TNAG-1370-FCO40-1816-Relations-between-Hong-Kong-and-China-1985 — Page 15

CONFIDENTIAL #2

10

Control on imports and foreign exchange spending imposed by China in 1985

22.

Disturbed by the sharp depletion of its foreign

exchange reserves since September 1984, China has hastily

adopted a number of remedial measures in 1985 aimed at

putting an end to this development. These measures include raising import duties and. introducing an import regulatory tax, holding back foreign exchange payments,

delaying expensive projects, promoting exports by resuming

its export-subsidy system for certain products, regulating

exports in order to minimise parallel trade and to ensure as far as possible that its exports will go through state authorized organizations, and more importantly, regaining

the power to control the spending of foreign exchange given to local authorities and individual organisations a

couple of years ago.

23.

Besides imposing higher duties on imported

goods, China has also ordered that, with only a few

exceptions, all Chinese trading enterprises freeze their

foreign exchange accounts for three months starting from 1 April 1985. This was considered a temporary expedient to stop further depletion of the foreign exchange reserves

and to allow time for examining the accounts of various

Chinese enterprises and for differentiating between

authorized foreign exchange allocations and those obtained

through the black market. At the same time, the Bank of

China also became more strict about foreign exchange

payments, taking months instead of weeks to process

letters of credit. Previously enterprises in the SEZS were allowed to retain as much as 70% of their foreign

exchange earnings, submitting only the remaining 30% to

the central Government. The ratio is now reversed; 70%

for Beijing and 30% for the enterprises.

CONFIDENTIAL * ☆A

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