# NIXON AND CHOU: THE HARD WORK BEGINS

It's to be a monumental job—working out details for the President's mission to Red China. Strict secrecy, discretion are essentials. There are problems enough, White House feels, without ruffling Peking, or raising false hopes.

As gingerly as walking on eggs, the Nixon Administration has started the delicate step-by-step process of clearing the way for the President's meeting with Chinese Communist leaders in Peking.

Every effort was being made to keep arrangements for the meeting in a sub- duced atmosphere, away from the glare of publicity.

There was no direct word from the White House on the talks be- yond Mr. Nixon's announcement on July 15 that he would visit main- land China before next May. The substance of preliminary exchanges on July 9-11 between special envoy Henry Kissinger and Premier Chou En-lai was still a tightly guarded secret.

**Needed: caution.** Congressional leaders, Government officials and newsmen were being cautioned to hold speculation about the trip to a minimum. Secretary of State William P. Rogers was meeting with foreign ambassadors to explain the trip, but those diplomats got little concrete information.

A principal reason for these ex- traordinary precautions was ap- prehension at the White House that conjecture in the Congress and in the press might upset the applecart.

Mr. Nixon was aware that the Chinese Communists were keeping a microscopic eye on everything— both official and unofficial—printed in the United States about the forthcoming presidential trip.

Above all, the President wanted to avoid pushing Red China against the wall, forcing it to make a dramatic demonstration of its "revolutionary pu- rity" in order to mollify other Communist countries which oppose Peking's dealings with the American "imperialists."

U. S. officials also were concerned that uninformed speculation would raise false

hopes among Americans that the President's conference with Premier Chou and Chairman Mao Tse-tung will suddenly erase problems between the two countries that have existed for more than two decades.

Experts on the Far East emphasize this point: No one really knows what

"Careful! Those Ping-Pong Balls are Fragile!"

—Shanks in "Buffalo Evening News"

For optimists at home, a warning: No one really knows what to expect from Red regime.

to expect from Communist China. Up to now, it has been largely the United States that has made the key moves to- ward easing tensions in Asia.

Mr. Nixon, these authorities point out, has wound down the Vietnam war, re- laxed the ban on U. S. trade with main- land China, removed U. S. Navy patrols from the Formosa Strait off the China coast and generally reduced the Ameri-

can presence in the Far East. President Nixon also took the initiative in seeking an invitation to visit a country with which the U. S. has no diplomatic rela- tions—an action which, in Asian eyes, could be considered a form of kowtow- ing, or servility.

Critics of the President's policy say that Red China's response to Amer- ican overtures—beyond the agree- ment to talk with Mr. Nixon—has been limited, at least publicly, to an invitation to a U. S. table-tennis team and issuance of entry permits to a small number of Americans, mainly newspapermen, scientists and students. What is wanted, critics stress, is a more solid demon- stration of China's good will, such as an open peacemaking gesture involving Vietnam, or the release of four Americans it is holding pris- oner-two of them for nearly 20 years.

Skepticism over Mr. Nixon's all- out effort to woo Red China sur- faced noticeably in recent days. Critics argue not only that the U. S. has given too much to Peking and is receiving little in return, but that the U. S. may be abandon- ing Nationalist China to an even- tual take-over by the Communists.

Opposition to the President's venture, however, seemed not to cause a stir at the White House. Attention there focused on setting the stage for the visit.

Administration officials empha- size that the mission to Peking needs in- tense preparation. The President will not go until he has prior assurance that the road has been cleared for at least some agreements.

**Sources of friction.** Premier Chou told a group of visiting U. S. students in Peking on July 19 that four "obstacles" stood in the way of friendly U. S.-Chin-

(continued on next page)

U. S. NEWS & WORLD REPORT, August 2, 1971

15

NIXON AND CHOU...

[continued from preceding page]

ese relations: The war in Vietnam, the American commitment to Nationalist China, U. S. support for South Korea, and what he termed the revival of Japanese militarism.

Not on the Premier's list, but considered in Washington to be a major point of friction, is the question of Chinese representation in the United Nations.

Stated U. S. policy is to find a "two China" solution that would allow Red China in without expelling Nationalist China. Mr. Nixon said in his "state of the world" message last February that Peking should not be allowed to "dictate" terms of its participation in the U. N. He promised that the U. S. would continue to oppose expulsion of the Taiwan Government.

Experienced diplomats predict that Communist China is certain to be invited to join the U. N., either at the session opening in September or in 1972 at the latest. Whatever course of action Mr. Nixon decides to take on the issue, events of this autumn will go a long distance toward determining success or failure of his talks in Peking.

An even bigger stumbling block is posed by U. S. treaty commitments with the Nationalist Government of Chiang Kai-shek on Taiwan and the stationing of more than 9,000 American troops in the island republic.

The U. S. position is that close ties with Taiwan should not impede relaxation of tensions with Communist China. Peking, however, insisting that Taiwan is an integral part of Red China, has vowed to "liberate" the island and has demanded that the U. S. withdraw its

troops and end its "occupation" of China's territory.

Another point at issue is the presence of U. S. troops in South Korea, still technically at war with the Communist North. The Kim Il Sung regime in North Korea charges that American soldiers are "occupying" South Korea. Peking supports this claim primarily because it needs North Korean support in Red China's quarrel with Russia.

**Change in position.** The Vietnam war is a major imponderable in the way of successful U. S.-Chinese talks.

American officials had been encouraged because Communist China—which previously had opposed a negotiated settlement of the war—unexpectedly endorsed both North Vietnam's seven-point proposal at Paris talks and an international conference along the lines of the Geneva Convention which ended the French Indo-China war in 1954.

This switch in Peking's position strengthened the view held by some U. S. officials that Red China, realizing that the U. S. is pulling out of South Vietnam, will avoid making a big issue of the Vietnam war.

Premier Chou appeared to undermine this premise in his July 19 talks with U. S. students. Mr. Chou told the Americans that the U. S. must withdraw its troops completely from Indo-China, adding: "It might also be said that this demand is even stronger than the demand to restore the relations between the Chinese and American peoples."

Asian authorities say Mr. Chou's statement apparently was designed—at least in part—to reassure North Vietnam that

U. S.-Chinese talks would not compromise Hanoi's position either on the battlefield or in Paris negotiations.

North Vietnam, while not commenting directly on the President's planned trip to Peking, has made clear that it will not be bound by any decisions made at a Peking summit. Hanoi declared its independence in an editorial in North Vietnam's Communist Party newspaper: "The destiny of Vietnam is decided by the Vietnamese."

Another editorial accused Mr. Nixon of attempting "to achieve a compromise between the big powers in an attempt to make smaller countries bow to their arrangements."

**Worried ally.** Still a further concern for Mr. Nixon is the effect his trip to Peking will have on Japan, the major U. S. ally in the Far East. The Government of Premier Eisaku Sato, whose China policy has been closely co-ordinated with that of the U. S., was caught by surprise and considerably embarrassed by Mr. Nixon's decision.

Mr. Sato—who complained that the President's method of announcing his trip was "unsatisfactory"—now is under pressure to go to Peking also and normalize relations with Communist China. Opposition-party leaders are demanding that the Sato Government resign because the United States did not keep it informed.

Despite the problems, the U. S. and Red China apparently are determined to make the talks succeed. Both Governments seem to be saying that there is more to be gained than lost in trying.

Story behind the invitation, page 17; Asians turn to Red China, 41; interview with Nationalist Ambassador, 42; a tip-off from Nixon, 46.

"Yeah-We're Workin' on It.'"

Chairman Mao Tse-tung

—Hesse in "St. Louis Globe-Democrat"

"Two China" solution at United Nations may be sought by U. S. But top men in Peking and Taipei are set against it.

President Chiang Kai-shek

16

Story Behind the News

BLAZING THE TRAIL TO PEKING

Bit by bit, it is possible now to piece
together the inside account of how the
United States and Red China came in
from the cold.

It is a real-life story with some of
the overtures usually associated with
novels of international intrigue.

THE BEGINNING CAME in January of
1969 on the day when Richard M.
Nixon—a man who had built much of his
political career crusading against Com-
munism—was inaugurated as the 37th
President of the United States.

In his inaugural address, the new Pres-
ident proclaimed a shift from "confron-
tation to negotiation." The phrase did
not create much of a stir.

However, less than two weeks later,
Mr. Nixon called in his adviser on na-
tional security, Henry A. Kissinger, and
told him to examine whether the U. S.
should change its attitude toward Com-
munist China. The decision was to try.

The U. S. cautiously set out to find
an avenue to Peking—no easy task. It
meant blazing a trail through a thicket
of mutual distrust and hostility.

Laying the groundwork. For the
next 18 months, careful probing went on
with the surgical precision of an explora-
tory operation. Always, there was an
awareness that the slightest slip could
blow the whole project sky-high.

