CONFIDENTIAL
VISIT BY GENERAL SECRETARY HU YAOBANG: TALKS WITH PRIME MINISTER,
9 JUNE 1986
BACKGROUND BRIEF III) CHINA: INTERNAL SITUATION
1. The last year has been difficult for China's economic reform
These could have programme, with problems in several areas.
weakened the grip of the leadership. But with considerable political skill, and by adapting their policies to meet some criticisms, the leaders have limited the damage and have managed to remain politically strong without diluting their commitment to
reform.
2.
A new 5-year plan (the 7th: 1986-90) was adopted at the 4th session of the Sixth National People's Congress (March-April 1986). This was very much in the reformist mould. It projects moderate growth (7.5% pa) to facilitate steady reform and balanced development. Although 1986 is to be a year of consolidation (with no major steps to be taken in the key area of price reform), some important moves are planned, notably the development of "horizontal" relations between economic units. This challenges the inefficient Soviet style structure, (in which units respond "vertically" to pressures from above and below, but have little contact with those at the same level), upon which China's economic and political administration has been based for the past thirty years. This is likely to prove highly contentious and a test of the leadership's ability to overcome bureaucratic resistance. Another focus of current interest is housing, which up to now has been provided publicly at very low rents: experiments are now beginning with home
ownership.
3.
Potentially the most damaging political problem at present is corruption, made highly sensitive by its obvious connection with China's opening to the outside world and with the commercial bias of many internal policies. A particularly emotive aspect is nepotism and the shady commercial activities of relatives of some senior leaders (including, it is rumoured Hu Yaobang and Zhao Ziyang). leadership has taken several steps since the beginning of the year
The
CONFIDENTIAL