U.S. relations with Japan and China, 1979

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U.S. relations with Japan and China, 1979 staff report
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iv, 61 p. : ill. ; 24 cm.
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English
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United States -- Congress. -- House. -- Committee on Interstate and Foreign Commerce
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Relations -- Japan -- United States   ( lcsh )
Relations -- United States -- Japan   ( lcsh )
Relations -- China -- United States   ( lcsh )
Relations -- United States -- China   ( lcsh )
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federal government publication   ( marcgt )
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non-fiction   ( marcgt )

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Includes bibliographical references.
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prepared for the use of the Committee on Interstate and Foreign Commerce, House of Representatives, Ninety-sixth Congress, first session.
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CIS Microfiche Accession Numbers: CIS 79 H502-53
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Reuse of record except for individual research requires license from Congressional Information Service, Inc.
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Dec. 1979.
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At head of title: 96th session, 1st session. Committee print. Committee print 96-IFC 37.

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University of Florida
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Full Text




96th Congress COMMITTEE PRINT (COMMITTEE
1st Session PRINT 96-IFC 37






U.S. RELATIONS WITH JAPAN AND CHINA: 1979




STAFF REPORT

PREPARED FOR THE 'USE OF THE

COMMITTEE ON INTERSTATE AND

FOREIGN COMMERCE

HOUSE OF REPRESENTATIVES

NINETY-SIXTH CONGRESS

FIRST SESSION











DECEMBER 1979






U.S. GOVERNMENT PRINTING OFFICE 54-589 0 WASHINGTON : 1979
























COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE
HARLEY 0. STAGGERS, West Virginia, Ohairmau
JOHN D. DINGELL, Michigan JAMES T. BROYHILL, North Carolina
LIONEL VAN DEERLIN, California SAMUEL L. DEVINE, Ohio JOHN M. MURPHY, New York TIM LEE CARTER, Kentucky
DAVID E. SATTERFIELD III, Virginia CLARENCE J. BROWN, Ohio BOB ECKHARDT, Texas JAMES M. COLLINS, Texas
RICHARDSON PREYER, NortL Carolina NORMAN F. LENT, New York JAMES H. SCHEUER, New York EDWARD R. MADIGAN, Illinois
RICHARD L. OTTINGER, New York CARLOS J. MOORHEAD, California HENRY A. WAXMAN, California MATTHEW J. RINALDO, New Jersey
TIMOTHY E. WIRTH, Colorado DAVE STOCKMAN, Michigan
PHILIP R. SHARP, Indiana MARC L. MARKS, Pennsylvania
JAMES J. FLORIO, New Jersey TOM CORCORAN, Illinois
ANTHONY TOBY MOFFETT, Connecticut GARY A. LEE, New York JIM SANTINI, Nevada TOM LOEFFLER, Texas
ANDREW MAGUIRE, New Jersey WILLIAM E. DANNEMEYER, California
EDWARD J. MARKEY, Massachusetts THOMAS A. LUKEN, Ohio
DOUG WALGREN, Pennsylvania ALBERT GORE. JR., Tennessee BARBARA A. MIKULSKI, Maryland RONALD M. MOTTL, Ohio
PHIL GRAMM, Texas
AL SWIFT, Washington
MICKEY LELAND, Texas
RICHARD C. SHELBY, Alabama ROBERT T. MATSUI, California
KENNZTH J. PAINTER, Acting OCef Cler and Staff Dirwtor ELEANOR A. DINKINS, Pirst A8asoant Olerk WM. MICHAEL KITZMILLER, Profe8sional Staff Luwxs E. BEaR, Minority Oousee
(I)












CONTENTS



Forew ord ........................................................................................................ 1
Japan ....................................................................................................................................... 1
People's R epublic of China .................................................... ........................................ ... 2
A cknowledgm ents ................................................................................................................. 3
Japan : W orking T ow ard B alance ............................................................... 5
Structural im balance in Japan-U .S. trade ......................................................................... 6
Causes of U .S. Japanese trading im balance ................................................................... 7
Unfair trading practices ............................................................................................... 8
Tariffs, quotas, and procurem ents ........................................................................ 8
Japanese distribution system .................................................................................. 8
Export prom otion ..................................................................................................... 9
Japanese com petitiveness and enterprise ................................................................. 9
Cyclical factors ............................................................................................................... 10
Japan-PRC trade ........................................................................................................... 10
JETRO .................................................................................................................................... 11
Boadque A m erica ................................................................................................................. 12
Transportation ........................................................................................................................ 13
Shinkansen ...................................................................................................................... 13
I-ligh-speed, m agnetically levitated surface transport. ........................................... 14
O ther rail service ........................................................................................................... 15
JN R .................................................................................................................................. 16
China 30 Years Later: The Opening Door .............................................. 17
Foreign policy ....................................................................................................................... 17
Meeting with Tan Zhenlin, Vice Chairman of the National Congress ............ 17
Meeting with Xie Li, Secretary General, Chinese People's Institute of
Foreign Affairs .............................................................................................................. 18
H istory of U .S.--PRC trade relations ............................................................................... 20
Closing of trade ............................................................................................................. 20
Reopening of trade ...... I ................................................................................................. 21
Level of trade ............................................................................... ................................ 21
Barriers to U .S.-China trade ....................................................................................... 23
Chinese trade policy and prospects for future trade ............................................ 25
Industry in the PRC ............................................................................................................ 27
Energy .......................................................................................... I ...................................... 28
Coal .................................................................................................................................. 28
Petroleum and gas ........................................................................................................ 29
Hydroelectric power ..................................................................................................... 31
Therm al generation and electric power supply ...................................................... 31
Biogas generation .......................................................................................................... 32
N uclear energy ............................................................................................................... 32
Conclusion ...................................................................................................................... 33
Transportation ........................................................................................................................ 33
The Road to Suzhou: Impressions of transportation in China today ............ 33
Bicycles ....................................................................................................................... 33
Buses ........................................................................................................................... 33
Autom obiles .............................................................................................................. 33
Rural transport ............................................. n .......................................................... 34

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ITru cg.......... i ng........... ............................................... 34

Hirgta s po t to............................................................................3
O1tertraspo tto .............................. ........................... 35
ir cainsptt n ....................................................................... 36
Shanghai ......People's......Hospital................e...6................................... 363
Rai ...di ...a....care....in....he...CP...-.....c..............and...costs...................... 383
MeSal faevier"......................................................................... 3
Populati olcontrol........... ............................................... 43)
Medalrcar i d the. R fa...ii.s.a...... s................................... 41
Trdinail C iner ............edici..............................e.... in te C............. *........ 42
Agingatin cinar................................................................... ;.... 40

American-Chinese cooperation in- health care projects,...................... 43
Chlinese rural life ............................................................................... 43
Xinchang People's Commune and agriculture in China.......................... 43
Education .................................................................................... 46
Jingan [)istrict Chlre' Palace ..................................................... 46
Appedice ..........48
I--Japan...................................................................... 0...... *...... ....48
i&...Chronology of events ........... ........................................... ..... 48
Trrade............................................................................... 48
Transportation ............................................................................ 51
B--JEfrRO offices in the U.S...................................... $04..... 52
C--JCEFRO publications of interest to american businessmen................... 53
J IFIIO series ..............................................................#........0...53
Japan's export system .................................................... ......0 ...54
Exporters' guide series............................................................ 54

)- -Congressional hearings.............................................................. 54
E--Reports and Congressional documents ................................ *.......0...54
F--Additional reference sources ..................................................... 55
t3--ISS7[ diagrams ...................................................................... 56
Il--China .............................................................................. *.......*. 58
A --Ghronology of events .................................... ....................... 58
&-C(ongrssion~al hearings.............................................................. 59
C--Reports and Congressional documirents........................................... 59
D--Additional reference sources ................................................... 60
E--Pseu dartlircsis of the tibia........................................................ 61

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U.S. RELATIONS WITH JAPAN AND CHINA: 1979


FOREWORD
Thbis is the report of a delegation of the House Committee on Interstate and Foreign Commerce which visited Japan and the People's Republic of China from August 11 to August 23, 1979. 'The members of the delegation included the Chairman of the Committee, the Honorable Harley 0. Staggers; the Chairman of the Subcommittee on Communications, the Honorable Lionel Van Deerlin; the Chairman of the Subcommittee on Health and the Entvironment, the Honorable Henry A. Waxman; and the Honorable Douig Waigren, the Honorable Norman F. Lent, and the Honorable Matthew J. Rinaldo. The
Honorable Claude Pepper, Chairman of the Select Committee on Aging, also accompanied the delegation. Congressmen Staggers, Van veerlin, Waxman, walgren and Lent were accompanied by their wives for reasons of protocol.
The purpose of the visit was to explore issues involving commerce and the exchange of information and technology between the United States and both Japan and China. The delegation focused on transportation, energy, health, communications, and programs affectiq the aged. Cities visited by the delegation included Tokyo, Kawasaki, Beijing (Peking), Xi'an, Shanghai and Suzhou.
JAPAN
While in Japan, the delegation met with top representatives of the Japan External T Irade Organization (JET'RO), a non-profit organization for the promotion of trade between Japan and other countries, the activities of which are mainly supported by subsidies from the Japanese government. Following the meeting, the delegation reviewed programs currently under development to promote the sale of U.S. consumer goods in Japan. The delegation subsequently inspected the experimental, magnetically levitated, high speed surface transportation system at Japan Air Lines, Sugita test site at Kawasaki, met with officials of the Japanese National Railroad (JNR), inspected the computerized Control Center for the iNk's famous Shin kansen, or Bullet Train, received information on JNR's developmental work on magnetically levitated, high speed transport systems, and held discussions at the Ministry of Health.
The delegation's discussions with officials of the Japanese government and with business leaders focused on four principal issues: (1) measures that can be taken to reduce the large Japanese surplus in the balance of trade with the U.S. and, especially, efforts that could result in increased Japanese purchase of U.S. exports; (2) exchanges of technology and cooperation in technological development, with special emphasis on energy and transportation; (3) exchanges of information regarding social






2

programs, particularly those affecting the elderly;, and (4) the strategic and economic roles of Japan and the United States in world affairs.
TIhe delegation was very much impressed with thc sincerity of the efforts of th Japanese government and Japanese business leaders to promote the sale of U.S. products in Japan and to cooperate in efforts to deal with the serious energy problems that confront both nations. In this, the delegation was heartened by the progress in developing Solvent Refined Coal 11, a process through which coal can be converted to fuel oil and thus help to reduce the excessive reliance of both nations upon imported petroleum. Equally impressive are the Japanese achievements in transportation technology. T[he delegation concluded that technologies involved in the Shin kansen and the magnetically levitated, high speed transport could well be of significant value to the U.S. in meeting future transportation needs.
Government officials with whom the delegation met included the Honorable N. Ushiba, former Representative of the Japanese government for the Multilateral Trade Negotations and former Japanese Ambassador to the U.S.; Mr. K. Takahashi, Deputy Director-General, International Trade Policy Bureau, Ministry of International Trade and Industry (MITI); Mr. M. Kuroda, Director, General Affairs Division, International Trade Administration Bureau, (MITI); and Ikuo Seneda, Administrative Vice Minister of the Ministry of Health.
T"Ihe delegation also met with business executives, including: H. Murata, President of JETRO; Mr. Fumnio Takagi, President of Japanese National Railways; and Akira Hayashi, Deputy General Secretary -of the Overall Developmenit Committee of Japanese Air Lines.
PEOPLE'S REPUBLIC OF CHINA
The itinerary in the PRC enabled the delegation to visit with officials in the Nation's capital, Beijing, and also to inspect rural and urban conditions in other areas of China.
In Beijing, the first stop in the PRC, the delegation met with Tan Zhcnlin, Vice Chairman of the National People's Congress, and with government health and energy officials as well as with officials of the Chinese People's Institute of Foreign Affairs and the China Council 6for Promotion of International Trade. The discussions were wide ranging, dealing with issues of international security, economic policy, trade relations, resources, health care, energy and the respective roles of the PRC and the U.S.
During the stay in Shanghai, the delegation Saw a cross-section of urban life in the PRC. In addition to meeting with government officials, the delegation visited a commune, numerous factories, an arts and crafts research center, a school for gifted children, a hospital and the work areas of Shanghai Harbor. While in Shanghai, the delegation was taken on an inspection trip up the Huang-P'u River to the Yangtse River, the first group of Americans granted this opportunity since 1949. A trip to Suzhou provided the delegation with a chance to inspect the Chinese railroad system and the opportunity to inspect factories in which skilled Chinese artisans produced a wide variety of products.
The dominant international concerns of the PRC today are apprehension over the actions and intentions of the Soviet Union and the desire to strengthen relations Iwith the U.S., the latter both to






3

develop a counterbalance to what Beijing believes to be Russia's expansionism and interventionism and to develop markets that will provide the PR C with the funds to support m-odernization. The delegation was impressed with advances in medicine in the PRC, particularly in the area of limb transplants, in which the Chinese surpass American surgeons, and also with the skill of Chinese artisans in general. However, the PRC, while rich in resources and human potential, needs U.S. technology and markets to acquire the funds to pay for development and modernization.
In Beijing, in addition to T'an Zhenlin, the delegation met with Xie Li, Secretary General of the Chinese People's Institute of Foreign Affairs; Tan Yuntze, Vice Minister of Health; Wang Wen Lin, Deputy Director of the China Council for Promotion of International Trade; and with Wang Xun, Deputy Director of the Foreign Bureau of the Coal Industrial Ministry.
Xi'an provided the delegation with an opportunity to see and evaluate the impact which the recent liberalization in Lh PR C's economic policies had on the developments in rural China and to discuss economic issues with local PRC officials. The delegation also inspected important archeological excavations which will soon provide a major stimulus to the PRC's growing tourist program. In Xi'an the delegation talked with Li Jozhong, the Deputy Director of the Foreign Office of Shanxi Province.
In Shanghai, the delegation met with Han Zheyi, Vice Chairman of the Revolutionary Conmittee of the Municipality of Shanghai; Ding Shen, Deputy Secretary General of- the People's Political Consultive Conference of Shanghai; and Shi Yuzian, Executive Member of the National Women's F ederation. During the visit to Suzhou, talks were held with YU Kaixum, Deputy Director of dhe Foreign Affairs Office in Suzhou; and on the tri p uip the Huang-P'u the delegation had an opportunity to interview Li Haiquing, A jurist on the Shanghai Higher People's Court.
ACKNOWLEDGMENTS
China and Japan were gracious hosts and the delegation expresses its gratitude to all the government officials and individuals who gave so generously of their time to help the delegation learn about their countries, discuss issues, and exchange information.- A special word of thanks is due to the Chinese People's Institute of Foreign Affairs, which acted as sponsor for the visit to China. Since the U.S. has no official representation outside Beijing, the delegation relied totally upon the Institute for scheduling, and its interpreters and guides were invaluable in helping the delegation to meet and communicate with the people of China.
The delegation also wishes to express its appreciation to the Department of State, and especially to Wever Gim, who accompanied the delegation as a specialist in Chinese Affairs and interpreter, and to the United States Embassies in Tokyo and Beijing -under the direction of Ambassadors Mike Mansfield and dLeonard Woodcock, respectively-for their help in facilitating the trip. The briefings the delegation was given by Ambassadors Mansfield and Woodcock demonstrated extraordinary command of the issues of concern to the delegation and contributed greatly to the success of the trip.






4

The delegation wishes to thank the Department of Defense for its assistance in supplying transportation and administrative and support services. No acknowledgment would be complete without an expression of special appreciation to Col. William Chritton, USA, and his aides, for the care and attention they devoted to the delegation through the
t'inally, the delegation also gratefully acknowleges the assistance of the experts of the Congressional Research Service, Library of Congress, especially John P. Hardt and Robert Sutter; the Department of State; and the Department of Commerce in preparing this report; Dr. T. Scott Key, of the Departnent of Internal Medicine, Walter Reed Army Medical Center, who served the delegation as Medical Escort Officer and provided valuable insights into Chinese medical practices; and the invaluable assistance of Barboura Flues, of the Committee staff, who edited the report and provided general information of great value based upon her own experiences as a child in China, David Iauter, also of the Committee staff, who helped with editing, and Acting Committee Clerk, Ken Painter, who took transcripts of conversations with Chinese officials.











JAPAN: WORKING TOWARD BALANCE

U.S.-Japanese trade relations have been a source of strain and controversy for more than a decade. In 1977 and 1978, the record bilateral surpluses in trade with the U.S. and the huge surpluses Japan achieved in global trade were perceived as restricting the growth of the markets for U.S. products worldwide and greatly exacerbated the situation. During 1979 the situation has improved somewhat as a result of a surge in U.S. exports to Japan, which, it is projected will result in a Japanese surplus of about $9 billion, down from $12 billion in 1978. Table 1 traces the history of the U.S. balance of trade with Japan from 1965 to the present.


Table 10
U.S. Trade Balance with Japan and Global Balance (in billions of U.S. dollars)
Japan Global
1965 -.3 5.3
1966 -.6 3.9
1967 -.3 4.1
1968 -1.1 .8
1969 -1.4 1.3
1970 -1.2 2.7
1971 -3.2 -2.0
1972 -4.4 -6.4
1973 -1.4 1.3
1974 -1.7 -2.3
1975 -1.7 11.0
1976 -5.4 -4.9
1977 -8.4 -27.0
1978 -12.0 -28.0
1979 (Jan.-June) -4.7
Source: Congressional Research Service. U.S. Ubrary of Congre The aim of U.S. policy need not be to achieve a surplus, or even a balance, in trading accounts, either with indivdual countries or on a
(5)






6

global basis. Transfer payments, transactions in services and capital flows can offset modest imbalances and assure the health of the U.S. economy. But a review of the trading patterns over the past 14 years (able 1) showing growing-and ultimately, dramatically growing-U.S. deficits explains the source of U.S. concern.
U.S. agreements with Japan call for reduction of Japanese barriers to imports from all countries and stimulation of Japan's domestic economy to spur imports from all countries. That Japan ailed in 1978 to achieve the 7 percent growth target specified in one agreement (actual growth was 5 1/2 percent) disappointed its trade partners. Current crude oil supply problems will probably cause Japan to fall short of its planned 6.3 percent growth rate for 1979, and hopes for greatly reduced trade surpluses may, therefore, be jeopardized.
STRUCTURAL IMBALANCE IN JAPAN-U.S. TRADE
Despite general agreement between Congress and the Administration that the trade imbalance must be corrected, and despite past efforts, imbalance persists. An analysis of the commodity composition of trade between the two countries strongly indicates one strong reason why the problem has proved difficult to solve. Table 2 details Japan's major exports to the U.S. and Japan's major imports from the U.S. in 1978, when Japan's bilateral trade surplus totaled $12 billion.

