CONFIDENTIAL #3
17
period of consolidation will be useful in improving economic efficiency and in laying the foundations for stable growth in future. For the Chinese government, an encouraging development in the first quarter of 1986 was the marked deceleration in the growth rate of imports, and with it, the improvement in the visible trade deficit. However, China will still need to import plant and machinery to enable it to undertake the technological revamping of its industries and some consumer products to satisfy the rising aspirations of its people. Therefore,
the elimination of the visible trade deficit over the longer term will depend very much on China's ability to increase its exports. The Seventh Five-Year Plan projects that, between 1986 and 1990, exports will rise by 8.1% per annum and imports by 6.1% per annum. While the growth rate of imports could be influenced through administrative and customs controls, the growth rate of exports might well be more difficult to attain given the uncertainties in the present world trade environment.
34.
Reflecting China's controls over its foreign exchange spending, the growth rates of Hong Kong's domestic exports and re-exports to China slowed down during 1985, and significant declines were recorded in the first quarter of 1986 over the same quarter last year.
It now appears that the 1986 forecast growth rates for domestic exports and re-exports to China made in February this year (in CEC 3/86) might have underestimated the adverse effect of such controls on Hong Kong's export performance. The restrictions imposed by China on imports of consumer goods seem likely to stay for some time. It is unlikely, however, that China will wish to slacken the pace of technological imports. As an information and services centre, Hong Kong can play an important role in
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