TNAG-0616-FCO40-764-Policy-of-UK-on-status-of-Hong-Kong-1977 — Page 32

CONFIDENTIAL

DSR 11C

and logistical problems as well as rising domestic

demand in China will inhibit rapid growth in the

surplus available for export. The remainder of China's

export growth potential lies in the extractive

industries and those based on agriculture. Neither is

amenable to rapid increases in output.

29. While the Chinese are prepared to use deferred

payment and short-term inter-bank arrangements to

finance their imports, they have consistently refused

offers of long-term buyer credit from Western banks.

In spite of rumours in the press, officials continue

to stock forcefully to this line. In the near future

they will probably be prepared to increase their short-

term debt. Eventually, as their development plans for

the economy unroll, there is a good chance that they

will overcome their ideological objections to long-term

buyer credit. Such a decision would significantly

increase their import capacity, as their credit rating

is excellent and Western banks would be very ready to

lend them large sums. The Chinese may also increasingly

seek barter deals as a means of financing imports

the exchange of Western equipment for raw materials or

the produce of Western installed plant.

eg

30. China will never become one of Britain's major

trading partners (since 1970 she has taken on average

only about 0.4% of British exports), but, at a time when

world trade prospects are uncertain, she could offer a

steadily expanding market for British industrial goods.

/The

CONFIDENTIAL

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