TNAG-1053-FCO40-1303-China-and-Hong-Kong-Working-Group-1981 — Page 17

RESTRICTED

CHINA/HONG KONG WORKING GROUP MEETING 30 JANUARY 1981

DISCUSSION PAPER

CHINA : UK PROSPECTS FOR EXPORTS IN THE 1980'S AND IMPLICATIONS FOR GOVERNMENT

SUPPORT

The Chinese Economy (see MOD paper for detailed assessment)

1.

Chinese re-adjustment is likely to last until at least 1983 or even 1985

and there is a savage cut-back in capital investment. Prospects for significant

exports of capital equipment and technology will therefore be minimal until the

second half of the 1980s, and in some cases perhaps until the 90s.

which are already established in the market are continuing to do steady small-scale

business (value about £100,000 per order) in priority sectors for China such as

specialised instruments.

China's Attitude to Foreign Trade

2.

Because of a perceived shortage of foreign exchange, China is reluctant to

pay cash or credit for necessary imports of equipment and technology.

She continues

to seek countertrade, compensation trade or Joint Venture arrangements, although

the difficulties of these methods are becoming increasingly apparent. Companies

will have to be willing at least to consider such arrangements, though if they are

lucky, at this end of the day the Chinese may pay cash or credit if the alternatives

prove too difficult.

Advice to Companies

3. HMG should advise companies to stick with the market if the long term pros-

pects for them look good and if they are prepared to wait until the Chinese economy

opens up again. But we should continue to warn other companies that if they are

looking for shorter term returns, there are better markets for them.