TNAG-1458-FCO40-1982-Relations-between-Hong-Kong-and-China-1986 — Page 45

CONFIDENTIAL #

G.F. 326

4.

Consistent with the general slowdown in economic

growth, the consumption boom showed signs of weakening in

the first half of 1986. Compared with the corresponding

period in 1985, the value of retail sales rose by 11% in

the first half of this year, substantially less than the

growth rate of 28% recorded in 1985. In line with this

development, the rate of inflation, according to the

official estimates, slowed down from 9% in 1985 to 5.5% in

the first half of 1986.

5.

Reflecting the stringent financial controls, the

excessive growth of capital construction appears to have

been contained (2) The latest figures show that

•

The

investment by state owned enterprises grew by 9.5% in the

first quarter of 1986 over the same period last year, compared with a growth rate of 35% in 1985. An analysis

of the investment structure, however, reveals an

unfavourable trend, in that the proportion of investment

channelled to the bottleneck areas actually declined. share of investment in the transport and communication sector, for instance, fell to 14.7% in the first quarter of 1986, from 16.9% in the same period last year. That of the raw materials sector slipped from 18.4% to 14.9%. These declines are partly due to the fact that investment quotas are being used to continue many of the construction

projects started in 1985. To remedy the situation, the Chinese government has stepped up its control over

unauthorized construction. Following an investigation

into 763 unauthorized construction projects started during

the fourth quarter of 1985, 106 projects, mainly office buildings, have been halted.

(2)

Another outcome of the austerity programme is that many Chinese enterprises are facing serious cash flow problems and their total debt has risen sharply.

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