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taken, and by the end of the year there were signs that
the economy was responding. However, the experience showed that China's economic managers were still not able to use economic levers effectively, having been forced to resort
to administrative direction from the centre. It also meant
that any further far-reaching reform for 1986 had to be
shelved while the economy recovered.
The Open Door
10. Chinese leaders recognised that there was little hope of achieving modernisation in the time scale they envisaged without foreign technology and expertise. To attract this,
four Special Economic Zones were set up in South China in 1979. In these preferential treatment was given to foreign investors. The Chinese actively sought foreign partners for Joint Ventures and co-production projects, and have been assiduous in their pursuit of soft loan and mixed credit schemes to finance technological imports. The value of foreign
trade expanded enormously from 1979 to 1985. There have been
difficulties however. Too great a part of the foreign invest-
ment has gone into service rather than primary industries. Excessive spending, especially, on consumer goods led to a massive trade deficit in 1985, although the situation appears to be improving somewhat.
Other Aspects
11. Deng Xiaoping has described reform as a second revolution.
It is primarily associated with economic reform.
But many other changes have taken place which are in their own ways equally integral and necessary parts of the process. The re-establishment of the legal system (a long and continuing process which is far from complete) and the institutional reforms which have seen the gradual separation of Party and Government functions have done much to support the economic
reform. Another, related, process has been the rejuvenation
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