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out in 1986. This is sensible: last year's measures need time to consolidate; and all the time, the reformists are accumulating valuable practical experience in the
difficulties of market-oriented management. But continued economic difficulties this year and, in particular, failure to bring corruption under control, will make it harder to make the further substantial progress still necessary, for example, to establish a rational system of prices.
External Relations
7.
The spotlight in 1986 will probably remain on Sino- Soviet relations, There remains no immediate prospect of a major political breakthrough. The crucial issue is therefore probably the extent to which China is prepared to allow relations to develop in practice despite this. Trade, economic and cultural ties will probably continue developing rapidly. They will not come close to balancing China's relations with the West; but recent movement has
nevertheless been more significant than Chinese statements sometimes imply..
UK-China Relations: our objectives
8.
1985 was a good, but not a vintage year for UK-China relations. We made steady progress towards most of our policy objectives; there were no major failures. I attach a copy of Peking's 1985 post objectives.
9.
Hong Kong continues to be the single most important question in our bilateral relations with China.
These difficulties illustrate
the continuing distrust of our motives on Hong Kong at the highest levels in the Chinese leadership, despite the successful conclusion of the Joint Declaration. We shall have to work hard to dispel these suspicions, and our task,
will be
difficult. At the same time we will have to demonstrate to Hong Kong opinion that, we are not a push-over. There have already been accusations that we are letting our economic interests in China come before Hong Kong's political interests, and we still have to demonstrate that this is not true by handling the Chinese resolutely, when this can be done without harming Hong Kong's real interests.
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