G.F. 326
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QUARTERLY REPORT ON HK/CHINA ECONOMIC RELATIONS (CRC 13/87)
10.
DS(ES)2 introduced the paper, noting that the Chinese
economy was continuing to grow very rapidly. Despite the
well-known bottlenecks, national income was growing at around
10% p.a.
There were signs of overheating. The official
estimate of 6% inflation was a gross underestimate, (the real
rate was probably in double figures). The Chinese authorities were worried by this, and had shifted the emphasis from price
reform (which would mean higher prices) to reform of the
enterprise management system. However, it was difficult to see this succeeding without price reform.
11.
Exports had increased very rapidly and imports had
fallen. Taking invisibles into account, the current account was practically in balance. Trade with Hong Kong had witnessed very large growth rates, (principally because of outward processing activities). Guangdong was the star performer in the Chinese economy, with both exports and income growing
faster than elsewhere. However, problems of overheating were becoming evident, particularly in Canton where the shortage of
electricity supply posed difficulties. There had also been a general slow down in foreign investment, as disillusionment with Chinese policies and attitudes grew. Hong Kong maintained the largest share of foreign investment, but this had slowed
too.
12.
CS referred to para 5 of the summary concerning the
shift from price reforms to reforms of the enterprise
management system. He noted that there was still no effective bankruptcy provision. Without this final sanction, he wondered how close the Chinese were to real managerial reform. DS(ES) 2 replied that the move away from price reform was also a move away from managerial reform. With the present irrational price structure, an inefficient firm might be profitable, while an
efficient firm might not be, because it was tied to high raw
material costs and low output prices. Although the bankruptcy
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