Table 2"
Major Commodities in U.S.-Japan Trade-1978 (in billions of U.S. dollars)
U.S. Exports U.S. imports
Agricultural $4.4 $ .1
Nonagricultural 8.3 24.4
Commodity Commodity
breakdown breakdown
Food & live animals 3.0 .3
Soybeans 1.0
Logs & lumber 1.0
Metal ores .5
Raw cotton .4
Mineral fuels .8
Chemicals 1.1 .6
Manufactured goods .6 1.5
Machinery 1.5 7.6
Transport equipment .7 8.4
Source: Congrenional Research Service. U.S. Jibroy of Cosm






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Well over half of the U.S. exports are primary products, such as food and raw materials, while manufactured items concentrated in a relatively few sectors-autos, steel, and conSUrner clectronics-account for most American imports. One theory holds that this places the U.S. at a disadvantage because, with economic growth both prices and demand for manufactured products rise faster than prices and demand for primary products. I'he practical effect is that should the U.S. and Japanese economics grow -at equal rates, demand and payments for Japanese products in the U.S. could be expected to grow faster than the Japanese demand and payments for U.S. products.'
Increase in the value Of the yen will make imports into Japan more attractive eventually and will also make Japanese exports more expensive on world markets. It takes several years, however, for Yen appreciation to affect the trade balance and even then the turnaround in trade flows will probably be too little to reduce substantially the huge trade imbalance. Under these circumstances changes in economic growth rates or exchange rates will affect the trade balance most dramatically if the U.S. increases its level and share of exports of manufactured oods to Japan. For that to happen, the competitive opportunities for imports in the Japanese domestic market must improve, and U.S. exporters must make a stronger effort to exploit these 0 ortunities.
In 1q7' and 1978 Japan scored huge surpluses in worldwide trade, $11 billion and $18 billion respectively. Japan will probably experience a dramatic downswing in 1979, possibly even incurring a deficit, but that would be caused primarily by the steadily rising price of crude oil, and it does not reflect any substantial decrease in trade. Crude oil prices will also exert unfavorable pressure on the U.S. global trade balance, although the pressure here will probably be less than in Japan, because the U.S. is not as dependent upon imported crude. If current projections are correct, the Japanese deficit will not materially improve the unbalanced trade relationship with the U.S.
Although U.S. efforts with Japan have focused upon individual imports which are deemed to be damaging to domestic industry, the main effort has been directed at Japan's global balance, because a nation that has its imports and exports more nearly in balance puts less pressure on the world economy. Thus, if deficits with other nations offset Japan's trade surpluses with the U.S., U.S. market opportunities in the other nations would theoretically be improved.
CAUSES OF U.S. JAPANESE TRADING IMBALANCE
Essentially, U.S. explanations for the persistent imbalances in trade between the U.S. nd Japan can be grouped under three headings:
(1) alleged unfair trading practices that impede U.S. penetration of
Japanese markets and promote Japanese exports in the U.S.;
(2) Japanese governmental policies that foster competitiveness and
support industrial and business development and the absence of
similar policies in the U.S. government; and
Some experts. particularly In the U.S. State Department disagree with this theory; however, one recent study cited by the Congressional Research Service, U.S. Library of Congress, estimated that a 1 t increase in U.S. income results in a 3 percent increase in Japan's exports, while a 1 percent lncr cmn Japan's Income leads to only a 1 percent increase in U.S. exports.






8

- (3) cyclical factors in the economic growth rates of the U.S. and
Japan that help to explain the magnitude of the existing trade
imbalance.
Unfair trading practices
Charges that the U.S. trading imbalance with Japan results from unfair Japanese trading practices concern
-(1) explicit Japanese barriers to imports (tariffs, quotas, and procurement policies);
-(2) the Japanese distribution system which allegedly limits imports; and
-(3) nontariff practices that both promote exports and limit imports. Tariffs, quotas, and procurement:
Throughout the 1950s and early 1960s, a variety of restrictions on investment, high tariffs, and numerous quotas greatly protected the Japanese economy. Slowly and grudgingly, often in response to pressure from the United States, whose market for manufactured goods was open, the Japanese took steps to reduce formal trade restrictions. Today, Japan's formal trade policies are on the average probably not much more restrictive than those of Western Europe and theU. S.
During 1978, the Administration focused its efforts on negotiating reduction of tariffs, quotas, and other non-tariff barriers within the multilateral trade negotiations (MTN). By mid-year 1978, Japan and the U.S. reached agreement on industrial tariff offers and, early in December 1978, agreement on agricultural issues'. providing Japanese concessions that could increase U.S, exports to Japan $1.4 billion a year by 1983. Japan has been forthcoming in the negotiations on the trade policy codes with the possible exception of g overnment procurement, which the Japanese have been unwilling to extend to quasi-governmental corporations such as the Nippon Telephone and Ileelg raph (NTT). Whether the negotiations include NTT under the
Government Procurement Code or not, the results are unlikely to affect trade in any substantial manner until the mid-1980s.
Japanese distribution system:
It is difficult to assess how significant the formal Japanese trade restrictions are as obstacles to increased levels of U.S. exports. In general, the more informal barriers of doing business in Japan associated with the distribution system raise greater concerns. M any observers believe that the real barrier of the Japanese distribution system relates to its effect on the cost of market entry. The most difficult problem with the distribution system is that a small volume of goods and limited territory is handled by a large number of middle men, which increases the cost and planning necessary for market entry. It takes time and money to convince these many distributors that they should sell U.S. products when they are doing well selling. Japanese products. Given the emphasis of U.S. firms on steadily improving short-term earnings, and the expensive requirements of market entry in
2 A recent House Ways and Means Committee Task Force Report on U.S.-Japan trade stated: "Amon? the many trade barrier which should be eliminated in order to reduce the trade Imbalance are formal or In ormal import cartels, discrimination against foreign banks, a variety of regulations and standards affecting Waes of manufactured goods, 0 and resicuons on agricultural imports such as beef. citrus, tobacco products, and leather goods.' In addition, the public corporations of the Japanese government allegedly practice protectionism discriminating against products in which thc U.S. is competitive. Telecommunications eqimnt, electric power enration c uaprnnt, and cigarettes are three product areas in which greater sales ofeU.S.products would be fikelyif th buying practices of the Japanese public corporations changed."






9

price competition, sales, service, and advertising, the Japanese market appears distant and difficult to most U.S. firms. Moreover, the distribution system results in large markups on many common consumer items. Visitors to Japan are regularly outraged by astronomical prices for consumer items, such as beef, fruit, and tobacco. Until glaring price differentials in Japan between comparable U.S. and Japanesc goods are reduced, the view that Japan unfairly protects its own market is likely to persist.
Export promotion.-.
The Japanese government-business system is often accused of stimulating exports artificially. Included among the alleged distortions are the allocation of cheap credit for both industrial expansion and for promotion of exports through the government's administrative guidance to commercial banks, manipulation of exchange rates in an effort to keep the yen from appreciating, and various arrangements to curtail competition in the domestic market. Typical of the practices of Japan's Ministry of International Trade and Industry (MITI) is a recent $125 million in interest-free loan sLibsidies given five companies to pool their research capabilities to challenge IBM's worldwide domination of the large computer market. Some argue that the government's allowance of cartel practices also allows high profit margins to be maintained in the domestic market during periods of slack demand, thereby facilitating sales abroad at lower prices. The exceptionally low fixed costs of Japanese firms (particularly labor and interest) lead to aggressive price cutting in export markets so long as variable costs are covered. In sum, it may be a rational trade policy for -Japan to concentrate resources on pushing and supporting increasingly sophisticated industries and to protect those industries frorn foreign competition while they are in their infancy, but that policy is becoming politically unacceptable to Japan's trading partners.
Japanese competitiveness and enterprise
A second explanation of the huge Japanese trade surplus emphasizes the high level of Japanese manufacturing skill, or conversely, the lack of competitiveness and enterprise on the part of the U.S. government and industry. Many observers maintain that Japan's strengths are a national economic policy devoted to rowth, a highly competent career bureaucracy; a willingness to p flase out declining, industries such as textiles in favor of high technology and growth industries such as computers-, a close and strong government-business relationship; a flexible labor force receptive to new labor-saving technology; an absence of restraint on trading companies; and high rates of personal savings and corporate capital investment.
U.9. government policies, on the other hand, arc often criticized for failure actively to foster U.S. international competitiveness. Cited most often are the failure to provide a national policy to promote increased productivity and capital investment; taxation and antitrust policies said to hamper U.S. international competitiveness; tariff and import quota protection of low-growth and low-technology industries; and failure actively to promote the sale of national products as foreign governments do. Furthermore, critics charge that U.S. industry is overconfident, poorly managed, exports U.S. technology abroad, lacks enterprise, and






10

is not export oriented. But, any empirical assessment of those general charges which imply an increase in Japanese industrial competitiveness and a corresponding decline in U.S. industrial competitiveness is most difficult because a variety of subjective criteria, none of which arc entirely satisfactory, could be applied.
Cyclical factors
A final explanation for a portion of the overall U.S. trade deficit of $28 billion also helps explain a small portion of the $12 billion bilateral trade deficit with Japan during 1978. From 25 to 33 percent of the overall trade deficit has been attributed to the growth rates of the domestic economies of Canada, the EE C, and Japan which, during 1978 have been below the U.S. growth rate. Japan's growth rate, while still higher than that of other developed countries, is well below its historical experience. That slower growth most likely has limited some U.S. exports. A higher Japanese growth rate, as called for in the Strauss-Ushiba agreement, could increase U.S. exports and narrow the trade gap, but growth potential is declining. Convcrsely, slower growth of the U.S. economy would also reduce imports from Japan. A narrowing of the inflation differentials (in 1978 Japan's inflation was almost 5 percent lower than the comparable index in the United States) would also help increase U.S. export price competitiveness, thereby helping to reduce the trade imbalance If the real economic growth of the U.S. slows down to around 2 percent in 1979, while Japan's real rowth increases to between 6 percent and 7 percent, and, if the US.-Japan inflation gap is narrowed in 1979, then the trade imbalance could be reduced substantially.
Japan-PR C trade
The Japanese have recently moved aggressively into the opening markets of China, and Table 3, which compares the trade balance during the first six months of 1977, 1978 an 979, shows that they are making strong inroads.

Table 3*
Japan-China Trade During January--June 1979 (in thousands of U.S. dollas)

Percent change from
1977 1978 1979 preceding year
(Jan-June (Ja-une (Jan-June 1977 1978
Export 791,536 1,234.791 2,052.621 159.3 66.2
Import 70781 1,45 L8655 81.8 42.8
Total 1.499,351 2,135,936 3,339,177 122.7 56.3
Balance 83,721 333,646 766,065
Source: Ministry of Finance Statistics. and The Sumtary Report, Trade of jpan.








An analysis of export-import trade supplied to the delegation indicates that Japan may well be assuming a dominant position in certain areas. For exam le, Japanese export of machinery and mechanical apparatus to &ina in the first six months of 1979 has increased 111 percent as against the same period in 1978 and exports of machinery for earths, minerals, or ores' has increased a staggering 5,260 percent over die same period. Such figures exaggerate the actual situation because Chinese imports started at such a low level, but they do indicate that as the Chinese open tip to foreign imports, the Japanese are moving vigorously to exploit the new market. Principal Japanese exports to 'China are chemicals, metals and metal manufactures, machinery, and synthetic fabrics. Chinese exports to Japan consist mainly of foodstuffs and agricultural products, ores, coal, crude oil, silk and silk fabrics, wool, hair, flax, cotton and cotton fabrics, and garments.
JEFRO
In a sense JETRO typifies the relationship between government and business in Japan, a relationship which Americans find puzzling and which many American businessmen have felt has impeded the expansion of U.S. trade in the past.
In 1958, dissatisfied with the effectiveness of the many government and private organizations promoting Japan's trade and with the lack of a coordinated policy, the Ministry of International Trade Industry proposed the establishment of a single organization to coordinate trade
ff omotion. The organization, JETRO, was established by an Act of the iet in April of 1958. Originally, die government capitalized JETRO at $5.6 million (Y2000 million) and supplied $2.46 million (Y885 million) of the $5 million (Y1,812 million) operating budget. By 1978, JETRO's government-supplied capitalization had increased to $46 million Y10 200 million) and the* operating budget had risen to $73 million Y16,072 million), of which the government supplied $44 million Y9,800 milliop).
Over the 20 years that JETRO has coordinated Japanese trade
M romotional efforts, Japan's total trade volume rose from $6 billion to
7 billion and the trade balance shifted frorn a deficit of $1.2 billion to a surplus of $18 billion.
Throughout most of its history, JETRO has concentrated its efforts on building markets abroad for Japanese exports. Today the organization maintains 80 branch offices in 56 countries which assist Japanese businessmen in developing and expanding export markets, gather information, participate in trade shows, sponsor special promotions for Japanese products, and generally promote Japanese trade.
Recently, reacting to international, and most particularly U.S., pressure to ease trade deficits, JETRO has undertaken programs designed to spur exports of foreign products to Ja anese markets. The organization now publishes and sells a directory, 4 Exporting to Japan," listing Japanese importing firms classified by commodity. jETR0 has also prepared a large number of publications in English and other languages to give foreign businessmen information on Japanese markets,






12

culture, business practices, laws and regulations affecting trade3 and has prepared seven English-language films available for businessmen interested in learning how to develop markets in Japan for their products. These include 100 Million Varied Consumers, Decision Making in Japan, Understanding Japan, Where is the Real Japan, Kacho-A Section Chief and His Day, Doing Business in Japan. and Japan is Your Aarket. Since September, 1977, JETRO has sponsored 51 Export to Japan Seminars for American businessmen in different cities of the U.S.
BOATIQUE AMERICA
During its visit to JETRO headquarters, the delegation had an opportunity to inspect a new pro ect which may signal a growing awareness of the need for reciprocal trade development on the part of JETRO and the Japanese government. The project, a "floating" fair called Boatique America, will use one of the major Japanese strategies for developing overseas markets for Japanese products to develop Japanese markets for U.S. products.
The use of the floating fair to promote Japanese products predates the creation of JETRO. The first fair, using a converted Japanese cargo vessel, toured Southeast Asia for 79 days in 1956 and '57. It visited nine ports in nine countries from Manila, the Philippines, to Karachi, akistan, displaying 12,000 Japanese products of 650 firms to 120,880 foreign businessmen. Since that time 11 voyages in a variety of vessels have introduced 1,788,315 prime importing customers in 122 cities to Japanese products. In 1962, the Japanese found the project so valuable they constructed a vessel, the "Sakura Mani," especially designed to carry floating fairs throughout the world, and, in 1972, constructed a new larger vessel, the "Shin Sakura Mani," for the same purpose. In addition to exhibition facilities, the vessel has rooms for private meetings and lecture halls for special presentations.
The Boalique America promotion will have a specially outfitted ship visit 13 Japanese ports in October and November of this year with displays from 146 American manufacturers of home furnishings and housewares, toys, games, hobbies, do-it-yourself kits, sporting and leisure goods, and men's, women's and children's apparel. The goal is to expose Japanese businessmen to American goods and businessmen and to encourage imports of U.S. products.
Boatique America is a significant development. It apparently signals a sincere Japanese effort to redress the trade imablance with the U.S. by promoting the importation of U.S. goods. Perhaps more important, it shows the Japanese as willing to use what they regard as their most potent export vehicle to assist a trading partner in penetrating domestic Japanese markets.
3 A list of relevant publications can be found In Appendix I, p. 53.






13

TRANSPORTATION
When Commodore Matthew C. Perry opened the reluctant doors of the Japanese Empire to American trade in 1853, one of the gifts he presented to the Emperor was a scale model railway train large enough to be ridden and complete with a working locomotive, an amazing display of western techonlogy. Ironically, perhaps the most significant contribution modern Japan can make to the U.S. is in transportation technology, in which Japan is now clearly a world leader.
Shinkansen
Rail is the dominant mode of transportation in Japan, and the centerpiece of the Japanese railway system is the famous Shinkansen, which carries nearly 130 million passengers each year at speeds of up to 126 miles per hour (mph) over a 641-mile track running from Tokyo to Hakata on Kyushu Island. There are two types of Shinkansen service, the Hikari, which stops only at the main stations, and the Kodama, which stops at all stations. On the Hikari schedule, the trains maintain an average speed, including time at stops, of 92.5 mph, and make the 641 mile run in 6 hours and 56 minutes.
In the 15 years it has been in operation, the Shinkansen has carried more than 1.3 billion passengers without a single passenger fatality.
An extension of the Shinkansen line to the Tokyo-Nariti International Airport, adding about 39 miles to the system, is scheduled to be opened soon. Two additional extensions, from Tokyo north to Morioka, and from Tokyo across Honshu, to Niigata, will nearly double the Shinkansen lines in Japan. Extension from Morioka to Samporo approved for construction will take the Shinkansen through a 34-mile undersea tunnel (the world's longest) to Hokkaido and another approved project will extend service from Hataka to the industrial centers of Nagasaki and Kagoshima. Extensions proposed for the future will tie Shikoku Island into the system, complete the loop around Japan, and tie the eastern and western lines together at three strategic points.
The delegation was privileged to have an opportunity to inspect the heart and brain of this high-speed system, the General Computer Control Center located at the Tokyo Station, where computers automatically handle all the operations of the system-from ticket sales through daily operations to maintenance.
At the Center the entire route of the Shinkansen is displayed upon a giant "mimic board" that stretches more than 100 feet around three sides of the room. Here visual displays track each train as it proceeds along the system and keep track of time and route conditions to assure that the trains adhere precisely to the schedule and operate safety.
Safety measures built into the system include Automatic Train Control, which evaluates traffic and conditions on the route ahead of each train, determines and displays perissible speed, and automatically slows the train down if permissible speed is exceeded, and COMTRAC, which works with the Centralized Traffic Control Computer to adjust train movements, control train routes, and automatically prepare plans to restore service should a disturbance occur. As an example of the degree of sophistication in the system, the computer preparing schedules keeps track of wind speed and water levels in the tunnels on the system.



