

Inte

r-A

gra

(Fre

nch

firm

)25

4,00

0: f

lour

n.a.

9 m

onth

cre

dits

5 A

ugus

t 19

61C

WB

162,

567:

whe

atA

ugus

t–S

epte

mbe

r 19

619

mon

th c

redi

ts:

$100

mil

lion

CIR

EC

Oin

cre

dits

, 25%

cas

h, g

uara

ntee

dby

Can

adia

n C

abin

et

Sou

rces

:C

ompo

sed

by a

utho

r fr

om:

Mit

cham

, op.

cit

., ch

apte

rs 3

–6 (

base

d on

rep

orts

/sta

tist

ics

foun

d w

ithi

n: N

AA

: A18

04; A

1838

; A20

51 a

nd N

AC

: R

G#2

0; R

G#2

5 an

d N

AC

P:

RG

#59)

;Pe

rret

t, op

. cit

., pp

.190

–205

.

Not

en.

a.�

not

avai

labl

e.

The importance of the sales to the Canadian government were highlightedwhen Alvin Hamilton travelled to Hong Kong to meet with Ding Kejian and otherCIRECO executives on 28 and 29 April to discuss financial aspects of the agree-ment. During this visit Hamilton invited the Chinese to send a general tradedelegation to Canada.77

While the Canadian government was eager to draw attention to its role in theSino-Canadian grain trade, the Australian government, which also favoured grainsales to China, publicly tried to distance itself from the Sino-Australian graindeals because it relied on preference votes from the Australian Democratic LaborParty, which opposed trading with Communist countries. The Australian govern-ment thus emphasized that the AWB was an autonomous government marketingorganisation over which the elected government had little control – a positionwhich was debatable.78 Regardless, the (Australian) Commonwealth TradingBank, another government organization, agreed to guarantee twelve monthcredits 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 onBeijing’s credit reliability so that it could evaluate the potential for Sino-Japanesetrade.79 Tokyo and JASEA executives were ready to complain again to Washingtonabout America’s reduced chemical fertilizer procurement policy under ‘dollardefense’, scheduled to take effect in November 1961.80 After learning of the creditgrain agreements, UK interests stepped up pressure on the Macmillan govern-ment to take further steps to facilitate the expansion of Sino-British trade.81

A possible Chinese–Vickers aircraft deal represented an opportunity for theBritish government to play a greater role in developing trade with China. Already,during a COCOM meeting in late April 1961, the British strongly opposed effortsof the US delegation to increase the number of items on the embargo list. Alsoduring 1961 Macmillan told President Kennedy that ‘. . . we must distinguishbetween security controls, the object of which is to protect our military securityand anything like . . . economic warfare . . . .’82 A special bilateral British–Americanmeeting 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 ineffec-tual and would drive the Chinese government further away from the West.Chinese interest in UK aircraft grew as their talks with CANDAIR faltered in thesecond half of 1961, shortly after a CANDAIR promotional film was shown byForsyth-Smith, on behalf of the Canadian firm, to Chinese officials in HongKong. The Chinese appeared displeased when CANDAIR aircraft appearingat the beginning of the film were adorned with the logos of flying tigers – thesymbol of the KMT air force under Claire Chennault.84

May–August 1961

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


Western grain over the long term – quantities which the Canadians and Australiansalone 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 crit-ical position if attacked simultaneously by Taiwanese forces and another enemysuch as India.85 At the CPC Central Committee working conference in Beijingbetween 21 May and 12 June, Chen Yun, who was gradually regaining the influ-ence that he had lost during the GLF, proposed that the Beijing leadership imple-ment a grain import programme under which it would spend up to half of China’sforeign exchange earnings to buy 5 million tonnes of grain annually over three tofive years.86

Furthermore in June, Nan Hanzhen was dispatched to Buenos Aires to convincethe Argentinians to extend favourable terms of trade to enable Beijing to importsurplus Argentinian grain. Despite the seriousness of conditions inside the PRC,the Chinese began telling their Western counterparts that further large grain pur-chases 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 on12 and 9 month credit terms, with no down payments for the latter, and wereinvolved 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 Chinesemarket was well under way. In May, as negotiations got under way on anothercontract under the Sino-Canadian grain agreement, the Chinese insisted thatOttawa needed to increase the credit limit from CAN$50 to $100 million beforemore contracts could be concluded.

By 18 May the State Department was considering instructing AmbassadorJacob Beam to tell Ambassador Wang, at the 105th meeting of the Sino-Americantalks, that Washington hoped that Beijing would not prevent individual Americansfrom 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 wastouring China (13 May–8 June), Jiangsu-born Vice-Minister of Foreign TradeLi Qiang told the visitors that he hoped Canada would buy more Chinese goods.Xiao Fangzhou added that he had information for the Canadians which ‘. . . hadnot appeared in the newspapers: . . . the Americans wanted to sell China wheat –but . . . [Canada] need not fear since China had only one buyer – . . . [actingCEROILFOOD director Li Yuesheng] and he would not buy from theAmericans’.88 Nevertheless, on 2 June, a high-ranking British intelligence officershowed a US consulate official in Hong Kong a letter, by a local representative ofan American company, sent to Zhou Enlai via CIRECO assuring Zhou that hisfirm could secure the State Department’s approval for a Chinese–American graindeal.89 This offer was in response to enquiries which K.C. Jay had made inJanuary or February 1961.90

Between 5 and 7 June the US Treasury Department tried to block the salethrough FACR of US made vacuator pumps for use on vessels carrying Canadian


grain to China. But, as with the bunker fuel incident in February, Ottawa’srepresentations resulted in Washington allowing the vacuator pump transactionsto proceed.91 During discussions to resolve the matter, Chester Bowles toldCanadian officials that he favoured exporting grain to China.92

On 16 June, the Canadian Cabinet increased the credit guarantee for grain sales toChina from $50 to $100 million,93 resulting in the signing, on 5 August, of a thirdSino-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-bornForeign Minister, Chen Yi, thanked Canada’s representative, Secretary of State forExternal Affairs, Howard Green, for the Canadian grain shipments and Ottawa’sdecisions to provide credits to the Chinese, to accept payment in convertiblesterling and its efforts in solving the vacuator pump fiasco. Chen said that thiskind of economic contact could help establish good Sino-Canadian relationswithout altering the formal legal position of non-recognition. While Chen men-tioned that the Chinese needed to buy grain because of a severe drought, Beijingwould ‘. . . continue the purchases on an annual basis, not just to meet famine con-ditions of the current crop year . . . [but] to build up a wheat reserve in China toovercome lean years [and] that demand for wheat in northern parts of their coun-try was a continuing factor . . . .’94 A former Canadian diplomat later rememberedthat Green responded by asking Chen to a reception put on by the Canadians laterthat evening and attended by Secretary of State, Rusk and Ambassador at Largeand head of the US delegation, Averell Harriman. Chen readily agreed, indicatingthat he was eager to speak to Harriman.95

Whereas it is not known what Harriman and Chen Yi discussed when they metthat evening, many years later Rusk remembered that in 1961 he was leaningtowards a ‘two China policy’ and had offered to shake hands with Chen Yi at theGeneva Conference. Although Chen responded, after a brief pause, and bothexchanged pleasantries the PRC’s Foreign Minister declined Rusk’s suggestionthat they meet privately.96

Yet, on 23 June, after Harriman suggested that a meeting be arranged with ChenYi through the British, to discuss the Sino-Soviet rift, the elder statesman ‘. . .wassternly waved off by Rusk. Word of the meeting would leak . . . [Rusk said] enhanc-ing China’s prestige and making the . . . [US] appear “weak and anxious” ’.Nevertheless, a guidance paper for the 105th meeting of the Sino-American ambas-sadorial talks on 29 June instructed Beam to raise the newsmen issue again anduse whatever tactics he deemed appropriate to induce Wang accept the Americanhumanitarian food parcel proposal, that was discussed as early as mid-May.Washington hoped that such ‘low-key tactics’ would give it more insights into howBeijing 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 thatthere could be no progress on smaller issues until a solution to the Taiwan prob-lem was found.98 Yet, after the meeting, Beam accepted Wang’s ‘unusual initia-tive’ that they meet for coffee, during which the Chinese ambassador rememberedhaving dinners with U. Alexis Johnson at Geneva in 1955, when ‘. . . frank private


talks had been held “without obligation . . . [for] either side”. . . [and he] consideredthis meeting in . . . [a] similar light.’ Although he complained about remarksallegedly made by Vice-President Lyndon B. Johnson in Taiwan – to the effect thatChen Yi was an ‘insignificant figure who only spoke from prepared texts’ – he waspleased that Harriman had complimented Chen Yi about the elevated tone of debateat the Conference on Laos and thus looked forward to accepting the American elderstatesman’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, theUK, the USSR and China – when telling Rusk that Washington should initiate adirect and possibly bilateral ‘serious phase of horse trading and compromise’ withBeijing. At the end of July, after the State Department rejected this proposal andHarriman had responded by complaining to American Ambassador J.K. Galbraithin India, Arthur Schlesinger raised the matter with President Kennedy. Kennedysubsequently 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 inthe autumn of 1956 and 1959 when Sino-American tensions appeared ready tomoderate, on 1 August the PLA shot down another American-made high-altitudeespionage-type aircraft (an RF 1C1).

Rusk’s guidance paper in preparation for the 106th meeting of the Sino-American ambassadorial talks on 15 August made no reference to Wang’s inter-est in meeting Harriman. Nevertheless, Rusk stressed that the US wanted to offerWang a ‘. . . fresh viewpoint on US–CHICOM relations, to the greatest extentpossible in a manner which may induce . . . [Chinese] leaders to think seriously inmonths during which the talks will be recessed about permitting progresson 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 torelease US prisoners or agreed to exchange news representatives, both sidesmight have access to more specific and objective information which would helpto increase understanding, prevent policy miscalculations, reduce tension andpreserve peace.101

However, the Chinese were unwilling to consider such an exchange becausePresident Kennedy had invited Chen Cheng to visit Washington. Wang said thatvisit and US intrusions into Chinese airspace and territorial waters was evidencethat Washington was attempting to worsen its relations with Beijing. He alsovoiced concern about America’s position on the Berlin crisis, its support for andcollaboration 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 106thmeeting, Ambassador Wang again mentioned in response to Harriman’s offer,made at Geneva, that the two meet, he had told the elder statesman that ‘. . . hisside 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 wheatcrop, harvested between June and July, the first Chinese harvest of 1961,



was poor. For months China had been depending on a successful harvest to helpease domestic food shortages and expedite economic recovery.

A PLA General Rear Services report of 4 August, based on meetings withdirectors of Rear Services units of the entire army (from 10 to 20 July), statedthat, despite improved conditions since the winter of 1960–1, 5–10 per cent ofsoldiers were still short of food – although this was partly because they continuedgiving some of their rations to their families. On the 17th the MAC endorsed andtransmitted this report, adding that, although the oedema problem had basicallybeen resolved, the main problem facing the PLA was ongoing food shortages. Itcalled for soldiers to ‘. . . vigorously get at autumn planting and harvesting’.105

However, Chinese officials realized that more grain would have to be importedfrom abroad to tide China over until results of the autumn grain harvest could beanalysed.

Thus, when the Vickers negotiators opened more serious aircraft talks inBeijing on 4 August, the Chinese completely avoided discussing politics. Facingongoing financial difficulties, associated with the grain purchases, they stillrefused to tell the British negotiators how many aircraft they planned to purchase.Vickers needed to know precisely how many Viscounts the Chinese intended tobuy for at least four reasons.

● Vickers could not determine costs associated with assembly line productionand offer a set price per aircraft until the Chinese specified how manyViscounts they wanted to buy.106

● A Chinese–Vickers aircraft deal would accelerate the erosion of the US-ledcontrols on China trade. Although Viscount aircraft were not on the COCOMembargo list, the radar and navigational equipment incorporated in theair-craft was – even though it did not have direct military applicationand was technologically obsolete. Prior to signing contracts involving itemson the COCOM list, ‘Paris Group’ members were required to have relevantcontractual details approved by COCOM through the ‘exceptions procedure’.

● The British government wanted to avoid actions which could jeopardizebadly needed investment in the UK. It was necessary to determine whetherWashington would try to block a Chinese–Vickers aircraft deal under FACR.The navigational and communications equipment incorporated in Viscountaircraft was manufactured by Standard Telegraph and Telecommunications(STC), the British subsidiary of the American multinational – InternationalTelephone and Telegraph Corporation (ITT).

● Vickers negotiators felt that the more information that they could include withtheir application to the British government’s Export Credit GuaranteeDepartment (ECGD) – for a guarantee covering generous credits of at leastfive years – the better their chances of securing the necessary guarantee.

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

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 promotingtension in US–British relations.108

Nevertheless, on 18 August 1961, ECGD officials told Vickers that it wouldbe willing to provide a five year credit guarantee covering sales of Viscountaircraft to China.109 But the negotiations remained deadlocked on 28 August asthe Chinese still refused to disclose how many Viscounts they wanted to buy,insisting that Vickers must first disclose aircraft prices and available paymentterms.110


4 Aircraft, grain and the KennedyAdministration’s China policydebate, September1961–September 1962

in 1957 . . . a . . . [Chinese] technical mission . . . sent to the UK . . . reportedfavourably upon Western machinery . . . particularly that of the UK. . . . [Its report]was made just before the . . . Great Leap Forward . . . [began] and . . . was shelvedsince 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 itseem possible that the ideas of her leaders may develop in the direction ofrevisionism . . . . In the past three years, the Chinese economy has taken andsurvived a much severer dose of economic warfare than the West could everconcoct . . .

(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 COCOMapproach to trade . . . throughout [the US government has resisted] that erosion toa considerable degree and . . . [these are] just the political facts of life in dealingwith 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] Americangrain, we will unmistakably know it – not directly, for they will never mention itat 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 con-ference at Lushan between 23 August and 16 September marked the turning pointin the PRC’s economic recovery. During these meetings Chinese leaders obtaineda 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 1961proposal that, while working to stimulate domestic production, the PRC importup to 5 million tonnes of Western grain for three to five years.1

By September 1961, Ottawa learned that Beijing had re-exported Canadianwheat to East Germany – approximately 271,000 tonnes between January 1961and mid-1962 – an action not technically prohibited under the terms of the Sino-Canadian grain agreement. While Washington was upset that some of the grainwas diverted at the height of the Berlin Crisis in mid-August, it failed to persuadeOttawa and Canberra that this was reason enough to suspend their grain sales toChina. While continuing grain negotiations with the AWB, CWB and LouisDreyfus Co. throughout the autumn of 1961, the Chinese placed more emphasison their equipment/technology import requirements.

In early autumn 1961, after sending a delegation to tour Rolls-Royce’s UKoperations, the Chinese told Vickers that they wanted to buy Viscount aircraftand on 13 October Whitehall asked Washington how it would respond to such atransaction. The Americans replied that they would oppose any such deal atCOCOM because it would result in more requests to export embargoed equip-ment to China. Although the Viscount aircraft was not embargoed at COCOM,the British government had failed to convince the ‘Paris Group’ to remove theweather radar, incorporated in the aircraft, from the COCOM list. This despitethe fact that an internal US technical evaluation of the unclassified equipment,which had been widely available for about five years, concluded that it was ‘. . . ofa strategically low order’.2 COCOM had also previously granted approval forsimilar equipment to be exported to other Communist nations.

US officials thought that the communications equipment incorporated in theViscount might be subject to COCOM embargo even though an exception hadpreviously been granted to enable the same item to be exported to Poland. Thiswas because Washington did not know if Communist countries which had alreadyobtained this technology would be willing to export it to the Chinese.3

Washington insisted that a British government decision to block the proposedaircraft deal, ‘. . . would not seriously damage the UK’s economic, political orsocial circumstances’.4

A showdown between the UK and US governments appeared inevitable whenin October London asked COCOM for permission to include the radar and com-munications equipment incorporated into any Viscount aircraft exported to China.

As the ‘Paris Group’ considered the matter, Beijing remained concerned aboutgrain supplies after receiving poor autumn harvest reports from many parts ofChina. Later in February 1962 Chen Yun told the enlarged meeting of the PartyCentral Committee’s Standing Committee of the Political Bureau in Beijing thatgrain output in 1961 was 40 million tonnes less than in 1957.5 China’s grain bar-gaining position also weakened in autumn 1961 because of increasing worldwidedemand for grain and reduced supplies in exporting countries because of smallerdomestic harvests.

To prevent harmful competition between French suppliers, the French NationalCereals Office (ONIC) had appointed Louis Dreyfus Co. as sole French supplier

72 September 1961–September 1962

in the Chinese grain market. During October COFACE provided another twelvemonth credit guarantee to enable the Chinese to purchase grain from LouisDreyfus Co. Later that same month, when they resumed negotiations with theCWB and AWB, CIRECO asked for improved credit terms of twenty-fourmonths. When governor H.C. Coombs of the Reserve Bank of Australia visitedBeijing from 2 to 11 October, some observers speculated that the Bank had pro-vided some type of credit guarantee for Chinese purchases of Australian grain.6

An inconclusive Australian DEA investigation of the allegations later concededthat 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 theexistence of an arrangement of this kind’.7

Although during November another Sino-Australian grain contract wassigned on twelve month credit terms, both the AWB and CWB were unableto meet Chinese demands for larger quantities of grain on improved terms(see Table 4.1). The Chinese responded by opening negotiations to purchase moreFrench grain and considered making an indirect approach to purchase US grain.However, with the Vietnam conflict showing signs of worsening and evidence ofincreasing PRC involvement there, the gradually dwindling, yet still powerful,pro-Taiwan ‘China lobby’ (a.k.a. the Committee of One Million) became moreagitated about the steady growth of the Sino-Western grain trade. Theymaintained that Western grain and equipment sales to China, especially thosefacilitated by medium-term credits, were essentially foreign aid and demandedthat Washington not ease its position on US and Western-aligned countries’ Chinapolicy.

While Washington had prevented American firms and their foreign subsidiariesfrom completing grain deals with China in 1958, the development of the Sino-Western grain trade since autumn 1960 had encouraged America’s powerful‘grain lobby’,8 which included the US-based operations of the international graintrading firms, to pressure the Kennedy administration to permit Sino-Americangrain deals.

In the autumn of 1961 the American government was becoming divided overthe question of possible US grain sales to China. Officials in the US military,Commerce Department (who generally favoured increased trade with the USSRinstead) and the State Department’s Far Eastern Bureau – a prime target ofWashington’s anti-Communist purges of the 1940s – still generally opposed USgrain sales to China. For them grain was a strategic commodity which helpedBeijing through its domestic crisis, providing it with additional funds to expandits political influence through its foreign aid programme to LDCs and the non-aligned countries.9 A much smaller, but growing, number of influential UnitedStates Department of Agriculture (USDA) and State Department officials weretaking a practical and flexible approach in favour of exporting US grain to Chinaeither as a gift or on credit terms, arguing that the domestic ‘grain lobby’ wouldwelcome the extra business because it would help reduce surpluses. In the middlewere some US officials who favoured American grain sales to China only if suchtrade 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/ Quantities Delivery Paymentorganizations and varieties

October 1961 Louis Dreyfus 254,012: November– 12 month Co. (for ONIC) barley December credits:

CIRECO 1961 (COFACEguarantee)

November 1961 AWB 254,012: December 12 month(option from CIRECO wheat 1961–January credits: (10%7 May 1961 1962 cash, 40% in AWB–CIRECO 6 months, contract) 50% in

12 months,guaranteed bythe Australiangovernment’sCommonwealthTrading Bank)

18 December CWB 833,158: January– 9 month credits:1961 CIRECO wheat May 1962 ($100 million

193,049: in credits, barley 25% cash,

guaranteed byCanadiancabinet)

19 December CWB 35,380: December 1961– 9 month credits:1961 CIRECO wheat January 1962 ($100 million

in credits,25% cash,guaranteed byCanadiancabinet)

22 December CWB 81,646: February–May 9 month credits:1961 CIRECO wheat 1962 ($100 million

in credits,25% cash,guaranteed byCanadiancabinet)

22 December Louis Dreyfus 1 million: in 1962: 12 month 1961 (for ONIC) grain 406,419: wheat credits:

CIRECO (wheat and 254,012: barley (COFACEbarley) in 1963: guarantee)

304,814: barleyin 1964:304,814: barley

27 February AWB 254,012: June–July 12 month1962 CIRECO wheat 1962 credits (10%

cash, 40% in6 months, 50% in 12 months,

(continued)


Table 4.1 Continued

Date Firms/ Quantities Delivery Paymentorganizations and varieties

guaranteed bythe Australiangovernment’sCommonwealthTrading Bank)

28 February AWB 355,616: June–July 12 month1962 CIRECO wheat 1962 credits (10%

50,802: cash, 40% inwheat 6 months, 50%

in 12 months,guaranteed bythe Australiangovernment’sCommonwealthTrading Bank)

26 March CWB 152,406: April–May 9 month1962 CIRECO wheat 1962 credits ($100

908,992: June–December million inwheat 1962 credits,

25% cash,guaranteed byCanadiancabinet)

Sources: Table composed by author from: Mitcham, op. cit., chapters 4–7 (based on reports/statisticsfound 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 WheatBoard 1939–65, Melbourne: AWB, 1966, pp. 195–205.

In late October Rusk conceded to the House of Representatives’ SelectCommittee on Export Controls investigating strategic material sales to Com-munist countries that it would be safer for the US if Beijing used its foreignexchange 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 EdwardRice12 suggested that Washington consider shipping 1.02 million tonnes ofAmerican grain to China as a gift through an intermediary country. Rice, whohad recently been appointed Harriman’s deputy within the Far East (FE) bureau,concluded that ‘. . . the safest . . . [move] would be an arrangement wherebyanother country such as Canada make the shipments from stocks which . . .[the US] replaced’.13 Reports also stated that, when US wheat grower representa-tives travelled to Hong Kong on 29 October, they attended a pre-arranged con-ference with CIRECO officials at the Bank of China building.14 CIRECOofficials later confirmed to the CWB’s chief commissioner that Americanwheat grower representatives had indeed met with them in Hong Kong and werecontinuing talks.


After completing a draft contract with the Chinese in early November 1961,Vickers negotiators, led by Jardine Matheson Chairman John Keswick, returnedto London to wait for the British and Chinese governments to consider theproposed agreement.15 On 3 November Britain’s Ambassador to the US, Sir DavidOrmsby Gore – who was related by marriage to both President Kennedy andBritish Prime Minister Macmillan – asked Washington not to oppose the dealat COCOM. He warned that the British government would vigorously protesta ‘Paris Group’ decision to block the proposed sale. Because of the problemsfacing the UK aircraft industry, Whitehall could not afford to miss this opportu-nity to facilitate an aircraft deal. With Beijing unable to obtain comparableaircraft from Moscow, there was also a strong political rationale for allowingVickers to supply the PRC with ‘obsolescent aircraft’.

US Under-Secretary of State for Economic Affairs George Ball then remindedOrmsby-Gore that the proposed deal was especially sensitive politically becauseof ongoing Congressional Committee investigations into Western trade controls.Still, he hoped to respond to Ormsby Gore’s remarks by 7 or 8 November, afterthey were considered by top-level US officials and President Kennedy.16

On 6 November British daily newspapers reported that a Chinese–Vickersaircraft contract would soon be signed.17 That same day, as several times beforewhen Sino-American tensions appeared to be moderating, the PLA shot downa US-made high-altitude espionage aircraft (a P2B). Then, on 7 and 8 November,when a group headed by John Pilcher, Republican Congressman (Georgia) visitedHong Kong, it warned American officials there that it planned on ‘. . . lookinginto the transaction and related aspects of US/UK relations in Asia’. On8 November US officials in the British colony warned Rusk that, when Pilcher’sCongressional group returned home, it would question the US government aboutits attitude towards the proposed deal in terms of COCOM regulations and otherelements of UK policy in the context of the Vietnam crisis and America’s SEATOresponsibilities.18

The Chinese were simultaneously negotiating with the Burmese for secondhandViscount 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 thePRC 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 on1 January 1961 for the ratification of the Sino-Burmese border agreement, itwas announced that Beijing had agreed to provide Rangoon with a twenty-yearinterest-free loan equivalent to $88 million. They probably also enquired aboutpurchasing Burmese rice.20 About this time the president of the Seattle firm ITCfinally asked the USDA about obtaining a US government export licence to shipgrain to China and North Korea (see Table 4.2).21

On 9 November, as the Kennedy administration began considering U Nu’sproposal, London told Washington that an appropriate substitute for the Viscountnavigational equipment was unavailable. The British maintained that, in compar-ison to other nations, they had demonstrated an excellent record at COCOM and


warned that if the US government attempted to block the proposed sale, therewould be a severe backlash from the British public and Parliament who woulddiscourage future UK adherence to ‘Paris Group’ controls. Regardless,they insisted it was probably politically advantageous for allied nations to encour-age the Chinese to purchase less Soviet-made equipment and more Westernequipment.

However, later that day Rusk told British officials in the US capital that even ifthe items of American origin were replaced with comparable equipment producedby non-US firms, Washington would still try through COCOM to prevent theinclusion of internationally embargoed equipment in any Viscount aircraft sold toChina.22 He stressed that Congress and the American public, who generallyopposed trade with Communist countries, especially with the PRC, would notunderstand if the US government, when presented with the opportunity, raisedno objections to a business deal involving China. The British insisted that thisinflexible approach would ‘. . . create a lively reaction in the U.K.’ – especially inlight of Washington’s recent opposition, also on political grounds, to the UKselling Sea Cat frigates to Argentina.

On the evening of 9 November State Department officials admitted to theBritish that they did not know if President Kennedy had considered the Sino-Vickers aircraft deal. Apparently Ball and Rusk did not consider referring thematter to President Kennedy until 10 November, by which time they had alreadydecided to try and block the proposed sale. They related this decision to the Britishon the 11th.23 Three days later, Whitehall told Washington that if Vickers couldfind a non-US replacement for the navigational and communication equipment, it

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

Firms/ Quantity Delivery Paymentsorganizations

American side: Directly to the In equal annual $414.75–$509.25ITC PRC: amounts over million dependingJose Maria Braga 6 million: grain three years on whether wheat& Co., Hong Kong (3 million: wheat was subsidized

3 million: barley)

PRC side: To North Korean Cash or by USDA’sK.C. Jay and government: Commodity CreditBank of China (for re-export by Corporation creditofficials, Pyongyang to the financingHong Kong PRC according to

Zhang Shizhao, on need)behalf of a group 762,000: wheat,of Chinese leaders 762,000: barleyin Beijing led byZhou Enlai

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


would allow the aircraft deal to proceed despite COCOM controls because of thediplomatic, economic and technical reasons already outlined.24

Meanwhile, Japanese interest in the Chinese market intensified afterWashington’s 5 October decision to terminate non-US participation in the$17 million 1962 Agency for International Development (AID) chemical fertil-izer tender scheduled for 15 November 1961. After the Japanese protested thisdecision at the first meeting of the Joint US–Japan Committee on Trade andEconomic Affairs at Hakone (from 2 to 4 November) Washington reversed itsdecision and announced that an open worldwide chemical fertilizer tender underAID would take place on 15 November as originally planned. This provoked animmediate and angry response from American chemical fertilizer producers andthe US Congress. As a result, on the morning of the 15th, shortly before thetender was held, Washington again announced that only US firms were eligible tocompete in the 1962 tender. This reversal infuriated Japan’s chemical fertilizerproducers who in turn pressured Tokyo to take steps to resolve the situation.Because of this American decision the Japanese found Chinese offers to buyJapanese chemical fertilizer considerably more attractive.25

At that point Beijing’s support for the South Vietnamese Liberation Frontwas an important factor in US decision-making with respect to the PRC. On22 November President Kennedy approved NSAM (National Security ActionMemorandum) no. 111: a decision to provide logistical support teams, equipment,training and advisors to the South Vietnamese military.26 On 27 NovemberWashington officially rejected U Nu’s offer to help arrange a Sino-Americangrain deal.27 While the British government applied for a COCOM ‘exception’, on24 November, to enable the embargoed equipment to be included in any Viscountaircraft sold to China, American opposition prevented the ‘Paris Group’ fromreaching 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 servicemenand the exchange of newsmen. They accused Washington and Taibei of collabo-rating in aggressive activities around China’s periphery while blaming themfor the PRC’s inability to attain UN membership, for disrupting the GenevaConference on Laos and for allegedly planning to establish a northeast Asianalliance.29

30 November 1961–March 1962

Nevertheless, on 30 November the ‘Thanksgiving Day Massacre’ saw key USgovernment officials moved to new posts, paving the way for the possibility ofincreased flexibility in US China policy. Assistant Secretary of State for FarEastern Affairs (FE) McConaughty was replaced by Averell Harriman; GeorgeBall was appointed Under-Secretary of State; Walt Rostow, previously DeputyNational Security Advisor, was appointed to the State Department and Chief ofthe Policy Planning Council; while Chester Bowles became Kennedy’s SpecialRepresentative on African, Asian and Latin American Affairs.


The following day the British government still had not obtained a COCOM‘exception’ when it extended the necessary five year ECGD credit guarantee forthe Chinese to buy six new Viscount aircraft from Vickers for a total of £4 mil-lion. It was the first Sino-Western transaction facilitated by long-term credits andleft the Chinese dependent on British interests for related spare parts, engineer-ing services and technical instruction, opening the door for Beijing to make othermajor purchases of British equipment.30

Viscount aircraft were well suited for preparing Chinese technicians, flightcrews and maintenance workers to work with more advanced Vickers equipmentsuch as the VC-10 jet which was scheduled to come ‘on line’ in 1964.31 Under theterms 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 ‘. . . finaldecision in any particular (COCOM) case rests with the interested country . . . .’and that despite their exceptional unilateral decision ‘. . . they still generallysupported the strategic embargo and COCOM unanimity’. Although COCOMofficials subsequently expressed concern over the British government’s unilateralaction, only the US delegate opposed the sale, stating that Beijing was unable toproduce the radar and communications equipment in question or obtain similarlyequipped aircraft elsewhere. He emphasized that Viscount aircraft could helpthe Chinese undertake ‘. . . infiltration, subversion, and direct action againstneighbouring non-Communist countries . . . .’33

Although, Washington had instructed American COCOM delegates not to turnit into a major issue and jeopardize the ‘Paris Group’s future,34 during a pressconference in Paris on 8 December, Republican Senator (New York) KennethKeating, a member of the steering committee of the Committee of One Million,criticized the Sino-British aircraft deal. Then, in response to questioning atanother news conference that same day, Rusk insisted that, although Washingtonwas displeased with the transaction, it was ‘. . . one of those transactions . . .[about] which governments must decide for themselves. I think I might just let itrest at that’.35

The ‘China Lobby’ supporters felt that this approach would lead to a furthererosion of the Western trade controls. On 12 December an assistant of Senator(Wisconsin) Alexander Wiley – a Committee of One Million member and chair-man of the Senate Foreign Relations Committee36 – complained to Rusk aboutWashington’s inability to block the deal despite having known about thenegotiations before the contract was signed. The State Department then explainedthat Whitehall had been made fully aware of the US government’s positionon China trade and Washington would stand by Rusk’s remarks to the press on8 December.

About that time Washington decided to deny export licenses to and withhold USdefense and other ‘procurement contracts’ from foreign subsidiaries of Americanfirms supplying equipment incorporated into Viscount aircraft sold to China.Washington also urged Whitehall to recommend that Vickers replace the STCequipment of American origin with larger and somewhat heavier British-made


Marconi equipment – which required more power to operate, but possessed thesame frequency coverage and comparable specifications.37

During the 1962 COCOM list review the British secured a rule change so thatembargoed equipment could be exported, provided it was incorporated in aircraftthat did not appear on the COCOM List.38 However, the US Treasury Departmenthad advised ITT’s New York headquarters not to fill previously existing ordersfrom Vickers for equipment used in Viscount aircraft unless the firm firstobtained a Treasury license. The Treasury planned to reject any such exportlicense application unless President Kennedy overruled this decision.39

Meanwhile, news of the Sino-British aircraft deal left Tokyo under greaterpressure to re-examine its controls on China trade so that Japanese businessmenmight keep pace with their West European competitors. Shortly after the Sino-British aircraft deal was signed, the Chinese made a more attractive offer topurchase Japanese chemical fertilizer. But when a Japanese chemical fertilizerdelegation was sent to Beijing on 14 December, Taibei threatened to cancel theirannual imports of approximately 350,000 tonnes of Japanese ammonium sulphatefertilizer if there was a significant revival in Sino-Japanese trade.40 AlthoughTokyo responded by sending a representative to Taibei to discuss the situation, theJapanese were desperate to increase fertilizer exports following the loss ofAmerican AID fertilizer contracts.

Between 15 December and mid-March 1962, a group of US officials led byRusk, George Ball and Walt Rostow failed in their attempt to obtain Allied sup-port for their proposal that Western credits be used as a lever to attempt to shapeChina’s behaviour in international affairs. Allied governments already questionedWashington’s evaluation of Beijing’s international intentions and this initiativeindicated that the US was being forced to ease its position on China trade. The USproposal was made just as Washington was debating whether to allow Americaninterests to ship grain to China.41

Between 18 and 22 December the Chinese had agreed to purchase a total of1.1 million tonnes of Canadian grain. Also COFACE had agreed to guarantee12 month credits to enable a 3 year Franco-Chinese grain deal, covering thepurchase of approximately 1 million tonnes of French grain, to be signed on22 December. Under the accord Louis Dreyfus Co. was to ship 406,000 tonnes ofwheat and 254,000 tonnes of barley to China in 1962. While these deals some-what eased Beijing’s worries about grain supplies, the leadership remaineddesperate to negotiate further contracts covering another 1.83 million tonnes – tofill the PRC’s 1962 grain import programme (see Table 4.1).

During a meeting on 21 December, Carl Kaysen, Deputy Special Assistant tothe President for National Security Affairs, White House and NSC officialsassured Quaker representatives that, if a private US firm signed an agreementwith the Chinese and applied for the necessary US government export licence,President Kennedy would consider the application – although its acceptancecould not be guaranteed.42

About that time British officials advised ITT not to take action which mightprevent or thwart the Chinese–Vickers aircraft deal.43 The British government

wanted to maintain full control over domestic firms involved in defence production.Concerned about the domestic, political and economic implications of foreigninvestment in the UK, it felt that to yield to Washington’s pressure would implypublic admission of the applicability of FACR in Britain.44

The Chinese–Vickers contract was based on the inclusion of ITT/STCtechnology and the installation of replacement Marconi equipment would requirea major change in the airframes of the Viscount aircraft. Nevertheless, ITTwanted to extract itself from the predicament45 and planned not to supply Vickerswith the equipment in question.

Although STC offered to reimburse Vickers for expenses associated withinstalling replacement equipment in the Viscounts, Whitehall insisted that thecontract be executed exactly as negotiated.46 The British government wasprepared to requisition the equipment and, if STC still did not comply, it riskedlosing its UK government contracts, including its £15 million contract with thegeneral post office.47 Whitehall also warned Washington not to interfere in STCoperations, stressing that the UK government would take any steps necessary toensure 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 StateDepartment’s Policy Planning Council which China scholar James C. Thomson,then Special Assistant to Chester Bowles, later emphasized was the first USgovernment report to seriously consider that the Sino-Soviet split was more thana concept discussed by journalists and academics. The report presented evidencethat, since the 22nd CPSU Congress, ‘the Sino-Soviet dispute had entered a newand perhaps decisive phase’. It said that Moscow appeared to be applyingeconomic pressure on Beijing to convince the Chinese to accept Russia’s positionin their ideological conflict and that the PRC’s response was to lessen its depen-dence on the USSR by discontinuing its gold sales through Soviet agencies; byproviding economic support to Albania, despite the Soviet embargo against thatcountry; and by agreeing to purchase British Viscount aircraft. The report con-cluded that such trade could encourage a Sino-Soviet split which could greatlybenefit the West and thus

unsurmountable road blocks . . . [should not be placed] in the path of anemerging Chinese . . . policy designed to lessen . . . [China’s] dependence . . .[on the USSR] . . . . The U.S. should consider a policy of neither encouragingnor discouraging its allies from selling . . . non-strategic goods to theChinese . . . . 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 easingits position on trade with Communist countries. Paris felt that, in contrast toprevious cases when French firms reached deals with Communist nations, theUS government had done little to block the Sino-British aircraft transaction. Thus,on 4 January, Paris told Washington that because of the British government’sunilateral action it could not justify endlessly fending off growing domestic


pressure from industrialists demanding equal access to Communist markets. Italso emphasized that ‘. . . without U.S. insistence on maintaining COCOM’s struc-ture, the whole concept would be abandoned within a month . . .’ and, because ofthe declining rank and professional stature of ‘Paris Group’ representation overthe previous five years, the entire organization needed to be revamped.50

Meanwhile, the Chinese continued having difficulty securing enough grainfrom Western suppliers. On 26 January 1962 the CWB had told CIRECO that,because it possessed insufficient stocks, it could only offer approximately300,000 tonnes of the additional 1.1 million tonnes that the PRC needed to buyfrom Canada during 1962.51 About that time the ITC applied for a US governmentexport license to ship grain to China and North Korea, which had agreed topurchase some grain on behalf of the PRC.52

At a NSC meeting on 26 January, Averil Harriman initiated an investigation todetermine whether the Chinese government really wanted to buy US wheat.53

However, American officials were already concerned that any Sino-Americangrain deals would upset Chang Kai-shek – who they knew was deeply concernedabout the future course of US policy and was contemplating a final gamble toreturn 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 ofthe Chinese economy following the initiation of the ‘decisive stage of all-roundreadjustment’ immediately following the CPC Central Committee workingconference in Beijing on 7 February. On the previous day Chester Bowles sentPresident Kennedy a memorandum seeking permission to continue on toRangoon in early March after completing previously scheduled talks with IndianPrime Minister Nehru, for discussions with his old friend Prime Minster U Nu onpossible US food shipments to China.55 Washington had already been consider-ing a proposal to provide military assistance to Burma.56 Bowles later recalledthat when he met Kennedy that same day he asked the President for his views ona proposal that Washington permit an emergency American wheat sale to China‘. . . for hard currency and without political conditions . . . if [Beijing agreed] notto attempt to change . . . [the PRC’s] existing borders by force (without necessar-ily forfeiting its claims to territories outside its present borders) . . . .’ Bowles alsoasked for Kennedy’s views on offering the Chinese much larger amounts of USwheat 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 milliontonnes). Concerning the second proposal Kennedy said that ‘if some reliablemeans of communication could be opened up’, he would consider an agree-ment to sell . . . (10–12 million tonnes) of American wheat annually on along-term, easy credit basis provided China agreed to abandon its presentmilitary–political pressures on its neighbours . . . . Kennedy agreed thatBowles could advance these proposals with U Nu, describing them asproposals that he had discussed in general terms with the President but whichhad not been formally approved.57


In mid-February Bowles discussed the plan (confidentially) with Indian PrimeMinister Nehru who ‘. . . was most responsive . . . [wishing] Bowles luck andoffer[ing] . . . advice on how to approach U Nu’. Just at that time ITC representa-tives informed US State Department officials that K.C. Jay had told them thata group of Chinese officials led by Zhou Enlai, and supported by a majority ofofficials at the Hong Kong branch of the Bank of China, favoured a formal‘. . . approach to the Americans for grain in the belief that better economicrelations with the US are inevitable’. However, another group led by Liu Shaoqivigorously opposed purchasing US grain, stressing that ‘. . . since the US seeks todestroy . . . [the PRC] a . . . [Sino-American] grain deal would be used to adminis-ter a propaganda defeat and that starvation was preferable to humiliation’.58

When the Chinese government’s ‘most important emissary’ – who was probablyZhang Shizhao, the 79-year-old former president of Beijing University and polit-ical advisor to Mao and Zhou Enlai59 – met ITC representatives in Hong Kongon 21 February, he said he was returning immediately to Beijing to prepare for ameeting on 4 March, where a final decision would be made on the proposedITC–Chinese/North Korean grain sale.60 The emissary’s return to the Chinesecapital coincided with the enlarged meeting of the CPC Central Committee work-ing 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 WangJiangxiang – who, since mid-1960, thought that the PRC should improve relationswith all countries, including the US – sent a letter61 to Zhou Enlai, Deng Xiaopingand Chen Yi asking that, in the light of the PRC’s current economic problems, theleadership adopt a more conciliatory approach to foreign affairs.62 Zhou Enlai’spresence in Guangzhou in late February and early March to address the StateScientific Commission Conference, on 2 March, coincided with reports of nego-tiations on the North Korean portion of the proposed ITC–Chinese/North Koreangrain agreement in that city at that time.63

Although Bowles was scheduled to leave Delhi for Burma on 3 March, suddenlyon 2 March U Nu’s government was overthrown by General Ne Win’s forces, whichopposed Burma accepting foreign aid and investment. When Bowles returned toWashington from Delhi he suggested to Kennedy that the US offer grain to theChinese through the Warsaw Talks.64 However, the matter was not raised atthe 108th meeting of the Sino-American ambassadorial talks on 1 March asChinese Ambassador Wang focussed on accusing the US government of beinghostile towards the PRC and pursuing aggressive policies towards South-East Asia.65

Then, on 7 March the CWB obtained Ottawa’s approval to reopen negotiationswith the Chinese after it had suddenly located, on 21 February, the remainder ofthe 1.1 million tonnes of grain that the Chinese needed. In summer 1962 theDominion Bureau of Statistics revised upwards its estimates of Canadian wheatsupplies by 2.3 million tonnes – the first such revision since 1957–8 when bothUS and Canadian interests were also negotiating to sell grain to China.66 Thisdevelopment raises the question of where the CWB obtained the additional grainand if the Kennedy administration had decided to follow the suggestion made inRice’s paper of 26 October.67



Although during February, West German interests applied for a licence toship 270,000 tonnes of flour to the PRC and, on 27 and 28 February, CEROIL-FOOD agreed to purchase another 660,500 tonnes of grain from the AWB, untila new CWB–CIRECO deal was actually concluded, the Chinese remainedinterested in obtaining American grain. Their interest might have been greaterhad they known that, on 14 March when Chiang Kai-shek told Harriman that theROC would soon initiate an invasion of Mainland China, the American elderstatesman insisted that better intelligence on conditions in the PRC were requiredfirst.68

However, the ITC had not convinced Washington that Beijing wanted to buyUS grain.69 Yet, in mid-March the ITC’s Hong Kong representative told Americanofficials that China’s emissary was in Beijing and an aide at the Hong Kongbranch of the Bank of China would join him there for discussion on the proposeddeal. He then let on that he knew that food shipments had been discussed at theWarsaw Talks70 – information that he might have received from the Chinese,although it was well known that listening devices had been planted in the venueof the Warsaw Talks.

By 19 March the State Department had concluded that, by filing a grain exportlicense application, the ITC was attempting to get Washington to sanction a dealbefore it approached the Chinese.71 Also, when US Congressional supporters ofthe ‘China lobby’ learned of this proposed transaction, they pressured theKennedy administration to reject it, stressing that such a deal would representWashington’s ‘final betrayal’ of the ROC government.72 On 23 March the WhiteHouse formally rejected the proposed deal on the grounds that it could jeopardizethe passing of President Kennedy’s trade bill – aimed at resolving the increasinglyserious US balance of payments deficits.73 The US government also emphasizedthat it had not received evidence that Chinese government interests wanted to buyUS grain.74 The Chinese lost interest in buy US grain on 26 March, whenCIRECO fulfilled the PRC’s grain import requirements for the foreseeable futureby agreeing to purchase the 1.1 million additional tonnes offered by the CWBsince the second week of March.75

April to early August 1962

Although conditions in China had stabilized by early 1962, and there wererelatively few deaths associated with famine throughout that year, the influx ofChinese refugees into Hong Kong in April and May was seen by most foreignersas evidence that conditions remained serious across the mainland. At this stagethe ROC, the ‘China lobby’ and its supporters in Washington expected theKennedy administration to take a firmer position against the PRC governmentand the growth of Sino-Western trade.

The Sino-American ambassadorial talks remained deadlocked at the 109thmeeting on 5 April as the Chinese continued attacking US policies.76 However,that same day President Kennedy told Taibei that Washington needed betterinformation on conditions in the PRC before supporting airdrops of ROC soldiers

on the mainland. Although Kennedy did not oppose Taibei’s proposal to begintraining the necessary personnel and during the summer agreed to provide theROC with two C-123 aircraft, he turned down Chiang’s request for B57 aircraftand landing craft to support an amphibious assault on China.77 The Chinese latermaintained that between 14 and 21 April, a US destroyer intruded into whatBeijing claimed were their territorial waters, citing this as further evidence thatWashington was trying to provoke Beijing.

Meanwhile, Japanese and West European enthusiasm for China trade continuedto grow. The Japanese Federation of Synthetic Chemistry Workers’ Union, anaffiliate of the ‘left wing’ Sohyo organisation, was eager to cultivate China andthe USSR as a potential long-term outlet for Japanese chemical fertilizer.78

In April and May Chinese negotiations with Jardine Matheson and Rolls-Royce, for equipment to maintain the Viscount aircraft, progressed slowly.The Chinese had also entered serious discussions with Western aircraft firms topurchase medium to long-range passenger jets to enable CAAC (formed fromCCAB that same year) to establish routes to Africa and eventually Cuba. HandleyPage and Vickers representatives were also invited to Beijing for talks whereChina National Machinery Import and Export Corporation (MACHIMPEX)director Li Menghou told Keswick that the Chinese remained interested in buy-ing more Vickers aircraft – possibly the VC-10 jet and the British AircraftCorporation’s 1–111.79 Chen Ming had also enquired about Britannica aircraftand MACHIMPEX had written to Hawker Siddeley for information on the deHavilland Aircraft Company Ltd’s Comet 4C. By 1962 de Havilland was eagerto expand sales of the 4C – first delivered in January 1960 to keep pace withAmerican firms, Douglas and Boeing, and the French firm Sud Aviation, whichhad developed the highly successful DC-8, B707 and Caravelle passenger jetsrespectively.

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 intothese aircraft replacing it to avoid another confrontation with the US TreasuryDepartment would raise the cost of each aircraft by as much as £250,000.81

However, other Western-aligned countries were considering closer financialties with the PRC. In mid-May as a ‘credit race’ was developing in the Chinesemarket, the Australian Cabinet decided to allow People’s Bank of China presidentDao Zhuru and Han Lei and Min Yimin of the same bank to visit Australia in mid-June. Out of concern about how Washington might respond, Cabinet approved thevisit on the understanding that the Chinese bankers were officially guests of thegovernment’s Reserve Bank of Australia rather than of the Australian governmentat large.82

As talks between De Havilland and the Chinese continued, Chen Ming toldBritish officials in Beijing that the French wanted to sell Caravelle aircraft to theChinese.83 When Sud Aviation’s Caravelle aircraft came into service in 1959 itwas the first commercial jetliner utilized by international commercial airlines forshort- to medium-range flights. However, it carried too few passengers to compete


with comparable American aircraft.84 Since US airline companies preferreddomestically produced equipment, American purchases of Caravelle aircraftduring 1961–2 were well below Sud Aviation’s expectations. Throughout 1962there was growing pessimism about the short-term outlook of France’s exports.Production levels of a large percentage of French businesses were below capac-ity. Thus, in mid-May 1962, with Sino-British aircraft negotiations continuing,Sud Aviation put on a demonstration of Caravelle jets for the Chinese in HongKong.85 Franco-Chinese talks were also spurred on by the fact that, prior toAugust 1961, French COCOM officials had told Sud Aviation executives that ‘theParis Group’ would not block sales of Caravelle aircraft to the USSR.86

Washington was extremely apprehensive about the possible strategic implicationsif Beijing obtained the model they wanted most – the more advanced CaravelleSE 210-10B which had greater thrust, speed, range and payload than earliermodels and was scheduled to go ‘on-line’ in March 1964.

