CONFIDENTIAL #2
China's recent controls on
its foreign exchange spending and
their implications for the Hong Kong economy
Introduction
This paper examines the People's Republic of
China's (China) foreign exchange reserve position in
recent years, the background leading to its recent
imposition of controls on foreign exchange spending, and the implications of such controls for the Hong Kong
economy.
China's foreign exchange position in recent years
2.
With respect to its international balance of payments and foreign exchange reserve position, China has
usually been conservative. This resulted in the adoption of a foreign trade policy which, insofar as possible,
avoided deficits; and trade surpluses are considered a virtue and desirable. Thus, China usually enjoyed a
visible trade surplus from the mid 1950s up to 1977, and
did so again in 1982 and 1983.
3.
Although, as in many other countries, China's balance of payments account is dominated by visible trade transactions, changes in its foreign exchange reserve position do not necessarily follow its visible trade
performance due to the influence of other balance of
payments items such as invisible trade, remittances and
capital flows. China's visible trade balance and foreign
exchange and gold reserve position from 1978 to 1983 are shown in the following table:
FIDENLYLA I