PART V:
CONFIDENTIAL #
31
HONG KONG AS A FINANCIAL CENTRE
(a) China's policy stance towards
international finance
36.
Since 1949 there have been two clear shifts
in the policy stance taken by the People's Republic of China in relation to international finance. In
the 1950s when China had friendly relations with the USSR, Soviet loans were used to finance both China's intervention in Korea and the First Five-Year Plan.
But these Soviet loans were repaid ahead of schedule in the early 1960s as a consequence of the political and ideological confrontation between China and USSR. By 1968, even domestic debts had been re-paid on schedule and thereafter no new national bonds have
been issued. China thus became "a socialist country
with no domestic or foreign debt"
37.
•
After the downfall of the Macist "Gang of
Four" in 1976 and the launching of the Four Modernizations in 1977, the Chinese Government made a fundamental review of the whole question of foreign
loans and international trade and finance. It was recognized by the post-Mao leaders that China's ability to finance the purchase of advanced foreign machinery and technology would be very much constrained by the availability of foreign exchange.
Given that China's hard currency and gold reserves were limited and as was its ability to earn foreign
exchange, some reliance on foreign financial
assistance in form of loans and credits was
inevitable. So the policy stance towards international finance again changed and starting in
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CONFIDENTIAL # 2
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