54-589 0 79 3






14

Because of the unique nature of the Shinkansen service, its tracks are separate from, and in addition to, tracks used for other passenger and freight service, and the system has no grade crossings, freeing it from a major hazard to rail safety.
For maintenance, a special train made up of seven multipurpose inspection cars patrols the Shinkansen track system to detect, measure and record irregularities in track, roadbed, or electric facilities. Data collected are analyzed by a computer which then draws up a maintenance work schedule. Work is done at night when the
commercial service is closed down. Daily patrols on foot and train oscillation checks supplement the inspections by train, which are made once a week for the Hikari schedule and once every three months for the Kodama schedule.
Although the Japanese railways system runs a considerable deficit, $4.1 billion in 1978, Shinkansen contributes a healthy' profit and has done so every year since 1965. Last year the income from Shinkansen was $3 billion against expenditures of only $1.7 billion. Fumio Tagaki, JNR's President, told the delegation that "it would be frightening to think just how red the ink of JNR's 1978 ledger would be" without Shinkansen.
The reasons for the profitability of Shinkansen are low operating costs and high passenger acceptance, which Mr. Tagaki indicated has exceeded expectations. As a result of the centralized computer controls and mechanized maintenance, Shinkansen's labor costs are less than 30 percent of operating costs as against an industry average of 60 to 50 percent. Its speed, comforts and frequency of service make Shinkansen competitive with air and auto travel and keep the trains operating at or near capacity.
For oil-starved Japan, Shinkansen has had an important side benefit. Mr. Tagaki pointed out to the delegation that it took only 4.4 million barrels of oi to operate the system in 1977. He said that JNR officials have calculated that moving the same number of people the same distances by car would have consumed 20.6 million barrels of gasoline, which would have required 46.1 million barrels of crude oil to produce. High-speed, magnetically levitated surface transport
With the same foresight that led to the development of the Shinkansen system, the Japanese are pioneering in the development of more exotic transportation systems for the future. The most interesting are high-speed, magnetically levitated surface transportation systems. Both JNR and the Japan Air Lines (JAL) have demonstration projects, but the JNR project is located on the tip of Kyushu, more than 1000 miles from Tokyo, and the delegation was only able to inspect the JAL project at Kawasaki.
The JAL High-Speed Surface Transportation (HSST) demonstration project, which was explained by Shinji Nakamura, General Manager of the HSST Engineering Group, consists of a vehicle looking like a small jet airplane which seats six passengers and rests upon two tracks. Flanges from the body of the vehicle extend down and under the rails on both sides. When the system is activated, the flanges are magnetically attracted to the rails, thus lifting the vehicle about two-fifths of an inch into the air. The magnetic attraction is balanced so that while the vehicle is raised, the flanges never touch the bottom of






15

the rail, thus the vehicle is literally "floating on air," and friction is virtually eliminated.4Members of the delegation experimented with the levitated vehicle, which weighs 3,960 lbs. without passengers (4,961 lbs. with passengers) and found that they had no difficulty pushing it with one finger.5
rTo increase efficiency and reduce noise, the vehicle is operated as a linear induction motor. Members of the delegation rode in the demonstration vehicle along 4,290 feet of track and reached speeds of 60 mnph. They found the ride to be exceptionally smooth, and the only noise was the rushing of air. The delegation was informed that HSST can operate safely at speeds up to 1-80 mph but that the experimental model is held to 60 mph because of the shortness of the test track.
JAL proposes to construct the first HSST system between Tokyo and the new International Airport at Narita. Although Narita is only 65 km from Tlokyo, traffic conditions around the city are such that the trip normally takes as lon as an hour-and-a-half to two hours. With the HSST system, JAL. officials expect to move 224 persons per car from the airport to the city in only 15 minutes. Trains may be made up of more than one car, thus expanding the passenger load as needed.
The HSST program has ended its experimental phase and design of a prototype is currently tinder way and the prototype is scheduled for testing early next year.
The delegation saw television reports of a similar high speed magnetically levitated surface transport system being developed by JNR at its Miyazaki Maglev Testing Center on Kyushu. The JNR vehicle, which uses only one track and operates on the principle of magnetic repulsion rather than attraction, is designed to attain speeds of up to 300 mph.
It was the opinion of the delegation that high-speed magnetically levitated transportation systems hold great promise for helping the U.S. meet some of its more difficult transportation problems in the future. Other rail service
As impressive as the Shinkansen and the HSST are, they should not be allowed to overshadow the Japanese achievement in other forms of rail transportation. Operating over some 12,000 miles of track which reach almost every corner of the four major islands of Japan, the JNR runs about 20,000 limited express, express, and local trains each day carrying some 10 billion passengers and 132 million'tons of freight each year.
This volume is all the more remarkable in light of the diverse nature of the rail facilities in Japan, which include a mixture of double and single tracks, and a blend of non-electrified, A.C.-electrified, and D.C.-electrified tracks. A major priority of JNR is to construct double tracks on all important trunk lines.
4 For a diagram, see Appendix 11, pages 57 and 58.
5 The Committee has video tape and film presentations on file on the HSST demonstration.






16

JNR
Historically, rail transportation has been the responsibility of the Japanese government ever since the first line, linking present-day Tokyo with Yokohama, was opened in 1872. Until 1949, the railways were built and run by one department of the government or another. In 1949, the Japanese National Railways was created as a public corporation. JNR's capital comes entirely from the government, and it is operated under the supervision of the Ministry of Transport.
In addition to running the nation's railways, JNR operates ferries, which are important in connecting the islands that make up Japan; buses which supplement its extensive rail system; generating facilities to provide power for electrified portions of the system; and pipelines.
While the President of J NR -has authority to make day-to-day operating decisions, he must turn to the Board, of which he is Chairman, and in some cases the Ministry of Transport for policy. One indication of the importance attached to rail transport is that revisions in passenger and freight rates require the approval of the National Diet
Japan is so densely populated that environmental concerns are mgified greatly. JNR has been engaged in a major effort to reduce noise pollution. In addition to the use of long welded rails, double elastic fastening, pneuimatic spring bogie structure and body side skirts now in use, JNR is investigating a broad range of noise abatement projects including the control of tread surface of wheels, development of vibration-proof and resilient wheels, development of vibration-proof axle spring liners, sound absorbing materials to be installed under car floors, and sound insulating plates for boglies. In addition they are working to reduce noise from rails ancd to soundproof railroad structures, particularly tunnels and rail lines in densely populated areas.










CHINA 30 YEARs LATER: THE OPENING DOOR

FOREIGN POLICY

Chinese officials are extremely candid and articulate in their view of the respective roles of the U.S. and China in world affairs, and the delegation decided to let them speak for themselves in this regard by including relevant sections of the transcripts of discussions with Tan Zhenlin, Vice Chairman of the People's Congress, and Xie Li, Secretary General of the Chinese People's Institute o f Foreign Affairs,
Afeeling with Tan Zhen tin, Vice Chairman of the National Congress
Mr. Tan: We welcome all Members of Congress to visit China--more than once. We welcome all American friends, especially the young peo ple. There are many historical points in China. if you want to see a typical area in China, it will take several days; ten days, at least, just to see Xi'an.
During World War II, the U.S. achieved great success. The U.S. is now on the defensive, trying to consolidate differing interests. The Polar Bear (Russia) is making trouble all over the world. Wherever it goes, it involves the interests of the U.S. It is also close to China. It shares a very Ion g boundary with China. It is not easy to solve this problem because it is a fundamental contradiction. China has many people with a Fopulati on over 900 million. It also has vast territory of 9.6 million square kilometers. t isnrch in natural resources.
Our two countries maintain friendly relations, and when we join hands with Japan a great threat will be posed to the Polar Bear. So we follow this general principle. Wherever the Polar Bear is encroaching upon the interests of another country, we will oppose it. By opposition to it we merely mouth empty words to expose them, to criticize them. We do not take action because we have not the strength to do it. Of course, we can do something in areas close to our country. Vietnam is an example. We gave it a lesson. While teaching them the lesson last we occupied Langson.
We fulfilled all our objectives in counter-offense. While we withdrew our troops from Vietnam, if we are again threatened we would deal Vietnam another blow. Whether we should occupy the capital, llanoi, or occupy only part, let the people determine what to do. It is not necessary to do it now. If we are going to take the second action, we must be prepared for action that might be taken by the Soviet Union. It is possible that the Soviet Union might take some actions. That would depend on the development of events at the time. Its main target is directed against the West. By directing its spearhead in the West, we do not mean it is going to dispatch troops immediately to West Germany or France. It will First try to control the oil in the Middle Fast and the strategic materials in Africa. When the two things are controlled by the Soviet Union, the western countries will be crippled. They will have no markets. Under that situation, other countries in that part of the world will ind it very difficult to resist. We actively support the west European countries--the Common Market--to unite. They will rely on the U.S. as far as nuclear weapons are concerned. When we take the whole situation into consideration, we find Japan in the East, also Canada, United States, New Zealand, Australia. and all of Europe to protect oil resources in the Middle East. We shall not allow the Soviet Union to control these areas. Vietnam is also a focal point in the struggle. Of course, there are also Iran, India, Pakistan. All this requires U.S. and China to coooperate very well. We should develop technology and trade. Our country is backward, technologically. You, can help China in this respect. You can help China in this struggle. In order to have friendly relations between two countries, the American people are required to have an understanding for China. Some people in the U .S. find it difficult to change their feelings about Taiwan. It means that the U.S. still has considerable amount of investments in Taiwan. You can foster better feelings between China and the American people by Congressmen, government officials and people in the U.S. visiting China.

(17)







18

Mr. Staggers: You have given us a very comprehensive discussion that covered all of the problems. We will take back the words you said, explaining the difficulties and ain a peaceful worll
the things we can do together to mainL Economy. science,
technology y and mutual defense. a common defense effort if needed in an emergency.
The ke President of the U.S. will be here visiting your country soon. He will be carrying messages from the President, and he will speak with one voice for the American peopFe and the Congress of the United States.
Mr. Tan: We are ready to extend a very warin welcome to him.
Mr. Staggers: We are very proud to have as our Ambassador, Mr. Woodcock. Ile has a lot of experience dealing with people, and I am sure he will continue to make an excellent ambassador..
I want to express our appreciation for the courteous treatment accorded all of us while we have been in China. I know there are a lot of Chinese students in the U.S., and I think this is good.
Again, I thank you on behalf of all of us.
Mr. Tan: Ambassador Woodcock has already done a lot of work.
Mr. Pepper: A man of your age, occupying a distinguished position in your country, I am glad you are not quitting, as I am not proposing to do. Our Committee took the lead in getting a law through last year. If they work for the Federal government they cannot be retired at any age, or in private business they cannot be retired before age 70.
The oldest nation and the youngest nation can work together so that the Polar Bear or any other animal cannot take it away from us. It appears that the Polar Bear is building a navy that is designed to control the Pacific and the Indian Ocean, and we must build our strength to protect ourselves against that kind of situation. Also, an enemy country may charge our country with being imperialistic. All we want is the world at peace, and I am sure that is also the objective of your country. We hope that members of your party, your government leaders, will visit as much as possible in our country. Our people have been too indulgent of the Polar Bear's expansion, and the time has come when we are Ding to tell the Polar Bear that we have gone as far as we will before resisting any further actions. Together, we can preserve all those great values that we so long cherish and which have contributed to the peace of the world, and we are glad to come and shake the hand of a great friend.
Mr. Tan: You put it very well when you said the Polar Bear should not be allowed to continue to expand its military might. It is a pity, however, that some people in the U.S. have not seen this very clearly. They don't realize that bears are very dangerous.
We hope that more of our students will go to your country.
It will take time to build up our economy; agriculture, and national defense. We need a very peaceful international environment and stability.
Every day we receive many representatives from many countries of the world. We do so to work for peace in the world.
Mr. Rinaldo: That was a very frank discussion of the Soviet build-up and military threat. What is your opinion of the SALT agreement?
Mr. Tan: It has been your consistent policy to sign the treaty, but in our view it will not work. Each time a treaty is signed the Soviet Union took one step forward-even two steps forward. After the conclusion of several treaties, the Soviet Union has reached equivalent of the U.S. in terms of nuclear weapons. It will be up to you to act.
Mr. Staggers: Thank you, Vice Chairman, You have been verv courteous and enlightening to us. It has been one of the most frank discussions wil a representative of any nation. I think you have done a very excellent job. We would welcome any of you, your leaders, your people, to America, to see what we have. to learn from us, as we are trying to learn here.
Meeting with Xie L4 Secrelar 6
Foreign Affairs y-General, Chinese People's Insilute of
Mr. Pepper: What is the objective of Russian foreign policy?
Me Ii: USSR superiority over the U.S. militarily. Actions of the Soviet Union over the past few years nave borne this out. The Polar Beat should stay in the north, but it has gone to Africa. The Polar Bear should stay on land, but it has developed its naval forces. The USSR wants to control the Pactific and Indian Oceans. With USSR control of oil in the Middle East and Africa, it will control the world. The Soviet involvement in Africa and Vietnarri in Asia. has increased world tension.







19

Mr. Van Deerlin: What is your assessment of U.S.-China relations since diplomatic relations have been established?
Xie 1i: Relations have developed very well. Progress is being made in cultural and economic fields. The U.S. should abide by the agreement reached between the two countries establishing diplomatic relations. We have reservations about the U.S.-Taiwan Relations Act.
Mr. Van Deerlin: We have been friends with Taiwan for a long time that it is difficult to forget the past.
Mr. Lent: What is China doing about the refugee problem:
Xie 1i: Vietnam should stop exporting refugees, but it is impossible to do this at the moment. We are cooperating with die U.N. and we are ready to receive one more group of refugees.
Mr. Waxman: Do you see that China may be reevaluating its policy to realign itself from PLO and Arab countries?
Xie li: We have followed a consistent *policy toward the Middle East and the Arab World. A settlement should be sought regarding the rights of K Palestinians and Arab countries. Not until then can we hope for peace, The Soviet Union is trying to control the Middle Fast and Africa. The Middle Fast is a very difficult problem.
Andy Young resigned, and President Carter accepted his resignation.
Secretary Vance said he had not advanced U.S. policy.
If Israel continues to insist on its position, the Middfe Fast problem will continue to be difficult to solve.
Mr. Walgren: When will Chinese government make decisions on La-de proposals made by American industry? What can the government do to develop international economic relations? Do you have any problems with the extension of credit?
Mr. Xie: We must develop our export to the U.S. before we can improve imports from the U.S. We hope to reach agreement on a most- favored- nation proposal. We have received some credit from Great Britain, Japan and Germany, but nothing yet from the U.S.
Mr. Staggers: What are relations between China and Vietnam?
Me 1i: A tense session has already been held, but no progress was made. Vietnam. continues provocations.
In summary, the Chinese are convinced that the goal of the Soviet Union is world domination. They are aware of their own vulnerability to this powerful world power with which they share a 4,500 mile common border, along which there are frequent incursions and skirmishes. Chinese apprehension is increased by what they call the "hegemonist" activities of Russians in Southeast Asia, a concern which underlay Beijing's recent military action against Vietnam., and b Russian involvement in the Near East, Afghanistan and Africa, whA the Chinese view as "interventionist" and a threat to world peace. The are especially concerned about recent Soviet activities in the Norg Pacific and the Indian Ocean, which they interpret as a 16 closing of the rina" that threatens China.
To offset the threat from Russia, the Chinese seek closer relations with Japan, the U.S., and the countries of Western Europe, from all of which they also seek increased trade and technology and equipment that will help to modernize their nation.
As regards the U.S., the Chinese are deeply concerned over what they perceive to be dangerous naivete regarding Russian intentions. They are afraid that the U.S. is losing its position of power in world affairs (a position which they were not fond of prior to 1960, when their relations with Russia deteriorated). When all was said and done, it was the impression of the delegation that there is a predisposition towards cooperation with the American people in both the PRC officials and the ordinary people whom they met, a predisposition which has revived






20

after the troubled years of colonialism, war, civil disorder, and ideological differences and which is probably based more in recurring, if not enduring, commonality of interests than in economic or political concerns.
One significant source of irritation in Sino-U.S. relations is Taiwan. Americans, who have a 30-year history of friendly and profitable relations with Taiwan, have difficulty understanding the intense objection the PRC has to the continuation of such relations. Americans would have less difficulty in understanding the strong Chinese feelings in this matter if they reognized that the Chinese regard Taiwan as an historically integral part 'of China, just as the U.S. regards- Long Island to be a part of the U.S., and Chinese feelings about Taiwan are roughly analagous to what U.S. feelings would be if Long Island were ruled by a separate government. While the official PRC position regarding Taiwan remains adamant, many of the individuals with whom members of the delegation spoke indicated privately that they understood the U.S. dilemma regarding Taiwan and, believing that de facto as well as de jure return of Taiwan to Mainland Chinese rule was inevitable in the long run, could accept that the issue was, perhaps, more symbolic than substantive.
HISTORY OF U.S.-PRC TRADE RELATIONS
Historically, the volume of trade between the U.S. and China has never been great, measured by international standards, but it was very significant for China during the first half of the 20th century. By the ME30, trade had grown until the U.S. had become China's second largest trading partner, accounting in some years for over 20 percent of China's total trade turnover.
This trading relationship continued after the Communist takeover i~n 1949. In 1950, in fact, the first. full year of Communist rule, total trade reached $191 million, or 22 percent of the PRC's total trade. Closing of trade
When the PRC entered the Korean War in 1950, trade with the U.S. virtually ceased as the U.S. government first restricted and then ended commercial ties with the PRC. On lDccember 29, in response to U.S. actions, the PRC issued a decree under which it assumed control over all U.S. property in China.
In December 1950 a total embargo on U.S. exports to the PRC was declared under the authority of the Export Control Act of 1949. At the same time, under the authority of the Trading with the Enemy Act of 1917, the U.S. blocked Chinese assets in the United States and placed a total embargo on imports from China. This was reinforced by orders issued pursuant to the Defense Production Act of 1950, which Prohibited U.S.-flag air or sea carriers from carrying any cargo destined for the PRC. Bunkering in the United States of vessels calling at mainland Chinese ports was also prohibited.
In subsequent years additional legal barriers to Sino-U.S. trade were erected. The most important of these were refusal to grant most-favored-nation treatment (MFN) to imports from the PRC and a prohibition on government loans, including U.S. Export-Import Bank financing and dCom modity Credit Corporation (CC) credits, of trade between the U.S. and the PRC.






