TNAG-1464-FCO40-1991-Visits-by-Chinese-officials-to-the-UK--including-visit-by-Hu-1986 — Page 71

CONFIDENTIAL

As a

to assert control. Some high, but no top-ranking, officials or their children have been punished with considerable publicity. result the leadership may feel that they have done enough to defuse the immediate issue but this cannot reduce the economic and social damage corruption causes or help the credibility of the campaign against it. A high level victim is probably needed if the campaign is to be taken really seriously by the nation. In any case, corruption is likely to be a recurring problem so long as the current economic strategy endures.

4.

Control over the economy (which overheated seriously in 1985) is now being regained and last year's very high nominal growth rate brought under restraint. Taking account of inflation, which was admitted to have reached 20% in some areas, real growth was probably no more than 7%). But this has been achieved by unsophisticated administrative methods and there are indications of undesired side-effects. An acute shortage of investment funds, and an increase in production costs (squeezing enterprise profits), have resulted in an industial growth rate in the first quarter significantly lower than that planned for 1986.

There is a prospect

of further decline if controls are not eased, and some areas have already recorded negative growth. China has yet to develop sophisticated differential methods of economic management which are needed if it is to avoid falling into a "stop/go" growth pattern.

5.

Foreign trade is another problem area. A huge leap in imports in 1984 (+54.2%) together with an only moderate growth in exports (+4.7%) produced a large trade deficit (either US$8 or 14bn, according to different Chinese figures) and a sharp reduction in

The fall in foreign exchange reserves (US$1lbn on 1 March 1986).

oil prices has damaged one of China's principal sources of foreign exchange. Figures for first quarter show a large reduction in imports, but no improvement in exports. Foreign businessmen are repeatedly being told by potential Chinese customers of difficulties in obtaining foreign exchange.

6. Even in agriculture one of the reformers' great areas of

there have been difficulties.

succes3

Chen Yun was among the

CONFIDENT.