if she borrows heavily, as CONFIDENTIALjects under consideration (Guangdong Nuclear Power, South West China Energy, Shanxi coal, off- shore oil, etc.) imply, she could become a less secure risk for he international banking community. China herself is concerned to void becoming over-committed, and will seek to use counter-trade and other
cooperative arrangements to conserve foreign exchange where possible. She is also actively seeking bilateral and multilateral development aid in support of her programme of economic modernisation and shows little interest in borrowing at commercial interest rates.
4. China's foreign policy is dominated by concern to contain the spread of Soviet influence and power in Asia and elsewhere. But another key element has been the need to develop closer relations with Western countries in order to carry forward the "four modernisations". In 1978 China concluded a Treaty of Friend ship with Japan and normalised relations with the United States: Deng Xiaoping has visited both countries. Chinese leaders have also made visits to Eastern and West-
ern Europe, to ASEAN countries, and Africa. In seeking the reunifica- tion of Taiwan with the mainland the Chinese have recently become increasingly committed to peaceful means. Other new policy features that have emerged during the last year or so are emphasis on China's "independence" in foreign relations (probably designed to afford greate freedom of manoeuvre between the super powers) and a perhaps more rhetorical assertion of her Third World identity.
5.
Closer contacts with the West may well increase the material expectations of the Chinese people and spread interest in Western concepts of freedom and human rights. Internal political life has reverted to pre-Cultural Revolution norms. But the people continue to be ruled by a highly centralised authoritarian regime under the firm control of the Communist Party with strong military backing. The leade: ship have already expressed concern about the "corrosive" effect of popular contact with Westerners, and can be expected to continue to limit it as strictly as possible.
6. China's modernisation policies are closely associated with Deng Xiaoping, who was rehabilitated following Mao's death and the ove throw of the "Gang of Four". He is manifestly the driving force and holds the dominant political position. In the last two years his in- fluence has brought about the replacement of Mao's designated heir, Hua Guofeng, by two of Deng's protégés Hu Yaobang (Party Secretary General) and Zhao Ziyang (Prime Minister); Deng has also secured the appointment of a Party Central Committee favourably disposed to his pragmatic policies.
CONFIDENTIAL
SECTION II
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