The US aerospace firms must have also been concerned that an early andsignificant West European entry into the Chinese aircraft market, where they wereunable to compete, could gradually undermine their lead in sales. The Americanswere also worried because the Chinese were beginning to turn to Westerninterests for POL and related production equipment and technology.

Chinese oil production in 1962 increased by as much as 11 per cent overthe previous year 87 and their petroleum imports decreased from approximately3.2 million tonnes in 1961 to about 1.9 million tonnes in 1962. In early 1963 theChinese claimed that they had nearly attained self-sufficiency in domestic crude oilproduction.88 Unbeknown to Westerners at that time, the Chinese had discoveredlarger oil reserves at Daqing (Heilongjiang) in 1959 and Shengli in 1962 to com-plement older fields at Yumen (Gansu), Karamay (Xinjiang), Nanchong (Sichuan)and West Qaidam. However, a large portion of crude from the older fields had tobe transported hundreds of miles by truck and/or rail for refining at China’s firstmodern refinery, built at Lanzhou between 1956 and 1959 with Soviet assistance.

Chinese oil contained many impurities and the PRC lacked the expertise, refin-ing equipment, technology and capacity to produce nearly enough POL specialtyitems – such as aviation gas, gasoline, diesel oil, lubricants, synthetic rubber,greases and cable oil – required for domestic use. Eager to increase domesticproduction of these items – so that they could reduce demand on other domesticnatural resources and aid agricultural production while eliminating their depen-dence on imports of POL, plastics, pesticides and chemical fertilizers – theyplanned to complete and upgrade key petrochemical projects, including a largemodern integrated petrochemical centre at Lanzhou.89 However, as Sino-Sovietrelations 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 onlyremaining economic lever that Moscow could use against Beijing was China’sdependence on Soviet POL – imports which totalled 2.4 million tonnes in 1960and 3.05 million tonnes in 1961.91 While aviation fuel and lubricant importsremained at the same level in 1962, gasoline imports decreased from approxi-mately 1.02 million tonnes in 1961 to about 304,814 tonnes in 1962.92 In the


summer of 1962 the USSR continued to reduce POL exports to the PRC andChinese supplies of that item during that year were probably slightly less than thatavailable in 1959.93

About June 1962 the Chinese sent a petrochemical delegation to study WestEuropean industry (especially oil refineries and chemical fertilizer plants).94

Essentially the Chinese were resuming the negotiations with Western firms, suchas 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 repre-sentatives where they might purchase kerosene and lubricants to maintain andoperate their Viscount aircraft, BP offered to act as agent (free of commission) forthese POL purchases.96

With Western oil companies unable to reach a new agreement with Jakarta afterit had ratified the new Oil and Mining Law No. 44 the previous year, Beijing wasinterested in purchasing Indonesian POL, or even taking over Western petroleumconcessions in that country if it could obtain the necessary equipment, technologyand ‘know-how’ from Western firms.

During 1962, before attempting to purchase POL from Shell’s Indonesian oper-ations, the Chinese bought at least 152 tonnes of lubricating oil from Japaneseinterests. They also wanted to purchase more POL from the Tokyo firm, IdemitsuKosan Co. Ltd, Japan’s largest independent oil producer and 100 per cent Japaneseowned. This firm imported almost all its oil from non-US sources and handledall 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 – thearmy-dominated Indonesian state-run oil company, which, when established in1957, assumed control over domestic oil fields operated by Japan during the SecondWorld War. Indonesian leader Sukarno was one of the prominent nationalists whothe Japanese had utilized during the Second World War for propaganda purposesand in 1943 had been selected to lead Indonesia’s independence process. By 1962Permina was attempting to reduce its dependence on American oil firms and waswelcoming investment from the Japanese who, since the late 1950s, had become thebiggest importers of Indonesian crude as they attempted to reduce their dependenceon Middle Eastern petroleum.99 During 1962, just as Idemitsu hoped to increaseoil refining to cope with its potentially serious financial problems – heavy debtservicing requirements associated with building its 100,000 barrel per day Chibarefinery, the largest in East Asia, which was scheduled to be completed in January1963 – it became increasingly displeased about the rising price of Soviet crude.100

In light of the contemporary political climate in Jakarta, large Chinese pur-chases of POL from Shell’s Indonesian operations or from Japanese firms whichrefined crude supplied by Permina could further undermine the precarious, yetstill dominant, position of US oil companies – Caltex101 and Stanvac102 – in theIndonesian petroleum industry and damage US diplomatic efforts in that country.

With these negotiations continuing, Sino-American ambassadorial talks atWarsaw remained deadlocked at the 110th meeting on 17 May after the Chineseinsisted that Washington did not really want peace or disarmament because of the



increased frequency of US intrusions into Chinese territory, its alleged occupationof Taiwan, and the presence of American combat forces there.103 The Chineselater claimed that on 22 May, a US destroyer entered into Chinese territorialwaters northeast of Qingdao.

About that time a senior official in the general sales manager’s office of theUSDA told the Canadians that he supported the idea of exporting American com-modities to China. On 24 May President Kennedy, who still had not completelyruled out this possibility, asked the Canadian ambassador in Washington about theterms of the Sino-Canadian grain deals.104 However, the Chinese government hadalready contracted for enough Western grain to cover domestic requirements for thenext three or four months, and in late May and early June it stated that it would rejectany American offer of grain.105 Unbeknown to all but the Chinese leadership, theHong Kong’s refugee crisis in May and June 1962 resulted mainly from the decisionof 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 atreducing 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 andconcern over alleged US intrusions into PRC territorial waters and airspace.The Chinese later insisted that on 12 June another US destroyer operated in thevicinity of Chinese territorial waters.

When a special Sino-American meeting, outside the regular framework of theWarsaw Talks, was held on 23 June at Wang’s residence, John Cabot told theChinese ambassador that Washington had no intention of ‘. . . supportingany . . . [ROC] attack on [the] Mainland under existing circumstances . . . . [TheROC] was committed not to attack . . . [the PRC] without . . . [US] consent . . . [andAmerica] had no intention . . . of supporting aggression against . . . [the Chinese]side anywhere’.107 Yet, the Chinese later claimed that on that same day a spokesmanat the US Pacific Fleet Headquarters in Honolulu announced that units of theSeventh Fleet including some ships based at Yokosuka had been ordered to theTaiwan Straits. According to Japanese naval staff reports, Seventh Fleet units leftYokosuka between 23 and 25 June. The Chinese considered this move a hostile act.

However, on 26 June when US embassy officials in Taibei briefed ROCofficials 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 attackthe PRC, Cabot had told Wang that ‘. . . US moves in . . . South-East Asia are inresponse to Communist aggressive pressures and would not have been necessaryin the absence of such pressures . . . . [The] US . . . [is willing] to join in mutualrenunciation of force’. Essentially, not wanting to expose itself to allegations thatit was softening its approach towards the PRC, the US government had decidednot to announce publicly or provide Taibei with further details of the Cabot–Wangdiscussion.108 However, much to the US government’s embarrassment later thatsame day, because of a never identified ‘leak’, wire services and American newssources reported a more complete account of the reassurances that the US hadprovided the PRC.109


Thus by mid-July Taibei was extremely concerned about Washington’s positionon the PRC and ROC.110 The Chinese later maintained that on 9 July, three daysbefore the 111th meeting of the Sino-American ambassadorial talks, a USdestroyer came near China’s territorial limit.111 The talks remained deadlocked on12 July as the Chinese accused the Americans of aggravating tension in South-EastAsia even though the US side remained eager to discuss renunciation of force,freeing of American prisoners and exchange of newsmen.112 Nevertheless, on23 July nations represented at the Geneva conference on Laos announced a newceasefire, the planned withdrawal of all foreign forces and issued a declaration onthat country’s neutrality – an agreement signed by the USSR, the US and the PRC.

When Sino-British negotiations for equipment to maintain the Viscount aircraftresumed at the end of July, Beijing still had not decided whether it would buyPOL through BP.113 Yet, in July with the passing of Japan’s Petroleum IndustryLaw – which established strict domestic industry-wide production controls – itappeared that the Chinese might no longer have the option of purchasing signifi-cant quantities of POL from the Petroleum Association of Japan member firms.However, Idemitsu adamantly opposed this law as it was preparing to open itshuge Chiba refinery. As Idemitsu became increasingly ‘hobbled’ by these pro-duction controls, it became eager to export POL to China and other new marketseven 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 revisionisttrends and more specifically Wang Jiangxiang’s foreign policy proposal of27 February.114 The Chinese later alleged that on 17 August, five days beforethe 112th meeting of the Sino-American ambassadorial talks, a US destroyerwas found operating east of Qingdao. At the talks on the 23rd, the Chineseprotested this alleged incursion into PRC territory and blamed US activities inSouth-East Asia and American hostility towards China for lack of progress atthe talks.115

During August Australian Commonwealth Trading Bank officials visited thePRC as guests of the Bank of China.116 On 23 August, in response to questioningby Washington, Paris denied rumours that it was planning to send an industrialdelegation to China. However, at the end of the month MACHIMPEX agreed tobuy spare equipment valued at £1 million from Rolls-Royce and Vickers whichwas needed to maintain China’s Viscount aircraft. The British and Chinese stillhad 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 for1963, Paris asked Washington how it would respond if Sud Aviation soldCaravelle aircraft to the Chinese. Although Washington conceded that becauseof a COCOM rule change in 1962 equipment was no longer embargoed if incor-porated in non-embargoed aircraft, it insisted that a US Commerce Departmentre-export license was required for parts of US-origin incorporated in anyCaravelle aircraft sold to China. US government approval was also necessary if

equipment incorporated in Caravelle aircraft sold to China was produced inFrance or elsewhere under a licensing agreement with a US firm or was producedby foreign subsidiaries of American companies.117

On 6 September, in response to persistent lobbying to obtain support for anROC military assault on China, the Kennedy administration suggested that Taibeiestablish the ‘Blue Lion’ committee to prepare plans for the attack based solelyon their own capabilities. The Americans initiated this exercise only to give Taibeithe impression that meaningful bilateral consultations were under way, to empha-size to Chiang Kai-shek the deficiencies of his military capabilities and to be keptabreast of ROC government planning.118


Part III

September 1962–July 1964

It is much more advantageous to import . . . important materials to build nitrogenousfertiliser 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 withinvestments in Sumatra and certain banks with interests in Japan – the most criticalcountry 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, Taibeiwas eager that Washington not take additional action, similar to the assuranceswhich Ambassador Cabot had given to Ambassador Wang on 23 June, to furtherdiminish its confidence in the ROC–American alliance.1

The Kennedy administration’s efforts to reassure Beijing about its intentionstowards the PRC were seriously undermined on 9 September when the PLA shotdown 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’stime – the Chinese called an emergency meeting of the Warsaw ambassadorialtalks to discuss this incident. However, because Ambassador Cabot had suddenlybecome ill, while travelling outside Poland, and thus was unable to return toWarsaw 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 Skymanoeuvres’.

At the emergency Sino-American ambassadorial meeting on 20 September,Wang lodged ‘the strongest protest’ about the 9 September U-2 incident whileemphasizing that continued US intrusions into Chinese territory, made untenableWashington’s assertions that America would not attack China. The Chinese would

5 Japanese–Western China tradecompetitionPOL, chemical fertilizer, equipment andtechnology, September 1962–August 1963

later claim that on 21 September, a US warship and two US aircraft entered PRCterritorial water and airspace.3

At the Tenth Plenary Session of the Eighth Central Committee of the CPC inBeijing (24–27 September) Deng Zihui’s proposal, presented in early July, regard-ing household responsibility under strict production contracts was defeated byMao Zedong, who reaffirmed the importance of class struggle. While this markeda shift back towards the ‘leftist’ line of the 1950s, Mao also accepted the generalprinciples of the economic re-adjustment plan, reminding the conference ‘. . . Donot slacken economic work because of class struggle; put work above everythingelse’.4 Thus, a new equilibrium, lasting three years, was established betweenLiu Shaoqi and Zhou Enlai’s economic development strategy on the basis ofscience and technology, imports of equipment and technology from Capitalistcountries, and Mao and Kang Sheng’s insistence on the maintenance of ‘socialism’in the running of agricultural enterprises. In the middle was the PLA whichbenefited from the former without being damaged by the latter. By the end ofSeptember 1962 the CCP line was established, under which economic relationswith the West and Japan would be pursued in the interest of Chinese industrialdevelopment.

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 toacquire state-of-the-art technology and training which had taken Westerners manyyears and great expense to develop. Much of this technology was American – orhad at least evolved from patented American innovations. Owing to problemswith surpluses and overcapacity, industrialists in Western-aligned countries wereeager to sell the Chinese recent technology even though Beijing requiredsubstantial long-term credit financing and planned to use the imports for massprototype copying.5

Four other advantages of importing Western and Japanese equipment/technologywere that the exporting firm’s specialists would: (1) help evaluate whether aproposed project was feasible; (2) guarantee that the parts of the project would fittogether; (3) teach Chinese workers how the equipment functioned and overseetrial runs; (4) and depart after a particular plant went ‘on-line’ and Chineseemployees were trained – leaving the PRC in control.6

This import programme might appear to have been at odds with Mao’s objectiveof Chinese self-reliance until one refers back to his 25 April 1956 speech ‘On theTen Great Relationships’ and the readjustment strategy which was being imple-mented prior to the GLF. Thus, it was logical that during the post-GLF periodMao approved the plan to import several dozen sets of Western and Japaneseequipment and technology, especially those to produce chemical fertilizer andpetrochemicals.7

Before approaching Western firms for substantial credits to buy the equipment,Beijing prioritized its shopping list. By importing six modern textile productionplants and related technology it could reduce domestic demand for home growncotton and imports of cotton, as well as textiles, thus making more land available


for grain production and enabling China to export more grain and textiles onbarter terms or for currency.8 First on Beijing’s shopping list was a facility thatutilized waste materials such as cotton and wood pulp to produce cellulose fibreor vinylon. The Chinese wanted to buy five polymer based textile productioninstallations, but these required surplus refined petroleum products which theystill were unable to produce in sufficient quantities.

Thus, before buying these installations, the Chinese decided to buy at least threerelated chemical fertilizer production installations and technology – two to produceammonia from gas and the other to produce urea from ammonia. Although inJanuary they planned to continue importing foreign chemical fertilizer, the Chinesehad adopted Chen Yun’s proposal, first made in 1956–7, that they acquire the equip-ment and technology required to lessen dependence on chemical fertilizer imports.Beijing also planned to buy equipment and technology to refine petroleum andprocess steel because the by-products of such installations were essential inproducing synthetic textiles, plastics and ammonia for chemical fertilizer.

However, on 22 October Sino-Indian skirmishes began on the Himalayan fron-tier and four days later the Indian government declared a state of emergency.Full-scale war followed and, when the PLA advanced into Indian territory inNovember, Delhi asked Washington, Paris, London and Ottawa for military aid.Moscow refused to support Beijing during the crisis and reduced its exportsof strategic goods such as POL to the PRC, increasing aid to and trade, even inmilitary goods, with India.

The Chinese leaders probably wondered if their industrial development plansfor expanding economic relations with Capitalist countries were in jeopardy.Nevertheless, as Soviet POL shipments arrived behind schedule and in greatlyreduced volumes, the Chinese prepared to send a delegation to Western Europe tostudy petroleum refining technology.9 It remained to be seen if ENI boss EnricoMattei’s death – in a plane crash while returning from negotiations with StandardOil Co. of New Jersey – on 27 October would adversely affect Chinese efforts(ongoing since the late 1950s) to purchase equipment and technology to refinepetroleum and produce chemical fertilizer from the Italian firm. Mattei had nego-tiated a $200 million trade deal with Beijing in 1962 and had sought Moscow’sapproval to link ENI’s Mediterranean pipelines to Soviet ones running betweenthe Ural and Danube regions.10

A revision of the Franco-Chinese grain agreement, in late October, committedFrance to ship approximately 1 million tonnes of wheat to the PRC in 1962–3 – overtwice 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 unwrit-ten understanding among Western-aligned nations to maintain a twelve-monthcredit ceiling on commodity exports to China. Beijing then threatened to suspendpurchases of Canadian grain unless Ottawa also extended improved terms of tradeand allow more Chinese textiles to enter Canada.

The federal Opposition alleged that the Canadian government was supportingboth sides in the Sino-Indian border war because it refused to suspend its graintrade with China, yet decided to send India six Dakota aircraft.11 Nevertheless, on

Japanese–Western China trade competition 95

Tabl

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1 November, the cabinet agreed to permit the CWB to offer the Chinese improvedcredits, extended from 9 to 12 months, to facilitate further grain deals.12

About two weeks later, Louis Dreyfus Co. agreed, on behalf of the SouthAfrican 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 exportmarkets after having withdrawn from the Commonwealth on 15 March 1961following objections by member countries to their racial policies.

Meanwhile, on 9 November Liao Chengzhi and Tatsunosuke Takasaki signed anunofficial five year Sino-Japanese barter trade agreement – similar to the arrange-ment abandoned in 1958 – known as the Liao–Takasaki (L–T) memorandum.The accord stemmed from talks between Zhou Enlai and Kenzo Matsumura of theLDP in September 1962 and, as with the 1958 agreement, it was crucial toChina’s readjustment strategy based on equipment and technology imports fromCapitalist countries.

The contracts – valued at approximately $100 million – were to be negotiatedbetween 1963 and 1967, enabling Chinese soybeans, maize, coal, iron ore, saltand tin to be exchanged for Japanese steel, chemical fertilizer, insecticides,agricultural machinery and complete industrial equipment. The Japan–ChinaOverall Trade Liaison Council (JCOTLC) – a voluntary organization of manu-facturers and consumers of items provided for under the memorandum – was alsoestablished. Taibei responded almost immediately to news of the L–T agreementby terminating negotiations with Tokyo for a large loan.13

When JITPA director general, Suzuki’s delegation arrived in China, withoutMITI’s backing, in mid-November for negotiations with Nan Hanzhen on aseparate trade agreement involving private Japanese firms, Japanese JCOTLCrepresentatives probably felt greater pressure to bring bargaining on the 1963 L–Tagreement to a successful conclusion. Recent reports that the Chinese wouldbegin importing up to 3.05 million tonnes of chemical fertilizer annually placedJASEA under more pressure to resume sales to the PRC.14

Since 1958 only about one Sino-Japanese chemical fertilizer contract had beensigned – for 101,605 tonnes of urea in early January 1962. Suddenly, in lateautumn 1962 Nitrogen Chemical Fertilizer Export Cartel (NITREX AG)15 – aZurich-based cartel formed earlier that year by major West European chemicalfertilizer producers to cope with the vast buying power of state trading organisa-tions of the LDCs – agreed to sell the PRC 1.08 million tonnes on a twelve monthterm with payment in goods at world market prices.16 The transaction threatenedJASEA–NITREX collaboration, aimed at maintaining floor prices. ANIC/ENI,one of the West European suppliers not party to NITREX, who had seen theirsales to the PRC fall from 96,000 tonnes in 1961 to 14,700 tonnes in 1962 – thelowest since prior to 1957 – soon agreed to sell the Chinese 93,000 tonnes ofchemical fertilizer on eighteen month terms with delivery in 1963. Until thispoint, Rome and Bonn, unlike the other Western allies, had strictly adhered toWashington’s wishes that its allies provide no more than short-term creditsto Communist countries.

After the cease fire of 21 November, Chinese troops withdrew, by December,from Indian territory, halting hostilities which could eventually have threatened


the PRC’s ‘readjustment’. Nevertheless, between November 1962 and mid-January 1963, Washington questioned Ottawa, Canberra and Paris about theirpositions on grain sales to China in light of the Sino-Indian Border War.17 On24 November Delhi told Ottawa that, if it would not suspend its credit grain salesto 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 another950,000 tonnes of grain on twelve month credit terms.

Then, during meetings in December, Washington told Whitehall that theViscount aircraft that Beijing had purchased from Vickers would substantially aidthe PRC’s airlift capacity and was inconsistent with US aid to India and Americanplans to assist Indian air defense. Whitehall disagreed but guessed thatWashington would eventually overlook the Sino-British aircraft deal.19 About thattime the British government postponed Lu Xuzhang’s scheduled autumn 1962visit to the UK.20

The Sino-American ambassadorial talks remained deadlocked at the 113thmeeting on 13 December as the Chinese included America’s aid to and allegedencouragement of India in their standard list of evidence that Washington was notfollowing its non-aggression policy outlined in June.21

Preparations for expanded Sino-Japanese economic relations continued on27 December when the Suzuki–Nan trade protocol was signed, reaffirming theprinciples of ‘friendly firm’ trade and plans to organize reciprocal trade fairs.On 8 January 1963 JITPA announced that a Japanese industrial products exhibi-tion would be held in Beijing and Shanghai in the autumn while the Chinese werescheduled to hold trade fairs in Tokyo and Osaka.22

On 11 January with ‘friendly firm’ trade poised to take off, the first contractunder the 1963 L–T agreement was signed. JASEA, which hoped to keep pacewith NITREX and ANIC, agreed to sell the Chinese 254,012 tonnes of urea and203,209 tonnes of ammonium sulphate in exchange for 450,000 tonnes of salt.The Export–Import Bank (Ex–Im Bank) provided eighteen month credits withoutany down payments.23 To avoid angering Taibei and risk losing a lucrative shareof the ROC fertilizer market, during the rest of 1963 the Japanese refrained fromselling Beijing additional quantities of ammonium sulphate.

Nevertheless, when NITREX negotiators arrived in Beijing on about11 February, the Chinese pressured them to sell chemical fertilizer at prices wellbelow production costs because JASEA and ANIC had recently provided themwith improved credits.24 Yet, in early to mid-February the Chinese agreed topurchase about 1.2 million tonnes of ammonium sulphate on nearly identicalterms to those under the 1962 contract.25

By January 1963 the Chinese had opened discussions with many Western andJapanese firms for a wide range of complete industrial installations and relatedtechnology. Negotiations on the UK’s EEC membership had broken off by29 January, leaving the British more keen to develop trade with Communistcountries. Thus interests in the other Western-aligned countries began followingdevelopments 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 finaldecision on whether to provide Ex–Im Bank credits for individual Sino-Japanese


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

January–March 1963

China also planned to invest much more heavily in the chemical fertilizer industryto raise productive capacities of existing plants and build new ones, while devel-oping the pyrite mining industry and strengthening the transportation system.27

Many factories throughout China were being converted to produce high-pressurecompressors, containers and synthesis process towers for chemical fertilizerplants.28

Although the Chinese had only managed to produce small quantities of inferiorquality urea, they planned to build large complementary/integrated ammonia andurea production facilities at Nachi near Luzhou, Sichuan. However, because ofinadequacies of certain sectors of their chemical machine tool and metal indus-tries, they had only successfully built small and medium plants.29 They were unableto properly manufacture approximately 10 per cent of the parts needed to makenitrogenous fertilizer production equipment – higher technology items previouslysupplied by the Soviets, such as large high-pressure synthetic ammonia units.30

Between 21 February and 2 March, the Chinese Ministry of the ChemicalIndustry, the First Ministry of Machine Building, and the Shanghai Council forIndustrial Promotion sponsored a national conference in Shanghai to plan a strat-egy to resolve these problems. This strategy inevitably involved imports ofWestern and Japanese equipment, materials and technology.

About that time the British Cabinet was considering granting permission forSouth Durham, a financially troubled UK firm, to sell large diameter piping tothe USSR,31 which became the world’s second largest oil producer in 1960. AfterMoscow 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 withinthe Bundestag, Bonn vetoed a proposed lucrative sale of large diameter piping tothe USSR by the West German firm Mannesmann.33 The following month, afterhaving 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 approvingthe Soviet–South Durham transaction, the Germans asked the British to be ‘goodEuropeans’ and veto the deal. While the British Cabinet did not reach a decisionon the matter until March (see below) Bonn, under increasing domestic pressure,responded by telling Washington that it now might be unable to justify thecontinuation of its controls on piping exports.35

Negotiations for Chinese steel purchases under the 1964 L–T agreement wereunder way in mid-February36 when the Bank of Tokyo and the Bank of Chinareached a one year trial banking agreement involving opening branches in bothcountries. Takasaki was attempting to establish a credit scheme using private


banks as an alternative to Ex–Im financing of Sino-Japanese trade.37 WestEuropeans were concerned that the number of Japanese ‘friendly firms’ wasexpanding rapidly and that Japanese businessmen were frequently bypassing theGuangzhou Trade Fair by obtaining invitations to visit Beijing directly.

Meanwhile, during NITREX negotiations in February, L.C. Bu – who, inmid-1962, had been replaced as CIRECO Assistant General Manager andappointed Vice-Minister of CHINATEX – asked NITREX’s Federal Republic ofGermany (FRG) representative if West German interests would import moreChinese textiles. Lu Xuzhang then suggested that, if the US lost influence inEurope because of France’s role in the rejection of the UK’s EEC bid, then WestGermany could capitalize on opportunities to increase trade with China. Bonnalso gathered that Beijing was suddenly enthusiastic about developing Franco-Chinese relations because of France’s role in the collapse of the talks on Britain’sapplication to join the Common Market, and Beijing’s growing belief in Frenchindependence from American influence.38

Furthermore, Lu Xuzhang pointed out that Beijing had recently instructeda Chinese iron and special steel delegation – which visited Berne before Austriaand 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 (themain association of French industrialists) – was preparing to send an economicdelegation to China and guessed that Franco-Chinese political rapprochementwas now possible.39

The French felt a greater urgency to expand their industrial exports to Chinapartly because they had had a poor wheat harvest following the harsh winter of1962–3, leaving them unable to meet their obligations for 1963–4 under theFranco-Chinese grain agreement.

This latter development led to more uncertainty among China’s leadershipabout how the PRC’s foreign grain import requirements would be met.40 AlthoughAmerica was probably the only country with enough supplies and financialresources to even consider covering China’s credit grain import shortfalls, cerealswere not discussed at the 114th meeting of the Sino-American ambassadorialtalks on 20 February. The talks remained deadlocked as Ambassador Wangfocussed on delivering the same criticisms of US policy and actions which theyhad made at the last few meetings.41

However, about that time the Chinese again enquired indirectly about pur-chasing American grain, but the US State Department still doubted that the PRCleadership was really interested in American supplies.42 Also, US officials weremuch more interested in developing Soviet–American trade as a means to lessentensions with the USSR, reduce America’s balance of payments deficits and earncurrency or gold.

Despite the uncertainty about its foreign grain import programme, Beijingcontinued threatening to suspend purchases of Canadian grain, and did not signany contracts with the CWB between 9 December 1962 and August 1963,because Ottawa had not allowed more Chinese textiles into Canada.


The West Germans were watching for new developments in Sino-French tradewhen the Chinese iron and steel delegation visited various German plants, includingthose of Otto Wolff AG,43 Fried Krupp and DEMAG AG between 20 February andearly March.44 On 1 March, Paris told Washington that retired French careerdiplomat and ambassador Guillaume Georges-Picot, now President of Syndicatd’Etudes pour l’Extreme Orient (the Far Eastern Study Group of the NationalIndustrialists’ Council) – would lead a strictly private ‘Patronat’ delegation toChina in the autumn.45

Moscow was still upset that Beijing had decided to buy British turbopropsinstead of purchasing more IL-18s and in early March a Soviet embassy officialin the Chinese capital asked British commercial councillor L.S. Ross where theChinese would obtain fuel to operate the Viscount aircraft. When Ross guessedthat they might buy it from the USSR, the Soviet official emphasized: ‘Thatshould not be taken for granted’.46

Indeed, in mid-January Beijing enquired about obtaining high-quality aviationgas from Kawakami (Idemitsu’s ‘friendly firm’) in exchange for more than15,000 tonnes of heavy oil for fishing vessels and over 10,000 tonnes of petro-leum coke.47 The American giant Caltex’s Japanese affiliate, Koa Oil Company,was the only Japanese producer of petroleum coke. That same month Idemitsuopened its huge new Chiba refinery, but because of the Petroleum Association ofJapan’s production constraints, introduced in July 1962, it was only runningat half-capacity. As Idemitsu became the first firm to openly challenge theproduction controls by threatening to withdraw from the Petroleum Associationof Japan, which it did on 29 November 1963, it also threatened to stop importingSoviet oil because of its rising cost. Consequently, it became more interested inexporting more POL to China and increasing imports of Chinese or Indonesiancrude.48 Sino-Indonesian economic ties continued strengthening on 28 Januarywhen Beijing and Jakarta signed an economic and technical cooperationagreement.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 supply-ing fuel for Soviet airliners in London and Amsterdam. Although US oil firmssupplied technology to their Japanese counterparts, American trade controls didnot cover refined petroleum products, exported by foreign firms, produced fromcrude from non-American suppliers which had not entered a technology agree-ment specifically permitting a US firm to control distribution of the end product.Thus, unless the Japanese government objected, it appeared that Idemitsu couldexport POL to China.50

Meanwhile, during the first week of March, as the Chinese continued POLnegotiations with Kawakami/Idemitsu, the Indonesian government made newdemands of Western oil companies. Caltex, which dominated production andexports of Indonesian crude oil, though it did not produce refined petroleum inthat country, stood to lose the most if the demands became law. Jakarta gavethe firms only a few days to respond and implied that the Chinese and upcomingUS oil companies were eager to take over Indonesia’s foreign oil licenses.


Washington responded on 6 March by telling Jakarta that its demands jeopardizedUS–Indonesian relations as well as private American investment and US oiloperations in Indonesia – which were to have provided a basis for economicstabilisation in that country.51

Around that time BP suddenly asked Whitehall for permission to sell Beijing10,160 tonnes of aviation gas. Also, Shell Oil Co.’s Shanghai office – whichhad had little business contact with the PRC government since 1956–7 – wassuddenly invited to send a representative to Beijing to discuss the possibilityof supplying POL52 from the Anglo-Dutch firm’s Indonesian operations.These negotiations caused considerable anxiety for American oil firms and theUS government over subsequent weeks.

Beijing expressed interest in purchasing British POL just as Whitehall waspreparing for Lu Xuzhang’s rescheduled visit to the UK, beginning on 21 March1963. As the first PRC Minister to be an official guest of the UK government, hetoured industrial plants and discussed plans for a British Scientific Instrumentsexhibition in Beijing. The day after Lu’s arrival in the UK, the British Cabinetdecided 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 yearcredits, various types of complete industrial plants – including installations toproduce chemical fertilizer, fibres, wool fabric and pharmaceuticals.54

During March, Tokyo asked Whitehall to suggest how Japan might increase itstrade, especially that involving credit financing, with China without seriouslydamaging its relations with America.55 Long-term Ex–Im Bank credit guaranteeswere required if the Chinese were to complete negotiations under way since 1957and buy a 182,888 tonne p.a. urea plant from Toyo Engineering Co. (TEC) anda synthetic vinylon plant from Kurashiki Rayon Co. of Osaka. These firms wereeager 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 theDutch firm V.N.F. Stork Werkspoor – the largest engineering group in thatcountry and a major supplier of chemical fertilizer production equipment. As willemerge, it is probable that, while in the UK and the Netherlands, Lu met withShell officials.

The Sino-American ambassadorial talks remained deadlocked after the 115thmeeting on 17 April as Ambassador Cabot found Ambassador Wang’s criticismsof US actions towards Taiwan, the PRC, Laos and Vietnam even more intensethan usual.56 The Chinese were unaware that President Kennedy had again refusedChiang Kai-shek’s requests of 15 March and 11 April, that the US prepare a planto support an ROC assault on China. Washington, he felt, did not know whetherPRC citizens could rebel successfully against the Beijing government.57

Then, on 23 April Tokyo told Washington that the UK government’s unilateraldecision to permit British piping exports to the USSR, had made it extremely


difficult for Japan to continue adhering strictly to the US-led China tradecontrols.58 Tokyo also emphasized that, if the British government providedanother credit guarantee to finance another industrial plant sale to China, it wouldnot veto the proposed Kurashiki deal.59 Three days later the Japanese governmentapproved credit sales to China involving $2.25 million worth of Japanese farmmachinery and $5 million in special steel products under the L–T memorandum.No down payments or installment payments were required. The balance waspayable 18–25 months after delivery. Tokyo was considering an application for anEx-Im Bank credit guarantee.60

In late April, Lu Xuzhang concluded his visit to the Netherlands and during thefirst week of May he held talks with West European business representatives inSwitzerland. Prior to his visit, Franco-Chinese government contact was limited to thecommercial attaché level, but in mid-May Paris gave its ambassador to Switzerlandclearance to talk directly with Chinese officials, if the opportunity arose.61

Meanwhile, Liu Shaoqi had visited Indonesia from 13 to 20 April, and, on6 May, the Petroleum Intelligence Weekly stated that Beijing might soon purchaseIndonesian POL. The Americans guessed that a large deal involving oil fromShell Indonesia might be in the works,62 after learning on 8 May that Stuart Rosswas travelling back and forth between the Hong Kong offices of Shell and thepolitical advisor of the Colonial Secretariat. On 9 May Rusk told US embassyofficials in London to ask the British if Shell was planning to sell POL toChina. About this time, Averell Harriman, who had been promoted to secondUnder-Secretary of State in March, just as Roger Hilsman was appointedAssistant Secretary of State for Far Eastern affairs, also told Shell thatWashington was concerned that ‘. . . rumored Shell sales [to China] may involveIndonesian oil and may have a bearing on US and UK companies’ negotiationswith the Government of Indonesia . . .’63

At an Asia Society meeting in New York, on 10–11 May, oil specialist WilliamHenderson criticized those questioning America’s military and economic com-mitment to South-East Asia.64 Although on 13 May Sukarno signed the economicstabilization plan, the following day Jakarta announced that, if an oil licenceagreement was not reached by 15 June, foreign firms would have to liquidatetheir operations within five months or continue operating under conditions itimposed. On 17 May Caltex told Washington that it had suspended negotiationswith Jakarta and would begin evacuating employees.65 Although Washington’sintervention helped to broker an agreement on 29 May between the oil firms andthe Indonesian government, the parties involved still needed to negotiate detailedwork contracts.

During the second week of May, Lu Xuzhang arrived in Hong Kong fromSwitzerland for a private one-week visit, where he probably became involved innegotiations with Shell and met local business leaders, such as the Zhejiang-bornmultimillionaire tycoon and Hong Kong Chinese Chamber of CommerceChairman 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


opposition Liberals on 6 April – after threatening to suspend cereal purchasesfrom Canada. The Chinese increased pressure on the new Lester B. Pearsongovernment to offer improved terms of trade by agreeing on 25 May to purchaseanother 1.1 million tonnes of grain from the AWB.

During mid-May, Taibei kept trying to persuade Tokyo to limit trade with Chinaand decided to resume loan negotiations, suspended in November 1962 to protestthe signing of the L–T memorandum with the Japanese government.66 However,in late May the Chinese signed a provisional contract with Dai Nippon Spinn-ing 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 anEx–Im credit guarantee. On 31 May Tokyo reminded Washington that Britishfirms were close to completing similar deals with the Chinese and that the Ikedagovernment was under pressure from the opposition to disclose what type ofcredits West European equipment suppliers might offer Beijing.67

June–August 1963

In early 1963 international tensions appeared to be moderating. The Soviets hadagreed to withdraw from Cuba and, on 1 April at the Geneva disarmamentconference, the American and British governments tabled a memorandum on anuclear test ban. As Tokyo prepared to make a final decision on the proposedChinese–Kurashiki deal, Sino-West European trade appeared ready to take offand internationally there was a feeling that Washington might soon modify itsChina policy. Rome had declined Beijing’s offer to send a Chinese trade delega-tion to Italy. However, in 1963 Italy’s monetary reserves began to be depletedrapidly owing to a growing balance of payments deficit and rapid inflation.Because of overcapacity in key industries, especially the chemical, synthetictextile and steel sectors, Italian firms needed to increase exports and were closelyobserving 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, alsoa PSI member, in Hong Kong to accept Beijing’s longstanding offer to conducttrade 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 mighthelp facilitate their purchases of Italian equipment and technology.68 Montecatiniand ENI were already negotiating to sell the Chinese chemical fertilizer produc-tion plants, a petroleum refinery and related technology.

In June a ‘hot line’ between Washington and Moscow was established andon 10 June a speech by President Kennedy called for the re-examination ofUS policy toward the USSR and the ‘cold war’. Chinese–Indian border hostilitieshad not resumed since the signing of a cease-fire agreement seven months earlier.Nevertheless, Sino-Soviet relations continued deteriorating as on 18 JuneMoscow condemned Beijing’s letter, sent four days earlier, criticizing the Sovietpolicy of ‘peaceful co-existence’.


After a final discussion, on 27 June, of Washington’s objections to the Sino-Vickers aircraft contract, the British Cabinet agreed that the deal shouldproceed.69 In early June the Committee for a Review of Our China Policy(CROCP),70 a private American organisation, had asked Washington for permis-sion to send a group to Hong Kong for trade talks with PRC governmentalofficials. Established at San Francisco in March, it sought to promote AmericanChina policy discussion and ‘humanitarian use of U.S. surplus food, trade innon-strategic goods and the exchange of visits by non-official citizens’.71 Itssupport was rooted in West Coast business, although many who agreed withCROCP’s ideas were unwilling to become identified publicly with an organisa-tion challenging US government policy.72 In early July, Washington told CROCPco-chairmen, Charles Porter and Ernest Nash that, although Sino-US tradewas prohibited, private Americans were allowed to participate in talks with PRCofficials. However, Washington also added that it did not encourage discussionswhich might only be productive if US China policy and legislation werechanged.73

At that time, Tokyo and Ottawa had still not decided whether to extend long-term credit guarantees to enable the Chinese to buy the Kurashiki vinylon plantand more grain. However, on 18 July President Kennedy addressed the USCongress regarding America’s balance-of-payments deficit and the problem ofrapid outflow of dollars from the US economy. Kennedy announced that, inaddition to the Trade Expansion Act aimed at resolving the first problem, hisadministration would introduce a 15 per cent tax on equity securities to limit therate of capital outflow and discourage foreigners from raising capital on the NewYork market. Tokyo and Ottawa were not forewarned of this announcement,despite the fact that Canada had accounted for 42.3 per cent of foreign investmentin the US during 1962, while in that year Japan was also a major investor inAmerica. The announcement immediately undermined confidence in the Torontoand Tokyo stock markets, causing record falls. In July Canada’s official reservesfell by almost $100 million. Although after emergency consultations with Tokyoand Ottawa, Washington announced that President Kennedy could occasionallymodify the tax and grant exemptions, the Canadians were

unable to secure the extension of an exemption to cover tax on outstandingsecurities . . . [also] the US Treasury revealed on 23 July that as a quid pro quofor the exemption the Canadians were pledged to take steps, including ifnecessary the reduction of interest rates, to stop any excessive flow of dollarsto Canada.74

Meanwhile, around 19 July Averell Harriman conceded to CanadianAmbassador Arnold Smith in Moscow, that for long-term Western interests, it wasunwise for the West to continue pursuing a policy of isolating China – although,since 1960 he had not favoured any initiative that Washington recognize Beijingdiplomatically and thought it sensible for the West to continue pressuring theChinese while developing relations with the USSR.75


On 30 July Porter told Roger Hilsman that he thought US China policy waschanging and asked that CROCP be permitted to meet Chinese officials in HongKong and draw ‘. . . critics’ fire as the first to attempt to look at our [US] Chinapolicy, so that the . . . [US State] Department might more easily follow later . . . .’76

However, Hilsman thought that American business should be more interested inother economies, such as Indonesia’s. When Porter said that the PRC government’sdecision to reject the Test Ban Treaty, reached on 15 July, had encouraged him topress harder for improved Sino-American relations, Hilsman said that his positionwas rather premature because Beijing was seeking alliances with Communistparties rather than with the West.77 Hilsman also reminded Porter that Beijing hadrejected US initiatives, at the Warsaw Talks, to increase contact and understanding.

In preparation for the 116th meeting at Warsaw on 7 April, Rusk instructedCabot to ‘. . . Tell Wang that you trust that his side recognizes the world-wideimportance of . . . [President Kennedy’s 10 June speech on world peace]. However,his side’s commentary on the . . . speech reenforces our surmise that . . . [theChinese] hold misinformed and mistaken views of our beliefs . . . motives, and . . .policy . . . . As the President said, increased understanding will require increasedcontact and communications . . .’ Rusk also told Cabot to suggest, an exchange ofnews 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 agree-ment 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 itsnuclear weapons from China’s periphery and close its military bases in the region.Although the 116th meeting of the Sino-American ambassadorial talks wasthe longest in over four years, Ambassador Wang continued emphasising thatWashington’s statements conflicted with its actions. Especially upset with thetripartite test ban treaty, the Chinese accused Washington of exacerbating tensionsand hostility in South-East Asia and the ROC area and asked the Americans toremove those nuclear weapons which threatened the PRC’s important cities andhinterland, especially east and southeast China. Wang had nothing to add on theissue of newsmen and prisoners, although he presented Ambassador Cabot withthe draft agreement that Zhou Enlai had sent President Kennedy five daysearlier.79

Nevertheless, White House official Mike Forrestal’s80 memorandum toPresident Kennedy on 10 August stated that Roger Hilsman thought it significantthat Wang had gone ‘. . . to some length in describing rather precisely the threatagainst important cities of . . . [China’s] hinterland . . . [posed by US] forces in thePacific. Roger believes that this is an attempt by the Chinese to refuteKhrushchev’s suggestion that . . . China has been trying to provoke a war betweenthe . . . [US] and the Communist Bloc. By indicating in this backward way theirawareness of U.S. strength, the Chinese may hope to convince us and others thatthey are not interested in a nuclear war’.81

However, at a meeting of Hong Kong’s Marco Polo Club in mid-August whenWest German commercial officer in Hong Kong, Fritz Cordt – who had beenmanager of a Shanghai firm, from 1945 to 1949, that included PRC officials such


as Lu Xuzhang and L.C. Bu – asked for the second time82 since March 1962 ifBeijing was interested in participating in Sino-American trade talks, the Chineseagain said they were not.83

During July and August, in response to adverse effects of US economicpolicies and the perception that Washington’s position on China was becomingincreasingly ambivalent, Ottawa and Tokyo began to review their own Chinapolicies. 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, ofa second Chinese–Canadian thirty month grain agreement85 which superseded theinitial accord. Ottawa had agreed to allow the importation of more Chinesetextiles into Canada and the CWB agreed to sell CEROILFOOD 508,000 tonnesof grain.

On 29 July 1963 the first large Western industrial exhibition was held in thePRC – a display of industrial equipment and plastics of various UK firms, orga-nized by CCPIT and the Sino-British Trade Council (SBTC) – an official Britishtrade organization headed by John Keswick. During the exhibition the Chineseshowed considerable interest in equipment to produce chemical fertilizer,86 poly-ethylene and polypropylene (for agricultural and industrial purposes – piping,fibre, injection moulding, sheeting, and electric wire coating).87 Spurred on bythe 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’strade with the PRC. Competition between these British trade organizations wassimilar to the rivalry between Japanese ‘friendly firms’ and Japanese firms doingbusiness 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 byLudwig Erhard, might establish a trade mission in Beijing. During a Hong KongChinese Chamber of Commerce meeting about 19 August, as the Japanese madefinal deliberations on the proposed Sino-Japanese vinylon plant contract, WangKuancheng told FRG consulate officials that it was time for China and WestGermany to redevelop their traditionally friendlier business relations.90 About thistime PRC officials in Berne, intermediaries when Chinese steel and machinerytechnicians met Ruhr area steel firm representatives several weeks earlier, invitedOtto Wolff von Amerongen to China. These developments gave Bonn reason tore-evaluate plans to establish an office in Taibei, although the West GermanCabinet would not review the matter, at least until after Ludwig Erhard91 gainedpower on 11 October.

Suddenly, on 22 August the Japanese cabinet agreed to permit the Ex–Im Bankto 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 indus-trial plant from a non-Communist country and the second five year creditguarantee obtained from a non-Communist government to facilitate an equipmentpurchase.


However, Kurashiki representatives became concerned about serious Chineseplanning difficulties after learning that the vinylon plant was not being built nearan alcohol production plant – alcohol being a necessary input for vinylon pro-duction.92 The Japanese attributed this oversight to a division of authority betweenthe Chinese chemical and fibre agencies. When shortly after the vinylon plantcontract was signed, the Chinese asked to upgrade the Kurashiki installation’scapacity from 30 to 51 tonnes per day, the Japanese firm refused. The Chineselater raised the plant’s output by 16 tonnes per day by purchasing two smallcomplementary plants from the Japanese.

Tokyo was concerned that Washington might respond to news of the Sino-Japanese credit deal by implementing economic sanctions, such as a reversal ofthe proposed relaxation of US interest equalization tax on Japanese securities soldin America. Thus Tokyo told Washington that it was implementing a ceiling oncredits extended to Communist countries, and the Kurashiki sale was a means ofpreparing the Japanese to accept the Ikeda government’s plan to admit USnuclear-powered submarines to domestic ports.

Washington did not pressure Tokyo to reconsider its decision because it did notwant to appear to be interfering in Japan’s affairs and felt that the Japanesealready fully understood the American position on the China trade.93

Nevertheless, the ROC government, the China lobby and their supporters inWashington realized the Kurashiki sale set a dangerous precedent because itwould stimulate competition between capitalist powers to extend more liberal


Table 5.2 Initial major PRC–Japanese equipment contract, August 1963

Date (major Firms/ Equipment/ Capacity and Cost andcontract # organizations technology location paymentssinceNovember 301961)

#2 Kurashiki Complete 11,176 tonne $21 million –22 August Rayon Co. vinylon plant p.a.a (design fee:1963 CNTIC and related Construction: 10% of

technology Beijing cost, ‘know-Training for Delivery: how’: 23%Chinese beginning in 1964 of cost)engineers Trial production: 5 year

September 1965 Ex–ImCompletion: 1966 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 12-3CHICOM–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.

Notea Later upgraded – see Tables 6.1 and 7.1.

credit guarantees to finance other equipment and technology sales to China.94

When Taibei insisted that the deal was essentially foreign aid and threatened tosever trade with Japan,95 Tokyo insisted that the vinylon equipment/technologywas not embargoed at COCOM, that the credit terms were no more favourablethan those Tokyo usually extended to other nations to facilitate plant exports, andthat the Cabinet was not considering other such transactions involving China,although Dai Nippon/Nichibo still wanted to carry out its provisional contractwith the Chinese for a 51 tonnes per day capacity vinylon plant.

