Squeeze from Peking

Communist China, like Big Brother Russia, has set itself a big economic target. When Khrushchev talks of overtaking the U.S. in farm products by 1975, Peking tells of overtaking Britain industrially in 15 years. But Red China's real industrial rival sits just across the Yellow Sea. Last week Peking declared open economic warfare on Japan, the one Asian nation capable of challenging the Red drive toward economic domination in greater East Asia.

Peking has such a healthy respect for capitalist Japan's postwar buildup that for a long time the Chinese Reds fondly hoped that Japan could be lured into a kind of neutralist status. Whatever hopes China had, they all but disappeared three months ago when conservative Premier Nobusuke Kishi clearly indicated that his Japanese government had no intention of granting diplomatic recognition to Peking, and would not fall over itself to trade with the mainland Reds. Peking turned from sweet to sour. The Chinese Reds tried blatantly to defeat Kishi in last May's elections (TIME, June 2) and failed miserably.

Last week, watching Japanese diplomacy, trade, banking, shipping, scholarship and technology fanning across Southeast Asia once again, Peking decided to put the squeeze on Tokyo where it hurts. Having broken all trade, fishing and cultural relations with Japan, the Chinese Reds called on all the 13 million overseas Chinese living in Southeast Asia (most of them distributors and shopkeepers) to boycott Japanese products and sever all business connections with Japan. The Reds also snapped off repatriation of some 30,000 Japanese nationals still held in China (although 65 Japanese Communists were shipped back home from China under assumed names to foment trouble). Peking's propaganda organs, which previously had confined themselves to attacks on "the idiot Kishi," suddenly recalled Japan's wartime atrocities --"killings, arson, pillage, rape, insults, beastly activities." The Peking People's Daily accused Kishi's "monopoly capitalist" government of "imperialism and militarism."

Victims of Dumping. But it was not names that hurt the Japanese so much as the possibility of Peking's trade rivalry in Southeast Asia. Like island Britain, island Japan (pop. 90 million) must trade to survive. In a speech to Osaka businessmen, Kishi's brother, Finance Minister Eisaku Sato, said that to meet "the sudden intensifying competition from Red China," he wanted to extend yen loans to Southeast Asian countries and permit them to pay for Japanese exports on the easy installment plan. He also called for a speedup in Japan's payment of $700 million in World War II reparations to the Philippines, Burma and Indonesia to put these once occupied nations in a better mood to "Buy Japanese." In an ironic twist of history, the Japanese, who once angered the West with their dumping practices and their phony "made in U.S.A." and "made in England" labels, were being seriously undercut by a dumping campaign launched from Peking.

In Hong Kong, Chinese Communist raincoats sold last week for 40% less than in Canton. The Japanese admitted that Chinese underselling had "destroyed" Japan's newsprint and grey cotton sheetings exports throughout Southeast Asia, now threatened to undermine Japan's markets in soybean oil, cement, structural steel, window glass. In Jakarta, Indonesians were snapping up Chinese yarn at $390 a bale, $25 cheaper than Japan's yarn. In Thailand, Japanese cotton piece goods had been virtually driven from the market by Chinese prices, which were as much as 15% lower. Other Red bestsellers: bicycles, sewing machines and scented cotton prints. Even in strictly anti-Communist South Viet Nam, where border guards check all cars and passengers to block entry of Chinese goods from Cambodia, Saigon's counters hold China's fountain pens, records, needles, thermos bottles and textiles.

Victims of Illusion. By hitting Japan economically, where it is most sensitive (Japan's trade deficit was $1.4 billion last year), the Chinese Reds hope to stir up opposition to Premier Kishi and support for Peking-Tokyo trade. The Reds glibly dangle the bait of "600 million customers" before the eyes of Tokyo businessmen, although experience has shown that neither Communist China nor Japan has any great desire to buy the kind of consumer goods the other has to sell. Japanese businessmen also soon discover that they can deal only with state-owned Communist trading corporations rather than "600 million customers."

The prosperous Japanese economy is currently feeling the pinch of recession--production is down, stockpiles and unemployment are up. Chinese steel production has quadrupled (but is still only 5,000,000 metric tons compared to Japan's 12.5 million), China's machine-tool production, doubled, is now almost on a par with Japan's.

Japan has long since lost the markets, the raw materials and the steel mills of Manchuria. And though Japan still thrives on cheap labor, wages have risen. Japanese heavy industry is plagued by high costs because of its dependence on imported raw materials. In the battle for Southeast Asia's markets, the Japanese must still fight the resentments incurred in World War II. The Japanese hope: financial help from the U.S.

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