1. The U.N. embargo, recommended by the U.N. General Assembly after the Chinese intervention in the Korean War, is to be distinguished from the American trade embargo against China which spanned two full decades, starting with President Truman's Export Control Act of 1949 and ending with President Nixon's relaxation in July 1969. For a detailed discussion of the origin and effects of the American trade embargo against China, see Eckstein, Alexander (ed.), China Trade Prospects and U.S. Policy (New York: Praeger, 1971).Google Scholar

2. In 1951, total world rubber exports amounted to 1,500,000 tons, of which 454,000 tons or 30% went to the United States. By comparison, China bought only 73,000 tons or 5% of the world total. See Rubber Statistical Bulletin(London, 1952).Google Scholar

3. See “The Ceylonese economy and the development of Sino-Ceylonese trade,” Kuang-ming jih-pao (Peking), 16 09 1956.Google Scholar Also, ibid. 21 September 1957; Ta-kung pao (Peking), 5 01 1957Google Scholar; Ta-kung pao (Hong Kong), 5 11 1952Google Scholar; Nan-yang hsiang-pao (Singapore), 4 10 1956.Google Scholar Hence the Ceylonese Minister of Trade and Industry explained: “We could have got rice at £80 or £90 per ton, but we could not afford to pay that price [the price of Chinese rice for the first year of the agreement being £54 per ton]. Rather than go to China were we to starve? Were we to reject the Chinese offer of Rs. 1.75 per Ib. for rubber, take the world price of Rs. 1.10 and throw 300,000 labourers out of employment?” Quoted in Leng, Shao Chuan, “Communist China's economic relations with South east Asia,” The Far Eastern Survey (01 1959), pp. 10–11.Google Scholar

4. “New stage in Sino-Ceylonese trade relations,” China News Dispatch, 21 10 1958Google Scholar; and Selections from China Mainland Press (Hong Kong: U.S. Consulate), No. 477.

5. Tung, S. Y., “Ceylon – a firm trading,” Far Eastern Economic Review (FEER), 12 01 1961.Google Scholar

6. Abayasekara, H. E. R., “Chinese aid,” FEER, 25 10 1962.Google Scholar

7. Economic Reporter (Hong Kong), 1 10 1963Google Scholar; FEER, 25 10 1962, p. 232Google Scholar; and 29 September 1966.

8. In 1972, for example, of 208,000 tons shipped to Ceylon, 130,000 tons were Burmese rice purchased on China's account. See Current Scene, XI, No. 10 (10 1973).Google Scholar

9. Straits Times (Singapore), 12 12 1973.Google Scholar In 1972, Peking sold rice to Ceylon at £2 per ton less than the prevailing world price and bought rubber at cents per pound over and above the Singapore market price. FEER, 1 10 1973, p. 38.Google Scholar

10. China undertook to supply Sri Lanka in 1974 with 200,000 tons of rice, of which 160,000 tons would be purchased from Burma and the rest would come from China as a straight gift with no conditions attached. “Rice deliveries began in November 1973 before price negotiations even started” (Reuter, , New Nation (Singapore), 26 12 1973).Google Scholar The outright gift of Chinese rice is estimated to be worth Rs. 100 million (U.S. $9.85 million) at prevailing world market prices. Besides, China paid 71 U.S. cents a pound more than world market prices on Sri Lanka rubber, when world rubber prices were already at record levels. See Jayewardene, , “A gift from Peking,” FEER, 14 01 1974, p. 41.Google Scholar

11. See Hsi-wen, Liu, China's Assistant Minister of Foreign Trade, “Development of trade between China and the Asian-African countries since the Bandung Conference,” China's Foreign Trade, No. 1 (1966), p. 17.Google Scholar Nevertheless, there was no lack of slanting discussion by western observers during the Cold War era on the ulterior motives of China. Thus the Far Eastern Economic Review reported:

“There is a temptation to think of the trade drive launched by the People's Republic in South-east Asia uniquely as a quasi-military operation designed to extend Chinese influence in that area.… The drive undoubtedly presents these features in Ceylon as elsewhere.” Jones, P. H. M., “Peking's trade offensive IV – Oeylon,” FEER, 9 07 1959, p. 45.Google Scholar Even today, “China's close trade links and its generosity in outright grants and interest free loans have been given a political twist against the backdrop of a Sino-Russian clash for supremacy in the Indian Ocean. Is China wooing Sri Lanka in order to counter the predominantly Russian influence in neighbouring India, with which China continues to have border disputes?” FEER, 1 10 1973, p. 38.Google Scholar

12. The agreement was followed by a trade protocol and a payments agreement in 1954. The first trade agreement set out that trade between the two countries should be more than £3 million a year, but this sum was quickly surpassed. Trade in 1956 actually increased six times over the level of 1954. See Jen-min jih-pao (People's Daily) (Peking), 19 10 and 11 November 1956.Google Scholar

13. Nan-yang hsiang-pao editorial (Singapore), 21 07 1956Google Scholar and Kung-shang kuan-ch'a (Industry and Commerce Observer) (Hong Kong), Vol. 1, No. 42, 20 09 1954.Google Scholar

14. See PEER, 27 09 1962Google Scholar and Jones, P. H. M., “Peking's trade offensive III – Indonesia”Google Scholaribid. 18 June 1959.

15. See Tansky, Leo, “China's foreign aid: the record,” Current Scene, X, No. 9 (09 1972).Google Scholar Also, XI, No. 12 (December 1973).

16. Hsing-tao jih-pao (Hong Kong), 18 07 1965.Google Scholar The Ceylonese triangle involved Chinese textiles to Burma, Burmese rice to Ceylon and Ceylonese rubber to China. The Indonesian triangle involved: Chinese coal to Pakistan, Pakistani cotton to Indonesia, and Indonesian rubber to China.

17. In 1964, when China imported the largest amount of Indonesian rubber, she was known to be unhappy with the low quality of Indonesian rubber, especially since she had the problem of processing crude rubber. See FEER, 1 10 1964.Google Scholar

18. By “Malaya” is meant Malaysia (or the Federation of Malaya before 1963) and Singapore. Until their recent separation) in 1973, the Kuala Lumpur and Singapore markets were operated as a single market.

19. See Ping-yin, Ho, The Foreign Trade of China (Shanghai, 1935), p. 530.Google Scholar

20. See “The relaxation of China embargo and its consequences,” FEER, 14 06 1956, pp. 737–38.Google Scholar

21. PERNAS is Malaysia's National Trading Corporation, which handles, among other things, trade with communist countries. For details concerning the visit of Malaysia's trade mission to China, see China Trade Report, 05 1971Google Scholar, or Stockwin, Harvey, “China and Malaysia in direct rubber deal,” Financial Times (London), 19 05 1971.Google Scholar

22. China Trade Report, 09 1971 and January 1972.Google Scholar

23. Natural Rubber News (Washington, D.C.), 09 1971, pp. 1–2.Google Scholar

24. “Peking-Malaya ties expected to worsen,” Hong Kong Standard, 27 11 1958.Google Scholar

25. See McHale, Thomas R., “Natural rubber and Malaysian economic development,” Malayan Economic Review, Vol. X, No. 1 (04 1965), pp. 16–43.Google Scholar

26. Thus it had long been recognized that it was political rather than economic factors that caused China's shifts of purchases away from Malaya, see “Politics mar prospects,” FEER, 27 09 1962Google Scholar; South China Morning Post (Hong Kong), 10, 16 and 24 11 1965Google Scholar; and Wong, Gregory, “China may return to Malaya for rubber,” China Mail (Hong Kong), 19 11 1962.Google Scholar

27. SMR can help cut down the production time and processing stages in the manufacture of rubber goods. The demand for high grade rubber in China has been quite obvious in recent years; see “China keen on buying standard Malaysian rubber,” Straits Times, 7 06 1971.Google Scholar In 1973, 400,000 tons of SMR were produced, or just about 20 per cent of the total rubber marketed in Malaysia and Singapore. Since 1 January 1974 Singapore started her own technically specified rubber under the name of Standard Singapore Rubber (SSR), see Straits Times (Singapore), 1 01 1974.Google Scholar