21

Reopening of trade
From July, 1969, to February, 1972, the U.S. government made a number of important changes in its administration of commercial relations with the PRC. Among the changes were the following:
- Restrictions on travel to the PRC by U.S. citizens were relaxed;
foreign subsidiaries and affiliates of U.S. firms were permitted to
trade in nonstrategic goods with the PRC.
- Bunkering of ships from non-Communist countries carrying
non-strategic goods to the PRC was allowed; controls were removed on the use of dollars and dollar instrumentalities in transactions with
the PRC.
- U.S. carriers were permitted to transport goods authorized for
consignment to the PRC and to non-PR~C ports; the embargo on exports to the PRC was ended, and the PRC was accorded the same treatment for export control purposes as the Soviet Union and some
East European countries.
In February, 1972, the President made an official visit to the PRC. At the end of his visit, the President and Premier Zhou Enlai (Chou En-lai) issued the Shanghai Communique which formalized the new political relationship between the two countries. With regard to commercial relations, the Communique States: "Both sides view bilateral trade as another area from which mutual benefits can be derived and agree that economic relations based on equality and mutual benefit are in the interest of the peoples of the two countries."$
Additional steps in the normalization of commercial relations followed. In November 1972, U.S. regulations were further modified to allow U.S. air carriers and ships to visit PRC ports. A trip by the U.S. Secretary of State to the PRAC in February, 1973, resulted in the establishment of "liaison offices" in Peking and Washington. In May, 1973, the National Council for U.S.-China Trade, a U.S. trade promotion organization of representatives from private business, was established with the encouragement of the Administration,
The decision of both th U.S. and the PRC governments to establish diplomatic relations announced on December 15, 1978, rcenoved the major barrier to closer commercial relations. Many observers expect that this initiative will result in a rapid and continued expansion of U.S.-Chinese trade.
Level c/ trade
The improved political relationship and the relaxation of trade restrictions resulted in a dramatic increase in the volume of bilateral trade, the value of which increased from nearly zero in 1970 to over $900 million in 1974 and to approximately $1.1 billion in 1978. The rapid expansion reflects both inationary effects and real increases in the volume of trade.






22


Table 4
U.S.-PRC Trade
(in millions of U.S. dollars)
U.S. exports U.S. imports
Year Total trade to PRC_ from PRC
1970
1971 5.0 -5.0
1972 95.9 63.5 32.4
1973 805.1 740.2 64.9
1974 933.8 879.1 114.7
1975 461.9 303.6 158.3
1976 337.3 135.4 201.9
1977 374.0 171.3 202.7
1978 1,147.7 823.6 324.1

As shown by the table above, except for 1976 and 1977 the United States consistently accumulated large surpluses in its balance of trade with the PRC. This resulted, in large part, from the PRC's need to import a considerable volume of U.S. agricultural products-particularly wheat, cotton, soybeans, and corn. Agricultural products accounted for more than 80 percent of U.S. exports to the PRC in 1972, 1973, and 1974.
In 1975, U.S. grain exports to the PRC fell significantly, cutting total trade in half. The U.S. trade deficits with China in 1976 and 1977 were also largely the result of a reduction in grain sales. In 1978, the PRC again began to import significant amounts of U.S. wheat, but the large increase in two-way trade in 1978 also reflected an expansion of non-agricultural trade. The major non-agricultural exports have been airrf and aircraft parts, oil-processing equipment, iron and steel I ducts, aluminum, and other non-ferrous metals. In addition, the RC has signed contracts with a U.S. firm for eight entire ammonia plants valued at more than $200 million. By far the largest transaction is an agreement with U.S. Steel Corporation, signed in January, 1979, to buildr a billion-dollar iron ore processing complex in China. U.S. automotive firms are negotiating possible ventures involving production of trucks and heavy duty transportation equipment which may be even
8fthe small volume of PRC exports to the United States, the most important items have been cotton textiles and tin. In 1974, the United States imported 84.6 billion square yards of textiles and apparel from China. Since then, the rapid growth has continued; in the first 10 months of 1978 imports totaled almost 180 million square yards valued at $118 million. China is now the sixth largest supplier of textiles to the U.S. The rapid increase in imports from China has led some U.S. industry spokesmen to demand import restrictions.






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On January 22, 1979, representatives of die U.S. and Chinese governments met in Washington, D. C., to discuss textile trade. Since then, the textiles issue has been discussed by the two governments in Beijing but has not yet been resolved. U.S. officials are interested in establishing an orderly marketing qreement (i.e., quantitative
restrict n) on imports of Chinese textiles. Reportedly, the Chinese have reluctantly agreed in principle to such an agreement, but the two sides have not agreed on the types of goods that should be included. In the absence of an agreement, the U.S. government has unilaterally imposed a quota on Chinese textile imports.
During discussions with the delegation, Mr.oWan Wenlin, of the China Council for die Promotion of Internati nal rade, gave clear
indication that he understood the U.S. concern over textiles.
Mr. Staggers: Textile imports into the U.S. is a difficult problem which will have to be worked OUL
Mr. Wang: I understand America must balance trade with China in textiles.
At another time in the discussions, Mr. Wang expressed considerable apprehension and hinted a willingness to cooperate in resolving the textile problem
Mr. Wang: Both countries need cooperation. There are bright prospects for trade and economic development.
It is my hope that Congress will approve the most- favored- nation clause for China. 'Me U.S. and China signed a trade contract which must be ratified by the Congress. The China trade deficit with the U.S. is now about S800-$900 million. Please do not limit Chinese imports into the U.S.
Mr. Staggers: Our future lies in mutual security, and we should be working together to promote 1L Our two countries should be working together to achieve that end.
Mr. Wang: U.S. companies had contracts to export material to China but could not get export licenses from the U.S.
Barriers to U.S.-China trade
Since the establishment of diplomatic relations, U.S. and Chinese representatives have been intensively negotiating the outstanding legal and administrative barriers to trade. One of the major issues has been the question of blocked Chinese assets and private U.S. claims against the Chinese government, which has been a serious im d ment to
normalization of shipping, banking, and other aspects of commercial relations. Private American claims against China have been estimated to be $197 million, while blocked Chinese assets in the United States are valued at $76.5 million. In 1973 the U.S. Secretary of State met with PRC Foreign Minister Chi Peng-fei in Paris to negotiate a settlement. They agreed in principle to a resolution, although no settlement was reached.
In May, 1977, it was reported that the Administration had resumed negotiations on the claims issue. Durin a visit to China in March, 1979, the U.S. Secretary of Treasury initialed an agreement with the Chinese government. The agreement was officially signed during a subsequent visit to China by the U.S. Secretary of Commerce in May, 1979. 'Me agreement provides that the Chinese government will pay U.S. claimants $80.5 million by October 1, 1984. The flrst of five annual payments, a $30 million payment, was made on schedule on October 1 of this year. The U.S. government agreed to unfreeze $80.5 million of Chinese assets held in U.S. banks. However, at the insistence of the U.S. negotiators, the agreement did not take any position as to the






0%4

ownership of the Chinese assets. Consequently, the Chinese may have difficulty in reclaiming some of their assets. On September 30th, China announced that the U.S. and the PRC had agreed to postpone the unfreezing until January, 1980, to allow the Chinese time to resolve those difficulties.
Another important barrier is the absence of most-favored-nation (MFN) treatment for Chinese exports to the United States. The Trade Act of 1974 prohibits extension of MFN to. non-market economy countries which restrict emigration. The President may waive the requirement of free emigration for 18 months with Congressional approval, if he receives assurances that thle waiver will promote free emigation, and for subsequent 12-month periods on the same condition. This procedure was followed to extend MFN treatment and govern mental credit facilities to Romania and Hungary. The absence of MN has limited the PRC's ability to earn dollars by exporting to the United States; however, there are differing estimates of the degree to which the absence of MFN inhibits Chinese exports. It seems likely that the political significance of MFN is a more important consideration for
the thn ptenialeconomic gains. Dunn a visit to China in May, 1,the LES Sertr of Commerce initiated a general bilateral trad agreement-an important provision of which is extension of MFN to China. The House and Senate must act on the measure.
Many of the Chinese with whom the delegation spoke stressed the importance of the MFN status to China. Other than urging the U.S. not to limit Chinese exports, enactment of MFN status for China, was the only specific request made by Mr. Wang Wenlin.
Mr. Wang: We have one-and-a-half billion dollars of trade with the U.S. having a favorable balance at the present time. One thing to help China would be to grant the most- favored-nation clause.
Although U.S. government credits to the PRC are also prohibited by the Trade Act of 1974, this has not been an important issue between the two countries. The Chinese leadership has not shown the same interest in credits as other Communist countries; however, in recent years, Chinese leaders have moderated their policy of avoiding long-term indebtedness to foreigners and have accepted some "deferred payments"-and long-term credits-for purchase of complete plants.
The 95th Congress passed, and the President signed into law on June 22, 1977, the Export Administration Amendments of 1977 (P.L. 95-52). The Amendments extended the Export Administration Act to September 30, 1979, and made several changes in export controls. Among the changes are: provisions for Congressional review of export controls on agricultural commodities; a requirement that applications for export licenses be handled more expeditiously; a prohibition, except under specified conditions, of certain petroleum exports; and, an increase in penalties for violation of the Act. The language of the Act also shifts the emphasis of national security controls from exports to "Communist" countries to exports to any country which poses a threat to the United States.
Another measure, the Agricultural Trade Act of 1978 (P.L. 95-501), which makes the PRC eligible for 3-year agricultural credits from the Commodity Credit Corporation, passed the 95th Congress and was signed by the President.






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The relaxation of controls on exports to the PRC has alleviated a serious barrier to U.S.-PRC commercial relations. However, as the PRC procceds with its industrialization plans, U.S. export controls on various kinds of strategic technology, such as computers, aircraft and encrgy-rclated equipment, are becoming an important issue.
One of the most controversial high-technology transactions in U.S.-PRC trade was a proposed sale by a U.S. Finm of computer equipment for seismic research in dhe PRC. The sale was approved by th National Security Council in October, 1976, after lengTy debate within the Administr-ation. The Chinese were required to meet stringent conditions, including on-site inspection by a representative of the U.S. finn, to ensure that the computer is not diverted to military uses. The terms of the agreement represent an unusual concession on the part of the Chinese leadership.
Chinese trade policy and prospects for future trade
Political issues have played an important role in China's foreign trade policy. For example, there is evidence that Chinese importers have discriminated against countries with which China has not had good diplomatic relations. As a result, the United States appears in the past to have been a market of last resort in Chinese grain purchases. Thiis policy suggests that the establishment of diplomatic relations between the United States and China may be followed by a significant increase in bilateral trade.
Chinese domestic politics have been important in determining the level of foreign trade and will probably significantly influence the course of U.S.-Chinese trade. Before his death, Premnier Zhou Enlai, arnd his chief administrator on economic affairs, Vice-Premier Deng Xiaoping, promoted a program of rapid modernization of the Chinese economy. Their programn-an intensive drive to modernize Chinese agriculture, industry, national defense, and science and technology-was designed to make China a modern industrial power by the year 2000. On the industrial front, the modernization drive emphasized expanded production through hard work and stricter managerial authority, increased attention to the living standards of workers, and the systematic import of technology from abroad.
After the deaths of Zhou Enlai and Mao Zedong (Mao Tse-tun g), this program became a prominent issue in the succession struggle. The radical faction in the Chinese leadership, led by the so-called "'Gang of Four," denounced the use of material incentives, the diminution of the role of politics in the economy and dependence on foreign technology. In September, 1976, the leaders of the radical faction were arrested and the government recently has announced plans to bring them to trial. The ascent to power of the moderate faction, led by Premier Hua Guofenq and Deng Xiaoping, was followed by renewed emphasis on economic modernization.
A key element of the modernization program is an expansion of Chinese foreign trade. Major emphasis is being placed on the import of equipment and technologies for oil exploration, coal mining, steelmaking, electronics, chemical fertilizer, power generation, and the petrochemical industry. Other imports include grain, crop seed, farm animals for breeding stock, and small amounts of consumer goods.






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Mr. Wang Wenlin explained the PRC's new trade goals very clearly.
Mr. Wang: We wish to develop trade between U.S. and China in agriculture, light industry, heavy industry, oil, mining, coal industry and transportation. China has hosted six delegations from the U.S. dealing with these subjects. Sonic contracts have been signed. Some corporations will explore for oil off shore China. We have oil under Sr und but lack technology to get it out. The U.S. has the technology to help us. ina also has minerals but lacks the technology to exploit them. The U.S. can help us. We are negotiating a contract on that, the total amount could reach tens of billions of dollars. We are discussing coal mining with U.S. corporations. Our chemical industries are still under-developed, and we want to cooperate with the U.S. China bought Boeing 707s from the US. and is going to buy 747s. We still want machinery from the U.S. We still need more electricity. l here is much room for development in hydroelectric power. We have to increase our harbor capacity to handle more trade. Also, China has to develop its electronics industry.
U.S. firms wishing to do business with the PRC face many practical problems because of their general unfamiliarity with Chinese foreign trade practices. This is complicated by the PRC's isolation from the
international business channels. There are few opportunities for western businessmen to contact Chinese exporters and importers; business contacts have been limited primarily to the Canton Trade Fair, held twice a year.6 Recently, this situation has been changing. For example, a number of U.S. business executives have visited Peking to conduct negotiations on sales of oil exploration and drilling equipment, minerals and metal processing equipment, and petrochemical machinery and technology. American technicians were involved in the installation of the ammonia plants.
Until recently, the PRC government followed a very restrictive approach to any kind of foreign involvement-such as foreign investment or industrial cooperation-in the Chinese economy. Foreign businessmen and technicians were allowed to -visit industrial projects only rarely. This policy appears to be changing. Foreigners are traveling to China in greater numbers, and official Chinese statements suggest that direct foreign investments will be allowed.
Even if the remaining political and legal barriers are removed, there will be serious economic constraints on the PRC's ability to expand rapidly its trade with the United States. The most important constraint is the PRC's increasing difficulty in earning sufficient hard currency to pay for its imports. Export growth is unlikely to keep pace with the import needs of China's modernization program given China's periodic need for grain imports. The gap between export potential and import needs provides a strong motivation for Chinese acceptance of more trade credits. Thus, U.S. policy on Ex-Imbank credits may be of greater interest to the Chinese soon. Although the absence of Ex-Imbank credits for China has probably had a minimal impact on U.S.--China trade in the past, it could significantly influence future trade.
Moreover, in the long run, increases in U.S. high-technology. exports to the PRC may be offset by a smaller volume of agricultural exports. In allocating their scarce hard-currency reserves, Chinese planners will probably show preference for industrial imports, while placing emphasis on developing self-sufficiency in agriculture. Naturally, a reduction of

6 Mr. Walgren: Do you have any advice to Americans doing business with China for trade prospects How can American small business get an answer from the Chinese government?
Mr. Wang: Through the trade fair each year. Through contact with Chinese corporatonL. Ctact the Chinese Consul and Technical Exchange Department.






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agricultural imports depends on the PRC's ability rapidly to expand domestic agricultural production. Recent fluctuations in domestic grain p roduction attest to the difficulty of achieving this goal in the short run. Nevertheless, the long-run Chinese goal appears to be to reduce the possibility of needing to make the type of large purchases of a ricultural products which inflated U.S.-PRC trade totals in
One bright spot in the PRC's foreign trade situation over the long range is the potential for exports of oil. The PRC's reserves, proven plus probable, are conservatively estimated at 39.6 billion barrels and could easily be 55.7 billion barrels. Offshore reserves will add appreciably to these estimates. Production has expanded rapidly in recent years and exports of petroleum and petroleUM products in 1977 were valued at over $1 billion. By 1985, the NRC could be producing in excess of 1.5 billion barrels. Thus, in the future, the PRC's earnings from oil exports should ease its balance of payments problems. To realize its potential as a major oil exporter, the 'PRC will probably have to import considerable amounts of western machinery, equipment, and technology and make large capital investments.
Thie PR C also has reserves of other raw materials, such as natural gas, coal, and iron, which could provide large exportable surpluses in the future. The delegation was informed that the PRC has held talks with the Japanese government regarding the export Of Liquefied Natural Gas to Japan.
The delepadon came away from its meeting convinced that the PRC is interested, even anxious, to expand trade and other contacts with the U.S. Not only did they stress this in all their conversations, but they supported the impression it by answering candidly all questions about the problems they are experiencing and about their plans and hopes for the future. Because of lack of experience in trading with western powers and because of years of ideological indoctrination, it is difficult for the Chinese either to make overtures to potential U.S. trading partners or to expedite the access of U.S. trading partriers to the Chinese market. It is incumbent, therefore, upon the UVS government and U.S. businessmen interested in developing trade opportunities with China to take the initiative and to put more effort into exploratory negotiations than might be the case with another nation.
INDUSTRY IN THE PRC
The delegation did not visit any heavy industries in China, but it did inspect a number of small factories producing consumer and export items, such as jade carvings, fans, clothing, and object d'art, particulary decorative embroidery, painting, ivory carving and sculpture.
The skill and artistry of the Chinese workmen is nothing short of phenomenal, but the plant and tools available to the workers are extremely primitive. In the wood carving factory where fans were manufactured, the delegation found a few very old power tools, but the vast majority of the intricate cutting was done by hand. A similar situation prevailed throughout the other factories visited.
Only one factory, the clothing factory at Xinchang People'9s Commune, appeared to have been built for its current use. The rest appeared to be homes converted to manufacturing facilities.






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Working conditions seemed reminiscent of the pictures of the U.S. garmnent industry at the turn. of the century, although work hours were reported to be similar to those of U.S. workers and the workers themselves appeared to be cheerful and dedicated in their tasks.
ENERGY
During the meeting in Beijing, the delegation met with Wang, Xun, Deputy Director of the Foreign Bureau of the Coal Industrial Ministry to discuss energy issues. TIhis discussion led to the following conclusions: (1) although China has dramatically increased energy production over the past thirty years, the increase has barely kept pace with increased demand caused by population growth and the effects of PRC modernization and industrial expansion programs, (2) China's energy resources are enormous, but technology and capitaization are not adequate to keep pace with demand growth, and (3) for the near future the resource which China can reasonably expect to count on both for internal growth and for export is coal, although it is possible that China may later be able to export some crude petroleum
The ravages of decades of war and civil disorder and the general historical lack of technological orientation in China left the, PRC a disastrously inadequate energy resource production program in 1949, and the magnitude of the PRC achievement in developing its resources since is evident simply from the raw figures. Over the past three decades China has increased annual production of coal from 35.7 million tons to 543.4 million ton, annual production of crude oil from 880 thousand barrels to 652 million barrels, annual production of natural gas from zero to 1.9 trillion cubic .feet, and hydroelectric generation from .70 billion kilowatt-hours (bkh) to 34 bkh7
Chinese energy production suffered a serious setback when the Russians withdrew their assistance in 1960. Coal production fell sharply, work on major hydroelectric plants was halted, and petroleum imports from the Soviet Union were shut off. But, from 1961 to 1977, hewing to a hard-line policy of refusing ever again to depend upon foreign energy sources., the Chinese increased production of coal by over 20 percent, crude oil by nearly 1,700 percent, natural gas by more than 1,500 percent, and hydroelectric power production by 325 percent.8 In spite of these achievements, the fact remains that, except for petroleum, demand for energy in China has kept pace with production, and continued modernization and agricultural development will require even more dramatic improvements.
Coal
There are no reliable estimates of Chinese coal reserves, as Mr. Wang, himself, observed. However, he did indicate that current PRC estimates peg reserves recoverable by existing technology somewhere in the 660 billion tons range. In any event, all experts agree that China has abundant coal with which tomeet its foreseeable needs.