A.B. Perera, Sri Lanka’s ambassador to China until July, had already informedthe Canadians that Chinese officials had told him that Paris would soon recog-nize Beijing diplomatically, possibly before the next meeting of the UN generalassembly.96 Meanwhile, Canadian Secretary of State for External Affairs,Paul Martin, warned a press conference on 24 August that Western allies weremistaken in attempting to isolate Communist countries and said that any effectivedisarmament treaty would need to be accepted, in principle by the PRC govern-ment.97 Then, two days later Martin told Deputy Under-Secretary of StateU. Alexis Johnson that Ottawa was considering changes to Canadian China policyto help end the PRC’s isolation from the world community.98

A Canadian DEA memorandum of 29 August, discussing the pros and cons ofdiplomatic recognition of the PRC, emphasized that recent remarks by US offi-cials indicated that US opinion on China was changing. International recognitionof the Beijing government and its seating at the UN would be one of the best waysto perpetuate the Sino-Soviet dispute, forcing it to consider views of governmentsof 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 andworkmanship. While praising France’s approach to commercial and politicalrelations, he emphasized that British industry could alternatively provide Beijingwith new processes, techniques and equipment. Chen then said that Moscowwould suffer the most if Chinese–USSR trade was suspended. Already Soviettrade corporations had complained that Chinese orders were falling off. Chenadded that the Chinese found Soviet oil prices high, especially because of theworld oil surplus. Consequently they were considering turning to other suppli-ers.99 The Chinese continued POL negotiations with Shell and BP in July whenreports appeared100 that Beijing had offered to sell Japanese firms, KawakamiTrading Company, the Nissho Company and C. Itoh and Company,101 heavy oilproduced in the PRC in exchange for POL. While Tokyo would not licenceexports of petroleum products on the COCOM list, it would routinely issueimport licences for a small amount of heavy oil totalling less than 0.3 per cent ofJapan’s fuel imports in 1962.102

Washington responded in early August by explaining to American oil companyrepresentatives that they were permitted to sell fuel to foreign airline companiesoperating flights to the PRC, as long as the aircraft did not carry strategic goodsor extra POL supplies produced by US firms.103


About that time the Chinese government reached an agreement – thePRC’s first with an airline from a non-Communist country – with PakistanInternational Airways (PIA) providing for the establishment of air routes fromKarachi to Tokyo with stops in Shanghai or Guangzhou. The Chinese had beenstimulating competition among international airlines eager to implement routeswith stops in China and who could also pioneer and develop air routes whichCAAC might later utilize on its own when economic and political conditionspermitted.104

PIA representatives continued discussions, opened in early 1963, with theSeattle-based Boeing for the medium-range 720B/727 jet transports, with theUK firm Hawker–Siddeley for the medium-range Trident jet transport andwith Sud Aviation for the Caravelle for use on these routes. In order to beat outDe Havilland and Sud Aviation to secure a deal with PIA, Boeing needed toobtain the necessary US government export licences. This would also put theAmerican aircraft producer in a good position to win another contract to supplyAll 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 aproposed route with stops in China.105

Washington had previously approved the sale of US aircraft for use on PIA’sproposed Karachi–Moscow route, but in this instance it was concerned that PIAplanned to store the US-made non-internationally embargoed aircraft parts inPakistani government controlled bonded warehouses at Guangzhou and Shanghaiairports.106

In 1963–4 just prior to the escalation of the Vietnam War there had been asignificant lull in weaponry and aircraft sales. Aerospace firms and governmentswere willing to consider more flexible terms to facilitate commercial aircraft salesin new markets.

However, the Kennedy administration kept delaying issuing the export licencenecessary for the proposed Boeing aircraft deal to proceed. If the licenceapplication was rejected and PIA obtained comparable equipment from anotherWestern firm then Boeing and the powerful West Coast aircraft lobby wouldbe upset with the Kennedy administration. Such a ruling would probably alsoalienate Pakistan, emerging as an important buyer of US aircraft. PresidentKennedy, Vice-President Johnson and Ex–Im Bank officials had agreed to‘christen’, on the White House lawn, the first Sikorsky helicopter which thePakistani airline had already agreed to buy.

A Kennedy administration decision to issue the necessary export licencescould lead to a further erosion of the multilateral controls on China trade, con-tribute to the perception that US China policy was changing, thus prompting acongressional backlash, and leave America’s allies in Asia feeling abandoned.

This conflict between what was best for American business interests and thefuture of the US-led trade embargo was behind the growing ambivalence, whichbecame increasingly apparent after August 1963, in the Kennedy administration’sChina policy.


6 China market rivalries intensifyWashington and Taibei’s response, September 1963–July 1964

Kennedy was aware of the political risks involved in any move to withdrawfrom South Vietnam without accomplishing the objectives he had set himself in1961. What would amount to the first American retreat before a Communistchallenge since the ‘loss’ of China might well produce a backlash comparable withJoseph McCarthy’s ‘witchhunt’ of 1950. Such a retreat could certainly not be con-templated before the election of 1964. Nevertheless, if withdrawal was to becomea long-term presidential objective it was not too early to begin preparing theground – and there are signs that Kennedy was thinking along those lines inthe 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 andhas mutual defense agreements with many countries . . . [there] solely for defensivereasons to protect free countries of Asia from Communist aggression . . . .

[Washington] intends to maintain attitude of firmness without hostility . . . [butis] prepared to wait patiently until . . . [Beijing] co-operate[s] in lessening tensions.We have already proposed several moves such as the exchange of newsmen, andthe release of the American prisoners as steps towards this end and feel that theinitiative 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 asto imply we are offering similar wheat sales or exchange of prisoners with . . .[the] Chinese . . . . [Washington’s] effort . . . [to] achieve mutual renunciationof 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 ofWestern allies in Asia, not to change its China policy. Rusk and McGeorge Bundypointed out that, despite the Sino-Soviet split, Beijing remained hostile toWashington and Taibei, and that the Chinese were responsible for their ownisolation. If they wanted improved relations with the West they should make thefirst move.1 Ottawa responded by assuring Washington that, for the time being, itwould not alter its China policy.2

With the 1964 L–T negotiations opening about 15 September, Rusk was alsoworried that Japanese pro-China trade forces were encouraged when Washingtondid not protest Tokyo’s decision to extend a long-term Ex–Im Bank guarantee forthe vinylon plant deal. Thus, about 7 September he explained to Japanese leadersthat Washington had not formally objected to it because Japan’s Cabinet hadpublicly supported the deal before officially approving it. He said that the dealwould stimulate a ‘credit race’ in the Chinese market which would strengthen thePRC to the detriment of Western-aligned countries and especially damage thesolidarity of non-Communist countries in Asia. Moreover, Western allies neededto be very cautious because Beijing manipulated its foreign trade to penetrate newmarkets, 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 Septemberwould affect Beijing’s recent efforts to acquire chemical fertilizer and polypropy-lene processes from Vickers–Zimmer Ltd, a firm that he and Vickers Ltd foundedin 1960.4 Vickers–Zimmer processes were often based on patents of foreign firmsand, 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 tosuffer when, after having invested heavily in developing its chemical fertilizerindustry, the Soviet government made fewer than expected equipment purchases.5

Vickers–Zimmer was also concerned about the expansion of US exports ofpolypropylene and related production technology.6

Meanwhile, on 4 September as Rusk sought assurances from Tokyo andOttawa, his guidance paper for the upcoming meeting of the Warsaw talks exhib-ited a different tone than earlier such communiqués. It asked Cabot to reiterateassurances about American intentions, emphasizing that Washington’s attitudetowards the PRC remained one of ‘firmness without hostility’ and that it wouldwait patiently until Beijing cooperated to reduce tensions.7 However, the Sino-American talks remained deadlocked following the 117th meeting on11 September after Ambassador Wang sought to discuss exclusively a matterwhich Ambassador Cabot was unauthorized to address – that is, Washington’sreaction to Zhou Enlai’s letter and draft agreement proposal of 2 August.8

In Washington on the 11th ROC Defence Minister Chiang Ching-kuowas unable to convince President Kennedy to provide American equipmentrequired 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 itspresent 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 availableabout conditions inside the PRC, although he agreed to study Taibei’s proposaland work closely with it to collect more information on Chinese Mainlandconditions.9

Around that time Bin Akao’s Dai Nippon Aikakuta (Greater Japan PatrioticParty members) who, according to security division chief Kuniizasu Tsuchida ofJapan’s National Police Agency, may have been receiving Guomindong backing,threatened All Nippon Airways (ANA) president Kaheita Okazaki’s delegationwith violence unless it cancelled its pending trip to Beijing to bargain for a secondyear of L–T trade.10 Nevertheless, this failed to prevent Okazaki’s team fromopening L–T negotiations in the Chinese capital around the 15 September. Thefollowing day, Mitsubishi affiliate Chiyoda Chemical Engineering andConstruction Company’s representatives left for Beijing to open talks on sellingan oil refinery to the Chinese.11

Two Sino-British contracts valued at £750,000 were signed on 15 Septemberwhen Nan Hanzhen, Lu Xuzhang, Chen Ming and CCPIT Deputy SecretaryGeneral Yong Longgui received a ‘48’ Group delegation in Beijing. The Chineseexpressed interest in UK engineering equipment and complete industrial plants,but MACHIMPEX director, Li Menghou, warned that because British priceswere 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 visitChina since 1957, leaving the British government concerned that the Chinesewere giving the ‘48’ Group preferential treatment.13

Although Sino-Japanese trade negotiations opened on time, evidence suggeststhat there was growing opposition within the Chinese leadership to the L–T tradewhich remained crucial to China’s readjustment. Yet, even if an L–T deal for 1964was made, by September 1963 the Chinese were once again extremely concernedabout securing enough foreign grain on credit terms. France had alreadydefaulted on its obligations under the Franco-Chinese grain agreement and theUSSR, facing its own agricultural problems, had suspended grain exports and inAugust and early September agreed to purchase large quantities of French, WestGerman and Australian grain and flour. On 14 September, as the Japanese L–Tnegotiating team left for Beijing, Ottawa announced that Moscow had agreed topurchase over 6.8 million tonnes of wheat under eighteen month credits. DespiteWashington’s restrictions on US–Soviet trade, American interests were alsonegotiating to sell grain to the Russians.14

In mid-September President Kennedy told the White House Conference onExport Expansion that America needed to increase exports to help ease its grow-ing balance of payments deficit, caused by increased foreign aid and spending.15

Because of changing world relations, Commerce Secretary Hodges also spoke outin favour of a review of American policy on non-strategic trade with Communistnations – a position which was immediately supported by various US businessinterests.16

On 25 September an editorial in the pro-Communist Hong Kong daily Wen Weipao stated that the China trade embargo was causing problems for the US. While


questioning the sincerity of CROCP’s agenda, the editorial asked ‘aren’t . . . [theAmericans] talking about studying the possibility of trade with . . . China?’17

Although ‘work contracts’ signed on 25 September between Western oilcompanies and Jakarta still needed to be ratified by the Indonesian parliament,the agreement may have left Washington feeling slightly less uneasy aboutrecent Sino-Indonesian economic cooperation. However, two days earlier,when Tokyo asked Washington to clarify its position on trade with Communistcountries, the Americans said that Hodges’ remarks did not apply to the PRC.Before asking Washington for advance warning of any reappraisal or changein US trade policy, Tokyo warned that the Japanese would not understand ifAmerica had a different trade policy for European Communist countries than forChina.18

Yet, Fritz Cordt’s reception was warmer when, during the third week ofSeptember, 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 Washingtonand Beijing. Jay replied that, because Washington had softened its position onSino-American trade discussions after having recently taken a more conciliatoryposition at the Sino-American Warsaw talks, Beijing’s ‘. . . reaction might bedifferent from what it was a year ago’. Also, during discussions in Beijingbetween 20 September and 3 October with an industrial delegation headed byGuillaume Georges-Picot, Lu Xuzhang expressed regret that Washington hadrefused to provide visas permitting CROCP representatives to visit Guangzhoufor talks. Chinese leaders were not particularly interested in holding discussionswith 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 Enlaiwas in Guangzhou at that time (21–29 September) for a secret meeting of theCommunist Parties of China, Vietnam, Laos and Indochina.20

On 30 September when State Department officials told Rusk about Jay’sremarks, US State Department officials concluded that the Chinese governmenthad not changed its trade policies, but had probably recognized ‘. . . the politicalcapital to be gained from taking . . . [a] superficially more favorable line on possi-bilities for US–CHICOM trade . . .’21 Washington may not have learned of Lu’scomments until 8 October,22 six days after Secretary of Defence McNamara andGeneral Taylor had tabled a memorandum about a ‘Phased Withdrawal’ of USforces from Vietnam.23

Taibei continued complaining to Washington about the growth of Sino-Japanese trade and was considering what economic sanctions it could applyagainst Tokyo in protest.24 On the evening of 25 September, despite a sizablepolice presence, windows were broken at the Japanese ambassador’s residence inTaibei. The following day, overseas Chinese were prevented from marching to theJapanese embassy, while English language newspapers in the ROC urged Taibeito pressure Tokyo more to curtail Sino-Japanese trade. Washington hoped thatTokyo would reassure Taibei that it would limit such trade, would not offerthe Chinese more favourable commercial terms than those provided by otherWestern allies and would not recognize Beijing diplomatically or vote for its


admission to the UN. However, George Ball also made the startling admissionthat Washington had

. . . long ago concluded that attempts to force . . . [its] views on . . . others wouldbe self defeating and unavailing . . . . [Taibei] must . . . exercise similarrestraint . . . [making] its views on . . . [China] trade known in Tokyo and else-where but refraining from any attempt through economic sanctions or othermeans to compel others to see the mainland trade issue in precisely the samelight that it does. Such efforts can only lead to isolation and weakening ofthe . . . [ROC government] which it can ill afford.25

On 12 September, with domestic prices rising and producers operating belowcapacity, 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 Sino-Japanese L–T negotiations reached a critical stage and a West German industrialmission prepared to depart for the PRC, Georges-Picot’s industrial delegation –representing Patronat, which was regularly and unofficially ‘dispensed to’ by USofficials such as George Ball,26 Syndicat d’Etudes pour l’Extreme Orient, and theFrench chemical and engineering industry associations – arrived in the Chinesecapital. Although described as ‘strictly private’, the ‘Patronat’ delegation was aguest of CCPIT and had received the French government’s blessing. The talksfocussed on the development of Franco-Chinese cultural relations and trade,reciprocal trade fairs and technical cooperation – especially concerning machinetools, 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 tobecome self-reliant, reduce its trade surplus with France and reach a Sino-Frenchdiplomatic rapprochement. The French delegation was extremely pleased with thetalks and, after it returned home, France’s Foreign Minister Couvre de Murvillespoke out in favour of increased Franco-Chinese trade and cultural contacts. Heimplied that French recognition of the Beijing government was imminent.27 At thistime the Chinese were also calling for closer ties with Italy and West Germany.28

Meanwhile, during the L–T negotiations, Lu Xuzhang and chief Chinesenegotiator Liao Chengzhi were very critical of Moscow and said that the Beijingleadership’s decision to permit a second year of L–T trade ‘. . . represented avindication of the line advocated by . . . Zhou [Enlai] . . . Chen [Yi] . . . and Liao[Chengzhi] . . . .’ Japan’s L–T negotiators gathered that there existed considerableopposition within the Beijing leadership to ‘. . . China’s relatively pragmatic andgradualist approach toward Japan . . .’ possibly out of disappointment with Sino-Japanese trade, or the degree to which the PRC’s trade had shifted away fromCommunist countries.

While the 1964 L–T agreement was signed in late September, details of theaccord were kept secret until mid-November 1963 to postpone the negative

response that would inevitably come from the ROC government. Both sidesagreed to increase trade by up to 40 per cent, exclusive of complete plant pur-chases, although, in order to appease Taibei and Washington, the Japanese agreedto consider purchasing only one complete industrial installation during 1964.This was to be a 51 tonnes per day vinylon plant and related technology – thesame technology they had already agreed to purchase from Kurashiki RayonCo. – worth approximately $26 million from Dai Nippon Boseki/Nichibo.29

Toyo Engineering Company executives were undoubtedly upset by this decisionbecause they were still eager to sell the Chinese a large urea plant and related tech-nology. Realizing this, Beijing placed Tokyo under greater pressure from Japanesebusiness by agreeing on 29 September to purchase a 177,808 tonne p.a. capacityprilled 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 TheChinese would copy this technology to manufacture a number of standardizedplants, giving them the ability to produce prilled urea in commercial quantities.The recently elected Dutch Labour–Neutralist coalition government extended afive year credit guarantee to facilitate the deal (see Table 6.1).

With the signing of this contract, the ROC government, the ‘China Lobby’ andtheir supporters in Washington realized that to prevent a much more serious ero-sion of the embargo, immediate action was necessary. Meanwhile, the Chinesecontinued negotiating with Western and Japanese interests for a wide range ofindustrial installations – including an ammonia production facility to complementthe Dutch urea plant. The China policy of the Kennedy administration appearedincreasingly ambivalent.

Early October to 5 November 1963

In early October Taibei decided to limit ROC–Japanese political and economiccontacts until Tokyo agreed to restrict trade with Beijing – especially that basedon long-term Ex–Im Bank credits.31

Yet, ROC news sources were also reporting that a Soviet–American graindeal might soon be completed. US officials in Taibei advised Washington, on3 October, that to avoid confusion in the ROC it should issue a clear public state-ment outlining the limits of any liberalization in US trade policy – especiallydefining the distinctions between its positions on trade with the USSR/EasternEurope and China and strategic and non-strategic trade – prior to sanctioningSoviet–American deals.32

Washington may not have learned of Lu Xuzhang’s comments about Chineseinterest in meeting with CROCP representatives until 8 October, by which timeUS officials in Hong Kong told Rusk that Beijing was increasingly willing toexperiment and make compromises in its political principles as Sino-Sovietrelations deteriorated, as China’s economic recovery resulted in a greater demandfor foreign imports and as Capitalist countries became more enthusiastic aboutthe China trade.33


Tabl

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tern

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pp. 2

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prow

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o D

evel

opin

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d So

cial

ist

Cou

ntri

es, p

. 43.

Not

ea

See

Tab

le5.

2.

Then, on 9 October President Kennedy personally authorized the sale of up to4.06 million tonnes of US grain to the USSR to reduce domestic grain stocks andease America’s balance of payments concerns.34 The Republican Opposition laterblamed this extremely controversial decision for the serious erosion of the Chinatrade controls.35

Washington had not warned the Japanese that American trade policy was aboutto be amended because it felt that Tokyo had not done enough to restrainJapanese trade (which was not under COCOM’s jurisdiction) with Moscow orBeijing.36 This left Tokyo in an embarrassing position because on the morning of10 October, when reporters asked for its views on the US–Soviet grain transac-tion, the Japanese had to admit that Washington had not given them prior noticethat the deal was to be signed.37

As the Kennedy administration contemplated a phased American withdrawalfrom Vietnam, the French, hoping to re-establish their influence in the Far Eastmay have tried to broker a Sino-American rapprochement – involving Vietnamand even the establishment of trade or diplomatic relations. The New York Timesreported on 17 October that, because he believed that it was no longer in theinterest of Western-aligned countries to isolate China, de Gaulle wanted to extendunilaterally diplomatic recognition to Beijing and hoped that Washington woulddo so simultaneously. The report added that when French Foreign MinisterMaurice Couve de Murville met Kennedy – who was scheduled to receive deGaulle in Washington in March 1964,38 about the time Sud Aviation’s Caravelle2E 210-10B was scheduled to come ‘on-line’ – the previous week he had urgedthe US president to adopt a new China policy.39

On 22 October, former French Premier Edgar Faure, whose then recentlypublished book made a favourable evaluation of the Chinese government, begana fifteen day visit to China. Although Paris insisted that Faure’s visit was semi-official in nature – to examine the possibility of increasing Franco-Chinesetrade – he was rumoured to be carrying with him a special message from deGaulle to the Beijing leadership on Franco-Chinese diplomatic relations.40

Faure had been in China for only three days when, on 25 October, Lu Xuzhangsuddenly instructed CNTIC complete plants division director, Zui Zhun to con-clude a contract with the UK firm Humphreys and Glasgow for a 110,000 tonnep.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 guar-antee when negotiations, under way for several months, bogged down after theChinese insisted that the British extend terms similar to those provided by theDutch for the urea plant transaction. After concluding the deal, the Humphreysand Glasgow officials were received by Lu Xuzhang and Chen Yi (see Table 6.1).

Thus, Japanese business interests became increasingly worried thatTokyo’s refusal to extend further Ex–Im Bank credit guarantees would leave themunable to compete for other Chinese industrial plant contracts. During the thirdweek of October, Ambassador Reischauer in Tokyo warned Washington to useonly 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


commercially – based Sino-Japanese trade. He firmly rejected Taibei’s positionthat Beijing would use such trade to achieve Sino-Japanese diplomatic relationsand voiced the debatable view that these transactions were ‘. . . hardly likely tospell a difference between Chicom survival and collapse . . . .’41

Although planning to agree to buy at least one more chemical fertilizer plantbefore the end of 1963, the Chinese continued negotiating for items required toresolve their petroleum/POL production deficiencies. On 28 October, IdemitsuOil Co.’s managing director Teshima told Tokyo that Beijing planned to contactother suppliers to meet its 9 million kl annual petroleum production deficit –quantities usually supplied by Moscow.42 Indeed, during Zhou Enlai’s visit toAlgiers in autumn 1963, he proposed a triangular payment deal whereby Africancountries linked with Paris would be granted French credits to import Chinesegoods, the profits of which Beijing would use to purchase as much as 3.5 milliontonnes of Sahara oil annually.43 Although the Japanese had imported almost6 million kl of fuel oil in 1962,44 Teshima insisted that there was excess refiningcapacity in Japan and asked how Tokyo and Washington would react if Idemitsusupplied the Chinese with POL refined in Japan from the Arabian Oil Co., orfrom Permina – Indonesia’s army – dominated first state oil company which hadbeen developing much closer business ties with Japanese interests. However,increased production by Idemitsu could further depress petroleum product priceswhich the Petroleum Industry Law was supposed to protect and threaten cooperationbetween Japanese oil firms.45

Under the still unratified ‘work contract’ agreement of 25 September, Westernfirms had become contractors for Indonesian state oil companies: Stanvac forPermina, Caltex for Pertamin and Shell for Permigan – the latter two Indonesianstate oil companies having been formed around the time of the agreement. Largepurchases of POL from Stanvac/Permina or Shell/Permagon would have been ofconsiderable concern to Caltex because, although it dominated production andexports of Indonesian crude, it did not produce refined petroleum in that country.Although the US Departments of Commerce, Treasury and State wanted to dis-courage interests in non-Communist countries from selling refined petroleumproducts to the PRC, it was nearly impossible to do so under FACR and, with theexception of a few aircraft fuels and lubricants, refined petroleum was not on theCOCOM lists. Also when Shell had previously sold the Chinese small quantitiesof POL, Washington had not protested.46

Thus, what would prevent Western and Japanese interests from selling theChinese the equipment and technology for developing their own petroleum indus-try; or Indonesia’s, if Beijing could persuade Jakarta to let China take over for-eign licenses in that country? By developing their petroleum/petrochemicalindustry, the Chinese could reduce domestic demand for minerals and agriculturalproducts. Plastics and synthetics would replace cloth, leather, rubber and metal,allowing more domestic resources to be used for other purposes and lesseningBeijing’s dependence on imports of strategic goods. Petrochemical products andpetroleum products could eventually be exported to earn currency in exchange foressential imports.



Despite the Sino-Soviet dispute, Hungary, Romania and East Germany continuedselling the Chinese oil rigs, turbo drills, seismic equipment and core samplingplants.47 Although Beijing also obtained key catalytic cracking and platformingtechnology of US origin through the Esso-Shell refinery at Havana, Cuba,48 itneeded to purchase other vital requirements directly from interests in Western-aligned countries. The Chinese needed to purchase equipment and technology toproduce refinery equipment and pipelines – especially for new oil fields in theNortheast – which would eventually allow them to export large quantities of oilto Japan to pay for essential imports.

A Chinese petroleum delegation toured Japan during the first week of Octoberas guests of JCTPO and the Japan Oil Hydraulic Association – both ‘left wing’organizations. It attended the World Oil Hydraulic Machinery Show in Tokyo andmet with Japanese machinery manufacturers to discuss potential technicalexchanges and purchases of hydraulic oil production equipment/technology.Chiyoda Chemical Engineering and Construction Company representatives hadreturned to Tokyo from Beijing on 16 October after initial negotiations to sell anoil refinery to the Chinese.49

The Chinese continued negotiating with ENI of Italy for a gasoline refinery andwith the French firm Technip for a 2–3 million tonnes per year oil refinery andelectronic petroleum prospecting equipment.50 A Chinese petroleum delegationwas 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 devel-oping their petrochemical and petroleum industries. In October Daido Steel Co.Ltd, of Nagoya, agreed to help upgrade Chinese electric furnace and convertertechniques to international standards.51

In October/November ODW executive member and Mannesmann sales andexport director Heinz Hufnagel visited Beijing to discuss plans for ODW chair-man Otto Wolff von Amerongen’s visit to China in early 1964.52 The Chinese toldHufnagel that they hoped to purchase large diameter piping, semi-fabricated steeland especially machinery.53 Although Beijing wanted to negotiate a new Sino-West German trade agreement, Otto Wolff von Amerongen felt this was probablyunnecessary to improve trade relations. Regardless, before approving such anarrangement, Bonn would require Beijing to sign a clause stating that Berlinshould be under the FRG’s control.54

The Chinese also continued to negotiate with the AWB and the CWB andopened discussions with Argentinian and Mexican interests for crucial grainimports which the French were unable to provide. Beijing had purchasedsmall quantities of Argentinian grain in 1962–3 – mostly barley, but theArgentinian military was unenthusiastic about Buenos Aires trading with Beijing.However, facing worsening balance of payments problems, Buenos Aires hadcomplained to Washington several times since 1958 about US PL 480 exportscutting into ‘traditional’ Argentine export markets. The American grain lobby,already envious of Canadian, Australian, French and West German cereal exportsto China, was watching closely developments in the Sino-Argentinian grainnegotiations.


By early November US oil, grain and aircraft interests were among those with themost to lose from Washington’s inability to convince its allies to refrain from expand-ing trade with China. Cargill’s grain division had performed poorly between 1961and 1963, while sales in 1962–3 were especially dismal. In late October 1963, afterextensive investigations, Cargill’s main bank, the Chase Manhattan, which favouredSino-American trade and was attempting to re-establish a Hong Kong office,55 tableda 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 Boeingwas pressuring Washington to decide whether the firm should bother applying forUS government export licences – required to sell PIA one 720B and three 727medium-range passenger/transport jets valued at a total of US$22 million and spareparts worth another US$500,000. PIA was still interested in buying the low-cost727B and 727 – lightened and shortened versions of the 707 – for establishing routeswith stops in China. These aircraft had greater fuel capacity, unprecedentedlylow-speed landing and takeoff performance compared to similar aircraft, makingthem ideal for smaller airports.

The PIA also continued negotiations with Hawlker-Siddeley for the Tridentand in early November, when Boeing–PIA negotiations reached a critical stage,Whitehall told Washington that Beijing was interested in purchasing tenDe Havilland long-range Comet passenger jets.58 The French also continuednegotiating to sell the Chinese helicopters and Caravelle aircraft. Although bar-gaining for the latter contract had not entered the final stages, Paris had decidedto approve a deal as soon as replacements for the US components in the aircraftwere installed.59 Then, on 5 November Edgar Faure returned to France aftercompleting high-level meetings with Chinese officials.

Were the French trying to negotiate a deal between the US and China? WouldKennedy consider letting the Caravelle negotiations proceed while sanctioningthe PIA deal? Franco-Chinese aircraft negotiations may well have been a matterthat de Gaulle would have raised with Kennedy when he visited Washington inMarch 1964, if not earlier.

With US government debate about whether to approve the PIA deal reachinga critical phase, just as it appeared that FACR might be used to attempt to blockSud Aviation from selling Caravelle aircraft to China, some American officialsprobably wondered if there were not inherent contradictions in the application ofUS policy. Also the ‘China Lobby’ and their supporters in Washington were eagerthat the Kennedy administration not handle proposed Franco-Chinese Caravelleaircraft transactions in the manner that it had dealt with the Sino-British Viscountaircraft deal and the bunker fuel and vacuator pump incidents.

November 1963 to early February 1964

Meanwhile, as had happened previously when Sino-American tensions appearedto be lessening, on 1 November the PLA shot down another American-madeespionage aircraft – a U-2 operated by the ROC air force.


Nevertheless, on 6 November, the day after Faure returned to France fromChina, Rusk sent Cabot a guidance paper in preparation for the next meeting ofthe Warsaw Talks, which reflected in a comparatively more concise and forcefulmanner the Kennedy administration’s growing eagerness to achieve a relaxationof tensions in Sino-American relations and in the Far East generally. Mutualrenunciation of force, a willingness to discuss Zhou Enlai’s letter of 2 August andcontinued interest in exchanging news representatives were areas to be explored.Nevertheless, Rusk stressed that Washington would support the South Vietnamgovernment until peace was established in that country.60

At the 118th meeting of the Sino-American Talks on 13 November Wangclaimed that Chiang Ching kuo’s visit to Washington, US–ROC military andespionage operations – allegedly having violated PRC territory – and US militaryaid to India demonstrated that Washington’s China policy of ‘firmness withouthostility’ was mere rhetoric. Although the Talks remained deadlocked afterthis meeting, Cabot felt that Wang’s rejection of the American side’s most recentoffer to exchange news representatives ‘. . . appeared . . . less peremptory thanusual’.61

Meanwhile, about 10 November ODW board member and DEMAG oil exportdivision Director, Alfred Schultz, arrived in the PRC as a guest of the Beijinggovernment. Prior to his departure there had been heated debate betweenDEMAG executives when some of the firm’s directors raised objections to tradingwith China. Schultz returned home feeling optimistic about possibilities for tradewith China.62

Fritz Cordt and other West Germans visiting the Guangzhou Trade Fair about15 November also found the Chinese eager to discuss Sino-West German tradeprospects, but they were upstaged by the presence of representatives from 230Japanese ‘friendly firms’.63 On 13 November Tokyo had announced details ofthe L–T negotiations, kept secret since late September. Chinese offers to purchasePOL from Idemitsu in conjunction with the firm’s interest in selling its entireannual production capacity may have had a considerable bearing on its decision –announced in late November 1963 – to withdraw from the Petroleum Associationof Japan.

Between October and December the Chinese told the large number of Japanesetrade delegations – representing the machine tool, chemical, iron and steelsectors – visiting the PRC that they planned to purchase more fertilizer productionplants and between 2 and 3 million tonnes of chemical fertilizer annually.64 At thattime the Chinese agreed to purchase very large quantities of galvinized rolledsteel plates and tubing from Japanese firms.65 However, while Lu Xuzhanghad previously told NITREX that Beijing would purchase 2 million tonnes offertilizer from the cartel in 1964,66 it did not buy anything from the organizationin 1964.

Meanwhile, when President Kennedy was asked at a press conference on14 November whether a resumption in Sino-American trade was possible,he replied that, if the Chinese showed that they wanted to live peacefully withthe world’s nations, the US government would reappraise its China policy. He


said that Washington was not ‘. . . wedded . . . to a policy of hostility towardsRed China’.67 Some observers took these remarks as more evidence ofincreased flexibility in Washington’s approach towards the PRC,68 althoughKennedy had also emphasized that Beijing’s policies sought to create tensionbetween nations.

Then, on 18 November, as Sino-Western negotiations for POL and equipmentand technology for China’s domestic petroleum industry reached a critical phase,President Kennedy offered to resume providing American aid to Indonesia ifSukarno would reach a peace agreement with Malaysia. This decision was probablyunpopular with the US oil lobby which, since at least early 1963, was worriedabout how Sino-Indonesian economic collaboration might affect US oil interestsin that country.69

On 20 November State Department officials appear to have taken a much firmerstance against the sale of Caravelle aircraft to China. Washington stressed to Paristhat, even if cleared by COCOM, the US Treasury Department would try and blocksuch a transaction because these planes contained many more advanced compo-nents of US-origin, produced under American licence by US firms, than thoseincorporated into Viscount aircraft. Washington’s position was that Caravelle SE210-10B aircraft – which had greater thrust and payload than previous models, arange of 3,600 km, and a maximum speed of 835 km/hr – could be an importantasset for the PRC to conduct subversive activities abroad. Also, once the Chineseobtained nuclear weapon production capability, Beijing could threaten to use theaircraft as a primitive delivery system. The Caravelle would not be an importantmilitary asset in a conflict involving NATO countries, but Washington was con-cerned that almost no military force in Asia possessed the equipment to detect andintercept this type of technology.70

While, it is not known why and who initiated the action, that same day whenNew York State’s Department of Social Welfare suddenly conducted a ‘fieldaudit’ of the New York offices of Marvin Liebman Associates Inc. – which at leastone researcher suggests played a key role in the pro-Taiwan Committee of OneMillion’s operations – it uncovered accounting procedure irregularities. It wasrecommended that the matter be forwarded to the New York Attorney General, butthe 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 PIAtransaction.72 Then, on 6 December, Thomas Kerr, president of Kerr GrainCorporation, a Cargill subsidiary, and Vice-President of Portland, Oregon’s cham-ber of Commerce, told the Oregon Wheat Growers League’s annual meeting thatUS grain should not be given away and suggested that they try to send a trademission to the PRC.73 Chase Manhattan Bank executives were also preparingto speak out in support of trading with the PRC74 after having re-establishedoperations in Hong Kong on 29 November.75


A FE bureau office of Northeast Asian Affairs memorandum of 9 October saidthat, when considering the proposed Boeing–PIA deal, it was important to ‘reachsome balance between . . . [America’s] China policy and commercial and balanceof payments requirements . . . .’ If the licence applications were rejected, PIAwould probably turn, now and in the future, to Boeing’s competition abroad topurchase similar equipment.76 About that time, Under-Secretary of Commerce,Franklin D. Roosevelt Jr – whose family had a long-standing interest in the Chinatrade and who was himself a close friend of the Kennedy family77 – stressed thatit 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 hard-ship on American business in the absence of any realistic prospect of advancingour . . . [China] policy interests . . . .’79 Although maintaining that its China policyremained unchanged, Washington decided that controls on exporting American air-craft to friendly nations were inconsistent with US policy and without precedentbecause under special circumstances, American goods were shipped to foreignconsignees, for their own use, in Shanghai and Beijing’s diplomatic communities.80

Nevertheless, in a speech81 – not thoroughly read by Rusk who was hurrying toa NATO meeting in Paris and who was already preoccupied by recent reports thata Sino-French diplomatic rapprochement was imminent – to the CommonwealthClub at San Francisco, two days later, Roger Hilsman said that the US governmentwas ‘. . . determined to keep the door open to the possibility of change, and not toslam it shut against our national good, serve the free world, and benefit the peopleof China . . . .’ His speech also seemed to imply that Washington was willing to con-sider permitting American trade with China, even though Beijing had made it clearthat it was not interested in such economic contact because of alleged US hostility.82

The following day George Ball told American diplomatic posts abroad thatHilsman’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 thedepartment . . . .’83 However, the State Department later concluded that the speechoutlined generally ‘. . . a new view of the long-term . . . [Sino-American] relation-ship . . . [making] clear that our objective was the halting of direct and indirectCommunist aggression rather than the destruction of Communism itself’.84

PRC radio broadcasts and a Xinhua commentary on 14 December emphasizedthe less friendly aspects of Hilsman’s speech. Not until mid-February did theChinese reject Hilsman’s ‘open door’ initiative.85

Meanwhile, in late 1963, Italy’s economic and financial problems deepened. On14 December, the day after Hilsman’s speech, the Italian firm Montecatini –experiencing financial difficulties and having recently received large infusions ofcapital from Royal Dutch Shell – agreed to sell the Chinese patents, technical assis-tance and training required to build and operate chemical fertilizer plants and relatedequipment for approximately US$20 million. Montecatini had also applied for athree year Italian government credit guarantee to facilitate the deal (see Table 6.1).

Then, on 19 December the Chinese made their first major acquisition ofWestern oil refinery equipment/technology when they agreed to purchase


a 150,000–200,000 tonne p.a. capacity petrol refinery worth US$9 million fromSocieta Nazionale Metanodotti (SNAM-Projetti) – a private ENI subsidiarywhich 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 theDaqing refinery and the Beijing petrochemical plant (see Table 6.1). This initialpetroleum equipment sale set the stage for China to obtain greater access to theconsiderable resources and technology of the ENI group – a development whichwas probably very worrying to American oil interests, the pro-Taiwan Chinalobby and its supporters in Washington.

On 14 December the Joint Chiefs of Staff (JCS) had submitted a contingencyplan, requested by the Department of State in mid-1963, for a conventional ornuclear weapons strike on PRC nuclear test facilities aimed at halting Beijing’sefforts to obtain a nuclear explosive device.86 Then, after completing another fact-finding visit to South Vietnam, US Secretary of Defence McNamara submitted areport to President Johnson on 21 December emphasizing the need for renewedefforts in Laos, the need for covert action against North Vietnam and the fragilityof the political situation in the South. ‘Phased Withdrawal’, which McNamara andGeneral Taylor discussed in early October, was no longer considered to be an optionbecause of the growing interrelationship between the situation in Vietnam, the insta-bility of Laos and Cambodia and the worsening Indonesian–Malaysian conflict.87

Meanwhile, during November the AWB agreed to sell the Chinese another1 million tonnes of grain, while the following month the CWB decided to providethem with another 500,000 tonnes (see Table 6.2). Also about that time, in orderto help replace shipments which the French had been unable to send, the Chinesenegotiated a three year credit grain agreement with private Argentinian interests.After signing initial contracts under the accord, the Chinese offered to purchasethe grain, at a premium, directly from the Argentinian National Grain Board(ANGB), which responded by cutting off supplies to private domestic firms sothat it could make the sales in 1964.

Similarly, in late 1963 and early 1964 private firms which had signedcontracts to sell the Chinese Mexican grain were unable to obtain enoughsupplies. CONASUPO – the powerful Mexican government price control agency,which answered directly to the country’s President, cut off supplies to the privatetrade when the Chinese offered to purchase the grain directly from the Mexicangovernment. The Chinese were paying cash for most of the Argentinian andMexican grain and accepting less favourable terms of trade than previouslyobtained from the CWB, AWB, the French and the West Germans.

Meanwhile, in late November and early December, Zui Zhun and Lu Xuzhangtold the British that the Chinese soon hoped to purchase up to ten chemicalfertilizer production plants, worth about £3 million each and ‘a wide variety’ ofindustrial plants on credit terms from UK interests.88

During the last week of December, the Japanese announced that Chinese tech-nicians would visit Japan in early 1964 to discuss Beijing’s plans to purchase the

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larger Japanese vinylon production plant (from Dai Nippon SpinningCo./Nichibo) under the L–T memorandum.

The French were worried because they still had not concluded a major equip-ment contract with the Chinese. In mid-December, with rumours abounding thatParis planned to recognize Beijing diplomatically, Rusk was dispatched to theFrench capital. Relations between President Johnson and President de Gaulle hadnot got off to a particularly good start. Yet, in his State of the Union Address inearly January, President Johnson spoke out in support of

A world made safe for diversity in which all men, goods and ideas can freelymove across every border and every boundary . . . . We must develop new ideasto bridge the gap between East and West . . . [,] facing dangers boldly whereverdanger exists, but being equally bold in our search for new agreements whichcan enlarge the hopes of all while violating the interests of none.

Then, on 11 January 1964 S.A. Melle and Société pour l’équipement desIndustries Chimiques (SPEICHIM),89 of Paris – agreed to sell the Chinese a2 million tonnes per year capacity butyl and ethyl hexyls alcohol plant for US$8.5million. COFACE extended a five year credit guarantee to facilitate the deal. Theplant would utilize gas from a domestic field or petroleum refinery to producealcohol required for vinylon, plastics, organic pharmaceuticals and rubber(see Table 6.1).

In mid-January Tokyo told Washington that it planned to permit DaiNippon/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 creditguarantee until it had evaluated the results of former Japanese PM Yoshida’s tripto Taiwan.90 In January the ROC government suspended its agencies’ purchasesof 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 holdindustrial fairs in China in June and November 1964, officials from MACHIM-PEX, China National Metals and Minerals Import and Export Corporation(MINMETALS) and the ministries of coal mining, construction and machineryshowed considerable interest in British mining and construction equipment.91

Then, in late January Paris told Washington that Sud Aviation executives won-dered why the US government opposed sales of Caravelle aircraft to China whencomponents on the COCOM list were incorporated in the Viscount aircraft pur-chased by Beijing. They felt that Washington’s only response to the Sino-Vickersdeal had been ‘. . . “ to get seriously concerned” over the matter’.92 However,Washington waited until 7 February to explain that while it may be unable toblock the proposed Caravelle deal at COCOM it could instead through FACR,because of the large amount of equipment of US origin incorporated in theaircraft. Washington also insisted that it knew of no equipment incorporated intothe Viscount which was of American origin or produced by US firms.93

Meanwhile, on 27 January Paris announced that it would extend diplomaticrecognition to Beijing, and Taibei responded on 10 February by suspending



diplomatic relations with France. Washington also announced that it wouldcontinue supporting the ROC, South Vietnam and other countries threatened bythe PRC. On 1 February Johnson also rejected de Gaulle’s proposal, made theprevious 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 JanuaryAmbassador Cabot had insisted that a breakthrough on the release of prisoners, anexchange of newsmen and the joint renunciation of force could be an important steptowards creating the type of world which President Johnson envisioned in his recentstate of the Union address. However, Ambassador Wang said that, although his sidewanted a relaxation of tensions in Taiwan and the Far East, this would depend onWashington, not Beijing. While complaining about US trade and travel restrictionsas well as American espionage aircraft, he also maintained that the Americans hadoffered nothing new and that China continued being the victim of US aggression.94

Another Chinese radio broadcast to Taiwan on 30 January 1964 emphasizedthat Hilsman’s 13 December speech reflected Washington’s declining support forTaibei – 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 Rockefellerof the Chase Manhattan Bank had declared in Hong Kong that he favoured aresumption of Sino-American trade. Also in early 1964 director Alan Whiting ofthe 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 thatthe Committee of One Million was attempting to raise funds to cover its 1963operating deficit.95

However, around this time China’s ‘readjustment’ movement suffered a seriousloss when the 70-year-old PRC’s Minister of Foreign Trade, Ye Jizhuang, waspermanently incapacitated by a stroke. Although Lin Haiyun took over as apermanent ‘Acting Minister’, Ye had been a key figure in financing the PRC’sgrain purchases through its export drive and currency/bullion operations, espe-cially through Hong Kong–Macau and South-East Asia. About the time of Ye’sstroke, Xie Shoudian and Li Chao-chih were appointed to leading positions at theHong Kong branch of the Bank of China.

The task of overseeing the PRC’s trade diplomacy had been a demanding onebut Ye’s illness coincided with renewed efforts of ‘leftists’ within the leadership,to convince PRC officials to place a greater emphasis on ideological work. PRCforeign grain imports totalled over 6 million tonnes in 1963 – more than 1 milliontonnes above the upper limit recommended by Chen Yun in 1962. There were alsosigns that the ‘readjusters’ planned to import even more grain in 1964, whichmust have worried ‘leftist’ leaders.

During a visit to Taiwan in February, Yoshida promised Taibei that Tokyo wouldnot extend Ex–Im Bank credits to finance trade with the PRC. This agreement was


later confirmed in a document, subsequently known as ‘the Yoshida letter’, whichYoshida sent to the ROC government. Although he had not been a governmentofficial when conducting these negotiations with the ROC government, thedocument was considered binding.96 Nevertheless, Tokyo was concerned thatBeijing would respond by expanding its business contacts throughout WesternEurope from their Paris embassy.97

On 19 February the Chinese launched an attack in Renmin Ribao on Hilsman’s13 December 1963 ‘open door’ speech. Then, at a world affairs conference on25 February, Rusk accused Beijing of pursuing aggressive policies abroad andcriticized China for not retreating from its position on Taiwan at the WarsawTalks. By this juncture, prominent Kennedy administration officials such asRoger Hilsman began leaving the government or continuing on in much lessinfluential positions – like Harriman, who was moved back to ambassador-at-large. Such moves probably interfered with easing Sino-American tensions.

The West Germans increasingly wondered why they were expected to adherestrictly to China trade controls when other Western-aligned governments wereguaranteeing long-term credits to enable the Chinese to buy equipment and tech-nology. The establishment of Franco-Chinese diplomatic relations contributed toWest German concern that they might be falling behind other Western competi-tors in the Chinese market. After Otto Wolff von Amerongen and Krupp repre-sentatives returned home from China in early 1964, West German industrialistsincreased pressure on Bonn to conclude a Sino-FRG trade agreement andestablish reciprocal trade offices.98

By February, the prognosis for French and British trade with the PRC was lessoptimistic than it had been just a few weeks earlier. Following French recognitionof the PRC government, Paris remained unable to sell Beijing Caravelle aircraft,provide credits of more than five years to finance an expansion of Franco-Chinese trade or engage in barter trade with Beijing. The Sino-French grain traderemained suspended and it would be another eight months before both sidesconcluded another major equipment deal.

Then, on 11 March Rusk told Australian officials that if Defence SecretaryMcNamara’s fact finding mission to Vietnam found evidence of increasedChinese activities there, Washington might ask Ottawa, Canberra and BuenosAires to tell Beijing that future wheat sales would depend on the PRC ceasinginterference in South-East Asia.99 However, Canberra was sceptical of theproposal and said it would first need to make its own evaluation of the extent towhich the PRC was responsible for and involved in the Vietnam conflict; whetherall other Western wheat suppliers would agree to stop grain sales, or the extensionof credit facilities to China; how effective a grain embargo might be in influenc-ing Chinese actions; whether other goods would also be embargoed; the effect ofthe China trade restrictions on the Australian economy; and the long-term effectthat grain trade controls could have on Sino-Australian commercial and politicalrelations and Australia’s image in Asia and Africa.100

The ‘readjusters’ continued to bring in reinforcements to help fill the powervacuum resulting from Ye Jizhuang’s illness. In March, Xiao Fangzhou was


appointed CCPIT Vice-Chairman. In April, Jia Shi and Zhou Huamin, DeputyHead of a trade delegation to Osaka the following month, were appointed Vice-Ministers of Foreign Trade while Chen Ming was appointed commercialcouncillor 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 – foundthe Chinese unenthusiastic about trade with them. Moscow was disappointed thatBeijing had not offered food products and minerals, while Chinese officials hadagain concluded that Soviet equipment was generally ‘. . . heavy, old, expensive,and complicated’.101 However, when during the first half of 1964 problems devel-oped in China’s trade with Japan, and the Chinese became irritated with the slowpace of Sino-Western aircraft negotiations, there was a slight revival in Sino-Soviettrade.

As the Vietnam conflict deepened during 1964, aircraft sales improved and itbecame much more difficult to find bargains on Western aircraft. Negotiations forair agreements with Western countries – a prerequisite to Beijing purchasingWestern long-range jets – also proceeded slowly. On 12 April the PIA had openedan office in Shanghai and on the 29th the Pakistani airline opened a onceweekly route from Dacca to Guangzhou to Shanghai (later twice weekly:Karachi–Dacca–Shanghai and Karachi–Colombo–Guangzhou–Shanghai), whichlinked up with domestic flights.102 However, the PIA cancelled plans to extend itsroutes through China on to Tokyo after Washington persuaded the Japanesegovernment to deny the Pakistani airline the necessary landing rights. Tokyo alsorejected ANA’s request to operate unscheduled flights between a SouthernJapanese city and Shanghai.103

On 19 May 1964, following on the heels of the Sino-Cambodian air agreementof 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 PhnomPenh to Vientiane–Hanoi–Guangzhou/Kunming.104 However, Franco-Chineseair agreement talks during 1964, under which Air France hoped to establish aKarachi–Rangoon–Shanghai–Beijing return route, also proceeded slowly.

Thus, CAAC’s deputy director told British officials in late March or earlyApril that they had lost interest in Western long-range jet aircraft and planned tobuy the Soviet IL-62 long-range jet instead.105 The Il-62 was scheduled to comeonline in 1966, would cost about the same as the VC-10, could carry 186 passengersand had a range of 4,160 miles making it ideal for flights to Moscow fromsuitable Chinese airports.