28. As far as China and Malaysia are concerned, the tendencies towards normalization of relations as well as more direct rubber deals have already appeared since 1971. For various rubber deals with China in recent years, see Natural Rubber News, 1971 and 1972.Google Scholar

29. It is generally recognized that primary products are subject to greater price fluctuations so that specialization in their export tends to bring about export instability. However, empirical studies by Massell, Michaely and MacBean on specific groups of countries give a low correlation between the degree of commodity concentration and export instability. Differences in the degree of export instability among countries could well be the results of differences in the commodity composition rather than commodity concentration in their exports (e.g. some primary products are known to be more susceptible to price fluctuations, such as rubber). See Massell, B. F., “Export concentration and fluctuations in export earnings: a cross-section analysis,” American Economic Review, 03 1964, pp. 47–63Google Scholar; Michaely, M., Concentration in International Trade (Amsterdam: North-Holland, 1962)Google Scholar; and MacBean, A. I., Export Instability and Economic Development (London: Allen and Unwin, 1966).Google Scholar Even if export receipts are actually fluctuating, it is difficult to establish empirically that economic instability is detrimental to economic growth, at least for such economies as Malaysia which have long been used to export fluctuations. A recent study by David Lim on the export instability and economic development of West Malaysia tends to support this kind of generalization. Lim finds no correlation between annual percentage changes in real GDP and percentage deviations of export earnings from trend over the period 1947–68. See Lim, , “Export instability and economic development in West Malaysia, 1947–1968,” Malayan Economic Review (10 1972), pp. 99–113.Google Scholar

30. Neuberger, Egon, “Is the USSR superior to the west as a market for primary products?” Review of Economics and Statistics (08 1964), pp. 287–93.CrossRefGoogle Scholar

31. Ariff, K. M. Mohamed, Exports Trade and West Malaysia: An Enquiry into the Economic Implications of Export Instability (University of Malaya, Kuala Lumpur: Monograph Series on Malaysian Economic Affairs, 1972), p. 21.Google Scholar

32. See my monograph, The Political Economy of Malaysia's Trade Relations with China (Singapore: Institute for Southeast Asian Studies, 1974).Google Scholar S. J. Khoo's study for the period 1947–64 also gives China and the U.S.S.R. the highest average annual percentage rate of change of imports from Malaysia, with the indices being 61 and 55 respectively as compared with the average of 16 for all other countries. For the same period, China's share in Malaysia's total exports was 1·1% but her relative contribution to Malaysia's total export receipts instability was 2·3%. See Khoo, S. J., Malayan Exports: Instability and Prospects, Cornell University Ph.D. thesis, 1967, pp. 59–64.Google Scholar

33. Hence, observed the Far Eastern Economic Review, “China often appears to be a buyer prepared to step in at useful moments from Malaysia's point of view,” 3 10 1970, p. 34.Google Scholar A similar observation from the former Malaysian Minister of Commerce and Industry, Tan Sri Dr Lim Swee Aun: “More unfortunate has been the fact that falling [rubber] prices can be attributed to actions or omissions on the part of the United States (surplus synthetic rubber, releases from the stockpile). On the other hand, the U.S.S.R. and Communist China are credited with price rises since prices do rise when they enter the market.” See Rubber and the Malaysian Economy: Implications of Declining Prices (Athens, Ohio: Papers in International Studies, Ohio University, 1969), p. 19.Google Scholar

34. See Natural Rubber News (05 1972), pp. 2–3.Google Scholar

35. See ibid. (September 1972), pp. 15–16.

36. Statistically speaking, our measures of instability are biased upwards by high growth rates. Ideally, instability should be measured in such a way that the variation is net of the growth trend. Otherwise, instability of countries with faster growth rates would tend to be biased upwards, as is suspected in this case.

37. Rubber trees thrive in lands with temperatures from 75°F to 95°F, with the annual rainfall being above 80 inches and well distributed. They grow best on gentle slopes or on lowlands not subject to floods. Thus physical conditions in Hainan Island are favourable to rubber plantation, but with one qualification that natural rubber competes with palm oil for land use, or even with food crops. For a glimpse of the physical factors of Hainan Island, see Jen-ts'ai, Liang, Kwang-tung ching-chi ti-li (Economic Geography of Kwangtung) (Peking, 1956)Google Scholar (JPRS translation, 21 November 1958, DC/389).

