TNAG-1268-FCO40-1617-China-s-economic-relationship-with-Hong-Kong-Shenzhen-econom-1983 — Page 57

CONFIDENTIAL & Z

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27.

To illustrate the above point, one can compare China's net foreign exchange earnings from Hong Kong with the value of its imports of machinery and transportation equipment, most of which are considered essential to the Four Modernizations

Programme. In 1981, the value of imported machinery and transportation equipment amounted to US$5,747 million. This represented 27% of the value of total imports into China in that year. At US$5,077 million, China's net foreign exchange earnings from Hong Kong alone financed nearly 90% of such purchases. Without the contribution from Hong Kong, China would have had great difficulties in financing such purchases and the necessary adjustments could have been very painful.

(d) Summary

28.

In summary, foreign exchange earnings from Hong Kong are of considerable importance to China in both absolute and relative terms. Without foreign exchange earnings from Hong Kong, China's visible trade account and current account would be in serious deficit, consequently its reserve position would worsen sharply and the Four Modernizations would be adversely affected due to the difficulties that would be encountered in financing imports generally and imports of capital goods in particular.

CONFIDENTIAL # 3