7 Vaclov Smil. Chlna's Energetics: A System Analysis." The CInese Econom Post-Hac U.S. onesJoint Ecoomi Comittee (95th Congress. 28 session, Joint Committee print) Washington, U.S. GovtrmltnS office, 1978).
8 It is not possible to draw significant comparisons between the Chinese and U.S. expeiences since the two nations have vastly different resource bases and technological development. However, it is intcrestlno to now that during roughly the same perod (1960-77). a priod durig which the U.S. experienced a serious energ crunch. the U.S. increased oil pouction by only 16pret and gas production by only 50 percent.






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Mr. Wang said that coal provides 70 percent of all the energy China consumes today and that under the PRC program it will continue to play this dominant role. There are a number of reasons for this. First, coal is widely distributed throughout China. Mr. Wang explained that while there are large coal-deficient regions, particularly in the western part of China, 70 percent of all Chinese counties have working mines* which helps to alleviate transportation problems, a major obstacle in the development of other energy resources. Then, too, Mr. Wang observed that while th e Chinese need to improve mining technology and urgently need mining equipment, they are much farther advanced in these areas regarding coal than they are regarding other energy resources.
One third of China's coal is produced from small mines financed by local units of government. Most are open pits mined largely by hand labor. While these undoubtedly will continue to play an important role in China's energy production for some tie, they do have limitations: they have relatively short lifespans, their productivity is limited, and working conditions are very poor. Mr. Wang stressed that the PRC is interested in developing technologies for larger, more mechanized mines for exploiting deeper reserves.
Mr. Wang stressed that if China is to meet the PRC goals for modernization it must increase production from the estimated 1978 production of 680 tons to at least 990 tons, nearly doubling 1977 production levels. This will require opening new mines in eight areas of the nation where coal has not previously been mined. The establishment of the Coal Industry Ministry in 1975 indicated the PRC's recognition of the importance of this effort.
Because of the need to concentrate effort on increasing production, the Chinese have not paid much attention to environmental- issues, Mr. Wang said. He note d,hKowever, that there is increasing interest in this at the "local" level and he said he anticipated the establishment of environmental protection units in the near future. He stressed that this would be a matter of "local law."
Mr. Wang candidly acknowledged that lack of capital is the barrier to China's acquiring the technology and equipment that Chinese mining urgently needs. The PRC's historical reluctance to incur foreign debt and its former stiff opposition to joint ventures with foreign partners, together with a minimum requirement of 25 percent investment from foreign partners, have been Stumbling blocks in the past. Mr. Wang indicated, however, that the PRC is now prepared' to be much more flexible. He suggested that foreign companies might profitably explore joint ventures and bartering of technology and equipment for coal or oil. He also indicated PRC interest in exporting coal.
Mr. Wang also expressed interest in synthetic fuels technology, both gasification and liquefaction. He indicated that the PRC had carried out research in these areas but said that lack of hard currency prevented the acquisition of western technology at this time. Petroleum and gas
If available information about China's coal reserves is sketchy and unreliable, data on the nation's oil and gas reserves is probably nonexistent. In his breakdown of China's energy consumption, in whic1 he estimated that 20 percent of the nation's energy comes from oil, Mr. Wang did not even include gas.






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For many years China produced only modest amounts of oil, and between 1949 and 1960 the PRC relied heavily on Russia not only for oil imports but also for the technology and equipment for expanding domestic production. The Soviet withdrawal from China in 1960 was a very severe blow that left not only a legacy of bitterness and economic dislocation, but also serious technological deficiencies that have hampered development.. In spite of this, the PRC has expanded
production to 652 million barrels, and exports modest amounts. Japanese sources report that China in the first half of 1978 exported nearly 28 million barrels of oil to Japan, about 4 million barrels to the Philippines and more than 4 million barrels to Hong Kong.'
Very recently, the PRC has agreed to allow foreign companies to explore for offshore oil in the South China Sea Canton Estuary, and the Yellow Sea and has undertaken exploration on its own in Bohai Bay. The arrangements between the PRC and -the foreign oil companies-which are allowed to look for the oil,, but have no commitment as to what will be done with any they find-are novel and give no indication of the PRC intentions for the disposition of any oil discovered. Then, too, the Chinese are exploring,,in these areas themselves. Mr. Wang indicated that there have been "positive results" from the exploration in the South China Sea, but could give no details.
Even if China is, as some experts believe, the "Saudi Arabia of the Orient," the PRC's stress upon developing coal rather than oil is probably realistic for a number of reasons. First, Chinese technology is
asdupon the relatively primitive Soviet technology which must be replaced to achieve efficient development and exploitation of the resource. Second, the Chinese have a very limited pipeline network, barely 4,500 miles, for transporting oil. Third, Chinese refinery capacity is very limited, and, finally, exporting oil in large quantities is not now feasible since the Chinese have only one port capable of accommodating 100,000-ton tankers and two ports capable of accommodating 70,000-ton tankers, and the Chinese have no large tankers of their own. Correcting any one of these problems would require enormous investment and taken together they would require an investment which is inconceivable for China in the foreseeable future..
If any major capital investment is made, it will probably be in developing facilities for the export of oil. In the discussions with Wang Wenlin, Deputy Director of the China Council for Promotion of International Trades, the delegation. was told that developing oil resources and increasing harbor capacity were two major goals of the PRC.
The delegation was not able to learn much about China's natural gas industry other than that it is hampered by technological problems similar to that affecting the oil industry. So far development activities have been limited to three regions. The delegation did receive information that the PRC has held discussions regarding possible exportation of liquefied natural gas to Japan.
9 At least one expeMt Vaclov Smil. oA cit., believes that "Chna must be stockpiling larg amounts of anxde






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Hydroelectric power
During the "Great Leap Forward"' the PRC undertook a large scale program to construct both small and large hydroelectric power facilities. The program was heavily dependent upon Soviet technology and with the withdrawal of Russia in 1960, it was cr pled. Mr. Wang spoke with considerable dismay about a project on gel Yellow River which was started with Russian help prior to 1960 and did not produce any power until 1969. There arc 59 known hydroelectric stations in China of 30 MW capacity or better. Another seven arc under construcCor and have produced no power.
Beginning in 1969, interest in small hydroelectric projects revived. Relying upon local initiative and resources, die projects arc constructed mostly with manual labor and traditional tools (shoulder-poles, carrying baskets, wheel barrows, pull carts for carrying, shovels, picks, hand chisels). Economy and speed are the construction goals. The national government invests little or nothing in the projects but occasionally assists in design, equipment manufacturing, and training operators. Some counties are themselves now equipped to manufacture components.
T hc stations built under this program are quite small, probably averaging no more than 25 kilowatts of capacity; however, their contribution to China's energy supply is considerable. Experts have estimated that the 65,000 to 70,000 small hydroelectric stations in the PRC generate one-third of all the hydroelectric power in China.10
These small facilities provide power for local small industries as well as for the electrification of agriculture, but they also contribute to flood control, help regulate water sUPPlics and can be integrated with fish hatcheries. They arc therefore likely to continue to be a popular feature of China's energy program for some time to come. It is worth noting, however, that Mr. Wang, recognizing that China's modernization program and industrial plans will require much larger and much more sophisticated hydroelectric facilities, indicated considerable interest in .western technology and spoke of trading or bartering to obtain it. Thennad generation and electric power supply
Although the delegation was not presented with hard figures, there can be no question that China suffers from a shortage of electric power. Various officials candidly conceded this, and the delegation itself experienced direct confirmation when it found that all but two of the eight elevators serving the Peking Hotel in Beijing were closed down at various times during the day to conserve power.
There are. somewhere in the neighborhood of 130 fossil fuel fired thermal generating plants with a capacity of 30 MW or better. T'wo-thirds of the stations are fired by coal. The majority of the-rest are fired by oil, with a very few being fired by gas.
One analysis of China's future power needs notes that to maintain the goal of industrial expansion, the Chinese will need to increase generating capacity by 1.4 times the rate of industrial growth." This

10 For more Information. see William Clarke, "'China's Sectric Power Industry," In Chinm Economy PostMao, oA cit.
11164






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would mean that China would have to more than double its present generating capacity by 1984 and increase it more than 14 times by 2000. Clearly such ambitious expansion cannot be accomplished through the small hydroelectric program, which is targeted more toward agricultural and small industrial expansion, nor through large hydroelectric projects, because of technological problems and the lead time involved in their constniction, although the enormous hydroelectric complex on the Yangtse now in final planning stages would be over 10 times the size of the Grand Coulee project operated by the Columbia River Authority. There is no way that solar energy and other more exotic programs could make a significant contribution, especially in view of the time pressure. To all intents and purposes the expansion mutst come from generating stations burning fossil fuels and primarily coal. While China does have an electrical equipment manufacturing industry, most experts doubt that it can produce the equipment the Chinese require to build the plants necessary to achieve China's goals.
In considering possible markets in China, American businessmen might do well to appreciate the Chinese dilemma. meh Chinese need to expand generating capability substantially to meet industrial growth goals. On the other h and, they need to expand industrial plant to manufacture the generating' equipment as well as the equipment needed to mine and transport coal. Should they fall short in any of these areas, the result would be a setback, perhaps a major setback, in all. Bic gas generation
The Chinese have only recently entered the field of biogas generation, but today they can claim world leadership in this energy technology.
During its visit to the Xinchang People's Commune, the delegation saw the simple and yet immensely practical application of biogas, technology to provide cooking fuel for residents of the Commune.12 Biogas digesters are typically 5- to 10-c ubic meter air tight tanks made of concrete, brick, or rock, although some tanks with as much as 100 cubic meter capacity have been produced for communal use. Tanks contain loading, fermentation and slag compartments and are buried in the g round. By control',d anaerobic fermentation of human waste (night soil"'), waste vegetation, animal droppings, household garbage and other organic wastes (such as the by-products of sugar making) and waste water, they produce a mixture of roughly two-thirds methane, one-third carbon dioxide with traces of hydrogen. China began developing this energy resource in the early 1970s and it is estimated that in 1977 nearly 4.5 million tanks were in use. Nuclear energy
In response to a question from Mr. Rinaldo, Mr. Wang Xun indicated that China at this time is not developing nuclear power generating facilities. Clearly for a nation wrestling with primitive oil, gas and hydroelectric technologies, the complexities of nuclear power cannot be viewed as holding much promise. In addition, Mr. Wang
12 See Xinchang People's Comm une, poW 44.






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expressed concern over the safety aspects of nuclear generation, saying manyy of our friends have told us it is extremely dangerous."
Conclusion
Thec U.S. has much to offer China, and the PRC is anxious to obtain what technology it can from the U.S. or any other western nation. The major barrier is lack of hard currency and unwillingness to incur debt. American businesses, perhaps with more assistance from the U.S. government, might well profit from more aggressive pursuit of Chinese energy business. It is not so clear what exports China has to offer the U.S. However, China may have marketable oil, and third-party barters for Chinese coal may be feasible.
TRANSPORTATION
The Road to Suzhou: Impressions of transportation in China today
In the absence of concrete data, it is not possible for the delegation to do more than report its impressions of transportation in China, leavened with observations made by Chinese officials with whom the delegation met.
Bicycles
The first impression in Beijing-and one that stayed with the delegation throughout its China tour-was the overwhelming presence of the bicycle. During the morning and evening rush hours, the wide highways of Beijing are turned into rivers of bicyclists locked handlebar-to-handle-bar and pedal-to-pedal, careening down the road and around corners at high speed. Due to the speed, the sheer numbers and a cavalier attitude toward rights-of-way, the pedestrian feels more threatened than he would on the street of a major American city. In other than rush hour times, the true breadth of the bicycle's utility is revealed. Yoked to wagons or sporting ingenious carrying platforms over their rear wheels and/or handle bars, bicycles bring enormous quantities of goods into the city markets. In fact, the casual observer walking Beijing streets early in the morning might think that the bicycle is the major transportation mode for bringing Commune produce into the city. The bicycle phenomenon was visible everywhere the delegation went-cities, villages and countryside.
All forms of transportation (including beasts of burden) except the bicycle, are owned by the State. The delegation was informed that a new bicycle costs about three months' pay for the average Chinese.
Buses
All the cities visited by the delegation appeared to be well served by worn, but clean, well-used buses. At Tong Tan Park in Beijing shortly after dawn, ranks of buses that have just discharged passengers are swept and washed before being dispatched on their routes again. Using the Chinese bus system might prove difficult for foreigners as there appears to be no information on routes, but this is clearly no deterrent for the Chinese patrons.
Automobiles
From the first day in Beijing, it became clear that aside from official cars, and taxis of which there are a number available for foreign guests,






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the automobile is rare in China. Both taxis and official vehicles, which seem to be of 1950 vintage, are well cared for. Most seem to be of Japanese or Russian origin.
Rural transport
In the. countryside, Chinese transportation displays a diversity that nearly defies description. The highways and roads teem with people on foot, people on bicycles, an people driving tractors temporarily converted from field use to hauling produce or passengers. The tractors range in size from the small units commonly used to drive lawn mowers in suburban Arriefica up. to middle-sized tractors of the type seen on American truck farms. If there are larger tractors in China, the delegation never saw them.
The major competition for tractors is provided by beasts of burden, rimarily water buffalo and donkeys, and relatively fewer small, open odied lorries. It was the observation of the delegation that based purely on observed use there is probably a greater market in China for horns than for brakes.
Trucking
The delegation did not see much evidence of heavy trucking, although it was informed that there has been a tremendous increase in trucking and in the heavy truck flect in China over the past 30 years. It should be noted, however, that the area the delegation visited is well served by rail and canals for long distance hauling.
Highways
The improved highways of China, of which there are an estimated 280,500 miles-up about 25 percent over 1970 and more than 700 percent over pre-1949 levels-are generally in good condition except in areas where there has obviously been a large amount of heavy construction. Even in these areas, there is widespread evidence of continuing road improvement programs, mostly using hand labor.
The delegation had less experience with the unimproved or temporary roads, of which there are slightly more than 300,000 miles; but what experience there was, principally in Xi'an, was memorable, to say the least. The delegation could not even get estimates as to the increase in these roads over the past 30 years.
Other transport
One curious feature of urban transportation is a number of ancient motorcycles with sidecars. Mostly used by soldiers and minor officials, these gave every appearance of being survivors of World War 11.
Air transportation
China has been concentrating on expanding its air service over the past decade and it has recently purchased planes from the United States and reportedly from Pakistan, and various officials reported plans for new U.S. purchases,. apparently conditioned upon obtaining ca talor credits. The planes in which the delegation flew were rebuilt ussian turbo-props comparable to the Electras in U.S. service in the 1950s and early 1960s. The delegation was informed that after the Soviets withdrew from China in 1960, it was necessary for the Chinese to develop their own facilibes for producing replacement parts. Chinese airport facilities seem rather primitive by American standards, and the over-all impression of the air traveler is that Chinese passenger air






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service has far to go to match western standards or even those of some underdeveloped countries.
Waterways
The sections of China visited by the delclation are served by a complex and sophisticated system of cana s, interlacing moArn waterways with prodigious canals built centuries ago for commerce or to fulfill die whims of emperors. These waterways are heavily traveled by sailing junks, poled barges, and junks converted-to motor craft and are obviously of great importance to commerce in China, probably more so than trucks, although there arc no statistics to back this up. Indeed, the Xinchang People's Commune boasted of having nine motorized tugs, but only two trucks for shipping its products to the cities and villages. In addition, on the trip from Shanghai to the Xinchang Commune, the delegation counted canals bisecting the road as frequently as once a mile over certain stretches, although curiously a few of the canals were clogged with water hyacinths and appear to have fallen into disuse, perhaps for seasonal reasons.
'Me boat trip up the Huang-P'u River reinforced the impresfon of the diversity and importance of canals and water travel in Chinese commerce, with hordes of junks of all types and sizes, navigating among modern barges and large merchant ships from all over the wor
Rail '
Ilic trip to Suzhou, about one hour's ride frorn Shanghai, gave the delegation an extraordinary chance to inspect one of China's most
important transportation systems, its railroads. China now claims to have 27,000 miles of railroads, largely concentrated in the eastern half of the nation, where they connect most major cities. This represents an increase of 100 percent over the 13,500 miles in service in 1950, the first full year of PRC rule.
Although rail operations appeared to be primitive by Japanese standards and equipment was antiquated in comparison with American facilities, the service was quite good. The roadbed between Shanghai and Suzhou was extraordinarily smooth, reflecting continuing maintenance apparently carried out by manual laborers caring gravel on shoulder poles and using picks, shovels and other hand tools. The station facilities, while austere, were clean, as were the cars, which were comprised of a number of individual compartments designed like European trains to hold six passengers and capable of sleeping four. The cars were quite old, but were obviously well maintained and served by ancient but serviceable generators for lighting. It is interesting to note that despite die lack of sophisticated system controls, the two trains ridden by the delegation left exactly upon the minute specified, and the furious activity of the Chinese boarding at Suzhou indicates delays are apparently not permitted.