During that period, nothing was done
by the U. S. that would require Peking
to agree or disagree. Methodically, at
three-month intervals, the Administra-
tion announced new steps—some of them
minute—designed to ease tension be-
tween the U. S. and Red China.

Carefully selected third countries
were asked to send messages to China.
The U. S. Ambassador in Warsaw was
instructed to sound out the Chinese Am-
bassador on his thoughts about resuming
their long-suspended talks. It had to be
done very casually, with no commitment
on either side.

The Peking response to all these over-
tures was noncommittal—but none of
them was denounced out of hand. The
Communists were watching and waiting.

Then, during a toast to the Commu-
nist boss of Rumania in October, 1970,
President Nixon, for the first time, re-
ferred to the "People's Republic of
China" — considered the only correct
name by the Peking Government. He
did so again in February.

Spark of interest. This time, the sig-
nal drew an indirect but encouraging re-

sponse. In early March, Premier Chou
En-lai noted publicly that the President
had used the "proper name" of his
country.

Then came the surprise invitation to
the American Ping-Pong team to tour
China. After a year and a half of careful
engineering, the wheels were beginning
to turn. A visit to Communist China be-
came a top priority for Mr. Nixon.

The missing link. One element in
the chain of events remains a mystery.

Mr. Kissinger didn't know what to ex-
pect. Neither, as it turned out, did his
Communist hosts. Both recognized clear
risks for their respective nations.

There followed 20 hours of courteous
and correct conversation between Mr.
Kissinger and Chou En-lai. Although the
meetings were cordial, each recognized
the other as an adversary.

In his bulky files—which were guarded
at all times by two Secret Service men—
Mr. Kissinger had almost a dozen dif-

ferent drafts of a possible
communiqué. All had
been cleared by Mr. Nix-
on. Throughout the discus-
sions, Chou En-lai talked
without notes or prompt-
ing of advisers, but he
clearly knew his subject—
U. S.-Chinese relations—in
minute detail.

Slowly, painstakingly,
the two men sought out an
avenue that would lead
them to common ground.
Finally, they agreed on
terms for a Nixon visit to
China. Those terms remain
secret.

Once the two men were
in agreement, Chou En-lai
excused himself, saying he
had to clear the arrange-
ment with "Chairman
Mao"—Mao Tse-tung, the
Communist ruler of China.

The Premier returned
with a few changes—some
of which were rejected by
the United States—and de-
tails were worked out for
identical wording and si-

multaneous timing of public announce-
ments of the visit.

The American emissary was convinced
the Chinese were serious about trying
to "civilize" relationships between the
two countries. Mr. Kissinger was con-
vinced, too, that the Communists are not
baiting a trap for Mr. Nixon—confident,
in any case, that if, for some reason,
Peking withdraws its invitation it will
be the Chinese who suffer any propa-
ganda setback. The U. S. President will
have shown the world that at least he
tried.

Secretly as he had arrived in Red
China, Mr. Kissinger flew off to report
to his President.

The U. S. and Red China had come in
from the cold.

-USN&WR Photo

First signal: Mr. Nixon's inaugural address.

It still is not known how China sent
word to Washington that a presidential
emissary would be welcomed in China.
But the word was definite. Top-secret
planning for the Kissinger mission got
under way.

A major problem, for both Washing-
ton and Peking, was how to get the
Kissinger party into Chinese territory
without letting the trip become public
knowledge. The decision was made for
Mr. Kissinger and his group to go in
through Pakistan, a country on China's
border that had the confidence of the
two principal nations.

Thus, Mr. Kissinger became the first
high-ranking American to set foot inside
China since the Communists took over
in 1949.

17

Confidential

Foreign Report

Published by The Economist Newspaper Limited

25 St. James's Street, London, SW1

1207 22 July 1971

## Contents

* The Peking visit: Hopes and snags

* Nixon's economic gamble

* Chile's copper war with Washington

* Franco moving to the right?

## The Peking visit: Hopes and snags

The diplomatic ramifications of **President Nixon's** forthcoming visit to Peking are almost infinite. But to perceptive observers the news was not quite the bombshell that last week's headlines made it out to be.

On 29 April FOREIGN REPORT stated that 'a peace-making visit to Asia features high on Mr Nixon's tentative scenario for winning the 1972 presidential election. Whether this would include a vote-winning meeting with Mao Tse-tung ... is conjectural at the present stage; but it can be taken for granted that Mr Nixon is alive to the electoral advantages of such a meeting'.

Meanwhile, Mr Nixon is wisely playing it cool; he does not want to raise expectations that might later turn sour. He has a vivid recollection of the ill-fated summit conference of 1960, which Mr Khrushchev called off because of the Americans' U-2 spy-flights, and also of President Kennedy's unproductive meeting with Khrushchev in Vienna in 1961.

The stakes are immensely high for Mr Nixon. A meaningful rapprochement with China could win him re-election in 1972; it could more than offset the unpopularity which he has incurred over the lagging state of America's economy, and the slow wind-down of the Vietnam war. During the next nine months or so he cannot afford to say or do anything that might abort the Peking visit.

After the dramatic announcement last Thursday, reporters at the California White House spent a fruitless night trying to get answers that would put flesh on the brief statement. When a senior official finally appeared the next day for a briefing, it

1

became evident that a very cautious and shrewd president was going to squeeze the last ounce of political advantage from the 'breakthrough'.

The official-whose identity the White House insisted could not be disclosed, although

**Dr Henry Kissinger** had just posed for photographs in the briefing room-offered some tantalising but generally insignificant glimpses behind the secrecy that has veiled Mr Nixon's overtures to Peking. But on the big questions-what exactly the President hopes to accomplish in his meetings with the Chinese leaders, whether any under-standings already have been reached, what connection there is between the China trip and the Vietnam talks in Paris, and so forth-the White House is being adamantly silent.

Nevertheless, it is known that American officials expect an agreement in Peking to exchange trade missions, and possibly a start on negotiations for cultural exchanges. That would at least give the two sides something to announce in a communique.

But the expectations of the world already go beyond such technicalities. As seen from London, Washington and the UN the most significant aspects or this new phase in Sino-American relations are the following:

(i) *The Indochina war.* The news of the visit has got Mr Nixon 'off the hook', for the moment, on the question of the release of the American prisoners-of-war held in North Vietnam. The latest communist peace package, presented two weeks ago by Mrs Binh, the Vietcong delegate at the Paris peace talks, proposed the *pari passu* freeing of the prisoners and the withdrawal of all American troops, by the end of the year if possible.

This proposal is basically still unattractive to the Nixon Administration, but during the first part of last week the President was under heavy pressure from doves in Congress and elsewhere to accept it. By the end of the week the prisoners question-which Mr Nixon himself has built up into a major national issue-had been almost forgotten in the euphoria over the 'breakthrough' with Peking. In the altered circumstances the President can probably linger over his reply to Mrs Binh's seven-point plan without incurring too much indignation in either Washington or Paris.

But, in the context of Indochina, the most significant development of the past week has been the chilly reaction of the Hanoi government to the news of the visit. This has been expressed pointedly in the party newspaper, *Nhan Dan*, which has said that a 'compromise between big countries' might lead to smaller countries having to 'bow to their arrangements.' By comparison, the reaction of the Saigon government has been relatively positive. But both Saigon and Hanoi obviously fear that their interests may be 'sold down the river' if the United States and China do a meaningful deal with each other. A completely new dimension has now been added to the tortuous diplomacy over Vietnam.

Already, the Chinese have been dropping hints to third parties that they might be interested in reviving the mechanism of the 1954 Geneva conference-though they have their own strong opinions on who should now participate. For a variety of reasons, the Nixon Administration still views this possibility with some caution-but the mere staging of such a conference, perhaps around the summer of next year, would obviously be a considerable election-booster for Mr Nixon. Diplomats in Washington and at the UN have recalled that it was **Chou En-lai** who proposed the 17th parallel as a 'temporary' frontier between the two Vietnams.

One line of speculation current at the UN is that out of the Peking visit may emerge a kind of tacit 'Washington-Peking axis' that would deny Hanoi total victory (on which it has always set its heart) in defiance of a strengthened Moscow-Hanoi axis bent on

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achieving that aim. The rationale here is that a divided, and therefore feeble, Vietnam
might suit China's interests, especially if the Hanoi regime becomes increasingly the
instrument of Moscow. Such an arrangement would provide Mr Nixon with the mode
of honourable withdrawal which he has sought for so long.

What cannot be ruled out is that, between them, Hanoi and Moscow will try to
scupper the visit. It is arguable that for purely political reasons the North
Vietnamese might re-escalate the war, and throw into the battle-line some of their
Chinese 'advisers'. If the Americans and/or the South Vietnamese hit back hard, and
in the process Chinese personnel were killed, an ominous cloud would hang over
Mr Nixon's trip to Peking.

