TNAG-1479-FCO40-2011-Future-of-Hong-Kong-despatches-1986 — Page 27

continuity of policy after Deng (who is now 81 and whose

health has been the subject o

nt speculation) is now

central to any debate about China (including that on UK

policy). I agree with the essence of the Ambassodor's view,

but believe that some caveats are required.

3. Deng and his reformist colleagues certainly made further

significant progress in 1985. As Sir R Evans indicates,

practical economic questions are now firmly established at

Debate on details of

the centre of Chinese policy debate.

(perhaps wider

policy is itself more rational and better informed than ever

before in China. The concept of "socialism with Chinese

characteristics" is proving serviceable in justifying

radical departures from Marxist-Leninist dogma without

threatening Communisty Party legitimacy.

And reformist

leaders now dominate at least the upper levels of almost all

arms of Chinese authority.

4.

Against this, however, the reforms in the urban economy

are still at a stage where each step forward can create

serious new problems. There are good indications that, in

some areas and sectors, retail price inflation is running

well ahead of increases in income. And the foreign currency

position is perhaps more complicated than paragraph 6

implies: China experienced a visible balance of trade

deficit in 1985 of US$7.6bn. Last years' immediate crisis

has indeed been brought under control; and the Chinese would

not allow external debt to become large enough to create

serious debt service problems. But China's ability to

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