36
MEDICAL CARE IN THE PRC
Shanghai People's Hospital Number 6
Members of the delegation visited Shanghai Hospital Number 6 where Dr. Chen Zhongwei has achieved considerable success in the replantation of severed limbs. The Chinese describe this hospital as a "medium size general hospital." It has 600 beds, 11 clinical departments
covering internal medicine, surgery, gynecology, pediatrics, and ear, nose and throat, ten supplementary services including radiology, pharmacy, and clinical and isotope facilities, and research laboratories dealing with studies of replantation, genetics, and ultrasonic technology. The division of disciplines seems to be modeled after western medical practice rather than the traditional Chinese practice.
Comparing Shanghai Hospital Number 6 with U.S. facilities, Dr. T. Scott Key, the Medical Officer escorting the delegation observed:
The organization of the hospital and its daily routine appear to be similar to those in the U.S. The medical care appears to be adequate, but all frills are strictly at a minimum. The techical and mechanical equipment is often old and would be considered out-dated in modern U.S. facilities, such as the old "refrigerator-style" anesthesia equipment and re-usable rubber intravenous tubing. As is characteristic of all mechanical equipment in China, however, it is well maintained no matter what its vintage. Utilitarianism takes a definite precedence over esthetics. The operating rooms and wards look dingy, often in need of a coat of paint; the beds are old iron frame cots; linen is used and re-used to the point of being frayed; there are few private rooms, mostly open wards. This stark reality gives one an initial impression of wanton disregard of the principles of cleanliness and sterility that one expects.of a hospital. On closer inspection, however, although appearing timeworn, everything is clean. There is no dust or dirt to be found on the wards or in the operation room. Sanitary precautions are strict and are closely adhered to. The level of care rendered by the professional staff with the few pieces of functional but clearly out-dated medical equipment speaks highly of the dedication and high degree of technical skill with which they practice medicine.
An inspection of the facilities revealed that diagnostic and treatment facilities are roughly equivalent to those that would have been found in urban hospitals in the U.S. in the 1950s.
Dr. Chen reported that the hospital served an average of 3,000 emergency and outpatient cases each day with a staff of 900, of whom 200 are medical doctors, 250 are nurses, 200 are medical and health technicians, and the remainder are general support personnel.
In 1963 the hospital succeeded for the first time in replanting a severed hand. Dr. Chen reported that in the following ten years the hospital handled more than 400 cases of replantation of severed limbs with a success rate of 84 percent for hands and feet and 67 percent for fingers. In at least one case the limbs replanted had been severed for as long as 36 hours prior to the operation. In addition to replanting limbs severed by accidents, the hospital has replanted limbs severed in the course of medical treatment to excise bone tumors.
Beginning in 1973, Dr. Chen said, the hospital has applied microsurgical techniques to the replantation of severed fingers and has achieved a success rate of about 90 percent. In addition it has applied these techniques to sophisticated microvascular surgeries, including free autogenous second toe grafting to replace fingers, free muscle grafts and grafts of free skin flaps. The application of microsurgical anastomosis of minute vessels in free fibula grafts has resulted in the successful






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treatment of congenital pseudarrhrosis of the tibia, which has been a difficult problem in orthopedics.13
During the meeting, Dr Chen introduced three patients who had been treated by replantation: a young woman in her early twenties who had had approximately five inches of her right ann removed above the eldow in order to excise a bone tumor; a man in his thirties who had had his leg severed approximately three inches above the ankle in an agricultural accident;, and a young man in his twenties who had had his hands severed at the wrist in an industrial accident. The patients were examined by Dr. Scott Key.
The left arm of the young woman, although approximately five inches shorter than her right, appeared in all other respects to be non-nal. Her handshake was firm and normal, and, according to Dr. Key, her hand appeared to have the full manipulative abilities and sensory responses of a normal hand.
The man who had had his leg severed and replanted walked normally into the meeting. According to D)r. Key, he appeared to have full pedal and digital dexterity, and the only indication of the ordeal hie had been through was a scar around the leg about three inches above the ankle.
In the case of the young man whose hands had been severed, replantation was impossible as the hands had been badly mangled in an accident. In this case, Dr. Chen had used two of the patient's toes to construct "fingers"t on the right wrist which were capable of performing many of the tasks that can be performed by the thumb and first finger of the normal hand. T'he patient demonstrated his ability to grasp small objects and to write.
Dr. Chen said that while replantation is now an accepted procedure, the use of donor transplants is impossible at the present time because rejectionn is a great danger and treatment can cause cancer or serious infection." Dr. Chen candidly reported that recovery of function in approximately 10 percent of the cases. is not satisfactory and warned that since the program is only six years old, the over-all recovery rate remains to be evaluated and, possibly, elevated. The delegation, however, was very much impressed with the level -of achievement, particularly in view of the limited technology available in the hospital.
Members of the delegation were somewhat surprised to learn that in spite of the achievements of Dr. Chen and the staff at Shanghai Hospital No. 6, the hospital has not developed into a specialized center for the treatment of severed limbs. It reportedly serves only the Shanghai District and does not accept patients from other Districts or from foreign countries, although it does train doctors and technicians from other districts in the surgical procedures perfected there, so that the techniques perfected at Shanghai Hospital No. 6 are available at other hospitals throughout China. Dr. Chen indicated that this is a
13 See Appendix IL, p. 61.






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result of deliberate state policy to keep all health care facilities polyclinical14
Medical care in the PRC--facilities and costs
Comparison of the costs of Chinese and American medical care is probably impossible because of the enormous disparity between the economic systems and the way in which medical services are offered. Vice Minister of Health, Tan Yuntze, estimated that four percent of the national government's expenditure goes to health care, but this does not include the expenditures by state industries or those for government officials, since the PRC apparently does not keep statistics on these expenditures.
Mr. Walgren: What percentage of your economic activity is devoted to health; total cost for your medical system?
Mr. Tan: The situation in China is different from the U.S. four percent does not
include costs borne by mines or industrial enterprises. Four percent does not include money paid for State functionaries.
Mr. Walgren: What is the total health cost of the country?
Mr. Tan: It is impossible to give you a figure.
Virtually all of the 75,000 communes in China have some form of medical care, although the level of care appears to vary greatly, ranging from the services of a "barefoot doctor" to the more sophisticated clinic such as that inspected by the delegation on its visit to Xinchang People's Commune. Patients needing treatment not available at the commune are referred to the hospital serving the district in which the commune is located. The commune pays for the cost of the treatment and there is no cost to the patient. Dr. Chen estimated that the cost to the commune of the average replantation operation would be about 230 Y (yuan), or about $154 at the current exchange rate. It is important to note that this is subsidized by the national government, which pays the salaries of the doctors, nurses and support personnel and about 400 Y, or $268, per month for each bed. The average pay for a physician of Dr. Chen s experience and skill is about 120 or $80 per month, while beginning doctors earn only 50 Y, or $33.50 per month. Trained nurses average about 70 Y, or $47, per month. Dr. Chen indicated that his salary was about equivalent to that paid a top level engineer. To put these salaries into better perspective, Dr. Chen estimated that he pays monthly about 12 Y, or $8, for housing and 30 Y, or $20 for food.
14 Dr. T. Scott Key explained:
Essentially the entire direction of medical care was redirected during the Cultural Revolution of the late 60. All medical schools were closed and all personnel were placed where they were most needed, Le, In the rural areas. All students were 'graduated" whether or not they had finished the curriculum and all the teachers and staff were sent to the fields. Here they were re-educated, provided health care to the peasants, and labored manually along with the peasant in order to learn from him and of his problems. For several years there was no activityein the medical schools. When they were reopened in 171 under control of the "revolutionary committee there were certain stipulations that each urban based hospital was expected to falfill. Whereas most modern trained physicians had remained in the urban areas, fully one-third of them were not required to be in the rural areas at any one time. This was accomplished with no decrease in the work load of the hospitals and severely limited their ability to continue activities in which they had special ability, L.. limb retransplantation. In addibon all the hospitals were required to add a large general medicine outpatient and inpatient practice to better serve the need of the community. Again this was done at the expense of subspetcialty practice and without the addition of other medical sta.
In essence a political decision was made to redirect the priorities of medical care. Preventive care to a rural population and availabiliy of medical care became the number one priorities. Essentially a moratorium was placed on developing high y sub-specialized capabilities until the basic needs of the population as a whole could be met.







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In a discussion with Mr. Waxman, Mr. Tan explained the system this way:
Mr. Waxman: How much health care is provided on local basis and how much national?
Mr. Tan: All health policies are provided by the central government, and plans by the Federal government. 'rhe local departments, implement national policy. Universities, medical colleges and research institutions are under the national government. Some towns have their own medical facilities for disease prevention. The communes all have their own medical units. The production brigades and production teams have paramedics.
Mr. Waxman: Eveyone gets medical care from local units without regard to ability to pay?
Mr. Tan: In the rural areas, there is cooperative medical service. Individuals pay some money and other costs are paid b the production brigades or teams. Some pay only the registration fee. Cost of service Lsed on ability to pay.
Mr. Waxman: In poor areas, are the ill sent to other areas or treated locally?
Mr. Tan: If they cannot be treated by the barefoot doctors, they are sent to the local clinic. If the clinic cannot handle the case, they send the patient to a hospital at the county level* *.
In general, individuals make a contribution to the cost of health care, although this may take the form of registration fees. The major burden of the cost, however, is borne by the (11. production team" of the
commune to which the worker belongs. Ar mines and industrial
enterprises die operating management pays all health costs.
The improvement in health care over the past 30 years is one of the most striking achievements of the People's Republic of China. Although the unavailability of national statistics which is endernic to China today makes it impossible to measure the full sco le of die achievement, it is clear that tremendous strides have been maT in bringing health care to the rural areas which were previously denied even the most rudimentary medical services and in eradicating disease-bearing flies, rats, and other vermin. In urban areas, it is reported that venereal disease, once an enormous health roblemin China, has been virtually eradicated. The sores, uncorrected defects, and general aura of ill-health that are frequently a hallmark of the peasants in undeveloped countries are noticeably absent from the people of areas of China visited by the delegation, and visitors to other areas of China have remarked upon the same phenomenon.
Currently, the major national public health drive is directed at cancer, as indicated by this exchange between Mr. Tan and the delegation:
Mr. Waxman: What programs do you have in China that deal with cancer.?
Mr. Tan: Anti-smoking campaigns and cancer detection efforts.
(The delegation experienced a rather arresting example of the antismoking campaign in Beijing. Every time a bus drew up to a stop in Beijing it emitted a loud recorded message whch interpreters said was wi exhortation to stop smoking.)
Mr. Waxman: What programs do you have for cancer detection?
Mr. Tan: We are doing research to see if we can give early diagnosis and treatment of cancer. We are doing research on causes of cancer. We have issued a notice to the people not to smoke. Radio and rV are trying to publicize smoking effects on health. The number of patients among smokers is double that of non-smokers.
Mr. Staggers: I think we should bring together cancer experts from all over the world for a conference or symposium to see ii, we can conquer cancer within the next ten years.







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Mr. Tan: We have a national office which coordinates all efforts for diagnosis and treatment of cancer. Chinese magazines give information on cancer. 1990 or 2000 is target date to be able to conquer the disease.
Mr. Waxman: We need an exchange of information from medical scientists to learn thc modern ways and older ways of treating cancer. In the U.S. we have the National Cancer Institute. We also have a National Institute for Diabetes.
In October, three doctors from China are to come to the U.S. for a national advisory meeting on diabetes. We hope they will be able to come to the U.S. to participate in this meeting.
Mr. Tan: China signed an agreement between the two countries. We are going to cooperate in 15 fields--contagious diseases; heart diseases; cancer research; and cooperation in other medical fields. We need to learn from each other basic research and new technologies.
Mr. Pepper: Of all who die over 65 years of age, one out of two die of cancer. Two new drugs have been developed from the treatment of cancer, Interferon, developed in Sweden, and Thymosin, which acts on the thymus gland. Congress appropriated $39,000,000 to authorize manufacture and development of these drugs in the U.S. Chemotherapy destroys resistance of the body. A few drops of Interferon will prevent the common cold. as well as an anti-virus drug for cancer.
In the early part of next year we will have an international conference on cancer with experts from all over the world.
Mr. Staggers: If we have large de legations coming, to the U.S. for conferences on heart, cancer, stroke and other diseases, would China participate?
Mr. Tan: We have sent more than 100 delegations to attend conferences in foreign countries. We would like to cooperate with all our colleagues in the medical field. "Snail fryer"'
Another major public he' alth project is the eradication of snaill fever or schistosommtsis, from which some 200 million people around the world are believed to suffer.. Known as "big belly"' in the rice-growing regions of China where it is prevalent, snail fever affects about 2.5 million Chinese. In some areas it has literally decimated villages and caused some to be abandoned. Unlike other scourges such as polio and smallpox, which could be reached through vaccination programs, snail fever can only be eliminated by wiping out the parasite -hosting snail. The job is made more difficult by the fact that thirty mammals, including humans, are susceptible to the disease and are also, therefore, a source of contamination. The techniques for eradicating snail fever require elimination of the snails, prevention of contamination of waterways by human and animal wastes and treatment of victims."5
Population control
China's most important public health program, population control, has been under way since 1971, and its success could well be the determining factor in all the other modernization programs. In 1949, when the PRC took over the government, China's population was estimated to be about 540 million persons.16 Today, official figures put the population as 975 million, including the 17 million people on Taiwan. This would mean that the Mainland population has increased by 433 million people in the past thirty years.'7

15 For more Information, see "China Takes Ambitiou Step to End a Deadly Feve,"' The New York Tl"Me September 17. 1979.
16 All population figures are at best rough estimates and It Is not clear whether this figure Includes the poulation of Taiwan as current reported figures do,
7A nume of experts believe that the 960 million figure Is very conservative and that the populatica may already have reached or exceeded 1 billion.






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Thec impact of this increase on the already strained Chinese economy and resources has been very great. The New York Times has reported that:
*** though China's agriculture has made remarkable advances, most Chinese today get no more to eat than they did in the mid-1950s, There is a severe housing shortage (the average allotment is less than four square yards per person in the civics Perhaps 20 million people are unem-ployed. At the same time less than half of all young people can go to senior high school and only 3 or 4 percent to college.18
'the goal of ffhe PRC is to reduce population growth from the 1978 level of 1.2 percent to 1 percent this year and to .5 percent by 1985. Considering the tremendous number of people involved and the fact that such a population growth means that a very large proportion of the population must be in the young, child-bearing age range, this is a very substantial undertaking which could only succeed in a disciplined society such as China's. The job is corn licated further by the fact that a major article of faith tinder Mao Zhedo ng was adherence to the Marxist principle that increased population is essential to increase production and also by the fact tha such a large proportion of the population-between 70 and 80 percent, is made up of peasants with a tradition of believing that large families are essential for economic security.
The population control program seems somewhat Draconian by western standards. Efforts are made to prevent early marriage. While some experts have reported that males are not permitted to marry before 27, while females are not permitted to marry before reaching 23, the delegation was informed by private individuals that such younger marriages were permitted, but discouraged both by peer pressure and by econmic sanctions, such as being denied job promotion or increased wages. Other efforts involve peer pressure and vigorous promotion of birth control devices, abortions and economic incentives. In some areas, for example, couples that have only one child, or at most two, et an annual bonus equal to one month's salary. Children of such families are given preference in education, health care and, upon reaching maturity, job assignment. Conversely, parents who have more than two children must pay the State the equivalent of one week's salary each year and are not granted job promotions until the extra child reaches adolescence.
Barefoot doctors
A cornerstone of the Chinese health care system is the barefoot doctor. Barefoot doctors are young men and women from poor families who are trained by medical teachers and medical students who themselves have been required by the government to move to rural areas for that purpose. In a period of about three months these young men and women are trained to recognize and treat common illnesses, perform first aid, and practice acupuncture and moxibustion (the application of burning herbs). They are also trained to know and disseminate Maoist doctrine, which makes them very effective propoganda tools. In response to a question from Mr. Waxman,

19 -k the New Chhua,1 + I Can =4 -No More." TheNew York Tmw4Noember11 19n9.






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Mr. Tan explained that the costs of the program are "born by the counties or below." A similar, although smaller program,, to train "6,worker doctors"' has becn established in urban areas. After working in the countryside for a year or more, those barefoot doctors who show promise are ordered to urban areas for additional training.
Typically, there are no statistics on the number of barefoot and worker doctors-one State Department estimate suggests "hundreds of thousands"-but there can be no disputing that this imaginative, indigenous program has been responsible for a quantum leap in the availability and quality of health care in China over the past three decades. Other contributions to improved care are the government policy of fusing western medical developments with traditional Chinese practices and the development of a domestic drug industry.
One side benefit of the massive health campaigns launched by the People's Republic of China deserves note. It is the neatness and general cleanliness of the Chinese cities and countryside, which is all the more remarkable when one considers the enormous density of the population. Traditional Chinese medicine in the PRC
Despite efforts by both the Nationalist government and, in its early years, the PRC, to phase out traditional Chinese medical practices, suc practices still play a major role in modern Chinese medicine, and the
RCin recent years has Sought to integrate traditional and western practices into a coherent health care system. During its visit to the Xinchang People's Commune, the delegation saw numerous patients being treated with acupuncture and moxibustion. The delegation was informed that these procedures are used to treat a broad range of ailments including headaches, pains in the extremities, and cramps. Acupuncture is also used to treat appendicitis, paralysis, intestinal obstruction, and deafness. Although there is much debate among Western doctors over the effectiveness of these procures, it is clear that many well trained Chinese doctors-and perhaps even more significantly, their patients-find them efficacious. Acupuncture also is used widely as an anaesthetic; however, Dr. Chen n dicated that it is frequently used in conjunction with modern drugs and that its effectiveness may vary from patient to patient. Aging in China
As might be expected in a nation with serious difficulty finding Job0s for young people entering the job market, China does have laws calling for early retirement, but, according to Mr. Tan, there is no national policy regarding the care of the elderly.
Mr. Pepper Do, you have any law in your country that requires people to quit working at an early age? We have a law in the U.S. that prevents forced retirement at any age for Federal workers, and under 70 for private industries. Do you 'have any such requirement?
Mr. Tan: Yes, we do have such laws, but some people do not retire, so we have to persuade them to retire. Men may retire at 60; women at 55. Exceptions are made if the individuals are in good health.
Mr. Pepper: Do you have homes for the elderly people, and do you provide home health services for the elderly?
Mr. Tan: In cities and rural areas we have homes for the aged. in cities and towns and rural areas the hospitals send medicine and doctors to the homes of elderly people. In China, most elderly people live with their children who take care of them.