(ii) *The China seat at the UN.* Despite Mr Nixon's assurance that the detente with Peking 'would not be at the expense of old friends', it is almost certain that Mr Nixon has decided to sacrifice Taiwan - in terms of status, not of physical surrender - and that some undertaking has already been given to Peking along these lines. If the Americans had not made this clear, the Chinese would not have agreed to the visit; this is a reasonable inference.

It is widely forecast in Washington and at the UN that the United States will adopt a new tactic when the question of China's representation comes up at the General Assembly in the autumn. The new ploy, already dubbed the 'IQ (Important Question) Variation', is that the Americans would try to make the expulsion of Taiwan an 'important question' - requiring a two-thirds majority for adoption - but not the admission of Peking.

But experts on UN procedure view this possible manoeuvre with scepticism, and it
is hard to see how it would work out in practice. The point at issue is simply who
occupies the seat labelled China; once Peking is seated, Taiwan is on the face of it
automatically ousted. The forthcoming State Department white paper on policy
towards China - which is already overdue - may shed some light on these matters,
but at the moment the only realistic interpretation is that the basic decision to 'ditch'
Taiwan has already been made. Washington will certainly give the appearance of
trying to protect Taiwan's interests, but it may be merely performing ritualistic
motions.

(iii) *Other UN activities.* If Peking is admitted this autumn, as now seems highly probable, many aspects of the UN's activities will be affected. For example:

1. The appointment of a new Secretary-general. It is now possible that China will be admitted before a decision is reached on who succeeds **U Thant.** In this event, the specific concurrence of China will be needed - which obviously will make the task of finding the right man even more difficult than it is at the moment. (Even if China is not formally admitted so soon, the interests of the Chinese will obviously have to be borne in mind.)

2. Sino-American contacts in New York. The establishment of a permanent Peking mission in New York will create a channel of communication between the Nixon Administration and the Peking government. This will obviate the many difficulties which arise through the lack of diplomatic relations between the two countries. The Warsaw talks, which have been going on intermittently for years, will almost certainly be dropped, for American and Peking diplomats will be able to exchange views effectively in New York. This is one of the UN's most positive functions.

3

(iv) Espionage activities of each side. One of the problems which the CIA must resolve is how far to conduct intelligence and espionage operations against Peking in the 'run-up' to the visit. Mr Nixon wants no repetition of the U-2 episode of 1960. For some time the Americans have been flying spy missions over mainland China, using 'drone' planes; there have also been reports of espionage activities in southern China by tribesmen paid by the CIA.

The other side of the picture is that Peking has its own agents in America, and Mr Edgar Hoover, head of the FBI, has lost no time in bringing this to the public's attention. A statement last week from the San Clemente White House that both sides would 'act reasonably' to prevent incidents that might jeopardise Mr Nixon's trip has been interpreted in some quarters as an indication that the spy flights over China will be suspended, or discontinued altogether.

(v) Asian reaction. The fly in the ointment for Mr Nixon in the past week has been the relatively cool response in non-communist Asia to the news of the visit. The euphoria that swept through the western work has not hit Asian capitals. Rightly or wrongly, many Asian politicians and diplomats feel that the American president has 'lost face' by seeking to visit the Peking leaders.

Though the entry of communist China to the United Nations may be a great step forward, the Americans will have to pay some price for the 'ditching' of Taiwan - in terms of America's credibility. Also, Washington's relations with Japan are bound to go through a difficult phase.

Obviously, the possible advantages from the Peking rapprochement far outweigh the dangers and drawbacks, but the balance sheet of the whole affair has two sides.

## Nixon's economic gamble

The excitement aroused by the announcement of the Peking visit has overshadowed significant, but not altogether encouraging, developments in America's domestic politics. Being a shrewd tactician, President Nixon has deliberately played it that way. But in announcing that he will intervene no further to stimulate the sluggish American economy, he has given his Democratic opponents at least one prime issue on which to contest the 1972 election.

The President's decision, disclosed by **Mr John Connally**, the Secretary of the Treasury, means that the task of bringing the economy out of its present doldrums will be left to the private sector - to the businessmen and consumers. But so far there are few indications that the private sector is responding.

In a move that seriously undercut the role of **Mr Paul McCracken**, Chairman of the Council of Economic Advisers, Mr Nixon recently designated Connally, the Texas Democrat who is becoming the rising star of the Republican Administration, as the new presidential spokesman on economic matters. Connally promptly announced a 'hands-off' policy on unemployment, inflation and economic growth.

The Administration, he said, would not propose any new governmental spending programmes; it would not ask Congress to vote new reductions in taxes or to speed up tax cuts scheduled to go into effect in 1972-73; and it would resist efforts by the Democrats to stimulate the economy in these and other ways.

Having dropped these bombshells, Connally then astounded White House reporters by announcing that the Administration had abandoned its stated objective of bringing

facilities in Spain, Cuba and the Philippines.

Hoover said he would not let the United States go to war with the Communists.

Parekh said he could not start a new program ofungulmoremen.

The American people will know that the United States will do everything possible to stop the Communists from taking over the Philippines.

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unemployment down to the range of 4 to 4.5 per cent by mid-1972. The goal of a 4 per cent unemployment rate, he said, was 'a myth' - except in wartime.

This may be true, but it is unprecedented for any Administration to say it so openly. The Democrats were jubilant at the prospect of fastening the label of 'heartlessness' on Mr Nixon. The final touch was administered a few days later by McCracken, who told a Congressional committee that there was no longer any hope of achieving a gross national product (GNP) of $1,065 billion dollars this year.

McCracken had predicted last February that the GNP (ie, the total output of the nation's goods and services) would reach this level in 1971 and thereby bring unemployment down to 4.5 per cent by the middle of 1972. Private economists were sceptical from the start; they pointed out that a huge spurt in growth - about 9 per cent in one year - would be required to realise a $1,065 billion GNP.

From a political standpoint, the 'hands-off' decision may be one of the biggest gambles of Mr Nixon's career - for up to a week ago the economy looked like being the key issue in the 1972 election. The Peking visit may change all that; but, if the rapprochement with China does not work out according to plan (see article above), the President's critics will be all the more ready to pounce on him for 'mismanaging' the economy.

The crucial question will be whether consumer purchasing and business investment will increase sufficiently to achieve a substantial reduction in unemployment - and whether they will do so in time to help the President gain re-election. And on this point the portents are not too rosy for Mr Nixon. American factories and manufacturing plants are reckoned to be operating at only three-fourths of their capacity, so there is little incentive for businessmen to make above-normal investments in new production facilities.

They will do so only if there is a heavy surge of consumer buying - and this is the biggest imponderable. The Administration is claiming a resurgence of consumer demand, citing a substantial increase in retail sales. But personal savings for many months have average 7 per cent of disposable income - compared with the normal 6 per cent - indicating that consumers are still worried about the economy and are putting their money by against hard times.

Political observers generally agree that Mr Nixon's chances of re-election will be in jeopardy if unemployment next year remains at the present level of 6 per cent. But his chances are rated good if joblessness declines to 4 or 4.5 per cent by next autumn. This is what made Connally's public disavowal of this target all the more extraordinary. For the moment, because of the excitement over the forthcoming Peking visit, the Administration can get away with it; but in his own interests Mr Nixon would be wise not to stake everything, electorally, on the rapprochement with China.

## Chile's copper war with Washington

The latest bone of contention between Chile's President, Dr Allende, and the Americans is how much the three major American copper companies operating in Chile-Anaconda, Kennecott, and the Cerro Corporation - will be paid as compensation when the state takes over the mines. Dr Allende described the nationalisation decree that was finally passed by congress on 12 July as 'the second independence of Chile', and not a single deputy or senator voted against it.

5

But the moderates inside Dr Allende's *Unidad Popular* government, as well as his critics in the Christian Democrat and Nationalist parties, are concerned that the quarrel over copper will end all hopes of a rapprochement with Washington. The fact that the Americans decided at the end of last month to grant Chile military credits worth $5 million and to rent a small gunboat to the Chilean navy was widely interpreted as a first step towards friendlier relations.

The debate over compensation revolves around three issues:

(i) *The profits that have been remitted to the United States.* The new law gives Dr Allende the power to deduct a sum equivalent to 'excess profits' that the particular company is claimed to have pocketed from any compensation payments. The Cerro Corporation is likely to get off lightly on this score, since it has only been operating in Chile for a few years. But Dr Allende seems determined to make Anaconda and Kennecott pay through the nose. He claims that the two companies have repatriated profits totalling $1,566 million over the years, but have only pumped in some $80 million in new investment.

