)
}
CONFIDENTIAL
ANNUAL REVIEW: CHINA 1988
1.
SUMMARY
China was no easier to govern in 1988, with the leadership continuing its policies of relaxing social controls, economic reform and the "open door". An over-heating economy with ugly social side effects led to a temporary check on stabilisation and regaining central control. The authorities will have a hard job in 1989 dealing with inflation by means which neither cause "stagflation" nor undo the gains since 1984. (Paras 1 - 4)
2. The world situation fitted China's needs for external peace and cooperation with all. Relations between China and the Soviet Union improved dramatically. Asian leaders beat a path to China's door. Mr Gandhi's visit, the first by an Indian Prime Minister for 34 years passed off well. The new Foreign Minister Qian Qichen has made a good start. (Paras 5 and 6)
3
Steady progress was made during the year towards implementing the Joint Declaration and securing Hong Kong's future. Bilateral relations with China have never been better nor more many-sided. All the graphs
All the graphs are going up on educational and scientific exchanges. Britain is likely to overtake West Germany in 1989 as the leading host nation in Europe for Chinese students. (Paras 7 - 9)
4.
·
Our trade with China, though not negligible, remained disappointingly behind that of Germany and Italy. Mr Patten signed a further soft loan agreement. Ultimately the deals concluded with the help of concessional financing will boost trade figures, but British business shows a declining interest. The old problems caused by COCOM restrictions and our national visa system continued to bedevil our commercial hopes. (Paras 10 and 11)
5.
Despite its current economic difficulties, which will continue in 1989 and beyond, China is coping well with the task of reform. Deng Xiaoping may well step down from the political stage later this year.
The odds are in favour of minimal disturbance if this happens. (Para 12)
CONFIDENTIAL