CONFIDENTIAL
ANNEX I: CHINA'S BILATERAL RELATIONS
1. China remains a good deal closer to the United States than to the Soviet Union. According to US statistics, in 1985 Sino-US trade increased by 27% to a total value of US$7.7 billion; and contracts
China has 14,000 students in in many other fields are flourishing.
2.
Others are Chinese
the USA. However there remain difficulties in the Sino-US relationship. The most important is Taiwan (see below), particularly regarding continued US arms sales. concern at protectionist pressures in the US, particularly on textiles, and US reluctance to transfer advanced technology.
There have been few signs of significant improvement in Sino-Soviet political relations. There has been no progress on the "three obstacles", whose removal remains a Chinese precondition for improved relations (Afghanistan, Cambodia, and Soviet troop and
However, economic, missile deployments near the Chinese border). scientific, technological and cultural relations are expanding rapidly. The most significant development has been the signing of a 5 trade agreement in July 1985, which targets the annual value of total trade to rise to US$3.7 billion by 1990. According to Chinese But although the statistics, the level of trade increased by 38.1%. increased level of contacts in recent years has dissipated the military tension of the late 1960's, the political atmosphere remains cool. The Chinese rule out Party-Party contacts for the foreseeable future, and recently publicly denied Soviet reports that an exchange of visits by Foreign Ministers had been agreed for 1985. There is no reason to predict dramatic progress in political relations in the forseeable future.
3.
Geographical proximity and economic complementarity ensure that Sino-Japanese relations are important bilaterally and, increasingly, within the Asia-Pacific region. Japan is China's largest trading parter and China is fourth among Japan's trading partners. Sino-Japanese relations have been passing through a difficult phase,
The Chinese largely because of Japan's increasing trade surplus. have also been concerned at a visit by Mr Nakasone to a shrine associated with militarism. Although it is not clear how the
it considerable trade imbalance (IS$6.2 billion) will be adjusted, is unlikely that these difficulties will be allowed to threaten the relationship seriously.
CONFIDENTIAL
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