As Chinese–Western aircraft negotiations ran into difficulty, the Chinesedecided to attempt to purchase, under their 1964 trade protocol, more semi-obsolescent Soviet-made IL-18 jetprop passenger aircraft. Although more expen-sive than the Viscount, the IL-18, with a range of 1,800 miles and a capacity ofless than one hundred – was considerably cheaper than passenger jets. Most ofChina’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 deterioratedand the Chinese began having trouble obtaining parts to maintain the aircraft.


The CAAC’s air service to Ulan Bator and Irkutsk on this aircraft had been reducedto a fortnightly service.106 A Sino-Afghan air agreement had been concluded in early1963 and the Chinese hoped to obtain permission from the Afghan government toestablish air routes, using IL-18s, from Sinkiang to Kabul, Kabul–Rawalpindi, andKabul–Kandahar–Karachi.107 Under the 1964 Sino-Soviet trade protocol,announced on 16 May 1964, Moscow agreed to sell Beijing more Il-18s and on2 June Tass reported that China had purchased five more of these aircraft forUS$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 on8 April, the Americans expressed interest in taking steps towards achieving arelaxation of tensions in the Far East. This was Wang Bingnan’s final meeting, ashe was promoted to Vice-Minister of Foreign Affairs that same month. During thediscussions, he handed Cabot a draft of a proposed joint announcement statingthat both sides agreed to coexist peacefully on the basis of the five principles firstproposed at Bandung. It called for both sides to settle disputes through peacefulnegotiations and for the US to withdraw all of its armed forces from the Taiwanregion. The talks remained deadlocked as the Americans considered the proposalpreposterous.109

Nevertheless, on 16 April when Chiang Kai-shek attempted to enlist USsupport for a plan to airdrop ten units of 5,000–10,000 men to provoke anti-revolutionary activities in Yunnan, Guangxi and Guangdong and sever PRCsupply lines to Vietnam, Laos and Burma, Rusk told the ROC leader, that becausethe world was in a state of great change and uncertainty, his proposal was unfea-sible without Washington’s support and possibly without the use of nuclearweapons, which could draw in the USSR.110

May to July 1964

On 3 May, Chinese Foreign Minister Chen Yi said that only Washington, whichrefused to recognize Beijing or withdraw its forces from Taiwan, could initiate animprovement in Sino-American relations. US Secretary of Defence McNamaraannounced on 12 May that the US was preparing for a long war in Vietnam andwould send more fighter planes there immediately. Then, on 18 May PresidentJohnson asked the US Congress to provide US$125 million in economic andmilitary aid for South Vietnam.

Meanwhile, as China’s economic problems deepened in 1964, Beijing seizedthe opportunity to pressure Rome to recognize the PRC diplomatically and nego-tiate a Sino-Italian reciprocal trade office agreement by placing large equipmentand technology orders with firms from other Western countries.

By May, it had been eight months since the Chinese had agreed to purchase acomplete plant from Japan. Powerful Japanese domestic business interests werepressing Prime Minister Ikeda to emulate other Western-aligned governments andextend long-term credits for equipment and technology exports to China. Thispressure was increased in May when a Japanese ‘friendly firm’ agreed to sell theChinese a 1,100 m3/h capacity dry process acetylene generating plant valued at


US$300,000 – presumably making it less urgent to complete the proposed largevinylon plant contract with Dai Nippon/Nichibo. This would produce uryl acetatewhich, along with the output from another plant which the Chinese planned topurchase, would raise the capacity of the Kurashiki vinylon plant by more than16 tonnes per day (see Table 6.1).

Dai Nippon/Nichibo Co. continued lobbying Tokyo to extend a long-termEx–Im Bank credit guarantee to enable it to sell the larger vinylon plant to thePRC. Then, on 27 June, Japanese L–T representatives reached an agreement withthe Chinese government to exchange trade representatives – a development whichimmediately drew strong protests from Washington and Taibei.

In early July, just as it appeared that the Ikeda government was reconsideringits position on Tokyo’s involvement in the China trade, Beijing suddenly agreedto purchase its first West German industrial plant – a perlon nylon synthetic fibreplant worth US$1.75 million from F. Uhde of Dortmund. The signing of thiscontract at that particular moment increased pressure on Prime Minister Ikeda tore-examine his position on Ex–Im Bank financing for the China trade.

As had happened frequently before when Sino-Western/Japanese tradeappeared ready to opened up, on 7 July, the PLA shot down another US madeespionage aircraft – a U-2 operated by the ROC air force. Events in Vietnam alsocontinued working against a change in Tokyo’s policy towards Beijing. ChineseForeign Minister Chen Yi warned on 6 July, that any attack against North Vietnamwould 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 toSouth Vietnam and, on the 27th, it announced that the US would send 5,000 moresoldiers to Vietnam, bringing the total of US troops there to 21,000.

Yet, also on 27 July Xinhua and representatives of the Frankfurt-am-Mainbased Gesellschaft Fuer Mineraloeltechnik AG (Lurgi AG) announced that Chinahad agreed to purchase a 50,000 tonne p.a. capacity oil cracking and olefinseparation plant (ethylene cracking/oil processing and fractional distillation andseparation of hydrocarbons) for US$12.5 million. The contract was facilitatedby six month credits. The plant was scheduled to be built at Lanzhou. This wasprobably 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 appoint-ment of Wang Guoquan as the new PRC ambassador to Poland, it was anopportune moment for Washington to attempt to raise the tone of the Sino-American ambassadorial talks in a manner free of polemics by clarifying theirposition on South-East Asia.111 However, at the 121st meeting of the WarsawTalks on 29 July, although Wang Guoquan maintained that Beijing wanted to goall out to achieve a peaceful solution to Sino-American differences, the Talksremained deadlocked as he followed the same basic line as his predecessor.112

On that same day, the Italian government announced that it was consideringentering a reciprocal trade office agreement with the PRC. Nenni’s Socialistswere also pressuring Prime Minister Aldo Moro’s Christian Democrats and


the Partito Socialist Italiano (PSI) to recognize the PRC diplomatically. Taibeiimmediately complained to Washington about these developments, suggestingthat, if Italy’s economic relations with the ROC could be expanded, it might curbRome’s enthusiasm for Sino-Italian trade. Washington, unwilling to provide thenecessary financial aid to make this viable, soon received assurances from Romethat the Italians would not conclude a trade office agreement with Beijing imme-diately. Maintaining that it would definitely not recognize Beijing at that time,Rome however said that, if the British Labour Party were elected to power on15 October, it might seek London’s support to pressure Washington to accept Italiandiplomatic recognition of China. Regardless, Rome emphasized to Washington thatit did not want to recognize the Beijing government in the manner that Paris haddone: ‘. . . as a stick to beat the US’.113

By this juncture, despite the improvement in ROC–Japanese relations, Taibeiwas also concerned about how Ikeda would respond to growing domestic pressureon Tokyo to facilitate Japanese plant exports to China. On 30 July, newly-appointed Japanese Foreign Minister Shiina told Taibei that, although the Ikedagovernment prohibited long term Ex–Im Bank financing of Sino-Japanese equip-ment deals, Dai Nippon/Nichibo would still try to find a way to sell the Chinesea vinylon plant.114

However, in early August as Beijing’s trade diplomacy with non-Communistcountries achieved impressive results, events in Vietnam led Washington to placeeven more pressure on its allies to re-examine their economic relations withthe PRC.

Part IV

August 1964–October 1965

. . . it was equally dog-eat-dog among . . . Western competitors, and this extended tothe individual firms of the same nationality, thus putting the Chinese in a highlyadvantageous 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] recognitionare no longer necessary. It is . . . doubtful whether Mao would be very pleasedif . . . [the PRC was] accepted into the . . . [UN] at present. Manoeuvring in politicalno-man’s land, these new commercial contacts offer a good possibility for Chinato 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 theGulf of Tonkin. The US responded on 5 August by bombing North Vietnam.These developments signalled a worsening of the Vietnam conflict and an escala-tion of US involvement there. That same day Beijing proposed to Hanoi that theycollaborate more closely to meet the American threat.

Then, in mid-August, Mao told the Secretariat of the CCP Central Committeethat PRC economic planning should focus on preparing for war. Mao felt that,because China’s industries were located mainly on the coast, the PRC waseconomically vulnerable to sudden attack. He suggested that some factories berelocated to the interior to build a second and third line of industrial bases. Wheninitiated in late 1964 and early 1965, the emphasis of China’s economy changedfrom agriculture and light industry to heavy industry and industrial endeavourswhich could strengthen the PLA.

Also, in response to the developments in Vietnam, the Chinese began rapidlybuilding 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 andOptical Instruments Exhibition – was held in Beijing. Senator Vittorelli returned

7 The ‘Third Front’, Vietnam andChina’s foreign trade, August1964–February 1965

to Italy with a draft reciprocal trade office agreement drawn up by CCPIT and theItalian National Foreign Trade Institute (ICE) – a semi-autonomous affiliate ofthe Italian Ministry of Foreign Trade. Vitorelli, with the support of the PSI, sub-sequently pressured Rome to ratify the document. When Washington expressedconcern about the agreement, Italian Foreign Minister Saragat – in charge ofa Ministry divided over China policy – said that although ‘Italy had little directmaterial interest in . . . [Vietnam], . . . spiritually they were in close sympathywith . . . [US] attitudes . . .’. He added that the signing of any Sino-Italian tradeagreement 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 tosell China a vinylon plant. With Japan’s steel industry saddled by overcapacityand mired in recession, Japanese steel firms were increasingly receptive toChinese offers.2 Taibei became very concerned when Tokyo announced that itwould focus on separating political and economic issues when dealing withBeijing. Both Washington and Taibei responded by asking Tokyo not to extendEx–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 oneside and the US and ROC governments on the other, Beijing was increasingefforts to acquire modern transportation and construction equipment/technologyfor economic development and national defence. The Chinese suddenly beganplacing greater emphasis on the ‘friendly firm’ trade by opening negotiationswith Mitsubishi Heavy Industries Ltd (MHI) to purchase power shovels and withKomatsu for heavy-duty Caterpillar bulldozers – equipment not produced inChina.

MHI, which relied on US technology acquired through joint ventures, had onlyrecently resumed operations after having ceased to function after the SecondWorld War. Beijing had purchased Komatsu bulldozers in 1958, and the Japanesefirm (which also relied on several technology and joint venture agreements withAmerican firms) had recently implemented a plan to outsell the US company,Caterpillar, which had been the world’s leading heavy equipment producer formany years. Although the Chinese maintained that the equipment was needed toexpand China’s agricultural land area, it was probably also required for rapidhighway/railway/airfield construction in Xinjiang, Sichuan and southwesternChina, for work at the Daqing oil fields and for land reclamation in the low-lyingShengli oilfields near Tianjin.

Since 1960 the Chinese had purchased more than 700 trucks from the Frenchfirm 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 com-modities such as grain, petroleum and consumer goods to rural areas.4 Truckswere also vital in various construction projects, and the PLA utilized a wide vari-ety of these vehicles. During September 1964, as the Chinese continued trucknegotiations 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 itsBourg-en-Bresse factory.5

140 August 1964–February 1965

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 allthe trade negotiations in the Chinese capital, not even one major Franco-Chineseequipment contract had been signed since March.7

On 1 September, as a series of Sino-French equipment negotiations reacheda critical stage and the Chinese-Dai Nippon vinylon plant negotiations remainedstalled over the Ex–Im Bank credit issue, the UK firm, Simon Carves, in associ-ation with Imperial Chemical Industries (ICI), agreed to sell China NationalTechnical Import and Export Corporation (CNTIC) a 24,000 tonne per annumhigh-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 polypropyleneand 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 theLurgi AG olefin separation plant (see Table 7.1). The British government’s ECGDagreed to provide a five year credit guarantee to finance the deal.

Shortly after this Sino-British deal was concluded, Japanese officials admittedto their American counterparts that TEC (or Mitsui) would finally sell the Chinesea 100,000 tonne per annum capacity urea production plant for US$5 millionduring 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 Bankproviding a five year credit guarantee. However, by late September JapanesePrime Minister Ikeda’s sudden hospitalization diverted attention away from policyissues.

With continued uncertainty about the future of Sino-Japanese L–T trade, theChinese made overtures towards the smaller market West European countries. Forseveral years the Austrians had maintained contact with PRC commercial offi-cials in Berne, but during 1964, as Vienna became more concerned about theAustrian economy, they became increasingly aware of Beijing’s trade diplomacythrough the PRC embassy at Paris. Although they possessed relatively smallcapital compared to some of their Western European neighbours, and thus couldprovide only limited credits to finance the China trade, the Austrians were inter-ested in recent developments in Sino-West German trade and Beijing’s efforts tobuy steel and steel production/processing technology. Although Vienna officiallyremained neutral concerning political and economic relations with Beijing, itallowed an Austrian delegation – which included Vice-President KommerzialratSeidl of the Austrian Chamber of Commerce – to visit China in late Septemberand 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 urgingBonn to negotiate an official Sino-FRG trade agreement and offer long-termcredit guarantees so that West German exporters could catch up to other Western-aligned countries in the Chinese industrial plant market. Although US officials

Vietnam, trade and the ‘Third Front’ 141

Tabl

e 7.

1M

ajor

PR

C e

quip

men

t co

ntra

cts

wit

h W

este

rn a

nd J

apan

ese

firm

s: A

ugus

t 19

64–F

ebru

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1965

Dat

e (c

ontr

act

# si

nce

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ms/

orga

niza

tion

sE

quip

men

t/te

chno

logy

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ocat

ion,

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t an

d fi

nanc

ing

30 N

ovem

ber

1961

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ty

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mas

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ljeu

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ance

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pany

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OS

CO

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imon

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ves

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igh

pres

sure

pol

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e 25

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ton

ne p

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US

$12.

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illi

on3

Sep

tem

ber

1964

CN

TIC

plan

t an

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lete

d ‘k

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uilt

at

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zhou

5 ye

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were shocked that these business leaders made little mention of the politicalimplications of such trade, less than one month remained until the annual meetingof the Ost Asiatischer Verein of Hamburg (on 16 October) at the Chamber ofIndustry and Commerce in Duesseldorf. Ernst Schneider, president of theNational Chamber of Industry and Commerce, Walter Scheel and representativesof Far Eastern countries were expected to attend.12

During September and October Communist Party of China (CPC) CentralCommittee policy continued emphasizing politics, with the Socialist educationmovement in the countryside being a major focus.13 There was a deterioration inthe tone of the Sino-American ambassadorial talks (the 122nd meeting)on 23 September when the Chinese complained aggressively that Washington’sstatements about achieving peace were inconsistent with US government actions.They maintained that Washington had fabricated the Gulf of Tonkin incident as apretext to escalate the Vietnam War and that on 18 September it had used thesame tactics to create a second Gulf of Tonkin incident.14

On 30 September Xinhua announced the signing of a Sino-North Vietnamesetrade protocol for 1965. In addition to the usual Chinese exports such as rolledsteel, machinery, medicines and consumer goods, the new agreement providedfor 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 Chineseannounced that the PRC would never be the first to use nuclear weapons andcalled for a conference, including all nations, to discuss a ‘complete prohibitionand . . . destruction of nuclear weapons’. The test contributed significantly toBeijing’s international status16 and placed the Belgian and Italian governmentsunder even more pressure to vote for the PRC’s admission to the UN. BelgianForeign Minister Spaak was concerned that he might be unable to prevent aBelgian vote to admit the PRC in 1964. He was certain that Belgium would votefor 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 mas-sive sterling crisis which it halted by borrowing heavily from the IMF and byplacing a 15 per cent surcharge on imports. Then before leaving in late Octoberto open Britain’s third industrial exhibition in Beijing – the largest ever held by aWestern firm in the PRC – Douglas Jay, the new president of the British BOT, wasoutspoken in his support for increasing British trade with both China and theUSSR to help balance the UK’s trade deficit.18 The exhibition was sponsoredby CCPIT, the British BOT, members of the Association of British Chambersof Commerce, the China Association, Federation of British Industries, the LondonChamber of Commerce and the SBTC.19

About that time, as a French petroleum delegation toured China, Beijingagreed to purchase used petroleum exploration equipment from Sercel and ‘state-of-the-art’ oil exploration devices (which included oil rig equipment), developedby French engineers in the Algerian oilfields, from Berliet for US$4.86 million(see Table 7.1).


Also in October the Chinese agreed to purchase two vessels (at least one of whichwas a 10,000 tonner) from the French firm Delmas Vieljeu, which had secured a fiveyear credit guarantee from COFACE and drastically reduced prices to facilitate thedeal.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 onlynuclear power beside China not to sign the 1963 test ban treaty, would be willing toenter into any serious negotiations which included all the world’s nuclear powers.

Meanwhile, on 27 October the Austrian government approved a reciprocaltrade office agreement – drawn up by CCPIT and the Austrian Chamber ofCommerce. 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/ Quantity and Delivery Financingorganizations variety

18 September ANGB 400,600: wheat Late 1964 Cash1964 CEROILFOOD (part of a one(announced) year ANGB–

CEROILFOODdeal announcedin April 1965)

23 October AWB 1,270,000: December 12 month1964 (reported CEROILFOOD wheat 1964–June credits: (10%in press) (6 month 1965 cash, 20% in

agreement) 6 months, 20% First contract in 9 months)under deal guaranteed bysigned covering the Australian254,000: wheat government’s

CommonwealthTrading Bank

10 December Louis Dreyfus/ 1 million p.a. 1965–7 18 month1964 Goldsmith grain (3 year (agreement credits

CEROILFOOD agreement) cancelled by (COFACEFirst contract French in guarantee)under deal January 1965)signed: February–June356,000: wheat 1965

21 January CWB 61,000: wheat February–June 18 month1965 CEROILFOOD 20,321: wheat 1965 credits

guaranteed byCanadiancabinet

21 January CWB 406,419: wheat February–June Cash1965 CEROILFOOD 325,135: wheat 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.

would be effective until 30 June 1966, Vienna denied that it represented a movetowards the establishment of Sino-Austrian diplomatic relations.21

At this time the Chinese were preparing for crucial negotiations with theCanadians, French and Argentinians to secure more grain for the first half of1964. CIRECO had already agreed, on 18 September, to purchase 300,000 tonnesof Argentinian grain on cash terms from the ANGB and at least the same amountin both 1965 and 1966.22 Then, on 23 October, the Chinese agreed to purchaseabout 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 grainduring the first half of 1964.

Late October to November 1964

However, in late October, Beijing’s trade and economic strategy was dealt a seriousblow 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 hisbrother, the former Japanese Prime Minister Kishi Nobusuke – favoured closerrelations with the US and Taiwan.23

Officials in the Japanese Foreign Office and Cabinet Research Council Officefelt that Beijing had begun attacking Sato even before he became Prime Ministerin an attempt to prevent him from taking steps at the UN which might be detri-mental to Chinese interests. They believed that the Chinese hoped to force Satofrom office, creating divisions within the LDP government by postponing theexecution of trade agreements negotiated with Japanese interests and blaming theJapanese Prime Minister’s policies for the delay.

On 3 November President Johnson was elected with the largest share of thevote in the history of US presidential elections.

At this time an improvement in Sino-Soviet relations appeared unlikely as aCCP delegation, led by Zhou Enlai, which met Brezhnev and other Soviet lead-ers at the 47th anniversary of the October Revolution in Moscow between 5 and13 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-Communistnations from developing trade with China. More than 270 British companiesexhibited approximately £1.1 million worth of state-of-the-art constructionequipment, agricultural and industrial machinery, tools and engineering equipment.

Firms in attendance provided information on their complete industrial plantprocesses, and UK representatives gave forty technical lectures to 100,000individuals whom the Beijing government had selected from MACHIMPEXand the Chinese engineering and scientific community.25 After it closed on14 November, British officials concluded that the exhibition increased Britain’sknowledge of Chinese requirements and was an important step in developingSino-British trade.26

Nevertheless, during the fair the Chinese said that Britain should remove itsCOCOM restrictions and import more Chinese textiles. CCPIT Vice-Chairman,


Yong Longgui, also emphasized that the development of Sino-British trade woulddepend on better political relations between the two countries.27

Hoping to keep the pressure on Tokyo to develop Sino-Japanese economicrelations, Xie Shoudian told the Tokyo correspondent of the British FinancialTimes during the British industrial exhibition that the Chinese were waiting forthe 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 dealproceeding at that time.

In November the Chinese agreed to purchase a ‘state-of-the-art’ polypropylenepolymerization and fibre plant worth US$7.3 million from the Vickers-ZimmerLtd subsidiary High Polymer and Petro-Chemical Engineering Ltd. Apart from apilot plant in Frankfurt, only two other similar plants existed in the world – onein the US and one in Argentina. ECGD had agreed to provide another five yearcredit guarantee to finance the deal. Vickers-Zimmer engineers were to overseebuilding of the plant at Lanzhou, China’s growing petrochemical centre. It wouldproduce resin and fibre, using products from the olefin separation plant which theChinese had agreed to purchase from Lurgi AG in July 1964 (see Table 7.1).

A growing number of influential Japanese officials already believed that WestEuropean nations were selling items on the COCOM list to China, and JCEIAplanned to press harder for a relaxation of COCOM restrictions on Japaneseexports to China. On 12 November Kaheita Okazaki announced that the JCOTLCwould ask Sato to sign a government trade agreement with China ‘as soon aspossible’.29

However, Sino-Japanese relations had started deteriorating again after Tokyodenied Peng Zhen a visa to attend the Ninth Congress of the Japanese CommunistParty (JCP) (25–30 November). When Beijing responded by postponing ChujiKuno’s, a Sato faction member of the LDP and Diet group member, scheduledvisit to China in December, Prime Minister Sato sent Kenzo Matsumura to theChinese capital to explain that the denial of Peng Chen’s visa should not havebeen interpreted as evidence that Tokyo was hostile towards Beijing.30

Nevertheless, the Chinese responded by placing more of their large equipmentorders with Western European rather than with Japanese firms.31

Also, in November, prior to the JCP Congress, the Chinese suddenly decidedto accept the Italian Communist Party’s (ICP) open invitation, made in April, tovisit Italy. Campaigning leading up to the Italian municipal elections, to be heldon 22 November, was under way and the ICP was concerned that the presence ofChinese officials in Rome at this time could undermine their popular support.Nevertheless, permission was granted for a delegation led by Liao Chengzhi andincluding Lei Jenmin to visit Italy at that time.

Rome was under considerable pressure from the PSI, the ICP and the Italianbusiness community to establish diplomatic relations with Beijing. The PSI, theICP and the Italian Parliament had told Italian Foreign Minister Saragat that, togain their backing for his presidential bid, he must support the PRC’s admissionto the UN. However, the Italian Foreign Ministry’s position was that, althoughSino-Italian diplomatic relations were inevitable, Rome could not afford to dam-age relations with Taibei and Washington by embarking on a sudden change in


China policy as Paris had done. After learning of these developments, Washingtonsecured a promise from Rome that, at least until the end of 1964, it would not votefor the PRC to be admitted to the UN.32

In mid-November, after consulting with Western-aligned governments (includingRome), Belgian Foreign Minister Spaak decided that he would not bow to intensepressure from domestic forces which wanted Brussels, in light of the PRC’srecent nuclear test, to vote for the PRC’s admission to the UN, unless anotherAmerican ally extended diplomatic recognition to the PRC first. At that timeWestern officials thought that Spaak’s position might become untenable if eitherCanada or Italy recognized Beijing.33

Also during November, FRG Defense Ministry officials visited Beijing todiscuss Sino-West German diplomatic rapprochement, but their efforts wereprobably not helped by the fact that Defence Minister Strauss was in Taibei at thesame time. On 23 November, when Chiang Kai-shek proposed that Americaprovide materials and technical aid to destroy Chinese nuclear installations,President Johnson reaffirmed US support for the ROC, but did not responddirectly to the proposal.34 The Sino-American ambassadorial talks also remaineddeadlocked after the 123rd meeting on 25 November.

In late November Beijing continued applying pressure on the Sato governmentby reaching various deals with Japanese ‘friendly firms’. It agreed to purchase amicrometer production plant worth US$840,000 from Tokyo Precision Co. for theBeijing area. The Japanese firm applied for eighteen month Ex–Im Bank creditsto facilitate the transaction, although the Japanese government delayed makinga ruling on the matter until the new year.35 About that time Chinese officialssuddenly invited Komatsu President Yoshinari Kawai, a former cabinet ministerwho remained politically influential, to Beijing to sign a contract for the saleUS$8.4 million worth of bulldozers. Just prior to the signing ceremony, theChinese suddenly announced that, as a ‘present to Kawai’, they would purchase anadditional 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 largestever equipment purchase from a firm in the West or Japan – Beijing acquired870 (150 hp) bulldozers, 550 scrapers excluding motors and 80 (115 hp) motorgraders. Although Komatsu had not agreed to import an equivalent amount ofChinese goods under the contract, company officials maintained that the deal waswithin 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 Decemberwhen he received an urgent message from his under-secretary, Senator GiroamoMesseri, informing him that ICE’s director-general had finally signed a recipro-cal trade office agreement with CCPIT. Under the accord, which had been drawnup in April and finalized in November, reciprocal PRC and Italian trade officeswere to open in Beijing and Rome in mid-March 1965. Shocked that, as actingsecretary, he had been completely bypassed on this matter, Messeri resigned


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 agreementwas a concession to the Nenni Socialists, but emphasized that it merely ‘institution-alized’ the fact Sino-Italian business ties were strengthening rapidly. After all, thevolume of Sino-Italian trade was greater than the trade between China and somecountries which had normalized relations with the PRC government.38

About that time, with L–T negotiations for 1965 under way, Beijing becamemore critical of Tokyo’s position on the Peng Zhen’s visa issue, its decision toextend a US$150 million loan to Taibei and Japanese Foreign Minister Shiina’sstatement opposing PRC representation at the UN. In fact, L–T negotiations weresuspended for about one week, beginning around 5 December.39 That same day,after reviewing Xie Fuzhi’s report on his work at the Shenyang MetallurgicalPlant, Mao Zedong wondered how many of China’s industrial enterprizes wereunder capitalist management. He traced the source of this trend to higher levelsof government.40 The previous day Beijing also announced that it would notaccept UN membership until Taiwan was removed from the organization.

Then, in Vienna on 7 December, CCPIT and the Austrian Federal Chamber ofCommerce signed an agreement under which reciprocal trade offices were sched-uled to open in the Chinese and Austrian capitals by mid-1965. At that timeCCPIT Vice-President Hou Ton told the press that the Chinese were especiallyinterested in acquiring Austrian Linz–Donawicz (L–D) steel production technol-ogy.41 Construction and production costs for large L–D plants were about 30 to60 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 atShijingshan Iron and Steel Corporation, part of the Beijing Tianjin steel produc-tion region. Although the plant utilized small crucibles, they hoped to import twomuch larger 30 tonne L–D crucibles (a benefit in terms of efficiency) with anannual capacity of 600,000–650,000 tonnes from Vereinigte OsterreichischeEisen-und Stahlwerke (VOEST). The Linz-based firm – which had developed thetechnology in 1949 and built the first plant in 1952 – representatives had beeninvited 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 uncer-tainty about the L–T trade, the Chinese had pressed for lower prices and threat-ened to suspend imports of French and Canadian grain unless PRC goods weregiven greater access to these markets.44 Thus, Paris began lobbying the EEC formore generous export subsidies to facilitate Franco-Chinese grain sales, empha-sizing that because of its proximity to China, Australia could offer Beijing grainat much lower prices than exporters from Western Europe.45

On 10 December Louis Dreyfus Co. agreed to sell the Chinese 350,000 tonnesof wheat on eighteen month terms and continued negotiations to supply another650,000 tonnes. Competition was so intense between grain exporting countriesthat the Franco-Chinese deal was reached only because it was financed by a largeONIC subsidy in conjunction with an unprecedentedly generous Common


Agricultural Fund export subsidy – extended by the EEC executive commissionto encourage Paris to reach an agreement with Bonn on common grain pricesprior to the 15 December deadline.46

On 12 December, Mao Zedong – while commenting on Chen Zhengren’s workat the Luoyang Tractor Plant – said that ‘the leaders taking the capitalist roadhave become or are becoming bourgeois elements who suck the blood of theworkers . . . they are the target of struggle . . . of revolution, and must never berelied on in the socialist education movement’.47 On 14 December, about the timethat Sino-Japanese L–T negotiations resumed, the Japanese media (incorrectly)reported that, by extending eight year credits, a French firm had won a contractto 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 animprovement in Sino-Japanese relations during early 1965. He told the Congressthat China’s increased agricultural and industrial production had improved theeconomy and that, while China’s ‘readjustment’ had been ‘basically completed’and debts to the USSR repaid, during 1965 China should focus on completingtasks 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 effortsto become a socialist power based on modern agriculture, industry, nationaldefence, science and technology.49 During the Congress CCP Vice-ChairmanChen 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 abovethe upper limit suggested by Chen Yun in 1962. This must have caused consider-able concern for those Chinese leaders who opposed the PRC becoming depen-dent on Western grain and who had only agreed to the foreign grain importstrategy to aid domestic economic recovery and facilitate ‘self-reliance’.

At a national working conference of the Political Bureau of the CPC CentralCommittee under way (15–28 December), the main topic of discussion was thesocialist education movement in rural areas. During the proceedings, Maoemphasized that its purpose was to resolve the contradiction between socialismand capitalism, adding that ‘in Beijing . . . [there were] “two independent king-doms”. . . Deng Xiaoping and the Secretariat of the CPC Central Committee asone and Li Fuchun and the State Planning Commission as the other . . .’. A CPCCentral Committee conference summary issued on 14 January 1965 stated that‘the target of this movement is the Party persons in power taking the capitalistroad’.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 on30 December to ‘Learn from Dazhai’, may have indicated that, because of dete-riorating 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 the1964 Sino-Soviet trade protocol in November 1963, Liu Xiwen52 was chosen


to head a delegation to Moscow in late December 1964 or early January (prior to4 January) for preparatory discussions on the 1965 Sino-Soviet trade protocoltalks scheduled for the spring.53 With the Vietnam conflict worsening andSino-Western aircraft negotiations running into difficulty, the purchase of Sovietaircraft 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 on12 January for talks, the US President and the Japanese PM made a joint statementin which Johnson said that Washington continued to support Taibei, while addingthat ‘China’s militant policies and expansionist pressures against its neighboursendanger the peace of Asia’. Sato stated that, while Tokyo planned to maintaingood relations with Taibei, it would continue to promote private contacts withChina – especially with trade. On 14 January President Johnson announced that theten year, US$1.5 billion American economic aid programme for Taiwan had beenso successful that AID would terminate assistance to Taipei on 30 June.Nevertheless, the US government continued providing military assistance to theROC. Then, during his first major press conference after returning home, Satoemphasized that Sino-Japanese trade must expand on a non-governmental basis.

Meanwhile, shortly after the 1 million tonne Franco-Chinese grain agreementwas reached in December, the Chinese told the French that they had concluded theaccord on the understanding that they could make payments in industrial goodsinstead of cash. The French responded in January by cancelling the agreement – adecision made easier by the fact that they were making inroads into the Soviet andEast European grain markets.54 The Russians were competing with the Chinese tobuy Western grain.

From early to mid-January the Soviets bought 50,000 tonnes of Canadian flourand on 21 January CEROILFOOD agreed to purchase more than 800,000 tonnesof wheat from the CWB for delivery between February and June. Partly becausein December the French had agreed to sell the Chinese grain more cheaply, theCWB was forced to lower prices to conclude its deal with China. This decisionhad been criticized by the US National Association of Wheat Growers who spokefavourably of the USDA decision to respond by raising its export subsidy.55

On 22 January the Japanese government decided that Ex–Im Bank financingwould not be made available for large Sino-Japanese equipment contracts.Disappointed by Tokyo’s decision, Dai Nippon/Nichibo executives still hoped tocomplete their vinylon plant contract with China by the end of 1965 with the helpof private banks.56

Yet, MITI had agreed to provide up to 4 million yen (from the annual JCEIAsubsidy) of the 20 million yen total which the Japanese L–T trade office wouldrequire for operation after it opened in Beijing in late January. When the Japanesegovernment appeared unwilling to provide the remaining funds directly, newlyappointed Japan External Trade Promotion Organization (JETRO) ChairmanSukemarsa Komamura stated that his organization – which received at least halfof its funds from the Japanese government – might provide up to 40 million yenfor the office’s market research.


When Washington learned of this development and raised the matter withTokyo, Japanese Foreign Office officials maintained that MITI was not directlyinvolved in financing China trade. They also drew attention to the Britishgovernment’s credit policy concerning Communist countries, while insisting thatit was unfair for Japanese industrial plant exporters to lose out to their WestEuropean counterparts because Tokyo adhered to more stringent controls oncredits to finance the China trade.57

For its part, Beijing cancelled its vinylon plant contract with DaiNippon/Nichibo when it learned that Ex–Im Bank financing was unavailable.Then, when Kaheita Okazaki visited the Chinese capital in late January or earlyFebruary, Chen Yi told him that Beijing would not buy any more Japanese indus-trial plants unless Tokyo changed its policy on credit financing. At that time, LiaoChengzhi also told Japanese reporters that, unless Tokyo’s policy changed,Beijing would terminate trade under the L–T memorandum.58 Although duringFebruary Tokyo approved a contract application by Hitachi Shipbuilding Co. tosell 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-termcredits from Tokyo, the over-extension of credits for overvalued real estate causedfinancial panic in Hong Kong. The Canton Bank and Trust Company closed andthere were runs on several banks, including the Hang Seng Bank.59 These devel-opments almost certainly had an adverse effect on Chinese financial operations inthe British colony. Although the Hong Kong Shanghai Banking (HKSB)Corporation ultimately purchased 50 per cent of the Hang Seng to save it frominsolvency, this was not before some HKSB executives raised concerns that the USgovernment might one day uncover a link between the Chinese government and theHang 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, on4 February, de Gaulle proposed the establishment of a new international financialsystem based on the metal. About this time officials of the Hong Kong branch ofthe Bank of China were preparing to apply, through their associates, to the Macaugovernment for the exclusive and lucrative right to import gold to Macau forre-export to Hong Kong. It may be that these developments had some bearing onthe decision to replace the director of the People’s Bank of China at this time.

As the Vietnam conflict intensified during February, verbal exchanges betweenBeijing and Washington became more hostile. Nothing new of substance wasdiscussed at the 124th meeting of the Sino-American ambassadorial talks on24 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 forbusiness opportunities in the Chinese market. Beijing continued pressuring Tokyoby concluding more deals with Japanese ‘friendly firms’. In early 1965 Chinese-MHI negotiations, which began in August 1964, resulted in a contract underwhich Beijing agreed to purchase US$4.4 million worth of power shovels fromthe Japanese firm (see Table 7.1). Also in February 1965, the Japanese firm,Yuken Kogyo, sold the PRC an oil pressure hydraulic equipment manufacturing



plant, including technical support, for US$3.8 million. This transaction, whichdid not involve Ex–Im Bank financing, was approved by the Japanesegovernment the same month. The plant was to be built at Shanxi and completedby December 1966.62

About this time China also agreed to purchase a polyvinyl alcohol plant forUS$865,000. This plant, combined with the dry process acetylene productionplant purchased from a Japanese firm in May 1964, was designed to raise the out-put 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 focussingmore on developing trade with firms from smaller market West European countries.On 13 February, two days before a Danish electronic measuring equipmentexhibition opened in Beijing (before moving on to Shanghai and Wuhan ten dayslater), Denmark’s Minister of Commerce was received in the Chinese capital byacting Minister of Foreign Trade Lin Haiyun and Lei Renmin.64

8 Vietnam escalation and thenon-strategic China tradeWashington’s position reconsidered,March–October 1965

In the later stage of the readjustment period when the economic situation hadgradually improved, ‘left’ ideology reared its head again and inflated during the‘cultural revolution’ . . . plunging the national economy once again into a new andsorry plight.

It was correctly decided in 1963 that economic work should follow the principleof ‘solving the question of food, clothing and other daily necessities, strengthen-ing the basic industries . . . paying due attention to national defence and masteringadvanced science and technology’ . . . Beginning in 1965 . . . the focus of economicwork was shifted to preparations against war . . .

In April 1965 the Party Central Committee, proceeding from the needs ofcoping with the worst possible situation, issued the call to immediately pool all theresources to speed up the construction of the inland provinces.

(Excerpts from the official PRC publication: China’sSocialist Economy: An Outline History

1949–1984, 1986)

March to early June 1965

On 2 March Washington firmly committed itself to the Vietnam conflict byinitiating ‘operation rolling thunder’. Sustained US air strikes against NorthVietnamese targets under this campaign, and continued American aid to SouthVietnam, signalled the escalation of the conflict.

Yet, despite these developments and pressure from Taibei and Washington tocurtail economic ties with Beijing, Sino-Western/Japanese economic relationscontinued to develop. By March the US Treasury Department was encounteringformidable resistance from the French authorities as it made another ill-fatedattempt to enforce FACR, while trying to prevent sixty semi-trailers – worthUS$360,000 and produced by the 67 per cent American-owned French subsidiaryof the US-based Fruehauf – from being exported to China as part of a largercontract, signed on 24 December, involving the sale of Berliet trucks.1

Sino-West German negotiations involving several different types of largeindustrial plants were under way and, in early March, medium-term credits wereextended so that the Chinese could buy a 10,000 tonne per annum capacityacrylonitrile 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 separationplant purchased from Lurgi AG in 1964. The Chinese planned to utilize theacrylonitrile (a vinyl cyanide) through polymerization to produce syntheticrubbers to reduce their dependence on natural rubber imports. This would giveBeijing considerably more power in its trade negotiations with rubber producingcountries (see Table 8.1). Since October 1964, the Chinese had also purchasedvery large quantities of petroleum drilling equipment and piping from WestEuropean firms.2

Although Washington also notified Rome of US–ROC concerns about thereciprocal Sino-Italian trade office agreement, both missions opened on scheduleduring early and mid-March 1965. Regardless, the ROC was unable to offer Italya comparable level of business as an incentive for the Italians to limit trade withChina. Although the Italian government subsequently dictated which Italian firmsthey could meet with, the Chinese granted each member full diplomatic statusand complete access to CCPIT and China’s trade corporations.3 However, someItalians alleged that the system was an exclusive one and that the PSI was profitingfinancially from its involvement in securing the agreement.

Beijing had also been negotiating, since late 1964, with French interests for a2–3 million tonne capacity oil refinery, but Paris appears to have been unwillingto provide the necessary long-term credit guarantee. Thus, about the time thatthe Italian trade office opened, the Chinese agreed to purchase a 180,000 barrelsp.a. capacity oil refinery (worth US$5.6 million) and additional refining equip-ment such as pumps and compressors from ENI (see Table 8.1). The equipmentmay have been for Daqing.4

West German firms had been unable to secure one of the approximately thirteenlarge equipment contracts which Beijing had signed with firms fromnon-Communist countries since September 1964. About 18 March the FRGCabinet finally broke from US policy by agreeing in principle to permit HermesExport Insurance to offer Communist countries credit guarantees of up to fiveyears. This decision was not announced until one year later.5 In the interim politicalissues continued to hinder Sino-West German trade. Beijing remained at oddswith Bonn for deciding not to prosecute Nazi war criminals after May 1965 (thetwentieth anniversary of Germany’s surrender in the Second World War), not toimprove 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 tonotify it prior to signing credit deals with Cuba and North Vietnam.6 After all, inFebruary, Otto Tossett of the Great Plains Wheat Inc. had told the 27th annualmeeting of the National Farm Institute that Canadian grain production wasincreasing because of the Sino-Canadian grain deals, and emphasized that the USgovernment should allow American grain to be sold to China.7 On 18 March USAssistant Secretary of State for Far Eastern Affairs, William Bundy, LindsayGrant of the Office of Asian Communist Affairs and Marshall Green recom-mended that Washington announce that, although it was not softening its positionon China, it would cement American de facto diplomatic recognition of theChinese government by: (1) extending diplomatic recognition to Mongolia,

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158 March–October 1965

(2) removing restrictions on American travel to China and (3) placing US businessin a more competitive position by permitting the export of commodities such asgrain and medicine to China. Their memorandum concluded that extraterritorialapplication of FACR and American diplomatic pressures on allies, aimed at stem-ming the expansion of Chinese–Western trade diplomacy, were largely ineffec-tive, tended to damage US–Allied relations and depleted valuable politicalleverage that Washington might require for more pressing matters.8 However,US officials later remembered that, although reports such as Bundy’s may havefinally begun to filter through upper echelons of the State Department to theSecretary of State, Rusk continued not acting on them.9

As had occurred before when there appeared to be an opportunity for easingSino-American tensions, at the Warsaw Talks on 21 April the Chinese allegedthat, from 18 March to 18 April, several US fighter planes, American-mademilitary reconnaissance aircraft and high-altitude pilotless planes had enteredChinese airspace. They also claimed that, on 18 April, they had brought down oneof the high-altitude pilotless planes.

As the conflict in Vietnam escalated, US–ROC pressure was slowing theexpansion of Sino-Japanese trade. On 30 March, Tokyo announced that it hadfinally decided not to extend long-term Ex–Im Bank credit guarantees for largesales of equipment, industrial plants and related technology to China. Thisdecision jeopardized the future of the Sino-Western grain trade and moderatedevelopment strategy.

The rice harvest in Southern China was excellent in 1965, but unconfirmedreports of drought and flooding in late December 1964 and January 1965 mayindicate that northern wheat crops were not up to expectations.10 In late Februaryor early March the AWB, which had recently concluded a large deal with theSoviets, agreed to sell CEROILFOOD another 1.25 million tonnes on six monthcredit terms (see Table 8.2). Yet, since the Chinese needed to purchase much moregrain for delivery in 1965, on 30 March CIRECO agreed to pay cash for 700,000tonnes of Argentinian grain. Since the ANGB was simultaneously negotiatinga 1 million tonne barter deal with the USSR,11 Beijing hoped that Buenos Aireswould 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 tradeby cancelling the Hitachi freighter contract, emphasizing that it would not buy anymore Japanese industrial plants under L–T trade unless the Sato governmentreversed its decision.12 These developments led Western European business inter-ests to become more optimistic about their chances of increasing exports to China.

On 2 April Washington announced that it would send more troops and eco-nomic aid to South Vietnam, while increasing the number and intensity of airstrikes against the North Vietnamese. In a speech at Johns Hopkins University on7 April, President Johnson said that, although the US government would be will-ing to begin ‘unconditional discussion’ to end the war in Vietnam, any subsequentagreement must guarantee ‘an independent South Vietnam’.

A CPC Central Committee directive of 12 April stressed that expanding USaggression in Vietnam threatened China’s security. It instructed the Chinese to


step up war preparations. This directive initiated a gradual reversal of China’seconomic position. Rapid industrial development – this time in the interior, asso-ciated with the ‘Third Line Project’ – began replacing agriculture (especiallygrain production) as the primary focus.13 Domestic economic conditions werestill basically good and, after having completed debt payments to Moscow afew weeks earlier, the leadership expected before long to have more currencyavailable to purchase foreign equipment and technology.

Officials in charge of the ‘readjustment’ still appeared to be influential inpolicymaking. Opponents of the ‘readjustment’ had suffered a blow on 9 Aprilwith the sudden death of Shanghai Party Secretary and Politburo MemberKe Qingshi – appointed Vice-Premier by the NPC in January 1965 and one ofShanghai’s main long-time supporters of Mao’s rapid development policies.

Table 8.2 PRC–Western grain agreements and contracts: March–September 1965 (intonnes; wheat and barley in trade grain weight)

Date Firms/ Quantity and Delivery Financingorganizations variety

By early AWB 1,252,000: June–December 12 monthsMarch 1965 CIRECO wheat (under 1965 credits: 10%

6 month cash, 20% in agreement) 6 months, 20%

in 9 monthsguaranteed bythe Australiangovernment’sCommonwealthTrading Bank

9 April 1965 ANGB 1 million April–October Cash (sterling)(announced – CIRECO grain: 1965probably (includingsigned 400,000in March) contracted for

in September1964)

21 May 1965 CWB 1,548,456: May–July 1966 18 months credits:(amended CEROILFOOD wheat guaranteed on 29 June) (subject to by Canadian

amendment cabinetdepending onavailability)

29 June 1965 CWB 2,300,838: May–July 1966 18 months credits:(amendment CEROILFOOD wheat guaranteed of 21 May by Canadiancontract) cabinet

Sources: Composed by author from various documents within: NAC: RG#20: vol. 819–820, file10–33 (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.

Ke was alleged to have spent much of 1964–5 attempting to smooth over quiteserious problems associated with the shipment and installation of industrialequipment from Shanghai to Sichuan related to the ‘Third Line Project’. Hisdeath occurred just as Mao decided to take control of Shanghai. Ke’s replacementwas Chen Pixian who had served under Chen Yi’s Third Field Army in 1949 andwas later accused during the Cultural Revolution of having opposed the pace ofMaoist development policies – especially the ‘Third Line Project’ and associatedmovement of key industries inland from Shanghai. Deng Xiaoping had approvedChen’s appointment to replace Ke as Shanghai Party secretary in April.14

Meanwhile, since mid-1964, Washington had been conducting an intensiveinvestigation into how Beijing could afford to import such a large volume ofWestern commodities, equipment and technology. The Americans suspected thatsignificant funds came from PRC investment in, and ownership of, Hong Kongbanks, property and other businesses (including retail stores), which increasedsubstantially after 1963.15

Beijing purchased much larger amounts of sterling than could be accounted forby examining official Sino-Hong Kong trade statistics. Washington concluded, inthe first half of 1964, that Beijing might be earning as much as US$500 millionannually through Hong Kong (US$200 million more than previously thought)largely because of ‘invisible earnings’. Beijing was accomplishing this by under-valuing exports to the British colony by an average of 10 per cent and by 20–40per 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 HongKong.18 On reaching Hong Kong, many of these goods were re-packaged, re-labelled and re-exported, sometimes several times, to countries throughout South-East Asia – especially Singapore and Malaysia. Singapore received most of itsPRC imports through Hong Kong and handled about 80 per cent of PRC exportsto the comparatively high tariff country of Malaysia – many of which were laterre-exported.19 Despite the closure of the Bank of China’s Kuala Lumpur branch in1959 PRC exports to Malaysia had increased dramatically by 1964.

The development of Chinese seaports, especially Shanghai, and the conclusionof new shipping agreements with Japan opened up other avenues of re-export.Substantial quantities of Chinese goods were also reaching the Philippines fromHong Kong, through Japan and Taiwan. Chinese goods were also enteringThailand (whose anti-Communist ruler, Field Marshall Sarit Thanarat, had sus-pended trade with Beijing in 1959 after having reportedly received paymentsfrom Taiwanese and Japanese interests) from Malaysia.20

During April 1965, as Chinese–Indonesian economic ties strengthened, theMalaysian government decided not to renew the Singapore branch of the Bankof China’s operating licence when it expired in August. Since 1949 this branchhad been at the centre of the PRC’s lucrative regional economic activitiesand a vital source of currency.21 Coming at a critical moment, the decision dealtanother serious blow to Beijing’s development plans for increased economic


relations with the West and Japan. Subsequent protests by Nan Hanzhen, theSingapore Chinese Chamber of Commerce, the Singapore Rubber Packers’Association and Singapore’s opposition Barisan Sosialis Party failed to convincethe Malaysian government to reverse its decision.