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American-Chinese cooperation in health care projects
In spite of the achievements since 1949, health care in China still has far to go to reach Western levels. Obtaining the modern equipment and trained personnel to reach that level for more than 900 million people is a formidable task for which the Chinese will almost certainly need U.S. participation. Thec People's Republic of China has signed an agreement with the U.S. to exchange information and cooperate in 15 medical programs dealing with contagious diseases, heart diseases, and cancer.
CHINESE RURAL LIFE
Xinchang People's Commune and agriculture in China
The Xinchang People's Comnmune inspected by the delegation, is located in Nanhui County about an hour's drive from Shanghai and is a fairly large commune by Chinese standards. It supports 20,277 individuals in 6,027 households on 1,371 hectares (3,287 acres) of cultivated land. Thec principal products are grain, cotton and rape seeds, but members of the commune also raise vegetables and fruit, keep livestock, maintain a fishery, operate some light industry, and engage in some private enterprise which the Chinese refer to as sidelinee occupation."
The private ventures are perhaps the most significant development in commune life since the commune program was first established in 1958. Until slightly over a year ago, all products of a commune were treated as Commune property and workers were paid just like factory workers. When this rule was relaxed for agricultural products and livestock, the major products of the Commune were still treated as commune property, but workers for the first time were allowed to maintain small gardens and raise livestock on their own time. Trhey were free to dispose of these products as they chose. This development has had a far greater impact on Chinese life than had been expected. The roadways outside of towns and cities are now sprinkled with ad hoc farmers markets and there is every evidence of brisk trade. Chinese government officials themselves credit this private market with increasing the pork supply to the point where rationing is no longer necessary.
How much farther the Chinese can or will carry this liberalization is unknown, but one official pointed out that with food supplies marginal to feed 900 million people, failure to exercise controls could well lead to a return to the cycles of famine which the Chinese under weak governments experienced from time to time prior to 1949.
Agrarian reform began in China in 1950 with the large scale redistribution of the holdings of large landlords to the peasants. Prior to this, 70 percent of the peasants had no land of their own, but worked the holdings of others as agricultural day laborers or sharecroppers. In 1951, the workers were ordered to band together into mutual aid teams to enable efforts to be pooled and operations generally made more efficient. The move toward collectivization progressed until, in 1955, socialistt cooperatives" were formed to which peasants contributed their land and by which they were paid for their labor.
In 1958, during the "Great Leap Forward" the People's Communes were created. It was the intent that these should become the basic unit of Chinese society. Not only was the commune to own all property, it






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was to provide economic, administrative, cultural and military organization for its members. The ultimate goal was to create collectivist societies in which the workers would live in centralized dormnitories and eat in common mess halls and in which children would be raised apart from. their' parents.. The commune was also to be the vehicle for decentralizing and modernizing industry. As a result, a number of communes do have light industry and a number actually did attempt to set up heavy industrial enterprises.
Communes were to be organized into some twenty production brigades which were in turn each organized into about ten "production teamss" This proposal did not take into account the strength of the traditional organization of Chinese village and county life sufficiently, and it soon became apparent that change would not be imposed so quickly and that the goal. itself was too extreme. Today, the basic commune structure remains in place, but it is primarily an administrative function, through which programs arc implemented that would be too large for individual villages or counties to undertake. The commune provides educational services, large public works projects, such as irrigation and flood control, the redistribution of income for public programs (the type of programs that would normally be financed by local taxation in the U .S.) and integration with the next higher level of government, but the villages and counties provide the focus of social ,and economic life for the peasant.
In spite of thiis shift in emphasis, it would be hard to overstate the importance of the People's Communes in China today. Agriculture, which is virtually synonomous with the commune, provides occupation for well over 700 million Chinese, or better than 80 percent of the population. It also accounts for 70 percent of China's export trade, and 40 percent of the raw material used in Chinese industry and contributes 50 percent of the income for the national budget.
At the Xinchiang, People's Commune, the delegation had an opportunity to get some feeling of how the commune operates today. &Th workers at Xinchang live in small two-story cinderblock row houses. The main living room of each unit is about 10 by 12 feet. A small kitchen opens on to a back courtyard facing a small cindcrblock shed where agricultural implements and occasionally livestock are kept. Ducks and geese are kept in pens in each courtyard.
One of the most interesting features of the housing is the small cistern sunk into the ground in the rear courtyard into which agricultural wastes and 4"night soil" are dumped to generate biogas,1' which is then piped into the kitchen and used for cooking. Heating is provided by a coal-burning brazier. Inside the houses, a small enclosed central staircase provides access to two bedrooms a pproximately 11 feet square. The homes were served by electricity although they had no appliances other than lights, and there was no internal plumbing. Handmade looms and spinning wheels visible in almost every house, give evidence that traditional Chinese skills have not becn abandoned. A door in the front bedroom leads to a covered overhang that runs

19 SeA~ Ener~gy, p. 32.






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along the front of the entire row, giving residents access to each others' homes. The area in fr-ont of the houses serves as a communal work area. When the delegation visited the Xinchanq, they found bunches of herbs and pans of rape seeds and fruit's drying in the sun.
While the living quarters afford the workers considerably less privacy than most Americans would find acceptable, they are nonetheless a far cry from the communal living which was the goal of the "Great Leap Forward." The Pictures, decorations and furnishings of the houses, while sparse, indicated that a healthy sense of personal property still exists in the Chinese peasant today. As everywhere in China the delegation was received' with great hospitality and friendliness. The residents seemed to enjoy having members come into their homes and were fully as curious about the delegation as the delegation was about them.
When the Xinchiang People's Commune was formed in October of 1958, virtually all work was done manually. During its visit the delegation saw evidence of the success of the PR C's agricultural mechanization program. Although water buffalo were in evidence-and therefore were presumably used in cultivation, since no Chinese could afford the luxury of feeding idle mouths-there were also numerous small- and medium-size tractors in evidence, and the Commune reported having 153 of these, as well as 11[7 rice transplanters, 19 small electrical irrigation stations, 78 portable irrigation pumps, III power-driven sprayers, 15 small harvesters, 206 electric threshers, 2 trucks, and 9 motorized tug boats.
Considering that the land owned by the commune has been under continuous cultivation for many centuries, its productivity is a credit to Chinese agricultural practices. The commune reported that grain output in 1978 was 14.3 tons per hectare, while the output of ginned cotton was 1.6 tons per hectare and the production of rape seeds was 2.7 tons per hectare. in the same year the commune bred 28,800 pigs, 117,500 chickens and ducks, and some dairy cattle, long-haired rabbits and sheep. Its fishery produced 70 tons of fresh-water fish, while its orchards yielded 1,620 tons offrut
Xinchang operates 18 industries processing agricultural products for its own use or, under contract, for the city industries. The delegation inspected one industry in which commune-grown cotton was being turned into bathrobes and pajamas.
Xinchang People's Commune maintains 13 primary schools and one middle scnool20 and reported that all school-age chidren are enrolled. In-addition, each brigade has a kindergarten and each team maintains a nursery for working mothers.
Commune officials informed the delegation that the cultural activity of the commune includes a filin production unit, a radio broadcasting station, several libraries and an amateur art troup, but the delegation was not able to inspect these.
To provide for health care and treat less serious ailments and injuries, the commune maintains a 100-bed hospital served by 102 medical

20 See Jingan District Children's Palace., p. 47.






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workers.2' Each of the brigades has Its own clinics and the services of "barefoot doctors" and team health workers. All members of the commune have their expenses covered for all medical services, including treatment at the more sophisticated district hospitals, if necessary.22
During travels through the rural countryside, the delegation was impressed by a number of the agricultural achievements of the PRC First, the extensive program of recovering agricultural lands rendered useless by erosion or natural topographic features such as hillocks. It was not uncommon for the delegates to see a drop of five or six feet from one field to another where earth had been shigfed to fill gullies.
Another impressive feature was the enon-nous reforestation program. New groves of trees along highways frequently stretched back one hundred feet or so from the road. 'The delegation was informed that during the long period of war and civil disorder in the 1930s and 1940s much of the nation had been virtually denuded of trees by peasants who burned the wood for cooking, to keep warmn, or for food in times of famine.
Finally, the delegation was informed of the program to recover vast areas of agricultural land that had been devoted to cemeteries. There are of course no statistics, but one official informed the delegation that the centuries-old habit of burying ancestors in nearby fields and maintaining the graves had "seriously depleted"II available land. The Kuomintang made futile efforts to correct the situation, but it was not until the PRC vigorously encouraged cremation and ordered the removal of existing graves that effective action was taken. During all its tour of China, the delegation saw only only one marked grave in a field and it appeared to be of considerable antiquity.
EDUCATION
Jingan District Childrens Palace
The "Children's Palaces"~ in which* gifted children receive special instruction in a wide range of arts and skills are a distinctive feature of the Chinese educational system. During its visit to Shanghai, the delegation had a chance to visit one of the ten such institutions serving Shanghai children, the Jingan District Children's Palace.
Located in what appears to have been once a large prvate mansion in the city, Jingan Children's Palace provides social instruction for about 1,000 children between the ages of 6 and 15 During the school year, this instruction is offered after the end of the normal school day; in the summer months it offers an all-day program.
The Jingan program is an interesting example of the blending of the "6old"l and "4new" Chinas. On the one gand is impressive training in the traditional art of calligraphy, traditional dance and traditional music and musical instruments. On the other hand, it is also building future engineers and technologists with courses dealing with design and construction of model aircraft and radio, TV, and other electronic

21 Dr. Key observe es,~ setting of the commune hospitaL, on the other hand, with the burets pipotee old reagent bottes, and monocular microscopes In the laboratory seems straight out of the 1920s." 22 See Medical Care In the PRC, p. 39.






47

devices. In a sense, the Jingan program can be seen as an effort to cope with the problem that has plagued Chinese education for nearly a century.
The way in which Imperial China developed created a vast gulf between the peasants, who did manual labor, and the educated Chinese ( mainly government officials) who did not. The goal of all ambitious Chinese youths was to enter government service and this could only be done by passing through a complex examination system controlled by the imperial bureaucracy. rfllius, the educational systemn was shaped by examinations which stressed such traditional Subjects as calligrap hyan d traditional philosophy. For this reason Chinese education was lacking in the scientific training necessary for developing technology. Every government since the 1911 Revolution has tried to overcome this
p roblem, and the PMC is no exception. But as a part of the Cultural Revolution of 1966-69, the PRC has added new elements designed to breach the gulf between the worker and the educated by emphasizing the workk ethic."
After spending five years in primary schools, Students spend five years in middle school, roughly the equivalent of Junior and Senior high in the U.S. Throughout the school experience, students are required to participate in some form of productive work, and middle school students are required to spend two or three years working in rural areas. Only then are they allowed to apply to the university. Very few students are allowed to continue with advanced Studies or specialization. The delegation was informed in briefing materials prepared by the U.S. State Department that admission to a university is determined more on the basis of deportment and ideological conformity than on scholarship, although in recent years there has been renewed emphasis on technical and scientific education, research and training.
In discussions with individual Chinese, the delegation obtained information indicating the system may not yet work as planned. It appears that the best road for advancement for ambitious Chinese is still to get a job with the government and the university is still the only course to that goal. In effect, therefore, the system still places greater emphasis on non-academnic achievements, in this case ideological conformity, than on academic work, but the latter is gaining importance.
One other problem area relates to the shortening of the primary and secondary school courses from 12 to 10 years during the Cultural Revolution. Whatever the purpose of this, the delegation was informed that it contributes to a problem troubling Chinese youth: the long delay between graduation and assignment to a permanent job. The delegation was informed that it frequently takes as long as two to three years, time which could be spent in studies, but instead is usually spent on make-work projects within the community.
The delegation was also informed, and recent events such as the dispatch of Chinese students to U.S. colleges and univesities tend to confirm, that since the overthrow of the "Gang of Four" the PRC has recognized the need to promote scientific and technological education and develop a more pragmatic approach to education in general.









APPENDICES
I-JAPAN
A-Chronology a/events
Trade
08/15/71 The U.S. government announces a new economic policy
ending convertibility of the dollar and imposing a 10O pcrccnt surcharge on imports. Japan Is trade surplus with the U.S. cited as a major reason for the dramatic new
p rogram.
12/00/7 1 mithsonian agreement realig ns all major currencies. Yen
was revalued to 308 to the dollar from 360.
09/01/72 As an outcome of the Honolulu Summit, Japan pledges to
buy $1.1 billion of U.S. goods in an effort to reduce her $3.8 billion trade surplus with the U.S. In the joint statement, Japan pledges to promote imports from the United States and to reduce the imbalance to a more
manageable level within "a reasonable period of time." 02/00/73 Value of yen is realigned to 265 to the dollar from 308. 05/20/73 Thle U.S. government in a report to Congress on foreign
policy states: "TIhe most urgent issue in U.S.-Japanese relations is economic-the economic imbalance in our
bilateral trade."
08/22/76 T"he U.S. government conveys to Japan's Prime Minister
Miki the U.S. belief that Japan is manipulating price of yen to keep it cheap, contrary to international agreements
which call for letting currencies float.
02/04/77 In a speech in Chicago, Japan's Ambassador to the United
States, Fumih'iko Trogo, outlines Japan's plans to stimulate its economy, defends Japan's trade surplus with the United States as being based on worker productivity and quality of product rather than cheap labor, and states that &aMy Government therefore trusts that there will be no sudden or disruptive changes in American military support to the
Republic of Korea.'"
05/12/77 -The U.S. Customs Court rules that Japanese electronics
products sold in the United States were being indirectly subsidized by the Japanese government through exemption
of exports from domestic commodity taxes.
05/17/77 TIhe United States and Japan agree to limit *Japanese
exports of color television sets to the United States to 1.75 million corn leted and unassembled sets per year; compared wit 2.96 million sets imported fromi Japan mn
1976.
05/23/77 At the London Summit Japanese Prime Minister Taheo
Fukuda pledges to hold Japan's 1977 overall trade surplus
to $8 billion.
(48)






49

09/28/77 A U.S.-Japan Joint Trade Facilitation Committee (JTFQ is
established to investigate and resolve particular cases in which American firms are frustrated in exporting to Japan because of Japanese government procurement and customs valuation policies. jrFC will be housed within the
Commerce department.
10/02/77 In a preliminary ruling, the Treasury Department rules that
five Japanese steel companies have been selling their products in the United States at a substantial loss of 24 percent' below their actual costs (a practice known as
'dumping").
10/12/77 Japanese Embassy officials in Washington reject charges by
other major industrial nations that Japan is not doing enough to reduce its large trade surplus, but they indicate that Japan might be receptive to arrangements with the United States to limit Japanese steel exports to the United
States.
10/13/77 In a meeting with steel industry officials and steel union
leaders, the President pledges that die Administration would enforce antidumping laws on foreign steel producers, including Japan, but he warns against permanent import
quotas.
11/18/77 Ambassador Mike Mansfield presents the Government of
Japan with several U.S. demands for ending the huge Japanese trade surplus with the United States (estimated to
be $8 billion for 1977).
12/06/77 The Administration unveils a plan to help the U.S. steel
industry compete with imports from Japan and West
European countries.
12/08/77 'Me U.S. government and the Fukuda government indicate
that wide gaps exist between the U.S. and Japanese views on measures to reduce the Japanese trade surplus with the
United States.
12/12/77 The U.S. government rejects a package of trade and
economic proposals submitted by Japanese envy
Nobuhiko Ushiba, calling them inadequate to meet U
conditions for eliminating the U.S. trade deficit with Japan. 01/13/78 The United States and Japan conclude a trade agreement
in Tokyo in which Japan commits itself to expand its imports as part of a broader effort to reduce its heavy trade
surplus with the U.S.
02/01/78 The U.S. Special Trade Representative states before a
Senate Finance Committee hearing that it might take eight
years to achieve parity in our trading relations with Japan.
02/03/78 U.S. Ambassador to Japan Mike Mansfield says in New
York that Japan has made "genuine and not merely
cosmetic concessions in trade.
02/15/78 Japan's Prime Minister Tahco Fukuda, speaking in Tokyo, to
states that Japan will require "two years or more'
eliminate the nation's overall trade surplus with its trading
partners.





54-SR9 n 7Q ')






50

02/16/78 The U.S. Secretary of Commerce maintains that the
U.S.-Japanese trade agreement means greater sales possibilities .for American computers and peripheral equipment electronic components, food packaging and processing equipment, analytical instruments, biomedical equipment, building systems and pollution control
equipment.
03/13/78 A 91-member Japanese buying mission, touring the United
States, announces that the mission would result in the
export of $1.94 billion worth of U.S. goods to Japan.
03/14/78 Thie Japanese buying mission that toured the United States
culminates in the purchase of over $1.9 billion worth of U.S. goods; $170 million worth of industrial products; $200 million worth of foodstuffs or processed foods; and $189
million worth of raw materials.
03/15/78 IDcspite the sharp appreciation of the Japanese yen against
the dollar, the Japanese current account has continued to grow, and is now expected to total $13 billion for the
Japanese fiscal year.
03/31/78 The Treasury Department announces a retroactive levy of
$46 million dump in~y duties on importers who brought in Japanese color T Vs in 1972 and 1973, but takes no action
for 1974-1977.
04/24/78 The House Ways and Means Subcommittee on Trade
appoints a three-member task force to monitor trade between the United States and Japan. The task force is to focus on Japanese efforts to stimulate their economies and increase imports of manufacturers, the implementation of unilateral actions by the Japanese to increase access to their markets, the Administration's efforts to promote exports, and the plans of the Japanese to structure their economy
toward increasing their comparative advantages.
05/08/78 Japan ends its N977 fiscal year with an overall trade surplus
of $20 billion, a current account surplus of $14 billion, and
a trade surplus with the United States of $10 billion.
05/23/78 Tihe House Ways and Means Task Force on U.S.-Japan
Relations determines that the Japanese are intent on implementing the unilateral actions they promised in
January but that the pace has been slow.
05/31/78 The Comrmerce Department issues guidelines on filing
grievances with the U.S.-Japan Trade Facilitation Committee for domestic firms that have encountered
roblems exporting to Japan.
07/30/78 -five members of the Ways and Means Trade
Subcommittee propose to the President the imposition of a
5 percent surcharge on Japanese imports.
08/14/78 -The House Ways and mecans Task Force on U.S.-Japan
Relations, in its second interim report, finds little or no positive improvement in the U.S. trading relationship with Japan. The task force expresses particular concern about the lack of response shown by the Japanese in reacting to well documented cases of Japanese government procedures
which act to impede imports.






