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Conservative scholars' view of China economy disputed

Is the "China card" a trump or joker? The Institute on Strategic Trade (IST) here has proclaimed it the latter -- branding Peking an unreliable trading partner and military weakling, bent basically on the "extension of communism throughout the world."

The viewpoint in a recently released IST report is roundly rejected by representatives of the People's Republic of China (PRC). "This report is terrible," exclaims spokesman N. S. Hu at Peking's embassy here. "I don't think it is objective coverage of what's going on in China."

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American sources, both in and out of government, who are intimately connected with Chinese affairs share Mr. Hu's view of the IST report, while noting that the PRC's economic rise will involve a long, tough struggle.

The IST, a private organization supported by contributions, analyses strategic economic affairs. Its major backing appears to come from the right of the economic-military-political spectrum. In a just-released report, it assesses China's economic and military strength, as well as its intentions.

Authors of the report are Miles Costick, IST president, and research associate Marc Dean Millot. Mr. Costick is a former congressional consultant on foreign and strategic economic affairs. He is the author of a book entitled "Soviet Military Power and Western Technology." Mr. Millot is a graduate of the Fletcher School of Law and Diplomacy of Tufts University.

They declare in the report that "recent abrogations of business contracts with industrialized countries of the Free World by the government of Communist China inflicted a stunning blow to the business organizations involved and their respective governments." They cite Peking's cancellation of a number of trade agreements -- $30 billion worth, according to the IST.

Asserting that the economic development of the PRC is the "sine qua nonm of its military modernization," the report's authors maintain that these terminations, mostly of heavy industrial projects, indicate that the country will be unable to improve its economy "to a poiint where it might substantially contribute to . . . a credible . . . deterrent against Soviet aggression."

The report asserts that more than a score of projects have been variously canceled, shelved, suspended indefinitely, frozen, postponed, and halted. "The cancellations, affecting particularly Japanese (but also American, West German, and British) contracts in steel, nonferrous metals, chemicals, and petrochemicals, highlight the hazard of large-scale commercial dealings with a communist state, in this case Red China," it observes.

Roger Sullivan, vice-president of the National Council for US-China Trade, declares that the Chinese are "very jealous of their reputation as a dependable business partner." He emphasizes that they are prepared to make "some kind of settlement on the basis of international practice with the Japanese."

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Contrary to the assertion of Costick and Millot, Sullivan insists that all of China's contracts with Japan "had cancellation provisions in them." Moreover, in its dealings with US firms, Peking has acted in accordance with its contractual obligations, he says.

Shortages of real capital, skilled labor, and natural resources have made the completion of heavy industrial projects in China "untenable," claim the authors of the report. They add, moreover, that foreign trade is the subject of intense factional politics within the Chinese Communist Party and "can be immediately affected in changes in factional power relationships."

The IST report warns that an accumulation of internal economic and political problems could signal a "severe crisis" in China. "Extremely poor planning of the Four Modernizations plan has resulted in near-chaotic economic activity," it alleges. "It is estimated that over 20 million unemployed Chinese reside in the main cities alone, and 10 million may soon join their ranks." Inflation is running at 6 percent nationally and at over 17 percent in the major cities, the report adds.

Millot, the author of several studies on military and strategic economic affairs, claims that China's armed forces, equipped as they are with mostly antiquated weaponry, represent a negligible threat to the Soviet Union.

As he sees it, even if the US supplied Peking with weapons (as Defense Secretary Caspar Weinberger has said it might should the Soviet Union invade Poland), the PRC would need to spend at least $100 billion on its forces if they are to be taken seriously in Moscow.

Research associate Millot believes it will take 10 years to transform the PRC into a military superpower on a par with the Soviet Union -- given the necessary funds, that is. But he cautions that it would then be in a position not only to threaten the US, but Taiwan and other countries in Asia.

He believes that the attraction of the "China card" arises from "this feeling that since [the US] didn't have the will for domestic reasons to check Soviet power, we could use China to do so. The Weinberger proposal is just another of a long series of steps in this direction."

PRC spokesman N. S. Hu takes particular exception to Millot's dismissal of China as a military threat to the Soviet Union, asserting that if Peking did not oppose Moscow's "hegemonist" ambitions it would be able to deploy an additional 46 divisions against NATO.

"China has also diverted two-thirds of the Vietnamese troops to the Chinese border which is a support for the Southeast Asian countries," Hu adds with a touch of pride. If Hanoi dispatches more troops to Cambodia, he adds, it will "wipe out the whole country and threaten Thailand."

While insisting that China is extremely stable politically, the PRC spokesman concedes that it tried to rehabilitate its economy "too quickly" after the fall of "the Gang of Four" and, because of ensuing "financial problems, we had to stop some programs, especially with the Japanese." But he stresses that Peking plans to honor its contracts with Tokyo. "They are very much satisfied with us. So, I think China is a reliable and credible business country."

In the view of John K. Fairbank, Harvard history professor emeritus and one of the world's foremost China scholars, the Chinese "have had to go slow in making commitments because they don't have enough foreign exchange. They have a need for a lot of foreign technology, but they simply can't pay for it. So there's been a slowdown." But he feels that trade with China will grow "because they do have great needs and great potentialities."

He is contemptuous of those who view China as a weapon for Washington to brandish at the Soviet Union. "This whole question of the 'China card' and using China against the Soviets and so on is, in my view, extremely simple-minded --simplistic. It's what we accused the Chinese of doing, of playing one foreigner off against another and it's essentially saying the Chinese are just a tool that we can use or not as we wish, which is nonsense.

"You're playing a game. You're maneuvering around and you're trying to utilize a billion people over in China against your presumed enemy, the Soviet Union. Well, that in itself is a giveaway that you're being a simple-minded strategic wallah trying to master-mind international relations -- which seldom pays off. Usually you just get yourself into trouble. Instead of playing cards you've got to sit down and say, 'Now what are we up against, and what are they up against, and what have we got in common?' At that point you can begin to talk business."

Professor Fairbank says the US has to understand China's problems. "The Chinese are in the same world. We have to have relations with them. When they have problems, then its our problem to some degree. For example, if they can't check their population growth and they wind up with a terrible famine, obviously we will have to do something."

Of the IST's contention that the PRC is implacably determined to promote communist revolution worldwide, he says: "I don't think it has ever been very determined to do that. That's really cold war thinking."

As one well-placed US official sees it, "One of the reasons that the 'China card' doesn't make sense as a concept and why it's such an easy straw man to knock down is that anything you do with China in the military area is only going to have an effect in the long term. Therefore, it doesn't make too much sense to do it in the context of a short-term emergency."

He asserts that last January the US exported $454 million worth of goods to the PRC, "which would put China somewhere around seventh or eighth among our overall export markets in the world." That, he asserts, was a $297 million increase over the same mon th last year.

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