Those figures will be hotly contested. In theory, they would mean that Dr Allende might actually present Anaconda and Kennecott with a bill, instead of paying a penny in compensation. But he is aware that this would have disastrous effects on foreign investment in other sectors of the economy.

(ii) *The book value of American investments.* The Americans claim that their stake in the mines is worth a billion dollars, but some people in Dr Allende's government quote a figure of less than a third of that amount. Dr Allende has already made it clear that he will not pay compensation on unexploited copper reserves, and he has got the French Société des Mines to produce a highly critical report on the present condition of the mines. The report has not yet been made public, but the sections quoted by Dr Allende in a recent speech alleged that, at Anaconda's Chuquicamata mine, plant and equipment were in a 'ruinous' condition and that the failure to remove rubble along with ore had led to a serious blockage that it would cost $20 million to clear.

(iii) *The alleged debts to the government.* Dr Allende also claims that the American copper companies owe the government some $100 million in unpaid dividends.

Some form of compromise is supposed to be patched up over the next 90 days. The chance of an easy settlement seems remote, although the companies have been given the right of appeal to a special court composed of three judges, the president of the central bank and the director of internal taxation. It is possible that the American government might decide to apply economic sanctions if negotiations break down altogether. Chile's foreign minister, Senor Almeyda, says that he expects this to happen. There has been mounting pressure in the American Senate to defend American investments against confiscation, and some senators have suggested that the government should impose a special duty of $20 a ton on sugar imports from countries that take over American assets without paying proper compensation. But this is not the best moment for the Americans to haggle, since the strike by copper workers in the United States has led to a steep fall in production and some temporary shortages in supply. Also some analysts are now predicting that in ten years' time, there may be a world shortage of copper – although estimates of this kind are notoriously hazardous and factors like the decreasing American military requirements in the wake of the Vietnam war have to be taken into account.

Meanwhile, Dr Allende is still trying to iron out the internal political crisis that was

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triggered off by the murder of the leading Christian Democrat, **Edmundo Pérez Zujovio**, last month. He has dealt firmly with the terrorist organisation allegedly responsible, the People's Organised Vanguard (VOP), but relations are strained with the Movement of the Revolutionary Left (MIR), another extreme left-wing group that has supplied most of the members of the president's personal bodyguard. In the long run, Dr Allende will have to decide whether to rein in the extremists in his own camp or to let himself be outflanked on the left, like Mrs Bandaranaike in Ceylon.

The Pérez killing also led to a closer alliance between the Christian Democrats and the right-wing Nationalists, symbolised by their choice of a joint candidate, **Oscar Marín**, to contest the Valparaiso by-election. He won the seat on 18 July.

What is in everyone's minds at present is the prospect of a referendum to change the constitution. So far, Dr Allende has continued to work within the existing legal framework. But he recently reaffirmed his intention to introduce a one-chamber 'people's assembly' in place of the present congress. If he does decide to stage a plebiscite, he will choose his moment carefully. He has shown himself to be a master at timing.

## Franco moving to the right?

The timing of **Vice-President Agnew's** 'goodwill visit' to Spain has been significant, for the Franco regime seems to be moving decisively to the right - in the sense that the hard-liners are emerging on top. Mr Agnew attended the traditional reception given by General Franco to mark the anniversary of the nationalist rising against the republic in 1936. (The order in which the principals and guests entered the reception was significant: in front, General Franco with **Princess Sophia of Greece** (wife of **Prince Juan Carlos**, heir to the throne) on his arm; behind them, Prince Juan Carlos with Mrs Franco, followed by the Agnews.)

The day before the reception it was officially announced that Juan Carlos would in future act as head of state (but *not* also as head of government) in the case of Franco's illness or absence abroad. This has caused considerable speculation in Spain. It is known that as long ago as 1947, when Spain was declared in an Organic Law to be a kingdom (though still without a king), Franco had said in private conversation that he would like to see a king on the Spanish throne while he was still alive.

Today it is not only the monarchists who would like to see this happen: an important section of the army hierarchy (still very much the power behind the scenes), and the Opus Dei technocrats who have been in successive governments since 1957 would also like to see this come about – as a guarantee of the continuation of a stable, Franco-type regime, of a fairly rigid conservative mould.

The successive visits to Madrid of President Nixon last year, and of **Admiral Moore**, the chairman of the United States joint chiefs of staff, and Mr Agnew this summer, suggest that the United States is of the same mind – if for different reasons: the last renewal of the military bases agreement between Spain and the United States was reached only after a long delay and much haggling over the price, and its details have never been fully disclosed.

But the Polaris submarine base at Rota, west of Gibraltar in the Bay of Cadiz, is still considered vitally important, as are oil and air facilities, and the possibility of naval

7.

facilities at Cartagena, in the Mediterranean. Also, it should not be forgotten that Spain still serves as a useful bridge to the Maghreb and the Arab world, as well as to Cuba, with whom the Franco government maintains important trade relations. Spain has also been trying to mend its fences with the Soviet Union for some time.

However, even if Franco might wish to step down as head of state in favour of Juan Carlos, he would almost certainly remain Generalissimo, Caudillo, and effective head of government. **Admiral Carrero Blanco** is deputy head of government; but he is not popular with the army and is unlikely to be a head of government for any period of time after Franco's death.

Partial elections to the Cortes are due to be held in the autumn and, though they can have little real effect, they will show whether critics of the regime will be allowed to stand – and even win a few seats, as they did in the last 'family' elections. This is of interest in view of the quite savage law, approved by the Cortes on 20 July, imposing new and heavier penalties on those who express political dissent. It provides for fines of up to £6,000 on critics; increases existing fines, without trial or appeal; and furthermore stipulates specifically that the Cortes has no right to make judgments on government policies.

This new law is seen by many to represent a virtual return to a form of 'state of exception' in the threats it implies. It has shocked moderate liberal opinion, including a majority of the lawyers and an important section of the Spanish Catholic church, as well as those remaining underground worker-leaders of the illegal workers' commissions who are not in prison or under restriction.

At the beginning of the year the general impression was that the hard-line conservative wing of the army had suffered a minor setback. But this trend has been reversed; the army conservatives still represent the most powerful influence behind Franco. And, oddly enough, the strained relations between the Vatican and the regime tend only to strengthen Franco's internal position.

© WORLD COPYRIGHT RESERVED 1971 THE ECONOMIST NEWSPAPER LTD.
'FOREIGN REPORT' IS SUPPLIED ON THE CONDITION THAT IT IS REGARDED AS CONFIDENTIAL BY THE RECIPIENT.
IN NO CIRCUMSTANCES MAY THE CONTENTS BE REPRODUCED WHOLE OR IN PART.

PRINTED BY WATERLOW & SON LTD., LONDON, FOR THE ECONOMIST NEWSPAPER LTD. LONDON S.W.1.

298A

CHINA 7-24 NX

HONG KONG (UPI)--COMMUNIST CHINA'S OFFICIAL NEWSPAPER DENOUNCED PRESIDENT RICHARD NIXON'S ASIA POLICY SATURDAY AS A "HODGE PODGE" DESIGNED TO SUPPORT AGGRESSION IN ASIA.

THE ATTACK ON NIXON'S POLICIES WAS MADE IN A COMMENTARY PUBLISHED IN THE PEKING PEOPLE'S DAILY, AN ORGAN OF THE CHINESE COMMUNIST PARTY'S CENTRAL COMMITTEE. THE COMMENTARY WAS BROADCAST IN FULL BY THE NEW CHINA NEWS AGENCY (NCNA) AND MONITORED IN HONG KONG.

THE CRITICISM OF NIXON AND HIS ASIA POLICY, WHICH INCLUDES A VISIT TO PEKING BEFORE MAY 1972, WAS COMMUNIST CHINA'S HARSHEST SINCE PREMIER CHOU EN-LAI MET WITH NIXON'S CHIEF ADVISER, DR. HENRY KISSINGER, IN PEKING AND INVITED NIXON TO VISIT CHINA.

THE ARTICLE MADE REFERENCE TO THE RECENT VISIT TO JAPAN AND SOUTH KOREA BY MELVIN LAIRD, U.S. SECRETARY OF DEFENSE. IT CALLED LAIRD'S VISIT "A FLAGRANT PROVOCATION" AGAINST CHINA AND OTHER ASIAN COUNTRIES.

"LAIRD'S ASIAN TOUR ONCE AGAIN PROVES THAT THE AGGRESSIVE NATURE OF U.S. IMPERIALISM WILL NEVER CHANGE AND THAT IT WILL NEVER GIVE UP ITS AMBITION TO MAKE AGGRESSION IN ASIA," THE PEOPLE'S DAILY SAID.

"IT CAN BE SEEN THAT THE SO-CALLED 'NEW ASIA POLICY' OF THE NIXON ADMINISTRATION IS NOTHING BUT A HODGE PODGE PATCHED UP FROM WORN OUT, AGGRESSIVE MEANS OF U.S. IMPERIALISM.

