320. Memorandum From Marshall Wright of the National Security Council Staff to the President’s Special Assistant (Rostow)1
Walt:
Attached is the study you wanted of the political implications of China’s deteriorating economy.2
In sum, your instincts were pretty sound. It is State’s judgment that the economic disruption is “approaching crisis proportions.”
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—Agriculture—The 1967 crop was the best in years, and served to insulate the regime from the effects of the Cultural Revolution. This year, however, the weather is bad. There is a drought in north China and serious floods in widespread areas in the south. The Yangtze may be on a rampage.
Domestic fertilizer production is way down, perhaps as much as 50. Record fertilizer purchases from Japan and Europe will arrive too late to help the 1968 crop much.
- —Industry—Production dropped about 15% in 1967. Production is way down in coal, the major energy source. The transportation system and the major industrial centers have been particularly hard hit by Cultural Revolution disorders.
- —Foreign trade—The troubles with the industrial sector are strongly reflected in foreign trade figures. There was a 12% drop in exports in 1967, and in the first half of 1968 exports to Japan were down 32.
- —Political implications—The political impact of the declining economy will be magnified by the breakdown of Communist China’s effective control. The prospects are for an economic mess approaching that which followed the Great Leap Forward, but without the strong central control which enabled the regime to diffuse the problem evenly throughout the country. Local famine—perhaps widespread famine—is possible. This should lead to a strengthening of pragmatic elements both in Peking and in the provinces. If widespread famine becomes a reality, there will probably be cause for international assistance. Without a major reorientation of policies, however, Peking is not likely to be responsive to offers of assistance from the United States.