Then, on 20 April, Italian Prime Minister Aldo Moro assured Rusk that, becauseAllied solidarity was required to respond to developments in South-East Asia, Sino-Italian relations would not progress beyond the reciprocal trade office representa-tion stage for some time.22 Ottawa was unenthusiastic about Beijing’s suggestion,made that same month, that reciprocal trade offices be established.23 Then, between26 and 28 April, Toyko and Taibei signed official governmental notes relating toyen based credits of approximately US$150 million. It was now essential for theChinese to expand exports to as many Western markets as possible.

The topic of Chinese access to the Norwegian market was undoubtedly raisedafter a seventeen member delegation, composed of representatives of Norway’smajor export industries, led by Energy Minister Karl Trasti, began its tour ofGuangzhou, Shanghai and Beijing on 26 April.

However, the Chinese received more bad news on 29 April when AustralianPrime Minister Menzies – bowing to Washington’s ultimatum that he commitsoldiers to Vietnam or risk having American investment in Australia cut by up to20 per cent – announced that he would send 800 troops of the First Battalion,Royal Australian Regiment. The Chinese probably wondered if Canberra mightsoon be forced to terminate the Sino-Australian grain trade, as critics maintainedthat such deals were supporting the enemy.

Yet, growing conflict between MITI and Japanese Foreign Ministry officialsover the Sato government’s decision to suspend Ex–Im Bank credits to Chinamust have renewed optimism in Beijing that the ruling might eventually be over-turned. High-level MITI officials publicly opposed government policy, insistingthat Tokyo not be swayed by Taibei’s ultimatum to choose between the ROC andPRC markets. They stressed that Tokyo was providing long-term credits forJapanese exports to the USSR and other Communist countries and that Japancould not afford to lose more ground to Western European competitors in theChinese market.24 During April the Japanese made their first purchase of Chineserice 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 thatUS military operations and intrusions of US aircraft into Chinese airspace duringMarch and April demonstrated that President Johnson did not really want to nego-tiate a settlement to the Vietnam conflict.26 Johnson’s response, on 27 April, todomestic protests against the bombing of North Vietnam, was to reaffirm theoffer to engage in peace talks. Nevertheless, on 7 May he signed a bill allocatingUS$700 million for military requirements associated with the conflict.

Meanwhile, despite the serious rift in Sino-Soviet relations, the Chinese hadresumed negotiations to purchase 5 more (in addition to the ten already pur-chased) affordable long-range Il-18 jet-props. When the deal was concluded inApril or May, these 15 Il-18s, together with the 6 Vickers Viscounts (all purchasedsince 1960), increased the PLA’s airlift capacity and permitted the opening of


commercial routes from Xinjiang to Kabul, Kabul to Rawalpindi and Kabul toKandahar to Karachi.27

Some Chinese officials may have wanted to continue negotiations for moreadvanced Soviet passenger/cargo jets and related technology which, they thought,could improve China’s nuclear weapons delivery capability. This seems possiblesince, on 14 May, the Chinese announced a second successful nuclear test, duringwhich 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’sviews about Beijing’s trade and economic strategies are unknown, but, apart fromthe purchase of the IL-18s, 5 Mil-6 helicopters and 2 An-24 turboprops from theUSSR in 1965, China’s only other known purchases of aircraft between 1965 and1970 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 down-fall of Luo Ruiqing during the opening phase of the Cultural Revolution. A CPCCentral Committee decision of 11 May urged ‘all industrial and transportationdepartments to learn from the PLA and put ideological and political work in thefirst 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 evenby 1965 some Chinese leaders thought that the PRC should purchase new, orbarter 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 phaseof ‘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 havesparked intense policy debate among the CCP leadership in the runup to CPCpolicy meetings in the autumn, on the TFYP.

Four years had passed since Chen Yun officially recommended adopting along-term programme to import Western grain with a view to restoring domesticgrain production within 3–5 years. This target was reached when the PRCrecorded a grain harvest of 194.5 million tonnes in 1965, surpassing the previoushigh, in 1958, by 1 million tonnes.31 However, this was insufficient to meetdomestic requirements, made greater by rapid development and populationgrowth. Also in late 1965 Renmin Ribao reported that drought conditions of amagnitude rarely seen in the past century existed in North China,32 which raisesthe question of whether the Chinese government (as it had done during the GLF)was blaming poor weather for its policy failures. Regardless, northern grain out-put probably suffered. For the third straight year, the Chinese had imported muchmore foreign grain – 6.41 million tonnes (slightly less than the record establishedthe previous year) – than Chen Yun had gained approval for at the outset of the‘readjustment’.


As in previous years, Mao seems to have used the good overall harvest reportto rally support for policies which emphasized ideology, self-reliance and anincreased pace of construction. Unless Beijing obtained much more generouscredits to purchase ‘state-of-the-art’ equipment and technology, from the Westand Japan, to carry out necessary domestic development, the PRC would becomemore dependent on foreign countries rather than being ‘self-reliant’.

Average per-capita grain consumption in 1965 remained slightly below that of1957,33 which is partly explained by the fact that China’s population had grownby 65 million between 1958 and 1965, totalling 725 million in 1965. Although thecentral government coordinated a 14.2 million reduction in China’s urban popu-lation between 1961 and 1963, by late 1965 the nation’s urban population totalled130.45 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 commer-cial workers to the cities was having adverse consequences for the countryside.35

These developments must have greatly concerned Chen Yun who had warnedabout leaving such trends unchecked.

Regional statistics should hold the key to gaining accurate insights into China’soverall grain supply, but such figures for the late 1960s and early 1970s aresketchy. Nevertheless, it is clear that Sichuan, which possessed the largest grainexport surpluses prior to the GLF, became the region with the largest grain deficitafter 1965.36 That province suffered the greatest number of abnormal deaths asso-ciated with famine between 1958 and 1962. Chinese leaders such as Chen Yi,Deng Xiaoping and Luo Ruiqing, who were intimately associated with the strat-egy to import grain, chemical fertilizer, equipment and technology from non-Communist countries, were natives of that province. They must have beenconcerned about increasingly rapid development in Sichuan associated with the‘third line’, which pulled labour away from agriculture. At the same time, Chineseleaders with close ties to the Shanghai region and the Northeast (Chen Yun, ZhouEnlai, Lu Xuzhang, Bo Yibo and Nan Hanzhen), who were also closely associatedwith the PRC’s foreign grain import and Western–Japanese trade strategy, mustalso 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 diplomacywith Japan and Malaysia, in conjunction with newly introduced Maoist policies,would not allow China to escape from a web of insufficient grain harvests, grow-ing dependence on foreign imports and technological backwardness unlessadequate controls were placed on population growth and distribution, and Chinesenegotiators were able to secure much more generous foreign long-term credits topay for larger, integrated ‘state-of-the-art’ industrial plant projects and related tech-nology. Such measures were required to keep the ‘readjustment’ going, for ZhouEnlai and Chen Yun to maintain their influence in economic decision-making andto 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 andsteel were expensive, it was practical to invest in producing more of these itemsin China. Of key importance were steel processing plants to turn out products thatwould enable the Chinese to build more installations for making agricultural


chemicals (especially fertilizer) machinery and plastics which in turn would helpraise 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 steelannually) and Baotou. Medium-sized steel plants were located at Shijingshan andHebei. The weakest sector in the PRC’s steel industry was probably the steelfabricating sector. Thus, from mid-1963 onwards, as the economic situationimproved, the Chinese tried to become less dependent on steel imports by initiat-ing more serious negotiations with various Western European and Japanese firmsfor the purchase of steel processing equipment and related technology.

Firsthand accounts of foreigners visiting China confirm that serious productionproblems existed at the Baotou and Wuhan steel operations – both of whichdesperately needed infusions of equipment and technology for finishing steelproducts. Prior to the deterioration in Sino-Soviet relations, the Baotou Workswas supposed to have obtained these items from Moscow.37

By May potentially serious problems were looming for the Sino-Western graintrade. The Chinese had not signed a contract to purchase Western wheat since30 March – the day that the unified Japanese position on Ex–Im Bank financingwas announced. Although grain prices were falling in 1964–5, poor weather innorthern grain exporting countries and poor harvest prospects in many southernimporting countries accounted for decreased availability. China also faced grow-ing competition from the Soviets in Western grain markets. As well, because ofa poor domestic harvest in 1965, caused by drought, the AWB had to reduceexports and was unable to fill Chinese orders later in the year.

This development neutralized Zhou Enlai’s threat that the PRC might suspendwheat purchases from the AWB if Australian troops stayed in Vietnam.38 Althoughthe Chinese covered the (drought-related) shortfall in Australian exports by turn-ing again to Argentina, this contingency measure increased the burden on thePRC’s already strained currency reserves. Also, during an Australian Parlia-mentary visit to Buenos Aires in June, President Illia told Australian SenatorGordon that he was very concerned about Chinese expansionist activities.39

It appeared that, over the short-term, Beijing might have to depend more onCanadian grain. The Chinese agreed to purchase 1.5 million tonnes of Canadianwheat 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 sendtroops to Vietnam – the Chinese suddenly wanted to send a delegation to Australia(all previous Sino-Australian grain negotiations had taken place in either HongKong or Beijing) for two months to work out another contract and examine oppor-tunities for expanding Chinese exports. At the time, the AWB was uncertain aboutthe availability of exports for non-traditional markets because of domesticdrought, and on 9 June the Australian Cabinet for ‘substantial international anddomestic reasons . . .’ rejected an AWB proposal that the Chinese delegation visitAustralia in October to negotiate further grain sales.40 Although the CWB wasable to meet China’s immediate shortfall on 29 June, by that time China’s optionswere very limited. The Australians had no extra wheat available for export to


non-traditional markets for the rest of 1965 and the Soviets appeared ready to buylarge quantities of Canadian wheat (under the Sino-Soviet agreement).

In June, prior to crucial central government meetings scheduled for Septemberand October, Chen Ming and top CIRECO grain negotiator (and Zhejiang native)Yu Dunhua were among those key officials suddenly called back to Beijing toparticipate in high-level meetings on economic relations with Western countriesand general debate on economic and grain policy planning. The crucial yetcontentious issues almost certainly included: How would the ‘Third Line Project’and intensified Chinese war preparations affect long-term economic develop-ment? How much longer should the PRC purchase Western grain? Should, orcould, China reduce its growing economic dependence (especially on grain andequipment) on Capitalist countries, trade more with the USSR and/or becomemore self-reliant?

Chinese leaders favouring ‘gradualist’ development based on the Western/Japan trade were simultaneously trying to get their programme back on track bypressuring Japanese Prime Minister Sato to reconsider his stand on credit financ-ing. Under the circumstances, only by perpetuating Western–Japanese businesscompetition could Beijing hope to obtain the large integrated steel processingcomplexes it needed to be more self-reliant?

June and July 1965

Apart from the Australian drought and the tightening world grain situation, eventsappeared to be working in Beijing’s favour during the summer. In mid-May ClementZablocki Democrat (Wisconsin) – head of the Congressional Subcommittee for theFar East and Pacific (for the House of Representatives’ hearings on the Sino-Sovietconflict) – recommended that the US government consider ‘at the appropriate time’initiating direct, but limited, contacts with Beijing through cultural, media andscholarly exchanges and by extending diplomatic recognition to Outer Mongolia.Zablocki had been an initial signatory of the 22 October 1953 ‘China lobby’ petitionto 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 RobertGerholtz added his name to the list of US business representatives openly sug-gesting that Sino-American trade might help reduce tension and open communi-cation with China.41 President Johnson, simultaneously being urged to take actionto halt the outflow of US gold and stabilize the dollar, had asked TreasurySecretary Fowler, on 16 June, for a strategy to limit US vulnerability to foreigninterests converting US dollar holdings into gold.

During June, as Washington increased America’s commitment to Vietnam, USanti-war protestors became more vocal. In June too, Rusk and President Johnsonbegan to consider lifting restrictions on travel by US citizens to China. On 30 JuneAID withdrew financial support for the ROC, but the PRC and American involve-ment in the escalating Vietnam conflict, in conjunction with the ongoing stalemateregarding Taiwan, continued to work against early modifications to US China



policy. Washington was encouraging closer relations between Tokyo and Seoul asan 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 tothe perception that Washington might soon be obliged to begin modifying itsChina policy. By May the US government had failed in its bid, through the Frenchcourts, to block the Chinese-Berliet/Fruehauf trailer transaction and French newssources were carrying reports that criticized Washington’s handling of thematter.42 (In April or May the French firm had also agreed to sell the Chineseoil drilling equipment and at least one oil rig, for US$4.86 million.) On 3 June1965 – shortly after these news reports first appeared – the Chinese agreed topurchase 1,035 heavy-duty multi-axle trucks – including cement trucks, cranes,18–25 tonne dumpers and other public construction vehicles from Berliet. It wasreported to be the largest ever Sino-Western deal (see Table 8.1).

Under the contract, the French firm also agreed to sell Beijing licensing rightspermitting the Chinese to produce four types of Berliet trucks in China. Bothsides continued talks about Chinese interest in purchasing a large factory com-plex worth US$40 million, under generous COFACE financing, for producingthese vehicles at Wuhan, the centre of China’s automotive industry.

About this time the Chinese were talking with Western and Japanese firmsabout purchasing a large integrated steel processing complex for Wuhan. Steelsheeting produced at such a facility could be used for manufacturing auto bodies.

Despite having faced competition from Leyland and Fiat – which had bothrecently negotiated large sales with Cuba and the USSR – in early 1966 Berlietsecured the contract to sell the Chinese the truck production complex.43 However,the Chinese were adamant that they should direct plant construction. They hadsent their engineers to Berliet headquarters in France to study its proposed designand operations and insisted that matters relating to the plant remain confidential.French engineers would not be allowed to travel to the construction site. ThusBerliet’s task was to design the complex, recommend types of machinery to meetthe Chinese requirements, provide licensing for Berliet processes and identifypossible alternate sources for some of the equipment required.

Although between June and December Beijing signed eighteen more majorequipment contracts with firms in Capitalist countries, the Berliet–Chinese heavy-duty truck deal in June was the last large Franco-Chinese equipment contract signedin 1965. The Chinese had begun to court interests in other countries which couldprovide them with equipment related to the large integrated complexes to processsteel and trucks.

In June 1965 the Chinese obtained one year credits to purchase a glass rollingplant (worth US$2.1 million) – for producing windshields on a truck assemblyline – from the West German firm IMAG. This deal whetted the appetite of Ruhrindustrialists who were frustrated that their West European allies no longerappeared to be bound by the same controls on China trade as those being enforcedby Bonn. West German businesses had eagerly accepted recent Chinese requeststo open discussions to purchase more seamless steel piping and several large

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 breakfrom US policy so that they could compete on a more equal basis with otherWest European interests in the China market. However, it remained unclear howthe West Germans would respond if Washington protested any decision by Bonnto provide medium to long-term Hermes Export Credit Insurance guarantees tofinance Sino-West German equipment and technology contracts.

Nevertheless, the Chinese appeared to be more interested in Italian firms whenpurchasing iron, steel, piping, trucks, jeeps, machinery and chemicals. A largeItalian industrial trade delegation secured approximately US$10 million worth ofmachinery orders when visiting the PRC from 25 May to 18 June. They werealso received by Finance Minister Li Xiannian who said that Beijing was veryupset with the French for not selling them state-of-the-art equipment. In Romeat that time, officials from both the PRC’s Chartering and ShipbuildingCorporation (SINOFRACT) and the PRC embassy in Paris told local shipping,business and industrial representatives that Beijing wanted to develop long-termSino-Italian trade.44 When criticizing Moscow, the Chinese said that Beijing wasresponding to closer Soviet–American ties by attempting to establish a powerfulalignment of Asian (eventually to include all of Asia) and African countries toultimately defeat the US, the USSR and their allies.45

On 29 June CCPIT officially opened its Vienna trade mission – under the Sino-Austrian trade office agreement – as the Chinese continued discussions withAustrian industrial representatives.46

Further Sino-Japanese trade negotiations also placed the Sato governmentunder greater pressure to reverse its decision on Ex–Im financing. In June, KobeSteel Works signed a contract to sell CNTIC a wire drawing mill.47 This installa-tion may have been built in Beijing, because in 1966 when (during a tour of manyChinese industrial enterprises from a wide variety of sectors) Canadian economistBarry Richman visited the Soviet-designed steel wire production facility in thatcity he found it ‘. . . on the verge of chaos’. High-level officials at the plantseemed more upset with the Soviet withdrawal of technological support six yearsearlier 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 tothe USSR – under which a Japanese firm agreed to sell the Soviets similar equip-ment. Tokyo had insisted that, although the equipment could measure 28,000 lbsof thrust, it was not ‘specifically designed for military uses’. Then, in June too aJapanese firm agreed to sell the Chinese a magnetic tape plant. This transactionleft US officials eager to discuss Tokyo’s interpretation of the COCOM regula-tions. However, Tokyo insisted that the ‘know-how’ was not being sold as part ofthe Sino-Japanese contract, although Japanese technicians were to help build theplant and train the Chinese. Tokyo stressed that it had a very favourable record ofadhering to COCOM controls while adding that ‘Paris Group’ nations had beengranting ‘exceptions’ to facilitate the export of ‘grey area’ goods to the PRC. With



Tokyo already under pressure from Japanese industry to reduce COCOM restric-tions, MITI was preparing proposals to present to the ‘Paris Group’ forliberalizing the trade controls. The Japanese added that, if rumours that Paris waspreparing to withdraw from COCOM proved correct, then Tokyo would have toreconsider participating in the ‘Paris Group’.49

State Department officials felt that MITI tended to approve deals withCommunist nations which fell into COCOM’s ‘grey area’ including those whereexporters had submitted imprecise descriptions of export goods in order to avoidcontracts being blocked at COCOM. These officials thought that it was stillworthwhile for Washington to discuss these cases with the Japanese government,even if Tokyo failed to block the deals, as it might prevent similar transactionsfrom being approved in the future.50

As L–T trade diplomacy continued to falter, Beijing focussed more on developingtrade with the smaller market West European countries. In April a Swedishmining equipment exhibition was held in Beijing and in June the Chinese agreedto purchase £5 million worth of complete tunnelling equipment from AtlasCopco, ASEA and Svenska Fluktfabrieken. In June, the Danish firm, Burmeisterand Wain, agreed to sell the Chinese three marine diesel engines, worth approxi-mately US$3 million, for installation in 10,000 tonne vessels being built inChinese 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 wantedto increase trade with Norway, whose government was eager to help the domes-tic shipping industry (a key sector in that country). Later that month, the Chinesealso agreed to purchase a naphtha cracking installation worth US$14.6 millionfrom a Norwegian firm.51

Meanwhile, there were more tangible signs that Washington was easing itsposition on China. At the 126th meeting of the Sino-American ambassadorialtalks on 30 June, Cabot suggested that both sides should increase contacts. Hereminded Wang that Washington still wanted to exchange news representativesand added that the US had decided unilaterally to begin validating passportsfor public health workers to travel to China. However, the meeting remaineddeadlocked as the Chinese refused to discuss these issues while major long-standingproblems remained unresolved.52 By 7 July Washington rejected a proposal,supported by James C. Thomson, Marshall Green (who was leaving the FEBureau) and Ambassador Cabot, that it enlarge the category of Americans able toseek authorized passports to travel to China to include public health officials andmedical doctors.53

That same month the US government announced that it was phasing out aid tothe ROC, although Xinhua reported on 17 July that Beijing had agreed to sendequipment, whole sets of installations and supplies to North Vietnam to supportthe country’s national defence and economy.

In July, as negotiations on lucrative Sino-West German contracts entered a crucialphase and as sterling came under pressure, Beijing suddenly agreed to purchasetwo fibre production plants – the fifth and sixth from non-Communist interestssince 1963 – from UK firms. British interests had not won a major Chinese

equipment contract since March, but in this instance were able to beat out theircompetitors (including West German firms).

Also in July, British firms – L.A. Mitchell, in association with ScottBader-agreed to sell the Chinese a polyester resin plant. The plant was expectedto begin production at the end of 1966 and was rumoured to be part of a largercomplex for which Scott Bader and CNTIC were negotiating (see Table 8.1).

Despite the fact that Argentine President Illia had expressed concern aboutBeijing’s foreign policy, there remained considerable Argentinian enthusiasm forthe Chinese market. Beijing continued purchasing large quantities of Argentiniangrain, and on 8 July Nan Hanzhen hosted a banquet in the Chinese capital forPresident Alfredo Weiner of the International Food Company of Argentina.54

Nan’s trade delegation was in Japan on 26 July when MITI Minister Miki report-edly told Japanese news sources that Tokyo would resume Ex–Im Bank long-termcredit financing of some of the China trade contracts – but only after consideringindividual proposals on a case by case basis.

August and October 1965

In early August Japanese Foreign Ministry officials remained adamant that ‘theYoshida letter’, although not an official agreement, could not be ignored becauseit was a politically and morally binding statement, of unspecified duration, ofthe Ikeda Cabinet. However, on 2 August, Miki told the House of RepresentativesCommittee for Commerce and Industry that Tokyo was not bound by the letterand that Japan should expand trade with all Communist countries. That same dayMITI Vice-Minister Sahashi predicted that in October several Sino-Japaneseindustrial plant and equipment contracts would be signed and MITI would pro-vide 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 questionedthe legal authority of the ‘Yoshida letter’ while emphasizing that Tokyo couldmake its own trade policy and that, apart from the need to observe COCOMrestrictions fully, the Ex–Im Bank should be left to decide how credits wereapplied. That same day Japan’s Cabinet agreed that Tokyo was not legally boundby the letter and that the decision not to extend credits for the Hitachi freighterand Nichibo plant contracts was not based on the letter, although ‘the Yoshida let-ter 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 fightalongside the Viet Cong in Vietnam.

It appeared increasingly probable that the PRC could continue with economicdevelopment based on trade relations with non-Communist countries, when, on9 August – less than a week before the forced closure of the Singapore branch ofthe Bank of China – Singapore separated from Malaysia and the People’s ActionParty government immediately renewed the Bank’s operating licence.57 AlthoughBeijing was still undoubtedly concerned about the future of the Singapore branch’soperations, in the meantime its lucrative export drive in that region continued.


A few days later, in the lead-up to L–T negotiations, Beijing stepped uppressure on the Sato government to resume Ex–Im Bank credit financing of Sino-Japanese trade by suddenly attempting to resume negotiations with the TEC fora large (US$12 million) urea production plant. Just at that time, as pressure onsterling eased following financial policy measures announced by the Britishgovernment on 27 July, the UK firm Prinex (a Courtauld subsidiary) agreed tosell TECHIMPORT an acrylic resin fibre plant and the technology (worth US$8.4 million) to produce Courtelle fibre, used in clothing and carpets on medium-term credits.58 This plant was to be built at Lanzhou where the Simon Carvespolyethylene plant, the Vickers-Zimmer high polymer polypropylene plant andthe two Lurgi AG plants were being constructed.

About that time, the Chinese also purchased an air liquefaction and separationplant (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 ormore L–D type steel plants which the Chinese hoped to build at Wuhan, Baotou,Shanghai, Luoyang and Taiyuan, if they could acquire the necessary Westerntechnology, equipment and technical support.60 Linde had applied for a five yearcredit 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 riceto the Japanese at much lower prices than those quoted by other suppliers, partlybecause this would help Beijing pay for purchases of Japanese chemical fertil-izer.62 A Sino-Japanese rice deal had not been concluded since 1957–8, andJapan’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 mightcause serious domestic rice shortages. Although by the late summer of 1965the Japanese had entered into rice contracts or negotiations with Taiwanese,Thai, South Korean, Spanish and American interests, Tokyo maintained thatJapan needed to import much more rice than previously thought. Tokyo sooninformed Washington that, because of political and economic considerations, theJapanese needed to purchase all their additional rice requirements for 1965 fromthe PRC.

With Sino-Japanese trade prospects improving, Beijing was eager to work outa new long-term grain deal with the Canadians to compensate for uncertaintyabout Australian supplies and the growing competition it faced from Moscow inworld grain markets. (In August the Soviets agreed to buy 5 million tonnes ofCanadian wheat.) Thus, it was no coincidence that on 3 September Zhou Enlai’sclose associate, Ding Kejian, was suddenly chosen to replace Zhang Bing asleader of a Chinese grain delegation scheduled to travel to Canada later thatmonth to negotiate a new three year grain deal.63

With these grain negotiations about to begin, negotiations on L–T trade (for1966) were concluded more quickly than in previous years. On 18 September anon-binding agreement, providing for a total of US$100 million in trade by eachcountry, was signed in Beijing. Although it represented a slight increase in L–Ttrade over 1965 totals, Liu Xiwen rather than Liao Chengzhi had signed theagreement with Takasaki Office Chief, Kaheita Okazaki. Chinese negotiators


continued to attack their counterparts because of the Sato government’s positionon trade with China.64

The following day Tokyo emphasized to Washington that it would not be a formof foreign aid to guarantee five year credits to finance another Sino-Japanesevinylon plant deal, and would not encourage Chinese activities abroad. When theJapanese maintained that the Sino-Japanese trade would be a positive influenceon Beijing, and that the PRC was incapable of major military endeavours, Ruskconceded that it was better for the Chinese to spend currency on domestic itemsrather than equipment which would contribute directly to strengthening the PLA.Nevertheless, Rusk urged Tokyo to be cautious and keep Washington informedabout 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 Americanambassador to Poland, John Gronouski – made a final effort to secure a deal onthe exchange of news representatives and the release of American prisoners.However, the Chinese again insisted that it would be impossible to improve Sino-American relations with the US occupying Taiwan and talking about peace whilestepping 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 administrationcame under growing pressure from Congress to take a firmer stance against alliespursuing policies that ran contrary to American interests. A US Senate bill of25 August granted President Johnson’s 4 August request for US$1.7 billion forUS military efforts in Vietnam – thereby bringing American expenditures onVietnam during 1965 to US$2.4 billion. However, Americans were increasinglydivided over Vietnam, which led to demonstrations, in October, to voice supportfor and against US participation in the conflict.

The signing of the L–T agreement on 18 September provided a timely boost toPRC development policies based on the trade with Capitalist countries because, thatsame day, the CPC Central Committee Working Conference opened in Beijing (con-tinuing until 12 October) to discuss China’s economic plan for 1966 and its long-term economic strategy (focussing on finance and trade).67 The draft of the TFYPwas presented during the proceedings, although it was revised further betweenSeptember and December to place greater emphasis on the ‘third line strategy’.68

During the first few days of the conference, Liao Chengzhi told Japanese offi-cials that Prime Minister Sato should publicly disavow the Yoshida letter andemphasized that, because Tokyo had extended eight year credits to finance Sino-Soviet trade, comparable terms should be offered to Beijing.69 With Ding Kejian’sCIRECO delegation scheduled to open negotiations with the CWB in Canada on30 September on a third long-term Sino-Canadian grain agreement,70 manyChinese leaders probably thought that Beijing’s foreign trade strategy was headingfirmly 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 objec-tives, including the promotion of world Communist revolution through wars of


liberation against ‘bourgeois states’, and having China regain its former internationalstature (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 nationalwars of liberation in Asia, Latin America and Africa. In Latin America CCPITand Xinhua officials had become implicated in several high-profile subversioncases.

Since late 1964 there had been a steady flow of high-level Indonesian and PRCpolitical and economic delegations travelling between Beijing and Jakarta.On 10 September Indonesian Foreign Minister Subandrio received the PRCAmbassador Yao Zhongming in Jakarta. From 16 September to 7 October a high-level Indonesian government economic delegation was received by Zhou Enlaiand Li Xiannian. In late September and early October, an Indonesian Air ForceAcademy delegation visited Beijing and was received by Luo Ruiqing andZhou Enlai. When a Sino-Indonesian economic, technical and payments agree-ment was signed on 30 September, Mao Zedong and Liu Shaoqi received manyof the Indonesian guests.

However, between 30 September and 1 October, as the CPC Central CommitteeWorking Conference reached the midway point, Indonesian leader Sukarno wasremoved from power during what is officially described as a failed coup attempt,led by the Partai Komunis Indonesia/Indonesian Communist Party (PKI) and anIndonesian army officer sympathetic to their cause. On 16 October, theIndonesian armed forces searched the commercial councillor’s office of the PRCembassy at Jakarta. The rise to power of General Suharto led to the suspension ofSino-Indonesian trade – which, since 1963, had resulted in Jakarta becoming animportant importer of Chinese goods, recipient of Beijing’s economic aid and avital source of Beijing’s rubber and POL imports. Beijing not only lost an impor-tant source of export earnings, but the coup immediately demonstrated that thedevelopment of Sino-Indonesian economic cooperation had not been completelycompatible with the eventual Chinese support for a PKI-led revolution inIndonesia. In this instance, Chinese foreign aid and economic relations appear tohave worked against Maoist-based policies to aid national wars of liberation. Thisdevelopment at such a crucial moment in Chinese policy debate appears to haveexacerbated policy differences among Chinese leaders.

Since 1963 Shell’s Shanghai office, in conjunction with its Indonesian opera-tions, had emerged as a supplier of POL and possibly other products and techni-cal support for the Chinese market. This, along with rumours of Americaninvolvement (including the CIA and oil companies) in Sukarno’s removal frompower, probably led Mao to become even more sceptical of PRC policies todevelop closer economic ties with Capitalist nations. These developments likelycontributed to Mao’s growing wariness of recent proposals that the PRC partici-pate in joint ventures (related to industrial projects inside China) with Western/Japanese firms and the completion of some Sino-Western/Japanese agreementscalling for foreign technicians to oversee Chinese projects.


Although CPC Central Committee Working Conference delegates approved theState Planning Commission’s economic outline plan for 1966, and emphasizedthe need to make agriculture the first priority, it also agreed to continue ‘indepth 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’spreparations for war and the ‘third line’ with CCP leaders.73 Maoist supporterscontinued to gain influence in policymaking during the rest of 1965–6, asthe Chinese government was unable to obtain the necessary trade concessionsfrom Capitalist countries to meet growing demands associated with increasingdomestic population, rapid industrial development and war preparations under the‘Third Line Project’.


Part V

October 1965–79

During the . . . [nineteenth] century the West forced China to recognize that nocountry 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 cur-rent exploration of possible ways to pierce . . . China’s ‘isolation’ from the rest ofthe world. We remain opposed to measures likely to contribute to Peking’s mili-tary growth, but changes . . . in our system of controls[,] compatible with this mainpurpose . . . [might add] to useful . . . contact between . . . China and the . . . [US] andthe our overriding long-term goal of peace and reconciliation in Asia.

(William P. Bundy to Dean Rusk, July 1966, on the findings ofthe 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 freeflow of ideas and people and goods.

We . . . believe that even the most rigid societies will one day awaken to the richpossibilities 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 magnituderarely seen in the past century was affecting northern China. By focusing on poorgrowing 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 theChinese only 500,000 tonnes of wheat on twelve month credits. This representedjust 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 signedin March.

9 Cultural Revolution delaysSteel complex negotiations and US–allied trade policy,October 1965–November 1966

There were indications that the Sino-Argentinian grain trade could also runinto difficulty. Argentina’s grain harvest was smaller in 1965–6, owing to adecline in area sown, lack of rainfall and very low temperatures in Cordoba andSanta Fe. Besides, the Chinese were upset that in the autumn of 1965 Lt GeneralOnigania, Commander in Chief of the Argentine Army, visited Taiwan.1 Chinesepurchases of Argentinian grain were also a large and unexpected drain onChinese currency reserves. Nevertheless, on 25 October the Chinese agreed tobuy more than 1.5 million tonnes of grain – 700,000 tonnes for delivery priorto 31 December 1965, and the remaining 800,000 tonnes to be delivered prior toJuly 1966 – on cash terms from the ANGB. In Canada the following day, DingKejian’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 buyCanadian grain on a permanent basis.

Because of deepening financial problems in Capitalist countries during theautumn, Washington appeared less eager to influence its allies not to trade withChina. At that time, Genoa was handling an increasing volume of imports of Chineseminerals and foodstuffs. It had also become the principal Mediterranean departurepoint for goods like Italian trucks, jeeps, machinery, chemicals, iron and steel prod-ucts, being shipped to China. Among the exports were very large quantities of unusu-ally thick steel plates, cold rolled steel sheets and steel piping required in oilrefineries, natural gas wells, nuclear energy plants, synthesis towers for ammoniamanufacturing 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 comp-lete 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 atUS$3.2 million, for expanding large-diameter-seamless-steel tubing of up to24 inches in diameter from the Innocenti Society (see Table 9.2). Washingtonwas not told about the deal until it was a fait accompli, at which time Romemaintained that, although the Allies agreed to support America’s position thatthe Soviet ‘friendship pipeline’ posed an economic/strategic threat to Western-aligned interests, the NATO embargo on large-diameter piping exports to theUSSR did not extend to China.

The development of Sino-Italian trade during the second half of 1965 was ofparticular interest to the West Germans because Rome and Bonn tended to be theWestern governments which adhered most strictly to Washington’s position on theChina trade. A deepening recession in the German steel industry and a visit dur-ing October and November by a Chinese rolling steel delegation touring severalWest European steel plants, before continuing on to Japan, left Ruhr area indus-trialists more determined to expand exports to China. With the Chinese alsocontinuing to negotiate with West German firms for locomotives, complete plantsto produce seamless-steel piping, pharmaceuticals, chemicals, synthetic fibres,glass and metals, Bonn became increasingly aware of the potential economic andpolitical costs of adhering to more stringent controls on China trade.

As sterling came under renewed pressure during the autumn, British firmscontinued to make headway in the Chinese market. Beijing agreed to purchase

178 October 1965–November 1966

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

Date Parties Quantity and Delivery Financinginvolved variety

25 October ANGB 1,524,070 711,233 tonnes Cash1965 CEROILFOOD million prior to

wheat 31 December1965

812,838 prior to July 1966

26 October CWB Third long- Under individual 18 month1965 CEROILFOOD term contracts to be credits: ($100

agreement negotiated million incovering credits3–5 million guaranteed by(grain) Canadian

cabinet)October/ AWB 508,024 January–June 12 monthNovember CEROILFOOD wheat 1966 credits: (10%1965 cash, 20% in

6 months, 20%in 9 months)

25 March CWB 1,624,755 August– 18 month1966 CEROILFOOD under December credits: ($100

new long- 1966 million interm creditsagreement guaranteed bysigned in CanadianOctober cabinet)1965

Early 1966 Louis 101,605 18 monthDreyfus/ wheat credits:Goldsmith (COFACE

CEROILFOOD guarantee)May/June AWB 609,628 12 month1966 CEROILFOOD wheat credits: (10%

(mostly off- cash, 20% grade) 6 months, 20%

9 months)6 December CWB 960,701 January–July 18 month1966 CIRECO MN#2, 1967 credits: ($100

MN#3, million inAlberta creditsgarnet and guaranteed byred winter the Canadianwheat cabinet)

Sources: Table composed by author from various documents within: NAC: RG#20: vol. 819–20, file10–33 (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.

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three computers, worth a total of nearly US$ 3 million, from UK firms. In lateOctober 1965, the Charles Churchill Group of Halifax agreed to sell £220,000worth of machine tools, for producing truck parts. Following the signing of thiscontract the Chinese did not sign another major equipment contract with Britishinterests until late 1966.

Meanwhile, on 9 September de Gaulle told a press conference that Frenchmilitary integration within NATO would end by 1969. Paris had also decided notto participate in the 10 September aid package for sterling of the Allied CentralBanks and during November, told Washington that America’s Vietnam War deficitwas adversely affecting European economies. Holders of US dollars continued toexchange the currency for gold, resulting in a further decrease in the size ofAmerica’s gold stocks during 1965. Late in that year, as Paris and Beijing, whichhad 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 didnot resume making large sales until 1972.3

French interests remained keen on keeping pace in the China market and inDecember, the Chinese agreed to purchase banknote production equipment,worth US$4 million, from a French firm and oil drilling equipment worthUS$4.86 million from Melle and SPEICHIM and/or Berliet (see Table 9.2).

Then, on 5 December, as CNTIC’s steel production equipment/technologynegotiations with the Austrian firm VOEST entered a critical stage and theChinese rolling steel mill delegation neared the end of its tour of Japanese plants(29 November–6 December), a Sino-North Vietnamese accord was signed, underwhich Beijing agreed to provide loans of undisclosed amounts to Hanoi. Aboutthat time Bonn told Washington that it might approve two or three applications forWest German government long-term credit guarantees to finance relatively largeequipment/technology sales to China. One of the applications asked that Bonnguarantee five year credits required for a contract, signed in December, underwhich Schloemann AG had agreed to sell the Chinese a 30,000 tonne p.a. capa-city MKW4 process high-grade cold strip alloyed stainless steel-sheeting rollingmill valued at US$17 million.

About 23 December, as Bonn considered Schloemann’s proposal, news sourcesreported that VOEST had recently agreed to sell CNTIC a 650,000 tonne per yearcapacity L–D steel converter plant (basic oxygen steel-making furnace) forapproximately US$12 million. It was Beijing’s first large purchase of Westernsteel production equipment/technology. Vienna had guaranteed five year creditsto facilitate the deal. The plant was to be built at Taiyuan, Shanxi and was sched-uled to begin operating in 1968 (see Table 9.2). As Ronald Hsia explains, both thedomestically engineered Shijingshan plant and the imported VOEST plant atTaiyuan were vital to the construction of the Shanghai no.1 Iron and Steel Worksin 1966. The new 600,000 tonnes capacity Shanghai plant utilized two large L–Dcrucibles which may have been based on the two 55 tonne BOF blast furnaces thatVOEST also reportedly sold the Chinese in late 1965.5

In December, negotiations, under way since 1961, between the West German con-trolled Henschel AG and the Chinese for up to ninety 4,000 HP diesel locomotives,


reached a critical stage. Beijing had previously relied exclusively on Moscow toprovide comparable equipment for long-haul freight and mountain routes. Facingserious financial difficulties, Henschel AG had recently become 49 per cent ownedby Morgan of New York – which appeared willing to arrange financing for aChinese–Henschel deal. The US Treasury Department had been considering theimplications of such a deal since at least May 1963. Although US interests held aminority interest in the West German firm, there was a growing consensus within theUS government that it was politically and economically unproductive to continuepressuring its allies and foreign subsidiaries of US firms to adhere to stringent con-trols on China trade. After all, during December, Alstom Atlantique MTE, a CieGénérale Electricité subsidiary which had sold locomotives to the PRC as early as1954, and twenty-five 6,000 hp electric locomotives in 1960, agreed to sell Beijingmore railroad equipment. Thus, Washington did not attempt to prevent Henschelfrom 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 128thmeeting), he reiterated key elements of President Johnson’s January 1964 stateof the union address, while attempting to persuade the Chinese that the US govern-ment was not hostile toward any country, including the PRC. He then announcedthat Washington would consider visa applications for Chinese journalists wishingto visit the US and hoped that Beijing would make a reciprocal offer. Gronouskiadded that Washington would soon consider validating passports so that Americandoctors, scientists and public health workers could visit China for work-related mat-ters. However, Ambassador Wang replied that American actions – especially morealleged US incursions into Chinese airspace and territorial waters since September –remained inconsistent with US statements. The Chinese remained unwilling todiscuss smaller issues until the matter of Taiwan was resolved.7

On 27 December, with US Allies pressing for the PRC to be admitted to theUN, President Johnson agreed to allow American scientists, medical doctors andpublic health workers to travel to China. However, two days later Ho Chi Minrejected an American proposal for unconditional peace talks.

Recent Sino-West European equipment and technology deals had attractedconsiderable attention in Japan and, by late December, there were indications thatSino-Japanese economic relations were strengthening. In 1965, the Japanese hadagreed to purchase as much as 160,000 tonnes of Chinese rice. Then, in earlyJanuary, the Japanese accepted Beijing’s offer, which undercut all others, andagreed to purchase 320,000 tonnes of PRC rice for delivery in 1966. This devel-opment worried Taibei which had previously warned Washington that Tokyo mightturn increasingly to Beijing rather than to the US, Taiwan, Egypt or southernNATO countries to cover Japan’s rice deficits. Nevertheless, many wondered howBeijing 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 theChinese of reneging on their commitments under the Sino-Cuban rice–sugar barteragreement, signed in October 1964. Outside of Asia, only Cuba imported substantial

Steel and Cultural Revolution delays 183

quantities of PRC rice and, in 1966, Havana planned to import 285,400 tonnes ofChinese rice in exchange for 800,000 tonnes of sugar. However, during negotia-tions in December 1965, about the time that the Japanese told the Chinese thatthey wanted to buy more PRC rice than in the previous year, Beijing informedHavana that it could supply Cuba with no more than 135,000 tonnes of rice dur-ing 1966 in exchange for 600,000 tonnes of sugar. The Chinese claimed that theydid not need to buy as much sugar and, because of shortfalls in domestic rice pro-duction, hoped to sell as much rice as possible for hard currency to pay for morepurchases of Western grain. Observers also speculated that the PRC was buildingup grain stocks in preparation for an American invasion, and was providing somefood aid to the North Vietnamese who were short of grain.9 The withholding ofPRC rice exports to Cuba, was also a means for Beijing to reprimand Havana forleaning towards Moscow in the Sino-Soviet dispute.10

Although Chinese L–T trade officials had told the Japanese that China’s long-awaited TFYP would not be published, but presented to the NPC in December1965,11 it is unclear how closely it was followed. The growing emphasiswhich Beijing placed on politics, preparation for war and self-reliance made the‘readjustment’ strategy increasingly unfeasible. During the enlarged meeting ofthe Standing Committee of the Political Bureau of the CPC Central Committee inShanghai (8–15 December) Luo Ruiqing was accused by Lin Biao, Wu Faxian andothers of opposing the policy of ‘putting politics first’, ‘usurping military powerand opposing the Party . . . .’ Luo, who we now know was closely associated withthe PRC’s grain import programme, soon became the first PRC leader official tobe removed from power in the Cultural Revolution.12

On 20 December, Zhou Enlai told those in attendance at the fifth anniversarycelebrations of the founding of the National Liberation Front that America waspreparing to extend the Vietnam conflict throughout South-East Asia, and ulti-mately, to China. He warned that if the US decided on ‘. . . having another trial ofstrength with the Chinese people . . . (China would) take up the challenge and fightto 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 andChina’s economic and political future. They were under intense pressure from thoseincreasingly influential Chinese leaders who favoured ‘leftist’ policies to demon-strate that ‘readjustment’ was leading to ‘self-reliance’ and improving China’s grainsituation rather than encouraging dependency on imports from Capitalist countries.The ‘readjusters’ precarious positions could probably only be rectified if they couldexpedite purchases, under very generous long-term credits, of much larger ‘state-of-the-art’ steel production and processing equipment necessary to raise productionof petroleum, chemical fertilizer and equipment to boost domestic grain production.

January–March 1966

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


a cold strip rolling mill from Schloemann under contracts signed in the autumnof 1965.13 This latter deal was rumoured to be associated with a proposed largeintegrated ‘state-of-the-art’ steel-rolling mill complex project for which rivalWest European and Japanese consortiums were competing to provide equipment,technology and engineering services. The Chinese must have realized that itwould be useful to do business with such consortiums because, when workingtogether, powerful business interests wielded even greater international politicalinfluence which could help further erode the China trade controls. About thistime, the Cultural Revolution claimed another victim. Chen Ming, a key officialin China’s trade and currency operations with non-Communist countries, suddenlydisappeared.

A speech by William Bundy on 12 February reiterated several points relatingto China made by Roger Hilsman in his landmark speech of December 1963.However, five days earlier, as had happened a good many times before, whenthere were renewed hopes for an improvement in Sino-American relations, thePLA shot down another US made pilotless high-altitude military reconnaissanceaircraft.14 Then, on 18 February, Rusk told the Senate Foreign RelationsCommittee that Washington had exhausted every effort to resolve the Vietnamconflict peacefully.

During the last week of February, West German industrialists told Americanofficials about their central role in a consortium of West European firms15 nego-tiating to sell the Chinese a large ‘state-of-the-art’ integrated steel-rolling millcomplex worth more than US$150 million. The complex would produce at least1 million tonnes of finished hot rolled wide sheet steel and 1 million tonnes offinished cold rolled wide sheet stainless steel per year. The 1.5–10 mm thick and700–1,500 mm wide sheets from this complex would be useful for producing tincans, construction/roofing sheeting and automotive bodies.16

The ‘DEMAG project’ was to be built at Wuhan, home of China’s automotiveindustry, where the steel sector was in difficulty mainly because certain keyequipment and technical parts were unavailable. This project would help to makethe Wuhan truck production facilities the largest and most technologicallyadvanced in China.17

Nevertheless, this project, in which DEMAG appeared poised to play a keyrole, involved the construction of hot and cold rolling mills, a wire mill, a steelreducing plant and other installations for producing steel casting and tubing.Participating German firms had applied for a five year FRG government creditguarantee on their approximately US$70 million share of the complex. About20 March, when making a public announcement about West German involve-ment in the deal, Bonn finally revealed that, one year earlier, it had decided toguarantee credits of five years for exports to Communist nations.

By mid-March the CNTIC–DEMAG steel processing complex negotiations hadentered a final stage.18 Also about that time Schloemann AG announced that ithad 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. Thiswas probably part of the DEMAG project, as were contract negotiations with



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 yetanother US made high-altitude military reconnaissance aircraft.21 Nevertheless,at the 129th meeting of the Sino-American ambassadorial talks eleven dayslater Ambassador Gronouski again emphasized that Washington was not hostiletowards Beijing. Washington would not change its position on Vietnam, but itwanted to increase contacts with Beijing by exchanging meteorological informa-tion and academics. Gronouski gave Wang a copy of the Zablocki committeetestimony 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 provokedmore intense debate in Washington over the purpose, function and future ofthe embargo. Although Washington was considering loosening its controls onnon-strategic trade with China, it was under growing Congressional pressureto tighten restrictions on strategic trade – despite the fundamental ongoingdisagreement between the US and its allies over the definition of strategic.

On 10 March de Gaulle, had announced that France would withdraw fromNATO and that the organization’s headquarters were no longer welcome onFrench soil. Washington was expected to provide much of the necessary financingto 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 toapprove the necessary funding.23

American Allies continued to sell the Chinese grain on credit terms despitethe Vietnam conflict. Uncertainty about the PRC’s grain import programmeremained, although in early 1966 the Chinese had agreed to purchase 100,000tonnes from Louis Dreyfus/Goldsmith on eighteen-month terms. Domesticdemand for grain was increasing and subsequent reports by PRC news sources,stating that China’s major grain producing regions had been adversely affected bysevere drought during 1966, may also been exaggerated to deflect attention fromthe Beijing government’s policy failures.24

Regardless, the Chinese needed to buy much more grain in 1966–7, but becauseof the continuing Australian drought, the AWB was unable to sell them grain untilat least May. Cash purchases of Argentinian grain continued to be a burden onBeijing’s currency reserves. With Beijing still unwilling to ask Washington directlyto consider sanctioning Sino-American grain sales, it was crucial that the Chinesereach more deals with the CWB.