"IF THERE IS ANYTHING NEW, IT IS THAT THE NIXON ADMINISTRATION, BESET WITH MORE DIFFICULTIES AT HOME AND ABROAD AND WITH ITS AMBITION FAR EXCEEDING ITS POWER, IS TRYING TO USE MORE CUNNING AND VICIOUS MEANS IN CLINGING TO ITS POLICIES OF AGGRESSION AND WAR," THE COMMENTARY SAID.

THE ARTICLE QUOTED COMMUNIST PARTY CHAIRMAN MAO TSE-TUNG AS SAYING THAT THE UNITED STATES SHOULD NOT TRY TO RUN THE AFFAIRS OF ASIA.

"THE UNITED STATES IS A COUNTRY IN THE EAST PACIFIC. WHAT ON EARTH IS THE REASON FOR IT TO COME TO THE WEST PACIFIC TO INTERFERE IN THE AFFAIRS OF ASIAN COUNTRIES?" IT SAID. "LAIRD INSISTED THAT THE UNITED STATES 'WILL REMAIN A PACIFIC POWER.' IS IT THAT THE UNITED STATES, BY STYLING ITSELF A 'POWER,' SHOULD BE ENTITLED TO LORD IT OVER ASIA AND THE PACIFIC REGION?"

THE PEOPLE'S DAILY SAID THE "ASIA POLICY OF THE NIXON ADMINISTRATION WILL SURELY END IN COMPLETE BANKRUPTCY."

GA944 PED

4

CHINA VISIT

BY MIKE DOAN

HARD

WASHINGTON (AP)-- PRESIDENT NIXON AND HIS NATIONAL SECURITY ADVISER, DR. HENRY A. KISSINGER, HAVE TOLD REPUBLICAN CONGRESSIONAL LEADERS NO AGREEMENTS WERE MADE WITH RED CHINA IN ADVANCE OF NIXON'S PLANNED VISIT TO PEKING.

SEN. GORDON ALLOTT OF COLORADO, CHAIRMAN OF THE SENATE REPUBLICAN POLICY COMMITTEE, SAID AFTER THE WHITE HOUSE MEETING TUESSDAY, ""THEY MADE IT CLEAR THERE WERE NO AGREEMENTS OR CONCESSIONS OF ANY TYPE."

MEANWHILE, THE TORONTO GLOVE AND MAIL REPORTED PREMIER CHOU EN-LAI SAYS COMPLETE WITHDRAWAL OF U.S. FORCES FROM INDOCHINA MUST TAKE PRIORITY OVER MOVES TO IMPROVE CHINESE-AMERICAN RELATIONS.

THE NEWSPAPER SAID CHOU TOLD 15 AMERICAN GRADUATE STUDENTS VISITING PEKING THE GREATEST CRY OF PUBLIC OPINION IN THE UNITED STATES AND ELSEWHERE IS FOR AMERICAN WITHDRAWAL FROM VIETNAM.

"IT MIGHT ALSO BE SAID," HE CONTINUED, "THAT THIS DEMAND IS EVEN STRONGER THAN THE DEMAND TO RESTORE THE RELATIONS BETWEEN THE CHINESE AND AMERICAN PEOPLES, BECAUSE THE PEOPLE OF THE UNITED STATES DO NOT WANT TO SACRIFICE THE LIVES OF AMERICAN PEOPLE IN THIS DIRTY WAR. ISN'T THIS SO? THEREFORE, WE BELIEVE THE QUESTION TO BE SOLVED FIRST SHOULD BE THE QUESTION OF INDOCHINA..."

CHOU SAID BY WITHDRAWAL HE MEANS REMOVAL OF ALL MILITARY FORCES AND INSTALLATIONS.

IN ANOTHER DEVELOPMENT, SECRETARY OF STATE WILLIAM P. ROGERS TALKED WITH SOVIET AMBASSADOR ANATOLIY F. DOBRYNIN ABOUT IXON'S VISIT.
CB835AED JULY 21

UPI-97

(CHINA)

WASHINGTON -- THE SENATE FOREIGN RELATIONS COMMITTEE VOTED TODAY
TO REPEAL A RESOLUTION OF CONGRESSIONAL BACKING FOR USE OF U.S. FORCES
TO PROTECT TAIWAN.

THE SO-CALLED FORMOSA RESOLUTION WAS APPROVED BY CONGRESS JAN. 29, 1955, AT A TIME OF RED CHINESE PRESSURE ON THE ISLANDS OFF THE CHINESE MAINLAND, INCLUDING TAIWAN (ALSO KNOWN AS FORMOSA) AND THE PESCADORES.

CHAING KAI-SHEK SET UP A NATIONALIST CHINESE GOVERNMENT ON TAIWAN AFTER THE COMMUNISTS WON THE MAINLAND. THE NATIONALISTS ALSO CONTROL THE PESCADORES.

REPEAL OF THE RESOLUTION WAS PROPOSED BY SENS. FRANK CHURCH, D-IDAHO, AND CHARLES MCC. MATHIAS, R-MD., AND ADOPTED BY THE COMMITTEE ON A VOICE VOTE.

THE STATE DEPARTMENT OOK A NEUTRAL POSITION ON THE QUESTION OF REPEAL OF THE RESOLUTION WHICH GAVE NO GRANT OF ACTUAL POWER TO THE PRESIDENT BUT SERVED TO BACK HIS HAND IN DEALING WITH A CRISIS.

THE REPEAL WAS INTRODUCED MORE THAN A YEAR AGO AT THE SAME TIME AS THE START OF AN EFFORT WHICH CULMINATED IN REPEAL OF THE GULF OF TONKIN RESOLUTION ON VIETNAM.

THE COMMITTEE CHAIRMAN, SEN. J. WILLIAM FULBRIGHT, D-ARK., TOLD REPORTERS THE COMMITTEE ACTION TODAY WAS NOT DIRECTLY RELATED TO PRESIDENT NIXON'S PLANNED VISIT TO PEKING, BUT CONCEDED THAT THE TIMING WAS NOT ALTOGETHER A COINCIDENCE, EITHER.

"TECHNICALLY, THE COMMITTEE VOTE WAS NOT AFFECTED BY THE PRESIDENT'S ANNOUNCEMENT, BUT MEMBERS DID FEEL THIS STEP WAS CONSISTENT WITH THE ADMINISTRATION POSITION OF SEEKING A RESTORATION OF NORMAL RELATIONS WITH CHINA," FULBRIGHT TOLD REPORTERS.

HE SAID NO ROLL CALL WAS TAKEN ON THE REPEAL RESOLUTION, BUT THERE HAD BEEN NO DISSENT HEARD ON A VOICE VOTE. ALL OF THE COMMITTEE MEMBERS WERE NOT PRESENT, HOWEVER.

THE REPEALER IS A JOINT RESOLUTION. IT MUST NOT ONLY BE APPROVED BY THE SENATE BUT, LATER, AGREED TO BY THE HOUSE.

THE COMMITTEE CALLED AN AFTERNOON SESSION TO HEAR JOHN PATON DAVIES JR. AND JOHN STEWART SERVICE, TWO FORMER FOREIGN SERVICE OFFICERS WHO FELL VICTIM TO A MCCARTHY ERA HUNT FOR "WHO LOST CHINA."

7-21--NW109PED

WALL STREET JOURNAL

AUGUST 3, 1971

FOR RELEASE--AUGUST 4, 1971

Man's Fate

The mounting criticism of President Nixon's planned visit to mainland China is in no way surprising; if anything is surprising it is that there has not been more of it thus far. What the criticism overlooks, it seems to us, is the nature of the thinking that the President—and Mr. Henry Kissinger—have brought to bear on this matter.

Naturally, caution and skepticism are in order; we have said that from the beginning. While we do not agree with the rather apocalyptic conclusions of Mr. Bruno Shaw's article on this page today, we understand the reasons for those conclusions, and we print the article because we believe it represents an antidote to the euphoria that is apparently even more prevalent in this country than are the objections to Mr. Nixon's venture.

Without doubt Red China is a tyranny—a chilling version of the "1984" antihill society in the right here and now. Without doubt it has murdered millions and brutalized millions more, in the same manner as the Soviet Union and Nazi Germany. Without doubt Peking's modern mandarins would like to spread the Maoist "revolution" throughout the world, although that hope is presumably tempered by considerations of the realities of world power relationships.

Moreover, the U.S. has been basically right in opposing Communist aggression in the post-World War II period. In our opinion it made a drastic error in making so strong a stand in, such a poor strategic location as Vietnam. But if its fundamental posture had not been in defense of liberty against tyranny, there would today be no free West Berlin, very likely no free Western Europe or non-Communist parts of Asia. The U.S. itself would probably be a vulnerable Fortress America, and not of its own choosing.

