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11. On the debit side, the year has been characterised by a further deterioration in Chinese business morality. Most recently Portals had the frustration of seeing a deal, that had already been agreed, withdrawn from them in favour of a German company.
There has also been a decline of interest by British business in China with the cancellation of many missions and exhibitions. This is in part due to China's own economic problems, but also reflects the success of the 1992 campaign in Europe and our inability to act "counter-cyclically" here. The Chinese talk endlessly of our lack of competitiveness. Sometimes this is right and our prices are often too high, as in the Guangzhou Pumped Storage and Shanghai Metro projects. In so far as our prices
are seen as too high, it is to some extent a reflection of the Chinese seeing everything in dollar terms, as well as a tactic employed by Chinese negotiators to get a better deal. The old familiar problems caused by COCOM restrictions and our national attitude on visas continued to bedevil our commercial hopes.
12.
The year turned out much tougher than the Chinese expected, except for the remarkable change of climate in
foreign affairs. Yet China, despite its current economic difficulties, which will continue in 1989, is coping well with the task of reform. The leadership is more relaxed than it was six months ago. Zhao appears to have weathered the storm. As fears of "stagflation" grow, more argument among the leaders cannot be ruled out. This will be understandable since much of what the Chinese are doing lies in uncharted seas. The leadership under Deng Xiaoping have, over the year, persisted in their efforts to set up political, economic and legal structures which are designed to avoid the excesses of the past. Already Chinese society and the media are becoming more lively in open discussion of controversial subjects. The reform process will continue, ultimately leading to a more open form of government. This will not be Western democracy but it will be a long way from the old style of political dogma and tyranny. A Chinese diplomat said that Mao had secured his place in the history books by engineering the Sino-United States rapprochement: and that Deng intended to establish a similar reputation by master-minding a reconciliation with the Soviet Union. The fact that Deng has been pressing for a Sino-Soviet summit in the first half of 1989 probably indicates a desire to step down finally from the political stage later in the year. The work already done in setting up durable systems is designed to ensure minimal political disturbances when this happens. I cannot of course be sure that this will succeed, but I believe that the odds are in favour.
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