By Patrick Sergeant
The new feelings of friendship between China and the booming nations of South-East Asia, as they make peace with one another after the Vietnam war, is a development that no businessman should neglect. Indeed, this is a prime area to specialize in, either for a young banker making his way, or an older one looking for fresh fields to profit from. From one end of South-East Asia to another, nations that once were frightened of their giant neighbour to the north, are enjoying better relations with China and seeking to improve them. At the same time China needs trade, influence, markets for her oil (she is supplying 5% of the Philippine's needs already and selling crude to Thailand) and supplies of off-shore oil drilling equipment such as she is getting from Singapore.
The way people work vigorously, enthusiastically and almost joyfully – at least, in the places that we were allowed to see – was a sharp contrast to many countries I know in the West. Plainly, we saw only the best, but the Chinese economy seems to be growing quickly and some US Government estimates of a growth rate of 10% to 11% a year probably about right though we have no means of telling accurately.
In the economic field, the Chinese are proud of two things. The first is the stability of their currency which, thanks to strict government controls, buys more today than it did ten years ago. The second is their policy of self-reliance which has meant balancing imports and exports. The word in China is that this policy is going to be changed in the new five-year plan which begins next year and is being thrashed out now. If ministers do decide on such a big shift away from present policies, it could mean fat business for international bankers and for China's suppliers of capital goods, machinery and metals. The straw that may decide such a switch in policy could be the failure of the Canton Fair which ended on May 15.
Officials admit that this twice-yearly trade fair was disappointing. Traders and wheeler-dealers there, representing 300 firms from a hundred countries, say it was a disaster. Ten years ago, Chinese export prices were so cheap, especially for textiles, bristles and some simple manufactured goods, that those lucky in the lottery for visas to Canton made a lot of money. The Chinese have been pushing their prices up for two years now, so much so that merchants at the Fair told me that they had priced themselves out of some markets, notably textiles, and that Chinese prices do not allow for the recession in world trade. None the less, China's international trade is becoming a force to reckon with. Last year, it grew by 30% or so over 1973 to reach $14 billion.
The experts, or at least those who bandy figures around more confidently than I, say that China ran a trade deficit last year of about a billion dollars, partly because of soaring world prices of her main imports – agricultural products, fertilizers and steel –and partly because export earnings were less than planned. Japan was China's main trading partner last year, with the US second. Western Europe continues to be a major supplier of metals, machinery and light technology equipment.
In spite of their policies of self-reliance, it does seem likely that China is running out of foreign exchange after a two-year buying spree which included more than 30 complete industrial plants worth $2billion, as well as Trident aeroplanes from Britain, French power stations, American wheat and Japanese steel plants. The Chinese are already relaxing their strict rule about dealing only for cash and not buying on credit. Japanese steel makers for example are providing 150 days credit to help the Chinese to pay for 200,000 tons of steel delivered in December. Peking has also asked for deferred payments on imported fertilizer. The Chinese are saying now, too, that they are willing to follow the normal international practice of making deferred payments for capital goods and China is now even paying for food imports over periods of 18 months.
Deferring payments in the way I have just described means that China has incurred obligations to pay something more than $1 billion this year and the same in 1976 before she starts to pay for the imports she needs. But the country is not in any financial trouble as far as I know. She is said to have large foreign currency reserves and enjoys a large invisible income from the money sent from overseas Chinese to their families at home. None the less, it is plain that China is planning to accept important changes to finance her trade in the building up of an industrial base and what is most interesting is the development of her oil reserves.
Nobody knows what China's oil reserves are, but, unless Mr David Bruce and the Japanese experts are completely wrong, China has large and, possibly, immense oil reserves. Japanese experts are forecasting output of 8 million barrels a day within five years, which will put China in a class with Saudi Arabia and Iran – at least for output if not for reserves. Moreover, the Chinese are developing their reserves at home and, offshore, in the Yellow Sea, much faster than their present and forecast domestic needs seem to require. They are spurring on their latest glamour girls, the expert women drillers in Szechuan, because the Chinese see oil exports as a way to square their trade and to pay for more imports of capital goods.
At present, from what we saw in what we were told was the best shipyard in China and in other factories, China does not have the capacity to make the huge oil rigs and the many highly specialized pieces of machinery it needed to develop her oil. It does seem to me most likely that China will probably take a deep gulp before too long and accept banking credits or loans, as well as the present credit from her suppliers, and they will spend a useful part of this money on oil exploration and drilling equipment and expertise. The foreign trade minister Mr Lee Chiang stressed that China would never grovel for foreign loans. They won't have to. Indeed, they will need another Great Wall of China to keep out the international bankers scrambling to lend them money.The most likely method of lending money at first will be for international banks to place large deposits with the Bank of China in Hong Kong. This is already happening and the Bank of China is accepting some big deposits sometimes for fixed periods of three to five years and paying the appropriate rates for them. Some of these deposits are in Chinese currency which the Chinese continue to affirm will remain strong and stable as opposed to, as they put it, the inflating currencies of the rest of the world. I came away from China persuaded that in the future we can expect much larger than average growth both in China, and in the whole prospering region of South-East Asia.