So superficially the charge of appeasement in connection with Mr. Nixon's attempt to normalize relations with mainland China seems to have merit. Visions of Yalta, Potsdam, all the catastrophic decisions that lost the peace while we were magnificently winning the war against the Axis powers. It's all repeating itself, the critics allege.

Maybe; we wouldn't want to be dogmatic, especially considering our own intense and long-standing anti-Communist position on philosophical and practical grounds. But there is a tremendous difference between then and now: the concept of American diplomacy—or more precisely, geopolitical assessment—has been substantially altered.

It is easy, indeed it is entirely too

facile, to say that only a Republican President with undisputed anti-Communist credentials could even suggest anything like a trip to Peking. If John F. Kennedy or Lyndon B. Johnson had done so, the uproar would have been unbelievable. Score, then, a neat political stroke for Richard M. Nixon.

We submit that there is more to it. We don't want to indulge in personalities; we leave it to Dean Acheson to say that President Kennedy was not as knowledgeable and incisive as perhaps a President should be. Let us merely observe that his administration, his advisers, made some bad misjudgments in foreign affairs. A certain immaturity could be sensed.

In the Johnson administration, as the world now well knows, arrogance and inflexibility rode high. The U.S. would bloody the Communist nose in Vietnam, just like that. And if the U.S. didn't it would be Munich all over again—as though nothing could ever change.

Whatever the faults of Mr. Nixon and his foreign-affairs advisers, they are long-range planners and, as we perceive it, their thoughts run deep. The Chief Executive sits for hours in his unofficial cubbyhole office and thinks not only about Vietnam but—if we may presume to infer—about man's fate.

What this means, in this H-bomb age, in this global village that is the planet today, is that the long term requires a quest for peace regardless of the terribly conflicting ideologies, regardless of the power-madness of our self-proclaimed adversaries, regardless of man's seemingly innate propensity to war. If the U.S. does not try to establish a modus vivendi for the long term, there quite simply may not be a long term.

One thing the nation may be certain of: Nixon-style diplomacy is not seeking improved relations with Communist China (and Russia) with the dewy-eyed, foggy-headed attitude the liberals and leftists exhibited before and during World War II. The Nixon approach is pragmatic, extremely knowledgeable about human nature and Communist nature in particular; it will not compromise vital American interests. For one reason or another the effort may fail, but the underlying intent is that mankind deserves a better chance than can be promised by the increasing shrillness of ideological enmity and the constant recurrence of war.

President Nixon's critics, we think, are missing the significance of the diplomatic difference. It could make all the difference.

THE ECONOMIST JULY 24, 1971

45

THE WORLD

American Survey

New diplomacy airborne: Rogers and Nixon hear Kissinger

Nixon's great leap

Washington, DC

Not everybody believed what they were told about the stomach upset that was supposed to have kept Dr Henry Kissinger, President Nixon's assistant for national security affairs, resting in a Pakistani hill resort over the weekend of July 10th. But the doubters were looking the wrong way, each following his own train of thought about what might turn out to be the important business of Dr Kissinger's thinly-reported world tour—the Vietnam negotiations, the problem of East Pakistan or what not. Nobody thought of Peking and, when Mr Nixon announced on television on July 15th that that was where Dr Kissinger had been, the surprise was complete. Nobody had had a clue. General de Gaulle would have loved it.

Astonishment, excitement and an unaccustomed ripple of admiration have thus greeted President Nixon's great diplomatic leap forward. Naturally such effects do not come entirely free of cost. Those foreign

governments that view the prospect of a presidential visit to Peking with dislike or suspicion are, additionally, annoyed at having been hoodwinked. Not only the Nationalist Chinese (whose indignation has been loud) but also the Russians and the Japanese, to mention no others, may be in this category.

Other governments that are inclined to approve, like the British, have to go through a period of asking what the news implies for other aspects of American foreign policy and of getting little in the way of answers. The answers are simply not there because, in order to keep the world in the dark, President Nixon had to keep most of his own government in the dark, too.

High on the list of those in the dark must be Mr Nixon's other emissaries who, while Dr Kissinger was airborne over Tibet, were shuttling about the world on other errands. Vice President Agnew was on his way from Saudi Arabia to Ethiopia; there has

been no suggestion that anybody told him. Mr Melvin Laird, the Secretary of Defence, was in Tokyo winding up eight days of talks. To have to hold talks with a Japanese cabinet that was having a reshuffle was hard enough on Mr Laird. But it also looks decidedly as if he, too, was unaware that the President was in the middle of the secret negotiation which produced the announcement of Mr Nixon's intended visit to Peking.

Mr Laird and his briefing officer gave the press in Tokyo the impression that they would think it reasonable for Japan to acquire a defensive nuclear weapons system of its own, perhaps a seaborne anti-ballistic missile system, in ten years or so. The reasoning was that an agreement on the limitation of strategic arms between the United States and the Soviet Union might lead to a reduction of the American nuclear arsenal in the Far East, just when China was building up such an arsenal for itself. The suggestion may have had merely a bargaining purpose, to induce the Japanese to be more helpful in accommodating American nuclear forces now that Okinawa is being handed back to Japan, or to do more for the total defence effort in other ways.

However, it was not at all what the Chinese in Peking wanted to hear and the White House, then in California, had to move hurriedly to rescue Dr Kissinger's trip. This, in retrospect, explains the haste and emphasis of the denials from the White House and the State Department that Mr Laird or anybody else could possibly have meant to say that any change might be contemplated in the present position by which Japan relies for its nuclear protection on the United States alone. Reports from Peking show that the Chinese leaders are still not wholly convinced.

Another emissary who must have been unaware of Dr Kissinger's trip was Mr Gerard Smith, head of the Arms Control and Disarmament Agency. He was in Helsinki resuming the strategic arms limitation talks with

46

AMERICAN SURVEY

THE ECONOMIST JULY 24, 1971

the Russians, with the expressed intention of completing at least a limited agreement this year. Thus he now has the task of completing it while Mr Nixon's visit to Peking is announced but before it takes place and while the Russians are still uncertain how far Mr Nixon intends the American reconciliation with China to go.

Mr Nixon and Mr Kissinger cannot think that their relations with Peking matter more than their relations with Moscow. There must be some other reason why they gave the Russians an unpleasant surprise instead of sending a special envoy to cushion the shock: not even the American Ambassador was in Moscow when the announcement was made. Presumably the reason lies in their personal assessment of the best way to get from Russia the diplomatic results which they undoubtedly want. They believe, in short, that going to Peking may get them to Moscow faster.

There are signs that Mr Nixon and Mr Kissinger may also see a possible common interest between Washington and Peking in getting the negotiations about a settlement in Vietnam shifted away from the present Paris framework to a new "Geneva" conference. The plan would be to extract from a different conference a neutral (more or less) South Vietnam in which Vietcong influence would be strong but North Vietnamese influence would not. Thus, they might hope, one American war aim would be attained, if in a reduced way, while Peking would get the satisfaction of keeping Soviet influence out of South Vietnam.

The usual back-reading of Mr Nixon's pronouncements on China does show that his old view of the virtues of ostracising that country was already in dissolution before he became President. And his first foreign policy report in February of last year spoke of taking "what steps we can toward improved practical relations with Peking," though it did still talk of "Communist China," reserving the term "Republic of China" for the Nationalist regime on Taiwan (Formosa). His second report this year broke new ground by using the term "People's Republic of China;" it also said "we are prepared to establish a dialogue with Peking." Yet another verbal step marked the joint announcement which Mr Nixon read on television on July 15th; it spoke of the planned meeting as one "between the leaders of China and the United States."

This is, of course, recognition,

whether or not diplomatic relations follow. It has come quicker than anybody expected and before anybody has quite worked out how the problem of the Nationalist regime on Taiwan (which also enjoys recognition, together with a defence treaty and the United

Nations seat) can be disposed of. The break between Mr Nixon's China policy as President and his old China policy when he was Vice President in the 1950s is abrupt and total. Since he made the break, however, the new approach has developed consistently,

## Not gross enough

The President's new economic spokesman, Mr Connally, the Secretary of the Treasury, is giving the ailing economy an almost daily dose of optimism. But even he has to admit that the official January target for the year's gross national product is going to be missed by at least $15 billion. Yet Mr Connally maintains that the economy is recovering steadily from last year's recession; he cites as proof the fourth-month rise in industrial production and the increase of $20 billion in the gnp in the second quarter.

He and other official spokesmen are particularly pleased with consumer spending. There is plenty of room for this to go on expanding; personal savings have been running at the unprecedentedly high rate of over 8 per cent of disposable income for the past year. But whether consumers will in fact decide to spend more depends on their confidence in the future and Mr Connally's tonic does not seem to be reviving this, if the trusted Michigan survey is to be believed.

