TNAG-1370-FCO40-1816-Relations-between-Hong-Kong-and-China-1985 — Page 25

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42.

Since then, China had been accumulating foreign exchange reserves as the economic readjustment policies adopted in 1979 took full effect. By the end of September 1984, China's foreign exchange reserves reached a peak of

US$16.7 billion.

43.

China has experienced another depletion of foreign

exchange reserves since the fourth quarter of 1984 as a

result of the policy decision to import more foreign goods

(including both capital and consumer goods) and to allow the Special Economic Zones and Hainan Island in particular the

freedom to import a large number of previously forbidden or restricted consumer goods. By the end of June 1985, China's

foreign exchange reserves had fallen sharply to US$10.85

billion.

44.

The massive influx of foreign goods into China

since the fourth quarter of 1984 has resulted in a very large

visible trade deficit which has to be financed out of China's

previously accumulated reserves. In a matter of nine months since end September 1984, China has incurred a visible trade

deficit of nearly US$8 billion and its foreign exchange

reserves have fallen by about US$6 billion. Since March 1985

China has been trying very hard to restore balance in its

overall visible trade account. Remedial measures like

implementing strict import controls on certain commodities,

raising customs tariff and imposing regulatory tax have been

introduced with a view to putting a brake on the rundown of China's foreign exchange reserves.

45.

Unlike

These measures have involved a mixture of market

and administrative measures and have been aimed at particular

groups of products rather than particular suppliers. some countries, it seems that China is not particularly

concerned about balancing bilateral trade accounts with

individual trading partners.

CONFIDENTIAL #≈