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5.
In 1979 China adopted a series of economic readjustment policies, including cutting down on imports and delaying negotiations on large-scale projects. At the same time, it pressed ahead with efforts to increase exports. Such efforts, however, failed to reverse the country's adverse visible trade balance, primarily because of the delivery of some large-scale plant China had ordered from abroad in 1978. In fact, China continued to suffer large trade deficits in the three years 1978 to 1980. By end 1980, China's foreign exchange reserves stood at US$2.3 billion (equivalent to 1.4 months' worth of imports at that time).
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In the following three years 1981 to 1983, the economic readjustment policies adopted in 1979 began to take full effect. While China continued to impose restrictions on imports, especially imports of consumer durables, its export performance was further enhanced. The visible trade account achieved a balance in 1981, and posted substantial surpluses of US$3,060 million and US$840 million in 1982 and 1983 respectively. This, coupled with a net positive foreign exchange contribution from other balance of payments items - e.g. invisible trade, remittances and capital flows resulted in a large increase in foreign exchange reserves to US$14.3 billion by end 1983 (equivalent to about 8 months' worth of imports at that time).
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Partly due to the visible trade surplus recorded during the first three quarters of 1984, China's foreign exchange reserves increased further, by US$2.4 billion, to US$16.7 billion by end September 1984 (equivalent to over 9 months' worth of imports at the level then prevailing).
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Depletion of foreign exchange reserve since September 1984
8.
Since September 1984, however, China's foreign
exchange reserve position has experienced a sharp
deterioration which can be attributed to the visible trade
deficit incurred during the same period. The following table shows China's foreign exchange reserve position since September 1984:
Foreign exchange
reserves
End of period
(US$ Mn)
Sep 1984
16,670
Dec 1984
14,420
Mar 1985
11,300
Jun 1985
10,850
Gold reserves
(million troy ounces)
12.67
12.67
12.67
12.67
Source: People's Bank of China.
9.
It appears that around mid-1984 China made a
policy decision that imports of advanced technology and
equipment should be increased with a view to promoting economic development, speeding up the four modernisations
programme and reducing the volume of money in circulation. As a consequence of the policy decision to import more foreign goods, China announced new spending plans for example, a three-year programme to spend US$14.2 billion to buy foreign technology was announced in
November 1984.
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