51

09/12/78 It is announced that a 115-member mission of top U.S.
industrial leaders will visit Japan from October 2 through October 14. 'The purpose of the U.S. mission, which will be led by the Secretary of' Commerce, is to seek ways to expand U.S. exports of manufactured goods and thus lessen
the massive trade imbalance between the two countries.
11/15/78 A large Congressional delegation visits Japan to discuss the
status of U.S.-Japan trade relations.
12/05/78 The U.S. and Japan conclude agricultural trade negotiations
that could increase U.S. exports to Japan $1.4 billion a year
by 1983.
01/25/79 The U.S. Special Trade Representative, testifying before the
Joint Economic Committee, states that the Administration did not consider an import surcharge to be a solution to
the trade imbalance.
Transportation
19th century
10/14/72 First railway in Japan opened to traffic between Shimbashi
(now, Tokyo) and Yokohama.
07/01/89 Tokaido Line completed, linking the six maor cities of
Tokyo, Yokohama, Nagoya, Kyoto, Osaka and Kobe.
09/01/91 Tohoku Line (Uenmo-Aomori) connecting northern and
central Japan, constructed by Nippon Railway Company. 20th century
05/27/01 Sanyo Line (Kobe-Shimonoseki) opened to traffic with
ferry service between Shimonoseki and Moji, the entrance
to Kyushu.
03/31/06 Government purchased leading private railways. 03/07/08 Ferry service commenced between Aomori and Hakodate. 12/05/08 Railway Board set up under the Cabinet. 12/20/14 Tokyo Station opened. 05/15/20 Ministry of Railways established. 12/01/34 Tanna Tunnel on the Tokaido Line completed after 16
years of work.
06/11/42 Kammon Undersea Tunnel (Shimonoseki-Moji) completed. 11/01/43 Ministry of Transport and Telecommunication set up,
absorbing Ministry of Railways.
05/18/45 Ministry of Transport and Telecommunication reorganized
into Ministry of Transport.
06/01/49 Government Railrays reorganized into a public corporation
called the Japanese National Railways (JNR).
11/05/59 Container freight train service commenced between Tokyo
and Osaka.I
07/31/61 Hokuriku Tunnel (13,870 in), world's 5th longest, bored
through.
03/30/63 Record 256 km/h marked by a prototype train on the
test-run section of the New Tokaido Line.
10/01/64 New Tokaido Line (Shinkansen) opened to traffic. 10/05/64 JNR bus service opened on the Nagoya-Kobe Expressway.






52

04/20/66 Automatic Train Stop (ATS) equipment applied to entire
system.
02/24/72 Record 286 km/h marked by a new prototype Shinkansen
Train.
03/15/72 Shinkansen extended to Okayama. 07/26/72 Superconducting magnetically levitated and linear synchronous motor propelled experimental vehicle successfully run. 09/19/72 Superconducting magnetically levitated and linearinduction motor propelled experimental vehicle (ML-100)
successfully run.
03/15/74 Shin Kammon Undersea Tunnel on the Shinkansen bored
through.
09/03/74 Linear motor system introduced in Shiohama Marshaling
Yard.
03/10/75 Shinkansen extended to Hakata. 05/5/75 Record 1,032,136 passeners carried on the Shinkansen in
single day.
05/25/76 One billion passengers carried on the Shinkansen since its
inception.
04/01/77 Miyazaki Maglev Testing Center opened. 09/21/77 Tests of a superconducting magnetically levitated and linear
synchronous motor propelled experimental vehicle
(ML-500) started at the Miyazaki Maglev Testing Center. 03/24/78 Shinkansen Testing Center set up at Oyama.
B-JETRO offices in the U.S.
Japan Trade Center, New York 44th Floor, McGraw-Hill Bldg. 1221 Avenue of the Americas New York, N.Y. 10020 Tel. (212) 997-0400 Japan Light Machinery Information Center, New York 44th Floor, McGraw-Hill Bldg. 1221 Avenue of the Americas New York, N.Y. 10020 Tel. (212) 997-0444 Bicycle Section, Japan Trade Center 15th Floor, McGraw Hill Bldg. 1221 Avenue of the Americas New York, N.Y. 10010 Tel. (212) 869-3430 Japan Trade Center, Chicago 230 North Michigan Avenue Chicago, Ill. 60601 Tel. (312) 726-4390/4392/4779 Japap Trade Center, Houston 1221 McKinney One Houston Center, Suite 1810 Houston, Tex. 77002 Tel. 759-9595/9596/9597






53

Japan Trade Center, Houston Dallas Branch P.O. Box 58234
1st Floor, World Trade Center Dallas 2100 Stemmous Freeway Dallas, Tex. 75258 Tel. (214) 651-0839 Japan Trade Center, Los Angeles 24th Floor, Bank of America Tower 555 S. Flower Street Los Angeles, Calif. 90071 Tel. (213) 626-5700 Japan Trade Center, San Francisco 1737 Post Street San Francisco, Calif. 94115 Tel. (415) 922-0234 Jetro Puerto Rico Office P.O. Box No. 3356 Marina Station Carr. 108, K M 35, Miradero URB Bellas Lamas, MayagUCZ, Puerto Rico 00708 Tel. Mayaguez 832-0861
C-JETRO publications of interest to American businessmen
JETRO series:
Changing Dietary Lifestyles in Japan Doing Business in Japan Environmental Control in Japan Industrial Marketing in Japan Japan as an Export Market Japan's Import and Marketing Regulations-Selected Consumer Products Japan's Industrial Safety Regulations
Machinery-Planning for Distribution in Japan Registering Industrial Proprietary Rights in Japan
Business information series: Role of Trading Companies in International Commerce Operating a Business in Japan Financial and Labor Practices in Japan A Case Study of Foreign Investment in Japan Labor-Management Relations in Japan A Handy Guide or Businessmen Understanding the Japanese... If That's Possible Contracts and International Trade A Handbook on Japanese Taxes Expanding Trade with Japan Through Better Understanding Marketing Strategies for Exports to Japan (available in English and Spanish)
Japan's export system Design Promotion System in Japan Export Inspection System in Japan Export Insurance System in Japan Industrial Standards System in Japan






54

Exporters' guide series
Japan's Import System-1978
Japan's Tariff-Systems and Customs Procedures Japan's Distribution System-1978
Other publications
JETRO China Newsletter (quarterly in English) The Japan Industrial and Technological Bulletin, A monthly in English introducing newly developed Japanese machinery and technology White Paper on International Trade: Japan (annual) Economic Cooperation of Japan (annual) Towards a Working Knowledge of Japan
Access to Japan's import market series Black Tea / Carpeting / Chicken Broilers / Clothing / Cocoa / Coffeel Cosmetics/ Do-It- Yourself Products/ Feed/lFrozen Cuttlefish and Squid/ Frozen Shrimps/Furniture/Home Apph'ancesHoney/Interior Decoration Goods Kitchenware / Leisure and Sporting Goods! Marble and Granite/ Molasses/Nutsl Palm Oil/Pet Fish! Precious and Semi-precious Stones Tapiocal Vegetable Oil/Wine/Wooden Furniture D-Congressional hearings
U.S. House of Representatives, Committee on Ways and Means, Causes and Consequences of the U.S. Trade Deficit and Developing Problems in U.S. Exports (95th Congress, 1st session, Hearings November 3 and 4, 1977) (Washington, U.S. Govt. Printing Office, 1977).
U.S. House of Representatives, Committee on Ways and Means, Current Trends and Structural Problems (95th Congress, 1st session, Hearing September 20, 1977)) (Washington, U.S. Govt. Printing Office, 1977).
U.S. Senate, Committee on Finance, U.S.-Japan Trade Agreement and Progress in the Multilateral Trade Agreement (Hearing February 1, 1978) (U.S. Govt. Printing Office, 1978).
U.S. Senate, Committee on Foreign Relations, U.S/Japanese Relations (Hearing April 27, 1978) (U.S. Govt. Printing Office, 1978).
E-Reports and Congressional documents
Presidential document, United States-Japan Trade Agreement, Vol. 14, week ending Friday, January 20, 1978.
U.S. House of Representatives, Committee on Ways and Means, Preliminary Guide to Export Opportunties to Japan, Report covering the six months ended June 30, 1977, on reviews and hearings arising from coplaints of unfair trade practices by foreign governments pursuant to section 301(d)(2) of the Trade Act of 1974: transmitted by the special representative to Japan for trade negotiations on August 10, 1977 (S. Rep. 95-1045) (Washington, U.S. Govt. Printing Office, 1977).
Task Force Report on United States-Japan Trade (95th Congress, 2d session) (January 2, 1979).
Import Relief for the U.S. Color Television Industry,; Communication transmitting a report on the action being taken wit respect to color television receivers covered by the determination of the U.S. International Trade Commission under section 201d)(1) of the Trade Act of 1974 on March 22, 1977, pursuant to section 203(b)(1) of the Act (H. Doc. 95-165) (Washington, .S. Govt. Printing Office, 1977).






55

F-Additional reference sources
James Abegglen, "Why Many Fail in Japan", Far Eastern Economic Review, November 11, 1977, p. 27. Tracy Dahlby, "Papering over Japan's Trade Gap," Far Eastern Economic Review, January 27, 1978, pp. 34-36. Peter Drucker, "A Troubled Japanese Juggernaut," Wall Street Journal, November 22, 1977, p. 22.
Donald Kirk, "The High Cost of Doing Business in Japan," Saturday Review, March 19, 1977, pp. 20, 22-26.
John J. Nevin, "Can U.S. Business Survive our Japanese Trade Policy?" Harvard Business Review, September-October, 1976, pp. 165-177.
Sanford Rose, "The Secret of Japan's Export Prowess," Fortune,
January 30, 1978, pp. 56-62.
Anthony M. Solomon, "Why American Exports Have Lagged," New York Tiues, Sunday, April 30, 1978, p. 12. Esraf Vogel, "Guided Free Enterprise in Japan," Harvard Business Review, May-June, 1978, pp. 161-170.








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58
II--CHINA
A-Chronology of events
07/21/69 Department of State announces relaxation of restrictions on
travel by U.S. citizens to the P.R.C.
12/19/69 Foreign subsidiaries of U.S.-owned firms are permitted to
engage in trade of non-strategic items with the P.R.C.
04/14/71 The President announces a relaxation of the embargo on
trade with the P.R.C. Specific items of a non-strategic nature are permitted to be exported to the P.R.C. without a validated license. Other measures are announced to facilitate travel by Chinese citizens to the United States and
shipping between the two countries.
02/00/72 lihe President visits the People's Republic of China. 02/14/72 The President further relaxes controls on U.S. exports to
the P.R.C., giving it equal treatment with regard to export controls to the Soviet Union and various East European
countries.
07/5/72 The Boeing Corporation announces that it has received an
export license to sell $150 million in commercial jets to the
P.R.C.
11/22/72 The President lifts a 22-year ban on travel by U.S. aircraft
and ships to China.
02/22/73 The U.S. and the P.R.C. agree to open "liaison offices." 03/2/73 The Secretary of State announces "an agreement on
principle" on questions of frozen Chinese assets in the united States and private U.S. claims against the P.R.C.
government.
04/20/73 P.L. 93-22 is enacted authorizing the President to extend
diplomatic privileges and immunities to Liaison Office of
the People's Republic of China.
04/02/74 Senator Mike Mansfield introduces S. 3285, a bill to extend
most-favored-nation treatment to the P.R.C.
04/04/74 The President names George Bush to head the U.S. Liaison
Office in Peking.
11/25/74 The Secretary of State begins his seventh visit to the P.R.C. 01/26/75 The P.R.C. cancells an order for 601,000 tons of U.S.
wheat.
01/28/75 The Secretary of Agriculture says -that the P.R.C.'s
cancellation of wheat orders from the United States was probably due to a good domestic wheat crop in China and
an unfavorable foreign exchange situation.
02/27/75 The P.R.C. cancells an order for 382,000 tons of U.S.
wheat.
09/08/75 A Chinese foreign trade mission, after visiting various parts
of the United States, meets with the President and
Congressional leaders.
12/01/75 The President begins a visit to the P.R.C. 01/08/76 China's Premier Chou En-lai dies. 04/07/76 Hua Kuo-feng is promoted to Prime Minister and First
Chairman of the Communist Party.






59

09/09/76 The death of Chairman Mao is announced officially in
Peking.
10/27/76 Diplomats in Peking reports that China's fifth five-year
plan Would begin early in 1977.
05/01/77 The New York Times reports that U.S.-P.R.C. negotiations
to settle financial claims between the two countries have
resumed.
06/22/77 The President signs the Export Administration
Amendments of 1977.
08/22/77-08/26/77 The Secretary of State makes an official visit to
the P.R.C.
12/15/78 The President announces the establishment of diplomatic
relations with the P.R.C.
07/07/79 U.S. and Chinese representatives signs a bilateral trade
agreement in Peking.
B-Congressional hearings
U.S. Congress, Joint Economic Committee, Subcommittee on Priorities and Economy in Government, Allocation of Resources in the Soviet Union and Chiina-1977 (95th Congress, 1st session, June 30, 1977) (Washington, U.S. Govt. Printing Office, 1977).
U.S. House of Representatives, Committee on Banking, Finance and Urban Affairs, Subcommittee on International Trade, Investment and Monetary Policy, Expori-Import Batik and Trade with China (95th Cong-ress, 2d session, Hearings on H.R. 8796 January 26, 1978) (Washington, U.S. Govt. Printing Office, 1978).
U.S. P'ouse of Representatives, Committee on International Relations, Subcommittee on Asian and Pacific Affairs, Normalization of Relations with the IPeople's Republic of China: Practical Implications (95th
Congress, 1st session, Ilecarings September 20, 21, 28, 29 and October 11, 13, 1977) (Washington, U.S. Govt. Printing Office, 1977).
U.S. Senate, Committee on Commerce, American Role in East-West Trade (94th Congress, 1st and 2d sessions, Hcarings December 11-12, 1975, and January 30 and February 4, 1976) (Washington, U.S. Govt. Printing Office, 1977).
C-R eports and Congressional documents
U.S. Congress, Joint Economic Committee, The Chinese Economy Post-Mao, A Corn endiumn of Papers submitted to the Joint Economic Committee, Vol. 1, "Policy and Performance" (95th Congress, 2d session, Joint Committee print) (Washington, U.S. Govt. Printing Office, November 9, 1978.)
U.S. Congress, Joint Economic Committee, China and the Chinese (94th Congress, 2d Session, Joint Committee Print) (U.S. Govt. Printing Office, November 19, 1976.)
Ninth Congressional Delegation to the People's Republic of China, August 17-30, 1975 (94th Congress, 2d session) (Washington, U.S. Govt. Printing Office, June 8, 1976).
U.S. House of Representatives, Committee on Ways and Means, Special Report to the Congress and the East- West Foreign Trade Board on Imiplicat ions for U.S. Trade of Gran tin g Afost-Favored-Nation Treatment to the People's Republic of China, Submitted to the Congress by the Chairman, U.S. International Trade Commission (95th Congress, 1st session) (Washington, U.S. Govt. Printing Office, June 8, 1977).






60

U.S. House of Representatives, China: One Step Further toward Nornnalization, Report by Carl Albert and John Rhodes (94th Congress, 1st session, H. Doc. 94-255) (Washington, U.S. Govt. Printing Office, July, 1975).
U.S. House of Representatives, Impressions of the New China, Joint Report to the United States House of Representatives by Hale Boggs and Gerald R. Ford on their mission to the People's Republic of China, June 23 to July 7, 1972 (92d Congress, 2d session, Hf. Doc. 92-337) (Washington, U.S. Govt. Printing Office, 1972).
U.S. Senate, Committee on Commerce, American Role in East- West Trade (95th Congress, 1st session, Committee print) (Washington, U.S. Govt. Printing Office, February, 1977.)
U.S. Senate, Committee on Foreign Relations, and U.S. House of Representatives, Committee on International Relations, The United States and China, Report by the Seventh Congressional Delegation to the People's Republic of China (94th Congress, 1st session, Joint Committee print) (Washington, U.S. Govt. Printing Office, October 28,
U.Senate, China: A Quarter Century after the Founding of the People's Republic,, Report by Senator Mike Mansfield (94th Congress, 1st session, Committee print) (Washington, U.S. Govt. Printing Office, January, 1975.)
U.S. Senate, Committee on Armed Services, China and American Policy, Report by Henry M. Jackson (93d Congress, 2d session, Committee print) (Washington, U.S. Govt. Printing Office, August,
U.Senate,, Western Investment in Communist Economies.' A Selected Survey on Economic Interdependence, [by] John P. Hardt, George D. Holliday, and Young C. Kim (Committee print) (Washington, U.S. Govt. Printing Office, 1974.)
U.S. Senate, China Report, Report of a Special Congressional Delegation (93d Congress, 1st session, S. Doc. 93-43) (Washington, U.S. Govt. Printing Office, July, 1973.)
U.S., Senate, Journey to the New China, Reports of Mike Mansfield and Hugh Scott (92d Congress, 2d session, S. Doc. 92-89) (Washington, U.S. Govt. Printing Office, 1972.)
D-Additional reference sources
Gene T. Hsiao, The Foreign Trade of China.- Policy, Law, and Practice (Berkeley, University of California Press, 1977).
U.S. Central Intelligence Agency, China.' International Trade, 1977-78 (December, 1978).
U.S. Department of Commerce, Industry and Trade Administration, Prospects for PRC H-ard Currency Trade through 1985, prepared by Gary R. tske, Media B. Kravalis and Allen J. Lenz (Washington, January 12, 1979)
Michael H. .Aderman, M.D., and George G. Reader, M.D., "Public Health in China," American Journal of AM!edicine, Vol. 67, July, 1979.
Hugh H. Hussey, M.D., "Visits to China," Journal of the American Medical Association, Vol. 235, No. 13, March 29, 1976..
_____"Acupuncture Anesthesia: Western Medicine and Chinese Traditinal Medicine," Journal of the American Medical Association, Vol. 218, No. 10, December 6, 1971.






61

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E-Pseudarthrosis of the tibia
Dr. T. Scott Key explains:
Congenital pseudarthrosis of the tibia is a group of fractures that occurs in the lower leg with resultant instability of the leg, such that no weight-bearing may be accomplished because the bone angulates forward. This condition is exceedingly rare with very few hospitals having seen more than 2 or 3 patients.
lhe prognosis of this condition is generally dismal. The "fracture" (i.e., pseudoarthrosic) rarely heals despite multiple orthopedic procedures that have been attempted. This results in a constantly unstable leg which often requires amputation.
Bone grafting is one means of trying to stabilize the leg bones, but unfortunately has not been highly successful. The success of bone grafts has many determinates, one of which is the adequacy of its blood supply. T'he technique of micro-anastomosis (joining together of 2 vessels utilizing the aid of a microscope) of arteries in the bone grafts is. one technique for insuring a better "take" of the bone graft and thus, hopefully, but not necessarily making more stable bone.




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