Another source of official satisfaction is the surge in house building; so far, at least, the recent rise in interest rates does not appear to be checking this, whatever liberal members of Congress may allege. They claim that the Federal Reserve Board, in its efforts to reduce the recent excessive growth in the money supply (for which no one has any real explanation), is making money too expensive. Last week's rise (to 5 per cent) in the discount rate, the interest which member banks pay on their borrowings from the Federal Reserve System, is their latest evidence for this; it was the first increase for over two years. The central bank maintains that the rise was dictated mainly by market conditions. Other short-term rates had been going up for some time and the prime rate, the interest which banks charge to their most credit-worthy customers, had just risen to 6 per cent.

The Fed acknowledges, however, that it was also influenced by the continued pressure of cost-push inflation, stemming chiefly from increases in wages. That this type of inflation is still building up is clear from this week's round of labour negotiations. The chairman of the Federal Reserve Board has long been urging the President to institute some control over wages and prices.

This seems desirable to a substantial majority of the people polled recently by Dr Gallup's organisation and also, more importantly, to Mr Meany, head of the national trade union federation, and to Mr Mills, the influential chairman of the Ways and Means Committee of the House of Representatives. The last two agree that the country is in a state of "economic disaster." If it came to defining what is meant by an incomes policy, however, few of these advocates would be able to agree.

But the combined pressure is such that even Mr Connally has modified his rejection of wage and price controls a little; he now confesses that the rejection is not "irrevocable or irreversible." Meanwhile he points to the price deflator in the gnp statistics as an indication of lessening pressure. Certainly the increase in prices was less in the second quarter than in the first but it was still at an annual rate of 4.2 per cent. And this means that the growth in the gnp, which Mr Connally finds so encouraging, was in fact at an annual rate of well under 4 per cent, too low to get unemployment down to an acceptable level.

But this is not enough to shake the Administration's assertion that the recession has been cured and that expansion will continue to spread through the economy. The only thing that could stop this, say officials, would be for the Administration's policies, of which the full effects are only now beginning to be felt, to be frustrated by congressional insistence on some additional stimulus, such as the tax reductions advocated by Mr Mills.

*quarterly totals, seasonally adjusted, at annual rates

THE ECONOMIST JULY 24, 1971

AMERICAN SURVEY

49

step by step. The debris to be picked up is considerable. Only this month the Defence Department was talking of moving to Taiwan the nuclear weapons which it has to take away from Okinawa. Nothing more will be heard of that. The officers concerned with tactics at the United Nations are still busy working out how to make the attempt to salvage a seat in the General Assembly for Taiwan; it is an attempt that they are bound to make, but plainly it has been relegated to a minor order of importance.

Mr Nixon's leap is a leap in the direction that he has chosen for his foreign policy, but it is also a domestic political coup. The Democrats have still to settle whether they will be the party of peace next year or the party of full employment. By snatching an important article of their peace clothing Mr Nixon has narrowed their range of choice rather sharply. For the moment his opponents are put on the defensive, unsure whether warm approval or vague misgivings are the better response. Congressman Paul McCloskey, who is preparing to challenge Mr Nixon next spring in some of the elections in which Republicans choose their presidential favourite, sticks to his guns and declares that only a decided change in the President's Vietnam policy will change his mind.

But the visit will hang over Mr McCloskey uncomfortably. The White House, stressing with truth the extent of the preparatory work that has to be done, indicates that the trip to Peking is not likely to come until early next year. For Mr McCloskey this means that, when he is campaigning in New Hampshire or Wisconsin against whatever remains of the Vietnam war, President Nixon will suddenly be off to Peking gathering laurels of peace. Some of Mr Nixon's Democratic opponents have to anticipate the same difficulty. Still, the actual presidential election is more than 15 months off, the effect of an isolated diplomatic coup does not last for ever in politics and there is plenty that can go wrong between now and then.

## Political aid

Unlike its opposite number in the Senate the Foreign Affairs Committee of the House of Representatives can usually be counted on to endorse the official line. But now it too is breaking away. For strategic reasons the Nixon Administration is reluctant to withdraw support from the military

dictatorships in either Greece or Pakistan, however much it may dislike their domestic policies. But now the House committee has refused to authorise any more aid to either of these governments until they have shown themselves worthy of it; and both the full House and the Senate are quite likely to confirm the prohibition.

The committee voted against President Nixon's request for $118 million in military aid to Greece for the fiscal year beginning this month, compared with $80 million for the last fiscal year. The assistance would be stopped until the military junta there allowed a return to constitutional rule, unless President Nixon specified that it was necessary to continue aid to Greece in order to ensure the security of the United States. The committee also turned down $132 million in aid for Pakistan, most of it in economic assistance. The $100 million that was voted earlier to help refugees from East Pakistan would not be affected.

The votes were the first positive move in Congress to use foreign aid to influence the internal policies of these countries. What angered the House committee in particular was the inability of the Administration to supply satisfactory reasons why it was desirable to provide this help. The officials who testified in favour of increased military spending for Greece failed to make a coherent or a convincing case and the Administration's handling of aid to Pakistan has been even more confusing. After it had told Congress that no military equipment had been sent to the Pakistan government since the fighting between the west and the east broke out on March 25th, it transpired that at least two shiploads of arms had left since then and that several more were scheduled to leave within the next few months.

The excuse given, after considerable delay, was that export licences for these shipments were granted before the March deadline.

The Administration is offering no such excuses for economic aid. It has made it quite clear that it thinks that it would be unwise to cut off supplies to Pakistan. This goes against strong international pressure as well as against a report to the World Bank which points out that Pakistan is at present too divided to use such assistance effectively. One argument put forward for President Nixon's policy is that it is undesirable to weaken America's influence before a settlement has been negotiated between President Yahya Kahn and East Pakistan.

## Conventional row

The 1972 Democratic national convention will be held in Miami Beach, beginning on July 10th. Among those who will fly in full of hopes for the presidential nomination, however, Senator Harold Hughes of Iowa will not be numbered. Last week he announced his "irrevocable" withdrawal from the race, though he might be tempted by a vice-presidential offer. Mr Hughes, a colourful, progressive lay preacher with spiritualist leanings, conceded that he had not sparked off the necessary response. Senator Fred Harris, who threw his hat into the ring the next day, is also a progressive —too liberal for Oklahoma, where his chances of renomination for his Senate seat had come close to vanishing before he declared his preference for the Presidency. He promises a campaign populist both in philosophy and in its methods, in the belief that Americans are tired of the slick, well-heeled Madison Avenue approach, and has started off by firing his chief professional adviser. It is hardly a good omen.

Since 1968, in hopes of avoiding a repetition of that chaotic nominating convention in Chicago, the Democratic National Committee has had a rules commission at work to see that the next party meeting to choose a presidential candidate is more open to ordinary Democrats. But last February the committee discarded the commission's proposals for apportioning 3,000 delegates among states and territories and substituted its own.

Recently a federal court in Washington ruled this formula to be discriminatory, favouring small states over large. The court's decision was a victory for the angry group of liberal

Harris announces; Mrs Harris watches

Give Israel $200 Million
10 Senators Ask Adm

BY PHILIP WARDEN

[Chicago Tribune Press Service]

WASHINGTON, Aug. 9—Ten members of the Senate Foreign Relations Committee today urged the Nixon administration to approve $200 million aid to Israel to help pay its war-boosted government expenses.

The 10 members of the 17-member committee proposed in a letter to Secretary of State William P. Rogers that the United States give budgetary aid to Israel of an amount second only to that now being given South Viet Nam.

The House Foreign Affairs Committee already had recommended administration approval of the aid to Israel. That committee said Israel asked $200 million to meet "its urgent needs for foreign exchange and other requirements brought about thru the Middle East hostilities."

Vital to Balance

"This is a vital corollary to

maintaining a balance of power in the Middle East

that Israel is fully eligible to receive supporting assistance."

The Senate committee members said they believed that the administration could find sufficient funds in this year's foreign aid bill to provide the Israel aid.

"Israel has never received grant [gift] military assistance from the United States," the senator said. "It has been forced to go deeply into debt because of the very heavy defense burdens posed by large-scale shipments of sophisticated planes, tanks and missiles by the Soviet Union to Israel's Arab neighbors."

The senators told Rogers they were bringing the matter of the special aid to Israel to his attention now because the Foreign Relations Committee was unable to complete the markup of its foreign aid bill before Congress started its summer vacation.

Church B
Expansion

Suddenly, San Diego religion
has entered an era of physical
expansion.

This month, more church
construction and expansion is
under way than during any oth-
er month in local history.

City officials estimated yes-
terday that $1.9 million in
church construction is under
way in the city — four times
more than last year.

