capacity we have created in Guangdong and the fact that Hong Kong and China are each other's largest trading partner. We were relieved that the trade issue on intellectual property was solved. We hope that a settlement will also be found for the issue on market opening measures, and that China's Most Favoured Nation status in the United States will be renewed. We shall continue to make a positive contribution to this process.
INFLATION
22.
While I can be reasonably confident about robust growth in GDP this year, about further expansion of our international trade and about increased business opportunities in Southern China, I am less optimistic about the prospects for an early and significant fall in the rate of inflation. This is despite the recent downward trend.
Consumer Price Index (A) Year-on-year rate of increase
+
%
15
14
13
12
11
10
of
Jan Apr
Jul.
Oct Jan Apr Jul
1989
1990
Oct Jan Apr Jul 1991
Oct
Jan
Year
23.
The rate of inflation is still high, despite the recent downward trend
The community is understandably worried about rising prices, and it is only right that I review our prospects on this front frankly and realistically.
24. This year will see a further rise in the real growth rate of GDP to 5%, as I have already explained. This expansion in economic activity will bring higher incomes. But, at the same time, it must inevitably add to the severe pressures on existing resources, particularly of labour and land. As a result, the fall in the rate of inflation will not be as substantial as we would wish. The forecast is that the Consumer Price Index (A) will increase by an average of 9.5% this year.
25.
Among the proposals which have been made for attacking inflation is adjustment to the linked exchange rate. However, I reject calls for any change in the link for two main reasons. First, those in favour of this strategy claim that we have been
7