TNAG-1458-FCO40-1982-Relations-between-Hong-Kong-and-China-1986 — Page 125

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Foreign Trade

CONFIDENTIAL

China wants to maximise the gains obtainable from trade

with the rest of the world. From 1979 until 1985, things

went well. For the three-year period from 1982 to 1984,

the value of exports (fob, excluding re-exports) was $65

billion and the value of imports (also fob) was $59.5

billion. Exports rose to account for 10.2% of national

income, as opposed to only 5.6% in 1978. Imports became

equal to 9.6% of national income, as opposed to 5.6%

(again) in 1978.

23. In 1985, however, the trade account went into

deficit.

The value of exports rose to $27.4 billion, but

the value of imports shot up to $42.3 billion. In spite

of the adoption of the deliberate depreciation of the

Renminbi and much exhortation about the need to promote

exports, the trade deficit for the first half of 1986 was

$6.4 billion (an annualised amount almost as great as

the amount for 1985). This trend, which has already

produced a large drop in China's "owned" (as opposed to

borrowed) reserves, clearly cannot continue indefinitely.

Given the fall in the international prices of many primary

products (including oil, which accounted for 24.5% of the

value of China's exports in 1985) and the low quality of

many of China's manufactures, it is hard to visualise the

value of China's exports growing by more than $4 billion

or $5 billion a year during the next few years. If this

turns out to be right, China will either have to restrain

imports more severely or to borrow a good deal from

CONFIDENTIAL

/ abroad