TNAG-1457-FCO40-1981-Relations-between-Hong-Kong-and-China-1986 — Page 64

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35.

As China's economy became overheated in 1984 and 1985, a slowing down in the pace of growth was necessary to give those sectors that were already over-stressed by excessive demand (e.g. energy, raw industrial materials, transportation and communication) an opportunity to catch up, and to relieve the inflationary pressures arising from demand being in excess of supply and from the recent

monetary expansion.

36.

It

The Plan calls for an increase of around 40 to

50% in China's foreign trade volume during the five years 1986-90, representing a growth of about 7 to 8.4% p.a. does not indicate the growth rate for exports and imports separately. But given China's present foreign exchange reserve position, it is likely that exports will be given a very high priority and imports will be limited to those products that are considered essential and particularly those capable of generating foreign exchange earnings in return, i.e. those that are largely or wholly self-financing. The outlook for growth in trade with China hinges, ultimately, on China's ability to export and earn foreign exchange. However, China's export prospects

are rather uncertain as the world trade environment in

general is affected by the relatively sluggish growth of the world economy and by protectionism. Primary products, like petroleum, coal and minerals, which constitute a substantial proportion of China's exports, are presently hard hit by weak demand and the soft prices for such

products prevailing in the world economy generally (2)

(2)

In 1985, China exported 210 million barrels of oil and earned an export revenue of about US$5 billion. It is estimated that every US$5 drop in oil price (per barrel) will lead to a decline of US$1 billion in China's oil export revenue.

CONFIDENTIAL #3