TNAG-1053-FCO40-1303-China-and-Hong-Kong-Working-Group-1981 — Page 14

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AKCK 12114

CAURIS IN REGISTRY NO. 51

23 FEB 1981

YURICER

REGISTRY

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Bulis

MINUTES OF THE MEETING OF THE TOKSINA AND HONG KONG WORKING GROUP ON 30 JANUARY 1981

No

Those present:

MS23

Mr Dick! CREA

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Mr Lowry, CRE4 Mrs Gingell, CRE4 Mr Allen, CRE4 Mr Bunn, CRE4 Mr Thompson, PEP Mr Robinson, IA Mr McLaren, FCO/FED Mr Paul, FCO/FED Mr Clift, FCO/HKGD Mr Exeter, FCO/ECON Miss Baker, HMT'SY

Mr Wilkes, MAFF Mr Graham, DHSS Mr Frost, ODA Mr Younger, MOD Mrs Miles, MOD Mr Balmer, MOD Mr MacLennan, MOD Col. Jenkins, MOD Mr Field, ECGD

Mr Brown, ECGD

Mr Kirby, Bank of England

I. CHINA: UK PROSPECTS FOR EXPORTS IN THE 1980s AND IMPLICATIONS FOR GOVERNMENT

SUPPORT

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Mr Lowry referred to the MOD paper already circulated on changes in China's economic policy and then spoke to a discussion paper, a copy of which is attached. Mr Wilkes commented that the DOT analysis was supported by the conclusions of a recent agricultural machinery mission; prospects for large capital projects in the agricultural sector were poor until at least 1983.

de

In reply to Miss Baker's question about China's credit worthiness, Mr Kirby said that China's reserves could finance 3-4 months imports the position was by no means desperate. Mr McLaren added that China had a good record in paying debts. Mr Younger agreed China's readjustment was for internal reasons. Mr Field said ECGD had just agreed to extend the deposit facilities with the Peoples Bank of China for a further 12 months; they were still getting a few small scale enquiries from businessmen and had just arranged the first buyer-credit loan for the Austin and Pickersgill ships. CJB and Davy still had hopes for exports: Guangdong Nuclear remained a possibility. Mr Allen said that by analogy with 1979-80 the Chinese would be the first to correct any real foreign exchange im balance. Mr Robinson said the cancellation of the Japanese steel mill was for industrial not financial reasons. Mr Brown mentioned the increase in importance of sales to Hong Kong which were then re-exported to China under barter arrangements. Miss Baker referred to a possible JIC report on China's credit worthiness later this year; she remarked on the need to look closely at any large projects and highlighted the withdrawal of some of China's foreign bank deposits. Mr Younger said that China's economic policies would be unclear for another 3-4 months but foreign exchange was not yet a specific problem. Mr Frost said that China's debt service ratio was only 9%; their credit worthiness was excellent and their over-caution was the problem.

supposedly a priority, was

Colonel Jenkins asked why agricultural investment declining. Mr Wilkes and Mr Allen replied that, while agriculture was still a priority, foreign exchange expenditure in absolute terms would be reduced; because much modernising could be done without buying abroad, more internal resources would be diverted to agriculture.

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