S12: Trading with the Enemy

• 1971: People’s Republic of China joins the UN; Republic of China Evicted
• 1972: Nixon visits China
• 1966-1976: Cultural Revolution
• 1978: Normalization of US-China relations; 3rd plenum of the 11th Central Committee and beginning of reform era

• How did Coca Cola return to China?
• How did the US and China – once enemies during the Cold War – begin to trade with each other?
• Was (and is) engagement with China in the U.S. national interest? What role do businesses play?

• By April 1958: Widespread food shortages and riots
• By early 1959: Famine spreading nation-wide
• Result: Worst famine in human history, with excess deaths of between 24 and 30 million

• China imported industrial goods from the Soviet Union, exporting raw materials and textiles.
• China depended on Soviet capital goods for rapid industrialization.
• China relied on Soviet and Eastern European technical experts due to a shortage of skilled workers.
• China depended on the Soviet Union for help in reconstructing and developing cities.

At the same time, Soviet influence shouldn’t be over-emphasized:

• State-led industrial development approaches from the Nationalists and Japan were also key.
• China aimed to maintain some economic ties outside the Soviet bloc.
• Trade imbalances between China and the Soviet Union: increased Chinese exports and Soviet loans.
• The Soviet bloc followed the same strategy of heavy industrialization, separating China from more geographically and historically suited economic partners.

• Self-reliance meant avoiding foreign control while adopting technology and learning from other countries’ industrial development.
• Foreign assistance and advanced technology access as compatible with self-reliance; not the same as complete autarky or import substitution.

• In 1964, the Chinese Communist Party (CCP) supported establishing military industrial complexes in mountain regions to back up coastal front lines.
• Focused on the southwest, Third Front construction was disrupted in 1966 by the Cultural Revolution, but resumed in 1969 following Sino-Soviet border clashes.
• Large Great Leap projects were incorporated into construction plans, such as railways and the Gezhouba Dam.

To back up potential front lines along the coast, the central Party also endorsed in late 1964 the establishment of Small Third Front military industrial complexes in the mountains of Guangdong, Guangxi, Fujian, Shandong, Zhejiang, Jiangsu, Anhui, Jiangxi, and Hebei, and in Beijing’s western highlands.

• Industrialize China and transform its resources for economic growth.
• Rebalance China’s industrial geography from the coast to the interior.
• Cultivate citizens who prioritized building a socialist China.
• Ensure the security of the socialist regime and reduce the risk of losing sovereignty in future conflicts.

• Rapid industrialization was needed for China to catch up with advanced nations.
• The international economic order as exploitative, with developed states dominating less developed ones – a view shaped by China’s historical experiences and Cold War trade controls.
• The CCP aimed to establish a new international economic order based on “mutual equality and benefit.”

• The China-Japan economic relationship was modest in the 1950s due to Cold War embargoes, but “unofficial” trade agreements were negotiated.
• Japan’s exports to China shifted from heavy industrial goods to agricultural machinery, textile machinery, light manufactured products, and chemical fertilizer.
• By 1965, Japan had become China’s largest trade partner, surpassing the Soviet Union; by 1971, it supplied more than 60 percent of China’s total industrial plants and advanced technologies.

• CCP foreign economic policy had two main goals: create a fairer economic order for developing countries; use economic policy as a tool of statecraft.
• Methods included market access, barter trade, and unconditional aid.
• These methods aimed to counter the US embargo, gain diplomatic recognition, attract developing countries, and differentiate China from the US and Soviet Union.

• While US embargo on strategic goods pushed China towards the Soviet Union, China used economic incentives for foreign policy goals.
• China aimed to disrupt the US-led embargo by incentivizing trade with countries like Britain and Japan, thereby driving a wedge between the US and its allies.

