TNAG-1458-FCO40-1982-Relations-between-Hong-Kong-and-China-1986 — Page 49

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outlets for the products produced by joint ventures, and so ease their foreign exchange problems. According to State Councillor Li Peng, equipment and machinery for a number of key electrical and mechanical engineering projects will be supplied domestically. This includes

most of the equipment to be installed in Phase II of the Baoshan Steel Complex. There is also a plan to implement a tender and licensing scheme for the purchase of large quantities of equipment and machinery. Under this scheme,

a local enterprise must first invite tenders from domestic

suppliers. Only when domestic suppliers fail to meet the requirements (including price and quality) can overseas companies join the bidding. Licences have to be obtained before a Chinese enterprise can import equipment and machinery which local factories are able to produce.

12.

Another drastic measure adopted to tackle the foreign exchange problem is the sharp devaluation of the

Renminbi. On 5 July, China announced that Renminbi would

devalue by 13.6% against the US dollar, 13.9% against the HK dollar and pound sterling, 11% against the yen and 14.5% against Swiss franc

Devaluation is expected

(5)

•

to have the effect of reducing China's imports as imported

goods will become more expensive.

13.

On the export side, whether devaluation will

substantially increase the price competitiveness of

Chinese exports hinges upon whether the export prices,

so.

(5) The Renminbi has been very weak over the past year or

From January 1985 up to end August 1986, the Renminbi was devalued by 24.9% against the US dollar, 25.2% against the HK dollar, 41.7% against the pound sterling, 53.9% against the yen and 52.7% against the Swiss franc.

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