38. See Natural Rubber News (05 1972), pp. 1–2.Google Scholar Even if China did produce a substantial amount of natural rubber, she would take care not to convey that impression, so as not to disappoint her guests, who were in China with the main expectation of marketing more natural rubber to China in the future.

39. According to the average productivity in Malaysia in the 1960s, it would need 100,000 acres (or 600,000 mou) to produce 40,000 tons of rubber. In the early 1960s, it was reported that Hainan Island had 6 million mou of cultivated land, of which 1·8 million is accessible to irrigation (i.e. for rice cultivation) and 4·2 million consists of uplands, suitable for economic crops. See Hwa, Lee, “Hainan Island today,” Issues and Studies (Taiwan), Vol. 1, No. 1 (10 1964), pp. 35–45.Google Scholar Thus Hainan Island alone can turn out 40,000 to 50,000 tons a year. Foreigners saw rubber plantations in Hainan run by returned overseas Chinese in the 1950s. In 1957, it was reported that 64,000 acres had been used for rubber plantation. See “Hainan Island,” China News Analysis, No. 198 (27 09 1957), p. 3.Google Scholar Thus my estimate of 40,000–50,000 tons a year might well be too low.

40. Synthetic rubber is generally classified into three groups: (1) general-purpose rubber or SBR (styrene-butadiene); (2) special-purpose rubber (butyl, neoprene, etc.); and (3) the stereo-specific rubbers (polybutadiene and polyisoprene).

41. See Rubber Statistical Bulletin, 27, No. 10 (07 1973)Google Scholar and “The share of natural rubber in the consumption of natural and synthetic rubbers,” Natural Rubber News, 02 1970.Google Scholar

42. This feature is taken care of by the mathematical property of the Gompertz curve which is a function asymptotic from O to the ceiling rate of substitution. Asymptote simply means that the curve gets nearer and nearer to the ceiling but will not meet it within a finite distance, and hence complete displacement is not possible.

43. Philip Lee Swan has attempted to fit such a logistic trend curve to show the process of synthetic rubber substitution for the advanced industrial countries for the period 1951–66. With 10% synthetic share as the origin, the trend for the United States is: origin year, 1940, rate of growth, 0·21, ceiling share, 79·6 and the 1966 share, 75·4. (The actual synthetic share for 1972 was 78·2.) The curve fits very well. See Swan, P. L., Technical Change and Trade in the Rubber Market, University of Illinois Ph.D. thesis, 1969, p. 17.Google Scholar Actually, the technique was originally employed by Z. Grilliches to study the growth of corn acreage planted with hybrid corn (“Hybrid corn;: an exploration in the economics of technological change,” Econometrica (09 1957), pp. 501–23).Google Scholar Metodey Polasek and Alan Powell have also followed the same procedures to study the process of synthetic fibre substitution (“Wool versus synthetics: an international review of innovation in the fibre market,” Australian Economic Papers, 3, Nos. 1 and 2 (06–12 1964), pp. 49–64).Google Scholar

44. See “China: development of the oil industry,” Far East Trade and Development (04/05 1973), pp. 156–58Google Scholar; and “China's world-wide contact in diplomacy, trade and development exchange,” ibid. (October 1972); Economist Intelligence Unit, Quarterly Economic Review, Annual Supplement on “Oil in the Far East and Australasia, 1972 and 1973.” The figure of 50 million tons for 1973 was given by Chou En-lai to the Japanese foreign minister, Ohira, during the latter's visit to Peking in early January 1974. See Straits Times (Singapore), 7 01 1974.Google Scholar See also, Kambara, T., “The petroleum industry in China,” The China Quarterly, No. 60 (1974), pp. 699–719.CrossRefGoogle Scholar

45. While crude oil output registered a 16% increase in 1972 over 1971, refined oil increased by only 5%. Between 1970 and 1972, crude oil output increased by 48%, but the output of refined products by only 22%. See Far East Trade and Development (04/05 1973), p. 158.Google Scholar

46. The estimate of 120,000 tons may not be unreasonable if we take into consideration the gross synthetic petroleum output relations in the major industrial countries for the year 1972:

47. Until recently, the growth potential of China's petroleum industry had been neglected by outside observers. In commenting on the growing importance of the Soviet Union and China as potential big consumers of natural rubber, Thomas R. McHale stated in 1965: “China, on the other hand, not only lacks significant synthetic rubber production capacity but also lacks a large-scale petroleum refining and petro-chemical industrial capacity on which to build such capacity” (“Natural rubber and Malaysian economic development,” Malayan Economic Review, X, No. 1 (04 1965), p. 26).Google Scholar Similarly, the Malaysian rubber experts did not appear to have grasped China's potential in synthetics. Dr B. C. Sekhar, chief of the Malaysian (Rubber) Technical Mission to Peking in 1972, stated: “The petro-chemical industry established in the suburbs of Peking produces small quantities of synthetic rubbers, fibers and plastics, and rubber chemicals, but China has no intention of going into cis. 1–4 polyisoprene production” (Natural Rubber News, 1 05 1972, p. 1).Google Scholar His Chinese hosts obviously made sure that the natural rubber mission would go home with the impression that China would still be a growing market for natural rubber without any fear that synthetic substitution in China was being stepped up.

48. The pattern of competition between synthetic and natural rubber in the 1950s led to the development of three types of markets: (1) where synthetic rubber is preferred, the share for synthetics is 40% and more; (2) where natural rubber is preferred, the share is 25% and less; and (3) where either may be used, the share is 35%. See Vila, G. R., “Natural or synthetic rubber: factors determining the manufacturers' choice,” The Future of National and Synthetic Rubbers (Washington, D.C.: International Rubber Study Group, 05 1962), p. 20.Google Scholar

49. The rapid displacement of natural rubber by synthetics in the world over the past two decades can be reflected in the great disparity of growth rates between the two. Between 1947 and 1949 and 1966 and 1968, natural rubber production has grown by only 3·5% a year, but synthetic rubber has grown by 28·5%. See Natural Rubber News (03 1970), p. 2.Google Scholar

50. In the first half of the 1960s, world synthetic rubber production developed excess capacity as a result of rapid growth, but prices remained stable, giving synthetic rubber price advantages over natural rubber. In fact, synthetic and natural rubbers compete on the basis of price and technical properties. According to P. L. Swan, the market is determined, in the process of competition, 65% by technical factors and 35% by price factors (Technical Change, p. 8).Google Scholar In early 1972, however, synthetic rubber increased by 10% due to increases in the price of petroleum (raw materials cost usually accounts for 70% of the cost of synthetic production). (See Natural Rubber News (01 1972), p. 5.)Google Scholar The current petroleum crisis following the Middle East War in late 1973 not only brought about a sharp price rise for synthetic rubber but also gave rise to serious production cutbacks and future uncertainty (Straits Times, 23 12 1973).Google Scholar At the same time, the natural rubber prices continued to soar since late 1972. On 6 January 1974, the natural rubber price, at 55p per kilo on the London market, had not only doubled in price in 1973 but was at its highest since the Korean War peak (Straits Times, 7 01 1974).Google Scholar

51. Countries such as India and Japan, planning to step up development of synthetic products industries in 1974, would face two problems: (1) the instability of petroleum supply and the prospect of a further price rise of crude oil; and (2) pollution aspects of the petro-chemical industries. However, these two problems at present do not trouble China.

52. In 1972, the total rubber consumption (natural and synthetic) of the world was 9,600,000 tons; that of the United States was 2,980,000 tons; Japan, 900,000 tons; India, 14,000 tons; and major EEC countries, 400,000–500,000 tons. See Rubber Statistical Bulletin, 27, No. 10 (07 1973), p. 33.Google Scholar

53. In most industrial countries, 60–70% of rubber is consumed by the automobile industry. According to the report of the Malaysian (Rubber) Technical Mission to China, such a pattern of consumption is more or less the same as in China. Natural Rubber News, 1 05 1972, p. 1.Google Scholar

54. A few years back when the world natural rubber market slumped in the face of a threatening synthetics onslaught, many Malaysian rubber magnates used to resort to the morale booster: “If only every Indian or every Chinese peasant has one more pair of rubber shoes a year,…”