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Mot making much progress. There were also problems over

whether the Soviet Union was complying with the Salt II agreement and the ABM Treaty. We believed that agreements

should be kept meticulously by both sides.

The Prime Minister continued that she believed there was

time to make enough progress on arms control issues to enable a summit to be held at the turn of the year. Public opinion would be disappointed if there was no summit given the high expectations aroused by the previous one. But to be a success, a summit must be a success for both sides.

Hu Yaobang said that China had a number of indications of

current Soviet attitudes. For instance, at the recent

conference of Soviet Ambassadors in Moscow, Gorbachev had adopted a critical attitude to the Soviet Foreign Ministry's diplomacy over the past years, which he had characterised as too rigid. He had also spoken in terms of sufficiency of nuclear weapons, a remark which appeared to be aimed at the

Soviet military. He had added that it was not advisable to seek military supremacy in every field. The Soviet Union had to be selective. More generally the Soviet Union wanted to develop its economy but this would be a slow business. There were major obstacles, both in the conservative mentality of officials and the bad habits of many decades. The greatest

dilemma facing the Soviet Union was how both to develop the national economy and maintain military parity with the United

States. The Soviet Union wanted the best of both worlds. In

Confucius' words: "to have the fish and the bear's paw". But

in practice if they were to succeed in boosting the national economy, they must reduce military expenditure. The Prime Minister observed that there was no sign of such a reduction.

Chernobyl

The Prime Minister said that the area of damage as a

result of the nuclear accident at Chernobyl was clearly wider

There were reports of damage as far

than had been admitted.

CONFIDENTIAL

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