G.F. 326
CONFIDENTIAL 3
2
depreciation(1)
during the late 1940s under the
Kuomintang regime.
3.
Because of fears that the chaotic situation in
the late 1940s might recur and threaten the stability of
the communist regime, China has adhered strictly to its
framework of centralised control on the use of foreign
exchange. There appears to be a general consensus among
the Chinese economic policy-makers that unified
administration of foreign exchange by the State Council
can ensure that China's external sector balance is kept
under control and that its ability to service external
debt is not eroded. This is regarded by them to be of
utmost importance because China, like many other
developing countries, is short of foreign exchange and
hence the country needs to make the best use of such
scarce financial resources. Also, the Chinese leaders
think that unified administration of foreign exchange can
help to promote orderly trade and create favourable
conditions for foreign investment in China. The
shortcomings caused by the foreign exchange controls have
tended to be under-estimated. These shortcomings include
inefficient allocation of foreign exchange resulting in
wastages in some sectors and loss of business
opportunities in others, distortions in the industrial
structure and in the prices of internationally traded
versus non-traded goods, the development of dualistic
foreign exchange markets, and the need to maintain a large
bureaucracy in administering the controls.
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(1) It was reported that when a new Chinese yuan,
supposed to be backed by gold, was issued in 1948, the exchange rate in the morning of the day of issue was one new yuan to six Hong Kong dollars. But by the evening of the same day the rate had reversed itself, to one Hong Kong dollar to six yuans.
CONFIDENTIAL 機密