Then, on 25 March, the initial contract under the third long-term Sino-Canadiangrain 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, fivedays earlier, that it would provide an export credit guarantee to enable the

CNTIC–DEMAG steel processing complex deal to proceed, asked those

[C]onsidering the type of trade with . . . China which might add . . . to theirwar-making capability . . . and . . . make it more difficult to . . . establish apeace out there . . . that the substantial increase in the steel producing capa-bility of . . . China is not a very comfortable idea for us . . . when China isdoing nothing to bring about peace in South-East Asia . . . ’.25

However, on 28 March 1966 Bonn insisted that the equipment and technologyincluded in the DEMAG project was not on the COCOM list, would not contributeto China’s capability of waging war and that the credit terms offered did not exceedBerne union limits.26 That same day Tokyo asked Washington for an update on theDEMAG project negotiations and inquired about how the US government wouldrespond if Japanese interests agreed to sell Beijing a titanium installation. Rusk’sresponse was that, although COCOM would not block a titanium plant deal,Washington would consider it inconsistent with ‘Paris Group’ objectives becauseit would enable the PRC to produce a strategic material. Titanium products wouldbe useful in China’s aerospace industry and he said he hoped that Tokyo wouldconsider how such a transaction could affect Japan’s national security. He guessedthat Washington might be even more opposed to such a deal than to the DEMAGproject because America had helped establish Japan’s titanium industry by provid-ing a guaranteed market for Japanese produced titanium in the US.27

Although the five year L–T trade agreement would expire in June and Tokyowas eager to renegotiate the accord, the Japanese assured Washington that Ex-ImBank financing for the China trade was still unavailable and that recent rumoursthat Hitachi would participate in the proposed DEMAG project were incorrect.28

Under growing pressure from Congress, Washington decided to clarifyAmerica’s position on recent developments in East–West trade. In a speech tothe Vebersee Club in Hamburg on 31 March, American Ambassador to WestGermany, C.M. McGhee, emphasized that Congress was displeased with theproposed DEMAG project and stated that

Part of the argument for freer trade with the Communist world is that awillingness to trade is evidence of a desire to promote . . . harmonious rela-tions . . . . So far, the Chinese . . . have given no such evidence. The Pekingregime has exported subversion to Vietnam, Laos, Thailand, Malaysiaand . . . Africa . . . . When [Bonn] first approached us regarding the steel millproject, we reluctantly did not object since there was no formal violation ofCOCOM or Berne Union rules involved. However, in light of current U.S.involvement in Vietnam and . . . of our assessment of Peking’s continuedaggressiveness, we could not help but be disappointed at a decision topromote the sale . . . .29

April–July 1966

West German news sources were mostly critical of Washington’s position asoutlined in McGhee’s speech, while Bonn continued insisting that the proposed


deal did not conflict with US interests. Although conceding that products fromsuch a complex might be used for war materials, Bonn insisted that ‘. . . no onewould have objected if Germany had sold large quantities of rolled steel to theChinese. . . .’30

In April, the idea that a more flexible US–China policy might benefit Americawas gaining greater acceptance in Washington. A US government policy paperproduced at that time emphasized that by adopting a more flexible approachtowards China, Washington could improve relations with most nations and placeBeijing on the defensive by undermining its efforts to portray America as the‘implacable’ enemy. A more moderate American stance might demonstrate thatthe PRC government was the main obstacle to improving Sino-American rela-tions.31 On 12 April the State Department’s Far Eastern Bureau, the CIA and theWhite House began conducting the US government’s first inter-agency review ofAmerica’s trade controls since the beginning of the Korean War.32 By mid-MayPresident Johnson was considering supporting Ottawa’s proposal to introducea ‘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 bethrown into turmoil by the Cultural Revolution.

In late April, before entering final negotiations, in Beijing, to sell the Chinesea pipe-processing installation, worth US$6.75 million, Mannesmann learned thatBonn would provide a five year credit guarantee to facilitate the signing of a con-tract. However, when Mannesmann’s negotiating team returned to Duesseldorfwith a signed contract on 24 May, they revealed that their Chinese counterpartshad been uninterested in obtaining long-term credits – ultimately agreeing to pay15 per cent cash with the balance on delivery in twenty-two months – and hadplaced no time constraints on delivery of the plant. The Chinese also accepted lessthan half the production guarantee that Mannesmann was willing to offer, wereunwilling to divulge the construction site of the plant and resisted the firm’srequest that West German engineers helping with the project be granted freemovement in the local community or the opportunity to return home.34 Forits part, Bonn had not kept Washington informed about the negotiations and USofficials only learned of the deal from the Mannesmann representatives after itwas signed.35

Then, when Kenzo Matsumura met Liao Chengzhi, Zhou Enlai, Chen Yi andZhu De in Beijing in late May, the Chinese Premier rejected the Japanese requestthat negotiations on a new five year L–T accord begin in the autumn to protest theSato government’s approach to China trade. Also the Chinese would only agree tonegotiate annual L–T contracts not under five year ‘umbrella accords’ and plannedto do more business with Japanese ‘friendly firms’ instead.36

However, information received by the US government in mid-June indicatedthat for the past few weeks, the Chinese Ministries of Foreign Trade and ForeignAffairs had virtually halted their usual work as they focussed on Maoistideological study.37

Less wheat was available on world markets. In June, Australia, having sufferedanother poor harvest, could sell China only 600,000 tonnes of wheat. Thus, some


PRC leaders, especially those concerned that China’s renewed emphasis onMaoist ideology might again produce disaster, appeared eager to examine anypossibility of easing Sino-American tensions, especially so that the Chinese couldbuy US grain, equipment and technology on credit.

About 13 June, Chen Yi told British officials in Beijing that his governmenthoped its fear that America would attack the PRC would prove wrong. He referredto the ‘Four Points’ outlined by Zhou Enlai on 10 April: first, that Beijing wouldnever start a war with the US; second, that it meant what it said; third, that it wasprepared for escalation of the Vietnam conflict; and, lastly, that if Washingtonextended the war to the PRC there would be no boundaries to that conflict. Heemphasized that the Chinese government considered a Sino-American diplomaticrapprochement far more important than PRC admission to the UN, but this couldnot be discussed unless America withdrew from Vietnam.38

Also in June, Bo Yibo – the Shanxi born Vice-Premier and Chairman of theState Planning Commission since 1956 – was branded a counter-revolutionary andpurged, while Liu Shaoqi, Nan Hanzhen and recently appointed Vice-Minister ofForeign Trade, Zhou Siyi, disappeared. Rong Yiren and Luo Ruiqing were amongother key officials removed around this time. More significant ‘readjusters’ weresoon to be purged.

Despite the US government’s stance on the DEMAG project, there were signs ofa new flexibility in Washington’s China policy. President Johnson’s landmark speechto the American Alumni Council on 12 July, entitled ‘The Essentials for Peace inAsia’, emphasized that the free flow of goods, people and ideas was the best meansto open closed minds in closed societies and that, although Beijing had rejected itsprevious initiatives, Washington was keeping the door open to ‘cooperation withouthostility’, ‘containment without isolation’ and ‘reconciliation’.39

Then, on 21 July 1966, after receiving the final report of the US governmentinter-agency committee reviewing (since 12 April) US–China policy, WilliamBundy recommended to Rusk that Washington consider undertaking a limited,but not token, relaxation of the trade embargo to allow American foodstuffs andnon-strategic goods to be exported to the PRC. However, the Committee recog-nized that, even with Presidential approval, there remained significant officialopposition to such changes, especially within the State Department’s FE Bureau.Political ramifications associated with any reduction in the China trade controlswould involve the situation in Vietnam, the upcoming 1968 Presidential electionand the controversy surrounding the proposed DEMAG contract.

Although the committee expected that Beijing would reject such an initiativeand warned against participating in deals which could bolster the PLA andVietcong through re-exports, it emphasized that limited trade in non-strategicgoods would be a useful Sino-American contact, which might help the Johnsonadministration 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 toChina. Although Australian trade controls only permitted the export to China ofmetals such as tin plate, which were of little benefit to the PLA, Cabinet approved


John Lysaght’s application because the quantity of steel-sheeting involved repre-sented a small fraction of China’s total requirements and the Chinese could obtainthis material elsewhere anyway. The Australian firm needed the business andCanberra 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 Chinapolicy. Although it had not decided to recognize Beijing diplomatically, it plannedto push for more Sino-Japanese economic contact and for Washington to lift theChina trade embargo.42

The China lobby and their supporters in Congress realized that immediate andfairly drastic action was required to prevent the embargo from breaking down. On27 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 billthe Johnson administration lost its fight to hold down interest rates on develop-ment loans to poor countries. Before its passing, the Senators associated the billwith the condemnation of West European, especially West German, participationin the DEMAG deal.43

West German news sources were generally wondering why the US Senateseemed to be focussing on the proposed DEMAG deal, when Washington had notopenly complained about Ottawa guaranteeing Canada’s credit grain sales toChina, Rome allowing Fiat to sell Moscow an automotive plant, London permit-ting a British firm to sell the Soviets large-diameter piping, or more than twentyother 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 forthe integrated steel processing complex, Bonn would probably allow a deal toproceed further because it knew that Washington was considering selling thePRC grain.45

On 29 July 1966, American officials in the West German capital warned Ruskthat continuing Congressional criticism of the proposed DEMAG deal wouldprobably detract seriously from Washington’s ability to influence Bonn’s futureChina trade policies. Most West Germans seemed in favour of it proceeding, andthe Cabinet could not reverse its position without appearing utterly subservient toWashington. Although some of the items produced at such a complex couldbe used to produce Chinese military equipment, the same could be said of otherindustrial plants which firms from Capitalist nations sold to the PRC – dealswhich Washington had not raised serious objections about. West Germans wouldnot understand the US government’s position on the proposed deal, especially ata time when they felt that US–China policy was changing, and increasingly sawit as a test of their sovereignty.46

Nevertheless, from the China lobby’s perspective it was a good time to keep thepressure on the PRC. With Chinese officials close to concluding crucial technologyand equipment deals with Western and Japanese interests, more serious problemswere developing with the PRC’s trade and development strategy.

However, from July onward, growing turmoil in the PRC and officialChinese actions abroad, associated with the Cultural Revolution, left Western


governments increasingly cautious of Beijing. As Chinese leaders favouring ‘left-ist’ 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 withmeeting their main economic objective for 1966 – achieving an all-round LeapForward through sustained production increases, especially in grain. Mao wasvery concerned that China meet production targets47 and the ‘Great School ofRevolution’, announced on 1 August, sought to solve China’s agricultural prob-lems. However, obstacles were looming for the all important, from the Chineseperspective, L–T trade. Negotiations for the final year of the accord were set tobegin in September, but were delayed until 5 November. After a good domesticrice harvest in 1966, the Japanese had decided to purchase much less Chineserice, for delivery in 1967, than in the previous year. This cut would cost the PRCgovernment approximately US$16 million in lost profits, currency which it wouldhave channelled into purchasing more crucial items from the Japanese underthe L–T agreement.48 This was especially significant as the L–T barter trade wasa key source of essential items for PRC development and because of recentpressure from ‘leftists’ within the Beijing leadership to wean China from foreigncredits and grain imports.

Coming at a critical moment, these developments, together with Beijing’s con-cern that Washington might ultimately convince Bonn to block the proposedDEMAG project, may have strengthened the hand of Chinese officials opposingcloser economic ties with Capitalist countries, contributing to the intensification ofthe Cultural Revolution. If imports of Western and Japanese equipment/technologywere to continue to be central in achieving development targets, the Chinese neededto find a way to keep their export drive going.

Because of growing rice shortages in various countries prices for this grainwere rising, so beginning in mid-July PRC officials were even more eager toexport rice to ‘non-traditional’ Asian markets. In addition to commercial grainimports, East Pakistan received annual shipments of American PL 480 grain, butin mid-July Rawalpindi maintained that it had insufficient stocks to cover short-ages caused by flooding. Rangoon subsequently suggested that Rawalpindi askBeijing if it would spare a portion of the 300,000 tonnes which Burma hadrecently exported to China.

After arriving in the Chinese capital on 27 July to negotiate a new barter agree-ment, East Pakistan’s Minister of Commerce, Faruque, met with Zhou Enlai andChen Yi, and soon afterward, Beijing agreed to provide Rawalpindi with 100,000tonnes of rice, on barter terms. Thanking the Chinese for this friendly gestureduring its time of need, Rawalpindi blamed domestic food shortages on delaysin American PL 480 shipments.

Concerned that these allegations might affect support for Communist andMuslim elements in Pakistan, Washington noted that, during the first half of 1966,


over 400,000 tonnes of American grain was exported to Pakistan – three quartersof which was destined for East Pakistan – while during the second half of the yeara further 1.5 million tonnes was shipped. Washington, believing that Pakistan’sfood shortage was caused primarily by local merchants withholding grain from themarket so that they might obtain higher prices once the US shipments had stopped,informed Rawalpindi that such ‘grossly misleading’ charges could ‘. . . onlyhave . . . [an] unfavourable impact . . . [in Washington] on Pakistan’s interests’.49

Also in mid-July when the Rice and Corn Administration of the PhilippinesRCAP – a government agency which purchased grain on behalf of the NationalEconomic Council – was unable to buy enough rice on favourable terms fromtraditional suppliers, CIRECO offered to sell Manila 200,000 tonnes of rice up to30 per cent below open market prices on the condition that such a deal was signedby PRC and Philippine officials.

Ferdinand Marcos’ government’s policies – which encouraged farmers to useIR-8 miracle rice and chemical fertilizers – had helped raise domestic yields fromthe 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 in1966, the RCAP reported that only about 100,000 tonnes of rice remained inPhilippine government and private warehouses. The RCAP could not account formost of the approximately 1.4 million tonnes of rice imported from abroad by theprevious Philippine government, from 1962 to 1965, and assumed that either therice: (1) been consumed because of increased Philippine consumption (in whichcase certifications of shortages of the previous government were understated);(2) was smuggled out of the country after reaching the Philippines; or (3) hadonly partially been recorded in official documents – the rest not having actuallyentered the Philippines. Rice shortages were also exacerbated by a shortage offarm labour and by transportation problems in the southern Philippines, whichoften resulted in harvested rice not reaching commercial centres. Thus the Marcosgovernment 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 ForeignAffairs Branch of the Philippine government – which tended to be influenced byWashington – was opposed to purchasing rice from Beijing.

After learning of CIRECO’s offer, Washington had told Manila that it opposedsuch a deal and would invoke FACR to prevent the Philippine government fromusing US dollars to purchase Chinese rice. Washington was concerned that a Sino-Philippine rice transaction would help Beijing earn currency, possibly US dollars,which could create serious domestic political problems for the Johnson administra-tion. After all, according to Philippine Central Bank governor, Andres Castillo, thePhilippines’ gross international currency reserves by August 1966 were equivalentto 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$22million loan from a syndicate of eight private American commercial banks. At that


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 arrivedin South Vietnam, Marcos met with Johnson in the American capital. The visit wassubsequently described as a great success, and the following day Washingtonannounced a substantial increase in American economic aid to Manila.51

In mid-September, as American pressure and economic incentives threatenedto undermine Sino-Philippine rice negotiations, PRC rice shipments to EastPakistan were well behind schedule and those that had reached port wererumoured to have a large percentage of broken kernels and to be of the worstquality. By that point, as large shipments of Canadian and US grain arrived inPakistan, Rawalpindi bowed to high-level US government pressure that itguarantee equitable media/political coverage for arrivals of Western food grain atPakistani ports.52 Not only had the PRC’s rice diplomacy with East Pakistan beenless than a complete political success, it had not earned the Chinese currency orprovided equipment/technology for achieving ‘self-sufficiency’.

In mid-September too, Sino-Japanese L–T negotiations were delayed untilNovember and Beijing broke off relations with Japanese ‘friendly firms’ becausethe JCP, which had strong ties with these companies, had recently been improvingits relations with Moscow.

Nevertheless, in September, as Sino-Japanese trade began running into diffi-culty, the Chinese agreed to purchase a pelletizing plant, valued at approximatelyUS$3.3 million from Hitachi Shipbuilding and Engineering Ltd. The equipmentwas needed to concentrate the low grade ores found in the Wuhan region, wherethe DEMAG project was supposed to be built.

On 20 September, Air France was permitted to begin its service – establishedunder a recent Franco-Chinese air agreement – from Paris to Shanghai viaAthens–Cairo–Karachi–Phnom Penh.53

About 13 September, Sino-Mannesmann negotiations resumed in Beijing foranother piping production installation – a 5-tonne-per-hour-capacity small-gaugehot process piping plant worth approximately US$6 million.54 This installationwas also probably part of the proposed DEMAG project. During the negotiations,the Chinese were again unenthusiastic about receiving foreign credits, althoughMannesmann had applied for another FRG Hermes Export Insurance guaranteeto finance such a deal.55 After refusing to admit Mannesmann technicians to thePRC, Chinese negotiators suggested that they send ten of their technicians toWest Germany for training because they wanted to complete domestic construc-tion projects themselves. The Chinese showed no interest in securing a firm datefor Mannesmann to deliver the equipment or in obtaining a production guaranteeas to when equipment became operational. Mannesmann representatives guessedthat, because of the PRC’s steel shortage, the Chinese realized that the plantwould operate intermittently.56

On 23 September, as the Cultural Revolution intensified and foreign studentswere asked to leave the PRC, Chinese negotiators told DEMAG executives thatthe steel-rolling plant project had been postponed indefinitely.57 Beginning twodays earlier and continuing at least until late December, PRC news sources


reported bumper domestic harvests in all regions, despite the severe droughtwhich had occurred throughout China in 1965 and 1966.58 However, it is possiblethat the government exaggerated drought reports, as during the GLF, to deflectattention from adverse consequences of its policies. Political enthusiasm associ-ated with the Cultural Revolution may also have resulted in harvest reports beinginflated. PRC trade statistics published in 1983 suggest that, during the mostdisruptive phase of the Cultural Revolution, beginning in 1966, the governmenthad insufficient information to produce output figures for many grain crops.59

Nevertheless, the Chinese remained eager to expand their rice diplomacy toearn currency to pay for essential imports. Consequently, they sold rice to Senegalwhich was unable to obtain enough rice of the variety and quality required fromThailand, Brazil, and Cambodia to meet serious domestic food shortages. Inearlier years the Senegalese had purchased small quantities of Chinese riceindirectly through French intermediary firms, but this time they bought 40,000tonnes directly from the Chinese government and an additional 20,000 tonnesthrough a local import firm, Consortium African. This firm was run by AliouneCamara – a Senegalese member of the outlawed Communist Parti African de l’Indépendence – who arranged for the rice to be delivered to Senegal throughintermediaries in the Mali government, which had dealt directly with the Chineseembassy in Bamako.60 However, this transaction had still not resolved the PRC’shard currency problems.

Washington became agitated when on 29 September it learned that the RCAPmay have signed a deal to purchase low-grade Chinese rice from Hong Konginterests. Since 1949 the Hong Kong government had enforced an unstated policyof restricting imports of Chinese rice to below 30 per cent of the British colony’stotal rice imports. However, because of rice shortages on world markets, the HongKong consumer began paying much higher prices, often for inferior blendedgrades 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, PresidentMarcos would have to approve the suggested financing arrangement and theHong Kong Department of Commerce’s department of rice control needed togrant export licenses to enable the rice to be shipped from the British colony tothe Philippines. As officials in Hong Kong and Manila reviewed details of theproposed transaction, Washington was engaged in frantic and unproductiveefforts to find alternate sources of rice which could match Beijing’s offer.American pressure throughout October on Manila and Hong Kong banks – whichrevoked the required letters of credit – paid off, when, about 11 November,the Philippine government cancelled the proposed PRC–Hong Kong–RCAPrice deal.62

Meanwhile, L–T negotiations had opened on 3 November and, althoughJapan’s national elections were imminent, the amount of trade provided for underthe 1967 agreement, concluded on 21 November, was the smallest since thefirst annual pact was negotiated. Furthermore, although the Chinese agreed topurchase hot process piping machinery, worth approximately US$6 million, from


Mannesmann Meer on 22 October, this was the final major equipment deal thatthe Chinese signed with foreign countries until 1970–1 when they resumedserious talks with Western firms for the integrated steel-rolling mill project.In late October the Chinese cancelled their contract with Berliet to purchasea $40 million truck production complex.


. . . regional analysis . . . reveal[s] that the major deterioration in China’s ability tomeet its food needs between the 1FYP and 3FYP periods derived overwhelminglyfrom the elimination of the previous sizable grain surplus from the Southwest andthat 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, characterizedby increasing political turmoil and resultant economic disruptions. More Chineseofficials in charge of the post-GLF ‘gradualist’, ‘agriculture first’ ‘readjustment’economic strategy were purged or lost influence. Those officials who CCP histo-rians describe as ‘leftist’, gained control of the PRC’s policymaking and govern-ment apparatus and, without regard for overall balance, implemented policiesemphasizing ‘self-reliance’, more rapid economic industrial development in theinterior and preparation for war.

The Beijing government suspended all foreign imports of non-essentialequipment, complete industrial installations and technology while focussingmore on copying and distributing items already purchased from abroad.In the early stages of the Cultural Revolution Mao reiterated his former asser-tion that it was dangerous for the PRC to rely on foreign grain imports1 andthe Chinese soon began trying to drastically reduce or even eliminate thesepurchases by raising domestic output through increased fertilizer application.The leadership responded by planning to cut back or even eliminate theirannual Western grain imports by raising domestic output through increasedchemical fertilizer application. This in turn entailed drastically increasingdomestic chemical fertilizer production and purchases of Western and Japanesechemical fertilizer.

As early as autumn 1966, the Chinese initiated efforts to secure a record4.9 million tonnes of foreign fertilizer (1.75 million tonnes more than in 1966) fordelivery in 1967.2

10 Emergence from CulturalRevolutionTrade negotiations resumed, US trade controls relaxed, November 1966–79

Trade talks resumed, US controls relaxed 197

Since Japan’s elections were imminent when the L–T accord for 1967 wasconcluded on 21 November, Tokyo was especially concerned that its decisionto buy less rice from China would result in Beijing purchasing less Japanesechemical fertilizer. Realizing the strength of their bargaining position, inNovember the Chinese suddenly threatened to purchase more than 3 milliontonnes of chemical fertilizer (for delivery in 1967) – an amount approximatelyequivalent to the PRC’s previous total annual foreign imports of this commodity –from JASEA, unless NITREX accepted the extremely low price (a reductionof more than US $10 per tonne) they were offering. Although, by agreeing inlate November to sell fertilizer to the Chinese at very low prices, NITREXbroke its October 1966 agreement with JASEA that prohibited the undercuttingof the Japanese cartel in the Chinese market, the West Europeans were unwillingto risk losing out then or over the longer-term. Nevertheless, after closing thisdeal, the Chinese still wanted to purchase another 1.5–2 million tonnes andJASEA subsequently succumbed to a Chinese ultimatum that it agree, before20 December, to sell them this quantity at the same price per tonne that NITREXhad accepted.

Despite the continued success of Chinese trade negotiators, deepening politicalturmoil inside the PRC in 1967 began reversing the economic progress madefrom 1961 to 1966. Distribution and industrial production were severely dis-rupted, resulting in very serious shortages of goods – especially in the cities.Statistical reporting deteriorated to the point that the central government wasunable to prepare an economic plan for 1968.3 Preoccupation with work on the‘Third Line’ programme may have had a significant adverse effect on regionalgrain production, supplies and distribution. Along with the Northwest region andparts of Henan, Hubei and Hunan, the Southwest (Sichuan, Yunnan and Guizhou)was the recipient of many projects associated with this programme. Railway linesand a very large steel mill were being built in Sichuan. There were significantlymore people to feed in areas where labour had been diverted to work on suchprojects, 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 abnormaldeaths than any other region. Although from 1967 to 1970 the PRC’s overallannual grain harvest increased, between 1966 and 1970 the Southwest had thesecond largest potential grain deficits – shortfalls which remained serious from1971 to 1975. Also, despite significant agricultural successes, China’s per capitagrain 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 thePRC. On 10 January 1967 the US President Johnson expressed hope for recon-ciliation between the Chinese people and the world community. The following day,at the 132nd meeting of the Warsaw Talks, the Chinese denounced Johnson’sremarks, emphasizing that Sino-American relations could not be improved whilethe 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 JanuaryVice-Minister of Foreign Affairs and former ambassador to Poland, WangBingnan, was accused of collaborating with foreign countries and disappeared.)

June 1967–August 1968

In June the CCP Central Committee – which was attempting to build domesticfood reserves while weaning the PRC from the remaining elements of Chen Yunand Zhou Enlai’s ‘readjustment’ strategy – made provision for a substantial reduc-tion or suspension of China’s foreign grain imports.6 Indeed, although on6 December 1966 CEROILFOOD had agreed to purchase about another 1 milliontonnes of wheat from the CWB, between January and November 1967 theChinese agreed only to buy another 31,000 tonnes from the Canadians – none ofthis (which was contracted for on 17 April) was for delivery during 1967 (seeTable 10.1). Although they secured about 2.9 million tonnes from the AWB in thatyear, they bought only small quantities from other sources, leaving Beijing’s totalforeign grain purchases in that year at around 4.7 million tonnes – the lowestfigure since 1960, the first year below 5 million tonnes since 1962 and down fromthe near record 6.44 million tonnes imported in 1966 (see Table 10.2). It isnoteworthy that, despite reports that the Chinese–DEMAG negotiations, sus-pended in late 1966, were to resume in April 1967, they broke down again shortlythereafter.7 About that time Sino-Canadian grain negotiations also ground to ahalt and Lei Renmin was denounced and purged as a counter-revolutionary revi-sionist. On 27 June the incapacitated (probably since early 1964) Minister ofForeign Trade died. Other key ‘readjusters’ who were attacked, purged and/or dis-appeared about that time included Liu Shaoqi, Liao Chengzhi, Lu Xuzhang, XiaoFangzhou, Vice-Minister of Food Chen Guodong and Tao Zhu. At that juncture,there were also reports of worsening food shortages and lawlessness inGuangzhou.8 Delays in Chinese ports associated with the Cultural Revolution, inconjunction with the closing of the Suez Canal in June, also resulted in the PRCnot accepting the full amount of chemical fertilizer contracted for from NITREX.

Meanwhile, after the 133rd meeting on 14 June, the talks remained deadlockedand the Chinese rejected a US request to hold the 134th meeting in lateSeptember, insisting on mid-November instead.9 During their meeting inWashington on 26 June 1967, when Romanian Foreign Secretary Ion GheorgheMaurer, who was preparing to leave for the PRC, asked the US President if he hadany message for the PRC’s leadership, Johnson said ‘. . . that he wished neitherwar with China nor to change its form of government . . . [and] to see CommunistChina join the society of nations . . . [Washington and Beijing] should discuss thenon-proliferation treaty and work out ground rules for avoiding nuclear war’.10 Asconditions deteriorated inside China, more pragmatic Chinese leaders who stillretained influence probably had some success in persuading Mao that the PRCmust alter its contemporary course. Thus, in response to Johnson’s remarks,Beijing suggested that the Sino-American ambassadorial talks be moved from the

Polish Palace of Culture to the US and Chinese embassies on a rotating basis – aninitiative which Washington accepted.11

In an unpublished speech to the Revolutionary Committee in Beijing on1 September Zhou Enlai admitted that China was six months behind in its pro-duction targets and, in a speech at Wuhan on 9 October, he blamed this problemon disruptions associated with the Cultural Revolution.12 Since February theloyalty of some PLA units had been questioned and Beijing news sources warnedof a possible coup attempt.13 By October, information reaching Washington indi-cated that the PLA largely did not support the Cultural Revolution and was (alongwith 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 Revolutionwas not stopped, it would result in uncontrolled civil war and return China toa divided land.15

Political turmoil threatened to disrupt the harvesting of what Xinhua describedin September as a ‘leap forward’ domestic crop for 1967 – a record in all but afew small areas. With Sino-Canadian grain negotiations stalled since mid-April,the Chinese continued to import large quantities of Australian grain. Then, fol-lowing 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 Frenchrefused to barter grain for pork because they questioned the quality of the meatoffered, how such imports would affect Paris’ relations with domestic farmers,and how Rome and other EEC members would respond to the large grain exportsubsidy still required to finance such a deal.16 When, on 12 December, CEROIL-FOOD 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 agree-ment – 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 conditionsinside China deteriorated further, Richard Nixon – preparing to make another bidfor the Presidency – had an article published, in Foreign Affairs, which called forchanges in Washington’s relations with Beijing.18 As had occurred so many timesbefore when prospects for Sino-American relations improved, the PLA shot downanother US-made espionage aircraft (a U-2 operated by the ROC air force).

During 1967, China specialists, testifying before the US Joint EconomicCommittee, spoke out in favour of relaxation of Washington’s China tradecontrols. The 20 December report of Asian scholars also echoed this sentiment.By that time President Johnson was considering negotiating with Beijingthrough Moscow and asked for updated recommendations on American ‘Chinapolicy’.

While there was an improvement in tone at the 134th meeting of the WarsawTalks on 9 January 1968, the talks remained deadlocked.19 Nevertheless, during hisState of the Union Address on 17 January, President Johnson expressed interest inexamining the possibility of developing contacts with the Chinese people throughthe exchange of basic foodstuffs. Then, on 2 February he met academic and


Tabl

e 10

.1P

RC

–Wes

tern

gra

in a

gree

men

ts a

nd c

ontr

acts

: 6

Dec

embe

r 19

66–7

9 (i

n to

nnes

; w

heat

and

bar

ley

in t

rade

gra

in w

eigh

t)

Dat

eF

irm

s/or

gani

zati

ons

Qua

ntit

y an

d va

riet

y D

eliv

ery

Cre

dits

6 D

ecem

ber

1966

CW

B96

0,70

1: w

heat

Janu

ary–

July

196

7C

redi

ts o

f at

lea

st

CIR

EC

O18

mon

ths

(gua

rant

eed

by t

he C

anad

ian

cabi

net)

17 A

pril

196

7C

WB

31,0

00:

whe

atM

ay–J

uly

1967

Cre

dits

of

at l

east

C

IRE

CO

18 m

onth

s (g

uara

ntee

dby

the

Can

adia

n ca

bine

t)12

Dec

embe

r 19

67C

WB

2,12

6,70

0: w

heat

Janu

ary–

Oct

ober

196

8C

redi

ts o

f at

lea

st

CIR

EC

O18

mon

ths

(gua

rant

eed

by t

he C

anad

ian

cabi

net)

14 N

ovem

ber

1968

CW

B1,

529,

000:

whe

at (

last

Dec

embe

r 19

68–J

uly

1969

Cre

dits

of

at l

east

C

IRE

CO

cont

ract

und

er t

hird

18 m

onth

s (g

uara

ntee

dlo

ng-t

erm

agr

eem

ent)

by t

he C

anad

ian

cabi

net)

22 S

epte

mbe

r 19

69C

WB

2,33

9,80

0: w

heat

(un

der

Oct

ober

196

9–S

epte

mbe

r 19

70C

redi

ts o

f at

lea

st

CIR

EC

Oin

divi

dual

con

trac

t)18

mon

ths

(gua

rant

eed

by t

he C

anad

ian

cabi

net)

27 O

ctob

er 1

970

CW

B2,

652,

200:

whe

at (

unde

rJa

nuar

y–D

ecem

ber

1971

Cre

dits

of

at l

east

C

IRE

CO

indi

vidu

al c

ontr

act)

18 m

onth

s (g

uara

ntee

dby

the

Can

adia

n ca

bine

t)13

Sep

tem

ber

1971

CW

B53

3,40

0: w

heat

(un

der

Oct

ober

–Dec

embe

r 19

71C

redi

ts o

f at

lea

st

CIR

EC

Oin

divi

dual

con

trac

t)18

mon

ths

(gua

rant

eed

by t

he C

anad

ian

cabi

net)

17 D

ecem

ber

1971

CW

B3,

200,

500:

whe

at (

unde

rJa

nuar

y–D

ecem

ber

1972

Cre

dits

of

at l

east

C

IRE

CO

indi

vidu

al c

ontr

act)

18 m

onth

s (g

uara

ntee

dby

the

Can

adia

n ca

bine

t)2

June

197

2C

WB

1,60

0,30

0: w

heat

(un

der

July

197

2–M

arch

197

3n.

a.C

IRE

CO

indi

vidu

al c

ontr

act)

8 N

ovem

ber

1972

CW

B1,

707,

500:

whe

at (

unde

rA

pril

–Oct

ober

197

3n.

a.C

IRE

CO

indi

vidu

al c

ontr

act)

5 O

ctob

er 1

973

CW

BFo

urth

lon

g-te

rm a

gree

men

tJa

nuar

y–Ju

ne 1

974

n.a.

CIR

EC

Osi

gned

(un

der

whi

ch t

he f

irst

cont

ract

was

sig

ned

cove

ring

1,02

1,10

0: w

heat

)

22 J

une

1974

CW

B1,

011,

600:

whe

at (

unde

rA

ugus

t–D

ecem

ber

1974

n.a.

CIR

EC

Ofo

urth

lon

g-te

rm a

gree

men

t)25

Jun

e 19

74C

WB

1,01

3,10

0: w

heat

(in

divi

dual

July

–Dec

embe

r 19

74n.

a.C

IRE

CO

cont

ract

not

und

er l

ong-

term

agre

emen

t)4

Apr

il 1

975

CW

B1,

117,

300:

whe

at (

unde

rM

ay 1

975–

Mar

ch 1

976

n.a.

CIR

EC

Ofo

urth

lon

g-te

rmag

reem

ent)

26 F

ebru

ary

1976

CW

B91

7,00

0 w

heat

: (u

nder

fou

rth

Apr

il–D

ecem

ber

1976

n.a.

CIR

EC

Olo

ng-t

erm

agr

eem

ent)

1 D

ecem

ber

1976

CW

B79

0,60

0 w

heat

: (l

ast

cont

ract

Febr

uary

–Jun

e 19

77n.

a.C

IRE

CO

unde

r th

e fo

urth

lon

g-te

rmag

reem

ent)

28 J

anua

ry 1

977

CW

B1,

580,

500:

whe

at (

indi

vidu

alM

arch

–Dec

embe

r 19

77n.

a.C

IRE

CO

cont

ract

not

und

erlo

ng-t

erm

agr

eem

ent)

31 M

ay 1

977

CW

B3,

142,

000:

whe

at (

indi

vidu

alA

ugus

t 19

77–J

uly

1978

n.a.

CIR

EC

Oco

ntra

ct n

ot u

nder

lo

ng-t

erm

agr

eem

ent)

13 J

une

1978

CW

B3,

143,

700:

whe

at (

indi

vidu

alS

epte

mbe

r 19

78–A

ugus

t 19

79n.

a.C

IRE

CO

cont

ract

not

und

er l

ong-

term

agre

emen

t)26

Feb

ruar

y 19

79C

WB

Fift

h lo

ng-t

erm

gra

inn.

a.n.

a.C

IRE

CO

agre

emen

t si

gned

4 S

epte

mbe

r 19

79C

WB

2,10

0,00

0: w

heat

(fi

rst

Oct

ober

197

9–Ju

ly 1

980

n.a.

CIR

EC

Oin

divi

dual

con

trac

t un

der

fift

h lo

ng-t

erm

agre

emen

t)

Sou

rce:

Tabl

e co

mpo

sed

by a

utho

r fr

om C

WB

ann

ual

repo

rts.

Not

en.

a.�

not

avai

labl

e.


government ‘China specialists’ to discuss the situation in the PRC and AmericanChina policy generally. Johnson concluded the discussions by asking that, overthe next six weeks, participants provide him with written personal views on theWarsaw Talks and China.20 In a speech that same day Zhou Enlai admitted thatthe Chinese had made inadequate preparations for sowing the spring crops andthat the domestic water conservation and fertilizer situations had deterioratedsince 1967.21

Rusk’s response on 22 February to President Johnson’s 2 February requestemphasized that, in light of the continuing war in Vietnam, America’s obligationsto its allies in Asia and ongoing scrutiny from Congress, any re-evaluation of theUS government’s trade controls should focus solely on foreign American sub-sidiaries, ship bunkering controls, removing the certificate of origin requirementon purchases of up to US$100 in Chinese goods and permitting US exports toChina of insecticides, farm machinery, chemical fertilizer and grain.22

On 3 May Washington invited Beijing to send journalists to report on the USPresidential election in November and, on 21 May, Under-Secretary of StateKatzenbach 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

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

Year Total cereals Wheat Rice Maize

1958 223,500 148,300 31,600 41,9001959 2,000 — — 2,0001960 66,300 38,700 27,600 —1961 5,809,700 3,881,700 363,000 86,2001962 4,923,000 3,535,600 174,100 496,3001963 5,952,000 5,587,700 100,200 217,6001964 6,570,100 5,368,700 159,100 281,5001965 6,405,200 6,072,700 180,800 98,5001966 6,437,800 6,213,800 198,600 25,3001967 4,701,900 4,394,600 94,700 210,5001968 4,596,400 4,451,400 39,200 102,4001969 3,786,300 3,740,200 17,100 29,0001970 5,359,960 5,302,100 42,000 13,0001971 3,173,200 3,022,000 131,000 20,2001972 4,756,200 4,333,600 197,000 223,3001973 8,127,900 6,298,500 66,700 1,605,6001974 8,121,300 5,383,400 120,700 1,905,3001975 3,735,000 3,491,200 70,200 136,8001976 2,366,500 2,021,900 290,000 23,9001977 7,344,800 6,875,800 125,300 7,7001978 8,832,500 7,667,300 170,700 794,0001979 12,355,300 8,709,800 123,900 2,791,600

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

new to discuss, they wanted to postpone the 135th Sino-American ambassadorialmeeting until after the US election.23

Owing to the Soviet-led invasion of Czechoslovakia in August and the continueddeterioration of Sino-Soviet relations, Johnson had to abandon the idea ofnegotiating with Beijing and easing America’s China trade policy. Also, as theCultural Revolution gathered momentum in 1968 and 1969, representatives ofWestern governments, business and the media inside China became targets of theRed Guards. From 1966 to 1972 many Western and Japanese plant constructionprojects in the PRC were delayed or postponed and the Chinese concluded, few ifany, equipment and technology deals with foreign interests.24

Poor weather during the first half of 1968 adversely affected growing conditionsin China, which, in conjunction with the ongoing political turmoil, exacerbateddomestic problems.25

During 1968 the Chinese imported 5.2 million tonnes of chemical fertilizerfrom abroad – up substantially from the record amount purchased the previousyear (see Table 10.3). By August, chemical fertilizer was less available because ofdelayed foreign imports and other problems associated with the CulturalRevolution. Western grain exporters were disappointed that the Chinese importedonly 4.6 million tonnes of grain from abroad in 1968 – even less than the previ-ous year. Chinese news sources explained that there were increased incidents ofblack marketeering and food shortages caused by procurement and distributionproblems. Many urban areas, previously recipients of fine grains as part of theirpreferential treatment, found their rations reduced and substituted with less


Table 10.3 PRC’s total annual foreignchemical fertilizer imports:1966–80

Year Total chemical fertilizer imports (in tonnes)

1966 3,198,7741967 4,958,0801968 5,290,5151969 5,641,2381970 6,521,2981971 6,506,3621972 6,870,0901973 6,383,7311974 5,183,6321975 5,014,1631976 4,661,5101977 6,497,8281978 7,450,6331979 8,529,0151980 10,177,780

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

popular coarse grains.26 This may have allowed the Chinese to reduce their short-term foreign grain imports, but a growing number of Chinese leaders probablyspeculated that following such a strategy over the long-term was both impracticaland perilous.

It was probably the realization that China’s grain situation was returning to pre-‘readjustment’ levels which convinced Mao to reappraise both the CulturalRevolution and Sino-American relations. In August the Chinese urgently openednegotiations to purchase Australian grain for delivery in early 1969. Also, thePLA, during July and August, was reasserting control to stop factional fightingand 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 officialsdeclared that the Cultural Revolution was essentially over. Nevertheless, theChinese were still trying to reduce their dependence on foreign grain. Althoughon 14 November CEROILFOOD agreed to purchase more than 1.5 million tonnesof Canadian wheat for delivery during the first half of 1969, this figure repre-sented nearly half (the rest coming from Australia) of the PRC’s comparativelymeagre total of foreign grain imports in 1969.28 This was the final Sino-Canadiangrain 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 ofthe Warsaw Talks, scheduled for 20 November, until 20 February 1969 – afterRepublican President elect Richard Nixon’s inauguration. The Nixon administra-tion’s power base was the West Coast, which was home to major manufacturersof petrochemical and petroleum equipment, aircraft and interests associated withthe US grain producers who increasingly favoured the establishment of Sino-American trade relations. A PRC press release of 26 November maintainedthat, since the beginning of the talks, the Americans had focussed on resolvingsmaller issues while Beijing again sought to convince Washington to withdraw itsmilitary 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 pre-sented at the Bandung Conference (1955) and subsequently raised by the Chinese(usually Zhou Enlai) when international tensions moderated – probably indicatedrenewed flexibility in Beijing’s approach.29

Indeed, Zhou Enlai was trying to convince other Chinese leaders that PRCeconomic development must be based less on Maoist ideology and more onmoderate, ‘gradualist’ ‘agriculture first’ policies which characterized the 1961–5readjustment.

America’s economic situation had deteriorated considerably during 1968 andthere was growing domestic opposition to the Vietnam conflict. On 10 February1969 Canada’s Secretary of State for External Affairs, Mitchell Sharp, told theHouse of Commons that the Trudeau government wanted to open negotiations, atStockholm, with the PRC on establishing diplomatic relations.30 As the Beijing


government reduced purchases of foreign grain, the CWB saw the establishmentof Sino-Canadian diplomatic relations as a means of encouraging the Chineseto continue buying Canadian wheat. President Nixon’s memorandum to hisSpecial Assistant for National Security Affairs, Henry Kissinger, about that timealso instructed Washington to explore diplomatic relations with Beijing. On18 February Nixon also told Secretary of State William Rogers that the US shouldparticipate in broad scientific and cultural exchanges with China.

Suddenly, on 20 February Beijing cancelled the scheduled resumption of theSino-American Warsaw Talks, which were to begin that very day, to protestWashington’s decision to grant asylum to Liao Hoshu – a defector from the PRCembassy in the Netherlands. Then, the Chinese agreed to hold the first meetingof the Sino-Canadian Stockholm Talks the following day. As these discussionstook place on 21 February, Kissinger told news representatives that Nixon wantedto pursue a China policy characterized by ‘maximum contact’ – an approach notpreviously made public.

In early March Sino-Soviet military skirmishes broke out along their commonborder and, on 1 March, Nixon told de Gaulle that, whatever the obstacles, hewanted to open discussions with Beijing aimed at normalizing Sino-Americanrelations and having China admitted to the UN, while ending US involvement inVietnam. Meetings of the Sino-Canadian Stockholm Talks were held on 3 and10 April. On 23 April, de Gaulle asked the newly appointed French ambassadorto China to transmit Nixon’s message to the Chinese leadership.31 On 29 MayCanadian Prime Minister Trudeau – who had taken over from the retiringL.B. Pearson in early April – announced that his Liberal government wouldrecognize the PRC diplomatically as soon as possible and vote for China’sadmission to the UN.32

However, as had happened so many times before when Sino-American tensionsappeared ready to moderate, on 16 May the PLA shot down another US-madeespionage aircraft (a U-2 operated by the ROC air force).

Meanwhile, the Cultural Revolution was officially brought to a close at theCCP’s Ninth Party Congress in April, and the domestic situation began to stabilizeas production increased.33 However, after Lin Biao’s appointment as Mao’ssuccessor in April, Zhou Enlai’s strategy for 1970 – which involved a greateremphasis on agriculture, while pursuing less ambitious targets – was graduallyreplaced by one stressing decentralization and unrealistically rapid developmentof heavy industry in the interior.34

In July Washington began unilaterally validating passports enabling Americanscholars, journalists, students and members of Congress to travel to the PRC, andallowed US citizens visiting that country to buy up to US$100 dollars worth ofChinese goods. On 8 August, Secretary of State Rogers announced that theAmericans wanted to resume the Warsaw Talks.

The Chinese purchased only 3.8 million tonnes of foreign grain in 1969 – thelowest amount since 1960. As China’s grain situation deteriorated, the Beijingleadership realized that at least over the short-term, it needed to resume importingmore than 5 million tonnes of foreign grain annually. Thus, on 22 September 1969,



following the expiration of the third Sino-Canadian grain agreement, CEROIL-FOOD agreed to buy more than 2.4 million tonnes of wheat (for delivery betweenOctober 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 timesince before 22 April 1961, the Sino-Canadian grain trade was proceeding outsidethe parameters of a larger long-term ‘umbrella agreement’. This was probably aneven greater incentive for the Canadians to reach a breakthrough at the eighthmeeting of the Stockholm Talks, scheduled for 18 October.

During policy debate, about 22 September, those ‘readjusters’ who had sur-vived the first three years of the Cultural Revolution probably advised the PRCleadership to resume large credit purchases of equipment and technology fromCapitalist countries, of Western grain under long-term agreements and even con-sider buying US grain and other goods with a view to reaching a Sino-Americanrapprochement. Because of the Sino-Soviet split, Beijing could not, even if itwanted to, obtain significant quantities of items which it required from Moscow.By improving relations with Washington, Beijing would counterbalance its poorrelations with Moscow, assuage its concerns about increasing Soviet economicand military involvement in Asia, about its poor relations with Delhi, abouttension along the Sino-Indian border and about PRC involvement in the Vietnamconflict.

Americans were protesting against US involvement in the Vietnam War and, bylate 1969, the Nixon administration was eager to exit as gracefully as possible fromthe conflict and explore more seriously opportunities in the potentially vast Chinesemarket. US business and farm ‘lobby groups’ wanted Washington to take steps tohelp resolve America’s worsening balance of payments problems, stem the outflowof gold from domestic reserves, boost the weakening US dollar, reduce growingdomestic grain surpluses, industrial overcapacity and underemployment.

On 7 November the US suspended naval patrols off Taiwan. On 11 DecemberBeijing agreed to resume the Warsaw Talks, even though Chen Yun was droppedfrom 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 USgovernment said that all US nuclear weapons would be removed from Okinawaby the year’s end and, the same month, Washington announced that foreign sub-sidiaries of US firms could begin exporting ‘non-strategic’ items to China andeliminated the US$100 limit on American purchases of PRC goods – thuspermitting purchases of unlimited value.36

January 1970–June 1974

The Beijing government’s plans to finance development by dramatically increasingpetroleum exports to Japan during the 1970s were being undermined by lowextraction rates at PRC oil fields. Thus, in 1970 the Chinese opened negotiationswith interests in Capitalist countries to buy petroleum exploration and refiningequipment and agreed to purchase oil drilling equipment from a Japanese firm.

That same year, the Chinese resumed negotiations (suspended in 1964–5) forforeign-made medium and long-range passenger and cargo jets and related equip-ment and technology. However, Chinese leaders still disagreed about which typeof aircraft was the most suitable and how orders for passenger/cargo jets shouldbe distributed among West European, Soviet or even American firms. TheChinese still needed very generous long-term credits to finance purchases oflong-range commercial jets – terms which almost certainly would meet strongopposition from leaders eager that the PRC become self-sufficient. Such dealswould leave China with large long-term debts to Western countries and wouldprobably only be practical if the Chinese government decided to greatly expandits international contacts.

In 1970 the Beijing government decided to provide Pakistan with a squadronof PRC-built MiG fighter jets in exchange for four used British Hawker SiddeleyTrident 1 medium-range jet transports, which had a range of 1,100 miles andcould carry up to 109 passengers.37 This deal was probably a means of placatingthose PRC leaders opposing a resumption of aircraft negotiations with Westernfirms and invigorating foreign aircraft producers’ interest in the Chinese market.