Urban

• Return of scientific planning
• Reduction of population, 10 million returned to the countryside
• Work units strengthened: lifetime employment with benefits, loss of right to change workplace

Rural

• Restoration of private plots and right to small-scale house-hold production
• Restoration of work points and rural markets

• “Dual adversary” strategy, struggling against both the “imperialists” (United States) and the “social imperialists” (USSR).
• Soviet Union: Increase of troops along border, defection of Uyghurs from Xinjiang, thawing of relations with US after Cuban Missile Crisis
• United States: Taiwan Strait; Vietnam War

• China aimed to export revolution by supporting communist parties and insurgency movements in Asia, Africa, and Latin America.
• The 1960s marked a revolutionary phase in China’s foreign policy, with the goal of forming a global united front against the Soviet Union and the United States.

• Relations with neighboring nonaligned states deteriorated during the 1960s.
• Border war with India in 1962, with Chinese forces achieving significant territorial gains.
• Anti-Chinese massacre in Indonesia in 1965, with General Suharto accusing China of supporting the Indonesian Communist Party (PKI) and a failed coup in Jakarta. Over a million ethnic Chinese killed.

Chronology:

• 1971-04: “Ping Pong diplomacy”
• 1971-07: Kissinger’s secret trip to China
• 1971-09: Death of Lin Biao
• 1972-02: Nixon’s visit to China

China:

• Mao’s physical decline: Heart attack in 1972; in poor health and seclusion till end of life; Zhou Enlai: Cancer diagnosis in 1972
• Needed a political breakthrough to boost domestic credibility and reassert control after the Cultural Revolution.
• Sought to demonstrate strength against the Soviet Union after border conflicts in 1969.

Nixon:

• Wanted a diplomatic coup to boost his prospects for the 1972 election.
• Aimed to position himself as a world leader pursuing peace, amidst the Vietnam War and domestic unrest.

• Transformation of China from Communist threat to quasi-ally
• Security triangle: China as swing player between two superpowers
• China safe from both US and Soviet attacks

• In the 19th century, multinational corporations shifted from resource extraction to manufacturing.
• During the Cold War, manufacturing multinationals began outsourcing production to low-wage economies.
• The US shifted from an “empire of production” to an “empire of consumption” by the end of the decade.

• How important was trade in Sino-US rapprochement?
• What were the sticking points? How were they resolved?
• How did China transform from a country of 400 million customers to 800 million workers?

• Nixon’s China summit was motivated by geopolitics and domestic politics, not economics.
• Trade was part of America’s diplomatic tool, but China prioritized diplomatic progress first: China initially only sold to the US, refusing to buy US goods until after the Shanghai communiqué.
• Main issue: Taiwan, not trade.

• US administrations viewed trade as more political than economic: Trade as a tool of statecraft and a form of people-to-people ties.
• China used increased trade as a “carrot” dependent on improved political relations.
• In the 1970s, a trade imbalance emerged, with China’s imports exceeding exports to the US.

• Ever since President Richard Nixon opened the door to China in 1972, it has been axiomatic that engagement with China has been in the U.S. national interest.
• Was this assumption wrong? Should it be abandoned or radically altered in a new era of increasing rivalry?

• In the 1970s, US-China trade shifted as US businesspeople, with Chinese policymakers’ support, viewed China as a source of cheap labor, rather than a market for US goods.
• US and Chinese actors collaborated to transform China from a market for US exports to a source of cheap labor.
• Need to focus on the role of US corporations and businesspeople: The trade relationship’s development depended on decisions and visions of those with political and economic power.

• 1975: Death of Chiang Kai-shek
• 1976: Death of Zhou Enlai (1/8) and Mao Zedong (9/9)
• 1976: Arrest of Gang of Four
• 1978: 3rd plenum of the 11th Central Committee; Deng Xiaoping confirmed as de facto head of party; change of policy from Maoist class struggle to economic development; economic development

• Should Coca Cola return to China?
• What risks and rewards does it present?
• What role did Coca Cola play in US-China relations?

• In 1978, J. Paul Austin and Tong agreed on a re-entry strategy for Coca-Cola through a partnership with CEROILS, the state-owned Cereals, Oils, and Foodstuffs Import and Export Corporation (CEROILS).
• Domestic production: The Coca-Cola Company would help CEROILS build a beverage bottling plant with advanced equipment; China would only need to import the syrup for Coca-Cola.
• Zhang and Li sought permission to sell Coca-Cola at tourist destinations in China in September 1978 – before official diplomatic recognition.