CONFIDENTIAL #2
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18.
Under China's more liberal open-door economic policy, local governments and enterprises, particularly those in the four special economic zones, the 14 coastal cities, and Hainan Island were given greater autonomy in matters of financial management. Local governments and enterprises, for instance, saw their authority greatly
expanded in 1984 in such areas as access to foreign capital markets, the importation of equipment for the
improvement of local plant, and the amount of foreign
exchange they were allowed to retain and to spend freely.
This meant the central authorities had much less control
than formerly on the scale and composition of imports.
19.
Against a background of rapid economic growth in
1984, when the gross value of industrial and agricultural output grew by 14.2% in real terms, imports into China
started to grow dramatically from the fourth quarter of
1984 onwards. In contrast to the visible trade surplus of
around US$0.3 billion recorded in the first three quarters
of 1984, a visible trade deficit of around US$1.4 billion
was recorded in the fourth quarter, resulting in a deficit
of US$1.1 billion for 1984 as a whole. During the fourth quarter of 1984, China's foreign exchange reserves
declined by US$2.3 billion to stand at US$14.4 billion by end December 1984 (equivalent to slightly less than 7
months' worth of imports at the level then prevailing).
As a
20.
The pace of growth continued to accelerate in
the first half of 1985, with industrial output growing at
an annual rate of 23% in current price terms.
result, China's foreign exchange reserve position and
visible trade account sharply deteriorated further during
the first half of 1985.
During this period China incurred
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