Meanwhile, on 8 January 1970, when announcing that the Warsaw Talks wouldresume later that month, the US State Department made its first public referenceto the PRC. On 18 January the Nixon administration’s report (entitled ‘USForeign Policy for the 1970s, a New Strategy for Peace’) – which suggested thatall necessary steps be taken to improve Sino-American relations – was presentedto Congress. At Warsaw two days later the Chinese suggested that the talks bemoved to Beijing in May.

Although no formal meetings of the Sino-Canadian Talks at Stockholm wereheld between March and August 1970, both sides continued informal discussionson diplomatic recognition.38 Meanwhile, on 16 March Washington announcedthat it would validate US passports for legitimate travel to China. Then, in AprilWashington authorized exporters to ship to China non-strategic and foreignmanufactured goods which incorporated US components.

However, on 19 May, the Chinese cancelled the next meeting of the WarsawTalks, scheduled for the following day, to protest America’s invasion ofCambodia. Nevertheless, during discussions with Rumanian officials in June,Zhou Enlai implied that, although he favoured improved Sino-American rela-tions, other Chinese leaders did not.39 Then, in July the Chinese governmentannounced that it had released an American imprisoned for spying – before histerm had been fully served.

Grain supplies in North China were inadequate and the State Council’sagricultural conference for northern regions in August discussed proposals forrapid agricultural production increases.40 In 1970 the Chinese imported a record6.5 million tonnes of foreign chemical fertilizer and purchased 5.36 milliontonnes of Western grain – the largest amount since 1966. Also in 1970 ChenGuodong and Chen Ming re-emerged, the latter as chairman of the Shaanxibranch of the Federation of Returned Overseas Chinese.


CEROILFOOD purchased 2.22 million tonnes of grain from the AWB inthe first three-quarters of 1970. On 13 October, after nearly twenty monthsof Sino-Canadian negotiations at the Stockholm Talks, and with separateCEROILFOOD–CWB bargaining on a second successive large one year graindeal reaching a critical stage, the Trudeau government recognized the PRC gov-ernment diplomatically. Then, on 27 October CEROILFOOD agreed to purchase2.65 million tonnes of grain from the CWB, and the Chinese subsequently main-tained that they would not buy more Australian grain until Canberra recognizedBeijing diplomatically.

Also during the autumn of 1970, a strike by General Motors workers inAmerica was exacerbating that country’s economic difficulties. This, in conjunc-tion with the revival of Sino-Western trade diplomacy, generated more Americanbusiness 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 on13 November, to suggest to the Chinese that high-level Sino-American talks beheld in Beijing. The same day the White House suggested that it would be willingto adopt a two China policy.

Then, on 6 November, Rome recognized Beijing diplomatically. In December1970 and January 1971 Washington and Beijing exchanged increasinglyfriendly communiqués through Pakistan. Although Sino-American relations dete-riorated for several weeks after Washington supported South Vietnam’s invasionof Laos, the Americans assured Beijing that this action was not a threat tothe PRC.

However, some Chinese leaders were growing very uneasy about the revival oftrade relations with the Capitalist powers and especially Beijing’s increasinglyfriendly exchanges with Washington. Suddenly, in December, as the Chineseresumed negotiations to purchase new aircraft directly from Western firms,Bai Xiangguo41 – strictly a military official until being appointed as a MOFTcadre member in April 1970 – was appointed Minister of Foreign Trade. LinHaiyun, Acting Minister of Foreign Trade since early 1964, soon disappeared.

Nevertheless, in 1971 the Chinese signed contracts to purchase six Trident2E 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 inEurope had learned that Beijing was interested in buying jet transports, theUS firm received no response from the Chinese when they attempted to initiatetalks through unofficial contacts in Hong Kong a short time later.42 Boeing wasstill America’s largest aircraft manufacturer and sales of its 707 aircraft remainedstrong but, in 1968, with the cutbacks in the US space programme and the peak-ing of the Vietnam War boom, the aerospace industry entered a more difficult andcompetitive period. From 1968 to 1972 US aerospace employment and salesshowed the greatest decline for twenty years. The size of Boeing’s workforcecontracted from about 100,000 in 1968 to 72,000 in 1971 and the firm’s projectto produce supersonic aircraft had been cancelled. By January 1971 when theUS President’s wife, Pat Nixon, christened the first Boeing 747 to fly to London,


costs associated with designing this aircraft’s production site were nearly equivalentto the Seattle firm’s entire capital.43

On 13 March 1971, as Sino-American relations continued to improve, and withthe Chinese aircraft market ready to open up, London extended full diplomaticrecognition to the Beijing government. Shortly thereafter Beijing invitedWashington 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 firstAmerican sports delegation to visit China since 1949. On 14 April Zhou Enlaideclared that the visit had opened the door to friendly official Sino-Americanexchanges. Then, on 18 and 28 May respectively, the Dutch and Austrian govern-ments recognized the PRC diplomatically.

In mid-1971, as the Chinese continued to bargain with Hawker Siddeley formore Trident aircraft, they opened negotiations with the British AircraftCorporation and the Toulouse-based Aerospatiale for the Anglo-French super-sonic Concorde – which had a range of 3,896 miles and a passenger capacity of128. Some Western observers were concerned that, if the Chinese acquiredConcordes, they might equip them with warheads to use them as an alternative tointercontinental and intermediate-range ballistic missiles.45

By late May, with Sino-American relations continuing to improve, a growingnumber of Chinese leaders wanted the PRC to open negotiations with Boeing forthe firm’s 707–320 long-range intercontinental commercial jetliner. Developedfor use as an air force transport, the 707–320 later became America’s first pro-duction jet airliner and the first profitable long-range passenger jet in history.Used by the airlines since October 1958, its popularity made Boeing the leadingcommercial jet manufacturer in the world.

While Chinese leaders opposed to negotiating with Boeing might have empha-sized that the Seattle-based firm also produced the B-52 aircraft used for bomb-ing Vietnam, CAAC considered the 707’s specifications, including its cruisingspeed (591 mph), range (3,925 miles), passenger capacity (189) and superiorshort takeoff performance (in comparison to the Trident or Concorde), ideal forestablishing routes from Beijing/Shanghai/and Guangzhou to Tokyo and to Tiranavia Bucharest and Paris.

When Zhou Enlai and Kissinger met for talks in Beijing from 7 to 11 July, theChinese invited Nixon to visit the PRC, although on 20 July they reiterated theirfirm 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 respondedbetween 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 thePRC was scheduled when Kissinger returned to Beijing for more meetings withZhou Enlai from 20 to 26 October. As talks progressed on 25 October, Belgiumextended diplomatic recognition to China.

Between January and August 1971, under new Minster of Foreign Trade, BaiXiangguo, the Chinese drastically reduced their imports of foreign grain. In that yearthe PRC purchased a mere 3.2 million tonnes of foreign grain – the smallest amountsince 1960. ‘Leftist’ policy errors resulted in economic dislocations – including the


‘three excesses’ (i.e. too rapid development, urban overpopulation and unem-ployment, acute cereal shortages and reduced grain reserves caused by excessivedomestic sales) – not seen since the GLF. These developments seemed to havea considerable impact on China’s internal politics. During the second half of 1971Chen Yun and Zhou Enlai began regaining influence in policymaking and inAugust Liao Chengzhi made his first appearance since 1967.

By autumn Chinese leaders must have been engaged in intense debate overwhether to resume annual imports of more than five million tonnes of Westerncereals and begin purchasing US grain and aircraft. During the first two weeks ofSeptember, as Sino-Canadian grain negotiations reached a critical stage, theChinese leadership was trying to decide what type of aircraft it should purchase.About that time Boeing began receiving ‘somewhat mysterious’ enquiries – whichexecutives of the Seattle firm later traced back to the PRC government.46

Suddenly, on 13 September (according to the official version of events) PRCDefense Minister, Lin Biao, and his co-conspirators tried and failed, to escape tothe USSR – aboard one of the Trident aircrafts obtained from Pakistan – aftertheir plot to overthrow the PRC government was exposed. The landing gear of thisaircraft was reported to have sustained serious damage after clipping a vehicleduring takeoff. The Trident also carried insufficient fuel and later crashed inOuter Mongolia.47 One might contemplate how the Boeing 707–320’s uniquelyshort takeoff capability and much greater range might have made it a more suit-able getaway aircraft. With Lin’s death, internal opposition to import equipmentand technology from the US gradually diminished.

Also on 13 September, CEROILFOOD suddenly agreed to purchase533,400 tonnes of Canadian wheat. It appears that, as this was an emergencyshipment, it was to be delivered on incredibly short notice (from October toDecember). It represented more than one sixth of China’s total imports of foreigngrain in that year. Then, on 17 December, with the Sino-Australian grain tradestill suspended, CEROILFOOD agreed to buy another 3.3 million tonnes fordelivery between January and December 1972.

Meanwhile, in October China’s seat at the UN was restored and betweenDecember 1971 and February 1972 Iceland, Mexico and Argentina recognized thePRC diplomatically.

On 6 January ‘readjustment’ forces lost a key ally when PRC Foreign MinisterChen Yi (who had been persecuted during the Cultural Revolution before ZhouEnlai personally intervened to save him) died. That same month, Shanghai flourand textile tycoon, Rong Yiren, was restored to power.

On 14 February, Washington reduced its controls on American exports to Chinato the same level applied to the USSR and Eastern Europe. Then, on 28 February –following meetings between Nixon and Zhou Enlai – Washington and Beijingproduced the ‘Shanghai communiqué’ in which they agreed ‘. . . to facilitate theprogressive development of trade between the two countries’.48

Nevertheless, American business soon faced intense competition from interestsin other Western-aligned countries which had already developed business tieswith the PRC during the 1950s and 1960s. In 1972 US aircraft representatives


soon learned, if they did not know already, how the Beijing government shrewdlypromoted competition among foreign interests by ‘playing one side againstanother’ 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 PRCgovernment. CNTIC had entered into discussions with McDonnell–DouglasCorporation and Lockheed Aviation Co. about the Longbeach, California-basedfirm’s jumbo L-1011 Tristar, L-100 Hercules and the (executive) Jetstar.49

On 7 March some US Congressional representatives had alleged that Washingtonwas favouring Lockheed’s bid to enter the Chinese market because TreasurySecretary John Connally – who had also been in the Johnson and Kennedyadministrations – had sponsored the loan required for L-1011’s development.50

Also on 7 March, Boeing wrote directly to CNTIC. The Chinese responded threeweeks later, leading to the opening of talks on 15 April.

On 18 May Boeing representatives completed initial presentations (on 707aircraft) to the Chinese and, on 22 May, they began outlining the firm’s technicalproposals.51 Between 28 May and 14 June a Lockheed delegation, led by thefirm’s President, Robert Mitchell, visited China. On 30 June the US Commercedepartment granted export licences enabling Boeing to export 707s to China if itcould reach a deal with the PRC government.

During the summer, as the CNTIC–Boeing negotiations reached a criticalstage, the Chinese placed preliminary orders (worth approximately US$70 mil-lion) to purchase Concorde aircraft – one from British Aircraft Corporation andthe other two from Aerospatiale. About that time the Chinese also signed con-tracts to purchase six more Trident 2E jet transports (worth a total of about US$57million) from Hawker Siddeley. Signing these deals with French and British firmsat that particular moment was an extremely effective way for the Chinese gov-ernment 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 flightdemonstration for the Chinese and approved export license applications to allowBoeing to sell 707 aircraft to the Chinese. Then, on 9 September the Chineseagreed to purchase four 707–320B passenger jetliners and six 707–320Cconvertible passenger/cargo transport jetliners, spare parts and ground supportequipment for approximately US$125 million in cash. At the time, it was thePRC’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 paidafter delivery of the aircraft (scheduled between late summer 1973 and spring1974). Boeing also agreed to train Chinese pilots on flight simulators at itsSeattle 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 turbo-fan spare jet engines (worth about US$21 million) for the 707s from UnitedTechnologies.52

Between 1971 and 1973 the Chinese bought five Illusyin Il-62 long-range jettransports – each with a passenger capacity of 186 and a range of 4,160 miles – for


use on a direct route from Beijing to Moscow. They also purchased a total ofthirty-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 whatit could to enable Japanese firms to keep pace with the West Europeans in theChinese market, on 29 September Tokyo recognized Beijing diplomatically.About that time the Chinese purchased an iron work from Hitachi, a continuous-slabrolling mill from Sumitomo, and several petrochemical plants, as well as a largeamount of construction equipment from various Japanese firms.

Then, on 11 October, Bonn recognized Beijing diplomatically. About that timethe Chinese finally agreed to buy a small rolling mill (valued US$80 million)from DEMAG and told representatives of the US firm Pullman Kellogg, visitingBeijing, of their interest in purchasing more chemical fertilizer equipment.54

Continued interference from ‘leftist’ elements during 1972 resulted in a wors-ening of ‘the three excesses’ of the previous year, and Zhou Enlai tried again tosteer the leadership towards the ‘agriculture first’ ‘gradualist’ path and improveddiplomatic relations with the US.55 In 1972 the Chinese imported a record6.9 million tonnes of foreign chemical fertilizer and their imports of Westerngrain 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 evenmore eager to resume exporting grain to the PRC, and on 22 December Canberrarecognized Beijing diplomatically.

During Kissinger’s trip to the PRC, between 15 and 19 February 1973, theAmericans and Chinese announced that they had agreed to establish reciprocal tradeoffices (to open on 1 June). In mid-March the PRC government released a CIA offi-cial and two US air force pilots imprisoned in China. That summer the ChaseManhattan Bank became the first American bank to open direct links with the PRC.

As China’s economic situation improved, Mao and Zhou Enlai orchestrated thePRC’s complete plant import programme.56 In 1973, Beijing spent even moremoney than in the previous year when it signed many more lucrative contracts topurchase equipment, industrial plants and related technology from Japanese, WestEuropean and American firms.57 During April Xiao Fangzhou – who had beenintimately involved in the PRC’s grain diplomacy before disappearing during theCultural Revolution – was reactivated. Then, in May Lin Haiyun – the formerActing Minister of Foreign Trade who had been replaced in late 1970s – was namedas a State Council cadre member.

In October, Li Qiang, who had survived the Cultural Revolution, was appointedMinister of Foreign Trade, replacing Bai Xiangguo who became Deputy Directorof the PLA’s logistics department. On 5 October, about the time of Li’s appoint-ment, the fourth Sino-Canadian long-term grain agreement (to run from January1974 to December 1976) was signed. The first contract under the accord was alsosigned, providing for the Chinese to purchase over one million tonnes of Canadianwheat. This was extremely significant because the Chinese, who had been tryingto end their reliance on Western grain, had decided in September 1969 not to enterforeign grain import agreements lasting more than twelve months.



Also in October 1973, a long-term Sino-Australian grain agreement (coveringJanuary 1974–December 1976) was signed, under which Beijing agreed topurchase 4.7 million tonnes. During 1973 PRC foreign grain imports climbedto a record 8.13 million tonnes (about 2.5 million tonnes from Canada, 4.2 mil-lion tonnes from the US,58 100,000 tonnes from Argentina and 800,000 tonnesfrom Australia – the first PRC purchase of Australian grain since 1970).

Although in 1973 the PRC’s total imports of foreign chemical fertilizer fell to6.3 million tonnes – the lowest figure since 1969 – in November 1973, Beijingagreed to buy 8 plants to produce ammonia fertilizer from natural gas and 8 ureainstallations (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 toexpand the scope of the Sino-American reciprocal trade offices was reached.From 1973 onwards, American firms such as Baker–Hughes established schoolsin Beijing to train Chinese oil technicians and subsidiaries in Hong Kong to facil-itate exports of large quantities of ‘state-of-the-art’ petroleum equipment andtechnology to the PRC.

China’s economic conditions continued to improve, and in 1974 the Chinesepurchased much less foreign chemical fertilizer (only 5.2 million tonnes). Theyalso imported 8.12 million tonnes of foreign grain (2.8 million tonnes from theUS,60 1.9 million tonnes from Canada, 1.4 million tonnes from Australia and730,000 tonnes from Argentina), only slightly less than the record established theprevious year. Also in 1974 the Chinese agreed to purchase very large amounts ofsteel processing equipment and technology – items which they had tried to acquireas early as 1965–6 for the proposed integrated complex at Wuhan – from consor-tiums 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 Vice-Chairman of the CCP Central Committee and member of the Political Bureauof the Standing Committee, Deng Xiaoping attempted to turn China away fromthe policy of technological and financial self-reliance. Nevertheless, industrialdevelopment (especially for heavy industry) was accelerated under a Ten Year Planfor Economic Development (1976–85). One hundred and twenty very large indus-trial and transport projects (including ten new oil fields) were to be completedduring this period by importing necessary items from abroad under long-termcredits, to be repaid partially by increasing foreign coal and petroleum exports.62

The volume of the PRC’s chemical fertilizer imports fell further in 1975to 5.01 million tonnes, but in that year Beijing imported only 3.7 million tonnes offoreign grain – the lowest amount since 1971. Suddenly in May 1975 Lin Haiyunwas promoted to Vice-Minister of Foreign Trade and in August Wang Bingnan


made his first appearance since early 1967. In September, former Vice-Ministerof Foreign Trade Jia Shi also re-emerged, while Luo Ruiqing too was reactivatedduring 1975.

However, on 8 January 1976, the re-emerging ‘readjusters’ suffered anotherblow when Zhou Enlai, who had been in charge of China’s grain importprogramme since its inception, died. Thus it is not surprising that in 1976 theChinese purchased a record low 2.4 million tonnes of foreign grain (the lowestamount 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 firstappearance, since having disappeared in 1967, when he attended the mourningceremony for the late Chinese Premier.

By spring 1976 Deng Xiaoping was under attack from leftists – especially forhis 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 governmentmade 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 record8.83 million tonnes the following year.

By late 1978 it was clear that the Ten Year Plan was badly flawed. In that yearthe Chinese largely overlooked agriculture and other key sectors as they signedmany contracts to import expensive items required to improve the technologicalbase of existing heavy industry. Thus the PRC’s revenue was no longer sufficientto cover foreign exchange obligations, forcing the Chinese to consider acceptingforeign loans. They also discovered that the PRC’s oil and gas reserves – thefoundation of their economic development strategy – were much smaller thanoriginally thought. This forced the leadership to view ‘leftist’ development poli-cies more critically, leading it to abandon several partially completed industrialprojects and reconsider its entire economic and trade strategies.63 Thus it is notsurprising that, in 1978, the Chinese asked Pullman Kellogg to redesign twoof the ammonia production facilities (which they had agreed to purchase fromthe US firm in November 1973) so that another liquid hydrocarbon rather thannatural gas could be used as a feedstock.64

Autumn 1978–December 1979

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


In early 1979 the Chinese government adopted Chen Yun’s ‘new’ developmentstrategy, focussing on agricultural development and consumption, reducinginvestment in heavy industry, and supporting a more moderate economic growth.This ‘new’ strategy of ‘readjustment, reform, rectification and improvingstandards’ 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, from1961 to 1965, had enabled the PRC to recover from their economic crisis. (In May1979 Bo Yibo was elected deputy for Beijing to the fifth NPC, in July he wasappointed to the State Council and became Vice-Premier and in December he waselected to the CCP Eleventh Central Committee.) Between 1979 and 1983 thePRC’s imports of foreign grain exploded to between 12.4 and 16.1 million tonnesannually. Although the last of the chemical fertilizer plants purchased fromPullman Kellogg began operating in 1979 and 1980, in those years Beijingimported a record 8.5 and 10.2 million tonnes, respectively, of foreign chemicalfertilizer.

Under the ‘readjustment’ initiated in 1979, the PRC found new ways to raisecapital for domestic development. The government began to rehabilitate andprovide large cash payouts to compensate former successful Chinese businesspeople still living in the PRC who had previously been stripped of their assetsduring political upheavals (most recently the Cultural Revolution) and who mightnow be useful in China’s development push. In early 1979, China InternationalTrade Investment Corporation (CITIC) was established under the State Council.Working closely with the Bank of China, it promoted Chinese–foreign jointbusiness ventures at home and abroad, raised capital by encouraging foreigninvestment in the PRC and facilitated the absorption of advanced foreign tech-nology. During the second half of 1979 several figures who had been crucialin the 1961–5 ‘readjustment’ were identified as CITIC executives: Rong Yirenas chairman, Lei Renmin as vice-chairman, Wang Kuancheng, Jing Shuping,Xu Zhaolong (the latter two longtime associates of Rong Yiren) and Lui Xiwenas directors and Min Yimin (another of Rong’s associates) as a leading memberof CITIC’s financial department.

By focussing on key trade negotiations and agreements, within the multilateralperspective and in the context of contemporary sectoral market conditions andgovernment 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 economicpolicy and trade diplomacy from 1949 to 1979 – which prepared the foundationon 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 organiza-tions and lobby groups representing interests from these sectors played a crucialrole in the erosion of the trade embargo between 1949 and 1979.

During the 1950s, Chinese leaders became progressively more eager to tradewith Capitalist countries as they became disillusioned with Soviet equipment,technology and aid and concerned about worsening regional Chinese grain short-ages 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 domesticbusiness/agricultural interests and their lobby groups pressuring governments toconsider easing their China trade controls. They were increasingly successfulbetween the end of the Korean armistice and the autumn of 1958, then from 1961to 1966 and after 1970 – their influence only diminished by events in Chinaduring the GLF and the Cultural Revolution’s most disruptive phase.

Although President Eisenhower recognized that a certain amount of Sino-Western trade in non-strategic goods was not only necessary, but impossible toprevent and perhaps even beneficial to the Western alliance, especially in the caseJapan’s expanding economic relations with China, most other US policymakers,led by the JCS, disagreed. Frequent reports, during the 1950s, that the PRC’sextremely ambitious development programme was in difficulty, convincedWashington, Taibei and the pro-Taiwan ‘China-lobby’ that, by maintaining ortightening the trade restrictions, Western governments might eventually hastenthe demise of the Beijing government.

During the 1950s and 1960s Western-aligned governments tried to accommodateAmerican wishes out of loyalty to the alliance and so as not to irritate Washington

Conclusion

and jeopardize US economic, financial and military support on which they relied.However, although America’s allies had agreed to maintain trade controls aimedat limiting the PLA’s strength, they had never accepted the US government’s posi-tion that the embargo should also attempt to prevent the economic developmentof the PRC.

Furthermore, dissatisfaction with the PRC’s dependence on the USSR, Mao’srapid development policies and resultant regional grain shortages resulted in theChinese leadership, between 1955 and 1957, embarking on a gradualist economicreadjustment based on reducing development targets as much as possible andtrading more with Capitalist powers. When Mao Zedong could not be swayedfrom initiating the GLF, leaders associated with Zhou Enlai and Chen Yun arguedthat such a scheme could probably not be accomplished without importing largequantities of Western grain, equipment and technology. With the demise of the‘China differential’ in May 1957, and Western interests eager to sell the Chinesegrain, it appeared that this strategy might be viable.

However, the unwillingness of Western allies, under pressure from Washingtonto further reduce the trade controls – contributing to the collapse of the all impor-tant Sino-Japanese barter trade – in conjunction with grossly exaggerated Chineseharvest reports in late1958, resulted in Beijing abandoning the readjustment andsuspending ‘test shipments’ of Western grain. It appears that, because of thebreakdown of the PRC state statistical system, Chinese leaders were unawarethat there had been a large number of abnormal deaths in 1958. This signalledthe beginning of a famine which claimed the lives of as many as thirty millionpeople from 1958 to 1962.

In 1958–9, after receiving and investigating reports of food shortages, someleaders nearly convinced Mao Zedong to scale back the GLF. But, after PengDehuai criticized the movement in the summer of 1959, the Chairman, stillunaware of the tragedy unfolding in the countryside, felt that to end the movementwould be an admission of his own incompetency. Only beginning in March 1960did the leadership learn that the country’s grain stocks were depleted and starva-tion rife throughout the country. Mao responded immediately by ordering furtherinvestigations, which took place from May to November as the Chinese termi-nated the GLF, resumed importing Western grain and reintroduced the ‘readjust-ment’ that had been suspended in 1957–8. The Soviet decision to withdrawtechnical support in July, just as the Chinese were discovering the magnitude oftheir crisis, had a profound effect on subsequent Sino-Soviet trade and diplomaticrelations.

Nevertheless, from 1961 to 1965 those in charge of the readjustment orches-trated the PRC’s remarkable recovery by large-scale imports of Western grain andagriculture-related industrial products, especially in chemical fertilizer and chemicalfertilizer plants, transportation and construction equipment and related technology.The Chinese obtained most of these essential items under increasingly favourableterms, 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.

Conclusion 217

Taibei and Washington continued opposing the development ofChinese–Western trade, especially because of China’s economic crisis, the Sino-Indian Border War and the PRC’s involvement in the Vietnam Conflict. Yet,behind the scenes, Kennedy administration officials accepted that America’sallies needed to conduct a certain amount of ‘non-strategic’ trade with China.They resumed and expanded investigations initiated by their counterparts in theEisenhower administration into how such trade, including limited Sino-Americaneconomic relations, could be used to the advantage of the Western alliance.Although the Kennedy administration could not afford to appear to be abandon-ing its allies in Asia and risk a political backlash from powerful conservativeforces at home, during the summer and autumn of 1963 it notified the Chineseat 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 onegenerally characterized by ‘firmness and flexibility’.

The erosion of the China trade controls from 1961 to 1965 had not enabledBeijing to obtain the type or quantity of equipment and technology it neededto solve its development problems. In this sense the embargo was extremelyeffective. Without greater access to these items on improved long-term credits,the readjustment could no longer meet the demands of uncontrolled populationgrowth, China’s growing involvement in the escalating Vietnam conflict andassociated rapid domestic preparations for war. Not only did the objective ofattaining ‘self-reliance’ probably appear to ‘leftist’ leaders as distant as ever, butChina 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 ideologicalstudy 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 Johnsonadministration introduced several initiatives at the Warsaw talks aimed at increas-ing Sino-American contact and understanding. Between early 1965 and 1968Washington seriously considered a gradual easing of America’s non-strategicChina trade controls, but because of events in Vietnam and in China itself, fol-lowing the outbreak of the Cultural Revolution, such policy initiatives were notimplemented.

Suspicions that a complete Sino-Soviet split had occurred appeared to havebeen confirmed with the outbreak of military skirmishes along their commonborder in 1968. Meanwhile, ‘leftist’ rapid-development policies aimed at self-reliance were again leading China towards disaster. Serious regional food short-ages redeveloped in 1970–1 after the Chinese dramatically scaled back foreigngrain imports and purchased from abroad record quantities of chemical fertilizerfrom 1967 to 1970.

However, in 1969–70 Chinese officials who had overseen the successful ‘read-justment’; began reasserting and cementing their authority and opened negotiationsfor closer trade relations and diplomatic rapprochement with the Capitalist powers.

218 Conclusion

Sino-American trade diplomacy began about the time of Lin Biao’s demise anddeveloped as other ‘leftist’ elements gradually lost influence.

Growing American economic problems and strategic concerns relating to theVietnam War and Sino-Soviet hostilities also contributed to the Nixon adminis-tration’s decision to relax US China trade controls. This bold initiative was,nevertheless, the culmination of a gradual process occurring over the previoustwo decades of policy proposals introduced, debated and amended during theEisenhower, Kennedy and Johnson administrations.

Crucial and constant factors in this process, leading to the erosion of theUS-led trade embargo against the PRC, was the overwhelming influence thatsectoral market forces and pro-China trade organisations and lobby groups had onWestern, Japanese and Chinese government policy during this period.

Conclusion 219

A463, A1209, A8648 Australian Department of Prime Minister and CabinetA609, A611 Australian Department of Primary Industry (DPI)A1310, A1313 Australian Department of Commerce and Trade (DCT)A1804 Australian DPI and EnergyA1838 Australian Department of External Affairs (DEA)AWF Ann Whitman FileBOT British Board of TradeBWEN Bi-Weekly Economic NotesCAB 128 British Cabinet, MinutesCAB 129 British Cabinet, MemorandaCC/CCPHRC Central Committee of the CCP Party History

Research Centre (PRC)CC:WER Communist China: Weekly Economic ReviewCDF Central Decimal FilesCFPF Central Foreign Policy FilesCQ China QuarterlyDDEL Dwight D. Eisenhower Presidential LibraryDDEPP Dwight D. Eisenhower Personal PapersDEA Department of External Affairs

(Australian and Canadian)FEER Far Eastern Economic ReviewFO 371 British Foreign Office, Political FilesHamilton Papers Alvin Hamilton PapersHilsman Papers Roger Hilsman PapersJFKL John F. Kennedy Presidential LibraryLBJL Lyndon Baines Johnson Presidential LibraryMS Manuscript DivisionMS 4300 Jose Maria Braga PapersMS 5049 Christopher J. Perrett PapersNAA (National) Australian ArchivesNAC National Archives of CanadaNACP (US) National Archives at College Park, MD

Abbreviations in notes

Abbreviations in notes 221

NLA National Library of AustraliaNSAM National Security Action MemorandumNSC National Security CouncilNSF National Security FilesRG# Record Group NumberRG#2 Canadian Cabinet Conclusions and MinutesRG#20 Canadian Department of Trade and Commerce

Records (DTC)RG#25 Canadian Department of External Affairs Records (DEA)RG#59 US Department of State RecordsS-NF Subject-Numeric FilesSOAS School of Oriental and African Studies

(University of London)Sorenson Papers Theodore C. Sorenson PapersThomson Papers James C. Thomson Jr PapersTNA:PRO The (UK) National Archives: Public Records Office

1 Grain imbalances, CHINCOM and China’s evolving economic andforeign 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 inWorld 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: OxfordUniversity 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 aShanghai 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 andthe 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: OxfordUniversity 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 (repre-senting public shares).

11 Son of Liao Zhiqao, the San Francisco-born KMT leader and confidant of Sun Yat-senwho 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 TradeEmbargo Against China’, in J.A. Cohen, R.F. Dernberger, and J.R. Garson (eds), ChinaTrade 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 growingtrade deficit.

Notes

19 A pre-1949 Shanghai banker and trade executive, an International EconomicConference (Moscow) delegate, and Zhejiang native (Zhou Enlai, who was born atJiangsu and raised at Tianjin, always proudly maintained that he was a ‘Zhejiangperson’ 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, theBank of China (established in 1912), as late as 1978 it still had some of its original share-holders 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: Industriesand 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 FriendshipSociety (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 and7 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 PRCgovernment was willing to receive an American goodwill delegation.

47 Xinhua (English).

Notes 223

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 FAQwheat. MN wheat was exported internationally and blended with soft domesticwheats for all purposes.

55 NAC: RG#20: vol. 818, file 10-33, pt. 2, CWB, London to CWB, Winnipeg, 9, 13 and19–20 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’sforeign economics and trade, 1984, p. 939.

71 ‘Urea Analysis of World Supply/Demand 1956–1976’, The British SulphurCorporation Ltd, London, 1969.

72 Howe, C., ‘Technology and Industrial Policy in China: A Survey of Issues in theReform Period and Lessons From Other East Asian Economies’, in Perspectives onContemporary 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 November1959, (based on Chinese official sources, Planned Economy, no. 10, 9 October 1957and Chemical Industry, no. 6, 1958); quotation from Liu, J.C., China’s FertilizerEconomy, Chicago, IL: Aldine Publishing Co., 1970, p. 14.

74 Lauriat, G., ‘Awaiting the Rush of Chinese Crude, if Any’, Far Eastern EconomicReview (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.

224 Notes

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. Froma 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 IndochinaConflict, 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 (includingthe PRC) where it was an indispensable reading for government officials, businessrepresentatives 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., Memoirsof 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) hadpreviously worked closely with the Fourth Field Army elite or the North China FieldArmy and had participated in either the establishment of military districts inManchuria 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 Micunovic, 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 InternationalHistory 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.

Notes 225

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, theUK government needed to raise interest rates dramatically, and to obtain private,US government, as well as IMF financing to fight inflation, support sterling and easebalance 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 andreturn to ‘readjustment’, July 1957–August 1960

1 People’s Daily (Beijing) articles: especially 30 August 1957.2 CC/CCPHRC, op. cit., pp. 269–70.3 ‘The Emotional Storm Over China’, FEER, 15 August 1957.4 Walker in Ash, op. cit., p. 87.5 Vogel, E.F., Canton Under Communism: Programs and Politics in a Provincial

Capital, 1949–1968, Cambridge, MA: Harvard University Press, 1969, pp. 220, 402.6 ‘The Food Problem, The Great Discussion’, cited in: China News Analysis, no. 204,

1957.7 Walker in Ash, op. cit., pp. 110–11.8 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 StarvationDuring the Great Leap Forward Period – Chinese Communist Party Official StatisticalResearch’, Kai Fung (Open Magazine), Hong Kong, January 1994, pp. 52–3.

9 Walker in Ash, op. cit., pp. 155–9.10 Wong, J., The Political Economy of China’s Changing Relations With Southeast Asia,

New York: St. Martins Press, 1984, p. 162.11 Report of the CWB (crop year 1957–8), pp. 12–14.12 Smith, op. cit. (1983), p. 108.13 DDEL: White House memorandum series, box 5, Secretary of State Dulles to

President Eisenhower, 21 August 1957.14 DDEL: DDEPP: AWF: NSC series, box 9, NSC meeting, 13 September 1957.15 DDEL: DDEPP: AWF: NSC series, box 9, NSC meeting, 2 October 1957.16 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 1957.17 Broehl, W., Cargill Trading the World’s Grain, Hanover, NH: University Press of

New England, 1992, pp. 772–800.18 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. 99–101.19 Under the semi-private Cologne-based Bundeverband Deutschen Industrie (BDI)

were three subcommittees: one handling trade relations with the USSR, another forEast European Communist nations, and another for the ODW for the PRC. The ODWwas composed of the same members as BDI and, although it did not have officialgovernment status, Bonn consulted the organization before approving any commer-cial transaction with Eastern countries. ODW representatives were included in WestGerman government delegations negotiating with Eastern countries and an officialfrom the FRG Economics Ministry was an unofficial board member.

20 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 LeapForward, Cambridge: Cambridge University Press, 1991, pp. 80–3, 192–201.

21 Vogel, op. cit., pp. 220, 402.22 RMRB report see: Walker in Ash, op. cit., p. 158.

226 Notes

Notes 227

23 Teiwes and Sun, op. cit., p. 67; CC/CCPHRC, op. cit., p. 267.24 Walker, op. cit. (1984), p. 70.25 Ang, op. cit., p. 56.26 CC/CCPHRC, op. cit., p. 268.27 Ibid.28 Forsyth-Smith Papers: Forsyth-Smith to Ottawa, 26 November 1957 and undated

attached report.29 Morgan, D., Merchants of Grain, New York: Viking, 1979, p. 95.30 Forsyth-Smith Papers: Forsyth-Smith to Ottawa, 26 November 1957; Forsyth-Smith

to Ottawa, 28 February 1958.31 NAC: RG#20: vol. 818, file 10-33, pt. 2, Hong Kong to Ottawa, 5 November 1957.32 NAC: RG#20: vol. 818, file 10-33, pt. 2, Hong Kong to Saskatchewan Wheat Pool,

12 December 1957.33 Forsyth-Smith Papers: Forsyth-Smith to Ottawa, 26 November 1957.34 NAC: RG#20: vol. 818, file 10-33, pt. 2, to Ottawa, 24 December 1957.35 FEER, 13 March 1958, p. 336.36 Lardy and Lieberthal, op. cit., pp. xxii, 67–72, 146–7.37 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’sDaily, 27 November 1957.

38 See Chapter 4: note 106.39 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.

40 Teiwes and Sun, op. cit., pp. 245–6.41 NAC: RG#20: vol. 818, file 10-33, pt. 3, Hong Kong to Ottawa, 7 February 1958.42 Mitcham, op. cit., chapter 2.43 FEER, 10 April 1958, p. 460.44 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).

45 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.

46 Adler-Karlsson, op. cit., passim.47 Mitcham, op. cit., chapter 2 (based on RG#20: vol. 818, file 10-33).48 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, 247–9.49 Mitcham, op. cit., chapter 2 (based on RG#20: vol. 818, file 10-33).50 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 1958.51 Mitcham, op. cit. (2000), chapter 2 (based on RG#20: vol. 818, file 10-33).52 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 PolicyTowards 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.

53 NAC: RG#20: vol. 818, file 10-33, pt. 3, Hong Kong to Ottawa, 13 June 1961.54 CC/CCPHRC, op. cit., p. 270.55 Teiwes and Sun, pp. xxi, 105–9, 157.56 CC/CPPHRC: op. cit., pp. 272–3; 1998 figure from Chinese State Statistical

Yearbook (1999), pp. 11, 395.57 p. 12.58 Mitcham, op. cit., chapter 2 (based on RG#20: vol. 818, file 10-33).59 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 July1958, ‘1958 Harvest “Unprecedently Good”, Says Ministry’ (excerpts from ChineseMinistry 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 andtrade, 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 andStatistics).

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 govern-

ment 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 thepropaganda department of the CCP’s North East China Bureau in Manchuria in thelate 1940s.

99 Qiang Zhai, China and the Vietnam Wars, 1950–1975, London: University of NorthCarolina Press, 2000, pp. 114–15, 554–7.

100 CC/CCPHRC, op. cit., p. 284. (Severe grain shortages also affected the nuclear testareas 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 MoreSales 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 China1949–1965, Cambridge: Cambridge University Press, 1987, p. 382; NAA: A1838/1766/1/4, 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-Secretaryof State for External Affairs, 23 February 1961.

113 Ang, op. cit., p. 159 (reported in Xinhua, 1 August 1960. See also: Edgar Snow, TheOther 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 inoverseeing 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 withChen 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.

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 annualextracted imperial weighted sample (excluding inferior samples) after overseeing thepooling and mixing of the State’s wheat harvest. The FAQ system was subsequentlycriticized because grades varied annually and it reflected bushel weight and thewheat’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. andMillington, 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.

230 Notes

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 GermanFlour Exports to the Soviet Bloc’, undated.

38 Public Papers of the Presidents of the United States – John F. Kennedy: Containingthe 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 Statefor 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 Yearsof 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 March1961; 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 Notes

66 NACP: RG#59: General Records, Bureau of European Affairs, Office of BritishCommonwealth 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 Faibish1994–5.

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 (insepara-ble part of the long-term Sino-Canadian agreement), 22 April 1961; For details ofnegotiations 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 Actand 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 inLardy 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 ‘ChinaDiary’ (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 Harrimanpapers, Rusk to Harriman, 23 June 1961; Harriman to Rusk, 18 July 1961; andSchlesinger, 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 meetingwith 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: A1838/2766/1/4, 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-profitorganization representing Mid-western wheat growers; the Western WheatAssociation Incorporated (of Portland), which was supported by the Oregon, Idahoand Washington state governments through a tax on each bushel; and humanitariangroups including various Quaker organizations such as the American Friends Serviceand 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 and30 October, Washington: US Government Printing Office, 1962, p. 100.

12 Rice was an ‘old China hand’ within the department who had been a foreign serviceofficer in China during the 1930s and 1940s and US Consul in Stuttgart between1952 and 1956.

234 Notes

13 JFKL: Thomson Papers, box 14, E.E. Rice, top secret, (S/P) ‘think paper’, 26 October1961, 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 Marketfor US in China’, Australian, 6 April 1962.

15 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., Hong Kong to Secretary ofState, 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 DailyMail, 28 October 1961; Evening News, 6 November 1961).

18 NACP: RG#59: CFPF, CDF 1960–3, box 1038, 493., Hong Kong to Secretary ofState, 8 November 1961.

19 Foreign Relations of the United States (FRUS), Washington: US Government PrintingOffice: Northeast Asia, vol. XXII, 1996, pp. 174–5. On U Nu’s friendship with ZhouEnlai see: U Nu (translated by U. Law Yone), U Nu Saturday’s Son, London: YaleUniversity 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, Bermudameeting 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 December1961 (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 toCanberra, 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-SovietRelationship’.

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 purchasesof Western grain, had visited North Korea in October/November 1960 and returnedthere again with Deng Xiaoping in July 1961 for negotiations leading to the Treaty ofFelp. Deng had also headed another delegation to the 4th North Korean WP Congressin 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; CIAtelegram 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: Harperand 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 for25 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 ofState, 18 February 1962.

59 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 7 CHICOM XR POL 27-7CHICOM–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 ofState, 18 February 1962.

61 Signed by PRC International Liaison Department Deputy Directors Liu Ningyi andWu Xinguan.

62 Qiang Zhai, op. cit., pp. 114–15, 554–7.

63 NACP: RG#59: CFPF, CDF 1960–3, box 1037, 493.119, Hong Kong to Secretary ofState, (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 AmericaCongressional 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, ‘ITCGrain Deal Application Rejected’, 23 March 1962; ‘Washington Rejects U.S. Firm’sApplication, 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 February1962; Tokyo to Washington, 8 February 1962; Chemical Engineering, vol. 69(4) and64, 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 October1958. The Comet 4C was developed from the Comet 1, the first passenger jet everproduced, but permanently grounded in early 1954 after several pressurizationaccidents 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 toWashington (US official source: Mainichi, 30 July 1963).

92 NACP: RG#59: CFPF, S-NF 1963, box 3619, PET 17 CHICOM–USSR, Secretary ofState to Hong Kong, 6 March 1963.

236 Notes

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, Spring1999, 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 toWashington, ‘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, fromBeijing, 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 JFKL: NSF 1961–3; box 153, Taibei to Secretary of State, 18 September 1962.2 JFKL: NSF 1961–3; box 153, to Secretary of State, 15, 17 and 19 September 1962.3 JFKL: NSF 1961–3; box 153, Warsaw to Secretary of State, 20–21, 29 September 1962.4 CC/CCPHRC, op. cit., p. 302.5 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.

Notes 237

238 Notes

9 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT 6 CHICOM–USSR, Hong Kong toWashington, 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 ofCommons, Canada, House of Commons, Debates, Ottawa: Queens Printer andController 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; TheNetherlands’ Centraal Stickstoff-Verkoop-Kantoor n.v.; Belgium’s COBELAZ ComptoirBelge de l’Azote; France’s Syndicat Professionel de l’Industril des Engrais Azotes; andLonza AG (a non-exporting member) of Switzerland. See: NACP: RG#59: CFPF, S-NF1964–6, 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 StateBall, 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 forForeign 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 HongKong, 23 February 1963.

25 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–W. EUR, fromHong Kong, 23 February 1963; Paris to Secretary of State, 4 February 1963; box3558, 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 interpellationstatement by Prime Minister Ikeda, from Nihon Zeijai newspaper.

27 Translation of Gongren Ribao article 10 January 1963 in NACP: RG#59: CFPF, S-NF1963, 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, HongKong 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 ofMachine Building Industry, 1963).

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 October1964 (US official source: French Commercial Officer, Beijing); ‘Export of StrategicMaterials for the USSR and Other Soviet Bloc Countries’, ‘Hearings before theSub-Committee to Investigate the Administration of the Internal Security Laws ofthe Committee on the Judiciary’, US Senate 87th Congress, 2nd session (part 3),‘Problems Raised By Soviet Oil Development’, 26 October 1962, Washington: USGovernment Printing Office, p. 376.

33 NACP: RG#59: CFPF, S-NF 1964–6, box 3635, STR 9-1 CHICOM, memorandumfrom Dusseldorf, 18 November 1966 (US official source: Mannesmann and Kruppexecutives).

34 JFKL: NSF, box 122, position paper in preparation for Italian Prime MinisterFanfani’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 toSecretary 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 Secretaryof 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 27-7CHICOM–US, Hong Kong to Secretary of State, 16 March 1963; Hong Kongto Washington, 12 April 1963.

43 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT CHICOM–W. GER, Bonn toWashington, 15 November 1963.

44 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT CHICOM–W. GER, Bonn toWashington, 13 March 1963.

45 A private co-operative association – with connections to Banque Nationale Pour leCommerce et L’Industrie and Banque de IndoChina. NACP: RG#59: CFPF, S-NF1963, 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, 9–14March 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 toWashington, ‘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 toWashington, 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

Notes 239

240 Notes

received the information from the Dutch Embassy’s economic specialist); TNA:PRO:FO 371 170706; 170707; 170708.

53 TNA:PRO: Cabinet C(63), 13, memorandum by the Secretary of State for ForeignAffairs, 4 February 1963; CAB: Cabinet C(63) 55, 22 March 1963.

54 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP XR STR12-3 CHICOM–UK, Tokyo to Secretary of State, 22 and 31 May 1963.

55 NACP: RG#59: CFPF, S-NF 1963, box 3474, FT 2 CHICOM–JAP, London toWashington, 13 September 1963 (US official source: E. Lown, British BOT DeskOfficer for China).

56 JFKL: NSF 1961–3, box 153, Warsaw to Secretary of State, 17–18 April 1963.57 LBJL: NSF: China, box 238, background paper for ROC Minister of Defence Chiang

Ching-kuo’s visit to Washington, 21–28 September 1965.58 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Tokyo to

Secretary of State, 22 May 1963.59 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 May1963.60 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Tokyo to

Secretary of State, 31 May 1963.61 JFKL: NSF 1961–3: box 26, Countries, Paris to Secretary of State, 14 May 1963.62 NACP: RG#59: CFPF, S-NF 1963, box 3619, PET CHICOM–INDON, Hong Kong

to Washington, 8 May 1963.63 NACP: RG#59: CFPF, S-NF 1963, box 3619, PET CHICOM–INDON PET 6 INDO,

London to Secretary of State, 9 May 1963.64 Smith, op. cit (1985), pp. 139–40.65 Stig Aga Aandstad, op. cit., p. 35.66 NACP: RG#59: CFPF, S-NF 1963, box 3474, POL-1 CHINAT XR FT 4

CHICOM–JAP, Taibei to Washington, 14 June 1963.67 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Tokyo to

Secretary of State, 31 May 1963.68 NACP: RG#59: CFPF, S-NF 1963, box 3437, FT CHICOM–IT, memorandum from

Hong Kong, 14 June 1963.69 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 routesestablished in March 1964, see: C.M. Forsyth-Smith Personal Papers, ‘Trip FromCanton To Peking – 13 April 1964 on behalf of the Canadian Imperial Bank ofCommerce’.

70 It sent out occasional press releases and appeared before various US governmentcommittees and hearings.

71 Bachrack, op. cit., p. 206.72 Steele, A.T., The American People and China, New York: McGraw-Hill, 1966, p. 90.73 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 1963.74 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, 69–74.75 NAC: RG#25: vol. 4722, file 50055-B-40, to DEA, Moscow to Ottawa, 24 July 1963.76 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 13–3 CHICOM–US, memoran-

dum, 30 July 1963.77 Ibid.78 JFKL: NSF 1961–3, box 153, action Warsaw from Secretary of State, 26 July

1963.79 JFKL: NSF 1961–3, box 153, Warsaw to Secretary of State, 7 and 8 August 1963.80 The son of the first Defense Secretary and a close friend of Harriman.81 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 PRCposition on possible Sino-American grain deals and on 4 April, the CIRECO generalmanager replied that Beijing was not interested in such trade.

83 NACP: RG#59: CFPF, S-NF box 3475, FT CHICOM–US, Hong Kong to Secretaryof State, 30 September 1966.

84 NAC: RG#25: vol. 4722, file 50055-B-40, Moscow to Ottawa, 24 July and 9 August1963; 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, Beijingto FO, 10 January 1964; FC 1151/16, Beijing to FO, 21 April 1964 (e.g. 24 March 1964remarks 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 FT13-2 ECSC, Bonn to Washington, 21 December 1963.

90 NACP: RG#59: CFPF, S-NF 1963, box 3475, FT 1 CHICOM–W. GER, Hong Kongto Washington, 30 August 1963.

91 Under Adenhauer, Erhard (who favoured free enterprise and trade) managed WestGermany’s post-Second World War economic revival.

