Declassified CIA File

China’s Growing Export Competitiveness – Central Intelligence Agency, August 1983, EA 83‑10137. This confidential intelligence appraisal examines how the People’s Republic of China is reshaping its export profile in the early 1980s, and why the assessment was of interest to U.S. policymakers as China began to integrate more fully into the world market. The document was released to the public on November twenty‑seventh, two thousand seven, under a Freedom of Information Act request. The declassification authority was the Central Intelligence Agency’s Directorate of Intelligence, and the record is available through the Black Vault archive at archive.org. The appraisal opens with a summary of recent policy shifts. Since the death of Mao Zedong, Chinese leaders have become more outward‑looking in their economic strategy. They have accepted foreign investment and loans, and they now view foreign trade as an engine of growth. Beijing’s dual programs of economic “readjustment” and “reform,” announced in early nineteen seventy‑nine, complement a new policy of greater openness to the West. The readjustment policy aims at reducing investment in capital‑intensive heavy industry and boosting output of labor‑intensive light industry, thereby making China more competitive in the world market. Reform policies were designed to improve the functioning of markets, but they have encountered problems in the foreign‑trade area because domestic prices do not reflect the free interplay of supply and demand. Rather than return to direct central controls, Beijing has attempted to use “economic levers”—including export tariffs and quotas—to remedy these malfunctions. The paper notes that China has yet to resolve the conflicts between its plan goals and the dictates of the market. The analysis proceeds to examine the relationship between China’s exports and domestic factors of production—land, labor, capital, and resources. Despite micro‑economic deficiencies, the trade patterns are becoming more rational. China increasingly exports labor‑ and resource‑intensive goods and imports capital‑intensive goods, mirroring what a comparably endowed free‑market economy would do. Nevertheless, the domestic economy remains geared toward the production of capital‑intensive goods, a legacy of the earlier Stalinist model of development. The failure to specialize in labor‑intensive production has diminished China’s potential gains from trade. The paper highlights that China now seeks reasons to expand exports beyond merely paying for imports. During the current five‑year plan, nineteen eighty‑one to nineteen eighty‑five, China must absorb nearly one hundred million new people into its labor force—a number equal to the present size of the total United States labor force. Under pressure to raise living standards quickly, Beijing sees expanding production and export of labor‑intensive goods as one of the best ways to boost real wages and Chinese living standards. Based on the model developed for this paper, the authors estimate the effect on exports of changes in China’s capital stock, employment, and output during the current five‑year plan. The factors, which explain about sixty percent of the pattern of China’s exports, suggest that between now and nineteen eighty‑five: * Exports of machinery and equipment—particularly household equipment, electronics, and precision instruments—will experience the largest percentage growth. * China will capture a slightly larger share of the world textile and apparel market than its current seven percent. * Exports of oil are likely to fall as the rate of growth of output declines and capital costs increase. The authors warn that China’s growing involvement in world trade will help alleviate its own growing pains, but the increasing export competitiveness may create problems for the rest of the world. Domestic U.S. producers have already filed complaints with the United States International Trade Commission alleging unfair Chinese trade practices on sales of a variety of commodities. Chinese efforts to gain a greater share of the world market—now only one percent of total world trade—will cause increasing friction with its less‑developed