And, during the first six
months of this year, building
permits totaling about $2.5 mil-
lion have been issued in the
county.

This already is higher than
the total for all of 1970, about
$2.3 million.

CITY TOTALS

In the city, permits for $1.9
million in construction have
been issued, compared to
$520,000 at the same time last
year.

City officials report a gradual
increase in ecumenical building
since about mid-1969.

In 1969 eight permits for con-
struction were filed, totaling
$791,500. In 1970 there were 13
permits totaling $1.9 million.
Predictions this year call for a
total of more than $4 million if
the present trend continues.

The figures released yester-
day also show some increase in
the cost of church construction
and expansion.

In 1950 it cost $692,442 to ex-
pand 12 churches in 1955 it cost

-2-

First, he is considered anti-Russian. Chinese feelings about Russia, one may recall, are now not unlike German feelings about Russia not long ago.

Second, Kissinger has no long past involvement with U.S. Far Eastern policy. Especially, he is unsentimental about Chiang Kai-shek.

Chinese suspicions about Kissinger arise over military questions. Does he have the power, they wonder (McArthur in mind) to prevail over rash military advice? And is he still unprepared to rule out the use of nuclear weapons?

Peking sources speak of a mutual coaxing ever since the spring between China and the U.S. When the Ping Pong diplomacy began, it seems China intended to permit some Democratic senators to visit China.

Hesitations occurred, however, because Peking was unsure how far Mr. Nixon's China policy might evolve.

To coax Mr. Nixon further, or to cultivate the Democratic opposition—that was Peking's choice. It seemed both could not be done at once. So the Chinese held off on Kennedy and McGovern.

Now the mutual coaxing has climaxed. Peking evidently decided it can get some of what it wants, on Taiwan, the U.N. and Indonesia from Mr. Nixon.

Since the July 16 announcement, Chinese sources have stressed that "nothing is solved" yet between China and the United States. It seems Kissinger and his three aides brought to Peking a general statement of U.S. intentions, rather than already decided major policy changes.

Indications are that the meaty issues will be left until Mr. Nixon's visit. If he comes here, it is stressed, and fails to achieve normalized relations with China he will be in a worse position than before.

Clearly, at any rate, Peking takes the change from President Johnson's expansionism to Mr. Nixon's prudence very seriously.

In 1969 at Paris, Mr. Nixon told de Gaulle he was determined to do two things: to withdraw all troops from Vietnam, and to normalize relations, step by step, with China. The present French ambassador in Peking, de Gaulle's personal choice for the post, relayed this to Chou En-lai.

The Chinese were cautiously impressed. They are still cautious, but they are also impressed. Mr. Nixon's acts seem less out of step with his words than some of those of the Democratic administrations.

Recently, Premier Chou asked a European ambassador, "What was the impact of the Ping-Pong trip within the U.S.?" Said the ambassador, "It helped the Democratic opposition to Nixon. But it has also helped Nixon." Chou rejoined: "I don't mind that. I am happy that China should take some steps in response to Nixon's."

Now the Chinese have taken another step. But opinion in China is extremely cautious about the future. If China often closes the door but seldom locks it, China seldom flings it open without a hand poised to close it quickly if the winds prove too chill.

# A View From Two Chinas on the Nixon Visit
## Peking Seeking a Tripolar World

By Ross Terrill

Special to The Washington Post

CHANGSHA, Hunan Province, China, July 21—President Nixon's prospective visit to this country evokes surprise, curiosity, and ideological confusion from the Chinese in the street.

I was in south China, at the lakeside resort of Wushih, when the Kiangsu People's Radio broadcast the news. Like the Peoples Daily text next day, it was labeled "gongaw." This means "announcement." It is barely used. The Chinese diplomat traveling with me could not recall its last usage.

In Wushih, citizens were obviously surprised that Mr. Nixon, whom Peking has

described as "a god of plague and war," should be coming to China. Silk spinners were confused. "The Chinese and American peoples have always been friendly," said the silk factory chairman, overlooking that Mr. Nixon will visit China not as citizen but as President.

In Shanghai Monday night, a large crowd gathered around the newspaper Wen Hui Pao, pinned up in a waterfront park. Their attention was riveted by two factual articles on America: One about Long Island, one about how the original 13 states expanded to the present 50. Neither article contained propaganda or Mao's name.

See CHINA, A12, Col. 2

## Taiwan Fearful of Price He Will Pay

By Selig S. Harrison

Washington Post Foreign Service

TAIPEI, July 21—The anguished debate churning here over the projected Nixon mission to Peking basically centers on the price that Washington might end up paying to establish diplomatic relations with the Communist regime.

What the Nationalist Chinese government and its critics both want to know is whether this price will include the withdrawal of U.S. military forces from Taiwan, and whether Washington could fulfill its treaty commitment to defend the island without the continuing physical presence of American military bases. The future of the 8,900-man U.S. con-

tingent on Taiwan has been sharply spotlighted following a June 21 statement by Premier Chou En-lai hinting that Peking might not treat the Washington-Taipei mutual security treaty as a bar to diplomatic relations if the United States removed its military forces now deployed in Taiwan and the Taiwan Strait.

In return for this face-saving U.S. gesture and for clear declarations that the United States "no longer considers Chinese Kai-shek as the representative of China," Chou implied, Peking might tacitly accept the de facto continuance of separate Taiwan while still asserting its nominal claims to the island.

See TAIWAN, A12, Col. 2

The Washington Post S

7/22/71

...R

## Capitol Punishment

# Henry's Tummy

By Art Buchwald

When the history books of this decade are written they will be referring to Henry Kissinger's trip to China as "the tummy ache heard round the world."

Using the excuse of an upset stomach, Mr. Kissinger managed to elude everyone and high-tail it off to Peking to have sweet and sour pork with Chou En-Lai.

While it was a great ploy, Mr. Kissinger's "diplomatic illness" could backfire on him. Suppose he really gets a stomach ache at some future time. Who is going to believe him?

Our scene opens in the medical room at the White House. Henry staggers in clutching his stomach and says, "Doctor, I have this pain right here."

The White House doctor laughs. "Good old Henry. Where are you off to this time—the Suez Canal?"

"I'm not joking, Doc. It hurts terribly."

"I know," the doctor says, "the President is sending you to talk to Castro."

Henry is now writhing on the floor. "Believe me, it

"Doctor, I have this pain right here." The White House doctor laughs. "Good old Henry. Where are you off to this time — the Suez Canal?"

hurts. Right in the gut. You see, I had dinner with Gloria Steinem and Bella Abzug, and they served me Bon Vivant vichyssoise. Since I was out of the country at the time, I didn't know you weren't supposed to eat it."

"You really can put on an act, Henry. I wouldn't be surprised if you turned up in Albania next week."

Henry crawls out of the doctor's office on his hands and knees.

Ron Ziegler, the President's press secretary, sees him crawling down the hall.

"Hello, Mr. Kissinger," Ron says. "Can I help you?"

"Get me to a hospital."

Ron takes out his notebook. "That's a good cover story. I'll announce you were taken to a hospital this morning. I won't tell them which hospital."

"No, Ron, I don't want you to announce I was taken to a hospital. I want you to get me to a hospital."

Ron winks at him. "Is it East Berlin or Yalta?"

"Please, Ron. I'm sick. I'm going to die."

"I doubt if the press corps would buy that, Mr. Kissinger. If we announce that you've died, and then you pop up at San Clemente a week later, the newspaper guys will get awfully mad. Let me announce you're having your tonsils out. I have to go to my press briefing now. I'll see you later."

Henry is rolling on the floor as Secretary of State William Rogers comes by.

"Hello, Henry. You going to the Cabinet meeting?"

"Mr. Secretary, my stomach. I have a pain in my stomach. It's killing me."

Secretary Rogers says angrily, "Well no one has informed me about it. What are you up to this time?"

"I'm not up to anything, Mr. Secretary. Could you call an ambulance?"

"Hanoi," Rogers says. "You're cooking up something in Hanoi. I'll probably be the last one to know about it."

"I'm not going to Hanoi. I'm really sick."

"No kidding? Well I'm sorry to hear that, Henry." And Rogers smiles and walks away.

With his last ounce of strength, Henry staggers into the Oval Room and falls down in front of the President.

"Henry," the President says. "You don't have to prostrate yourself in front of me. I know you're loyal."

Henry is in such agony he can't speak.

"What is it, Henry?" The President says. "Would you like to go to Morocco?"

Henry shakes his head.

"The Vatican? You want to see the Pope?"

Henry groans.

The President gets up. "I don't have time to play games, Henry. Write me a memo telling me what you want. By the way, Mrs. Nixon said she would like you for dinner tonight. We're having meat loaf."

Henry screams and passes out, as the curtain falls.

© 1971, Los Angeles Times

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