92 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Tokyoto Washington, 22 October 1963 (government translation of September 1963 Sekaiarticle).

93 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Tokyo toSecretary of State, 22 August 1963.

94 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–JAP, toWashington, 29 February 1964.

95 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP, Taibei toSecretary 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 withChen 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., NewJersey; 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, toacting 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 Notes

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 anddiversify its operations in response to increasing competition from American ship-building 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 toWashington, 28 February 1963; box 3507, INCO–CHEMICALS USSR, Bonnto 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 and6 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: AFPcorrespondent Sacharenko – based on his 4 October 1963 interview of Georges-Picotand 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.

28 NACP: RG#59: CFPF, S-NF 1963, box 3474, FT CHICOM–F. WORLD, Hong Kongto 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 Kongwho had debriefed Tomoharu Okubo, Secretary and translator of Japanese delegationwhich negotiated the 1964 L–T agreement).

30 NACP: RG#59: CFPF, S-NF 1963, box 3305, E 2-2 JAP, memorandum from HongKong (US official sources: Chuji Kuno LDP Diet and First Secretary Sojiro Surida),15–16 October 1963; box 3385, Tokyo to Washington; ‘BWEN: 14–27 December1963’; 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 Kongto 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 ofPermitting 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 12-3CHICOM–JAP XR POL 23 JAP, Taibei to Secretary of State, 30 October 1963; Tokyoto Secretary of State, 11 October 1963.

38 JFKL: NSF: box 26, Rusk to Paris, 4–5 April 1963; Paris to Rusk, 5 April and22 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 toSecretary of State, 16 October 1963.

42 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 12-3 CHICOM–JAP XR PETCHICOM–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, FTCHICOM–F. WORLD, Hong Kong to Secretary of State, 11 October 1963 (USofficial source: see notes 22 and 33); box 701, E 5 CHICOM, Paris to Secretary ofState, 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 17CHICOM–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.

Notes 243

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, translatedHandelsblatt article: ‘Trade Talks With China in Canton’, 3 December 1963; S-NF1964–6, 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 exportdivision 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: EkhardVon 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 toWashington, 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 toWashington, 22 November 1963 (US official sources: translations of Mainichi news-paper 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 HongKong, 23 February 1963; Paris to Secretary of State, 4 February 1963; CFPF, S-NF1963, 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 inBureaucratic 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, memoran-

dum, 20 November 1963 (US official source: Secretary Roger d’Uzer, FrenchEmbassy, 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: TheChase Manhattan Bank, N.A., 1945–1985, Boston, MA: Harvard Business SchoolPress, 1986, pp. 36, 168, 169; NAA: A1838/2 766/3/33, pt. 1, Washington to

Notes 245

Secretary of State for External Affairs, 17 February 1964; Hong Kong GovernmentCompany Registry, Overseas Department, Registry of Foreign Firms, #789.

76 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK, from Officeof Northeast Asian Affairs to Bureau of Economic Affairs, 9 December 1963.

77 Former US President Franklin D. Roosevelt’s maternal grandfather Warren Delanowas one of the six partners in the Boston based Samuel Russell and Co. whichoperated one of the three main Western owned trading firms at Hong Kong andGuangzhou during the 1800s.

78 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK, Ball toRoosevelt, 11 December 1963.

79 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK, Ball toRoosevelt, 12 December 1963.

80 NACP: RG#59: CFPF, S-NF 1963, box 3635, STR 10-2 CHICOM–PAK, Ballto Taibei, Tokyo, Karachi, New Delhi, Paris, London and Hong Kong, 11 December1963; Secretary of State to Karachi and Tokyo, 12 December 1963.

81 Drafted by James C. Thomson; Mainland China Desk Officer Lindsey Grant; DeputyAssistant Secretary of State Robert Barnett; and INR, Far East Chief Allen Whiting.

82 JFKL: Thomson Papers, box 10, text of Hilsman’s speech, 13 December 1963.83 JFKL: Thomson Papers, box 10, Under-Secretary of State to all diplomatic posts, action:

Hong Kong, Singapore; CIRCPAC US Poland; USRO; USUN, 14 December 1963.84 LBJL: Administrative history of the US Department of State, vol. 1, chapter 7, East

Asia, sections A–D, Communist China, pp. 7–8.85 Smith, op. cit. (1985), pp. 212, 396.86 Mann, J., ‘U.S. Weighed Bomb Raid on China in “64” ’, International Herald Tribune,

28 September 1998.87 Smith, op. cit. (1985), pp. 194–5, 203–9.88 TNA:PRO: FO: 371/170 695: FC 1152/66, Beijing to BOT, 28 November 1963; FC

1152/67, from BOT, 5 December 1963.89 A member of the Schneider Group which had previously sold the Chinese locomotives.90 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 Ohiraand Vice-Foreign Minister Oda).

91 Wolpert, V., ‘Two Specialised British Fairs’, FEER, 27 January 1964, p. 157.92 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–FR, Paris to

Secretary of State, 22 January 1964.93 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–FR,

Washington to Paris, 7 February 1964.94 LBJL: NSF: Poland, box 202, Warsaw to Washington, 29 January 1964.95 NAA: A1838/2 766/3/33, pt. 1, Washington to Secretary of State for External Affairs,

17 February 1964.96 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: DirectorNakayama, Economic Affairs Bureau, Japanese Foreign Ministry based on hisconversation with President Hara Dai, Nippon Spinning Co.).

97 TNA:PRO: FO: 371 176024: FJ 113110/1, Tokyo to FO, 28 February 1964.98 MacDougall, C., ‘Eight Plants for Peking’, FEER, 23 January 1964, p. 158.99 NAA: A1838/280 3107/38/5, pt. 3, Washington to Canberra, 11 and 13 March 1964.

100 NAA: A1838/280 3107/38/5, pt. 3, to Canberra, 13 March 1964.101 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 chargéd’affaires, Beijing).

102 C.M. Forsyth-Smith, Personal Papers, ‘Trip From Hong Kong To Canton’, 12 April1964 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 HongKong, 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 throughHanoi 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 HongKong, 12 April 1964 (US official source: First Secretary, Commercial L.S. Ross,British chargé d’affaires); Hong Kong to Washington, ‘CC:WER#12’, 20 March1964; 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 HongKong, 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: MinisterKiang Yi-seng, ROC embassy, Consul Johnson Cheng, ROC embassy).

114 NACP: RG#59: CFPF, S-NF 1964–6, box 3474, POL CHICOM–JAPAN XR STR12-3, 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 increaseproduction. As part of its efforts to become a large operation, the new steelfirm, Sumitomo, had obtained a World Bank loan to build an integrated steel milland harbour facilities at Wakayama. However, MITI’s warning proved propheticwhen Sumitomo was forced to participate in a production control programme.NACP: RG#59: CFPF, S-NF 1964–6, box 1423, FT 1 CHICOM–JAPAN, Tokyoto Secretary of State, 30 March 1966; Hirchmeier, J. and Yui, T., The Developmentof 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 STR12-3, Tokyo to Secretary of State, 30 July and 18 August 1964 (US official source:Director Nakayama, Economic Affairs Bureau, Japanese Foreign Ministry followinghis conversation with President Hara, Dai Nippon Spinning Co.).

4 Lippitt, V.D., ‘Development of Transport in Communist China’, in An EconomicProfile 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 7-12FR, Hong Kong to Washington, 23 June 1965; box 701, E 2-2 CHICOM, Hong Kongto Washington, 16 October 1964; NAA: 1838/2 766/3/7, pt. 1, UPI report from

Notes 247

London, 6 March 1965 (UPI’s source: Leyland’s spokesperson); monthly report(China), no. 32, November 1964.

6 NACP: RG#59: CFPF, S-NF 1964–6, box 700, FT 2 CHICOM–FR, Hong Kong toWashington, 16 October 1964.

7 NCP: RG#59: CFPF, S-NF 1964–6, box 992, FT 2 CHICOM–FR, Hong Kong toWashington, 26 August 1964; box 700, Hong Kong to Washington, 16 October 1964.

8 NACP: RG#59: CFPF, S-NF 1964–6, box 2900, INCO–CHEMICALS,memorandum, 8 February 1963; box 3507, INCO–CHEMICALS UK, Londonto 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.

9 NACP: RG#59: CFPF, S-NF 1964–6, box 993, FT E CHICOM–JAPAN, Tokyo toWashington, 10 June 1965; NAA: 1838/2 766/3/7, pt. 1, ‘Chinese £ m. order fromSimon Carves and ICI’, Financial Times, 3 September 1964.

10 NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, Hong Kong toWashington, ‘CC:WER#37’, 16 September 1964.

11 NAA A1838/2 766/3/43 pt. 1, translation of Neues Oesterreich article,2 September 1966.

12 NACP: RG#59: CFPF, S-NF 1964–6, box 992, FT 1 CHICOM–W. GER, Duesseldorfto Washington, 24 September 1964.

13 CC/CCPHRC, op. cit., pp. 312–13.14 LBJL: NSF: Poland, box 202: Warsaw to Washington, 23 September 1964.15 NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, Hong Kong to

Washington, ‘CC:WER#41’, 9 October 1964.16 LBJL, Administrative history of the US State Department, vol. 1, chapter 7, p. 3

(based on memorandum for McGeorge Bundy, 28 October 1964).17 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 ForeignAffairs Ministry).

18 NAA: 1838/2 766/3/7, pt. 1, UPI report from Moscow, 29 October 1964; Wolpert, V.,‘Peking Preview’, FEER, 1 October 1964.

19 Wolpert, V., ‘Guarded Hopes’, FEER, 5 November 1964, p. 285.20 NACP: RG#59: CFPF, S-NF 1964–6, box 700, STR 12-3 CHICOM–FR, Hong Kong

to Washington, 16 October 1964.21 NAA: 1838/2 766/3/43, pt. 1, Vienna to Canberra, 29 October 1964.22 NAA: 1838/272 37/1/4/3, pt. 1, Buenos Aires to Canberra, 25 September 1964.23 Smith, op. cit. (1985), p. 351.24 CC/CCPHRC, op. cit., pp. 313–14.25 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.

26 Close, A., ‘Long-Term View’, FEER, 26 November 1964.27 NACP: RG#59: CFPF, S-NF 1964–6, box 700, STR 12-3 CHICOM–UK, Hong Kong

to Washington, 25 November 1964.28 NACP: RG#59: CFPF, SN-F 1964–6, box 701, E 2-2 CHICOM, ‘CC:WER#47’,

20 November 1964.29 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.

30 NACP: RG#59: CFPF, S-NF 1964–6, box 993, FT 4 CHICOM–JAPAN, Tokyo toWashington, 7 December 1964 (US Embassy sources: Kimiro Fujita (China section,Japanese Foreign Ministry), Takaaki Hasegeua (Director of analysis section, ResearchDivision, Japanese Foreign Ministry) and Eijiro Noda (Japanese Cabinet ResearchCouncil)).

412

31 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong toWashington, ‘CC:WER#5 and #6’, 12 February 1965.

32 NAA: 1838/272 37/1//4/3, pt. 1, Delhi to Canberra, 10 December 1964. (Australianofficial source: Councillor Carrara, Italian Embassy, Delhi.)

33 NAA: 1838/272 7/1/4/8, pt. 1, Brussels to Canberra, 24 November 1964; 28 October1964; 19 November 1964. (Australian official source: Fontaine, Directorate of AsianAffairs, Belgian Foreign Affairs Ministry.)

34 LBJL: NSF: China memos, box 238, background paper, for ROC Minister of DefenceChiang 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 toWashington, 11 January 1965.

36 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–JAPAN, HongKong 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 andphosphorus.

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 CommercialCouncillor, 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.

248 Notes

Notes 249

58 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong toWashington, ‘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, 1941–1984From Regional Bank to Multinational Group, Cambridge: Cambridge UniversityPress, 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’sposition reconsidered, March–October 1965

1 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–FR. (Variousdocuments, 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 wantedto surpass what was allowed by objective conditions and obstinately attempted thingsthat 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 toWashington, ‘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’sRepublic of China, 1949–1970, Toronto, Ont.: University of Toronto Press, 1991.

24 NACP: RG#59: CFPF, S-NF 1964–6, box 993, FT 2 CHICOM–JAPAN, Tokyo toWashington, 22 May 1965; Translations of Asahi Journal, interview of ShigeruSahashi, 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. andGoodman D.S.G. (eds), China’s Communist Revolution: Fifty Years of the People’sRepublic 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 1965and attached newspaper article: ‘US–French Clash Over Red China Case Dramatizesthe Plight of Multinational Firms’, Business International, 6 August 1965; Paris toSecretary of State, 24 June 1965.

43 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR CHICOM–FR, Lyon toWashington, 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 toWashington, 21 May 1965; from Hong Kong, 22 September 1965 (US official source:Luciano Braccalarghe, Italian Trade Mission, Beijing); E 2-2 CHICOM, Hong Kongto 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 ExternalAffairs, 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 withIndustry 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, Tokyoto Washington, 8 September 1965.

250 Notes

Notes 251

50 Ibid.51 NAA: 1838/1 766/3/56, report, 5 July 1965.52 LBJL: NSF: Poland, box 202, Warsaw to Washington, June 30 1965.53 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.54 NAA: 1838/1 766/3/56, ‘Argentine Guest Feted in Peking’, Xinhua, 077837, 9 July 1965.55 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)).

56 Ibid.57 Wong, op. cit., p. 92.58 Bonavia, D., ‘Buying British’, FEER, 2 September 1965, p. 405.59 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to

Washington, ‘CC:WER#36’, 10 September 1965.60 Ibid.; Hsia, op. cit., p. 193.61 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonn

to Washington, 30 March 1966.62 NACP: RG#59 CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to

Washington, ‘CC:WER#34’, 27 August 1965.63 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 CanadianTrade Commission, Hong Kong; and the CWB.)

64 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong toWashington, ‘CC:WER#38’, 24 September 1965.

65 NACP: RG#59: CFPF, S-NF 1964–6, box 992, CHICOM–JAPAN, Tokyo toWashington, 20 September 1965.

66 LBJL: NSF: Poland, box 202, Warsaw to Secretary of State, 16 September 1965.67 CC/CCPHRC, op. cit., p. 317.68 Liu and Wu, op. cit., p. 339.69 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kong to

Washington, ‘CC:WER#41’, 15 October 1965.70 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.

71 LBJL: Administrative history of the US Department of State, vol. 1, chapter 7, p. 4.72 CC/CCPHRC, op. cit., p. 317.73 Ibid., pp. 317–18.

9 Cultural Revolution delays: steel complex negotiations andUS–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 toWashington, 7 December 1966. (US official sources: Port of Genoa and localshipping statistics; 19 October 1966 article in Corriere Mercantile (Genoa dailynewspaper); 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.

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: ChinaMemos, 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 toSecretary 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 ofthe total value of the contract). Belgian firms Sybetra and ACEG were eager to supplyabout $US48 million in electrical equipment and services, Fives Lillecall of Francewanted to provide oven hearth construction worth US$34 million and Ruthner ofAustria may also have been willing to supply another US$12 million in electricalequipment and services.

16 NACP: RG#59: CFPF, S-NF 1964–6, box 1423, STR 12-3 CHICOM–W. GER, Bonnto Washington, 30 March and 2 April 1966; Secretary of State to Bonn, 4 March1966; 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 WithChina, American Trade Opportunities in the 1970s, New York: Praeger Publishers,1974, p. 186; Szuprowicz, op. cit., pp. 179, 319–23; ‘Business Strategies for thePeople’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, Bonnto 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, fromBonn, 2 April 1966.

252 Notes

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 March1966 (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 August1966; 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, Bonnto Secretary of State, 25 May 1966.

36 NACP: RG#59: CFPF, S-NF 1964–6, box 700, E 2-2 CHICOM, Hong Kongto Washington, ‘CC:WER#21’, 27 May 1966. (US official sources: Xinhua, 19 May 1966and Japanese Consulate Officials who had interviewed delegation members.)

37 LBJL: NSF: China Memos, box 239, vol. VI, 3/66–9/66, CIA report, 15 August1966; NACP: RG#59: CFPF, S-NF 1964–6, box 701, E 2-2 CHICOM, Washingtonto Bonn, Brussels, London, Paris, Rome, Tokyo, Vienna and Hong Kong, 30 June1966.

38 LBJL: NSF: China memos, box 239, vol. VI, China cables, information White Housefrom 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 Duesseldorf21 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 Economy1949–1983), Planning Office of the (PRC) Ministry of Agriculture, Livestock andFisheries, 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: TheMacMillan 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), ReluctantAdversaries: 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 theGuangzhou 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 May1988; 30 May–5 June 1988.

48 Avery, M. and Chase, W., ‘Sino-American Commercial Relationship’, ChineseEconomy Post-Mao: A Compendium of Papers Submitted to the Joint EconomicCommittee 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: PraegerPublishers, 1982.

65 Naughton, op. cit., pp. 76, 342.

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Australia

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A463, A1209, A8648: Australian Department of Prime Minister and Cabinet Files.A1313, A1310: Australian Department of Commerce and Trade Files.A1804, A609, A611: Australian Department of Primary Industry and Energy Files.A1838: Australian Department of External Affairs Files.

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MS 4300: Jose Maria Braga Papers.MS 5049: Christopher J. Perrett Papers.

Noel Butlin Archives Centre (Archives of Business and Labour, Australian National University, Canberra)

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Canada

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270 Bibliography

Afghanistan 134, 162Agency for International Development 77,

79, 151, 165agriculture xxii, 216–18; in 1961–2 46,

56, 61–2, 72, 85; from 1962–4 94, 98,108, 114, 121, 139–40, 146, 150; from1965–6 159, 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, 193aircraft: 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; Dakota95; Hercules 211; IL-18 102, 133–4,161; IL-62 133, 211; manufacturers:Aerospatiale 209, 211, British AircraftCorporation 84, 209, 211, CANDAIR45, 52, 64, de Havilland 84, 111, 123,Handley Page 84, Hawker Siddley 84,111, 207–12, Lockheed 211, Sikorsky111, 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 Airways111, 123, 125–6, 133

air routes 111, 134, 240 n.69Albania 52–3, 59, 80, 118, 209Alstom Atlantique 180, 183American Friends Service 233 n.8André & Cie S.A. 37Andrew Weir & Co. 30Anhui 37, 39, 44Argentina: pre-1957 grain deals 7, 9,

12–16, 222 n.18; 1961 grain deals 32,

35, 51, 60, 63, 65, 76; 1962–3negotiations 122, 127–8; 1964negotiations 132, 145–6, 158, 164,169; 1965 negotiations 178; 1966negotiations 186; 1967–79 tradediplomacy 19, 210, 213

ASEA 156, 168Ash, R.F. 27–8, 196Atlas Copco 156, 168Australia xxi; pre-1957 cash deals 7, 9,

25, 30, 35–6; 1961 cash deals 44,51–65, 71–5; 1962–3 credit negotiations84, 88, 96–9, 114, 122, 128–9; 1964–5credit negotiations 131–2, 148–50, 159,161–5, 170, 177–8; 1966–79 tradediplomacy 186–90, 199, 204, 208–13;see also Australian Wheat Board

Australian Wheat Board: pre-1961 cashgrain negotiations 25, 51–7; 1961–2credit 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 1962139–41, 145–8, 167, 180–2; diplomaticrecognition by 209; and NITREX238 n.15; and the steel rolling millcomplex consortium 252 n.15

Bai Xiangguo 208–9, 212Baker–Hughes 213Ball, G. 75, 76–7, 79, 116, 126Bank Line 30–3, 39banks 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,

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; Philippine192; PRC 6, 10, 55; Reserve Bankof Australia 72, 84; Shanghai 19,152, 223; US 93, 192; see alsoEx–Im Bank of Japan

barley: cash deals in 1961 53, 55–7; creditdeals in 1961 63–5, 74–6, 79; creditdeals 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.15BDI 226 n.19Beam, J.D. 65–6Belgium 19–20, 43, 144, 209Berliet 140–4, 154, 156, 166, 180–2, 195Bin Akao Dai Nippon Aikakuta 114Boeing 84, 111, 123, 125–6, 208–11Bowles, C. 61, 66, 77, 80–2, 235 n.57Bo Yibo 12, 34, 37, 40, 163, 189, 214–15,

225 n.95BP 86, 88, 103, 110Braga, J.M. 58, 76, 231 n.43British Council for the Promotion of

International Trade 6, 10Brown, David 18Bu, L.C. 34, 101, 108, 241bulldozers 140, 143, 148Bundy, M. 113Bundy, W.P. 155, 158, 177, 185, 189Bunge 32–5, 51–3, 60, 63Burma: pre-1960 rice deals 9–16, 22; air

routes 133; and PRC-Pakistani trade191–2; and Sino-American tradediplomacy 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; WarsawTalks in 1964–5 131, 134, 168, 171

Caltex 86, 102, 104, 121, 237 n.101Cambodia 9, 22–4, 127, 133, 192–4, 207Canada: pre-1958 cash deals 5–9, 15–17,

22, 25–7, 30–8; 1961–2 cash deals44–5, 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 StockholmTalks 205–8, 210–13; see alsoCanadian Wheat Board; grain; wheat

Canadian Wheat Board 25, 27; cash dealsin 1960–1 51, 53–7; credit deals in1961–2 59–63, 71–5, 81–3, 96–9; creditdeals from 1962–4 101, 108, 122,127–9, 145; credit deals from 1964–6151, 159, 164, 171, 179, 186; deals from1967–79 198–201, 205–6, 208

CANDAIR 45, 52, 64, 133, 192–4, 207Cargill, A. 30Cargill Grain Co. 30, 35, 44, 54, 123, 125Central Intelligence Agency 119, 143,

157, 181, 212; on China’s grain sownareas 29; and Indonesia 37, 172; onoffering US grain to China 13, 188

Centre National du Patronat Français101–2, 116

Chase Manhattan Bank 123, 125,131, 212

chemical fertilizer xxiii, 217–18; in1960–1 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 1967–79197–8, 202–3, 207, 212–15; before theGLF 6, 14, 17, 19, 20–7, 31, 34; duringthe 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 of19–21, 43, 100; see also JapaneseAmmonium Sulphate Export ImportAssociation; NITREX

Chen Feizhang 32–3Chen Guodong 198, 207, 229 n.1Chen 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.14Chen 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 theCultural Revolution 198, 206, 210, 213;during the GLF 39–42; and pre-GLFeconomic planning 3–6, 9–10, 13, 15,17, 19, 21, 24–8, 31, 33–8, 223 n.42; andthe return to ‘readjustment’ 214–15

272 Index

Chiang Ching-kuo 113Chiang Kai-shek 14, 36, 83, 89, 103, 134Chiba refinery 86, 88, 102China see People’s Republic of ChinaChina Civil Aviation Bureau (CCAB) 45,

68, 84China 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 tothe GLF 6, 9–10, 12–15, 18, 31, 34

China International Trust InvestmentCorporation 215, 230 n.13

China Lobby (Committee of One Million)xxii, 216; in 1961–2 72, 78, 83; in1963–4 109, 117, 123, 125, 127, 131;in 1965–6 165, 190

China National Cereals, Oils andFoodstuffs Import and ExportCorporation: during the GLF 39; andgrain negotiations from 1960–2 53,60–5, 83, 96, 99; and grain negotiationsfrom 1963–5 108, 128–9, 145, 150–1,158–9, 179; and grain negotiations from1965–79 186, 198–9, 204–6, 208–10;and pre-GLF grain imports 12,27, 30–7

China National Import–ExportCorporation 9, 12, 14, 18, 27,142–3, 156–7

China National Machinery Import andExport Corporation 84, 88, 114,130, 146

China National Metal and Minerals Importand Export Corporation 130

China National Technical Import ExportCorporation 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 ExportCorporation 36, 101

China Ocean Shipping Company 142–3,156–7

China Resources Company: during theGLF 41, 43; and pre-GLF tradenegotiations 8–9, 12, 20, 25–7, 34–8;and trade negotiations in 1960–151–65, 72–5, 81, 83, 96; and tradenegotiations from 1962–4 101, 115,128, 146, 241 n.82; and tradenegotiations in 1965–6 158–9, 165,171, 179, 192; and trade negotiationsfrom 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 GLF41–2; pre-GLF 3, 4, 13–16, 18, 23–4,28, 32, 37

Chiyoda Chemical Engineering andConstruction Co. 114, 122

C. Itoh and Co. 110Civil Air Administration of China 84,

111, 133–4, 209; see also China CivilAviation Bureau (CCAB)

COCOM: and Caravelle aircraft 85, 88,125, 130; and the demise of the Chinadifferential 26; during the 1950s 5, 6,7, 11, 12, 222 n.8; exceptions 14–15,18, 23; list reductions 33, 36; and POL121; and Sino-Japanese trade 110, 120,147, 167–9; and the steel rolling millcomplex 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 1966179, 181

Committee for the Review of Our ChinaPolicy 106–7, 115, 117

Commonwealth Trading Bank 63–4,73–4, 88, 96–7, 128–9, 145, 159

CONASUPO 127–8Connally, J. 211Continental Engineering Co. 118–19, 213Coombs, H.S. 72Cordt, F. 107, 115, 124, 241 n.82Courtaulds 157, 170Couvre de Murville, M. 116credit guarantees see individual countriesCuba 84, 105, 122, 155, 166, 183–4Cultural Revolution xxiii, 154, 183, 216,

218; and Chinese officials 162, 184–5,189, 198, 215, 248 n.52; and foreigntrade 188, 190, 191; and governmentpolicy 193, 195, 205; and grain 194,196, 199, 203, 204, 210, 212

Daido Steel Co. 122Dai Nippon/Nichibo: cancellation of

PRC contract 151–2, 169; contractwith 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

Index 273

DEMAG: steel rolling mill complexnegotiations 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, 168Diefenbaker, J. 34, 37, 59Ding Kejian 18, 34, 38, 51, 55, 64,

170–1, 178Dodds Stewart & Co. 35, 37Dulles, A. 13Dulles, J.F. 14, 25, 30

East Asiatic Co. 35East Germany 15, 53, 71, 122East Pakistan 191–3Eden, A. 16Edison 19, 20, 43Eisenhower, D. xxii, 165; on China trade

11–13, 16, 18, 25, 38, 216, 218–19ENI: and the China trade during the 1950s

19–20, 23; and the China trade in1960–1 43, 44, 86; and the China tradein 1962–3 95, 98–9, 105, 118, 122,127; and the China trade in 1965–6155–6, 178, 180–1

Erhard, L. 108, 241 n.91European 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–Tnegotiations 103, 120; 1964–6 L–Tnegotiations 131, 135–6, 140–1, 148,150–3, 158, 161, 164, 169, 187

Export Credit Guarantee Department68–9, 78, 118, 120, 141–2, 147;see also United Kingdom

Faibish, R. 232 n.73famine xxiii; abnormal deaths 28, 44, 54,

56, 83, 163, 197, 217; conditions from1949–59 27, 31–3, 35, 39–46, 51–2,54, 65–6, 197; dropsy 54; oedema 54,55, 60, 68

Faure, E. 120, 123–4Fiat 166, 190First Leap Forward 14–17flour xxiv; deals before the GLF 3, 9, 16,

25, 30–6, 45; transactions from 1961–253–7, 59–65, 83; transactions between1963–79 97, 114, 151, 210

food shortages see famine

Foreign Assets Control Regulations 158;and bunker fuel 59; and Caravelleaircraft 123, 130; and Fruehauftrailers 154; petroleum 121; andSino-Philippine trade 192; andvacuator pumps 65; and Viscountaircraft 46, 68, 80

Forrestal, M. 107, 240 n.80Forsyth-Smith, M. 31–2, 35, 44, 58, 62, 64‘48’ Group 10, 18, 108, 114France: and trade before 1958 9, 11,

15–18, 26, 30–5, 43; trade from 1960–251–3, 57–8, 63, 65, 67, 71, 79–80,84–5, 88–9, 95–9, 238 n.15; trade from1963–5 101–4, 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 NationalLegislation 233 n.8

Fruehauf 154, 166Fu Xing 61–2

Geneva Conference on Laos 66–7, 77, 88Geneva Talks (Sino-American

ambassadorial) 15–17, 22–3, 30, 33,39, 66

Georges-Picot, G. 102, 115–16, 242 n.22Gerholtz, R. 165–6gold 33, 80, 182; and Hong Kong and

Macau 39, 45, 152; and the US dollar35, 38, 101, 165, 206, 209

Goldsmith 145, 179, 186grain 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; in1961–2 56, 58–9, 61, 63, 67–8, 70,72–6, 83, 87, 93, 98–9, 235 n.52; in1963–4 101, 104–6, 117, 120–5,131–2, 140, 146, 149, 241 n.82; in1965–6 155, 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 alsobarley; flour; rice; wheat

274 Index

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. 66Green, M. 155, 168Gronouski, J. 171, 183, 186Guangzhou: during the 1950s 28, 31–7,

222 n.11, 223 n.42, 245 n.77; in 1962–382, 101, 111, 115–16, 124; from1964–79 133, 161, 198, 209,240 n.69, 255 n.41

Hall Bryan Ltd 37–8Hamilton, A. 56, 62–4Hang Seng Bank 152Harriman, A. 66–7, 74, 77, 81–3,

104–6, 132Henderson, W. 104Henschel 180, 182–3Hilsman, R. 104, 107, 131–2, 185; speech

on US China policy 126Hitachi Shipbuilding and Engineering Co.

152, 158, 169, 181, 187, 193, 212Hodges, L. 114–15Hoechst 20, 43, 238 n.15Hong 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 1966–79194, 208, 213

Hong Kong Shanghai Bank 152Hou Ton 149Huang Kecheng 42, 225 n.95Hufnagel, H. 122Humphreys and Glasgow 119–20

Idemitsu Kosan Co. 86, 88, 102, 121, 124Ikeda: on Ex–Im Bank credits 58–9,

99–100, 105, 109, 130, 134–6, 169;illness of 141, 146

Illia, A.U. 164, 169IMAG 166Imperial Chemical Industries 141India xxii, xxiii, 5, 40, 44, 65, 67, 78;

Chester Bowles’ meeting with Nehru81–2; Sino-Indian Border War 95,98–9, 105, 124, 206, 218, 223 n.43

Indonesia: Chinese–Indonesian tradeduring 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 19593–5, 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 1963–4101–5, 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 alsochemical fertilizer; petrochemicals;petroleum; steel

Innocenti Society 178, 180International Cooperation

Administration 47International Milling Co. 36International Trading Company 58, 62,

75–6, 81–3Italy: 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 1964–5127, 134–6, 139–40, 144–8, 155–6,161, 167, 178, 180–1; trade in 1965–6190, 199, 208; see also ENI; InnocentiSociety

ITT 68, 79, 80

James Richardson and Sons’ Ltd 35, 39Japan xxii, xxiii, 216, 217, 218, 219,

223 nn.32, 33; trade during the1950s 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; tradefrom 1966–79 185, 187–8, 190–7,203, 206, 209, 212; see also Ex–ImBank of Japan

Japan–China Export Import Association34, 59, 147, 151

Japan–China Overall Trade LiaisonCouncil 98, 147

Japan–China Trade Promotion Association34, 46, 52, 59, 223 n.33

Japanese Ammonium Sulphate ExportImport Association 46, 64, 98–9, 197

Japanese Federation of SyntheticChemistry Workers Union 84

Index 275

Japanese Socialist Party 58Japan External Trade Promotion

Association 151Japan International Trade Promotion

Association 13, 18, 59, 98–9Jardine Matheson 34, 36, 51, 84Jay, D. 144Jay, K.C. 39, 45, 58, 65, 76, 82, 115Johnson, L.B. xxiii, 67, 111, 127,

211; 1964 State of the Union Addressby 130; on China 165, 188–90;China trade embargo re-evaluatedby 197–9, 202–3, 218–19; election of146; on freer trade 177, 183; meetingwith President Marcos 193; on ROC148, 151; on steel rolling mill complex190; on Vietnam 131, 134, 158,161, 171

Johnson, U.A. 66, 70, 110Joint Chiefs of Staff 127, 216

Kampfmeyer 53, 63Kang Sheng 94K.A. Powell (Pacific) Ltd 37Kawai, Yoshinari 148Kawakami Trading Co. 86, 102, 110;

see also Idemitsu Kosan Co.Kaysen, C. 79Keating, K. 78Kennedy, 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 1963103, 105–7, 111–14, 117, 120, 123–6

Kennedy, R. 125Ke Qingshi 37, 159, 249 n.14Kerr, T. 125Kerr Gifford and Co. 30Kerr Grain Corporation 125Keswick, J. 75, 84, 108Khrushchev, N. 17, 32, 38, 42,

107, 146Kishi, Nobusuke: on establishing

Sino-Japanese diplomatic relations25–6; and relations with the US andROC 32, 36, 146

Kissinger, H. xxi, 205, 209, 212–13Kobe Steel Works 55, 157, 167Komatsu Manufacturing Co. 140,

143, 147Korean War xxii, 5–7, 21, 37, 177, 188,

216, 235 n.52Krupp 102, 132

Kurashiki Rayon Co. 103–9, 117, 119,130, 135, 143, 153

Landrovers 23Laos 40; Geneva Conference on 66–7,

77, 88; US–Chinese disagreement over103, 115, 127, 133–4, 187, 208

Lei Renmin 9, 15, 25, 153, 168, 198, 215

Leyland 140, 166, 180Liao 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.11Li Chao-chih 131Li Fuchun 17, 46, 52, 150, 225 n.95Li Menghou 84, 114Lin Biao 42, 219; and the Cultural

Revolution 162, 171, 184, 205; afterthe GLF 53, 55, 61, 150; on tradeagreements and the death of 210

Linde 157, 170, 184Lin Haiyun 15, 131, 153, 208, 212–13Li Qiang 65, 212Liu Shaoqi xiv; in 1962–3 81–2, 94, 104;

in 1965–6 150, 172, 189; during theCultural Revolution 198, 206; beforethe GLF 13, 24, 28, 225 n.95; duringthe GLF 41

Liu Xiwen 14, 150, 170Liu Yalou 162Li Xiannian 12, 17, 34, 167, 172,

215, 225 n.95Li Yousheng 62Lockheed 211Locomotives 6, 14, 178, 180–3, 245 n.89London Overseas Freighter Ltd 143Louis Dreyfus Co.: and deals during the

1950s 35–6; and deals from 1960–251, 63, 71–4, 79, 96, 98; and deals from1964–6 145, 149, 186

Luo Ruiqing 42; and the CulturalRevolution 162, 184, 189, 214; andforeign grain imports 56, 60, 163,235 n.52; and Indonesia 172; andnegotiations with Burma 75

Lurgi 135, 141–2, 147, 154–6, 170

276 Index

Lu Xuzhang: in 1962–3 99, 101, 103–4,108, 114–17, 120, 124, 127; during theCultural Revolution 198; following theCultural Revolution 214; beforethe GLF 9, 14–15, 18, 34; on theThird Line project 163

Macau 5, 39, 45, 131, 152, 231McCabe Grain Co. 38MacMillan, C. 30Macmillan, H. 64, 75MacMillan, J.H. Jr 31, 54McNamara, R. 115, 127, 132, 134McNamara, W.C. 57Malaysia 12, 39, 125, 127, 160–3, 169, 187Mannesman 100, 122, 186, 188, 193, 195Mao Zedong xxii, xxiii, 216–17; in

1961–2 53, 55, 58, 82, 88, 93–4; in1963–4 139, 148–50; 1965–6 159–60,163, 172–3, 188–9, 191, 196; between1967–76 198–9, 204–5, 208, 212, 214;during the GLF 39–44; prior to the GLF3–5, 10, 14–19, 22, 24–38, 223 n.46

Maple Leaf Milling Co. 36Martin, P. 110Massey-Harris-Ferguson 18Matsumura, Kenzo 98, 147, 188Mattei, E. 23, 44, 95Ma Yinchu 18, 21, 27, 42Melle and SPEICHIM 119, 130, 180, 182Menzies, R. 161Mexico 210; see also CONASUPOMinistry 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, 215Mitchell, L.A. 157, 169Mitchell, R. 211Mitsubishi Heavy Industries 140, 152Montecatini 19, 20, 43, 105, 118, 126Moro, 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. 106National Security Action Memorandum

77, 125National Security Council 11, 13, 16, 18,

30, 36, 79, 81natural gas: during the 1950s 9, 21, 23,

44; from 1960–6 95, 117, 127, 130,178, 186; from 1973–8 213–14

Nehru, J. 81–2The Netherlands 13, 58, 238 n.15; and

1963 trade talks 104; and completeplant sales 117–20, 213; and theCultural Revolution 205; anddiplomatic recognition of the PRC 209;Shell and 23, 27, 103, 126

Ne Win 82Nien Cheng 27Nippon Steel 213Nissho Co. 110NITREX 98–9, 101, 124, 197–8Nixon, P. 208Nixon, R. xxi, xxiii, 199, 204–10, 219North Atlantic Treaty Organization 5, 58,

100, 125–6, 178, 182–3, 186North Korea 5, 75–6, 81–2North Vietnam: in 1963 127; in 1964

135, 139, 144; in 1965 152, 154, 155,158, 161, 168, 182, 184; see alsoVietnam War

Norway 13, 20, 43, 161, 168, 238 n.15

Okazaki Kaheita 114, 147, 152, 170ONIC 63, 71, 73, 96, 122, 149Ormsby-Gore, D. 75Ostausschuss der Deutschen Wirtschaft

31, 122, 124, 126 n.19Otto Wolff AG 31, 102, 157, 152 n.15Otto 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, 205Peng Dehuai 40, 42, 217People’s Liberation Army xxii, 217; in

1960–1 51–6, 60–1, 67–8, 75, 87; from1962–4 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 seeagriculture; air agreements; aircraft; airroutes; banks; chemical fertilizer; ChenMing; Chen Yi; Chen Yun; China CivilAviation Bureau; China Council for thePromotion of International Trade; ChinaInternational Trust Investment

Index 277

People’s Republic of China (Continued)Corporation; China National Cereals,Oils and Foodstuffs Import and ExportCorporation; China National ImportExport Corporation; China NationalMachinery Import and ExportCorporation; China NationalTextiles Import Export Corporation;China Ocean Shipping Company;China Resources Company; ChineseCommunist Party; Cultural Revolution;Deng Xiaoping; Ding Kejian;famine; flour; ‘friendly firm’ trade;Geneva Conference on Laos; GenevaTalks; grain; Guangzhou; industry;Jay, K.C.; Landrovers; LiaoChengzhi; Liao–Takasaki trade;Lin Biao; Liu Shaoqi; Li Xiannian; LuoRuiqing; 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; WangKuancheng; Warsaw Talks; wheat; XieShoudian; Xinhua; Ye Jizhuang; ZhouEnlai; also individual countries; firms;organizations; people

Permagon 121Permina 24, 86, 121Perrett, C.J. 53–4, 61, 63, 74, 97Pertamin 121petrochemicals xiv, 85–6, 94, 116,

119–22, 127, 135, 147, 204, 212;see also chemical fertilizer; polyethylene/polypropylene

petroleum: during the 1950s 23, 44; from1960–3 45, 104, 110, 116, 121–2,124–5; from 1964–6 140, 144, 181, 184; from 1968–79 204, 213; inIndonesia 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, 31Philippines 54, 55, 160, 192–4Pilcher, J. 75PKI 172Poland 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; completeplant negotiations 113, 141–2, 147, 170

Porter, C.O. 42, 106–7Pratt and Whitney 211Prinex 157, 170Public Law 480 11, 22, 75, 122, 191,

223 n.25, 225 n.80Pullman Kellogg 119, 212–15

Quaker Groups 79, 233 n.8

railways 139–40, 197; see alsolocomotives

Ralli Bros. Ltd 35readjustment 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 13Reischauer, E.O. 120Republic of China (Taiwan) xxii; during

the 1950s 14, 23, 26, 30; from 1960–242, 67, 83–4, 87–9, 93, 99; in 1963103, 107, 109, 113, 115–17, 123–4;in 1964 130–6, 140, 148; in 1965 151,155, 158, 161, 165, 168; from 1967–9199, 205

Reserve Bank of Australia 72, 84Rice, E.E. 74, 82, 135, 177, 233 n.12rice: 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 1961–360, 62, 69, 75, 116, 158, 161, 170,183–4, 191–4, 197; see also grain

Robin Hood Flour Mills 36Rockefeller, D. 131Rogers, W. 205Rolls-Royce 52, 71, 84, 86, 88Romania 122, 198Rong Yiren: during the 1950s 10, 12, 14,

25, 41–2; 44, 75; and CITIC 215; duringthe Cultural Revolution 189, 210

Roosevelt, F.D. Jr 126, 245 n.77Ross, L.S. 102, 104, 110Rostow, W.W. 77, 79

278 Index

rubber: during the 1950s 6, 10–11, 13, 19,22, 24; from 1960–3 45, 85, 121; in1964–5 130, 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; onChina in 1966 132, 134, 158, 161, 165,171, 177; on China in 1968 185–7,189–90, 202; on COCOM 70

Sarit Thanarat 160Sato, Eisaku 146–7, 151, 165,

167, 171Sato government 147–8, 158, 161, 167,

170–1, 188Schlesinger, A. 67Schloemann 180–2, 185, 252 n.15Schneider Group 245 n.89Schultz, A. 124Scott Bader 157, 160Senegal 194Sercel 142, 144Shanghai: 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 theGLF 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. 204Shell: 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; in1960–1 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; andthe Great famine 56, 66; naturalgas/ammonia fertilizer 21, 100,117–18; petrochemical plants 135,141–2, 147, 155–6, 170; railways139–40; Third Line Project 160, 197

Sihanouk, N. 22Simon Carves 141–2, 170Singapore 12, 19, 38, 55, 160–1,

169, 192Sino-British Trade Council 108, 130, 144SINOFRACT 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 1963–4105, 110, 113, 117, 122, 133–4, 146,150; in 1965–6 151, 161–5, 184; from1967–9 199, 203, 205–6; see alsoSoviet Union

Small, J. 44, 62Sohyo 84South Africa 34–6, 96, 98South African Maize Board 96, 98South-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, 75South Korea 47, 166, 170South 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 1958–939–42; 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; in1964 133–4, 139, 144–5, 148–50; in1965 151, 158–67, 170–3, 178, 182; in1966 184, 188–93, 196; from 1967–79198–9, 203–8, 210, 212, 214; see alsoSino-Soviet relations

Spaak, P.H. 144, 148Sri Lanka 6, 11, 13, 19, 31, 110Stalin, J. 5, 7, 17Standard Oil Co. 59, 237 nn.101, 102;

Stanvac 86, 121Standard Telegraph and

Telecommunications 68, 78, 80steel: 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

Index 279

Stockholm negotiations 204–8Stork Werkspoor 103, 117–19strategic 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; from1964–6 154–5, 159, 161, 163, 165,167, 171, 173, 178, 186–7, 189; from1967–79 206–7; see also CHINCOM;COCOM; trade embargo

Subandrio 172Sud Aviation 84–5, 88, 111, 116, 120,

123, 130sugar trade 24, 183–4Suharto 172Sukarno 37, 86, 104, 125, 172Sumitomo 59, 212, 246 n.2Suzuki Kazuo 46, 52, 98–9Suzuki–Nan trade 46, 52, 98–9; see also

‘friendly firm’ tradeSweden: China trade 12, 156, 168, 181Syndicat d’Etudes Pour l’Extreme Orient

102, 116

Taiwan see Republic of ChinaTakasaki, Tatsunosuke 56, 98, 100Tao Zhu 28, 198, 206Teasdale, J. 232 n.72technology xxii, xxiii, 216–18; during the

1950s 4–5, 7, 17, 19–21, 25, 36; from1960–2 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 1964130, 132, 134, 140–2, 148–50; in 1965154, 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.10textiles: and China’s 1950s export drive 4,

37, 39; and China’s post-1960 exportdrive 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, 168titanium 187Toepher, Alfred C. 53, 63Tokyo Precision Co. 142, 148Toyo Engineering Co. 103, 117tractors 14, 18, 55trade 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 strategictrade

trade exhibitions/fairs xxiii; during the1950s 18, 34; from 1960–3 59, 99,103, 108, 116; in 1964–5 130, 139,141, 144–6, 153, 168; at Guangzhou32–3, 36–7, 101, 124

trade offices xxiii; Sino-American212–13; Sino-Austrian 146, 167;Sino-Canadian 161; Sino-Italian134–6, 140, 149, 155, 161;Sino-Japanese 34, 151, 170; Sino-WestGerman 132, 108

Trident aircraft 111, 123, 207–12trucks 6, 116, 140, 166–7; Berliet 142,

154, 156, 178, 180–2, 195; and thesteel rolling mill complex 185

Trudeau, P.E. 204–5, 208

U-2 and espionage aircraft: in 1956 23; in1959 42; in 1961 67, 75; in 1962 93;in 1963 123–4; in 1964 131, 135; in1965 151; in 1967 199; in 1969 205

Uhde, F. 119, 135United 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 1960–145–6, 58, 62, 64–71, 75–9; in 1962–380, 84–8, 95, 99–106, 108, 110–11,114, 118–20, 123, 127; in 1964–5132–3, 136, 140–6, 152, 157, 160,167–9, 170, 178, 180–2; in 1966189–90, 194; from 1967–79207–9, 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 Eisenhoweradministration 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; underthe 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 administration126–7, 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 Nixonadministration 204–14, 255 n.60

280 Index

United States Department of Agriculture57, 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; in1966 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 AssetsControl Regulations; Vickers;Rolls-Royce

VOEST 149, 180, 182

Walker, K.R. 27–8, 41Wang Bingnan: during the Cultural

Revolution 198, 213–14; and theSino-American ambassadorial talks atGeneva 23, 25; at the Warsaw Talks in1961–2 65–7, 82, 87, 93; at the WarsawTalks in 1963–4 101, 103, 107, 112–13,124, 131, 134; at the Warsaw Talksduring the GLF 40

Wang Guoquan 135, 168, 171, 183, 186Wang Kuancheng 104, 108, 215Warsaw Talks 218; in 1958–9 39–41; in

1960–1 52, 66–7, 70, 77; in 196282–3, 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 alsoBeam, 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 tradenegotiations 155–7, 166–7, 178, 180–2,184–93, 212; business relations withChina 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; in1962–3 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 1966188; from 1967–79 198–202, 204–6,210, 212; see also grain

Wiley, A. 78William Doxford & Sons 143Wilson, D. 157, 225Wilson, H. 144Wu Faxian 162, 184

Xiao Fangzhou 14, 65, 132, 198, 212Xie Shoudian 45, 131, 147Xinhua 135, 144, 168, 230 n.13; on

China’s 1958 wheat harvest 38; onChina’s 1967 harvest 199; on credittrade negotiations 26; on Hilsman’s1963 China policy speech 126; onKishi’s assurances to the ROC 36;officials in Latin America 172

Xue Muqiao 3, 40, 42

Yao Wei 230 n.13Ye Jizhuang 15, 22, 28, 41, 62, 131, 132Yong Longgui 114, 147Yoshida, Shigeru 13, 130–2, 169, 171;

letter 131–2, 169, 171, 251 n.55Yu Dunhua 165Yuken Kogyo 143, 152

Zablocki, C. 165–6, 186Zhang Bing 61, 170Zhang Shizhao 76, 82Zhejiang 52, 104, 165, 223 n.19, 224 n.66Zhou 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; from1960–2 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 188Zhu Rongji 28, 37

Index 281